Private markets outlook: Commercial real estate

What lies ahead for CRE? We continue our Private Markets Outlook series with a discussion featuring two of our portfolio managers, Jason Landon (equity) and Rob Lawrence (credit). They join Research team members Andrew Korz and Alan Flannigan to share how major shifts in CRE are playing out on the ground. 

The Private Markets Outlook podcast series from Future Standard features special guests and portfolio managers from across our firm, each bringing unique perspectives on private equity, private credit and real estate. Subscribe and stay tuned for more. 

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Chapters

• 0:00 Introduction
• 1:33 Jason Landon Interview
• 18:43 Rob Lawrence Interview

Transcript

[00:00:00] 

Alan Flannigan: Welcome back to the Private Markets Outlook series from Future Standard. Today we are discussing what lies ahead for commercial real estate with two of our portfolio managers. The past five years in real estate could best be described as a roller coaster, and investors would be forgiven for experiencing whiplash.

First, the pandemic forced a rethink of entire property types, especially office. Then came a boom with values jumping more than 30% in just 18 months. And just as quickly, the Fed's rate hike slammed the brakes, triggering one of the most challenging periods for the asset class in decades. Property values fell. Transaction activity dried up, and performance went negative for two years.

Now in September 2025, the market feels steadier. Prices have stopped falling. Activity [00:01:00] is creeping back, but investors are still cautious. It's not the chaotic ups and downs of recent years, and maybe that's the best news. In our midyear private markets outlook, we argued that higher-for-longer rates have reset the opportunity set, but the real story is how those shifts are playing out on the ground. So today we're bringing in two of our top real estate investors. We'll be talking to Rob Lawrence on credit later on to share what he's seeing on the ground. But first, let's talk to Jason Landon on the opportunities in real estate equity.

Alan Flannigan: We're pleased to be joined by a very special guest. He's a Managing Director and Head of Real Estate Secondaries here at Future Standard. Jason Landon, thanks for joining the show. 

Jason Landon: Thank you Alan. 

Alan Flannigan: And to start, Jason, can you give people some sense of your background? You've got decades of experience in the real estate market. You know, you've allocated, you know, hundreds of millions, billions of dollars of capital over the course of your career.

You know, how did you [00:02:00] get to this point, and you know, what have been some of your formative experiences as a real estate investor? 

Jason Landon: You know, I've been with the, the firm for almost 24 years, uh, and been with the program since we launched it. So when we first launched, uh, the business, um, we launched it, uh, basically on the backbone of, of, uh, the private equity business.

And we did so by advising institutions with their private real estate portfolios. So doing the investment pacing models, you know, sourcing and underwriting managers. And all that led to developing, you know, extensive relationships in the marketplace. Um, so that takes us back to, to 2002. Um, then we had the GFC and, you know, with the GFC and, and that significant, you know, market disruption, um, you know, that created an opportunity to pivot and start executing in the secondaries market. Again, something that we had been doing in private equity, uh, dating back to 2002. So that created a, a great opportunity to use our GP [00:03:00] relationships, our information advantage, to quickly pivot and, and, you know, provide a solution to the marketplace, namely in, in LP secondaries.

Um, we then extended further our strategy to, um, you know, look at our GP relationships and how can we be more strategic to them. And we started doing direct co-investments. So, you know, that's a big part of, of what we do. Um, and so when you fast forward to where we are today, um, you know, I'm leading a team of, of five professionals.

Um, you know, we're doing the same type of investment activity. Uh, in secondaries and, and co-investments. Um, but in today's environment, we're really focusing on income-oriented opportunities. We think, you know, the core plus base, uh, is providing some of the best risk-adjusted opportunities today where, uh, where the market has been repriced and the need for liquidity, uh, that's where we want to be playing.

Alan Flannigan: So Jason, it seems, first of all, it's very interesting the birth of real estate secondaries coming out of a lot of the [00:04:00] private equity expertise that the firm had, you know, around the GFC and, you know, we're, we're going through, you know, the other end of a similar, you know, CRE correction, obviously for different reasons. Uh, but it seems like most people agree that that's come to an end, you know, at least in, you know, many of the ways that we think about it. You know, property values have stopped declining, activities improving, albeit, albeit slowly. Uh, and fundamentals have at least stabilized and are improving in some sectors. You know, but there seems to be perhaps a lack of consensus, you know, about what type of market, market environment comes next. You know, at a high level, how would you describe, you know, where the market is headed and how does that compare with, say, a year ago?

