By Erik Sherman
When do you know that a CRE market in a slump has hit bottom? Here’s the answer you get from Steven Jason, managing principle of EOS Real Estate and Financial Advisory: “The simple answer is nobody knows, and you don’t know until you’re past it and can see it in hindsight,” he tells GlobeSt.com.
In that sense it’s like a recession, something only recognized after the fact. But there are indicators that, if not at bottom, maybe markets that have been sliding for a long time are at least getting close.
Over on LinkedIn, Jason put together a list of some practical indicators, including BlackRock Real Estate Research’s statement that now is the time to invest in CRE; SL Green Realty’s announcement of a $1 billion opportunity debt vehicle targeting New York City; RXR and Ares Management’s formation of a $1 billion fund to buy distressed office assets in New York City; Ethan Penner and Chad Carpenter’s newly-launched REIT that is raising $1 billion to fund debt solutions for office owners and investors; a new Goldman Sachs $2.6 billion fund for CRE lending; and MSCI estimating the existence of $85.8 billion in existing property-level distress.
“We all know there’s a huge wall of maturities coming,” Jason says.”We talk to lenders and debt providers all the time as well as investors. They’re all making preparations. Lenders are taking charge-offs, they’re lowering their bases. Deciding what to do with assets. We’re having a lot of those discussions and we’re moving very slowly. When you have these conversations, you see a groundwork of activity taking place.”
The reason that things still seem on edge is that the bid-ask gap remains large (although there are indications that it is narrowing) so markets don’t clear. Jason, referring to Elisabeth Kubler-Ross’s seven stages of grief, says, “We’ve gotten to acceptance and should be moving into capitulation shortly.”
There are also other practical considerations. “The Fed has given guidance, but they’re not giving guidance as to how many and when rate cuts,” he says. “That’s going to help, but that’s not going to solve everything because the runup in rates have been too sharp. A couple of rate cuts of about 100 basis points aren’t going to solve rate increases of 400 to 500 basis points.”
Probably not, but they may be enough to get transactions moving again. Several weeks ago, Peter Rothemund, co-head of strategic research at Green Street noted that commercial property is now fairly priced vs. corporate bonds. “Property pricing may well have hit bottom,” he declared.