| | | | | | | | | | Public pension funds are seeing a return to higher returns after a few gloomy years. But there’s a dark spot — their real estate. An analysis by MPI Transparency Lab found that the larger a pension fund’s real estate portfolio, the worse it did and the more likely it was to miss its benchmark. “Pensions’ exposure to real estate has functioned similarly to venture capital in the endowment world, pulling down returns in the recent two fiscal years,” CEO Michael Markov told Institutional Investor. | | | | | | | | That could lead some pension funds to reduce their allocations to property — a reversal from the pre-interest-rate-hike days when pensions scaled up their real estate investing. CalPERS, the U.S.’ largest pension, took a 5% loss on its real estate holdings earlier this year and said it would pare back its allocation to about 8%. But John Gluszak, head of real estate for the New York City Employees' Retirement System, told Bisnow in October he doesn’t think that’s the best move. “I personally don't think a reactionary movement is wise if you're managing pension money because these are long-term benefits that we have to pay out and we need long-term performance,” he said. Gluszak said NYCERS has maintained an 8% target for real estate assets under management through various market fluctuations, and MPI reports the overall fund is expected to get a 12.4% return this year. That property allocation is on the lower end, so it does fit with MPI’s thesis — it called out the Arizona State Retirement System, with an 18.7% exposure to real estate and a 9% 2024 return, as its poster child for the detrimental effects of real estate investing. The firms that are keeping their real estate AUM high are often making tweaks within their portfolio, however, typically moving away from office and into industrial and multifamily. Public pensions in Europe are also shifting into life sciences and decarbonization. That includes an increase in affordable housing investment, which pensions have typically found to be a bit too risky. — Mark F. Bonner, Jay Rickey, Kayla Carmicheal and Catie Dixon Not getting The First Draft in your inbox? Click here to sign up. Got any feedback or want to send us a mailbag letter? Email first...@bisnow.com. On Our Radar CRE refinancing is facing rate-driven challenges. CRE loans maturing through 2026 — especially those from 2014-2016 vintages — face refinancing hurdles as interest rates have surged from mid-4% to more than 6%. According to Trepp, many borrowers have fallen below the 1.25x DSCR benchmark required for refinancing. Even with further rate cuts, borrowing costs may remain high, impacting liquidity, transaction volumes and valuations. Properties with declining revenues (or high expenses) risk defaults or distressed sales. Despite slight easing, lenders are still enforcing stricter underwriting standards. BlackRock believes in America’s economic “exceptionalism” and real estate. In its 2025 Global Investment Outlook, the firm said transformative forces are driving real estate and infrastructure demand — particularly in AI, green energy and urbanization. Still, challenges from inflation and geopolitical shifts remain. But as Dec Mullarkey, managing director at SLC Management, recently said, “When there is geopolitical risk in the world, the U.S. is a safe haven, even if they’re the cause of that geopolitical risk, ironically.” U.S. payrolls jumped by 227,000 in November, beating expectations. It’s a big rebound from October’s strike-impacted 36,000 gain. Unemployment edged up to 4.2%, with labor force participation slipping to 62.5%. Key sectors driving growth included healthcare (up 54,000), leisure and hospitality (up 53,000) and government (up 33,000). Meanwhile, retail shed 28,000 jobs. Average hourly earnings rose 0.4% monthly and 4% annually. Treasury yields fell as traders placed an 88% chance on a December rate cut, supported by the Fed’s signals of flexibility amid cooling inflation and mixed labor data. New “anti-woke” ETF targets companies with DEI initiatives. Announced at Donald Trump's Mar-a-Lago resort, the fund, launched by Azoria Partners, aims to exclude S&P 500 companies adopting DEI in hiring, claiming such policies hurt shareholder value. The fund has particularly called out Starbucks as a woke firm, though the coffee giant denies it has DEI quotas and said its diversity goals have expired. The ETF follows a broader pushback against ESG investing, leveraging claims of underperformance despite research showing diversity's positive impact on revenue. The anti-DEI movement is no stranger to CRE, as Bisnow’s 2024 DEI Data Series recently showed.
So, Tell Us The Future | | | | Bisnow/created with assistance from OpenAI's DALL-E | | | | | | | | As we look ahead to 2025, the narrative concerning office space occupancy is creating turmoil within the banking system. Banks and regulators are growing increasingly cautious and reluctant to extend loans. In the current state of the market, adopting a diversified financing strategy is essential — spreading loans across multiple properties and lenders rather than relying on a single large loan in order to mitigate risk and ensure greater financial resilience. Francis Greenburger
CEO and Chairman, Time Equities Inc.
Manhattan What's your bold 2025 prediction for real estate? The First Draft team wants to hear from the biggest players in CRE. Give us any and all takes in 150 or fewer words, and they may be published in future editions: first...@bisnow.com. This Morning’s News DATA CENTERS — DigitalBridge Could Be Acquisition Target (Data Center Dynamics): DigitalBridge is raising its third flagship digital infrastructure fund, the success of which will likely determine whether the digital infrastructure investment giant is bought by a larger competitor, asset manager Ave Mari wrote in a research note. Read more here.