Jason Landon: Well first, you know, taking a step back and, and looking at the last three years, it's been a challenging, uh, three years. Mm-hmm. You know, but you know, over that time a lot has happened. The market has adjusted. Mm-hmm. Uh, expectations have adjusted. So I think you need those two elements first to, kind of, get to the [00:05:00] other side and start, you know, thinking about a recovery here.

Mm-hmm. And so, you know, with the expansion of cap rates with a, an expectation by investors and market participants of hire for longer. Mm-hmm. I think that sets the foundation right. And, and along all along the way, you've had fundamentals that have continued to improve. Mm-hmm. So, you know, we did have a significant in, in, in addition to, um, you know, the rapid rise in, in rates kind of back to normal.

Mm-hmm. 

Um, you also had on the back of that, uh, a huge addition of supply. So, you know, that led to the challenges that we've all been facing. But now, uh, and, and, and you've all have written about this, fundamentally as we look forward, you know, that supply pipeline is really dropping off. Um, demand has remained resilient.

So, you know, that all feels pretty good. And then you look at the indices, you look at, you know, the, the Odyssey Index, for example, and that's an index that is, you know, widely accepted across the marketplace as an indication of where, you know, private real estate is; it's the [00:06:00] open-ended, you know, uh, core index, uh, for real estate.

And, you know, after two-and-a-half years of negative returns, mm-hmm, this year it turned positive. So, and once it turns positive, it tends to stay positive. So, I think when you, when you look at all those elements, um, the Survive 'Til '25, you know, discussion that, that took place, mm-hmm, but we're here. Yeah, it's now '25. It's third-quarter, '25. I think people might've, you know, when they were saying that it felt, you know, it was gonna look and feel different than it, than it does, um, but there has been a lot of progress in the, in the marketplace. Um. Okay. And I think some of the, well, why are you asking the question? Why isn't there consistent consensus about where we are? Mm-hmm. Uh, it's still taking time. Sure. Transaction volume still isn't back to normal, but again, we're getting there. Sure. Uh, and then for investors, they still aren't seeing those distributions fill their inbox or, or their bank accounts, so they're in need of that. Um, but it's all coming. It's, it's just taking time.

Andrew Korz: Yeah. I, I, I love how you phrased that, Jason. And, and you [00:07:00] know, we think about, like, the interest rate environment, right. I think of of, I, I, I would call it normalized interest rates, but higher interest rates, however you wanna, you know, slice it. Um, they sort of act as a constraining factor, right. We came into this year across private markets.

I think a lot of people expected the animal spirits to come back, right, for sort of deal volumes to explode in, in, in buyouts and in real estate and in other parts of the market. That's not what we've gotten, right. Part of that's been, uh, policy uncertainty, right. On the sort of, uh, government side, but part of it's just that interest rates have, sort of, stayed elevated, right.

And I think the reality is. You've got, you know, elevated or positive real interest rates for the first time in a long time. And that creates a, sort of, friction. That means that the, you know, the recovery that we're seeing is gonna be more gradual, right. Mm-hmm. And, you know, I, I, I think in our view, absent some more meaningful, uh, slowdown in the economy, we think interest rates stay higher than they were during the 2010s, you know, into the future.

Obviously we're, we're [00:08:00] recording this, uh, September 12, on a Friday. The Fed's gonna likely cut rates, uh, you know, by the time this podcast come out, uh, comes out and the, you know, the bond market's reacted to that. But, you know, as you're thinking about the impact of interest rates and obviously real estate's an incredibly interest rate sensitive, uh, you know, part of the market, how are you underwriting deals today relative to maybe, you know, six, seven years ago?

How are you looking at the sort of interest rate risk and how are you baking that into your, your assumptions? 

Jason Landon: A lot there, Andrew. There is. So, uh, uh, but I think it all starts with, you know, our approach to underwriting and, and where we're focusing in the marketplace today. So what you're laying out there, and what it says to me is where rates are, where cap rates are. Um, the levered IRR is more challenged than the unlevered return. Mm-hmm. Right. So, um, and our focus on income and income growth, the reset in values, you know, when we're underwriting, you know, real estate, we first start with where are the, where are the greatest demand drivers? [00:09:00] Where is the greatest, you know, potential for income growth?

And then obviously we want to be, you know, acquiring assets at a discount to replacement cost to protect on the downside. And we don't know where cap rates are gonna be at the end of the day. We can only run sensitivities. And so what we, you know, the approach that we take is we effectively underwrite two scenarios. Um, we did before, we do now. Mm-hmm. And those scenarios are, hey, if we're in a hire-for-longer scenario, we want to be in property sectors and markets that are gonna participate in exi, excess growth. And so under that scenario, you know, those, those, those assets will continue to perform because they're gonna generate that income growth.

