Marc DeLuca, CEO and Eastern regional president of KBS, and chairman of the board at KBS REIT III, joined the latest episode of the REIT Report to discuss how the current market cycle presents a unique challenge, particularly regarding capital availability and costs.
Today's environment resembles a capital markets "reset" rather than a structural change in how real estate is used, he said. DeLuca also shared how REITs have performed well compared to other major indices, with their strategic focus on high-quality assets and sustainability attracting investors seeking resilience in their portfolios. As interest rates start to decline, REITs “can act quickly, and their ability to use leverage will be greatly enhanced and allow REITs to grow tremendously,” he said.
Given the current backdrop, investors need to focus on understanding the implications of capital costs on their portfolios, DeLuca said. He suggested a strategic approach to investments, emphasizing a focus on downside risks and capital structures.
Turning to the office sector, DeLuca noted that high-quality buildings with desirable amenities continue to attract tenants, even as vacancy rates rise in some areas. The focus on quality over quantity is vital in today's market, he stressed.
Other topics DeLuca addressed include: how deals get done in today’s higher rate environment, the return on investment from using AI in investment decision-making, how sustainability initiatives translate into tangible financial performance, and more.