RECENT MIXED MARKET SIGNALS

Commercial real estate services company CBRE recently released their report on the state of the real estate market in 1Q23: here

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The report largely confirmed things Alliance has been seeing in the market, and writing about in our newsletters. But there were some interesting highlights for our MOB investors.

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The Challenging (for overall real estate lending market):

• CBRE’s lending index fell 353.5% year-over-year in Q1
• Commercial loan spreads widened by 14 basis points (bps) to 206
• Mortgage rates, loan constants and cap rates all rose in Q1
• ​​U.S. commercial real estate investment volume fell by 57% year-over-year in Q1

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The Intriguing (for MOB investors):

• ​​Institutional and cross-border investors were net buyers in Q1, while private investors and REITs were net sellers
• The average net-lease cap rate increased by 20 basis points quarter-over-quarter to 5.8%
• The U.S. retail availability rate reached a new low of 4.8% in Q1, down by 50 basis points (bps) from a year ago
• For retail, rent growth in Q1 remained above the 10-year average

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None of these market insights is all that surprising, but it is helpful metrics for the state of the market.

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While the CBRE survey shows wider spreads, fewer transactions, and higher cap rates more broadly, not every sector is being affected equally.

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As we have discussed in recent newsletters, the Medical Office Building (MOB) sector has performed substantially better than other types of commercial real estate.

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Alliance’s specialization in MOB continues to help us outperform, regardless of market conditions.

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We have a variety of ways we add value. Our ability to manage complex or difficult deals, address vacancy risk in the case of a short lease, and handle other situations that scare off less sophisticated buyers gives us a big advantage.

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And of course, our deep expertise in the highly resilient MOB sector positions us well to thrive, regardless of lending conditions or cap rates.

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There are always opportunities out there and we’re going to find them.

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