Has the US commercial real estate market bottomed out? Data shows that the market may have started to rebound

Data shows that since reaching its peak in 2022, prices in the commercial real estate market have dropped by 19%. Media analysis suggests that both buyers and sellers in the U.S. commercial real estate market are increasingly believing that the distressed market is nearing its bottom.

The media indicates that the commercial real estate market is starting to become active. Part of the reason is that lenders and owners are looking to minimize losses and make new investments, especially after the first interest rate cut by the Federal Reserve in four years provided more clarity on market valuations.

David Aviram, co-founder of Maverick Real Estate Partners, mentioned that many transactions will be driven by distressed real estate properties that are heavily leveraged and have low interest rates.

"There will definitely be more transaction activities in 2025, driven by various factors, which will lead to significant instability for some but also bring huge opportunities for others."

Commercial Real Estate Bottoming Out? Former Speaker of the House Invests

Since 2022, the real estate market has been essentially frozen, as the Federal Reserve began raising benchmark interest rates to the highest level in over two decades. The increase in borrowing costs has led to a sharp decline in real estate valuations, with many buyers and sellers disagreeing on the actual value of many properties.

In recent months, sellers have had to sell properties at significant discounts. Earlier this year, investors agreed to purchase a New York City office building at a price 67% lower than the purchase price in 2018. The sale price of the former Cboe Global Markets headquarters in Chicago this summer was only half of its pre-pandemic value.

Data up to July further illustrates the market's challenges. According to MSCI data, trading volume decreased by 5% compared to the same period last year, totaling $203.8 billion.

However, recent reports indicate that trading volume is showing a "stable" improvement. Some analysts believe that there is still a certain level of uncertainty in the industry, causing some investors to be cautious about entering the market too early. The impact of remote work has particularly hit property types like outdated downtown office buildings hard. It will take some time for both buyers and sellers to reach a consensus on the actual value of each property.

Nevertheless, the interest rate cut announced by the Federal Reserve on Wednesday provides investors with more clarity on future interest rate trends. Richard Barkham, Global Chief Economist and Head of Americas Research at CBRE Group Inc., suggests that the Federal Reserve may cut rates by at least another 50 basis points for the remainder of the year.

Currently, there are signs that more buyers are focusing on property and loan sales. Recently, lender Parkview Financial marketed loans of approximately $300 million related to apartments and office buildings in New York, New Jersey, and Connecticut. According to CEO Paul Rahimian, each loan received multiple bids, with the average bid being around 95% of face value.

Moreover, a previous article by Wall Street News stated that former U.S. Speaker of the House, known as the "Stock God of Capitol Hill," believes that now is a good time to enter the commercial real estate market. On September 11th, financial disclosures from the Pelosi family showed that Pelosi's husband invested $250,000 to $500,000 in REOF XXVI LLC on August 13th, which acquired and manages a commercial office building at 631 Howard Street in the southern part of San Francisco The price paid by investment management company Invesco for the purchase in 2014 was about 42% lower.

Market warming up? Liquidity is recovering

According to media reports, more companies are now willing to provide loans for the purchase of commercial real estate. Michael Gigliotti, Senior Managing Director at Jones Lang LaSalle Inc., stated that an investor seeking financing of $120 million to acquire a Florida warehouse real estate portfolio received 12 bids from major banks and insurance companies. He mentioned that three months ago, such transactions would only receive four to five bids.

Gigliotti stated:

"The market warming up requires the cooperation of participants, prices, and indices. It feels like a switch has been turned on, everyone seems excited, and we call it the beginning of a new liquidity cycle."

Reports indicate that investment giants are preparing to offer certain loans at higher rates than a few years ago. Fortress Investment Group and Goldman Sachs Group Inc. are seeking to raise funds from investors for new commercial real estate loan real estate investment trust funds. According to CEO Robert Wasmund, Ascent Developer Solutions, supported by Elliott Investment Management, stated that loan demand is twice what it was two to three months ago.

Currently, liquidity is recovering in various ways. Madison Realty Capital secured $2.04 billion in equity commitments for a real estate debt fund. Data shows that the commercial mortgage-backed securities market has regained vitality this year, with new issuances reaching $92.5 billion as of July, a 57% increase from the same period in 2023.

Recently, many borrowers are seeking to extend the maturity of their loans as borrowing costs are high and lenders are reluctant to provide new financing. Rahimian, CEO of Parkview, indicated that a recent sign shows that more refinancing funds are available, with Parkview's four borrowers repaying a total of $52 million in loans within 30 days before September 15, a significant increase compared to the past year.

Lenders are now able to start clearing old loans and issuing new ones. Rahimian mentioned that Parkview is negotiating a $300 million loan sale. Once the transaction is completed, it means the company will re-enter the commercial real estate market and earn 10% to 12% returns over the next 12 months through issuance fees and interest