Diversification is Key
While geopolitical, macroeconomic and real estate market uncertainty contributed to a modest slowdown in commercial real estate transaction activity to start off 2017, volume picked up as the year progressed, with prices remaining high and cap rates and interest rates still at historic lows. Investors are becoming more selective as the cycle continues to mature, although with ample capital available there are still certain markets and property types attracting investment.
The owners that topped the CPE-MHN 2017 Top 50 Owners ranking remain well diversified, as nine of the top 10 firms operate property in at least 5 separate asset classes. Clarion Partners took the top spot, with one of the highest portfolio values and total square footage in its owned portfolio. Tough competition for high-quality assets in the multifamily and office sectors, and the retail sector struggling with the impact of e-commerce, many real estate owners are looking to diversify their portfolios by investing in asset classes like industrial, self-storage and medical office to capture additional yield and long-term appreciation.
Geographical diversification also played a key role for many of our top-ranked firms in 2017. Most of the top owners operate assets across the United States and internationally. The growing interconnectivity of global markets allows and encourages real estate owners to grow their portfolio overseas.
As the current real estate cycle extends and many industry insiders question when the next downturn will occur, the leading owners should be well positioned to withstand a future market correction.
The 2017 CPE-MHN Ranking of the Top 50 Commercial and Multifamily Owners utilized self-reported data for all firms. The ranking is a weighted formula based on a variety of factors (only a few of which are specified here), including the total square footage and number of units owned, owned portfolio value, historic performance and participation in property sectors, among others. The ranking represents what we feel is a logical balance between firm growth and market share, as well as property diversity.
Originally appearing in the November 2017 issue of MHN.