Real Estate Roundtable

I’m finding it harder to put deals together in the current market. Are there any emerging markets that you think will soon be hot?

Shlomi Bagdadi:
No matter how tough the market gets, if we keep following up with our clients and touching base with them frequently, they will transact. To me, that’s just the normal market. A busy market just makes us work less, and a slow market demands that we be committed. If we stay committed, deals will get done.
In my opinion, government housing and assets that can house educational facilities are going to be on fire in the next couple of years.

Motti Belsky:
Be patient. Real estate isn’t meant to be a short- term game. A long-term approach awards investors in the long run.

David Junik:
In the current market, it’s important to step back and analyze potential opportunities. This may involve exploring short sales, educating sellers about market conditions and new values, or finding creative financing solutions such as owner financing. Flexibility in dealing with different asset classes is also important, as opportunities may vary. For instance, there is currently a significant potential downside in the office market or multistory industrial properties compared to single-story industrial or prime residential development sites.
Maintaining constant communication with clients is also important. Initially, they might not be flexible, but over time they may become more open. It can take a few months of consistent education and discussion before they are ready to finalize a deal.
One creative approach is to look at who purchased properties over the past five years. Many of these mortgages are soon due and the owners may be forced to transact, presenting potential opportunities for new deals.

Lev Mavashev:
Despite the current market challenges, there’s still healthy demand for well-located, newer constructed multifamily buildings. With the passage of good cause eviction laws, I anticipate we’ll see more trades involving these types of properties. Focus on areas where newer developments are prevalent and you can capitalize on this demand.

Jonathan Menlo:
The market has definitely slowed, especially for my focus, which was luxury homes. The reasons were mostly interest rates, as well as the new ULA tax that was passed in California. Personally, I think the best way to go is to find very basic homes in blue-collar neighborhoods and do a quick fix-and-flip. The margins aren’t as high, but it’s less risky and the turnaround is very quick. Plus there is always demand for the average working man’s house.

Yisroel Orzel:
Between higher interest and insurance rates (especially properties in wind and flood zones) and generally increased operating costs, the market has been extremely tough. For the most part, cap rates are quite low. The only possibility of doing a deal is for properties that owners need to sell because they are under pressure, dealing with floating interest rates or general operational issues. But those deals are hard to come by, which is why not many properties have changed hands .
It’s hard to pick emerging markets on the horizon. Some of the hottest markets have recently cooled down. The Midwest markets still have some appeal if you can find something that makes sense.

Ceasar Salama:
Expectations from equity, coupled with changes in debt markets and increased regulatory challenges in New York have certainly made things difficult. This has created significant downward pressure on property values, which I believe has opened up buying opportunities that don’t come around very often.
My advice would be to focus on quality. Great locations rarely become less desirable. In difficult times, we typically see a flight to quality because it’s a chance to acquire locations at prices that make sense without the need to be overzealous in underwriting projections.
As a firm, we remain very bullish on New York City and are continuing to seek opportunities in strong Manhattan and Brooklyn submarkets.

How much do you believe interest rates need to go down to right the ship?

Shlomi Bagdadi:
The market is mostly affected by an uncertain future. When the interest rate future is unknown, investors, developers and lenders are hesitant to pull the trigger on pretty much every sector of commercial real estate: acquisitions, dispositions, construction, lending, etc. I do believe that lowering interest rates or at least knowing the direction in which they are going can put the market at ease and stimulate CRE.

Motti Belsky:
It depends on the particular deal, but rates right now aren’t super high compared to historical norms. They were at historic lows from 2020 to 2022, which drove the market higher, but if you paid a higher cap rate or took a long-term fixed rate loan you’re probably okay right now. The problem is short-term debt, where people paid very low cap rates assuming they would stay that way forever. Office real estate is a whole other story.

David Junik:
In order to stabilize the market effectively, we need to reduce interest rates by approximately 200 basis points. This adjustment would make the initial underwriting more reasonable from an exit standpoint. With stable interest rates, developers would be able to secure the necessary financing to complete their projects. Due to high interest rates, many deals don’t make financial sense to complete, so developers are staying on the sidelines.

Lev Mavashev:
Interest rates are a crucial factor. While it’s hard to pinpoint an exact figure, a reduction of at least 1-2% could significantly boost investor confidence and transaction volume. The key is to stay optimistic and be ready to act when the rates do start to ease.