RETAIL — Dollar General Plans 575 New Stores (Bisnow): Dollar General is gearing up to remodel or renovate more than a fifth of its 20,000-store portfolio next year. Read more here.
DEVELOPMENT — Conversions Surge Across Asset Classes (CoStar): It's not just offices — retail-to-healthcare, retail-to-sports, office-to-senior living and office-to-science labs are all potential conversion types. Read more here.
| | | | | | | | Bisnow/created with assistance from Microsoft Copilot | | | | | | | | BROKERAGE — CBRE Names Co-CEOs For $150B Investment Management (Bisnow): Adam Gallistel and Andy Glanzman have been named co-CEOs of CBRE Investment Management, the first time the division, previously called CBRE Global Investors, has had a permanent CEO since 2022. Gallistel is the head of real estate at Singapore’s sovereign wealth fund, and Glanzman is already CBRE IM president. Read more here.
INDUSTRIAL — INDUS Realty Trust Acquires Logistics Portfolio Stake (INDUS): INDUS Realty Trust has acquired a majority stake in a 4.3M SF industrial portfolio valued at $575M. The acquisition is part of a recapitalization of about one-third of Childress Klein's 13.2M SF industrial portfolio. Read more here.
ECONOMY — Trump Taps Billy Long To Lead IRS (NYT): Trump has nominated former Congressman Billy Long, who worked as a real estate broker and auctioneer before being elected to office, as IRS Commissioner. Read more here.
BROKERAGE — Newmark To Rebrand UK Operations (CoStar): Starting January 2025, Newmark will unify all its UK businesses under the Newmark name. Read more here.
INVESTMENT — JPMorgan Prioritizes Real Estate, Private Equity (Bloomberg): The $3.3T asset manager’s chief market strategist for the Americas sees opportunities in commercial mortgage-backed securities, non-traded REITs and direct investment vehicles. Read more here.
LEGAL — Starwood Grills Joel Schreiber On Lavish Spending (TRD): Starwood is seeking to hold WeWork’s first investor in contempt of court for failing to turn over information on his accounts and companies. Starwood was awarded judgments totaling $88M in 2022 and 2023 stemming from defaults on a loan Starwood provided to Schreiber’s Broadway Trade Center building. Read more here.
| | | | | | | | Courtesy of Chapman University | | | | | | | | PEOPLE — CBRE Vice Chair Donates $5M To Establish Real Estate School (Bisnow): CBRE Vice Chairman Alex Hayden has donated $5M to Chapman University in Orange, California, to start a dedicated real estate school. It will be part of Chapman’s George L. Argyros College of Business and Economics. Read more here.
RETAIL — Malls Are Full Of Housing Now (CNBC): Nearly 200 U.S. malls planned to add housing to their footprint as of January 2022, and at least a dozen more apartment projects are underway at malls across the country. Read more here.
REITs — Equity REITs Set Record In Q3 (Seeking Alpha): Equity REITs raised a record amount of capital in Q3 2024 through at-the-market (ATM) offerings. Healthcare REITs reportedly raised $2.65B through ATM programs. The data center subsector was second on the list having raised $1.78B during the quarter. Read more here.
LIFE SCIENCES — Lilly Invests $3B In Wisconsin Facility Expansion (Lilly): Eli Lilly is investing $3B to expand its newly acquired manufacturing plant in Wisconsin. The investment is expected to create hundreds of jobs. Lilly has committed more than $23B to construct, expand and acquire manufacturing sites since 2020. Read more here.
LIFE SCIENCES — NC Scores 2 Major Drug Manufacturing Deals (Fierce Pharma and CoStar): Drugmaker Amgen is investing an additional $1B to expand its manufacturing facility in North Carolina, which Reckitt, the drugmaker behind Mucinex, has acquired a 310K SF building in North Carolina for its new U.S. manufacturing facility. Read more here and here.
| | | | | | | | Unsplash/Marita Kavelashvili | | | | | | | | M&A — JPMorgan's Campbell Global Acquires 40,000 Acres Of Timberland (JPMorgan): Campbell Global, a J.P. Morgan Asset Management subsidiary, has purchased over 40,000 acres of timberland in Washington state. The acquisition supports sustainable timber production and carbon capture initiatives. Read more here.
HOUSING — Fannie Mae Predicts Steeper Decline In Prices (Seeking Alpha): U.S. home price growth is expected to slow more than previously forecast next year and in 2026, according to Fannie Mae’s new Home Prices Expectations Survey. Read more here.
POLITICS — Trump’s Gulf Dealmaker Capitalizes On Real Estate (BNN Bloomberg): Trump’s ally in the Middle East is leveraging the region's real estate boom to benefit the Trump family’s property investments. Dar Global funds construction and land purchases and pays the Trump Organization fees for the use of its brand. Trump receives a portion of the revenue generated from sales. Read more here.
LEGAL — Rocket Mortgage Challenges HUD On Bias Allegations (BNN Bloomberg): Rocket Mortgage is suing HUD to dismiss allegations of discriminatory appraisal practices. The company claims there are conflicting regulations that mandate it oversee independent appraisers but keep its hands off their appraisals. Read more here. *** The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from AI. We’d love your feedback! Email us at first...@bisnow.com. | | | | | | | | | | | | | | | | | | | | | |
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