Large Investors Return to the Market

Article originally posted on Globe St. on March 15, 2024

After a year in which transactions plummeted more than 50%, some institutional investors have reported they are now returning to the property markets. To be sure, they are expecting discounted pricing for the assets but their return is notable as it suggests that the market has indeed reached bottom or is close to it.

Goldman Sachs Asset Management will resume “actively investing” in US commercial property this year because the market is bottoming out, Jim Garman, GSAM’s head of real estate told Reuters at MIPIM. He cites a combination of reasons including the expectation that interest rates will come down, but also because “we’re starting to see a floor in prices set by buyers who are in the market.”

“We don’t think it’s going to be a very sharp V-shaped recovery – we think we’re going to bump along the bottom for a while, as a lot of these over-levered situations in the asset class get worked through,” he added.

Reuters also spoke to British fund manager Schroders’ global head of real estate, Sophie van Oosterom, who said it plans to buy up US commercial property in the billions of dollars over time and has begun hiring a team locally, with a focus on multi-family rental accommodation. Schroders is also considering buying stakes in local firms, van Oosterom said.

Blackstone President Jon Gray also believes the market has bottomed out and there’s a great opportunity to move fast and buy assets at beaten-down prices, he told Bloomberg Television in an interview in Rome, where he is attending the Bank of America Global Investor Summit conference.

“The perception is so negative and yet the value decline has occurred, so when you get into this bottoming period that’s when you want to move,” he said.

“As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down,” he added.

One factor that is facilitating sales is that sellers have come to accept that valuations are lower, Scott Rechler, CEO of RXR told CNBC, likening the process to the five stages of grief with the market now reaching acceptance.

The issue now is where exactly valuations lie. Even appraisers can’t seem to agree, Rechler told Axios. “We’ve seen multiple appraisals for the same building be 25% off of each other,” he said.

“We are starting to see some movement — not a lot yet — in deals where lenders are willing to start trading at prices that better reflect the substantial discounts that you need, to attract capital to invest in office,” he added, noting his firm made offers on about $1 billion worth of office loans in January, but “we haven’t gotten a lot of feedback yet.”