High-net-worth investors (HNWIs) plan to keep buying real estate assets in 2017. This class of investors bought $3.2 billion in real estate in the first half of 2016, according to data from Real Capital Analytics (RCA), a New York City-based research firm. Their total demand for U.S. commercial assets topped out at $10.3 billion, according to a recent report by commercial real estate services firm CBRE.

HNWIs have been a bit more concerned about headwinds in the sector recently, according to NREI’s HNWI 2016 research study. Respondents to NREI’s exclusive survey were most concerned with the possibility of a real estate downturn (44.62 percent); a recession (39.49 percent); and an increase in interest rates (35.9 percent).

Still, about 46 percent of respondents to a survey by CBRE indicated they planned to invest the same amount of capital this year as the last and 36 percent plan to up their real estate investment this year. About 30 percent of HNWIs are concerned about pricing and a real estate bubble, CBRE reports, and 24 percent worry about global and economic shocks affecting occupier demand. In addition, 17 percent see overbuilding as a threat.

Against this backdrop, what strategies are HNWIs pursuing in their capital deployment in 2017? NREI spoke with Robert Elms, senior managing director in the capital markets group of real estate services firm Savills Studley, to get further insight into HNWI activity in 2017.

Despite a muted investment sales market and Fed signals for multiple rate increases, “there are plenty of positives to see a strong rest of 2017 in U.S. real estate market—debt markets are open, lots of investor demand, economic landscape appears to be strengthening and for better or worse the election is behind us,” Elms says.

HNWI will have more opportunities to deploy capital without competing directly with institutional investors, according to Elms, as they are poised to “likely benefit from the macro wind at their backs.” Areas of opportunity for HNWIs include: secondary/tertiary markets; currently out-of-favor asset classes (for example, suburban office), potentially participating in different parts of the capital structure (mezzanine or preferred equity) or even zero coupon notes.

HNWIs will target markets/assets where the risk-return calculation makes sense relative to their strengths, Elms says, noting that “it’s a struggle” for these investors to occupy the same markets as big institutional investors. The investment profile for HNWIs typically includes long investment horizons, flexible capital (debt vs. equity), and quicker execution.

Below is an edited transcript of the interview.

NREI: What, if any, are the key differences between how HNWIs are viewing the commercial real estate marketplace in 2017 vs. last year? Is there as much interest in allocating funds to commercial real estate assets as there has been in the past few years or is the interest starting to wane?

Robert Elms: I don’t see many major differences between how HNWIs view their investment opportunities in 2017 vs. 2016. Much of the noise (U.S. election, Brexit) from 2016 is behind us, permitting investors to really focus on deploying capital. The trophy assets in major markets will continue to attract institutional and international capital, so HNWI will likely continue to pursue opportunities elsewhere.

NREI: Which strategies are HNWIs using to invest in real estate at this point in the cycle? Are they investing in assets directly? Preferring to commit capital to real estate funds or REITs? Some combination of the above?

Robert Elms: HNWI will target markets/assets where the risk-return makes sense relative to their strengths. It’s a struggle for them to occupy the same markets and compete directly with big institutional investors. The investment profile for HNWIs typically includes: long investment horizons, smaller transaction sizes, flexible capital (debt vs. equity), and can move quickly because the ultimate decision maker is involved.

NREI: Right now, what are the most important factors for HNWIs when investing in real estate assets?

Robert Elms: Finding some yield is certainly important, but so is capital preservation, so I wouldn’t expect wholesale changes in their approach just to get some yield. They will continue to try and use their inherent advantages (i.e. longer investment horizon, move quickly) to find deals that make sense.

NREI: What types of properties are high-net-worth investors targeting this year?

Robert Elms: HNWI are starting to look hard at suburban office markets again, which we haven’t seen this investor group pursue in quite some time. Industrial space has been very competitive the last several years, so unlikely the HNWIs will go after industrial assets this year unless there’s a bit of a story. Transition assets, riskier credits or shorter lease terms, and unique asset class, etc. may attract HNWIs to industrial properties.

NREI: Please give us a few examples of deals you have closed recently on behalf of HNWIs.

Robert Elms: In 2017, a $150 million regional office [asset] for Financial Co. in New Jersey; a $120 million regional office for Technology Co. in California; a $40 million industrial/manufacturing [asset] for US Retail Co. in North Carolina. In 2016, a $105 million U.S. headquarters for Intl Consumer Goods Co. in New Jersey and a $150 million U.S. headquarters for Intl Technology Co. in Texas.

NREI: In your opinion, will high-net-worth investors slow or increase their investment activity this year?

Robert Elms: So far, 2017 has gotten off to a bit of a slow start, but should start picking up in the second half of the year. There appears to be significant appetite to do deals and the debt markets are functioning well, so I would expect that we will see a pretty healthy second half. We just need a little momentum to get things going.