So we'll get unlevered yields, uh, or, or, you know, yields on costs that are greater than 7%. Mm-hmm. You know, even upwards to, to 8% in some situations. Uh, and then on the downside, if we're doing our job right and we're focusing on these sectors, these demand drivers, um, that have those strong you, you know, um, uh, drivers behind them, then if the, if [00:10:00] the, you know, economy starts to soften a little bit, oh, guess what. Well, first of all, we're coming in at a much better basis, yeah, um, you know, first off. And then secondly, it should be very durable. And we do have leases, so it's not, you know, unless you're doing hospitality, which is not a big focus of ours.

Right. We do have some term here in embedded where we can take advantage of that. And then as those roles participate in, in the growth. So, we underwrite, kind of, higher-for-longer or in a scenario where, you know, the, the economy shows some weakness and what does that look like? 

Andrew Korz: Yeah, that's, that's really interesting. And I think you've, you've probably said the word income or we have probably said the word income, you know, five or six times already. Um, you know, I think you look back to, to the 2010s period where you did have this sort of rising tide lifting all ships, right, where cap rates were following interest rates lower.

Um, you know, that allowed sort of this, this what I would call beta price appreciation across the, you know, across most of the market at least. Um, you know, that's different now, but I think on the upside, to your point, you know, asset yields are higher, right. Cap rates are higher, [00:11:00] um, and that means you're starting income, uh, you know, asset yield is higher.

So, you know, as you're looking around the market and you talk about the need to, sort of, source durable, uh, you know, uh, income generation, what parts of the market are you, are, are you seeing where you think that is, uh, most attractive today? 

Jason Landon: Yeah. I mean, what we're, we're, we're focusing on are opportunities that have high cap cash flow, low CapEx kind of profiles. Mm-hmm. So, um, and I was just at a conference and, you know, there were surveys done about, you know, where people think we are in the market, you know, what are they most interested in. And, you know, no surprise, you know, industrial continued to, to kind of, you know, be at the top of the chart. Mm-hmm. Um, you know, and industrials there, the niche sectors are there.

But I think you know where we are today and the opportunities to invest today, you know, you gotta peel back the onion a little bit. 'cause when you say industrial, there's a lot of segmentation within that, within that property sector, right. So, um, where we think there's the most compelling [00:12:00] opportunities today, it's kind of shallow bay light industrial, uh, it's had less deliveries in terms of supply. It's very hard to deliver that type of product where it makes sense. Uh, and you can really see, you know, releasing spreads are, are quite positive. Um, and they're participating in the broader economy with great diversification of, of tenancy.

So, you know, that's where we like, um, the most, uh, Andrew. But, you know, there's, there's opportunities beyond that in the, in the, in the residential sectors. Um, you mentioned triple net lease, you know, is something with, with elevated yields that has been very attractive. So, um, but top of the list, I, I'd put industrial there.

Andrew Korz: Sure. And maybe a quick add-on. Uh, and maybe, you know, for my own, uh, you know, interest, what, what makes a good real estate operator? I mean, you, you said you guys are focused on core, core-plus type of properties, low CapEx, but you know what makes a good owner and operator of a real estate property? 

Jason Landon: Uh, you gotta buy, well, first of all, right. Uh, you only get what you only, you only get one shot at your basis. Yeah. [00:13:00] So you gotta get that right first and foremost, you know. Secondly, you gotta be able to lease. You gotta be able to create, you know, income growth. Um, you know, again, cap rates on the back end. You know, that, that, you know, the market will take care of that.

Uh, but if you get that income growth, it's gonna be tough to be disappointed. So, um, you know, we look at, and, and then I guess, you know, finally you gotta be a disciplined seller. Mm-hmm. Mm-hmm. So, you know, some of these people in the lessons learned that we've seen in this marketplace, um, you know, for whatever reason holding for last dollar or disappointed with va, value, you know, holding onto assets and then become more disappointed, mm-hmm, in, in some cases. So, um, you know, we want to see, you know, the buy well, operate well and then be a disciplined seller. And on the operation side, I mean something that we always do when we're looking at, you know, the sponsors that we're partnering with is look at the returns they've generated historically and apply some attribution. Mm. How much of it's from cap rate compression? How much is it from income growth? Mm-hmm. So we, we try to dissect that and say, hey, what was your NOI at acquisition? What was [00:14:00] it at sale? And see, you know, did they rely on the market? Did they just buy well or could they op, actually operate?

Alan Flannigan: Jason, you're talking about the important of operation and one of the things I appreciate about this business is we have such a vantage point, you know, on the economy and kind of how things function.

