#37 - Jeff Krasnoff: Private Real Estate Investing
Sep 10, 2024
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Jeff Krasnoff, the Founder and CEO of Rialto Capital Management, shares insights from overseeing $21B in commercial real estate assets. He discusses the importance of risk management and diversification during market downturns, drawing on his experiences from the 2008 financial crisis. Jeff elaborates on the evolution of private real estate investing and the need for thorough market research amidst rising interest rates. He also highlights the shift toward direct lending in today’s dynamic market, offering strategies for navigating investment challenges.
Jeff Krasnoff emphasizes the importance of understanding market cycles and risk management to strategize effectively in real estate investing.
The speaker highlights that distress in the real estate market can provide advantageous opportunities for purchasing assets at discounted prices.
Current trends indicate a strategic shift towards real estate lending due to gaps left by regional banks, presenting attractive investment returns.
Deep dives
Introduction to Real Estate Investment Journey
The speaker shares their initial interest in the real estate sector, which began in college when they pursued an accounting degree. Upon graduating, they found themselves in a market predominantly driven by the tourism and real estate industries in South Florida during the mid-1970s. This exposure to the real estate environment, facilitated by working with clients in the sector, helped cultivate a passion for the industry. Eventually, this led to a pivotal career move in 1986 when they joined Lenar, a major home-building company, providing a foundation for their future endeavors.
Lessons Learned from Market Cycles
The discussion emphasizes the importance of understanding market cycles and how they influence investment strategies in real estate. The speaker highlights their belief that distress in the market can be an ally, as it provides opportunities for purchasing assets at a discount. Risk management and the implementation of strong disciplines are identified as crucial factors for successfully navigating these cycles. The speaker suggests that diversifying investments across property types and ensuring proper financial structuring can significantly mitigate risks during downturns.
Insights Gained from Past Crises
Reflecting on multiple market downturns, the speaker articulates valuable insights gained from navigating financial crises, including the Black Monday crash and the S&L crisis. They recount how experiences during these periods shaped their approach to risk management and investment strategy. The need for contingency planning and maintaining a diverse capital base during such turbulent times is emphasized. The speaker demonstrates that learning from past experiences is integral to building resilience and adaptability in investment practices.
Current Real Estate Landscape
The speaker discusses the present state of commercial real estate, noting significant challenges and opportunities across various sectors. For example, while multifamily housing is experiencing demand pressure, zoning regulations and rising costs are creating frustrations for property owners. Other sectors, such as office leases, are in flux due to the impacts of remote work trends, leading to reduced space requirements from tenants. Overall, the speaker maintains that while there are hurdles, emerging opportunities exist in high-quality assets and sectors that can withstand market pressures.
The Shift Toward Lending in Real Estate
In the current economic climate, the speaker expresses confidence in real estate lending as a more attractive opportunity compared to equity ownership. With many regional banks retracting from lending, there exists a gap in the market that alternative lenders can fill. Higher interest rates offer the potential for better returns on loans made during this time. This strategic shift towards lending emphasizes a broader understanding of the interconnected nature of investment and risk management in the real estate sector.
Jeff is the Founder and CEO of Rialto Capital Management, a firm that oversees $21B in commercial real estate assets as of 6/30/24. With his extensive experience over 4 decades, Jeff offers valuable perspectives on both private real estate property and debt investments. He also shares his outlook for various real estate markets.
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