Front & Center Podcast: Episode 81 – Unlocking Capital: Liquidity, Structure, and the Future of Private Real Estate

Liz Bell

But overall, we’re still seeing that the market wants real estate exposure. But the way investors want to access it is a little bit more customized and especially on the institutional side, more fee efficient and more deliberate about the deployment and liquidity.

00;00;21;08 – 00;00;34;22

Intro

Hello, and welcome to Front and Center, a show dedicated to insights and perspectives on commercial real estate investment across the public and private markets. For more information, please visit Center square.com.

00;00;34;24 – 00;00;53;23

Uma Moriarity

Welcome back to Front and Center. I’m Uma Moriarity, senior investment strategist and global head of sustainability here at Center Square. Today we are diving into a topic that’s been at the top of mind for it seems like virtually every real estate investor I speak with right now, which is liquidity and what it’s going to take to really get capital moving again.

00;00;53;23 – 00;01;23;15

Uma Moriarity

And private real estate distributions are down. Transaction volumes remain low. They’re below historical norms improving, but still low. And the gap between what sellers need, what buyers are willing to pay. It’s been slow to close, right. We still continue to see that bit of spread in the marketplace. The result is that managers and allocators are not seeing capital moving to the system, as much as we would like to see it, and that has downstream effects on everything from fundraising to capital deployment to portfolio construction.

00;01;23;19 – 00;01;52;18

Uma Moriarity

Today I am sitting down with someone who sees this problem from a very unique vantage point as both an allocator and an advisor across kind of the full breadth of private markets. Liz Bell is a managing director and b co-head of real estate at Hamilton Lane, which is one of the world’s largest private market investment firms. So we’re going to dive into what the data is actually showing us, how capital structure is shaping the liquidity experience, and what kind of innovation in the market could really help unlock capital flow going forward.

00;01;52;19 – 00;01;56;02

Uma Moriarity

So let’s get into it. Thank you for joining us today, Liz.

00;01;56;05 – 00;01;58;23

Liz Bell

Thanks for having me, Emma. I’m excited for this.

00;01;58;26 – 00;02;16;18

Uma Moriarity

All right. So we’ll start with the chicken and egg problem that we have right. LPs really can’t commit new capital because distributions haven’t come back. GBS can’t deploy capital because they can’t raise capital. And assets are transacting because there’s but ask spread remains too wide. So there’s a lot of capital that’s just kind of stuck in the system.

00;02;16;19 – 00;02;33;06

Uma Moriarity

You guys sit across a really large breadth of private markets. What is your data actually showing about how real estate compares to maybe other private asset classes on DPA, LP, satisfaction, and what’s kind of the forcing function that really breaks this logjam that we’re seeing today.

00;02;33;09 – 00;02;58;24

Liz Bell

Great. So just to put perspective on where we sit. Hamilton Lane has a wide view across private markets. We oversee a trillion of assets. We are very focused on harnessing the data. We have to be able to break down the metrics that you just asked for. And we have an internal benchmark tool called cobalt that we use. And this contains over 70,000 funds and it’s built off the LP cash flow.

00;02;58;24 – 00;03;21;05

Liz Bell

So it’s not just cheap reporting. So I just wanted to put that framework out there as to like the data that we’re responding with. So when we looked at the data and broke this down, our conclusion is that real estate, it’s not broken right now, but it is recycling capital a little bit slower than the other parts of the private markets, especially the the strategies that are more income oriented.

00;03;21;06 – 00;03;50;07

Liz Bell

So an example, we’re looking at kind of annual liquidity ratios, which are distributions over contributions. When we look at that data it really tries to show how much capital is coming back relative to how much capital is being called or deployed during a time frame. So looking at the 2023, 24, 25 vintages, real estate had a liquidity ratio of 0.4 times 0.6 times 0.7 times over those three years.

00;03;50;10 – 00;04;16;28

Liz Bell

Compare that to private equity, which was a little bit better 0.8 times 0.9 and 1.0. But then compare it to private credit, which was 0.9, 1.0 and 1.4. And so you can see that real estate is behind in the distributions. What is also important to note, though, when we looked at kind of a longer time horizon, was that this is really a period of very constrained capital.

