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3650 REIT sees diminishing CRE impact from macro volatility

The firm deployed more than $1.45 billion in 2021 and aims to continue this momentum.

Miami-based commercial mortgage lender 3650 REIT believes commercial real estate is seeing less of an impact from macro volatility than during the previous cycle, pre-pandemic.

“Global macro has had less of an effect on real estate, and specific real estate attributes such as physical location and adaptability have become more important components to your investment thesis in the short run and the medium term,” Toby Cobb, 3650 REIT’s co-founder and co-managing partner tells Real Estate Capital USA.

Against a backdrop of volatility in the stock markets and the prospect of higher rates, the firm is placing more focus on secular characteristics of individual assets, with retail and multifamily sitting high on its agenda for 2022. Over the long term, however, it says it is necessary to examine macro factors.

“[Being] good stewards of our investors’ capital in the short run [involves] focusing on whether an asset works [and questioning] if it is going to be an outperformer? If you want to pick the winners, you need to understand the business plan, why it’s going to be a winner [including looking at] its location and its physical attributes, because the losers could be complete wipe-outs,” Cobb says.

Cobb, who is responsible for loan origination, capital markets and financing activities at 3650 REIT, has a positive outlook for the smile states in the Southwest and Southeast.

“We are enjoying some better demographic trends [here] that help make investments or lending opportunities clearer, certainly in multifamily, industrial; sectors that are enjoying the highest concentration of investment and capital growth,” Cobb says.

The firm recently closed two loans, including $95 million to refinance a double grocery-anchored retail center in La Habra, California, and $60.5 million to construct Houston multifamily property.

Major cities

While the firm is more cautious about locations such as New York and San Francisco, 3650 REIT does believe key commercial real estate sectors in such cities are due to bounce back within the next 10 years.

“We spent thousands of years building cities in order for people to collaborate, and I believe New York will rise again and all of the space in New York, at some point in the next decade, will be full again,” says Cobb.

“My problem is that we don’t know how long that will take to happen [or] what level of creative destruction has to happen to repurpose those assets, how that will affect the balance of the assets in the market and how long that’s all going to take.”

The firm is seeing a healthy pipeline of opportunities for Q1 and plans to continue its strategic investments in a variety of commercial real estate asset classes, including retail, multifamily, office and others. It manages in excess of $5 billion in loans and investments across its bridge and event-driven and stable cashflow lending platforms.