And then we take it out and we live our real lives and a lot of times we see them kind of bleed in. And I just moved with my wife, you know, from an apartment building. And a big part of the reason why we left was because the people, the property management teams operating the building, you know, just left so much to be desired. I mean, we, you know, we, we felt like we weren't treated well. It took month. 

Andrew Korz: Full disclosure, I've lived in the same building and I can, I, I can firmly agree with that. 

Alan Flannigan: You know, I didn't have AC for an entire month last, last summer, and, you know, we're sitting there and it's like, it's a great, wonderful property and it's being managed terribly. Like, I'm like, their GP who owns this property has gotta not be happy with how this is being run. I, I, it just struck me because it's, like, even at an individual level, this operator importance, it plays down into, like, Andrew and I [00:15:00] both don't live there anymore. Yeah. You know, it's, uh, it has a real impact. 

Jason Landon: Alan, great point. And, and I make the analogies, like, you go to a restaurant, it's got great food and terrible service. Mm-hmm. What's harder to deliver? Yeah. The, the, on the food side or the service side. Like, like you gotta get that right. It's a no-brainer. Mm-hmm. And, you know, we were just with an, an operator recently. And they talked about having a hospitality mentality, mm-hmm, uh, in terms of their operations and how they go about leasing. And number one, you gotta be, you gotta have the ability, you gotta be able to, you know, to, to spend the capital, spell it, uh, spend it in advance to maintain the property and, and to get the leasing done that you want to get done. And then you gotta treat your tenants, uh, properly.

You gotta give 'em the attention and, and make them want to be there. And in a competitive environment, that's the difference, you know. So, and you can't rely on the broker as an operator. Mm-hmm. You should be there alongside the broker, and you don't want to be outsourcing that activity 'cause it's the most important activity you could possibly do. Right. That's where the, the value is generated. That's where the income [00:16:00] growth is generated. So if you're outsourcing that function or you're not getting it right, or you're not making your tenant feel important, um, you know, I think that you're, you're not gonna get it done at the end of the day. 

Alan Flannigan: I think Jason's right. I think maybe I did just want a little attention, you know.

Andrew Korz: Yeah, no, I mean, hey, don't we all? Yeah. Don't we all? Absolutely. 

So, so, you know, you know, we've talked a lot about the market here from sort of a high level Jason. Um, obviously I think we agree that, you know, prices of reset, um, you know, we've got, we've got sort of stabilized normal cap rate levels. Uh, fundamentals, I think in most sectors look like they're, uh, improving right now. Uh, the supply, you know, sort of, wave that we got is coming to an end. A lot of good opportunities to drive strong income and, and income growth within the real estate market today. What are the best opportunities you're seeing, uh, and that investors are seeing to actually access that opportunity? 

Jason Landon: Yeah. Um, and I would add, so, so one other thing to overlay there, um, Andrew, which creates the opportunity is you still have [00:17:00] illiquidity, right, mm-hmm, you know, from an investor's perspective. So, when you look at the open-ended funds, you know, the Qs remain, they've extended well beyond where they were in the GFC. Now they've come down a bit, but they're still there and they're at elevated levels. When you look at the closed-end market, um, and you look at DPIs for the vintages of 2018, 2019, nowhere near where they, they would be in a normalized market if you, if you modeled it out.

So, you know, that's the, the opportunity in the secondary market if you can be a solutions provider, um, to GPs and LPs by the way, right. So GPs, you know, fundraising hasn't been all that easy, especially for the operators that we were just talking about, even the good ones. So, you know, and they, and do they want to hold onto their better assets?

Sure. So if they can recap them, participate in this income growth going forward, in this next phase of the cycle, there's ample opportunity to do that. And that opportunity is growing substantially, I think as values, you know, have adjusted and we'll still see some more value adjustments, by the way.

[00:18:00] Mm-hmm. So even though we feel confident about where we are in the market, that we're kind of getting to the other side here, that doesn't apply to every asset. And you'll still hear of news of, of assets, trading hands and, and, and disappointments, you know, across the board. Um, but when those values have adjusted to the point, you know, LPs, I think will tap into the secondary market.

So if you can use the secondary market to access these opportunities that even, and create an even better and more compelling basis, and participate in the recovery and the income growth, you know, that's where we think there's, there's an interesting opportunity. 

Alan Flannigan: Jason, one of the things I heard you say there is, you know, the market's kind of calming and I, I think a good way to kind of tie this up is, you know, the market's become calmer but not comfortable. Like you said, there may still be valuation changes that, that occur, but the market has gone through a phase where it's really gotten back to normalization.

