Real Estate Cycles: HSR’s Chairman on Liquidity and Market Dynamics

A discussion with HSR’s new Chairman on the current state of the market, liquidity's impact on real estate cycles, and unique factors influencing today's market.

Summary:

HSR's CEO, Joseph Penner, spoke with the company's new Chairman, Ethan Penner, regarding the current trends and challenges in the real estate market. Ethan, an icon in the industry, shared his viewpoint on the crucial role of liquidity in driving real estate cycles.

Ethan explained that the availability of liquidity significantly influences market dynamics. When there is an abundance of capital, it leads to intense competition for assets in acquisitions, development equity, or lending. In those moments, the balance of power lies with those holding the assets. Conversely, when liquidity is drained, the power shifts to those with available capital, as they can take advantage of lower prices and less competition to acquire valuable assets.

Ethan noted that the current down cycle, while not as severe as the 2008-2009 financial crisis, is distinct due to two key factors: physical obsolescence, particularly in office spaces, and locational obsolescence. These elements add a unique dimension to the current market conditions despite the underlying similarity to previous cycles driven by liquidity issues.

Joseph echoed Ethan's observations, highlighting that HSR's recent investment activity has surged, with more capital deployed in the last 13 months than in the combined years of 2018 through 2021. This trend is attributed to the withdrawal of liquidity from the market, resulting in fewer buyers and continued opportunities for HSR’s strategic investments.

View the full interview with HSR’s Chairman Ethan Penner here.