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CRE Sales Transaction Showing Signs of Recovery

Moody's sees early signs of a recovery in CRE as the decline in transactions slows.

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Good morning. Welcome to the weekend edition of CRE Daily.

  • 📰 Feature: CRE transactions start to show some signs of recovery

  • Catch up: The most-read stories from the week

  • 👍️ Reviews: 3 new product reviews coming soon

  • 📈 Chart: $20.6B worth of apartments traded across the U.S. in Q1

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CAPITAL MARKETS

CRE Sales Transaction Showing Signs of Recovery

Moody's sees early signs of a recovery in CRE as the decline in transactions slows. Despite Powell urging "patience," a rate cut later this year could bring vital relief for capital markets.

Signs of life: CRE transactions decline has moderated to -8% year-over-year in Q1 2024, a significant improvement from -18.4% in Q4 2023 and -55.1% in Q2 2023. Though office transactions have fallen in Q1 2024, the decline mainly reflects the effect of large deals in Q4 2023, such as a $2 billion transaction at 250 Vesey Street and a $1.5 billion deal at Two Manhattan West.

Large sales driving growth: CRE transactions in the $50 million to $100 million and over $100 million ranges have seen growth rates of 43.1% and 16.4%, respectively. Large transactions like Kering's $963M acquisition of a retail property on Fifth Avenue, New York City, and Hudson Pacific's $700M sale of the Westside Pavilion shopping mall to UCLA for a research facility underscore investors' willingness to finance big projects despite high borrowing costs.

➥ THE TAKEAWAY

Big picture: Banks have been tightening lending standards for nonfarm and nonresidential properties, but the share of banks implementing these tighter standards has been at its lowest in two years. While total transaction volumes remain subdued, the CRE market is showing initial signs of vitality. Investors are cautiously optimistic about a market revival once the Fed reduces interest rates.

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⏪ Weekend Wrap-Up

Catch up on the most clickworthy stories of the week.

  • Hotels > office: Adaptive reuse projects jumped 17.6% last year, converting more outdated buildings to apartments than in 2022.

  • Assessments: Big city landlords and office owners are rushing to appeal property taxes due to plunging office values, dropping up to 75% in D.C. and 50% in NYC.

  • Follow the money: Blackstone is on track to refinance $12B in commercial mortgage-backed securities (CMBS) this year. $7.5B of those loans tied to industrial properties.

  • Market pulse: Starwood CEO Barry Sternlicht offers his insights into multifamily rent growth and his take on how the Fed is doing to stabilize the economy.

  • Record high: Manhattan apartment rents hit a new high in April, reaching $4,250 per month. Landlords are busy capitalizing on low vacancies, driving tenants to accept higher rent prices.

  • Policy changes: The 421a tax abatement update is nearly finalized. Romain Sinclair outlines key changes and what developers and investors need to know.

  • Mounting debt: 1440 Broadway exemplifies the current challenges in office real estate: lower rents, struggling tenants, and rising interest rates.

  • Let’s make a deal: Healthcare Realty Trust (HR) and KKR & Co. (KKR) join forces for a $1B partnership focusing on medical outpatient properties.

  • Apartment occupancy: Nationwide, rising apartment occupancy rates signal a potential rebound following years of declines. In fact, it’s the first time occupancy has shot up since early 2022.

  • Bullish billionaire: A strategic alliance between Eldridge Industries and AECOM Capital brings a $3B investment into distressed properties amid market-wide challenges.

  • Widening gap: The disparity between rent growth and wages has created a growing affordability gap for renters across the U.S., with rents outpacing wage growth in 44 of the 50 largest metros.

  • Growing distress: Commercial property foreclosures rose a staggering 117% between March 2023 and 2024.

  • Misleading: BREIT, Blackstone's private real estate fund with $114B in assets, faces renewed scrutiny over potentially inflated returns and questionable financial stability.

  • Signs of relief: Mortgage rates dropped to 7.18%, breaking a streak of four consecutive gains, as purchase-loan applications rose 2%.

  • Earnings report: Brookfield (BN) alumnus Brookfield Asset Management reported its first quarterly profit drop since its spin-off in 2022, blaming reduced fees in some key business segments. 

👍 Product Reviews

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📈 CHART OF THE DAY

Q1 Multifamily Deal Volume and Pricing Snapshot

$20.6 billion worth of apartments traded across the U.S. in Q1.

  • Garden properties accounted for $12.5 billion, while mid/high-rise buildings saw $8.1 billion in trades.

  • The top six major markets comprised $6 billion (30%) of the total volume.

  • Other markets comprised $14.7 billion in transactions.

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