“There was a vacant building I was bidding on, but the price went up beyond where we were willing to take it a month ago, so there’s more activity,” Rahmani said. “If you have a motivated seller and they have to sell now, the price is what the market can bear, which is still at great discounts.”
Growing Pressure
The Federal Reserve kept its benchmark rate steady at its meeting in December while also signaling the end to the most aggressive tightening cycle in a generation. Property owners who don’t have to urgently sell may be inclined to hold onto assets if rates come down.
But the refinancing shortfall — which ranges between $270 billion and $570 billion according to JLL — could spur some owners to put assets or loans up for sale, including distressed transactions in some cases.
On the other side, potential buyers and investors are flush with funds. JLL said that there’s $402 billion of dry powder for commercial real estate, according to data as of October.
“This reset in values will both challenge capital and catalyze liquidity,” Richard Bloxam, chief executive officer of capital markets at JLL, said in a statement. “There is absolutely uniform understanding that pricing has changed. Given the quantum of dry powder, there will be a considerable first-mover advantage for capital that can deploy quickly and mobilize around opportunities as market fundamentals improve.”
Some buyers have deployed capital into major deals recently. In December, the luxury retailer Prada SpA and an entity tied to the Prada family purchased two buildings on New York’s Fifth Avenue for a total of $835 million, one of the largest property deals in the city last year.
Well-known properties in California also found buyers. The University of California agreed to pay $700 million for a former Los Angeles shopping mall that had been redeveloped as offices for Alphabet Inc.’s Google. The university plans to convert it to a medical and engineering research park.
The Aon Center in downtown LA sold for $147.8 million, about 45% less than its previous purchase price in 2014.
The investment arm of property firm Kassin Sabbagh Realty purchased a 49% stake in a 34-story Manhattan office building at 1410 Broadway in Manhattan. The building, owned by L.H. Charney Associates, was previously leased to WeWork, but the coworking firm’s lease was terminated prior to its bankruptcy filing. Since then, more space has been leased, bringing the tower’s occupancy up to more than 90%.
“Now that rates appear that they aren’t going to go up anymore, it’s giving buyers assurances that they won’t be in a worse situation six months from now in trying to close or get a loan,” said Albert Sultan, a broker at KSR. “There’s a handful of players that have returned to the market — not a ton — but that gives me optimism that things will return overall.”
US Concentration
The US could be a particularly interesting spot, according to JLL. Of the $3.1 trillion property assets with maturing debt through the end of 2025, more than three quarters of that are concentrated in the US, specifically in the residential and office sectors, the brokerage said.
The US is furthest along in its cycle, which could draw more attention from buyers hoping to catch the bottom of the price decline. That includes major players such as Morgan Stanley’s real estate investing platform, which is seeking out opportunities that arise from the turmoil in the industry.
“Certainly a lot of investors are interested in investing in real estate when they think they’re picking the bottom,” JLL’s Gigliotti said.
This article was provided by Bloomberg News.