Market Uncertainty and Investment Opportunities: Insights from Jim Costello
Listen to Our Podcast!
Listen on Apple Podcasts!
Listen on Spotify!
This week we have a special extended Market Update on the Peachtree Point of View podcast. CEO Greg Friedman and SVP Daniel Savage welcomed Jim Costello, Chief Economist and Head of Real Estate Economics at MSCI Real Assets, for a candid discussion about the current commercial real estate landscape. As stakeholders navigate through a period of significant economic uncertainty and policy shifts, Costello offered valuable insights for investors seeking to understand where opportunities might emerge in this volatile environment.
The conversation highlighted how recent economic turmoil has dramatically shifted market expectations. After many investors had been playing the "stay alive until 2025" game, holding on through interest rate shocks in hopes of eventual stabilization, recent policy shifts and uncertainty have "pulled the rug out from under" many market participants.
Key Takeaways for Investors:
The end of capital market tailwinds: For decades (1985-2020), falling interest rates provided commercial real estate investors with built-in advantages through cap rate compression. Costello warns this era is likely over, shifting the focus to operational expertise: "The number one thing is going to be managing your properties effectively moving forward."
Credit over equity may be the play: In this transitional market, debt investments are currently out performing equity positions on a risk-adjusted basis. Costello notes this creates opportunities for established private credit providers with proper infrastructure and experience over "debt tourists" entering the space opportunistically.
Focus on local fundamentals: Rather than making broad sector-based allocations, Costello suggests investing in markets with strong demographic trends and knowledge-economy foundations. "It's the local fundamentals that matter more. It's about being in a market that has healthy demographics or some other type of growth."
Opportunity in uncertainty: Despite potential recession risks, Costello remains optimistic about opportunities, particularly in distressed debt and turn around/special situations: "There's always money to be made in a down market... There's always opportunities for folks who can come in and clean up problems."
Corporate bond rates as early indicators: Investors should watch corporate bond rates as leading indicators for cap rate movements, with recent spreads widening by approximately 40-50 basis points, potentially foreshadowing similar increases in real estate cap rates.
This Market Update discussion sheds light on how investment strategies need to evolve in response to new economic reality. Commercial real estate is transitioning from an era of "financial engineering" to one focused on operational excellence and local market knowledge.
Want more insights to guide your investment decisions? Listen to the full episode of Peachtree Point of View podcast for Jim Costello's complete analysis on market trends, interest rate predictions and specific markets to watch. Follow Peachtree Point of View on your favorite podcast platform to stay informed about commercial real estate opportunities in this rapidly changing landscape.
Related posts
If you enjoyed this article, read through these related press releases and insights.
As interest rates continue to increase, banks and other financial institutions are peeling back from commercial real estate lending. But one Atlanta private equity firm is seeing an opportunity — even in the aftermath of the March bank collapses. Over the past 12 months, Peachtree Group has been “aggressive” in lending to groups unable to source debt for projects, CEO Greg Friedman said. The firm is also seeking to buy debt from financial institutions looking to reduce their exposure to commercial real estate.
Many pivotal moments in Greg Friedman's life occurred against the backdrop of major economic shifts. He graduated college right before the dot-com bubble burst, and coincidentally walked away from an internet company he started at the tail-end of the boom. Just after he founded Peachtree Group, the private equity firm he leads, the Great Recession began, and he and his partners had to shift their business model. Friedman knows first hand the power of pivoting, which he says helped to lead his firm’s success more than 15 years later. Peachtree Group now counts 250 team members across all of its divisions.
Amid a market downturn, the retail space continues to defy inflationary pressures. Retailers seemingly didn’t get the memo of a softened market and are instead poised to continue opening storefronts and leasing space across the US. How can this possibly be? Mortgage Professional America turned to Greg Friedman, founder and CEO of commercial real estate private equity investor and lender Peachtree Group for answers.
