Every day, we are seeing an increase in appetite in sales transactions – the bigger the better. As I said to The Motley Fool recently, unlike the Great Financial Crisis, it is not a matter of buyers, but a matter of sellers being willing to sell at these price points. #WeAreWD #Finance #BiggerIsBetter
For office assets interest rates are a minor problem compared to the fundamental shift to remote work that is gutting occupancy and destroying NOI projections. Residual values above land value cannot be relied upon in most US cities. Tax deferred fund managers have been selling but individual owners who sell at current market prices of 40-60% below their purchase price will face taxes from negative basis, depreciation recapture and foregiveness of debt ordinary income assessments that will wipe them out financially. Better to stall and enjoy a few more years in the ring. CRE office is a slow train wreck but eventually just as fatal. Interest rates are not destroying the office sector. We have survived high interest rate cycles in the past. Smart people can work from anywhere now and they prefer to work in more places than just one office building with a 10 year lease, long commute and the rituals that go with it; clothing, meetings office society. Workers will be better off now and once new entrants figure out career development strategies they will find their way. The freedom remote work offers is now a fundamental right for talented workers that can win this negotiation with employers. Office CRE is never coming back.
Dan Charleston
1mo
Assets need to reprice to values based on longer term perm rates at 5.5%, not 4.5%. That is still going to take some time.
Showket Ahamed
1mo
It’s a time frame we going through which is cap rate and asking price have to be matching to get profit out of investment.
Marc Lewis
2mo
Rates are going to go way down and no one should be selling
so true we talk to the buyers all day long ! they want action.
bruce johnson
2mo
The issue is that the longer the rates are high the greater the losses until eventually there is no way back, good traders cut their losses, preserve capital and live to fight another day
Buddy Green
2mo
Right. Tough on sellers for a lot of reasons. Their cost is touch but the market understand is terrible for them.
Dennis Cisterna
2mo
I couldn't agree more with this. Great post, thanks for sharing.
Strategic Asset Manager – Commercial Real Estate | Driving oversight, value creation, and strategic direction of assets under management
1moWilly Walker Owners are understandably the last to accept that their assets are worth less that when rates were lower. But those that have to / ought to sell are those first buyers that come around to reality. It's just math. I now see a silent market out there where more bid/ask spreads between sellers and buyers have sufficiently narrowed on assets since the Fed starting increasing rates. Currently, several factors are aligning: - Sellers are willing to offer attractive seller financing for decent term lengths to solve for the problem of higher rates. - Prior to the Fed cutting rates This is the time to acquire deals at great terms. Once rates start to drop, this opportunity will diminish as more potential buyers enter the market, creating a more crowded and competitive environment. This moment won't last long.