Thirty Capital recently held a virtual roundtable highlighting how to navigate the challenges of communicating with investors given the uncertainties of the commercial real estate (CRE) market today. Angelo Mazzella, Thirty Capital’s Managing Director of Business Development, had the pleasure of speaking with Mark Runde, Managing Director of Real Estate at Thirty Capital Performance Group, and Noah Kaufman, Acquisitions Associate and Financial Analyst at Universe Holdings.
Click here to watch the on-demand recording or read ahead for a recap of their conversation and key takeaways.
Commercial Real Estate Is Recalibrating
The year 2022 marked the end of the cycle for commercial real estate following a decade-long expansion. During this time, managers were proactive, engaged, and a good steward to investors. Property values and leverage were on the rise while cap rates and lending rates declined. Now, markets are recalibrating and redefining how we invest to how we operate to how we drive returns. Investors are growing concerned because of uncertainty about how the new market dynamics and recalibration may impact their investments.
Market Dynamics are Creating New Investor Concerns
As mentioned above, the commercial real estate market is recalibrating. The new dynamics resulting from this recalibration require CRE sponsors and investors both to adopt a new approach to how they strategize, operate, and execute within their portfolios. As a result, investors are taking on a more active role in their investments. On the other hand, sponsors are considering operational cash requirements, the need for equity, how to answer tough questions from lenders and investors, and more.
Market dynamics keeping investors up at night include:
- Declining property valuations
- Stagnant transaction volumes
- Rising inflation and interest rates
- Unclear timing on their returns
- Uncertainties around refinancing and selling opportunities
Consequently, investors are carefully assessing their portfolios, seeking diversification strategies, and conducting thorough risk assessments to help them navigate the market. For your team, CRE investors’ concerns have most likely translated into them asking more questions and demanding more frequent portfolio updates.
Addressing CRE Investor Concerns
During the webinar, our experts highlighted four tips to address investor concerns:
- Be proactive
- Alert investors of change (good or bad)
- Monitor your portfolio’s performance often
- Provide frequent investor report
Guest speaker Noah Kaufman shared how his company, Universe Holdings, communicates with investors given the changing commercial real estate climate. Weekly, their corporate office holds a session called “Ops Day”. During this session, their operational team reviews each property’s income, tenants, expense line items, cap/ex, etc. At the same time, their asset management team uses this session to review things from a macro level and evaluate how the business is performing. In having this weekly session, teams are up to speed on happenings within the portfolio – and they can readily answer investors’ questions.
Noah also shared that his team sends quarterly property reports to their investors. For investors at bigger institutions, they send monthly financial statements and more detailed reports in addition to the quarterly reports. These reports are packaged in a consolidated, nicely presented document.
The current commercial real estate cycle is unlike anything we have experienced before. As such, investors are increasingly nervous about their capital – and asking for faster, deeper insights and reporting. While you can’t guarantee a stable market, you can provide regular market updates, performance assessments, and portfolio reports to help reassure your investors, manage their expectations, communicate any bad news, and improve trust and transparency.
Want to learn about these topics in more detail? Click to watch or bookmark the on-demand webinar below! Watch the webinar on-demand.