Commercial real estate industry insights.

Commercial Real Estate Portfolio Trends

by Susan Kominski, CRE, FRICS, Jess Doerner and Jon DiPietra, MAI | Jan 31, 2023

Real estate portfolio transactions captured CRE headlines at the close of 2022. Among the largest was the sale of a Chicago multifamily portfolio with about 7,500 units across more than 400 buildings for approximately $600 million. The transaction was one of the biggest multifamily deals in the city’s history and one of the largest Fannie Mae Structured Adjustable-Rate Mortgage loans of 2022. Another notable example was a Fannie Mae loan totaling $73.4 million to refinance a portfolio of 47 multifamily apartment buildings located on the South Side of Chicago.

The BBG team has become a leader in supporting portfolio work nationwide by providing a variety of services with consistent deliverables and the ability to roll-up all findings in a consolidated format.  BBG’s involvement in the Chicago portfolios and many others have included performing Phase I ESAs, PCAs, Zoning Reports and Valuation Services.  While portfolio activity crossed many asset classes in 2022, the biggest opportunities were in multifamily, seniors housing and industrial.

As we ease into 2023, there has been a shift in portfolio work due to the changing market conditions. BBG is still providing valuation and assessment work for portfolios, but the primary purpose of the reports is to establish current asset value rather than for a potential sale or refinancing. In addition, estate planning portfolio valuations have also become more active as investors consider options for gift planning.

In the face of market headwinds, some investors have moved to the sidelines, but high-quality properties continue to hold appeal. Many are taking a long view considering that for premium markets like Manhattan, today’s prices will seem affordable in a few years from now.

Another interesting portfolio trend is increased interest from Israeli investors with plentiful capital seeking U.S. portfolio assets that are still outperforming local opportunities.

Higher interest rates are driving active investors to capital sources with more flexibility. Private equity lenders remain active and investors continue to move ahead while carefully watching for market changes.

Certain industry sectors are more resilient to the current economic conditions. BBG is seeing an uptick in affordable housing portfolios. Industry reports also point to industrial, self-storage, seniors housing and multifamily to continue to be strong sectors in 2023.

The Sun Belt continues to dominate top-ranked real estate market rankings making portfolios in these cities attractive to investors. Nashville, Dallas/Fort Worth and Atlanta are three stand-out examples. Quality of life and affordability play a big role, and these markets also offer the public infrastructure needed to absorb their growing population.

Another positive for investors is the trend of high rents and low vacancies, with no anticipated major changes in supply and demand; this indicates that the fundamentals a remain strong and sufficient to cover higher carrying costs.

Real estate lending may look different amid the economic uncertainty, but investors will find creative solutions in these turbulent times. Private equity players with capital to deploy are on the lookout for portfolios that can generate a strong return in a choppy market. By the second half of 2023, BBG expects that stable transaction pricing, lower loan delinquencies, compressed loan-to-value ratios and a pick-up in deal volume should pull agency and traditional banks back into the lending mix. The Mortgage Bankers Association predicts $872 billion in total commercial real estate lending in 2023.