Headlines do not tell the entire story

Commercial real estate has attracted a lot of bad news in recent months, but it is up to industry leaders to take control of the message.

The negative press on commercial real estate has been relentless over the past year. Since the midpoint of 2022, when central banks began hiking up interest rates, the overall picture for the industry has turned grimmer by the month. The news spotlight over rate increases has widened to cover a chain reaction of negative events, including soaring debt costs, declining property values, plummeting transaction volumes and now rising distress, particularly in the much-maligned office sector.

This intense media scrutiny has led many of private real estate’s managers and investors to recalibrate their communications, both externally and internally. Two big features from PERE’s September 2023 issue – our cover story as well as the big interview with Brookfield Asset Management’s head of real estate Brian Kingston – examine how these groups are taking control of their messaging inside and outside of their organizations, including the swiftness and directness with which they respond to press coverage that does not tell the full story.

In both stories, top private real estate executives are candid about what needs to be done. Justin Pattner, head of KKR’s real estate private equity business in the Americas, tells us the firm has increased its communication with investors, including portfolio updates and details on the opportunities it is seeing. “While we’re always transparent, we are mindful of how important communication is during periods like this,” he says.

Notably, Ralph Rosenberg, KKR’s global head of real estate, published a rare white paper in June on the investment opportunities that are expected to arise from the real estate credit crunch. Rosenberg spoke more in depth about distressed opportunities in the most favored property sectors in an analysis piece that also appears in our September issue.

Meanwhile, Kingston acknowledges Brookfield could have done a better job in engaging with the media when the firm’s office defaults made headlines earlier this year. He also recognizes the firm’s need to improve communication if it hopes to reshape its image from an office-focused landlord to that of a diversified property owner, one whose largest real estate exposures are actually in residential and industrial.

As Kingston remarks in the story: “We do want people to have a better understanding of our business. We can’t hide in the basement, do deals and expect the performance to speak for itself.”

Headlines paint the industry in broad strokes, and it is up to managers and investors to add nuance to the picture. In many cases, managers are responding to headlines by clearly delineating their exposure to office versus more highly favored sectors, or addressing the actual implications of distressed debt situations, which may not always lead to losing assets. Meanwhile, real estate professionals at some investor groups are tasked with persuading their chief investment officers that staying on the sidelines because of current property write-downs will mean missed opportunities to generate large profits later.

Managers and investors will differ in how skillfully they can execute their communications efforts, but those that succeed in getting their messages across will maximize their chances of raising or investing capital during a rare window of opportunity.