Where Is Real Estate Investment Heading In 2022? One KeyBank Executive Sees A Path

As the commercial real estate industry moves into 2022, many questions remain about when supply chain disruptions, labor challenges and other pandemic-related challenges will subside. Along with that, investors are wondering when and how hard-hit subsectors such as student housing, office, retail and hospitality will recover. 

Despite these concerns, KeyBank Real Estate Capital Northeast Regional Executive John Manginelli is entering the new year confident that high liquidity in the marketplace will make 2022 an active year for real estate investment. 

“At KeyBank, we continued to lend throughout the pandemic, helping clients navigate uncertainty,” Manginelli said. “In 2022, we have no plans to slow down.” 

Bisnow spoke with Manginelli about the factors that were driving deals toward the end of 2021 and the start of this year, and where he thinks real estate investment activity is headed in 2022. 

One factor spurring deals in 2021 was the possibility of changes to tax policy, he said. Clients had questions regarding the status of 1031 exchanges and Delaware Statutory Trusts and turned to their financial advisers to find the most tax-favorable moves as the year moved toward its close.

“Our fourth-quarter pipeline was inordinately vibrant,” Manginelli said. “The number of transactions we had to close by year-end was truly an all-time high.”

He added that toward the end of the year, the marketplace was flooded with capital from deals that were paused earlier in the pandemic. This also spurred activity in Q4 and led Manginelli’s NYC-based investors to look outside their usual geographic and product boundaries.      

“I’ve seen clients in the four major markets expand out to some other markets,” he said. 

Those clients want a lender that can work nationally, Manginelli said, and that takes an agnostic approach to capital.

“It might be a capital markets deal, it might be a deal we place with debt funds,” he said. “We’ve even placed deals with other banks. So, we’re just looking to help the client solve whatever capital and financial needs they may have. It also may be a deal where we combine Key’s balance sheet with an off-balance-sheet capital markets deal.”

Looking ahead, Manginelli said that KeyBank is ready to help its real estate clients grow in 2022 by increasing the balance sheet selectively and then increasing its capital markets division to include Fannie, Freddie, CMBS, life companies, debt funds and separate investor placements. 

The bank is also looking to increase staffing to increase sales and bolster client management, as well as add portfolio managers, loan closers and back-office infrastructure. 

Where Real Estate Investment Activity Will Focus In 2022

KeyBank’s top section for lending continues to be multifamily, but industrial real estate and warehouse are expanding, Manginelli said. Along with build-to-suits for the likes of Amazon and FedEx, Manginelli and his team recently closed a $32M loan in the Northeast for a speculative industrial deal. 

“If there’s any kind of ‘risk capital’ spec, we would put it out in the industrial space — in a densely populated area that needed that last-mile distribution point,” Manginelli said.

Some housing subsectors are more gradually rebuilding from the impacts of the pandemic. Manginelli attended the National Multifamily Housing Council’s student housing conference and noted that activity in the sector is picking up, but not necessarily for construction loans. 

“Most of our clients have been buying assets and need time to make sure that the market accepts the student space,” Manginelli said. 

He said that in 2021, his team did three student housing deals despite the uncertainty of the product at the time. The deals, ranging from $20M to $35M, are moving out to Fannie Mae and Freddie Mac. Manginelli added that, interestingly, student space was one of the areas of least disruption in the team’s current book.

On a selective basis, KeyBank has also provided financing in the manufactured housing space. 

“We didn’t do a lot in the past five to eight years, but we have found that it’s good business for the agencies, so we have found a few trusted operators,” Manginelli said. 

He added that among niche product types, self-storage has also been steady and that venturing into this product type has helped KeyBank expand its client space. 

As for the in-flux office market, Manginelli said the company has seen fewer deals, with the exception of medical office. Retail deals, however, have continued thanks to owners pivoting to mixed-use formats. 

“We did a very good deal in south Jersey where half the retail center was taken over by a medical office user,” Manginelli said. “That was about a $25M deal. The client’s done a great job of changing the retail focus to a much better mixed-use format with the addition of a medical office.”

On the hospitality side, Manginelli’s team closed two deals where the clients acquired an extended-stay hotel that is being converted to multifamily. He said that this is a new trend that more hospitality owners are adopting to stay afloat, and he expects that this type of adaptive reuse will be more common as the year goes on, particularly since these projects can be done on a slightly lower cost basis than ground-up redevelopment.

He cited an example from his hometown of Newark, New Jersey, in which a warehouse will be converted to affordable housing. KeyBank, he said, will be sitting down with the developers to help them determine the best ways to repurpose the building.

“2022 begins with lingering uncertainty from the previous 20 months, but also optimism for a strong rebound as 2021’s upswing in activity carries into a new year,” Manginelli said. “With plenty of capital ready to commit, agile lenders, developers and investors will find significant opportunities for deals.”

This article was produced in collaboration between Studio B and KeyBank. Bisnow news staff was not involved in the production of this content.

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