Article
A 2024 CRE outlook and potential opportunities
March 19, 2024 · Authored by Mike Kamienski, Brent W. Maier
This Q&A was published as part of PitchBook's H2 2023 Global Real Estate Report sponsored by Baker Tilly.
In what ways are members of the industry preparing for increased levels of activity?
The substantial decrease in activity since inflation and interest rate levels peaked has given many in commercial real estate (CRE) and related industries the opportunity to get their proverbial houses in order. This is in anticipation of improved opportunities and activity levels in 2024.
Almost unilaterally it has meant fine-tuning operational efficiency and cost effectiveness while enhancing the user experience. However, depending on your specific role in the CRE ecosystem, this could mean different things. Many property owners, for example, have focused on improving net operating income (NOI) or making property improvements ahead of the possibility of bringing assets to market.
Regardless of the role in CRE, most individuals have been working their contacts to cultivate new relationships, stay connected and expand buyer/seller networks.
What are some of the most important lessons the industry is learning/has learned since the Federal Reserve (Fed) started increasing interest rates to combat inflation?
The prolonged period of historically low interest rates induced some real estate owners and investors to take aggressive loan positions, which may have been costly. The steady upward movement in interest rates through much of 2023 has taught us that a good asset in 2019 is still likely a solid asset in 2024. However, some good assets are saddled with a bad debt structure.
Ultimately, the industry has come to the realization that for at least the near future, long-term interest rates will remain elevated compared to the last 20 years. It is unlikely that we will witness the low-cost debt for the foreseeable future.
Another lesson learned or reinforced is that relationships are critical, especially in terms of sourcing capital. Over the last couple of years, any opportunities for debt financing were mostly limited to long-term relationships with banks. Financing deals based on new lending relationships have been difficult given the reduced activity and the recent track record of investors for lenders to digest.
