The goal of Goldman Sachs Asset Management over the last few years has been offloading as many real estate assets from its balance sheet as possible, but now it is diving back into the equity markets — this time using its real estate funds.
The firm has made a series of investments through its real estate funds in recent months as its executives see now as an opportune time to buy, Goldman Sachs Asset Management Global Head of Real Estate Jim Garman told Bisnow in an interview Tuesday.
“It’s taken longer for the markets to reset, but we think they are now bottoming out,” he said. “So we've begun investing in the U.S. in the past three to four months, in themes like housing, logistics and themes around healthcare, around medical office.”
Goldman Sachs launched a strategy in 2020 to sell properties off its own books, and limit its balance sheet real estate investments to those where it is co-invested with its funds. That has been Garman’s main since he became sole head of real estate one year ago after spending over 30 years with the firm.
The company is now shifting to an offensive posture in the U.S., putting equity back into the real estate market via new funds and continuing to lend money.
The U.S. was the final region where the company dove back into equity, Garman said. Goldman had already revved up its equity investments in Europe at the end of last year, and it hadn't stopped in Japan.
“The timing of market resets has been different around the world, but we do think in all three regions of the world now, we do think there's a really attractive equity investing opportunity that is emerging,” he said.
The firm has also been making a push in the debt markets. In May, Goldman Sachs closed on a $3.6B debt fund with $7B of lending capacity, an effort to take advantage of holes in the liquidity market. It invested $1.4B of its own balance sheet capital.
“Because of this change in the capital markets and change in interest rates and inflation, we're in a period of quite severe capital market disruption,” Garman said. “And that creates pockets of opportunity because there’s some form of dislocation or need for liquidity.”
Much of the commercial real estate industry has been holding its breath for some interest rate relief this fall, when the Federal Reserve is expected to make at least one cut — and possibly two more by the end of the year.
“We sort of took a position back in March of this year, before it was clear that rate cuts were on the cards, that we felt like the markets were bottoming out,” Garman said.
Goldman saw several factors indicating that it was a good time to buy — among them, inflation and interest rates peaking, real estate prices bottoming out and liquidity coming back to the market.
Other positive indicators were that the CMBS financing markets were opening back up and that the active buyers in the market were private investors and opportunity funds, historically a sign that the market has bottomed and is approaching recovery, Garman said.
“And so we looked at all the signs, and we felt like we were getting close to the bottom, and therefore it was time to start investing again,” he said.
The types of assets Goldman is interested in are in line with three long-term trends, Garman said: technology, demographics and sustainability.
As for the expected rate cuts this fall, they should only help Goldman’s new strategy, Garman said. But regardless, interest rates are likely to stay at a higher baseline for the long haul.
“We are in a world now where interest rates will be structurally higher in the next decade than they were in the past decade,” Garman said. “It puts a premium back on value creation, the ability to recruit real value and assets rather than just buy them and finance them really cheaply. And so I think that plays to our strengths as well.”
Emily Wishingrad, Washington D.C. August 21, 2024
