JV Equity Raising Outlook: Yardi’s Paul Fiorilla Expects Capital to Keep Coming into the Market

JERSEY CITY, NJ – A centerpiece of CAPRE’s Northern New Jersey & Gold Coast Investment Outlook was a roundtable discussion all about how to make the most of a hot market that some say might be slowing down sometime soon. “JV Equity Raising Outlook: At this Stage of the Cycle, What are the Unique Opportunities and Return Requirements?” kicked off with some brief but thoughtful comments by Paul Fiorilla of Yardi Matrix.

“Paul, I’m going to call on you first to just see what you’re seeing recently with capital markets and sales, across the United States,” suggested moderator Mark DeLillo, Managing Partner at BlueGate Partners.

“Commercial real estate, during this cycle, as we all know, has benefited from the wall of capital,” replied Fiorilla. “It’s been fantastic for the industry, and prices are higher than they’ve ever been. Cap rates are at historic lows.”

According to Fiorilla, the transaction volume, both nationally and in New Jersey, peaked in 2015, and have declined just very slightly over the last few years. “The market is very strong, and the amount of capital in the industry keep increasing,” he stressed. “Preqin, a London company that tracks the private equity industry, says there is about $350 billion of dry powder that’s sitting on the sidelines right now. And that’s just for one part of the industry. So there’s a lot of capital in the industry – there has been and I think it’s going to continue.”

“Ryan Severino, JLL, was talking about the economy before, and obviously, a lot of this depends on the economy,” continued Fiorilla, who then shared that his firm’s view is very similar to that given by Severino’s. “We expect a little bit of a slowdown in the entire economy, but basically we don’t see a recession for the next couple of years.”

There are a lot of reasons why the capital that Fiorilla has seen over the last decade is still in the economy, and why he thinks it’s going to continue. “One reason is the fundamental factors of the commercial real estate industry — which continue to be strong,” he explained. “Look at the multi-family industry, where we had a dearth of housing that was built after the recession. We’re just making up for that right now.”

“There’s a real demand for, not only housing in general, but also the kind of housing that people want to live in – near train stations, with modern amenities,” asserted Fiorilla. “That’s the reason the Jersey Citys and the Hobokens, where units are being built (in New Jersey), there’s a lot of demand, even though there is a lot of product and it’s on the high end of the spectrum.”

Another reason, he shared, is that there’s a lot of foreign capital. “The U.S. continues to be seen as a safe spot,” he stressed. “The global economy is a bit shaky. There are a lot of issues going on with Brexit in Europe, and with China in Asia. The US has been and will continue to be, I think, a safehaven for investment. So you have fundamental factors and you have technical factors.”

“Really, when you compare real estate to other investment products, and the big institutions are looking at what to invest in, 5%-6% cap rates for real estate with the potential for appreciation? Real estate continues to look good relative to other investment alternatives,” concluded Fiorilla. “So unless there is some major disruption in the economy, I think that the capital forces will continue to be positive.”

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