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Many have tried to make the case that U.S. private real estate fund values have bottomed. Don’t believe it. Persistently low property yields below borrowing costs signal that yields on popular property types such as warehouses, apartments and storage facilities need to rise further. We have rarely seen negative leverage stories with happy endings.
Private real estate prices usually take a year, plus or minus, to catch up to the capital markets reality reflected in REIT market pricing on a real-time basis. This time appears no different. REIT prices peaked during year-end 2021 as the Federal Reserve signaled it would increase interest rates to bring down inflation, even as private real estate valuation marks continued to trend upward until fourth quarter 2022.
Private real estate values are declining, so is deal volume, as sellers are reluctant to transact at the new, lower levels where buyers are interested.
Index definitions and important disclosures An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment. Data quoted represents past performance, which is no guarantee of future results. The views and opinions presented in this document are as of the date of publication and are subject to change.
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