MIAMI, May 24, 2021 (GLOBE NEWSWIRE) -- Despite signs of a quicker-than-expected return to the office in the United States, the commercial real estate sector likely won’t rebound for another two to three years, says Philip Blumberg, the CEO of American Ventures who recently launched his fifth real estate fund since 1992. Perceived risk is the key and the reason why it typically takes much longer to recover from down real estate markets than it takes to get into them, he says.
“Return to ‘normalcy’ will be dependent on how quickly tenants feel confident enough to renew or expand space,” said Mr. Blumberg. “Tenant uncertainty likely will take a while longer to sort out, tamping down rents and valuations for some time. It’ll take at least 24 months for companies to fully decide what they want to do.”
Based on past commercial real estate troughs, Mr. Blumberg expects office investment to surge in 2023 or 2024 – in turn, inflating prices and drawing even more capital. In such a scenario, he envisions unwinding his portfolio – now being built – starting in 2026 or 2027. Mr. Blumberg’s American Ventures funds have performed well acquiring class A office assets in distressed markets. Over 16 years, their average annual return to investors, net of fees and costs, is approximately 18% (based on fund audits).
“As always, valuations will be dictated by debt and equity flows into the sector, which remain at a trickle due to high perceived risk,” said Mr. Blumberg. “Deprivation of significant investment capital will keep sale prices low – which is the axiom that underpins my investment thesis for the new $1 billion American Ventures Strategic Property Fund.”
American Ventures is pursuing Class A office properties valued above $50 million but priced below replacement cost – with a particular focus on Sunbelt states like Texas and Florida.
Mr. Blumberg summarizes his thinking along the following lines:
- Values and rents have dropped precipitously over the past year. They won’t come back immediately as sale prices and appraisals have also declined severely.
- Until values stabilize and start to rise, only distressed funds/buyers will invest.
- The dislocation/relocation of corporate tenants adds to the complexity of the capital markets view of the office sector. Tenants are still unsure of future plans for space after the Covid-induced recession.
- Many tenants remain concerned about the vulnerability of office and retail to future viruses -- one reason why American Ventures’ real-estate management arm implements “healthy-building” safeguards.
- Ultimately, it’s the amount of capital (both debt and equity) pursuing investments that buoys prices.
- Increased allocations of capital flowing into commercial real estate won’t start in any significant way until several years down the road.
- A few Class A office properties are starting to sell below replacement cost - a trend expected to accelerate over the coming months, creating a self-fueling cycle of more market pressures on owners.
Mr. Blumberg, highly regarded for his market forecasts, has a long track record in raising investment capital, buying distressed commercial real estate and selling ahead of softening demand. In 2006, to much media attention, he foresaw the Great Recession. By 2008, Mr. Blumberg had sold his national real estate portfolio - comprised of Class A office properties in the country's Sunbelt - with most holdings selling at record prices.
The recent launch of the American Ventures Strategic Property Fund aligns with Mr. Blumberg's investment approach - forming funds shortly before or during market troughs. Over the past 30 years, he's presciently formed funds just prior to or amid virtually every major economic downturn.
For more information on American Ventures, visit https://www.amvepart.com/pages/Home.cfm.
Media Contact:
Sean Healy
sean@healycorp.com
201-857-2520