Will You Read The Ultimate Weekend Interview Review? Spoiler: There Will Be Blood

Beginning this summer, when the world and U.S. CRE seemed like an especially turbulent place, Bisnow started putting the following question to industry leaders in the Weekend Interview series, which aims to get into the heads of decision-makers.

Baron Rothschild once said the “time to buy is when there’s blood in the streets.” Where is the blood today?

There is plenty of metaphorical blood to go around, our interviewees said. 2022 proved to be a nervous year for commercial real estate, as interest rates rose, inflation gnawed at both consumer and business confidence, the pandemic never quite ended, and war and other disruptions raged around the globe.

Even so, as the baron noted, that did indeed mean opportunity for investors with cash and the will to use it, and below is a collection of the best quotes from Bisnow’s Weekend Interview series about where to hunt.

We are starting to see it everywhere — it’s understandable because there was too much froth in the system. The debt markets are driving a recalibration in pricing across all property types. If you’ve been patient and have dry powder, there will be great acquisition opportunities in the back half of 2022 and all of 2023. 

If your portfolio is full of negative leverage (your borrowing costs exceed your cash flow) or you own lower-quality assets with near-term debt maturities, it’s going to be a bumpy ride down. Pricing guidance is getting cut 10%-30% on a lot of assets with bid pools thinning out as investment firms assess how to react. 

— Palladius Capital Management CEO Nitin Chexal (July 15)

***

Through the pandemic, economic impacts sent rents in New York City’s retail sector lower, creating opportunities for retailers to lease space at approachable rents, which had not been approachable pre-pandemic.

However, today, we’re already seeing rents bounce back and huge absorption in the market, so the more approachable opportunities are starting to diminish. I’m seeing the greatest retail activity in SoHo, the Flatiron District and Madison Avenue — specifically the blocks from East 70th Street to East 90th.

— Newmark Vice Chairman Karen Bellantoni (July 22)

***

I would have to say supply chain and capital infusion. With so much development occurring in the data center sector today, the supply chain can be a challenge that can ultimately impact both construction timelines and budgets. Having a pre-purchased, readily available and replenishable inventory can mean the difference between landing or losing a customer or project.

There is currently a large infusion of capital into the data center industry. The key is accessing the right capital. In my opinion, organizations with access to sophisticated, fluid and long-term capital will be the ultimate winners in this climate. Bonus points if your capital partners align with your overall company mission, vision and goals (i.e., sustainability and long-term, strategic expansion).

— Aligned CEO Andrew Schaap (July 29)

*** 

At the current moment “the blood” is in the cost of construction. We are working with clients nationally across many markets and sectors, and while they have varied business and project objectives, a unanimous concern is the high cost of construction. Fortunately, demand is still strong in many markets and the cost of capital is still relatively low, so our design services are still in high demand. I am cautiously optimistic that construction costs will stabilize and investment in commercial real estate will continue to be positive.

— Cooper Carry CEO Kyle Reis (Aug. 5)

***

Rothschild was a noble man and a banker and his quote relates directly to the notion that to make money, you need money. The blood is in the unaffordability in housing in the Bay Area. The housing market is as high as it has ever been and as competitive as ever, but this is still the time to invest in housing because I don’t think prices will go down.

The important statement to make is how to not just merely take advantage of the situation but be an agent of change when we are seeing “blood” in the streets. The right approach is to invest in housing with smart deals and construction methods that make it a good business while being part of the solution — such as through affordable housing, sustainable builds, rehabilitations and renovations, or with programs that have an aspect that will lift up the surrounding communities.  

— Steinberg Hart Managing Principal Katia McClain (Aug. 12)

***

In our real estate investment world, valuations for retail and Class-B central business district office assets appear quite distressed, with sentiment and psychology extremely negative. At times this may create opportunity. For example, Bulfinch acquired the old Atrium Mall in Chestnut Hill, Massachusetts, and redeveloped it into Lifetime Center, a state-of-the-art medical and wellness facility, which is currently home to Dana Farber Cancer Institute, Newton Wellesley Hospital, Life Time Fitness and others. More recently, Bulfinch acquired the Neiman Marcus store adjacent to the Natick Mall with plans to undertake a similar repositioning.  

— Bulfinch Chief Operating Officer Pamela Yang (Aug. 26)

***

Focusing on real estate technology, some companies with mediocre prospects were still able to raise in ’21 due to the glut of VC dollars. Now those companies are shutting down. Good companies (demonstrating strong growth, product vision, product market fit) definitely were able to raise capital in ’21, but even some of those companies are struggling to raise due to many VC investors hitting pause this summer.

In proptech, startups exposed to the retail single-family home transaction have the most blood in the street. Companies like Compass, Better.com, etc., are struggling with mortgage rates skyrocketing and transactions falling precipitously.

— RET Ventures Principal Aaron Ru (Sept. 9)

***

I’m not sure there is “blood” anywhere quite yet, but we believe there will be opportunities that arise from the recent increase in interest rates. In particular, we are looking at ways that we can play in different parts of the capital stack as well as identifying acquisition opportunities that arise because of sellers that have challenges refinancing.

