Kenneth Caplan, global co-head of real estate at Blackstone, commenting on the mega-manager’s bullish stance on European real estate on LinkedIn Tuesday.

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Banking fears edge closer to reality
Fears over banks having a notably reduced presence in US commercial real estate lending are closer to becoming reality after the country’s bank regulators formally proposed a widely anticipated set of stricter capital requirements last Thursday. The proposal, drafted by the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, effectively will require many banks to set aside 16 percent more capital for the loans they issue and prevent them from using their own internal risk models. Onlookers already are anticipating the implications for further reticence from a banking sector still grappling with rapidly increasing interest rates to lend to commercial landlords. Bob Broeksmit, president and chief executive officer of the Mortgage Bankers Association, said in a statement: “The large increases in capital standards will likely stunt macroeconomic growth and reduce banks’ participation as single-family and commercial/multifamily lenders, servicers and providers of warehouse lines and mortgage servicing rights financing.”

GIC hits ceiling
Singaporean sovereign wealth fund GIC has reached the upper policy limit of its real estate allocation after a busy year of investing in the asset class. Real estate’s share of its overall portfolio increased from 10 percent in full-year 2021-22 to 13 percent in full-year 2022-23 due to “robust deal activity and strong asset performance,” according to the investor’s latest annual report, published last week. In the past year, GIC participated in several landmark transactions in North America’s REIT market, including the $14 billion privatization of Store Capital in the US, the $4.37 billion takeover of Summit Industrial Income REIT in Canada and the acquisition of INDUS Realty Trust in the US.

Tapping Asia’s multi-family network
Tishman Speyer and Asian family office business Raffles Family Office are seeking $500 million from private wealth investors for an inaugural jointly managed real estate fund for the region. The two organizations will also offer co-investment opportunities to investors in the Tishman Speyer/Raffles Family Office APAC Opportunity Fund I, which could take the total equity commitments for the fund to over $1 billion. While New York-based Tishman Speyer will be mainly responsible for the investment activities, Raffles will lead fundraising as well as some deal sourcing. As private wealth investors show increased appetite to invest in private real estate, this is one of the first high-profile alliances between a real estate manager and a multi-family office in Asia.

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World rates in motion
Blackstone’s readiness to deploy more of its opportunistic capital into Europe aligns with the European Central Bank’s expectation that inflation will continue to be too high for too long in a further indication of the region’s instability. The central bank commented to this effect as it raised its main rate by 0.25 percent to 3.75 percent last Wednesday.

Meanwhile, bets are mounting on reduced turbulence stateside, where the Federal Reserve also raised interest rate guidance by 0.25 percent to a range of 5.25-5.5 percent – the highest level in 22 years. After chair Jerome Powell suggested any future hikes would be data driven, expectations are rising that no more hikes will happen this year, providing much-needed stability for the lender-borrower nexus in commercial real estate.

Bryan Kenny, principal at Los Angeles-based real estate mortgage and capital advisory firm Bandon Capital Advisors, is looking for more indicators. “It will take several more months of favorable news for commercial real estate fundamentals as well as stable or declining borrowing rates for dealflow to ramp up again,” he said.

Landlords in Japan, on the other hand, are bracing for change after the Bank of Japan signaled a first move to bring fiscal stimulus closer in line to other leading economies, allowing 10-year bond yields to rise by up to 1 percent. It was a small step, but one considered a precursor to potentially more expensive debt to come.

Taking it slow
Slowing growth will signal shrinking staff for some investment managers, according to the 2023 Global Management Survey from industry trade group NAREIM and talent management firm Ferguson Partners. While 86 percent of firms increased their net AUM year-over-year in 2021, just 68 percent did so in 2022, the survey showed. In the face of slowing AUM growth, investment managers are likewise expecting organizational growth to moderate: 38 percent of investment managers expect to maintain or reduce their headcount by year-end, compared with only 20 percent a year ago. Although that means 62 percent of firms still plan to increase their staffing levels, only 20 percent expect to expand their employee base by more than 10 percent this year, down significantly from 40 percent in 2022.

The changing tide for secondaries
StepStone Group, one of the most active managers in the real estate secondaries space, has joined forces with BKM Capital Partners via a GP-led direct secondary transaction, the first for the Newport Beach, California-based firm. The New York-based private markets investment firm acquired the ownership interests in a pair of light industrial assets from two limited partners in BKM’s BKM Industrial Value Fund II. Because neither investor was in a distressed situation, Jeff Giller, head of StepStone Real Estate, considered the transaction to be “more emblematic of the last epoch of investing.” Now, however, “we’re moving into this new period where the catalyst for transactions will be completely different,” he noted. For more on what is driving the next wave of real estate secondaries activity, read the full story here.

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