NYU SPS REIT Special Report: Interest Rates, Tech and Opportunity

While REIT balance sheets and their management teams remain strong, Robin Panovka, partner at Wachtell, Lipton, Rosen & Katz, said during New York University’s 28th Annual REIT Symposium. Forecasting positive growth in the decade ahead, he warned that artificial intelligence’s evolving role will be a challenge. In fact, said Panovka, AI may have already outsmarted us.

Meanwhile, Panovka cited historical data in predicting positive REIT market cap growth, which he anticipates might double in the next 10 years.

Economic factors, technical opportunities

Marc Norman, conference host and associate dean of the NYU School of Professional Studies’ Schack Institute of Real Estate, told Multi-Housing News that attendees at a conference in November 2023 anticipated three rate cuts in 2024. That sentiment has changed. The multifamily sector has now shifted to “getting used to where we are and finding other ways to gain value, increase NOI and deal with the current environment.”

Norman’s sentiments were echoed on the conference’s first panel. Owen D. Thomas, chairman & CEO of BXP, said that, for his team, the two key macro drivers impacting the office market are interest rates and corporate earnings. “There’s not a lot we can do except for understand them.”

Another big shift will be in leveraging centralized resources to back up AI, said Thomas, who anticipates the next frontier in tech to be improved self-guided touring at properties. “Self-guided touring in the apartment industry is still circa the 1990s,” he said, arguing that building a future that facilitates the use of this technology and centralizes resources, services and data could have tremendous potential.. “It’s nowhere close to where it can be in providing a personalized experience.”

Fifth Wall co-founder Brendan Wallace believes real estate assets will become power hubs. “The potential of AI is massive and the bulk of where it will start is in decreasing costs in services that support real estate,” he explained.

A massive amount of energy and raw materials are consumed by the real estate sector, something that can be addressed by utilizing technology to aid the sector in creating its own power, said Wallace. Considering the growing trend of electrification, real estate can not only save money by generating and storing energy, but also unlock a new source of revenue.

Conor Flynn, COE, Kimco Realty, observed that energy is a new frontier in multifamily, specifically the value of parking lots. In the future, he anticipates that they will be activated by more than just car use. Parking lots are ideal sites for power generation, for example.

Overall optimism

There was a general consensus among conference speakers and attendees that real estate is not operating in its peak, but overall expert sentiment remained relatively high. “Understanding the landscape now is really important,” Dana Petitto, chief operating officer and portfolio manager, Brookfield REIT, said. “Those with capital can take advantage of really interesting buying opportunities.”

While headlines predict doom and gloom, there are some upsides. Renters are more mobile, trying out new cities and less focused on homeownership. While there is oversupply in some markets, it is likely to get absorbed and poses opportunity.

H. Eric Bolton, chairman and CEO at Mid-America Apartment Communities, said that, while the multifamily space is experiencing stress, it is important to realize that it is not facing distress. “What is happening now is a supply-induced cycle, but the demand is still there,” he said. “It will take a while for demand to absorb supply, but it’s happening. This is a supply induced down cycle instead of a demand induced one.”

Despite the hurdles ahead, the sector is moving forward. “There is pent up demand, and if we get the legislation right, there will be tons of opportunities,” Norman told MHN.