00;04;17;00 – 00;04;41;03

Liz Bell

And when you go back further, our data shows that during more normal periods of liquidity, real estate does distribute much more in line with the private equity and private capital, which is important to note. And when you just break down real assets, real estate is much quicker to return capital in that environment than in for natural resources. That’s the DP part of the question.

00;04;41;06 – 00;05;14;29

Liz Bell

LP satisfaction. So this is hard to to gauge. We do put out a survey every year that targets global wealth advisors, and it encompasses about 400 wealth advisors around the world. So some interesting data points to note here too. In this environment of liquidity across private markets, we still see 97% of the private wealth advisors that we surveyed are planning to allocate between 1 and 20% of their total books to private markets, and they think that’s very encouraging.

00;05;15;06 – 00;05;54;07

Liz Bell

And of those vast majority, so 86% plan to increase their private market investments this year. Great. And more importantly for us, the allocation is spread pretty evenly across private markets. So private equity accounted for about 19% of the allocation. Private real estate was 18%, then private credit at 16, Ventura at 16 and infra at 15. We don’t have the the hard data for institutional investors, but my sense is they may be frustrated with where we are today after three years of poor performance and distributions, but they’re not fleeing the sector either.

00;05;54;10 – 00;06;02;07

Liz Bell

So overall, you know, we’re still seeing capital come into the sector, which is encouraging despite some of these headlines. Were all reading it out. You mentioned.

00;06;02;09 – 00;06;23;07

Uma Moriarity

Yeah, absolutely. I think it’s just taking a little bit longer. Right. In terms of going through this capital recycling process than typically what we’re what we’re used to. And it’s interesting you talk about private markets overall, right. Illiquidity is a part of investing in private markets typically. And in the private real estate world it’s framed as a feature, right.

00;06;23;07 – 00;06;48;00

Uma Moriarity

It forces long term discipline. You’re theoretically generating premium returns because of locking your capital in for a longer periods of time. But in this market where distributions have, as you mentioned, been lower than what you would hope, and the entry and exit are both constrained, is that a liquidity premium still being earned or investors kind of just bearing the cost of a liquidity without the returns to justify it?

00;06;48;02 – 00;07;19;05

Liz Bell

Yeah, it’s a very good question and timely. Our response is structurally the premium is still real and it’s there. However, you’re asking this question at a moment where cyclically those realizations are a bit slower across all of private markets. And we just talked about this, but distributions have been below historic norms for a fourth year now. And outside of credit, again, looking at broad private markets, money that is coming back in private equity and real assets has been below expectations.

00;07;19;07 – 00;07;45;15

Liz Bell

So to answer your question holistically, yes, in today’s market where we’re seeing constraints on exit week distributions, investors are carrying the cost of illiquidity before they see the benefit of it. However, there’s still like signs of hope here for private real estate. We do see a premium for managers that can turn illiquidity into alpha. And this holds true across private markets.

00;07;45;18 – 00;08;07;23

Liz Bell

So again breaking down the data and I should note we have a lot of this data in our market overview. So if anyone wants to kind of visually see this there’s a PDF for Hamilton Lane Market Overview that has has this data you can see visually. But we looked at comparing the Fitzy Nary Equity REIT index to where we have our Kobalt data for private real estate markets.

00;08;08;00 – 00;08;32;14

Liz Bell

And we’ve seen that private real estate has outperformed public real estate for 15 consecutive years. And this is going back call it 2010 through 2024. Vintages 25 is a little tough just given Jacob and where that is. But looking at those. So yes, even in markets where there’s dislocation or slow distributions, the private market has outperformed the public market.

00;08;32;14 – 00;08;59;10

Liz Bell

And then when you compare the top quartile the data is even starker. So looking back 25 years, so going back to 2000, the public side has only outperformed the data that we see for the top quartile one year out of 25. And on average, across those 25 years, the top quartile for private real estate is outperforming the private market equivalents on average of 9%.