And I think that's one of the big takeaways for us here is, hey look, we're back to square one. Now it's being a real estate investor like you have been for the entirety of your career, focusing on income growth, [00:19:00] quality properties, buying at attractive prices and finding the best way to enter into those assets.

So, you know, Jason, your, your lessons you've shared today and, you know, the experience and insight on the market has been, you know, invaluable. Uh, so grateful to have you join the podcast and hope to come back and join us again. 

Jason Landon: Great. Uh, thank you very much Alan and Andrew. And, and by the way, Alan, I think I'm gonna use that, uh, so, uh, calm but not comfortable.

So I like that there. I like it. 

Alan Flannigan: Thanks Jason. Thanks, Jason.

Speaker 38: That was our conversation with Jason Landon, head of Real Estate Secondaries here at Future Standard. And now we talk with Rob Lawrence, Head of Real Estate Credit. 

Alan Flannigan: Joining us on the podcast, uh, it's Rob [00:20:00] Lawrence, our Head of Global Real Estate Credit.

We're excited to have him share his background today. He's got over 20 years of experience, uh, in the real estate lending business. Uh, somebody that we're excited to learn from today. Uh, lessons that he's learned in his career. Uh, parts of the market that are interesting to him today. Uh, so Rob, uh, welcome to the podcast and, please, uh, share a little bit about how you got here today. 

Rob Lawrence: Great. Thanks for inviting me. I really appreciate it. So I started my career during the Savings & Loan crisis in the early nineties, and, uh, I learned quite a bit from that over the course of the years. I, uh, transitioned to the CMBS area, uh, with Bear Stearns and then later JP Morgan Chase and have been through quite a number of different, uh, interesting crises along the way, which I'm happy to go into more.

Uh, I've been with Future Standard since 2017 and, um, we navigated successfully several crises in the market here, [00:21:00] uh, including as, you know, COVID and the run-up in rates and, and other more minor issues over the years. 

Alan Flannigan: And, you know, that really brings us to an interesting point in the real estate market now. You know, most folks would say that the market has made its way through the worst of the correction, mm-hmm, that we've had most recently. And we would really agree with that. You know, but at the same time, property values are sort of flat over the past year and capital markets activity, you know, hasn't really ramped yet. So, you know, how would you characterize where we are in the market cycle right now and where do you expect things to go in the next six to 12 months?

I feel like we've come through the worst, uh, for sure. You know, the, the year got off to a good start and then with the Liberation Day there was, uh, there was a market pause mm-hmm, um, with the capital markets in other areas, right. So for a couple of months it probably set, set us back in the market, meaning, you know, real estate market capital market's about two, three months.

Rob Lawrence: And, uh, we've come through that, uh, really well. [00:22:00] We're, we have a very, you know, we're looking at a very strong, uh, year end, and I think next year is really gonna be a year where things start to happen, as rates, uh, begin to come back, there's a lot more interest. There's a lot of dry powder. I'm sitting on the sidelines both on the debt and equity side. So, uh, I'm pretty excited. 

Andrew Korz: So, uh, you know, an activity comeback that's maybe been delayed but not, uh, not denied. So, you know, obviously Rob, you focus on the credit side of the business. I think most folks who are listening are probably more familiar with, with the equity side of real estate. As we mentioned, you, you run one of the largest, uh, commercial real estate, private credit vehicles in the market today.

Um, obviously as you mentioned, you've got a diverse set of experiences, uh, from, you know, distressed, uh, credit to, you know, the CMBS market. Um, you know, so you've got this, this sort of unique perspective across the different areas of the, of the real estate credit markets. Um, you know, it's just sort of a two-part question.

So first mm-hmm. Throughout your [00:23:00] career, can you kind of walk us through how the commercial real estate credit markets have changed? And, you know, to remind folks this is a $6 trillion market. It's a massive, massive market. Uh, how it's sort of changed and morphed throughout your career. And then relatedly, you know, what role have those changes, you know, especially post-GFC, what role have they played in, you know, the fact that the capital markets held up much better in this past sort of crisis, as you mentioned, than they did say in, in the GFC and, and, and, and previous crises. 

Rob Lawrence: I've been fortunate enough to be a, you know, in the market since the inception really, of securitized products in, uh, commercial mortgages, really. You know, it was a little bit before I, I got into it, but it was very small and so I was front and center, um, coming out of the S&L crisis into, you know, a time when banks, investment banks were aggregating commercial mortgage and [00:24:00] securitizing 'em, right.

So that grew, you know, as everybody knows, or most of you know, significantly, you know, through the nineties. And then the 2000s. Within that though, there were some major bumps in the road. 

