How Advisors Are Finding Opportunities in Private Real Estate Right Now

Everything is up for sale.

Commercial property values are still feeling the effects of pandemic-era office vacancies and post-2022 interest rate shocks, and in major cities, investment-grade opportunities remain roughly 17% below their 2022 peaks, according to industry data. While advisors see some buy-the-dip potential, many are taking a measured approach, weighing the asset class’ illiquidity, performance and even skepticism from clients. 

“Given that the sector is experiencing such a negative run, perhaps this is actually a good time to get into real estate,” said Alex Caswell, founder of Wealthscript Advisors. “This doesn’t mean that this is the bottom of the real estate pullback, and I don’t really see a whole lot of investment interest right now.”

The Good and the Bad

Private real estate encapsulates lots of different types of properties, each with their own opportunities, headwinds and outlooks. Many advised clients may not even realize the differences or the potential buy-the-dip opportunities. “There’s this big spread between commercial real estate values and housing values where people haven’t felt it at home,” said Chris Loeffler, CEO of asset manager Caliber. “They don’t really feel like there’s this real estate crash going on, but there’s a real estate crash going on.”

For example, office building usage and values have still not fully recovered even amid return-to-office mandates: 

• In Manhattan, office tower values have plummeted below their June 2020 pandemic lows, according to Evercore ISI data reported by The New York Post.
• Office vacancy rates are expected to decrease this year, but it will be a slow process, according to CBRE’s market outlook.

David Krackauer, vice president of portfolio management at Mercer, said he doubts there will be a quick office turnaround. “If interest rates drop, that could work, but we don’t see that happening in the near future,” he told Advisor Upside. “The only other thing that could drive valuations is if the buildings get filled, and it’s hard to do that because everyone is working from home.”

On the opposite end, he sees plenty of opportunity for the industrial segment, bolstered by demand for AI centers, warehouses and last-mile delivery centers. He sees the same for multifamily apartment complexes too. “There’s a ton of demand because of the younger generations not saving for down payments or being able to afford to buy a single family home, so they’re renting,” he said.

Open Wide. Clients may think, “Why bother getting into real estate when I can just allocate more to equities?” but properties should remain a core part of portfolios, said Tom Balcom, founder of 1650 Wealth Management. His firm puts 5% in private real estate and 5% in public real estate. “We maintain it through all different types of market cycles,” he told Advisor Upside. “If you deviate, you’ll miss the upside when it occurs. It’s one of those things like eating your broccoli: You don’t want to do it, but you have to.”