00;08;59;12 – 00;09;03;26

Liz Bell

So we still believe in that illiquidity premium.

00;09;03;28 – 00;09;26;18

Uma Moriarity

Yeah, it’s interesting the comparison between the public and private markets, especially from a returns perspective, because I’m assuming that the database that you guys have is looking across the risk spectrum, right, looking at not just core assets, but opportunities across the risk spectrum, maybe core plus value, not even opportunistic in there because we look at frequently just the core real estate compared to listed real estate market.

00;09;26;24 – 00;09;38;27

Uma Moriarity

And it’s a pretty clear winner in terms of a listed real estate market, outperforming from from that standpoint. But when you have a much more broader vantage point, really interesting to to hear that data.

00;09;38;29 – 00;09;53;20

Liz Bell

Yeah, that is definitely a great observation. And I should say that our data that I mentioned is just focus on closed end funds. So it’s even more skewed towards your core plus heavy value at heavy opportunistic within our data set. Yes.

00;09;53;23 – 00;10;18;08

Uma Moriarity

Got it. So definitely definitely not indicative of what you see across the Odyssey funds crash. So maybe shifting gears here to your vantage point as as an allocator, when we think about funds co-investment JVs, separately managed accounts, each structure carries a very different liquidity profile right from your seat as an allocator. As an advisor, where are you seeing investors gravitate right now?

00;10;18;08 – 00;10;25;16

Uma Moriarity

And what does that telling us about how capital actually wants to access real estate, when liquidity might be that constraint?

00;10;25;18 – 00;10;56;24

Liz Bell

I think one thing to note is that capital allocators always want more investment specification, more governance, or control, lower fees, etc. now, whether they can get it or not really does depend on the negotiating power at that moment. Where is the pendulum in favor of the GP’s or the LPs? And historically we’ve seen when there’s times of of limited liquidity or limited access to capital, it swings in favor of the LPs over the past three years.

00;10;56;24 – 00;11;19;24

Liz Bell

Yes, we are in an LP friendly environment where the LPs have more control over those levers. So what are we actually seeing today in this type of capital constrained environment? We are seeing larger investors are gravitating more towards bespoke solutions. So think SMEs funds fund of ones. And this is because they want more control over a host of items.

00;11;19;24 – 00;11;52;00

Liz Bell

It could be strategy, pacing fees, reporting. Conversely private wealth channels, they’re showing more interest in vehicles that have more visible cash yield. And they have a little bit more control over liquidity. So think lower return a little bit more cash coming back interim income. But overall we’re still seeing that the market wants real estate exposure. But the way investors want to access it is a little bit more customized.

00;11;52;00 – 00;11;59;02

Liz Bell

And especially on the institutional side, more fee efficient and more deliberate about the deployment and liquidity.

00;11;59;04 – 00;12;18;27

Uma Moriarity

You know, it’s interesting you mentioned in terms of the larger, more sophisticated investors are wanting to be more selective about this, and we see that here as well. Right. So you’re seeing those more sophisticated investors that want investments. They want the separate accounts that kind of access in in a way that is more material for them and more customized for them.

00;12;19;04 – 00;12;37;11

Uma Moriarity

But is that creating some sort of a bifurcation in the market where those types of investors maybe have an advantage in this environment versus those that are maybe locked into commingled funds? And if so, what do you think are the implications for how the private real estate market evolves from here, given that bifurcation that you’re seeing?

00;12;37;14 – 00;13;03;27

Liz Bell

So I’d say high level, yes. I do think there’s a bifurcation. However, I’d argue I’m not convinced that means one path is more advantageous than the other. What we see is that, yeah, the larger, more sophisticated the investor, the more that they are capable of of going down the SMA or Co-invest or sidecar path, because they want to do that to control what’s important to them.

00;13;03;27 – 00;13;28;01

Liz Bell

And like I mentioned, pacing fees, investment exposures, liquidity rates, etc. however, investors in Co-mingle funds still get access to that that asset class, but they have less ability to shape that path of control. That’s the trade off. Is there an advantage in that? Maybe. But you have to know what you’re doing and you have to have the resources to execute it correctly.

