While many real estate investors and lenders seem to be holding their breath in anticipation of the next recession, there are nonetheless some promising new opportunities on the horizon. That was the collective opinion of four lenders who served as panelists on “The Evolving Landscape of Capital Markets,” a discussion that was part of the recent 2019 ULI Carolinas Meeting in Raleigh.

“What strikes me as odd is that there’s a lot of capital on the sidelines right now,” said Bobby Werhane, an assistant vice president with Bellwether Enterprise in Charlotte. Werhane acknowledged that there seems to be no shortage of capital out there, at least in terms of equity deals, but investors are cautious about relinquishing it. “People are trying to find smart deals; they have PTSD from 2007.”

Indeed, everyone is trying to predict when the next slowdown will happen. “Most forecasts have agreed that 2019 will be pretty good; but 2020 and 2021 they’re viewing with some caution,” said Stewart Patch, a senior vice president at Pinnacle Financial Partners in Raleigh. “There’s a lot of competition. It’s crazy how hard it is to achieve deals.”

The only thing that developers can do is continue to maintain strict discipline with their numbers, he added. After all, it is entirely likely that many of the deals currently being negotiated will see a recession.

In terms of asset classes, hospitality may well be the most exposed in the event of a recession, given that it requires a nightly lease, said Patch. With all the disruption occurring in the retail sector, those projects can be tricky, too, unless they are anchored by a well-known grocery store. And the landscape for office development is also shifting, with the popularity of coworking spaces and their lack of hard-and-fast leases making some lenders nervous—whether or not WeWork and its ilk are the wave of the future, as some prognosticators contend.

By and large, the multifamily market seems to be holding up, though currently there is a good supply in the Carolinas’ major markets: Charlotte, Research Triangle, and Charleston. “I think developers will be fine, and given demographic growth, units will be fine,” said Patch. “But they may not be able to drive rents they way they’re underwriting.”

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