It all boils down to how well-capitalized an organization is. Institutional investors and managers attending the annual PERE Network America Forum discussed the need to “survive until 2025” as a wall of commercial real estate credit issued before last year’s interest rate spike nears maturity. But they also discussed thriving on the other side. Below is a selection of the statements heard by the approximately 200 delegates at the two-day event.

  1. “I used to say now is the worst since the GFC. Now I’m saying it is as bad as the global financial crisis in terms of the capital markets dislocation for commercial real estate,” John Murray, head of PIMCO’s global private commercial real estate team, said in his keynote address on day one. He saw the sector’s current predicament as a “side effect of Fed policy,” accepting it is having a “crushing” effect on sentiment and liquidity.
  2. “Refinancing is starting to happen at scale. Maybe not at a $100 billion scale, but at a $5 billion scale and this will accelerate into the turn of the year,” said Saul Lubetski, vice-chairman of New York-based manager Harbor Group International. For Lubetski, a “scalpel approach” is required to address the gap financing needs of the sector as it grapples with more than $1.5 trillion of maturities through 2025. But, to him, examples of borrowers accepting today’s more expensive credit terms are becoming increasingly visible.
  3. “We’ll put out about one-third of our typical commitment volume this year,” Chris Ebersole, real estate investment officer at pension Oregon State Treasury, shared on an investor panel. While executives of Norway’s sovereign wealth fund, Norges Bank Investment Management, could reference its decision to increase the institution’s allocation to 7 percent, unlocking another approximately $30 billion to deploy, most investors must accept the denominator effect on their portfolios. Many must sell first to free up capital to take advantage of today’s opportunities.
  4. “2024 will probably be a good vintage year,” remarked Julie Donegan, head of real estate at the California State Teachers Retirement System. As such, it is important to retain enough dry powder to ensure participation. But grappling with allocation limitations, she also highlighted the pension’s strategy call to halve its annual real estate investment deployment of fresh capital in 2024 to between $2 billion and $4 billion, alongside selling assets where possible. For CalSTRS and other investors on PERE’s stage, opportunities presented by existing partners will be prioritized. New partners, meanwhile, will need to offer deals that fill gaps in the investor’s portfolio, most apparently in niche sectors associated with logistics and residential.
  5. “A distribution we get today is worth more than it was in Q1 2021,” said Sajith Ranasinghe, head of real estate at the Church Pension Group. With price discovery for many markets yet to materialize significantly, income liquidity has more resonance for institutions desperate to partake in the sector’s reset. Currently, he said the dollars the investor does get could well go to the private REITs, which have lost 30 percent of their value or more since rates spiked last year – notwithstanding the week’s mini-rally following positive inflation news. Conversely, delegates heard how the US ODCE fund index still has significant pricing adjustments.