Soaring borrowing costs and plunging prices walloped the global commercial-property market last year. Now, more clarity around values and an urgent need to address looming debt maturities are expected to spark more deals.
Sellers and buyers are finally seeing more opportunities to transact after uncertainty nearly froze the market for much of last year. The average number of bids per deal climbed 16% in November 2023 from the end of 2022, according to Jones Lang LaSalle Inc.
And the opportunity may be vast: The brokerage estimates that property owners with loans maturing through the end of 2025 will need as much as $570 billion in new equity given how sharply values have fallen.
With some central banks starting to signal that the rapid rate-hiking cycle is winding down, investors have gained more insight into borrowing costs. And several real estate deals — including the sale of roughly $33 billion in commercial-property debt from the failed Signature Bank — have also provided more transparency on values. The clarity is starting to spur some optimism in the beleaguered market.
“We’re seeing more bids, and we’re seeing more tours,” Michael Gigliotti, a senior managing director at JLL, said in a phone interview. “You have maturing loans, you have dry capital, you have parties interested in investing in real estate.”
The market still needs to see a longer period of stability with interest rates to fully unlock the capital that’s on the sidelines, according to JLL. And many owners may wait to transact until values stabilize even more or potentially start rising.
But with more than $3 trillion of property around the world that has debt set to mature through 2025, many owners need to figure out what to do with certain properties and debt in the coming months, according to JLL.
“The debt markets are stabilizing so there’s less yield to be made in debt, so there’s more people now looking at equity,” said Adam Spies, co-head of US capital markets at Newmark Group Inc. “People feel that they’re not at the top anymore looking over a cliff, but perhaps at the bottom, looking up. Investors feel like its a good time to start making investments.”
Other firms are seeing early signs that the commercial real estate market is starting to settle more. Real estate analytics company Green Street said its index of commercial property prices was flat in December from a month earlier.
“The correction in real estate pricing that began two years ago appears to have run its course,” Peter Rothemund, co-head of strategic research at Green Street, said in a statement on Jan. 5. “Commercial real estate is now fairly priced versus yields on corporate bonds, and market pricing of listed” real estate investment trusts suggests something similar.
More Demand
There’s evidence that buyer interest is perking up for some Manhattan towers. An office building in Manhattan’s Tribeca neighborhood at 101 Franklin St., which is being marketed by Newmark as a potential residential conversion, has attracted dozens of tours and received more than a dozen bids, according to people familiar with the matter who asked not to be named citing private details.
The seller, Columbia Property Trust, is asking around $115 million for the property — more than 40% off the price it paid in 2019 — and is also offering potential financing for the deal, the people said. A representative for Columbia Property Trust declined to comment.
DWS Group’s office tower in the Financial District, at 222 Broadway, is also being pitched as a conversion opportunity and has attracted many potential investors seeking to tour the building, one of the people said. A DWS representative declined to comment.
Josh Rahmani, a co-founder of Empire Capital Holdings, has been actively bidding on and buying up New York offices over the past two years as he seeks to invest in commercial property on behalf of wealthy families. But now, more bidders are joining the fray, he said.