Privates and “Publics” (State and Local) vs. The Big, Bad Wolves of Wall Street

[Alexander Szikla]

Amidst a significant downturn in commercial property values, private investors (particularly high-net-worth individuals and family offices) are seizing the opportunity emerging as the dominant force accounting for 60% of deals over the past two years. Historically, that number has been 46% in a post-2008 market.

In contrast, institutional investors have tampered their previous gusto for real estate deals, contributing to only 18% of transactions. This shift underscores the advantages of private money’s agility and long-term outlook, unencumbered by the need for committee approvals or short-term returns.

Recently, large funds have been facing challenges due to immobile private equity assets (worth $3.2 trillion) as a result of reduced dealmaking and a slower IPO market leading to delayed investor returns.

Meanwhile, state and municipal governments have witnessed a remarkable surge in borrowing to fund affordable housing initiatives totaling nearly $9 billion. This marks the highest level of housing bond sales in over a decade.

The 57% year-over-year growth in housing bond issuance has been partially facilitated by comparatively lower borrowing costs in the municipal market. Despite mortgage rates being double what they were two years ago, the overall borrowing environment remains favorable for state and local entities.

Key initiatives driving this surge include efforts by entities like the Michigan State Housing Development Authority, which recently launched a $425 million bond sale aimed at providing affordable mortgages to over 2,700 families. Similar endeavors are underway in Rhode Island and Telluride, focusing on assisting first-time homebuyers and developing affordable rental properties.

One significant strategy employed by these governments is the utilization of tax-exempt financing. By leveraging the tax-exempt market, states and cities can offer lower mortgage rates to middle- and low-income individuals than traditional banking methods.