So when, when the GFC happened, uh, obviously took out every player for a period of time and what was left after that as coming out of the GFC, were really the big banks in the securitized products area. So, you know, most of the smaller players just, just went away or went outta business, weren't there anymore, right. And um, the loans that were, that are being made by the, by the investment banks, and then securitized is, um, they did one thing pretty well, or two, it was, you got, they got higher leverage. Mm-hmm. Um, they got, and they had term, right. What wasn't so great was the lack of flexibility on those loans. So you couldn't, you know, pay them off when you [00:25:00] wanted to. You couldn't modify them, uh, upsize, downsize them, re-amortize, none of that. So, um, there, there's def, there was definitely a, um, an area of the market that needed to be covered by a different source of capital. And what we saw was private credit vehicles, uh, coming to be, which offered, um, borrowers more bespoke financing terms that, um, gave them flexibility to add value to their properties as needed. And then when they were done, pay off that loan in a, in a much less costly way. 

Andrew Korz: Right. So, so basically what we've seen is we've gone from a market that was, sort of, dominated by less flexible, less dynamic players like banks and, and, and the securitized markets to, you know, a more diverse, more robust, uh, lending market. Is that a, is, is that sort of a fair statement? 

Rob Lawrence: Yeah, it, it, yes. And, and also, um, you know, most banks don't like holding real estate loans for [00:26:00] extended periods of time and, uh, use their balance sheet, um, strategically, uh, you know, because of the, all the, regulatory risked capital requirements and, uh, the Basel, Basel III. Um, so it all comes back to what the private credit vehicles offer is something that is very hard for the banks to do. 

Andrew Korz: Right. Right. So that's, that's a great overview. I think let's, let's maybe bring it from, you know, high level down to the ground level. You know, obviously a key aspect of this cycle has been significantly higher financing costs. That's, mm-hmm, that's sort of the defining feature of the past call at, you know, three, three-and-a-half years, you know. The cost of a commercial mortgage is, you know, depending on the product, maybe 2 to 400 basis points higher today compared to, to the 2010 to 2021 period. Right. And you know, as a lender, when you're looking at deals, um, you know, that's [00:27:00] great because it allows you to drive better en, uh, better income for, for your investors. But I imagine on the other side, it also tightens the margin of error for borrowers, right. So when you're underwriting a credit, uh, today compared to, say, six years ago or even four years ago, what's changed in your process, if anything?

Rob Lawrence: Because I have been in this so long, mm-hmm, uh, I would, I would have to say not that much because, you know, rates were artificially very, very low, right, uh, for a very long period of time. And a lot of people got used to it, right. Lenders, borrowers, kind of, everybody got used to it. And that's not normal though, that's not a normalized, um, rate environment. So, you know, we always look at, you know, debt yield, uh, loan to value, um, debt service coverage ratios and we always look at things on a normalized, stabilized basis, um, with, you know, rates included. So, um, I would say not, not a ton.

Okay. I, I think since the GFC, there's [00:28:00] been a lot more discipline in the market overall, um, with structure. And we've, you know, structure is always the, you know, one of the most important things, the first, the most important thing... 

Andrew Korz: And can you, the borrower, can you explain, just for our listeners, what's, what you sort of mean by structure?

Rob Lawrence: Sure. Starting with, you know, the capital structure first and making sure that there's, you know, uh, real equity in there, in front of you, that takes the first hit. Um, equally, if not more important though, is, is the sponsorship group that you, that you're lending to. Mm-hmm. And do they have the experience, the track record, and frankly, the trustworthiness that you, you want to do business with that group?

Um, and sometimes it, it's not always the biggest, many times it's not always the biggest of the borrowers that will, um, leave the lender with the best outcome if things don't go as planned. Sure. 

Andrew Korz: So Rob, [00:29:00] you know, right now I think is an interesting time in the economy, right.

To, as you mentioned, I think the Fed is expected. You know, we're sitting here on, on September 11, uh, the Fed is gonna meet next week. We expect they'll probably reduce interest rates. Um, you know, that's, that's a positive, I think, for the market as a whole. I think it should reduce frictions and hopefully, you know, open up some opportunities for activity to increase.

Mm-hmm. On the other side, there's also some signs that the economy is slowing. The labor market has, has softened a bit. Um. You know, what are you seeing real time from, from your borrowers, from sort of a, you know, cash flow perspective? Are these borrowers, you know, are, are, are these properties still performing, uh, as you expected when you underwrite the loan?

