Since the US Federal Reserve (Fed) began raising interest rates in March 2022 to combat inflation, the real estate industry has been in a deep freeze. High mortgage rates and even higher home prices have made purchasing a new home nearly impossible for many Americans. Renters are facing record costs. And the commercial real estate sector is in a nightmare scenario. Changing labor trends and rising borrowing costs are expected to reduce the value of commercial real estate by $590 billion in 2023 alone, with another $480 billion evaporating this year, according to Capital Economics.
While the past few years have been deeply painful for many in the real estate industry, some veteran executives see an opportunity. After all, the old adage in investing is “buy low, sell high,” and not everyone is spooked by this real estate market.
Hines, a global real estate investment, development and property management company with $93.2 billion in assets under management, has launched Hines Private Wealth Solutions, a platform that enables high-net-worth clients to access new opportunities in real estate. We are also launching a. Hines gains diversified global real estate exposure as more investors seek to allocate up to 30% of their portfolios to alternatives as the transition away from the classic 60/40 portfolio of stocks and bonds continues. We want to provide an easy way to do this. Take advantage of the $85 trillion growth in private wealth expected over the next decade.
The firm hired former Carlyle Private Wealth chief Paul Ferraro to lead its global private wealth strategy, and as of Dec. 31 had raised $10.7 billion for the business.
Hines’ platform provides clients with a wide range of real estate investment solutions, including non-traded private real estate investment trusts, private placements, private bonds, tax-deferred exchanges, development projects and more. The company will also offer advisory solutions to customers who need guidance in managing their personal real estate holdings.
David Steinbach, global chief investment officer at Hines, said: luckthe goal of the new platform is to help investors take advantage of the beginning of a new real estate cycle, achieve specific risk/return objectives, and reduce volatility in their portfolios.
“This is a great vintage. A great moment,” he said. “This real estate correction actually started over two years ago, right when the Fed started raising interest rates, which means the cycle has been two years since it started and is nearing its end. .”
Multi-year real estate recovery in sight
Exclusively revealed in an upcoming white paper. luck, Hines’ research team elaborated on the idea that the real estate industry tends to operate in what they call the “long cycle,” which spans 15 to 17 years. These long cycles are usually followed by recessions that last an average of 26 months. Hines’ researchers argued that we are currently in such a recession that its end is near and should present long-term opportunities for real estate investors.
“Real estate investments over the next six to eight months have the potential to participate in a multi-year recovery, with investors benefiting from increased dividend income, stability in value, downside protection and increased ground rent cash flow. “They will benefit from higher capital values supported by the expected rise in inflation,” they wrote.
Steinbach said luck Like many Wall Street experts, he believes we are in the midst of an economic “regime change” that will benefit owners of real assets such as real estate, rather than financial assets such as stocks. I believe there is. He said that after years of near-zero interest rates and low inflation before the pandemic, we are entering an era of high inflation, and therefore high interest rates will continue. “So in that world you want to own the real thing,” he explained. “And I think that will ultimately move some of the split that investors have historically allocated their money to, which was about 60-40. [stocks-bonds] I think we’re going to split up and move into a 40:30:30 world of stocks, bonds and private. [alternatives]”
He noted that real estate has historically provided a “powerful” hedge during periods of inflation, Goldman Sachs said in a 2022 analysis. The reason is that rents tend to be repriced, real estate investors’ incomes tend to increase, and existing holdings also increase in value year on year. Decreased value due to increased construction costs.
But rising interest rates can also be costly for real estate investors who borrow heavily. That’s why Steinbach says the key to profiting from the ongoing “regime change” is to own high-quality real estate spread across the globe. Reduce the use of leverage as much as possible. and looking for new opportunities in places like data centers powered by AI.
And that’s what Hines Private Wealth Solutions offers, he says.
Still, Steinbach acknowledged that the days of near-zero interest rates are clearly over for the real estate industry, arguing that it’s like “going from downhill skiing to cross-country skiing.” This means investors need to be more selective in finding the right opportunities. “It’s hard work right now. And I think it’s going to be for the next 10 years. I think there’s great reward if you’re willing to put in the work, but it’s going to be hard work,” he said.
Higher returns, lower volatility
Beyond the upcoming “regime change” opportunity, Hines encourages wealthy investors by emphasizing that, at least historically, adding real estate to a portfolio has improved returns and reduced volatility. It wants to draw them into its new private wealth platform. In fact, Hines found that adding 15% global real estate exposure to a classic 60-40 portfolio of stocks and bonds increased the portfolio’s average annual total return from 6.12% to 6.4% and reduced volatility from 11.3%. We found that it dropped to 9.9%. % since 2000.
Hines offers numerous strategies at various risk tolerance levels to help clients take advantage of real estate’s ability to reduce volatility and increase returns. The company hopes to meet the needs of individual investors with its platform, with an “opportunistic” return-seeking approach that takes more risk, versus its core strategy of earning stable returns through moderate price increases. .
Steinbach said he is also leveraging the experience of Hines’ local offices around the world to “create a diamond in the rough” that the real estate industry is currently facing. But he pointed out that after many real estate sectors experienced such a dramatic downturn, there are also many well-priced assets that don’t need renovation and are worth buying. And with the U.S. still facing a housing shortage, Hines’ new real estate development is also likely to be a winning strategy, Steinbach argued.
The real estate industry veteran concluded by encouraging investors to take advantage of a rare opportunity in the industry.
“The window will close one day, and I don’t want to miss this moment,” he said. “I’ve seen couples in my career and I don’t think I’ll see any more. I mean, there aren’t many windows like this. So we’re looking at a special window that people have to live with right now.” I think you’re in the moment.”