00;13;28;03 – 00;13;48;05

Liz Bell

And so many LPs don’t have the luxury that they can do. SMEs do. Drax A lot of times you see these teams are very embedded in a large pool of capital and there are very few people on the team, so it’s just hard to do that, in which case they can still do very well. Committing to the commingled funds.

00;13;48;08 – 00;14;12;25

Liz Bell

When I talk to friends and industry colleagues about this, I always hear a lot of self-serving comments on the views about where the commingled fund model is. Some people say, okay, the commingled fund model is dead, everyone’s SMEs. That’s incorrect. And as I mentioned, a lot of the LPs, a lot of LPs we work with, quite frankly, work with us to access commingled funds that they can’t access.

00;14;12;27 – 00;14;33;04

Liz Bell

A case in point is, you know, if you’re a large pension, you have a few constraints. It’s not just team resources, but it’s also check sizes. And so if you are writing checks of your minimum check is 100 million or 150 million to deploy into an investment strategy. If you go into us, that’s probably small for an estimate, could could happen.

00;14;33;04 – 00;14;48;23

Liz Bell

But if you go into a fund, you’re also limited on the size of the fund. And so we’re working with a lot of those larger investors that still want to access a middle market, but they can’t do it on their own. And so maybe they’ll do an SME with us. But we’re funneling that money right back into the funds world.

00;14;49;00 – 00;15;08;18

Liz Bell

So it’s in a co-mingled structure. Some other comments I get kind of related to this is my friends on the GPC side that say, all right, well, okay, maybe the commingled funds still work, but it’s only for the mega manager space and kind of diving into that a little bit like, yes, there’s some truth behind it in 2025.

00;15;08;18 – 00;15;38;27

Liz Bell

And this is because Brookfield and Blackstone are there. But the top 25 managers in 2025 received 80% of all the capital that was raised. Not that it is something you have to pay attention to. However, when you dig in a little bit and looking at that, this gets back to that constraint problem. A lot of the capital is flowing into those top 20 managers are coming from some of the largest investors in the world, some sovereigns, and they’re forced to invest in those mega managers space because they have these constraints on the ticket size of themselves.

00;15;38;29 – 00;15;58;12

Liz Bell

And so, yes, a lot of that capital is going into those mega funds, but there’s still a significant amount of capital still flowing into that middle market space. And we are active there. So I can contest by my day job. Commingled funds are not dead, and managers are still investing in the middle managers space and can still do well.

00;15;58;15 – 00;16;33;09

Uma Moriarity

Yeah, I think one of the other nuances not only is that size of the investor that’s driving some of this movement of capital, but I think also just the geography and the investor profile is shaping how they view liquidity, the expectations that they have around liquidity. Yeah, I don’t think that really gets discussed enough either. How do you think European investors or Asia Pacific investors are thinking about capital and liquidity, and the structure is differently than what we might see here in the US across the LP landscape, and does that create any sort of arbitrage opportunities, or is that kind of maybe just different pockets of pain, or how how are you seeing that geographic

00;16;33;09 – 00;16;34;12

Uma Moriarity

shift?

00;16;34;15 – 00;16;56;16

Liz Bell

I see a geographic bifurcation or differentiation. I’m not sure if it’s creating arbitrage, but I think the liquidity pain is a little bit defined differently across the regions. So the first thing just starting with the US here, you know, I think for institutional investors, the biggest liquidity constraint, you hear them talking about DPI getting capital back okay. In Europe it is a little different.

00;16;56;16 – 00;17;24;06

Liz Bell

We’re hearing from our clients there that they have to layer on other constraints related to tax or structure or home market biases, currency. And so the hurdle isn’t just that liquidity, but it’s also whether investing outside of their region is worth the complexity. And looking at capital flows and in kind of thinking of 25 and into 26, it’s interesting us remains the largest market that’s attracting foreign capital still.

