For your interest Homeowners may be feeling the bite from elevated interest rates, but Carly Tripp says the trend has not yet caused distress in the global private real estate markets she operates in.
“Throughout the rate cycle we’ve seen some of the best financial performance in areas like housing, health care related real estate and in industrials,” Tripp, global CIO and head of investments at Nuveen Real Estate, told BNN Bloomberg in an interview.
"Market fundamentals are really strong.”
Nuveen is an American asset manager with over US$1.1 trillion in assets.
One area where Tripp notes market tightness is in the U.S. office sector – though she notes she “wouldn’t even call it distress yet.”
“Even in the U.S., where office usage is 50 per cent less of what it was pre-pandemic, we are seeing limited amounts of foreclosures,” she said.
The positives Tripp is seeing on the private real estate side contrast with how public real estate markets have been reacting to higher rates.
The S&P 500 Equity Real Estate Investment Trusts Index is down over 11 per cent this year, which marks more than 18 per cent underperformance to the S&P 500.
“While the asset class globally has plunged due to rising rates and inflation, all the things our sister asset classes are dealing with, there have been bright spots,” Tripp said.
MACRO SUPPORTS FOR PRIVATE REAL ESTATE
Tripp is bullish long-term on where the private real estate market is going, noting some macro indicators that could further support the sector.
In Nuveen’s view, “the rate cycle is mostly behind us at this point globally,” according to Tripp.
“It’s getting a little easier to pinpoint what returns should look like, what exit yields should look like and what the cost of debt should look like,” she said.
U.S. RATE PATH
Tripp said she expects U.S. interest rates will be “higher for longer,” as the country’s central bankers have forecasted.
Economists expect the U.S. Federal Reserve will hold rates on Wednesday for the second straight meeting. Market watchers and investors will be listening closely for rhetoric from the central bank indicating how long rates could stay elevated.
INVESTMENT OUTLOOK
On investing, Tripp emphasized the importance of finding areas in the real estate market that have “macro” themes supporting them.
As an example, she pointed to health-care real estate as one likely area of value as the global population ages.
“In 2050, 25 per cent of the global population will be 65 years old, or older. That is very supportive of investing in medical office or senior housing,” Tripp said.
She also highlighted the rental housing market as an opportunity.
“In the U.S., there’s still a shortage of about three million homes, and while we are faced with an increase in supply, we expect that to shake out and equalize around 2025,” she said. “Long-term we still think it’s structurally supportive.”
PUBLIC REAL ESTATE
Though Carly Tripp is a private real estate investor, also shared some insight from her firm about public real estate markets.
“At Nuveen, our view is that the public markets offer a lot value in commercial real estate, particularly if you’re investing alongside an active manager.” Tripp said.
Nuveen is also bullish on office REITs in public markets despite recent stock pressure.
“They’re trading where they were in the early 90s and have great land-value in our opinion,” she said.
COMPETITION IS LIGHT
Tripp said Nuveen is not yet feeling the heat from competition to buy up private real estate.
“Competition is still light, access to debt is still light and liquidity is still really thin in commercial real estate,” Tripp said.
“If you’re a large balance sheet investor and you’re reliant on leverage, this is the time you can really win."