Another Firm Says Now Is the Time to Invest In CRE

BlackRock is not the only firm that declares now is the ideal time to invest in CRE. Things have been bad for investors, but they’re on the way to get better, says DoubleLine, in another sign that a degree of optimism is returning to the markets.

In a new report, the firm reiterated that it’s always darkest before the dawn, a sound, if overused, line since the English theologian Thomas Fuller used it in 1650. A religious consideration then, it plays on the broader thought that, over time, things eventually do become better.

In fact, a growing number, though not all, of CRE experts have been suggesting that things are turning for the better and that now is the time to consider investing again.

DoubleLine’s report started with noting that further hikes — of course barring something unexpected — have likely capped the top end of interest rates. “As the broader market has turned to pricing in the ‘when,’ not the ‘if,’ of future cuts to the federal funds rate, investor sentiment has improved with respect to CRE,” they wrote. “We expect property transactions to increase, helping to provide clarity on CRE valuations.”

Not that it will be a painless process. The bid-ask gaps, while starting to narrow, have been wide. Outside desperation situations, where a seller has to dump a property because of misfortune maturing timing or some other immediate need to free capital, both parties will likely face some pain in prices that are either too high or low for their preferences.

The roughly $2.8 trillion in CRE debt set for maturity between now and 2028, set against a backdrop of banks pulling back from lending, will realign markets. As the need of borrowers to have access to capital rapidly expands, private lenders and CMBS will see “unique opportunities … not seen since the Global Financial Crisis” to gain market share.

“Investors in non-Agency commercial mortgage-backed securities (CMBS) finally have reason to model less-punitive loan maturity outcomes,” they say. “Overall, the macroeconomic and technical setup heading into 2024 provides a constructive environment to start the new year.”

DoubleLine points to “senior-rated, seasoned conduit bonds that have de-levered over time,” with “limited extension risk” and exposure to non-office properties with strong cash flow in good locations and low refinancing risk. These types of bond trade at good rates compared to corporate bonds. They are largely protected from loan defaults and offer additional upside.