On Wednesday, financial services firm Global Index Group launched a synthetic investment product tied to the performance of privately held real estate in the U.S., and CBRE Capital Advisors is already selling the product. There are plenty of mechanisms that investors to short publicly traded real estate investment trust, but until now it wasn’t possible to short the private real estate market. Kelly Haughton, CEO of Global Index Group, said, “We think REITs are a fine instrument but if you look at the total real estate market it’s less than five percent.”
At the same time Global Index Group is creating a zero-sum game for shorting real estate, Morgan Stanley analysts are forecasting the commercial real estate market is going to peak this year. They reason, that net operating income needs to grow to balance out rising rates and tighter lending standards. Well, we may want to prepare for a bear marketing, as the report points out, "The reality is that it (NOI) is decelerating, which is different than prior rate hike cycles. We therefore believe valuations can decline even without a recession, which was a necessary condition for the past two declines in CRE prices in the early 1990s and 2008."
A blockchain is designed to operate without a central authority, securely verifying and recording transactions through a network machines rather a single government, bank, or company, which threatens to revolutionize the commercial real estate industry. The problem is, since there is no central authority there is nobody to push necessary changes to the technology. This means if a bug is found, and the community cannot come to an agreement of how to fix it, they could split the blockchain into two separate digital ledgers. Hopefully, the online community can find a way to democratize these changes – before this promising technology is seen as a liability.
Tim Brown, CEO of the global design company IDEO, wrote about the benefits companies are seeing by implementing circular design into their business practices. Brown says, “We need to reverse course and radically shift the way stuff gets made and used...a new kind of economy—one that, through design, promotes a smarter use of resources and aims to reduce waste throughout a product’s lifecycle.” I see this same model playing out in commercial real estate. With the innovation in green technology and biomimicry, buildings will start to use less and less energy while having the opportunity to find new ways to generate energy. It’s going to make business sense for developers to build sustainable buildings to save and even generate money.
This week, the CRE Tech merger trend continued. Co-working startup Industrious acquired the office sublet listing site PivotDesk. Industrious, is a direct competitor with WeWork, running serviced short term co-working spaces. PivotDesk appears to be taking a page out of Airbnb’s playbook by matches office tenants looking to get rid of excess space with small companies looking to sublet a few desks or rooms. As vacancy rates edge higher and rent growth slows, Industrious and PivotDesk offer owners and brokers the ability to be more creative and efficient with their space.