By Denita Schreier
If there’s a time that commercial real estate feels temperamental, it might be now. The moodiness of the markets and interest rates makes it the perfect time to network with peers to compare notes. As a first-time attendee of the GlobeSt ALM Net Lease conference, I found it to be a great event for industry professionals seeking insights and strategies to navigate the current economic challenges.
The conference took place against a backdrop of an economic climate clouded by persistently high interest rates and mixed messages from economists. A figure that loomed large over conference discussions was the 10-year treasury rate, which danced at 4.82% during the conference. Historically over the last 50 years, the rate for the 10-year treasury has averaged above 5%, so attendees were challenged on the statement of this being “unprecedented times.” And yet, after an extended period of such low rates, the increases of the past two years do feel somewhat unprecedented – at least in recent memory.
Despite the cooling impact that interest rates have had on commercial real estate, the overall sentiment at the conference was one of cautious optimism. Industry leaders agreed that while deals are still on the table, they require a more meticulous approach to unlock long-term value. The increase in interest rates means that good deals won’t just fall into one’s lap; it takes a discerning eye and a willingness to dig deeper to find those opportunities that offer real potential.
Conference discussions were rich and varied, focusing on how current market trends are influencing development projects. A spotlight was focused on the role of redevelopment across various sectors, from commercial to residential, and even industrial spaces. As urban centers continue to densify and rural areas seek development, the art of repurposing existing structures has become a crucial part of the development puzzle.
I also presented at an afternoon session of the conference, alongside Wendy Berger, CEO of WBS Equities, LLC on “A Comprehensive Look at Development.” As developers on the frontlines, we shared our strategies for addressing the hurdles of the day, from rampant inflation to the mounting pressure of rising interest rates, not to mention the ongoing supply chain shortages that have been the bane of the construction industry for the last few years. We offered clear advice: adaptability and innovative thinking are key to staying afloat and thriving in such turbulent times.
The conference also provided a well-rounded perspective, featuring voices from all corners of the industry — buyers, brokers, developers, and asset managers. Each brought their unique viewpoint to the table, creating a holistic view of the current state of net lease properties. One of the more consistent points of consensus was that asking cap rates are currently 175-200 points too low, reflecting a mismatch between seller expectations and market reality.
Despite these challenges, there was a palpable sense of opportunity among the conference attendees. Engaging discussions revealed that there is still a significant amount of capital on the sidelines, waiting to be deployed. For savvy investors and developers, this could be the ideal time to buy and hold, as the market corrects itself and true values emerge.
However, this climate also means that those who are selling in the current market are often doing so out of necessity. The reasons vary, from the three D’s: death, divorce, and dire need, to other urgent financial pressures. These forced sales are creating openings for those with the resources and the nerve to invest during less-than-ideal times.
We are not in unprecedented times, as the industry has seen similar cycles in the past and has the resilience and the creativity to adapt. The message was clear: those who understand the historical context of the current situation, and who are willing to put in the work, will be the ones to uncover and capitalize on the opportunities that lie within these complex market dynamics.
As the conference wrapped up, it was evident that the road ahead for net lease real estate is one that will require a blend of caution, tenacity, and strategic foresight. The insights gained from the discussions underscored the importance of staying informed and engaged with the broader community of professionals who are shaping the future of real estate development in these disruptive times.