00;17;24;08 – 00;17;54;17

Liz Bell

However, for the first time in a while, U.S. investors are looking to increase their allocation overseas a little bit more. And then going across the other regions, Europe and pack investors are not they’re looking to increase allocation to their region more than they had in the past. So I think that’s interesting that home biases a little bit. And then kind of touching on the investors in a pack, a conversation is usually much more focused on cash yield and kind of product fit.

00;17;54;17 – 00;18;15;05

Liz Bell

And that’s where product fit is important. Do you see a lot of SMEs there because they have a lot of capital to deploy? We were just saying I was in Korea last week. An interesting anecdote, you know, talking to a host of different investors. There were very few conversations that were centered around the DPI issue. I think they’re past that to a degree.

00;18;15;07 – 00;18;42;21

Liz Bell

Surprisingly, a lot of the investors I spoke to when I was in Korea, they were bullish on where we are in the real estate cycle. They recognize that there’s actually an opportunity to invest in the US today. However, the struggle is the recency effect on the performance, right. So they still need to see a little bit better performance so that they can point to that when they go to their own ICS or boards, making the case that they need to allocate a little bit more capital to real estate across their private markets.

00;18;42;21 – 00;18;44;12

Liz Bell

Allocation.

00;18;44;14 – 00;19;06;19

Uma Moriarity

And you mentioned earlier in the conversation that retail high net worth channel as well, which really has been such a fast growing source of capital across the private real estate market. Do you think that source of capital understands internalizes what illiquidity means for this asset class, or do you think there are still more education to be had there?

00;19;06;21 – 00;19;34;01

Liz Bell

I do think it’s a learning process. I think that retail and high net worth investors didn’t fully internalize the liquidity aspects of some of the products they were going into before this most recent stress test. However, they are internalizing it now. The past few years did expose that gap between periodic redemptions versus real liquidity. However, we are still seeing investors.

00;19;34;01 – 00;19;56;10

Liz Bell

As I mentioned earlier, the private wealth survey we did, they’re interested in deploying in real estate. Still, however, I think that they’re focused more on what the structure is today. They’re a little bit smarter, too, that they want more transparency. They want to understand the duration of the underlying investments a lot more, and they’re focused on kind of that distribution and redemption limits.

00;19;56;10 – 00;20;19;06

Liz Bell

So I think they’re a little bit more discerning when it comes to the underwriting of the products are going into the we see this wave of private wealth investors entering the private market space. That demand is real and real estate benefits because it is one of the most easily understood of the private market sectors. And I think just what we went through is that expectations were just too optimistic.

00;20;19;09 – 00;20;46;14

Liz Bell

The anticipated liquidity from the Non-trade at rates and internal funds that effectively failed a lot of those investors. And as they come back around to almost real estate, evergreen and Entre Space 3.0, I think they’re seeking a better liquidity mousetrap. What does that mean? Well, I’m sure will chew on that. But the market is adapting. We’re seeing that investors are looking for this shorter duration, more cash flow support within these vehicles today.

00;20;46;17 – 00;21;12;11

Uma Moriarity

Yeah, absolutely. And kind of speaking of that liquidity mousetrap. Right. If you could redesign the liquidity architecture and in private real estate, what do you think is actually achievable versus what’s maybe more aspirational? Is it more frequent valuation cycles, more kind of standardized secondaries, windows built in redemption mechanisms. Where does that innovation maybe live in this space, and where do you think the market might actually adopt?

00;21;12;14 – 00;21;31;23

Liz Bell

This is the key question. And if someone can unlock it and crack the code, they’re going to do really well. I know I’ve been chewing on this since we had breakfast and talked about it a few weeks ago, so I don’t have answers, but I think I can identify what is aspirational or achievable. I think when you look at private real estate and you want liquidity on demand, that’s that’s aspirational.

00;21;31;23 – 00;21;58;29

Liz Bell

I’m not sure that that’s coming anytime soon. What I think is more achievable in the space is better alignment between your underlying assets and investments, and the fund structure itself. So you need to create the right structures or design the right portfolios that have a natural liquidity mechanism embedded. So you’re not pretending that these illiquid assets can suddenly behave like public markets.

00;21;59;01 – 00;22;20;09

Liz Bell

It’s much more about the the mousetrap. And so where we see this going a little bit and we have a lens through our private equity view here, we have evergreens in the private equity side. And one of the most successful is our secondaries evergreen private equity secondaries evergreen product. And what investors love about it is that it’s a multi manager approach.

00;22;20;09 – 00;22;42;18

Liz Bell

And it’s also shorter duration. You get an immediate mark up. In theory you’re buying at a discount. You don’t have that Jay curve impact. And so the structure of that vehicle matches the investor expectations just a lot better in terms of other options within the private market space. So the innovation on the real estate side building better matched evergreen structures.

00;22;42;18 – 00;23;07;09

Liz Bell

So and especially and self-serving for me because we’re doing this. But those that are using secondaries and similar to what I just mentioned, the PE side in real estate, the nature of secondaries generates that underlying portfolio. Cash yield. You know, you’re buying existing assets, there’s cash flow coming from them. And more importantly, that exit churn can support a little bit better periodic liquidity.

00;23;07;09 – 00;23;30;24

Liz Bell

Because these are these are buy and sell strategies. It’s not the existing non trade at reach which are effectively buy and hold forever. And so that the secondary component either a standalone strategy or within a larger evergreen real estate evergreen strategy I think is really important. It’s quicker deal velocity. You’ve got shorter hold periods. The regular portfolio roll off can really support that periodic liquidity.

00;23;30;24 – 00;23;33;29

Liz Bell

So I think we’re going to see much more of that in the future.

00;23;34;02 – 00;23;56;10

Uma Moriarity

I definitely want to dig in more into the secondaries market. You mentioned even in terms of what’s happening across the private equity space, real estate secondaries are lagging behind in terms of kind of just the evolution and growth of that marketplace compared to private markets more broadly. But if you think about whether it’s GP led deals, Nav lending, continuation vehicles, there are so many ways in which you can kind of go about the secondaries market.

00;23;56;10 – 00;24;11;15

Uma Moriarity

Where do you think within the real estate space, what have the most legs? What would it take for real estate secondaries to become this reliable, scaled liquidity mechanism rather than what has historically been more of like a distressed outlet?

00;24;11;17 – 00;24;34;13

Liz Bell

Yeah. I think one thing I want to challenge a little bit in what you just said is that secondaries are lagging. I don’t think they are. I think they’re actually representative of the industry sizes a little bit. So to put context on that, private markets are about the estimated to be 15.6 15, 16 trillion within that space private real estate that we track.

00;24;34;13 – 00;25;02;10

Liz Bell

So again, within our kind of close in private real estate fund is about 1.5 trillion. So it’s about 10% of the broader private markets segment flipping to secondaries. And expectations are also that. So private broad private market secondaries transactions. The volume grew from 162,000,000,000 in 20 24 to 240 billion in 2025. That sizable real estate was about 10% of that in line with the overall market.

00;25;02;10 – 00;25;31;16

Liz Bell

So real estate jumped from 15 billion, give or take, in 2024 to about 20 billion of transaction activity in 2025. So I think it is in line and in terms of the level of products and sophistication, I think it is also aligned in some ways. To be honest, when I talk to a lot of international investors and ones that are investing with how much selling in the private equity side, they still think of secondaries as LP leads primarily, and in real estate.

00;25;31;16 – 00;26;00;27

Liz Bell

I think in some ways we’re actually a little bit more advanced where the GP led space is very robust, it’s at the asset level, and so I think we have as many tools as the other secondaries. Private markets strategies. What do we like the best? Two fold. I do like the GP leads. What I like about that, and especially if you’re kind of doing it at asset by level, asset by asset underwriting, you know, what you’re getting into today’s market is a difficult market.

00;26;00;27 – 00;26;19;12

Liz Bell

We came out of a pretty steep valuation reset. You really have to know what you’re getting into. And we’ve got a kind of unclear growth environment ahead. And so we want to work with operators that can actually grow in a way, leasing strategies or cost efficiencies like really understand the real estate in that regard. We want to be really selective in what we’re getting.

