Market Commentary

2019

December 3, 2019

December 2019 Market Commentary

The middle market is the place to be and it remains stable. We see cracks in certain asset classes and geographic markets, but we also see safety and stability.

JCR’s continued focus on the middle market limits our risk and volatility, as we trade in assets that have the largest buyer pool in the country.

The middle market is defined as assets valued under $50 million, which is typically small for institutional ownership. A few middle market statistics:

  • CRE assets of $50 million or less represent approximately half of the $24 trillion U.S. commercial real estate market5[1]
  • Account for the vast majority of commercial real estate transaction volume (95%)[2]
  • The majority of the equity capital in these assets are syndicated and hard to predict
  • The nature and demographic trends of the ownership of these assets often create non-macroeconomic reasons for value investment opportunities

 JCR Capital is one of the few institutional investors dedicated to middle market commercial real estate investments.

Overall, we see the following in today’s market:

  • Occupancy is strong
  • Rent increases are being accepted
  • Leasing terms and pacing are favorable
  • First trust debt: Still no major red flags. Lenders are not over their skis and will not suffer in a correction.

How JCR is investing in today’s market:

We believe the Fed has over-corrected on interest rates and has moved rates lower than needed. This has increased real estate values, as buyers are paying more for cash flowing assets, accepting lower cap rates, and are focused on yield (non-cash flowing assets represent future opportunities). If cap rates were to spike, it would be a problem for most (not JCR) – it’s hard to see that happening, but of course we remain defensive in our underwriting approach.

Given our views above, JCR’s current investment preferences are:

  • Workforce housing, specifically B/C multifamily housing
  • Industrial
  • Grocery-anchored retail in lower demographic areas
  • Flex office
  • Storage

JCR has currently “red-lined”:

  • Urban multifamily (unless distressed)
  • New construction
  • Middle market office
  • Senior living

[1] U.S. Federal Reserve and Trepp.

[2] Real Capital Analytics

IMPORTANT INFORMATION: THIS SUMMARY IS NOT AN OFFER TO SELL ANY SECURITY AND INTENDED FOR OUR INSTITUTIONAL CONTACTS. THERE IS RISK OF LOSS WITH ANY INVESTMENT AND PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. ONE CANNOT USE GRAPHS OR CHARTS ALONE IN ORDER TO MAKE AN INVESTMENT DECISION. FORWARD-LOOKING STATEMENTS OR OPINIONS STATED IN THIS LETTER ARE OPINIONS AND SUBJECT TO CHANGE. AS A PRIVATE REAL ESTATE FUND, INVESTMENTS ARE ILLIQUID AND INVESTORS CANNOT READILY WITHDRAW THEIR INVESTMENT IN THE FUNDS. PORTFOLIO PERFORMANCE CAN ALSO BE AFFECTED BY GENERAL MARKET CONDITIONS, INTEREST RATES, AVAILABILITY OF CREDIT AND OTHER ECONOMIC CONDITIONS THAT AFFECT REAL ESTATE MARKETS.