As investors look harder for yield, they’re getting more aggressive.
A record number 30 percent of commercial real estate investors are seeking opportunistic and distressed assets in 2021, according to CBRE’s Americas Investor Intentions Survey 2021. In 2020, only 16% set such aggressive targets.
Investor sentiment began to improve in the second half of 2020, according to the CBRE survey. As more people continue to get vaccinated and the economy opens back up, confidence should only grow.
The search for yield is pushing investors to new places. Large investors (those with more than $50 billion under management) are more interested in secondary markets rather than primary markets for the first time in the seven-year history of CBRE’s survey.
While returns from riskier investments can be appealing, there is a danger when buyers step out of their comfort zone.
“In up markets, we often see funds that have absolute minimum returns go further out on the risk spectrum in order to meet this minimum investment return,” says Andre Soroudi, director of Acquisitions at CGI. “This often leads to exponential risk being taken on as investment managers look into new types of investments that they are not as familiar with.”
While investors’ risk tolerance can ebb and flow with market cycles, CGI constantly evaluates risk versus reward as it evaluates investments. That calculus is continually changing depending on macro and micro conditions.
“At CGI, we think the first part in always assessing the outlook of risk and reward is very prudent and can alter the types of investments we make but at no point do we look to leave the box of our core competencies,” Soroudi says. “This allows us to be nimble within the market while not taking on unnecessary risks.”