Private real estate funds cautious in an uncertain environment

All asset managers adapt to this macro environment in their own way. When it comes to private real estate, funds are taking longer to make investment decisions, explore new sources of funding, and structure creative ways to deploy capital. Jenn Elliot covered the cautious behavior of private real estate funds for WealthManagement.

This is a radical departure from the past two years, when the funds were much more aggressive in terms of investing and raising capital. Now, raising capital has become much more difficult given that the risk-free rate of return is over 5%. Additionally, the increased risk of recession, stumbles in the banking system and stress in commercial real estate also clouded the picture.

A good thing is that many investors have been sidelined, which means there is less competition for deals. This gives private real estate funds more time to evaluate ideas and can be more selective.

However, the most significant headwind is that a deflationary mindset has become pervasive. Essentially, most investors expect prices to fall over the next year. In some ways, it becomes a self-fulfilling prophecy. Damage so far has been limited to commercial real estate where there have been a few high-profile defaults and redemption requests.

Final sum: Private real estate funds are behaving much more cautiously due to higher rates and growing economic uncertainty.

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