CIT: Commercial Real Estate Sector Strongest in Metro NY
Commercial real estate markets on either coast are outperforming assets in the mid-U.S. because they are home to gateway cities that trade with Asia and Europe. The hottest of these markets right now is the New York metropolitan area, as it’s experiencing an eight-year low in the supply of residential real estate. However, other national markets may provide better risk adjusted returns, according to Matt Galligan, president of CIT Real Estate Finance.
Galligan further discusses the opportunities and challenges in the sector, the role of private equity firms in the industry and trends to watch in the “2013 Commercial Real Estate Sector Outlook,” the latest in a series of in-depth executive Q&As featured in CIT’s Executive Insights series.
According to Galligan, in sharp contrast to institutional ownership in previous years, where insurance companies and pension funds had become the largest acquirers of real estate in the U.S., private equity firms are now buying real estate investment trusts (REITs) and repositioning them into private companies. “A great example is the Blackstone Group’s recent purchase of Duke Realty’s suburban office holdings,” said Galligan. “As a result, Blackstone has become a major player in suburban office space in the Midwest and suburban Atlanta markets.”
There’s an abundance of new projects to repurpose financially distressed commercial buildings, as well as recapitalizations. “During the Great Recession there were many ventures in the urban core of cities that had significant investment in them, but were stopped mid-stream,” said Galligan. “These projects often were acquired below replacement cost from the original developer and provide very good lending opportunities if the new business plan is sound.”
To read Galligan’s complete outlook click here.