According to Preqin , private real estate investment funds have $ 356 billion in dry powder , which is $ 1 billion more than they at the beginning of 2020 , a few months before the pandemic . As the fear of 2020 recedes , that sidelined capital will reenter commercial real estate , perhaps first as a trickle but eventually as a steady flow .
“ Overall , I ’ m bullish about what ’ s to come in the next six months ,” says Josh Herrenkohl , senior managing director at FTI Consulting . “ In many respects , some larger investment firms were expecting more distress than what we ’ re seeing now , so the second half of 2021 and 2022 could see an acceleration in the market .
“ The question is , what ’ s going to be the point when investors jump in ? My guess is that the larger institutional firms like Blackstone or Brookfield will have transactions first that will give license for many others to join in .”
ROADS TO RECOVERY As 2020 came to a close , signs of optimism started to appear on the horizon . The development of multiple vaccines was one bright spot , even if distribution was still up in the air . And political question marks surrounding the 2020 elections were settled in early in January with the Georgia senate runoffs .
As the national economic recovery gained momentum in the early months of 2021 , excitement rose for recovery in market sectors that were severely impacted by the pandemic . While the real estate cycle is not directly tied to the national economic cycle , it can be a delayed mirror of it . The CRE market doesn ’ t react immediately to changes in the U . S . economy , but it improves as broad economic growth ultimately increases demand for many real estate sectors .
Hospitality may have been the market most closely tied to the ups and downs of the pandemic . The immediate economic
The CRE market doesn ’ t react immediately to changes in the U . S . economy , but it improves as broad economic growth ultimately increases demand for many real estate sectors .
Relationship Between General Business Cycle and the Real Estate Cycle
General Business Cycle Real Estate Cycle
When the COVID-19 pandemic swept across the globe in the first quarter of 2020 , few even attempted to predict what would happen in the next few days or weeks — forget about months or years . The black swan event that was always a possibility , however unlikely , became a reality that shocked commercial real estate . That initial trauma was significant enough for many active and potential investors to take their money and go home , at least for a period long enough to catch one ’ s breath and see how things shook out .
But now , halfway through 2021 , vaccination rates have continued to tick upward , economies are fully reopening , and commercial real estate professionals are standing on ground solid enough to look at a new marketplace that has potential . For private equity , that pent-up demand could mean a healthy appetite for investment after the aggregate value of private equity real estate transactions fell by nearly 50 percent in 2020 , to $ 146 billion after topping $ 290 billion in 2019 , according to Preqin .
“ Remember where we were [ in March 2020 ],” says Mark Cypert , CCIM , a partner with Middleton Partners , a Dallas-based private equity investment firm . “ There was so much fear and uncertainty that created a huge pendulum swing away from investment . Now , with investors feeling better about the future , it ’ s almost like we ’ re reversing course just as rapidly .”
To that end , in June , Blackstone announced a $ 6 billion deal for Home Partners of America , a firm that owns more than 17,000 single-family rental homes .
“ This is one of the most active markets I can remember ; both institutional and private equity is very robust right now ,” Cypert says . “ There is more money looking for deals than there are deals to be found , so it ’ s red hot . There ’ s a lot of money that ’ s been raised now — people believe that we ’ re poised for a nice economic recovery and a rebound .” shutdown wrecked the hotel business , but a resumption of leisure travel in the first half of 2021 has led to a partial recovery . The resumption of business as usual , though , could open opportunities to find deals on distressed assets .
“ Hospitality probably should have been a lot more damaged than what was the case ,” Herrenkohl says . “ But in many cases , I think lenders didn ’ t want to foreclose on assets because they would have to take them off their books and be responsible for them .
30 COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SUMMER 2021