JLL experts share why now is the time for private investors to act

With institutions on the sidelines and properties trading at a significant discount to their replacement costs, private investors should seize the first-mover advantage

For private investors interested in expanding their commercial real estate (CRE) portfolios, now is the time to act. Matt Picken, Head of Capital Markets, JLL Canada, says with most institutional investors sitting on the sidelines, private capital has emerged as the single-largest buyer segment across the commercial real estate sector in Canada. Today, private investors are acquiring larger properties than ever before, spanning all asset classes and geographies.

Many properties are trading at a significant discount to their replacement costs and investors with cash to deploy are looking beyond the interest rate environment, according to JLL’s  Global Capital Outlook.

Over a 10-year period, private real estate investments were less volatile than many other investing options and delivered solid returns. From 2013 to 2023, the returns for Canadian private real estate were 5.1%, which outperformed corporate bonds and stocks in emerging markets. The story is similar for the United States.

“As a buyer, you're getting a significant first-mover advantage right now,” said David Gaines, managing director and private capital group leader for JLL US Capital Markets. “But we’re in a narrow window to act.” Fear of missing out is real. Those who remember know that investments made from 2009 to 2011 generated some of the highest five-year returns ever posted — highlighting the early mover advantage.

The most attractive CRE asset types 
According to JLL research, multifamily and industrial properties currently offer some of the best opportunities in the market. Multifamily property values have fallen to levels not seen since 2013 and sales of industrial and warehouse properties are down from their pandemic highs.

While there are market trends every investor should consider, JLL’s personal approach tailors advice to each investor’s needs and preferences. Marc Schillinger, senior managing director, private capital group leader, JLL US Capital Markets, says one trend he’s seen lately is the next generation of ultra-high-net-worth families taking a more active role in investing. Some of these new stewards are interested in keeping their existing portfolio, while others prefer to make a change, such as shifting to properties that don’t require significant operational effort. This is a great time for these investors to explore new types of investments and diversify their family’s holdings. Some options to consider include: grocery-anchored retail centers, medical offices and industrial properties. In fact, high-quality retail centers, especially those anchored by grocery stores in good locations, have been among the top-performing sectors and are another popular choice among private investors. 

“Some investors see this as a good time to buy well-located office buildings from institutional investors who are looking to reduce their exposure to that sector,” said Schillinger. “Even though we’ve had a lot of stress in that space, private investors are realizing that their longer-term horizon can give them a significant advantage.”

What’s creating buying opportunities for commercial properties 
Higher interest rates have put downward pressure on commercial real estate prices. As variable-rate loans mature, some property owners are finding themselves in a “cash-in” refinance scenario, meaning they must put more equity into their properties in order to right-size the capital stack. This is creating great buying opportunities for properties between $10 million and $50 million.

"Sellers who are in the market now may be selling for a myriad of reasons," Gaines said. “They are often selling not because they want to but because they need to, or they are selling to redeploy that capital to a better opportunity.”

In addition to being able to purchase commercial real estate at attractive prices, private investors have an additional advantage in this market: less competition. Many who rely more heavily on debt to finance their deals, are sitting on the sidelines because higher interest rates make it harder to finance properties and maintain the same level of return. For private capital buyers who are looking to deploy cash, now is a great time to act.

How JLL can give private investors an edge in finding the right fit 
Private capital represents 70% of JLL's 2023 real estate transactions. The company's extensive network allows its capital markets advisors to often know about potential offerings before the properties are listed for sale, giving private investors an edge in finding the right fit. JLL also has proprietary technology that helps its advisors identify assets that are likely to trade in the near term. Our access to market research, network of lenders, and strong client relationships are keys to bringing great opportunities to private investors

From JLL's perspective, the key is for private investors to act quickly before more institutional investors jump back into the market.