Two of the world’s biggest property investors are split on the current state of the US commercial real estate cycle.

For Blackstone Inc., with about $600 billion in property globally, the market is finding a floor. A peak in interest rates and a slowdown in the supply of new construction are indicators that real estate in the US is bottoming, according to Kathleen McCarthy, global co-head of real estate at Blackstone.

“There’s bad news coming, but it’s the aftermath of the shipwreck that’s already happened,” McCarthy said at the Milken Institute Global Conference in Beverly Hills.

Starwood Capital Group, with $115 billion under management, sees more pain ahead, with banks at risk of failing because higher interest rates have left the loans in their portfolios underwater.

“There’s a huge distressed cycle ahead of us,” Starwood Chairman Barry Sternlicht said at the conference.

Real estate transactions have declined globally for seven consecutive quarters, falling to $130 billion in the first three months of 2024, the lowest level since 2011-12 in the aftermath of the global financial crisis, according to MSCI Real Assets. A plunge in dealmaking since central banks began hiking interest rates in 2022 adds to uncertainty about property valuations.

Prices have begun to level off in the US, with values unchanged from March through April, according to an index by Green Street. For all types of assets, values are down 21% from their peak in early 2022, led by a 37% plunge for offices.

Much of the upcoming deal activity is expected to be driven by the massive amount of properties needing refinancing as loans mature in today’s higher-for-longer rate environment. A record $929 billion of commercial-property debt — about 20% of outstanding loans — is maturing this year, the Mortgage Bankers Association estimated.

Outside the US, India and Europe are high-conviction markets for Blackstone, McCarthy said. For Sternlicht, Europe, Japan and Singapore are better targets for investors than the US because they have more limited supply and are likely to cut interest rates sooner.

It’s vital to choose the right locations and buildings when investing, he said. 

“Real estate is block by block,” Sternlicht said. “It’s not on a computer.”

This article was provided by Bloomberg News.