Investors Waiting To Deploy Billions In Dry Powder, Eying Value-Add, Opportunistic Strategies

With a widespread feeling of uncertainty about the trajectory of commercial real estate and the broader economy in the next few years, many CRE investors are waiting and watching with a pile of dry powder at the ready. 

“They’re anticipating more distress — if not distress, dislocation — in the market and expecting that the next couple of years are going to be good vintage years for deploying capital,” Hodes Weill & Associates founder and co-Managing Partner Douglas Weill told Commercial Property Executive.

Closed-end funds pursuing value-add and opportunistic strategies are holding $300B, Weill estimated, with about $120B allocated to value-add and $116B directed toward opportunistic investments.

These investors are less interested in core and core-plus assets at this time, Weill said. 

The expectation of boom times for opportunistic and value-add investments has been a frequent fundraising point for some global funds, such as Blackstone, which closed its global real estate fund, Blackstone Real Estate Partners X, with a record $30.4B in capital commitments. 

Investors aren't pouncing quite yet. Transaction volumes this year have so far declined, with first-quarter volumes down 70% compared to the same period in 2022 and Q2 volumes down 50% year-over-year, CPE reported. Interest rates remain relatively high, and fears that the economy will sink into a recession haven't abated. 

Jeff Reder, managing director of private real estate and co-portfolio manager at CenterSquare Investment Management, told CPE the real estate and investment market is “definitely one of the most challenging environments to invest in” over the past 20 years. 

“There are a lot of investors that are just sitting on the sidelines, given the uncertainty, and just waiting for that visibility again more on the macro level or waiting for the kind of distress that I question if it will truly materialize other than in certain office profiles, such as older vintage urban commodity,” Reder told CPE.