BridgeCo Financial

Commercial Real Estate Lender

Direct, private, Texas-based lender

Lender for most commercial properties

Loans ranging from $500k to $10 million

Written by Joshua Huse

Navigating the Changing Tides: Insights from ULI's Emerging Trends in Real Estate Luncheon

November 8, 2023

In the ever-evolving world of commercial real estate, staying ahead of the curve is essential for success. At the recent Urban Land Institute (ULI) Leadership Luncheon, the discussion revolved around the “Emerging Trends in Real Estate®,” offering valuable insights into the industry’s current landscape and future directions. In this article, we’ll delve into the top ten emerging trends identified during this event and explore how they may impact the commercial real estate market in Texas.

 

1. Higher and Slower for Longer

  • Economic Climate: Despite earlier predictions of an impending recession, the consensus among experts is that we are likely heading for a “soft landing” or a “growth recession.” While economic growth is expected to be slow, the risk remains skewed towards downside.
  • Real Estate Implications: This challenging economic environment with the prospect of higher interest rates could pose significant challenges for real estate investors in Texas, affecting property values and investment returns.

 

2. The Great Reset

  • Impact of Rate Hikes: The Federal Reserve’s series of rate hikes in March 2022 have disrupted the historically strong performance of commercial real estate.
  • Market Expectations: Market participants need to adjust their expectations as diminishing drivers may affect rent growth, property values, and overall returns. This reset affects various sectors, particularly the office sector.

 

3. A Painful but Needed Capitulation

  • Office Sector Shift: The office property sector is undergoing a transformation as remote and hybrid working have reshaped expectations.
  • Adaptation: Building and market performance vary, with some properties outperforming while others become functionally obsolete. This shift necessitates repurposing or demolishing properties to make room for higher-use alternatives.

 

4. It’s All About the Debt

  • Rising Debt: Debt levels across the economy have surged to record highs, impacting commercial real estate (CRE) capital availability.
  • CRE Liquidity Crisis: The scarcity and cost of CRE capital have reduced sales transactions and hindered project feasibility. Owners of underperforming buildings face debt deadlines, leading to potential defaults or distressed asset sales.

 

5. Eco-Anxiety Comes Home

  • Climate Challenges: The increasing frequency of billion-dollar climate events and rising heat records pose challenges and risks for commercial property owners and managers.
  • Insurance Concerns: Rising insurance costs and declining availability are forcing the industry to reevaluate insuring assets against growing climate risks.
  • ESG Mandates: Property owners and managers grapple with the intersection of environmental, social, and governance (ESG) mandates and fiduciary duty.

 

6. Even Further Out of Reach

  • Changing Norms: Recent shifts in property and financial markets are reshaping traditional norms for constructing CRE portfolios, including redefining “core” assets.
  • Search for Alternatives: With downtown offices and regional malls facing challenges, fund managers are exploring newer product types that were previously considered niche but now offer compelling returns.

 

7. Portfolio Pivot

  • Remote Work Impact: The shift to remote work is a pivotal trend, significantly influencing property market dynamics, especially in the office sector.
  • Relocation Trends: Remote and hybrid workers, particularly in larger cities and office-inclined jobs, are more willing to relocate, often in search of more affordable housing, impacting urban and suburban areas.
  • Generational Shift: Younger households under age 35 are among the groups more likely to seek housing in less-dense suburbs and smaller cities.

 

8. Not Remotely the Same

  • Remote Work Impact: The shift to remote work is a pivotal trend, significantly influencing property market dynamics, especially in the office sector.
  • Relocation Trends: Remote and hybrid workers, particularly in larger cities and office-inclined jobs, are more willing to relocate, often in search of more affordable housing, impacting urban and suburban areas.
  • Generational Shift: Younger households under age 35 are among the groups more likely to seek housing in less-dense suburbs and smaller cities.

 

9. Downtowns Need to Reinvent Themselves—Again

  • Urban Evolution: Urban economists and city leaders are debating the future of downtown areas with changing demand for office space.
  • Competing Communities: Downtowns face competition from live/work/play communities in suburbs, smaller cities, and even within their own urban neighborhoods.

