REAL ESTATE and the BUILT ENVIRONMENT

Faculty Research Published: Investment and Development Behavior Following the Great Recession




Professor Ray Torto‘s research investigating commercial real estate (CRE) trends after the Great Recession is included in the Routledge Companion to Real Estate Development book published by Routledge. This 2018 publication examines a collection of contemporary themes and issues in the field of real estate development research. An abstract of Professor Torto’s published article is below:

Commercial real estate is capital intensive, and Managers operate their businesses to serve the expectations of capital: to invest in and develop commercial real estate.

The first chapter investigates the operations of the global commercial real estate (hereafter, CRE) investment management business within the context of the changed environment of investing and developing into CRE since the global financial crisis and the subsequent Great Recession.

Next chapter documents the changes in the market along with changes in the operations of the CRE investment management. These changes have been observed by the author and have been corroborated with interviews with senior professions in the CRE investment management business.

The third chapter draws out the implications for market performance from the changes in the investment management business operations. While it is clear to this writer that the industry has moved from a deal-making culture to a business operational culture, aligning its interests with its institutional clients, targeting to minimize risk than reach for performance, it is ironic that the pricing in the market is pushing these same managers to take on more risk today.

The interesting and unanswered question, from the point of view of the market for commercial real estate, is what will be the amount of supply coming to market due to this change in investment strategy. Will it follow the traditional path of a building/construction boom which was the case when development was financed by lender capital? Or will equity capital, provided through the vehicle of CRE investment management firms, be more tempered in financing new development? Of course, time will tell.

For additional information on the publication, see here.