00;26;19;17 – 00;26;37;03

Liz Bell

The GP led recaps are great for this because you’re typically working with a partner that already knows the asset already knows how to work the asset. You’re stepping into something at a good value because you know what you’re getting in your underwriting. And in fact, we did a GP led secondary with you guys that kind of fits all these boxes on the retail side.

00;26;37;06 – 00;26;54;08

Liz Bell

And it’s it’s great. The other side of the equation, which is interesting, is that a lot of the capital that has been raised within real estate secondaries has gone to these GP leads and continuation vehicles unless bullish on continuation vehicles. To be quite honest with you, I think that there’s a lot of capital that’s been raised is going into it.

00;26;54;08 – 00;27;13;25

Liz Bell

A lot of that capital has to deploy big check sizes and they’re going into these CVS. Maybe they can kick out assets or not. Maybe they think they’re getting in the control they want or not. Like I think it’s just a more shopped space as a side note of the CVS. But the other part that the market we really like are the LP labs, where it’s a little bit overlooked right now.

00;27;13;26 – 00;27;34;07

Liz Bell

We don’t see as much competition there from some of the big players. I think especially in a group like Austin, there’s, you know, a few out there like us, a few that are not like us, but where you have that primary lens and angle, you already know the funds where we’re potentially in. A lot of the funds were deploying, you know, 2 to 3 billion a year across funds and managers.

00;27;34;07 – 00;27;44;29

Liz Bell

So that’s a really interesting place where you can price well and pricing is in the 2,530% discount to Nav on the LP side. And so we really like that.

00;27;45;01 – 00;28;07;05

Uma Moriarity

It’s interesting. We touched on this a little bit earlier. But right when we think about liquidity in real estate, the obvious counter-argument to everything that we’ve discussed is that if investors really want liquidity and exposure to real estate, they can just buy rates. The pushback that I typically here is that REIT’s have too much volatility, the public markets have too much volatility.

00;28;07;08 – 00;28;26;11

Uma Moriarity

But it’s interesting that the listed real estate volatility, it kind of makes the mark to market, which also exists in the private market is just more visible. Right. It’s not that it doesn’t exist. The volatility exists in the private market. You just don’t see it as frequently. How do you think about the public versus private debate through that liquidity lens?

00;28;26;11 – 00;28;34;10

Uma Moriarity

And where does the current environment maybe change the calculus on what you think might be the right mix for a portfolio?

00;28;34;12 – 00;28;55;00

Liz Bell

I think you nailed it. When you say the right mix, you know, I do think there is a place for both strategies within a real estate portfolio. And I think the current environment highlighted that because both sleeves give you something different. The listed side, clearly you want daily liquidity. You get it there. You want real time price discovery.

00;28;55;03 – 00;29;24;20

Liz Bell

You get it more there. Private real estate is the right tool if you want more control, less forced trading and different return profiles. But I think what the current environment has highlighted is that it’s not changing the case that for private real estate, but it’s almost at least through my lens, changing the case that maybe you should be carrying a little bit more of public real estate listed exposure next to it to kind of balance when there is a liquidity crisis or crunch.

00;29;24;22 – 00;29;33;14

Liz Bell

Having that liquid aspect to your private portfolio can allow you to do a lot more, both defensively and offensively.

00;29;33;17 – 00;29;57;10

Uma Moriarity

I spent a lot of my time thinking about the balance of of public versus private real estate. Okay, so fast forward maybe ten years and the liquidity problem in private real estate has been materially improved. What happened was it that we finally are in a lower interest rate environment? We have forced asset sales because some of that forcing function kind of came through the market.

00;29;57;12 – 00;30;11;12

Uma Moriarity

A secondary market has finally scaled to a much larger, larger scale. Is it product innovation or maybe something else entirely? What do you think in a resolution in terms of really solving for this liquidity question within private real estate?

