Paul Fiorilla, Yardi: Make Sure Whatever Deals You Do Can Endure a Downturn

NEWARK, NJ – CapRE’s 2018 New Jersey Apartment Summit kicked off with a deep dive into the investment sales arena, courtesy of Paul Fiorilla of Yardi Matrix. “10 Minutes with Yardi’s Paul Fiorilla: The Real Impact of Interest Rate Hikes on Investment Sales and Three Factors to Watch for in 2019” included some thoughts on where the commercial real estate market is headed in the next couple of years.

“Recently, we’ve seen some stock market volatility,” began Fiorilla. “Which I think shows investor nervousness about potential trouble spots. And there’s a lot of political tension here in the United States. I don’t know what’s going to happen with the – I keep seeing news stories everyday about the Russia investigation. Whether you think that’s important or not, it’s something that is a monkey wrench in the political system and it will take the policy maker’s attention.”

Plus there is a lot of tension out there with China, Russia, Europe and the Middle East, and according to Fiorilla, that holds a lot of potential for negative outcomes. “And all of those things, if you look at what could go wrong, like an event that would be a global political situation or even a war or something like that, that is probably still the biggest potential cause of a downturn,” he explained. “So, combining that with some other softening in the next couple of years, maybe that’s when we get to the next downturn.”

“However in the short term, the performance of the economy is still likely to be very strong,” he cautioned. “Now in real estate, the biggest key to success over the last ten years has been all of the capital. There’s a lot of debt and there’s a lot of equity in the market. Real estate compared to other investment produces good returns. We’re seeing a lot of global investors coming into the United States at a very high rate from Asia, Canada, all over the place. The United States is considered a safe haven.”

Paul Fiorilla, Research, Yardi Systems

“The key is – again, I think we will see some softening – but I don’t think that there’s anything political that will make that [safe haven status] go away,” predicted Fiorilla. “So I think that the real estate market and the capital situation is still very important. There is nearly $300 million USD in dry powder sitting on the sidelines. So even if there is some softening, real estate is still very strong in terms of capital. All sources of mortgage capital are very eager to lend right now. And particularly in multi-family and in industrial. The multi-family market in particular has a very strong capital situation.”

“Make sure that whatever deals you do are done so that they are able to endure a downturn,” he advised. “We may not have a downturn this year or next year. but I think that, again, with most economists, the consensus is that in 2020 or 2021, it’s probably likely that we’re going to see another recession. So if you’re doing a deal today and you want a 5 or 10 year timeline, you have to make sure that your transaction is able to withstand some time of recession during the life of that investment.”

Paul Fiorilla is Associate Director of Research at Yardi Systems, working on the company’s new Matrix data service, which collects property and loan data on multifamily properties in nearly 90 markets nationwide. Yardi has started publishing regular outlooks using the Matrix data. Fiorilla has worked in the industry as a writer and analyst for nearly 20 years. He spent six years as an investment vice president in the research group of Prudential Real Estate Investors, where he was responsible for publishing the firm’s well-regarded quarterly outlooks and white papers. Before joining PREI, Fiorilla wrote for the Commercial Mortgage Alert for 12 years, the last nine as managing editor. He also has worked as a consultant producing research white papers, outlooks and articles for clients that include Real Capital Analytics, Marcus & Millichap, Colliers International, Clarion Partners, Terra Capital and Institutional Investor. Since 2011, Fiorilla has served as volunteer co-managing editor of CRE Finance World magazine, which is published three times a year by Washington, DC, based trade group CRE Finance Council.

For more from Fiorilla, check out previous CapRE Insider Reports: