Real estate capital markets have been under pressure globally, while the direction of interest rates in the US remains more uncertain as compared to the Federal Reserve's global central bank counterparts. Joining Asking for a Trend to discuss the evolving real estate environment is David Steinbach, Hines Global Chief Investment Officer.

Steinbach notes that the real estate sector had experienced 40 years of declining interest rates, with many financial markets becoming "deeply embedded" in this dynamic. However, the shift towards the current interest rate environment represents a transition from a "beta to alpha" environment, calling today's landscape "a different sport" that requires more effort.

Steinbach highlights downtown investments and transit-oriented investments as promising opportunities, also touching on the state of commercial real estate. Internationally, he identifies Europe, India, and Japan as attractive markets with high demand in the real estate sector.

"Real estate is becoming more of a service, and so it's about what you're doing for the customer, the tenant. That really is moving the needle now more than ever," Steinbach told Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Angel Smith

Video Transcript

Real estate capital markets face a period of uncertainty as central banks move at different speeds with interest rates, commercial real estate fear index has remained elevated throughout March, not yet following the broader, broader capital markets improvement.

But real estate investment manager Heinz says there's clear opportunities emerging across sectors and joining us here to discuss is Heinz Global Chief Investment Officer David Steinbach.

David, good to see you.

Good to see you.

So you said something interesting.

Um in a recent interview, David, you, you were talking about real estate investing and I heard you say in this interview, you know, it it used to be kind of like downhill skiing and now it's more like cross country skiing.

What did you mean by that?

Yeah, I mean, look, we've had 40 years of one interest rate environment and that was um rates were steadily going down for 4040 years.

And you know, the entire financial industry uh worked itself around that dynamic, right?

And uh a lot of ways of working uh got deeply embedded in terms of how we finance, how we create capital stacks, how we create value and frankly what the scarce resources um, and, um, downhill skiing to me is, uh, moving quickly.

Right.

It's a bit of adrenaline speed, having money fast like that.

Now, now, cross country more work and more work and it's a shift from beta to alpha sweating a little bit.

Right.

Right.

It's a shift of beta from alpha beta to alpha.

And I think in that world it's about creating income.

It's about the hard work of execution and it's a different sport.

Um It's, it's a winnable sport but it's a different sport.

I wanna dive into one sector, CRE commercial real estate often.

When we talk about that sector, David on this show, it's almost like I talked about, like in a hush tone.

Like it's like empty buildings, empty downtowns, you know, no one's going back to work post pandemic.

It's you, is that what you see?

No.

Um, it's there is there, there are, there are buildings that don't work anymore and certainly there are specific office buildings that, you know, are probably gonna be torn down or, or find a new purpose.

Um That, that is true.

What's also true is, um, the best buildings are performing quite well and, and there is a real disconnect right now.

Are there certain regions or cities where you see better performance well within?

Well, certainly, certainly there are some geographies with that, better than others.

Um, and certainly in a global context, uh, office is very different in Europe and Asia as it is in the United States.

And so there's a lot of diversity there, you have to understand, but even within a city, it really matters about not only the location, but the quality and real estate is becoming more of a service.

And so it's about what you're doing for the customer, the tenant that really is moving the needle now more than ever.

So it's essential you would sort of push back then because you'll sometimes see this story.

Listen, things are just they're different.

Downtowns aren't gonna bounce back you.

It seems like you're kind of pushing back on that a bit.

Yeah, I mean, uh look it, there, there are um there are areas that again are struggling but the the downtowns, particularly downtowns that really activate multiple uses in terms of, of how they're bringing people in to them.

Those are going to outperform.

Uh Certainly transit things like that that we all knew before are, are resonating.

Still, I think the real opportunity is for owners um to really think differently about how to play the game differently in terms of the sport and how can they uniquely solve our, the the customer's needs?

Um And do that in the context of the built environment.

I wanna get you out here on this, David quickly, we've stayed very us focused in this conversation, but you guys are global so internationally.

Is there a market that excites you the most?

Is it, you know, Europe China, India.

So we're in 30 countries, about 380 cities around the world.

Uh So have a very global perspective on what's happening right now in real estate and uh we're deploying capital um all across the world.

Um Last year is about a third Asia, third, us, third Europe for us, Europe definitely led the, the, the downward trail and has repriced the soonest.

Uh We're pretty active in Asia um within that, you know, Japan and Australia and very different China.

We've had a business a long time.

We've been much more focused on India.

Um The last, why, why, why India, it's, it's chasing demand.

And so a lot of the demand that we are um serving is has has expand, there's a lot of expansion plans have been happening.

So that's been a, a trend to watch.

Um And here in the United States, I think is the deal activity is gonna pick up significantly.

I think credit is gonna lead.

Uh equity will follow right behind that.

And um and certainly, I think right now in multifamily, it is uh materially different than it was a year ago.

Um Retail is another sector that we are very interested in.

Uh the winners and losers have been sorted and the best office is something that is going to look very different in a year.

Uh I think it it's been oversold in terms of how capital markets are pricing.

All right, bring a little optimism to the show today.

David.

Thank you so much.

Appreciate it.