00;30;11;12 – 00;30;38;03

Liz Bell

Looks like I think it’s a confluence of all of that, right. When you lay out all those different levers, it almost feels like we are at the bottom right now. And and constrained on a lot of those pieces. I mean, I think the price discovery has been happening. It’s going to open up the market. You know, valuations have dropped 20% peak to trough 2022 to now and have come up not in a V-shaped recovery, which I actually think is a good thing for deploying capital.

00;30;38;10 – 00;30;55;21

Liz Bell

So we’re still kind of 15% off the peaks, which is good to deploy new capital. Liquidity on the debt side is coming back, which we know for real estate is is massively important. I want to say commercial real estate lending was up, call it 35, 40% last year and is expected to be up again, 20% give or take, this year.

00;30;55;21 – 00;31;23;22

Liz Bell

So that’s definitely injecting liquidity into the system, which is increasing transaction activity. So I think that that’s going to unlock. Getting back to your first question, the beginning, some of that distribution capital contribution mismatch. So that’s kind of normal real estate cycle ups and downs that we have to deal with always. I think the evolution that’s going to occur between now and ten years from now is the secondary market, where the inflow of private wealth capital.

00;31;23;25 – 00;31;53;12

Liz Bell

I think those two things are a little bit more structural in the change and especially the for the institutional side, the secondary market is evolving on both the PE and real estate side. I think investors are recognizing and LPs and GP’s are recognizing is not just a distressed clean up anymore, that you can get great value. It’s another tool within your portfolio construction that provides something different in terms of deploying capital.

00;31;53;12 – 00;32;14;05

Liz Bell

I think as well. What’s interesting for real estate, the LP leads currently. I mentioned that the discounts really wide today. I think there’s a bit of a stigma around that. But and to be fair, three years ago, you don’t want to catch a falling knife. Who knew what knife was? But today you’re still at around call it 2,530% discount, while P is around a 10% discount.

00;32;14;05 – 00;32;34;04

Liz Bell

And so I think some investors are shying away because that that perceived discount level, there must be something wrong. We think it’s a great opportunity. But I think as that market becomes a little bit more normalized, maybe the 20% discount level people will be willing to trade there more and then just more capital flowing into the secondary space.

00;32;34;04 – 00;32;52;24

Liz Bell

What we see across private markets and secondary is that there’s not enough capital to access the opportunities, which means it’s great if you’re a buyer like us. But in order for the system to really unlocked and create more liquidity into the system, which I think is the goal, there’s just more capital needs to flow into that strategy.

00;32;52;26 – 00;33;20;09

Uma Moriarity

I know for sure that I could probably keep asking you questions about this, and we could talk about this for for hours and hours and hours, but I think we might we might be out of time here. But the thing that’s really interesting to me about this conversation list is that this liquidity challenge, exactly as you mentioned, there are some aspects of it that are more structural in nature, and I think it’s forcing the industry to ask some of these hard questions and think about how this capital is structured, who has access to which tools, whether that’s a liquidity premium.

00;33;20;15 – 00;33;35;19

Uma Moriarity

It’s still a fair trade. I think really important questions for us to be thinking about, for us to be asking as we think about the evolution of this, of this industry. So thank you again, Liz, for bringing so much great data, so much great perspective to these questions and spending time with me today.

00;33;35;22 – 00;33;37;22

Liz Bell

And thanks for having me. This was really great.

00;33;37;24 – 00;33;54;18

Uma Moriarity

And thank you to our listeners. Thanks for tuning in. If you found this episode helpful, be sure to subscribe and share it with your network. We will be back in a month with the next episode of Front and Center.

00;33;54;20 – 00;34;18;06

Outro

Thanks for listening to Front and Center. You can subscribe on your favorite streaming platform, and please be sure to leave us a review. To stay up to date, you can visit our website at Center square.com to access our thought leadership, sign up for our mailing list or contact our team. We look forward to hearing from you. The content of this podcast is informational only and represents the viewpoint of the presenters at the time of recording.

00;34;18;09 – 00;34;30;28

Outro

It should not be regarded as a solicitation nor investment advice. All information presented is subject to change at any time based on new data analysis or market conditions. Past performance is no guarantee of future results.

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