Rob Lawrence: So, we're seeing most properties perform better than they were a few quarters ago, and I think, you have to look at real estate is a local business. Yes. There's obviously the macroeconomic factors, rates being the, the biggest factor in unemployment and that sort of thing, but [00:30:00] it, at the end of the day, it's, it's local and, um, you know.

So we focus on growth markets, uh, markets that, um, can absorb the supply that had been built. And, you know, as, as a lot of people know, there was a lot of, um, excess construction done in, in heavy growth markets, um, right. And a lot of that's been absorbed and is being absorbed. And there had been a, a lot less new construction in the last couple years due to the lack of capital, right.

So as that's absorbed, um, we feel very good about the fundamentals, particularly on housing, multifamily, um, even, you know, single-family rentals, um, very strongly. 'Cause ra, uh, you know, rents are, are gonna be going up. The things we've talked about in the past and home ownership, you know, being, even if rates come down, it's still a rather expensive prospect. Mm-hmm. Not just with the rates, but the down payment and the fact that, [00:31:00] um, people these days do tend to like to be more, a little bit more mobile, less tied down, and it's just a, a different, um, it's a different market than it was. 

Andrew Korz: You know, I think multifamily, that's a great segue. It is. Yeah. I mean, uh, multifamily and industrial have obviously ,been right, the hot property types. You can probably add data centers in there today. I'm gonna put you on the spot. Uh, yeah. Uh, give me one part of the market right now that you think that investors or the market writ large is underestimating. Maybe pricing is too wide relative to what you think the risk is. Where do you think there's opportunity lying in weight, uh, uh, in, in your mind? 

Rob Lawrence: Well, I, I think that some office opportunities are excellent, uh, opportunities now, but you, you have to be very, very careful with those, right. Um, so we, we think that something well located that's walkable, that's heavily amenitized. Um, you know, that has, you know, the way I describe it [00:32:00] is, you know, you look at it and you get it right away. Mm-hmm. Mm-hmm. There's not a story. Nobody's really in the mood for a story, um, with any kind of office asset. And I don't care what fund you're talking to, that, that's just like typical, um, look for years, you know, way before any of these, um, you know, the interest rates or even COVID or any of this, you know, suburban office has been sort of the butt of jokes for many years, mm-hmm, in the institutional, um, real estate investing community. And, you know, that's a little unfair because there are pockets that, that are, that are good. But those are areas where I would stay, I, we stay away from commodity product, whether it's office or it could be, you know, a cookie cutter, limited service hotel that are really fairly cheap to build and we stay away from where land is cheap.

 Look, it, it goes in cycles, you know, for, for years. You know, retail is hated, especially malls. Mm-hmm. Like, you know, and frankly, most malls are, are not, are not gonna make it. [00:33:00] And I think everybody knows that, but they're not all the same, right. So a hundred or 150 of 'em, they're not only make it, they're gonna thrive. So, mm-hmm, I think, um, you know, uh, uh, and I'm not suggesting malls, but areas around malls that are, that are good. Um, I think, um, there's other, other things that could be added around, around malls, retail in general. I, I still like, like the grocery, you know, again, these are nothing unique. But it really does just come down to location, access, population growth and employment in that local market. And of course, as I said, I keep coming back to who's the borrower. 

Andrew Korz: Yeah. And I, I, I love this idea as we close it out that like, mm-hmm, we're going from a world, you know, to your point, the 2010s were an anomalous period from, from an interest rate standpoint.

And it really was like a, you know, rising tide that lifted all ships. Obviously you had some exceptions to that, you know, the malls [00:34:00] being one. But now we're really in a market with elevated financing costs where it's gonna be an asset by asset, operated by operator type of market. 

Alan Flannigan: So, so with that, Rob, thank you for, you know, sharing your experience, uh, you know, find that exciting in terms of the opportunity set that, yeah, that you see attractive. Again, it, it always comes back to, you know, assets specific. Uh, it needs to make sense. I, I love the way that you put that. So thanks again, Rob, uh, for joining us and, uh, sharing your expertise with us. 

Rob Lawrence: Thank you very much. Thanks, Rob. 

Alan Flannigan: Andrew, we just had two amazing conversations with, you know, leaders, uh, on our Real Estate investment team here at the firm. Jason Landon. You know, the, the, the knowledge that he shared with us. Rob, the same, you know, the many years of experience through so many different periods of turbulence in the markets. Yeah. You, what are your, what are your kind of big takeaways from those conversations?

