With the right data, perspective, and debt structure, there are always good opportunities in CRE. If you do not have time to read the entire article, please allow me to extract and apply the relevant.
Source Article: https://www.globest.com/2023/11/28/there-are-some-good-cre-opportunities-looking-ahead/?cmp_share
“Real estate is adjusting to elevated interest rates, with expectations of buyers and owners still far apart.”
Yes, the theme of 2023. I am ready for 24.
“We estimate those expectations will not converge until property values fall another 10%. The total expected peak-to-trough fall on average will be -24%."
How about each asset class?
"Senior housing -9%, manufactured housing -9%, retail -13%, -17% for industrial, multifamily -23%, and office far off at -43%."
Ok, what about good news and opportunities?
"Nevertheless, property incomes remain resilient. U.S. rent growth will decelerate, but generally remain positive. Looking at 2024, PGIM points to expected positive revenue growth over all sectors for the next four years."
Which property type offers the greatest opportunity?
“Look for deceleration in industrial, storage and apartments, and improving income growth in the senior housing, retail and office sectors.”
Hey, some good news for office!
How about lending?
"Core lending should find itself offering the most attractive risk-adjusted return in years, with conservative loan terms further protecting lenders."
Core = More conservative (lower LTV), better performing assets, and strong locations. The non-core CRE properties may struggle to secure debt.
"With more than $1 trillion in CRE loans maturing next year and 2025, PGIM expects a $300 million plus refinancing gap."
The refinance gap will create debt events that should incentive sellers and buyers to transact.
Where should we look in 24?
"Residential rentals will retain basic strength... there has still been significant underbuilding of housing over the last decade. A surge of household formation, high costs to buy created the largest own-to-rent cost ratio in many years. "
And
"Student and senior housing sectors are both set to do well. On the student side, there’s been a post-pandemic rebound in demand... setting the stage for continued rent growth. For senior housing, occupancies are near pre-pandemic levels and net absorption is almost double the average over the last ten years."
Image from source article
Kyle Nagy, President | knagy@commcap.com | 702.792.7553
Kyle Nagy is a founder and Director of CommCap Advisors. Kyle started his commercial real estate career in 1999 as the Real Estate Analyst for the Las Vegas office of GMAC Commercial Mortgage, an international real estate finance company. Prior to leaving and forming CommCap, Kyle was instrumental in the growth and success of the Las Vegas GMAC office and was one of the youngest Vice Presidents within the company. During his finance career, Kyle has successfully originated, underwritten, and closed over $900 million in loans with Life insurance Company, Wall Street Conduit, Bank and Agency Lenders.