Commercial Property Prices Could Have Hit Rock-Bottom

Good morning. Green Street believes that prices in the commercial real estate (CRE) market have potentially reached their lowest point and the market is finally starting to stabilize. However, the multifamily sector may have a different outlook as it faces some challenges. On the other hand, Brookfield Asset Management (BAM) has been performing exceptionally well and has raised an impressive $90B in funding.

Our partner Bullpen has just released new positions in the Talent Collective. This week's roles include a diverse range of skills and a focus on the bustling Sun Belt regions.

📖 Read about JLL's perspectives on the U.S. multi-tenant industrial market and the implications for real estate investors.

🖥️ Watch never-before-seen footage from a16z's American Dynamism Summit as Adam Neumann talks about his plans to transform conventional apartment living into a community-focused environment.

🎧 Listen as Chad Griffiths, a Partner at NAI Commercial Real Estate, sheds light on the present state of industrial investing and the impact of increasing interest rates on certain properties.

END IN SIGHT

Green Street: Decline in CRE Property Values May Have Hit Rock-Bottom

Green Street predicts that the decline in commercial real estate values is near its end, or has already reached its lowest point. This comes after a year of significant interest rate hikes.

Reaching the sea floor: The firm’s Commercial Property Price Index is down 14% from its peak last March. According to Green Street, the core sectors of office, industrial, multifamily, and retail were all down 17% from their highs. The biggest casualty was apartments, where prices plummeted 20% over 12 months. Office prices were down 17%, while industrial prices fell 15% but experienced no decline in the last month.

Manhattan state of mind: Manhattan is the perfect place to observe price trends since it's the nation’s largest CRE market. In Q4, NYC saw $3.3B in sales from 75 transactions and declines of 12–32% from typical Q4 averages. Average cap rates rose 4.97%, and average prices per SF fell 11%. Meanwhile, $16B in CMBS loans will mature in 2023 (with many in the office market).

➥ THE TAKEAWAY

Close, if not already here: The past few years have held nothing but hurdles and challenges for most CRE investors. But according to Green Street, “while appraisals are likely headed lower, the real-time picture of property pricing shows a market where we’ve either reached the bottom or are very close to it.”

HITTING THE BRAKES

Multifamily Market Experiences Slowdown After Rapid Expansion

The red-hot multifamily sector, which seemed immune to broader economic factors during the pandemic, is now displaying signs of slowing down.

Sluggish rent growth: According to data from Yardi Matrix, the average U.S. asking monthly rents for December 2022 experienced a decrease of $4 to reach $1,775. The fourth quarter saw a drop of $10, with 25 out of the top 30 metro areas reporting negative growth. National asking rent growth also decreased by 6.2 percent compared to the end of 2021 and fell by 80 basis points from November.

Growing challenges: The multifamily market saw record low vacancy rates in 2022, but some developers are struggling to stay afloat. One example is the Chetrit Group, which may default on a $481 million loan from 2019 for 43 rental properties due to below-average occupancy and rising interest rates on its floating-rate debt. The company failed to repay the loan when it became due last year, as per a year-end Trepp report.

Between the lines: “CMBS investors are typically concerned with adverse selection in situations that require drawn-out portfolio releases of distressed properties, which could leave behind some of the lower-quality properties when it’s time to endgame the remaining debt,” said Marc McDevitt, senior managing director at CRED iQ.

➥ THE TAKEAWAY

Growing pains: Fortunately, the multifamily forecast isn’t all gloomy. The current situation looks bad because the sector has had it so good since 2020. Multifamily is still well-positioned due to two years of significant growth and properties not being as overleveraged as they were in 2007–2008. So while multifamily investors in 2023 might not be cruising on autopilot, they sure ain’t driving stick, either.

IN THE MONEY

Brookfield Has $90B for Deals After Fundraising Boom

Canadian alternative asset manager Brookfield Asset Management (BAM) wrapped up Q4 in good form after a record year of fundraising that has given the firm $90B+ in fresh capital for future deals.

Not a bad year at all: BAM managed to raise $93B in capital last year and has no plans of stopping. According to CEO Bruce Flatt, Brookfield plans to have three flagship funds by 2023 while employing complementary strategies and additional long-term funds. Last year, they managed $418B in capital across asset classes, including infrastructure and real estate. A quarter of their AUM was derived from other entities in the family, like Brookfield Infrastructure Partners.

➥ THE TAKEAWAY

Responsibly ultra-wealthy: After their recent success, Brookfield Asset Management has plans to launch a second global transition fund with an emphasis on decarbonization projects. They expect this fund to be even larger than their first $15B fund, and they plan on raising money for their real estate flagship fund at the same time.

• Super boost: Prices for short-term rentals in Glendale, Arizona - host city for Sunday's big game - are triple those of a week ago, says AirDNA, a short-term rental data firm.

• We f*cked up: Simon Property Group (SPG) is reinvesting in its retail brands after admitting to an underperforming strategy.

• Lease no more: Amazon (AMZN) is pivoting away from leasing warehouse space towards an ownership strategy.

• Good behavior: The CRED iQ CMBS delinquency rate started 2023 with a downswing at 3.25%, down 7% from December.

• Confidence is housing: Former Goldman Sachs (GS) exec Don Mullen details why he’s still bullish on US housing.

• Right out the gate: Student housing starts 2023 strong with 200 universities already 48% preleased for the upcoming school year.

• One pill makes you small: Back in the 90’s, a Manhattan highrise was forced to ‘decapitate’ 12 floors to comply with zoning laws.

• Put it there, partner! Lincoln Property Company Commercial announced a Stone Point Capital investment and two new CEOs.

• Burnt out: MedMen, a Canadian cannabis chain once valued at $1.7B, is having trouble balancing cash versus debt.

• Patching holes: Forbes provides three predictions for fix-and-flip investments in 2023.

💼 Talent Collective

In partnership with Bullpen

Looking for a new role? CRE Daily has partnered with Bullpen to bring hand-selected, CRE freelance jobs to our readers. Join today for access to the below roles, as well as several other freelance openings.

• Associate, Development

💰 Hourly (Remote) ❗️ Ground-up Multifamily

• Controller/Accountant

💰 Hourly (Remote) 📍 Retail & Office in Dallas/Fort Worth

• Marketing Specialist

💰 Hourly (Remote) ❗️ Multifamily and Student Housing emphasis

Looking to hire? Connect with Bullpen 

🤝 Deals & Dealmakers

• In good health: CVS (CVS) nears a deal to purchase PCP Oak Street Health (OSH) for $10.5B. Just another day in Healthcare.

• Moving day: Pallidus is is leasing a new facility from Boston Andes Capital (BAC) in SC and investing $43M in the project.

• Big score: Levin Properties has secured $43.2M in refinancing for St.Georges Crossing, a retail asset located in NJ.

• Living the life sciences: NexPoint has launched a 200-acre life sciences campus in the Dallas-Fort Worth metro area.

• Long Island in the sun: Fairfield Properties has acquired a 228-unit portfolio in Bay Shore, Long Island, for $59.6M.

• Mall madness: Phillips Edison & Co. (PECO) has acquired a 110,137 KSF retail center outside of Nashville, TN.

• Another IPO: Chic Mediterranean fast food chain Cava is filing for 2023’s first restaurant IPO.

• Backing down and out: GFP Real Estate defaulted on $103M in loans that it owes on a Midtown Manhattan office tower.

📈 Chart of the Day

Between Q4 2021 and Q4 2022, rent grew in most major markets across the country, with Seattle seeing the biggest increase (17.1% YoY).

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