Remember the fast-paced race to finalize multiple transactions by the end of the year? It made December a busy month, sometimes right down to the last day as dealmakers strove to close the books on the old year’s volume before taking on the new one.
We’re not back there yet, but it may be a different story at this time next year. Certainly, things are starting to stir, helped along by two reductions in interest rates and a loosening of debt-side purse strings that’s needed to allow pent-up investment capital to start to move.
“The market has not quite found a bottom in pricing, but the deterioration has slowed, and stabilization is nearing,” writes BGO Chief Economist Ryan Severino in his December CPE Economist’s View column. He anticipates increased valuations “in the not-too-distant future.”
He and other CRE experts were similarly optimistic during CPE’s recent 2025 Outlook webinar. “You’re starting to see people thinking a little more aggressively,” he observed, predicting greater deployment of capital “once we’re in a different interest rate environment–six, 12, 18 months from where we are now.”
A lot of activity will come from distressed assets, added Shlomi Ronen, managing principal & founder at Dekel Capital, during the panel discussion. While banks and debt funds have postponed making decisions on many maturing loans, the wave coming over the next two years will pressure them to take greater action.
“Once we see that transaction volume pick up, we’re going to get a market clearing price and cap rates … that will then help spur other investment activity,” Ronen said.
Among the investment deals that are actually moving forward, private players continue to comprise the largest portion, with $53 billion in purchases in the third quarter, according to CBRE research. That made them net buyers–the only major investor segment to buy more than sell. Institutional investors were 26 percent more active than in third quarter 2023, however, with $21 billion in purchases. Third quarter 2024 investment volume overall totaled $90 billion, down slightly from the previous quarter; the total for the past four quarters was also down, dropping 15 percent year-over-year to $351 billion as investment volume continued to bounce along at low levels.
Difficult investment markets generally require creative thinking to achieve success, and this year’s deals have exhibited a range of strategic ideas to get to close, from finding the right location to structuring financing. Gail Kalinoski’s feature “These CRE Transactions Typify an Interesting 2024” offers an interesting read on some of these. Among them are a new corporate headquarters in Dallas’ urban core, a C-PACE loan making a ground lease possible, and a takeout loan on a creative office project.
No doubt further ingenuity will be needed as the markets loosen up. We’d love to hear about your deals as they close. And maybe by this time next year, there’ll be plenty to write about.