 

10. An Artificial Boom?

  • AI in CRE: Artificial intelligence (AI) has garnered significant attention, but its real-world applications in commercial real estate are still evolving.
  • AI Potential: AI promises to enhance property climate risk prediction, identify investment opportunities, and construct higher-performing portfolios.
  • Economic Impact:While AI may replace routine white-collar jobs, it could also stimulate economic growth and drive demand for AI-related spaces.

 


 

As a commercial bridge loan lender in Texas, these trends offer a comprehensive view of the dynamic landscape you operate in. To stay ahead of the curve, consider the following actions:

 

1. Adapt to Shifting Markets: Keep a close eye on changing norms in property and financial markets. Be open to diversifying your portfolio with non-traditional assets.

 

2. Respond to Remote Work Trends: Recognize the profound impact of remote work on property dynamics. Assess opportunities for adapting office spaces to meet evolving needs.

 

3. Embrace AI and Technology: Stay abreast of AI developments and explore its potential in predicting risks, identifying opportunities, and optimizing portfolios.

 

4. Monitor Affordability: Stay informed about housing affordability trends and the rental market, as this may influence investment decisions.

 

5. Stay Engaged in Urban Revitalization: As downtowns evolve, consider opportunities in redeveloping or repurposing properties to meet changing demand.

 


 

In conclusion, the insights from the ULI Leadership Luncheon provide commercial real estate investors in Texas with a valuable roadmap to navigate the evolving industry landscape. By understanding and adapting to these emerging trends, you can position your business for success in this dynamic market. Stay ahead of the curve, and you’ll be well-prepared to seize the opportunities that lie ahead.

 


 

Looking to explore commercial opportunities in Texas? Contact Josh Huse!

+1 281-744-0142

jhuse@bridgecofinancial.com

Texas Commercial Real Estate Lender – BridgeCo Financial

Houston, TX | $2,964,072

Acquisition & Rehab

Drawing upon extensive experience and an impressive multi-family portfolio, our client approached BridgeCo with a compelling opportunity—to finance the acquisition of a diverse portfolio comprising 10 multi-family properties. Recognizing the urgency of a quick closing, BridgeCo efficiently navigated the process, showcasing our commitment to agility and effectiveness. In an impressive feat, we funded the deal within two weeks, enabling our client to swiftly rehabilitate the properties. Subsequently, the properties were successfully sold in a timely manner, highlighting the collaborative efforts of both our borrower and BridgeCo in seizing and capitalizing on strategic real estate opportunities.

Lockhart, TX | $7,200,000

Cash-out Refinance

Drawing on their extensive experience in real estate development, the borrower strategically utilized the funds to refinance a seller note tied to the property. This land, pivotal for the creation of a comprehensive master-planned community predominantly featuring single-family residences, became the focal point of the borrower’s vision. Recognizing the time-sensitive nature of the endeavor, BridgeCo expedited the process, leveraging our borrower’s profound expertise in the field. In an impressive feat, we funded the deal within two weeks, playing a pivotal role in bridging the financial gap and propelling the borrower to the next stage of development.

Houston, TX | $4,100,000

Cash-out Refinance

The borrower strategically utilized the funds to refinance existing loans on their properties, concurrently securing a cash-out portion to facilitate the buyout of three partners. Recognizing the time-sensitive nature of the transaction, BridgeCo harnessed the robust financial position of the parent company, coupled with the cash flow generated from the subject property, to seamlessly fund the loan within one week.

Wimberly, TX | $8,715,000

Acquisition

BridgeCo seized the opportunity presented to us when the borrower encountered a pressing deadline for Phase 2 of their master-planned community development project. Despite having secured approval from a conventional lender, the borrower faced a challenge as the lender couldn’t meet the stringent timeline. Leveraging our streamlined approval process, we successfully facilitated the funding needed to meet the borrower’s closing date, completing the deal within two weeks.

Austin, TX | $850,000

Cash-out Refinance

With a robust background in real estate construction, our experienced borrower approached BridgeCo seeking to refinance an existing loan on a property nearing its renewal date. Bridging the financial needs seamlessly, we not only assisted in refinancing the loan before its maturity but also facilitated a cash-out portion. Recognizing the time-sensitive nature of the borrower’s requirements, BridgeCo expedited the process and funded the deal within two weeks. This additional capital empowers our client to embark on the construction of a new project in the vibrant Austin, TX area.