— Arbor Lodging Partners CEO Vamsi Bonthala (Sept. 16)

***

A strong argument can be made that the blood in the streets can be found wherever neighborhood amenities are underinvested in and there is a user base primed to patronize after a period of lack. Without a lens for cultural economic development, opportunities to buy in submarkets or in underinvested communities seem like poor return, below-market deals. 

In reality, the less access a community has had to an amenity, the higher the likelihood that when rightsized for the demographics and needs of said community, the amenity can thrive and become profitable. We should be willing to be bold and reimagine the markers for success as central business districts become increasingly crowded and expansion into adjacent communities continues. Two years into a pandemic, when many asset classes proved vulnerable, quality-of-life amenities are still standing and still in demand. 

— Farpoint Development Managing Director Morgan Malone  (Sept. 23)

Everywhere — there is no sector that can escape current market sentiment, albeit the blood is more splashes than rivers currently. Unlike the Global Financial Crisis — when you had a collapse of values augmented by horrific swap break liabilities — this time, in a lot of cases, the fall in value is being offset by the hedging positions some, if not most, investors have being in the money. 

Having said that, yields got chased very low, so even with interest rate caps, there is the potential for inverted yield gaps, which will lead to some “vein opening.” The fact that the pound appears to have been commandeered by Captain Nemo, who is taking it on a voyage to 20,000 leagues under the sea, will likely have a positive impact on foreign capital inflows. It is possible, even likely, that this might protect absolute sterling values even if investors have had a fairly rough time in U.S. dollar terms.

— Oxford Properties Executive Vice President For Europe And Asia-Pacific Joanne McNamara (Sept. 30)

*** 

We are at an inflection point right now. With the Fed trying to contain inflation by raising interest rates and the uncertainty facing Europe with the Russia-Ukraine War and the effect on food and energy costs, we are in choppy waters. Additionally, for a second time this year, the People’s Bank of China announced it would reduce the amount of foreign currency banks need to hold to potentially reduce the weakening pressure on the yuan, which has tumbled to two-year lows against the U.S. dollar in the last few weeks.

In U.S. domestic commercial real estate markets, there is uncertainty around office assets as occupiers are trying to understand where the “new normal” will settle in a post-Covid world. There’s a lot of shadow vacant/sublease space in the market that is not in plain view. Amazon is pulling back on its industrial footprint. FedEx just announced that it sees a slowdown in its business heading into the holiday season. Housing is cooling rapidly, which means whoever bought recently may be upside down. The next six to 12 months will be very interesting.

— Greenwood Commercial Real Estate Group Principal James Pitts (Oct. 7)

***

When banks lack confidence in the future, they are unlikely to lend. Rising interest rates, increased equity requirements and recession fears will create “blood on the street” — at which time cash will be king.

— Swenson Builders CEO Case Swenson (Oct. 21)

*** 

I’d say suburban Class-B and C office and outdated, enclosed malls with vacancy issues, from an asset class perspective. The potential for creative adaptive reuse is there — if the capital is on hand or can be assembled. My most successful clients are those who run toward the disruption — they’ve been building their cash reserves in anticipation of market headwinds and strengthening their teams with creative, entrepreneurial problem-solvers to capitalize on the opportunity.

— CRE Recruiting Founder Allison Weiss (Oct. 28)

***

I don’t know if I would say there’s blood in the streets, but there’s definitely opportunity. Especially in the office market — everyone thinks the five-day workweek is dead, but I don’t think it will stay depressed forever. There’s opportunity in assets where their debt might be coming due, and the debt service ratio creates a situation where borrowers are required to pay down their existing debt. 

We’re seeing a tremendous flight to quality — which happens in each market downturn — so people are getting more value for their dollar and in turn can create a better office culture for their firm. If you’re a believer in the office market, and have staying power, you’ll find opportunity during this time.  

— BEB Capital CEO Lee Brodsky (Nov. 11)

***

In my world — retail real estate — the blood is both on Wall Street and Main Street. Main Street is feeling the pinch of inflation. Indeed, for most consumers it is more than a pinch. On Wall Street, investors are getting panicked by the market, and the effect is more than a pinch. Hence, we will see the impact on consumption this holiday season for all things retail. 

However, landlords are still not recognizing that consumers are pulling back. They aren’t acknowledging that there will be blood. Why would they after 18 months of record-setting leasing in their properties and historically low vacancies in quality assets? The smart retailers will need to make harder decisions on "go or no-go” on deals, including renewals. Once the landlords suffer some pain — which I expect in late 2023 — that will be considerable blood in the streets for retail. RCS Ral Estate Advisors projects retail sales will be down a minimum of 10% in calendar year 2023, with the exception of luxury brands.

— RCS Partner Eileen Mitchell (Nov. 23)

***

The streets are full of injured victims, but wound severity is still not totally clear. Although many smell blood, I’d say that most of the ichor is still in the bodies of the real estate gods.  

— MetaProp Co-Founder Aaron Block (Dec. 16)