RE Capital Flows to Pick Up but Remain “Uneven”: Q&A with JLL Income Property Trust’s Allan Swaringen 

The commercial real estate market is shaping up as a year of cautious recovery with pockets of real strength. Investor appetite is back, but most are being selective. Transaction volumes should rebound. CBRE is forecasting a 15% to 20% jump from $450 billion in U.S. CRE deals in 2024, still shy of the $800 billion peak in 2021 but still solid.  

Interest rates are the big pivot. A stable rate environment should lead to a rebound in valuations, Allan Swaringen, President and CEO of JLL Income Property Trust, shared with Connect Money that capital is going to flow back into real estate faster in 2025 but doesn’t expect a smooth ride across the board. “…conditions across real estate sectors and markets will remain uneven.”  

Swaringen also discussed why now is an opportune time to invest in core real estate assets, his preference for warehouse locations near major U.S. transportation hubs and critical infrastructure, and the outlook for the commercial real estate market in 2025, among other topics.  

CM: Why is this a good time to invest in long-term core real estate assets? 

AS: This recent downturn in real estate that we are emerging from was primarily a capital markets driven event – with the Fed’s eleven interest rate hikes creating significant disruption throughout the economy and in real estate capital markets. In 2025, we are beginning to see interest rates stabilize, which should lead to a more moderate pace of value recovery. And while the pace of capital flows to real estate is expected to pick up, conditions across real estate sectors and markets will remain uneven. 

These differences suggest that investing at the early stages of this new real estate cycle will not be a simple story of a “rising tide lifting all boats”; selectivity at the property sector, geographic market and sub-market level will be an opportunity to add value. In core real estate, as the lower risk/return profile investment style within real estate, fundamentals like occupancy and rent growth are expected to continue to perform strongly, leading to an income-focused total return that can play an important role in a diversified portfolio. 

CM: As the manager of the JLL Income Property Trust, how do you expect the publicly traded REIT market to perform? What are we going to see there? 

AS: While we monitor the public REIT markets, as a fund manager focused on private core real estate ownership, we are less concerned about the day-to-day fluctuations and volatility that you see in the public REIT market. We are long–term owners of core real estate focused on the benefits that direct property ownership can provide – not stock pickers. As such we don’t really have a forecast into how that public market will look throughout the year. That said, public REITs of late have seen a strong recovery which often is observed as a leading indicator for private markets. 

CM: JLL IPT’s industrial strategy favors warehouse locations near major U.S. transportation hubs and critical infrastructure. Why is this an opportunity-rich sector? 

AS: Industrial properties located in markets in close proximity to major transportation hubs – as well as significant population centers – remain an important investment theme for us. The rise of e-commerce and the need for efficient supply chain logistics has continued to be one of the key demand drivers for these types of warehouses and distribution centers as proximity to airports, seaports, highways, and rail networks enables faster and more cost-effective transportation of goods. The trend towards reshoring and nearshoring of manufacturing has further boosted demand for industrial spaces in these locations.  

Additionally, the focus on proximity to growing population centers has increased the value of industrial properties in certain key markets. These factors, combined with limited available land in prime locations, have led to strong rental growth and low vacancy rates, making industrial real estate an appealing investment with potential for stable cash flows and capital appreciation. 

CM: How does the capital availability picture appear right now, particularly for public real estate? Where do we stand in terms of how easy it is to obtain financing or refinance? 

AS: Again, we can’t speak from direct experience as to how the publicly traded REIT market is accessing capital, but as a private fund with alternative ways to access equity and debt capital, we believe we are well positioned to continue to grow our balance sheet in 2025 and beyond.  

Our fund has two distinct channels for raising continuous equity capital, and in early January we announced that our sponsor and parent company Jones Lang LaSalle (JLL) had invested an additional $100 million into the fund to take advantage of investing opportunities in the early phases of this current recovering market cycle. Regarding debt, we are conservatively leveraged, with portfolio LTV at just 34%, and have strong relationships with lenders both for direct property mortgages and a large line of credit. 

CM: How concerned are you about the size of the loans to be refinanced? A conservative estimate indicates that $2.6 trillion will mature over the next four years. 

AS: We certainly continue to monitor the debt capital markets environment and maturing real estate loans in particular, though our portfolio is not particularly impacted. Certain market segments and assets will remain stressed under any realistic outlook for economic growth and interest rates. Challenged capital stacks will not be cured by lower rates, and the “pretend and extend” approach to distressed assets will eventually require resolution. Distress in the U.S. office sector is increasing, with U.S. residential and retail seeing some limited pockets of distress. However, for investors with access to capital, this distress may create outstanding, “once in a cycle” type of opportunities across many property sectors in real estate. 

CM: What is your general outlook for the commercial real estate investment market in 2025? 

AS: The summer and autumn of 2024 saw growing optimism among real estate investors. The belief that the dawn of 2025 would open with sunny skies for the real estate market was driven by declines in interest rates from peak levels, fading economic growth concerns and real estate valuations now more aligned with market transactions. While optimism remains, there remain some risks to consider.  

We do not see interest rates falling materially in 2025, certainly not as significantly as once expected, and the risk remains that long term rates may resist falling in line with central bank rates. Within the capital stacks of real estate, there is significant existing debt that will continue to need to be worked out. But research-oriented investors who recognize the differing dynamics across property sectors and markets are most likely to be best rewarded, and those with the conviction to invest early in the market cycle may potentially see outsized returns. 

CM: Building on that view, how might the new presidential administration and its policies impact the outlook for commercial real estate? 

AS: As a perpetual life, open-end real estate fund that invests across market cycles and various Washington administrations, we will inevitably encounter differing economic and political environments. Additionally, while rhetoric around certain issues during campaigns can be amplified in the media, typically those topics get significantly watered-down once candidates take office.  

From the incoming administration, we see a generally favorable pro-business with uncertainty around long term interest rates and tax policy. The administration’s focus on limiting immigration could have some negative impact on select types of real estate – workforce housing, for example. Historically, real estate has responded more strongly to local policies than national issues due to factors such as local zoning, approvals of new construction, and local tax incentives. We are less focused on the specifics of any one national election and more keenly tracking longer term trends in politics and policy.  

CM: For investors who come into the market in 2025, what kinds of returns will they be looking at?  

AS: We avoid making forecasts into return expectations. Historically, core real estate has produced annualized returns in the range of 6% to 8%, with most of that return coming in the form of income. At certain points in each market cycle, however, there may be opportunities for outsized returns. Typically, those investors who invest early in a cycle are rewarded with stronger long-term returns. We believe we are at that point in the cycle and are seeing new capital flowing from both institutional and high-net worth investors making increased allocations to core real estate.