Leading the conversation, Stuart Proffitt of Proffit Dixon highlighted capital success in the Southeast-featuring industrial, office, and multifamily markets.  Lance Patterson from Patterson Real Estate Advisory Group provided insights into the real estate investment landscape, highlighting the multifamily (MF) sector’s dynamics. He touched upon the decrease in property prices, from $300K per unit 18 months ago to $225K today, and the implications for investors regarding returns and capital calls, especially between large institutional partners and small local developers. 

Patterson also discussed the cautious stance of banks due to their substantial real estate debt, contrasting with life insurance companies that continue to make loans on various products, except for office spaces. He suggested that selling assets could introduce fresh equity and new debt into the market, though buyers are wary of long-term fixed debt due to high risk. 

He observed a shift in Private Equity (PE), which, after a brief hiatus in the summer of ’22, is now looking at distressed products. However, the difficulty in identifying the market bottom has led to hesitation in capital deployment. Patterson mentioned Carlyle’s latest $8 billion fund and the pressure to invest within the 3-4 year deployment period but having sat out the last 2 years, they’d want to buy up portfolios or large projects to move the needle in the remaining 2 years before the deadline. He noted a rising interest in unconventional investments such as industrial outdoor storage (IOS) and traditionally less favored assets like RV parks and marinas due to their high returns, despite the challenge of deal size for large funds. 

Patterson emphasized the need for change in office leasing and interest rates to unclog capital markets, citing a recent dip in the 10-year treasury yield that spurred a flurry of loan signings. 

Additionally, Carman Luzzo from Highwoods spoke about their office leasing success and the sale strategy focusing on smaller, suburban deals, all to local buyers and investors with a local market presence. They expected to sell $200M in 2023 but sold $83M. Three of the transactions were 1031 exchanges. 

Matt Livingston from Thrift Capital Partners shared their approach to adaptive reuse and urban infill in Charlotte, emphasizing conservative investment models and a deal underscoring the importance of patient capital from high-net-worth individuals and family offices who are willing to do a lower return, but lower risk deal. 

Andy Lucas from Beauxwright shared a case study of a complicated 12-acre urban deal when they received a call the week before closing that their main investor couldn’t get the BTR deal through the investment committee because, unlike multifamily construction which allows for a GMP, BTR costing is only guaranteed through traunches, elevating the risk profile. Beauxwright salvaged the deal at the last minute by a shift from BTR to horizontal land development plans and sold with a national builder which enabled them to shift from a $48M capitalization down to $18M and an A&D development loan because lot development is so much cheaper. 

Overall, the session shed light on the cautious yet opportunistic nature of real estate investment in a fluctuating market, with various actors adapting their strategies to navigate uncertain times.