Investment Strategy: In an Environment of Uncertain Valuations, Cost Inflation and Scarce Capital, Which Approach Offers the Best Risk Versus Reward Profile?
JULY 2024
The “higher for longer” state of interest rates has disrupted property assumptions that held for many years. We may now be at a watershed moment where property prices must reset, and pre-pandemic purchasers need to make a choice on disposals.
Is this a time to strike, when sellers are increasingly motivated? Or, is it a time for cautiously holding back?
The next two years “will be an interesting timeframe to deploy capital if you have the liquidity,” says Tang Tang, head of capital markets at Cottonwood Group. “Whether real estate markets have hit rock bottom, nobody can really tell. From my perspective, it likely hasn’t.”
There are optimists, and pessimists, perhaps in equal number. Markets are evenly poised. It’s time to be nimble and smart.
“Great Reset” almost achieved?
The Accord Group also sees the sunny side. “We see a lot of optimism for 2024 to 2026 vintage deals,” says Desi Co, a managing partner at the company, which seeks out undercapitalised strategies and structures. In the deals his company is currently seeing in the market, the underlying asset is typically still performing on the operational front, but in financial distress due to debt.
It is a mathematic mismatch that presents an attractive entry. “Investors are looking at opportunities to buy from distressed owners at a good basis, with a goal to generate value-add level returns, but where risk may be closer to what you would associate with a core/core-plus deal,” Co notes.
Building platforms in niche sectors
Accord’s Peterson sees similar opportunities, particularly in specialty sectors. Her company works with one investor that carved a niche rolling up and consolidating “mom and pop” operations in industrial outdoor storage for the logistics sector. The investor injects the capital for technology upgrades and creates operational efficiencies with greater scale.
“Large-scale transactions are out of reach for most investors,” Peterson concedes. But “with small-scale transactions, there tends to be inefficiencies on which a strong operator can capitalise. If an investor can create an efficient platform for identifying, transacting and monetising deals in the small space, there can be significant value creation,” she adds.
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ABOUT ACCORD CAPITAL PARTNERS LLC
Accord, through its affiliates, is a global capital advisor, principal investor and investment manager. With its headquarters in San Francisco and personnel in Chicago, London, Hong Kong and Seoul, Accord engages with a wide variety of participants in the real estate private equity industry. Accord Capital Partners, its broker/dealer affiliate, provides advisory and capital raising services in the United States. Accord Europe Limited, its broker/dealer affiliate, provides advisory and capital raising services in the United Kingdom and Europe. For further information on Accord, visit: www.accord-group.net.