Andrew Korz: Yeah, it's interesting to hear them sort of compare this previous correction, uh, to, you know, other, you know, downturns in the real estate market they've seen throughout their careers, [00:35:00] whether it be the GFC or Rob mentioned the S&L crisis, mm-hmm, back in, you know, the early nineties. And I think, you know, clearly this correction was profoundly different and I thought it was interesting that they both had similar answers as to, you know, we think this correction is over, right. Mm-hmm. Property values have probably troughed, uh, in, in most parts of the market, but you know, what lies ahead may be different than what we've seen before.

Mm-hmm. Right. And I think if we kind of bring this back to our Private Markets Outlook, the report that we released mm-hmm, uh, a month or two ago, you know, when we, we, we think about the defining trends we talked about, right. And that was sort of the flow of capital, you know, the constraints on fundraising, the flow of capital into the mega funds. You know, higher, higher-for-longer interest rates and what that means. Mm-hmm. And then sort of this broad uncertainty around, you know, policy, deglobalization, things like that. I think there were some really interesting points there that they made in relation to those trends, right. Mm-hmm. So in the flow of capital side, you know, we didn't really get into the, you know, the concentration aspect, but we did talk about, you know, the lack of liquidity, right, mm-hmm, on the equity side and sort of [00:36:00] the lack of distributions that investors are, are, are experiencing. And I thought it was really interesting to hear Jason, sort of, run through the secondaries opportunity, the opportunity to be a liquidity provider into that type of environment, um, and enter at really attractive bases.

I think on the higher rate side, it's, you know, that, that's where I'm really glad we had someone from credit and someone from the equity side. Mm-hmm. Um, because, you know, higher rates do introduce a different market environment. On the credit side, you know, Rob mentioned, we asked him, how are things different today?

How is your underwriting different today than it was maybe, maybe seven or eight years ago? And he said it's not really, yeah, right. 

Alan Flannigan: Surprising answer. 

Andrew Korz: Yeah. But I, I, I, I, I think when you get down to it, right, credit is about mitigating downside, right. And you're looking at these metrics, right. Loan to value, um, debt service coverage ratio, you know, you're looking at how likely is the borrower to piggyback, right. Mm-hmm. And in that sense, rates are higher. Maybe it changes some things, but fundamentally, you're looking at the same things. Mm-hmm. And then on the equity side, it really has become an income driven market, right.

Mm-hmm. And I, I, I think Jason really hammered that home well. It's about how much income [00:37:00] growth you can drive at the asset level. Sure. Right. And then I think, you know, on the uncertainty side, like going back to that idea, like, this is not a beta market. This is an alpha market now. Mm-hmm. Right. You're having to deal with all of these things, you know, higher financing costs. Uncertainty on the policy side. Um, obviously some macro questions and you know, it's, it's gonna be about, like, can you identify the assets, the sponsors? Can you operate the properties such that, um, you know, you can drive that income growth that we're talking about? That's ultimately gonna be, mm-hmm, must, much of the return that we see in the real estate market, you know, going forward.

Alan Flannigan: I mean, something I had a, a takeaway that went across both as well is that, you know, some of the opportunities sets are really kind of informed by other asset classes. What I mean by that is when we think about real estate secondaries, where you can step in, like you said, and be that liquidity provider. You know, Jason talked about how, you know that field was really built out of the GFC.

Yeah. And taking cues from the private equity secondaries market that was really beginning to take off, you know, at [00:38:00] that same point in time, and having the benefit of being able to walk down the hallway and talk to somebody who is executing private equity secondary deals. And that informing, you know, a new branch of, of what we do on the real estate side as well.

And then for Rob on the credit side, talking about the improvements in flexibility on some of the terms.The ability to upsize a loan on a commercial real estate property, the ability to have the property owner go in and make value-add improvements and still have that financing in place. That flexibility, yeah, that wasn't available through, you know, syndicated markets or through, you know, traditional bank lending, that the non-banks have come in to fill that role with. 

Andrew Korz: Yeah, and it, it just speaks to the innovation that's occurring within private markets, right. Mm-hmm. And that's happened over time. And, you know, I think ultimately on, on the credit side, to your point, we've seen it in corporate credit that, you know, private credit's become a dominant player in that financing market. I think we're, you know, we're just scratching the surface on, on, on what's gonna happen in the commercial real estate credit markets.

Alan Flannigan: So it's an exciting time. Again, I think the, one of the big takeaways is the market is more calmed. [00:39:00] Yeah, maybe not comfortable...

Andrew Korz: Calm, but not comfortable. So gotta keep some people on their toes, you know. 

Alan Flannigan: We'll take that with us. We'll say thank you again to Jason and Rob, uh, for sharing your experience and expertise with us and with our listeners. Thanks for listening to this episode of the podcast.

For more on the Private Markets Outlook, check the link in the show notes or visit future standard.com.