For the week of Oct. 21th-25th
The week delivered a mix of promising news on the economic outlook from the International Monetary Fund, the stabilization in CRE in the Fed’s latest Beige Book, and a dose of optimism from the new LightBox CRE Market Advisory Council. Capital markets expert Brian Olasov joined as a guest on the CRE Weekly Digest, cautioning listeners to not rely on generalizations in today’s highly differentiated market.
Here’s our latest top 5 list of the biggest weekly CRE news stories and why they matter.
- Market averages and generalizations are out. Data and expertise are in.
On the latest CRE Weekly Digest podcast, guest Brian Olasov, executive director at Carlton Fields and an authority on capital markets, observed that none of the rules of thumb that used to ‘fit’ the data apply to the post-COVID market. Generalizations and market averages aren’t as meaningful as they used to be. There are wildly disparate outcomes at the property level, so it’s very misleading to talk about “average performance in retail” or “average performance in the Midwest.”
Why It Matters: In today’s differentiated market, CRE professionals need to be extraordinarily discriminating and tap into accurate data at the property and sub-market level, rather than generalizing by geography or property type, to support better outcomes. It’s an opportunity for CRE professionals to deliver value and support smart decision-making rather than just being order takers.
- LightBox Market Advisory Council Expects Uptick
A survey of the new LightBox CRE Market Advisory Council, composed of market leaders and industry experts from across the U.S. points to signs of gradual improvement in the CRE dealmaking environment, new pricing and loan terms that account for the lower rate environment, and a less cautious sentiment as the new easing cycle begins to stimulate both buyers and sellers. A significant 91% of members are expecting Q4’s commercial property transaction volume to be higher than Q3’s and none expect a decline.
Why It Matters: This survey joins others by organizations like National Association for Industrial and Office Parks (NAIOP), CRE Finance Council (CREFC), and Society of Industrial and Office Realtors (SIOR), all pointing to new optimism as borrowing costs ease for the first time in more than four years. September’s strong deal volume is continuing through October, and this higher pace of transactions will contribute to a stabilization in property pricing (and even increases in values in some cases) that will add momentum to Q4 activity. The first rate cut was a small but important step, but there is typically a market lag with respect to interest rate shifts, so a meaningful uptick in transactions and lending will take time. Recovery will also not be uniform and will vary by investor type, asset, and location.
- Multifamily Conversions Are Surging
On last week’s The Bob Knakal Show, hosted by Bob Knakal (CEO from BK Real Estate Advisors) in Manhattan this week, guest Scott Rechler, Chairman and CEO from RXR, discussed the significant increase in office-to-multifamily conversions, noting a surge in projects this year. In the past, apartment rentals were widely viewed as a steppingstone to homeownership, but he noted the trend of high-end multifamily being a lifestyle choice.
Why It Matters: The ongoing housing shortage, coupled with multifamily as a long-term residential choice, are creating strong opportunities for credit in this asset class. As the CRE market deals with obsolete office space, the volume of conversions to other uses, including multifamily, will continue where the numbers make a strong case for long-term returns.
- Fed’s Beige Book Reports Steady CRE Markets as Bank Earnings Point to CRE Risk Concerns
In the latest Beige Book, the Fed reported little change in economic activity across the Federal Reserve’s 12 districts since early September and generally stable CRE markets, although data center and infrastructure projects boosted activity in a few Districts. Third quarter earnings reports for the six largest banks were relatively strong, but pointing to lingering concerns around CRE risk exposure, especially in office space.
Why It Matters: The challenges of loans in the office sector are only in the early stages of being addressed. Major banks, while relatively less exposed than their regional counterparts, are not immune and the full impact will take time to materialize. With billions in CRE loans due for refinancing in the coming years and market demand for office still shaky, the sector will remain a pressure point in future banks’ earnings reports.
- IMF Upgrades U.S. Economic Growth Outlook
The International Monetary Fund’s latest global scorecard upgraded the outlook for U.S. GDP, projected to grow 2.5% in Q4 2024 compared to Q4 2023. The latest projection is half a percentage point higher than the July forecast, which was an upgrade from a January estimate. The forecast puts the U.S. ahead of other “Group of Seven” major advanced economies in terms of economic growth, due to a surge in investment in recent years that boosts productivity.
Why It Matters: The report noted that the “soft landing” sought by the Fed in which inflation eases without damaging the labor market had largely been achieved, which bodes well for continued rate cuts coming out of the November and December meetings.
For commentary on these CRE developments and more, tune in to the LightBox CRE Weekly Digest podcast.
Did You Know of the Week
Did you know that 35% of property assets brought to market on the LightBox RCM platform in Q3 were multifamily properties with an average asking price of $45.6 million?
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
