In 2024, SteelWave Digital, a subsidiary of the SteelWave Commercial Real Estate organization, is leading the way in innovation with its exploration of tokenization strategies. This approach aims to offer coins tied to physical assets and presents new opportunities for both local and global investors. We sat down with Barry DiRaimondo, CEO of SteelWave Digital, as he shared his vision for the future of investment in the digital age.
Q: What is your perspective on the current market?
A: The CRE market can be viewed from two angles: Capital Market fundamentals (values) and Supply/Demand fundamentals (vacancies and leasing velocity). Currently, capital market fundamentals are completely dislocated due to plummeting values since their peak in 2022.
Real estate values are typically inversely proportional to interest rates – as rates decrease, values increase. This relationship becomes amplified during times when there is a rapid change in interest rates. In late 2022-2023 when interest rates tripled over an eight-month period , real estate values collapsed entirely. Today’s office sector has seen a drop of 50-70% below peak value; multifamily has dropped by around 30-40%, while industrial has seen drops between20-30%. Such drastic decreases are almost unprecedented . Low starting cap rates result in high-value cliffs during periods of rapid deflation.
Current owners face challenges such as debt restructuring with little or no asset cash flow available . Most equity invested into CRE between2017 -2022 have been wiped out based on today’s spot value – especially within office sectors where tenants have leased too much space based on aggressive growth projections that did not materialize .
If you don’t need to sell an asset now , you wouldn’t want it either . However , groups who possess liquidity see this time as an excellent opportunityto buy assets at current price points ; many consider this buying opportunity generational .
Q: Where do you see the opportunities?
A: The most significant opportunities lie in product types where both capital markets and supply/demand fundamentals are dislocated. Currently, this would be ‘office’ . Life Science may not be too far behind .
Unfortunately , these opportunities also carry the highest risk . There is an overwhelming amount of vacant office space in tech-dominated markets due to overleasing based on aggressive growth projections. The CRE community was eager to build products that could accommodate these predictions.
Now, we have a surplus of new supply at a time when most tech tenants are reducing their office footprints. Similarly, there is an unprecedented amount of new Life Science products under construction or recently delivered compared to existing bases .
This will lead to a significant increase in vacancy levels . It will take much longer for the supply and demand metrics to reach equilibrium than it takes for capital markets – which poses risks as no one can predict how long it will take for excess supplies (two years or five years).
The difference between these two timelines has enormous implications on economic underwriting.
Q: What is your investment strategy?
A: Historically , we have created work environments by developing (ground up) new office/life science projects or transforming existing buildings into mixed-use spaces with housing, retail outlets and hospitality elements – creating live-work-play ecosystems within projects located within innovation hubs.
Capital Markets have reset values entirely ; hence our belief that executing strategies defining us since decades ago at significantly lower costs than pre-GFC days remains possible today; acquiring transformed/new projects below replacement cost basis also seems feasible now .
Lastly , assets fully leased out long-term basis (7-12yrs)to tech tenants offer unprecedented cap rates driving value-add returns without taking value-add risks
Q : What does “Hyper-Bear” Marketplace mean ?
A : You’re looking right at it !
It’s a market where both Capital Markets AND Supply/Demand metrics are entirely dislocated simultaneously – extrapolating current leasing velocity and looking at forward interest rate curves would lead to the conclusion that markets will be a disaster for 3-5 years , maybe longer . History tells us recovery is usually much quicker than projections made during most bearish times – especially in markets dominated by high-growth tech sectors .
We’re betting on history.
Q: Tell us about your new fund
A: Our new fund follows a risk-off real estate strategy.
As mentioned earlier, we believe it’s possible to acquire existing office assets leased out long-term (7-12yrs)to tech tenants in tech hubs at unprecedented cap rates. What was once considered a high 4-low 5 cap rate now stands as high7-low9caprate .
Institutional investors are convinced that the office sector within Tech Hubs has dislocated beyond repair ; this sentiment considers work from home transition, shrinking footprints across industries and unprecedented levels of vacancy – coupled with very high-interest rates , difficult economic data and social discourse – making space look bleak. It’s hard to refute any element driving such sentiments; however, based on green shoots seen today alongside market nuances experienced daily where we live leads us towards an optimistic conclusion.
We see an opportunity for significant upside given current buy-in points . Our real estate strategy remains relatively benign from CRE perspective but revolutionary concerning digital asset & internet ecosystem v3.0
Our Fund Investors hold traditional LP interests but have options converting those into digital securities (tokens) tradable peer-to-peer or listed on regulated exchanges when frictionless secondary liquidity becomes available within the rapidly developing financial ecosystem v3.o
Unfortunately , due US regulatory environment constraints our domicile had been Bermuda ; Most large institutional asset management companies both domestically & internationally actively position themselves within rapidly evolving Financial Ecosystem V3.O bridging traditional Hard Assets(CRE )into said financial ecosystem Attendee panel closed
