Commercial Real Estate Faces ‘Major Era of Change,’ per AFIRE Pulse Report

The survey also indicated that commercial real estate investors might have preferred the candidacy of President Joe Biden to Vice President Kamala Harris.

Commercial real estate is facing “a major era of change,” according to the Association of Foreign Investors in Real Estate’s International Investor Survey, which stated investors are “exercising caution and hedging their portfolios” due to concern about inflation, the wars in Ukraine and Gaza, and the threat of tariffs.

The survey, conducted in October and November before the U.S. presidential election, involved more than 180 institutional investors with combined assets under management of approximately $3 trillion. The respondents included CIOs, CEOs, managing directors and others with fiduciary responsibility for U.S. commercial real estate investment decisions.

Among the key results of the survey, 67% said they expected the results of the U.S. election would be detrimental to cross-border investment activity. The survey also found that 43% of investors believe global politics and trade issues will have the greatest impact on cross-border investment over the next year and that 82% believe multi-family development should be prioritized to make housing more available and affordable.

“Despite lowered inflation and the U.S. Federal Reserve and Central Banks pulling back a bit on interest rates, transaction volume in 2024 has not returned to previous levels,” AFIRE CEO Gunnar Branson said in the report. “The real estate industry has not completely recovered from the wild swings of the COVID era, with valuations tenuous and debt less than abundant.” He added that although the result of the U.S. election increased investor uncertainty, the industry can adapt.

“Real estate investors are a hardy sort of people, well prepared to adjust strategies to meet the moment. But there are still unanswered questions,” Branson said in the report. “Are we at or near the bottom? Will the new administration facilitate and encourage growth? Can we meet the challenges of housing and climate?”

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The twice-yearly report indicated that respondents might have been more comfortable with a second term for President Joe Biden than a first for Vice President Kamala Harris. In its March survey, conducted before Biden dropped out of the presidential race, 60% of respondents said they had no alternative plans regarding the outcome of the election. However, in the most recent survey, conducted after Harris became the Democratic candidate but before the election, that figure plummeted to 7%.

At the same time, when respondents were asked about potential legislative branch outcomes based on a Harris or Trump victory presidency, “respondents indicated that a Harris presidency would have been most beneficial overall—by a large margin,” the report stated. “Respondents overwhelmingly indicated that a Trump presidency with a GOP-controlled Congress and Senate would be the most damaging outcome.”

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Tags: AFIRE, Association of Foreign Investors in Real Estate, Gunnar Branson, institutional investors, International Investor Survey, U.S. election

The University of Chicago’s endowment returned 8.4% for the fiscal year that ended June 30 to raise its total asset value to $10.4 billion, up from $10 billion a year earlier.

It was the endowment’s highest investment return since fiscal 2021, when it raked in a 37.6% return. However, its current asset value remains below the $11 billion reported that year due to an 8.8% investment loss in 2022, followed by a modest 3.3% gain in fiscal 2023. The endowment also reported 15- and 20-year annualized returns of 8.6% and 8.2%, respectively.

The university did not disclose its asset allocation nor performance by asset class.

According to the University of Chicago, the endowment is primarily invested in a total return investment pool. The pool’s portfolio is diversified among several asset classes, as well as by sector, geography, liquidity terms and investment instruments. According to the university, the pool’s main objective is to maintain the endowment’s real purchasing power, net of inflation and spending. It also reported that the portfolio’s strategy is to seek out higher returns without exceeding its risk and illiquidity tolerances, based on the school’s financial position.

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Without disclosing the specifics of the endowment’s asset allocation, the university reported the pool’s long-term plan invests in growth, inflation sensitive, diversifying and defensive assets, which include global stocks and bonds, real estate, natural resources, private equity and absolute return strategies. The total return investment pool’s strategic asset allocation targets 50% exposure to private investments.

The endowment’s long-term target allocation for its portfolio is 30% global equities, 24% private equity, 22.5% absolute return, 6.5% real estate, 6% fixed income, 5.5% natural resources, 3% private debt, 2% total return investment pool protection and 0.5% cash and equivalents.

Investment management firm Charles Skorina & Co. reported that the University of Chicago endowment’s 10-year annualized return was 7.30% as of the end of fiscal 2023, which ranked it 92nd among university endowments with more than $1 billion in assets.