Succeeding In All Market Conditions
Investors must track and manage risk. This has been a key part of Alliance’s 25 year track record of winning in all market conditions.
The highly respected commercial real estate (CRE) research firm Marcus & Millichap recently published their own list of the top 5 challenges in today’s market.
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- Higher cost of capital. We have seen interest rates on CRE loans rise from about 3.5% to somewhere in the 5-8.5% range. This dramatic increase in the cost of debt financing makes it more expensive to finance deals and deliver expected rates of return for equity investors.
- Distress risk. Higher interest rates can create problems for properties that were previously financed with variable rate debt. Some of these properties are now cash flow negative and will require refinancing, sales, or owners who are willing to accept losses.
- Capital moving out of CRE and into bonds. Investors who are looking for stable cash flows have long loved CRE. But in today’s market, those investors can get 5%+ from treasury bond markets. On a risk-adjusted basis, this is very attractive to many investors, causing some to move money out of CRE and into bonds.
- Tighter lender underwriting. Banks are lending less. Especially after the failures of a few banks earlier this year, small- and medium- sized banks in particular are looking to strengthen their balance sheets and are taking much more care with the deals they finance. Their caution adds an additional challenge for investors looking to close deals.
- Pricing expectations gap. Currently, buyers are looking for higher returns, above the risk-free rates available from treasury bonds. But sellers are reluctant to mark down their properties. The spread between what investors want to pay and what sellers want to receive is slowing down the pace of deals.
Fortunately, Alliance remains very well positioned to sustain our business, deliver excellent returns to investors, and jump on exciting opportunities in the Medical Office Building (MOB) segment of CRE.
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Our long and very successful track record in CRE gives us an advantage in deal financing. We have strong banking relationships that ensure we can access debt financing and receive some of the most attractive rates available anywhere. Furthermore, our broad investor network provides us with all the equity capital we need.
Alliance’s focus on the MOB segment is also proving to be a big winner. While some parts of the CRE market are experiencing capital outflows and widening expectations gaps, this isn’t true everywhere. MOB is holding up very well, and particularly in the high-growth locations, like the sunbelt, where we love to invest.
Our deep expertise, sterling track record, investor relationships, and broad network of partners are all helping us to find and close deals, even in these more difficult market conditions. Despite the current risks and challenges in CRE, Alliance continues to thrive and deliver market-beating returns.
POSTED BY
Ben Reinberg
Founder & CEO | Alliance Group Companies
Ben Reinberg is Alliance Group Companies' founder and CEO.
Since 1995, Alliance Consolidated Group has acquired and invested in medical properties with net leases between $3 and $25 million across the United States. With decades of commercial real estate experience, we take pride in committing to meeting the goals of our Sellers, as we consistently and seamlessly adhere to successful closings.
