By Peter Bergman (MoneyAmped.com)
Goldman Sachs Asset Management believes the market is closing in on its lowest point, so the company intends to resume its investment activities in the commercial property sector of the United States this year. A number of other investors, on the other hand, continue to exercise caution, indicating that the market’s decline may persist for a considerable amount of time.
Significant Decline in U.S. Commercial Real Estate Prices
Because of the impact of higher interest rates and an increase in vacancy rates, the prices of commercial properties in the United States have experienced a significant decline.
A combination of factors has brought about this decline. As a result of the pandemic, this decline has been more pronounced than that which has occurred in other countries.
Because of the steep drop in prices, the confidence of regional banks in the United States that have significant exposure has been shaken.
The MIPIM property conference, which was held on the French Riviera, was attended by individuals who voiced their concerns regarding the ongoing difficulties that the office sector is experiencing.
On Wednesday, a representative from Brookfield Asset Management (TSX:BAM) expressed their opinion that the office market in the United States is currently undergoing an excess supply that is greater than that of any other market in the world. In addition to this, the executive mentioned that investors have taken on an excessive amount of debt.
Jim Garman, the head of real estate at GSAM, stated that he was able to determine a favorable time for making purchases.
“We believe that a convergence of factors, including the decrease in interest rates, the perception that the market is reaching its lowest point, and the emergence of a price floor established by active buyers, has contributed to this situation,” Garman shared with Reuters during MIPIM.
Goldman Sachs Sees the Japanese and European Real Estate Markets as the Most Promising Ones
According to Garman, GSAM, the asset management division of Goldman Sachs, has recently started investing more funds in real estate in Europe and Japan. However, the exact amount of their investment was not disclosed.
The robustness of the U.S. economy is expected to contribute to a resurgence in the U.S. market as well. However, there is a note of caution regarding the pace of the recovery.
“We anticipate that the recovery won’t follow a rapid V-shaped trajectory. Instead, we expect a prolonged period of stagnation as the market addresses the numerous instances of excessive leverage within the asset class,” he expressed.
British investment firm Schroders (LON:SDR) is also getting ready to seize the opportunity. The company intends to acquire a substantial amount of commercial real estate in the United States, with a long-term investment plan worth billions of dollars.
To facilitate this, they have already started recruiting a local team, specifically targeting multi-family rental properties. Sophie van Oosterom, the global head of real estate, shared this information with Reuters.
Schroders has initiated the recruitment process for a real estate team in the U.S. and is exploring different strategies, such as potential acquisitions or purchasing stakes in local firms.
During a panel discussion in Cannes today, industry leaders highlighted the resilience of certain segments within the commercial real estate sector. They emphasized the growing interest among clients in investing in logistics and data centers rather than traditional office spaces.
According to Michael Lascher, the global head of real estate debt capital markets at Blackstone (NYSE: B.X.), there is a clear distinction in values between top-notch sustainable offices and other types of properties.
Panic in the Market Due to Falling Real Estate Prices
The decline in real estate prices has sparked worries about the potential ripple effects on the financial sector if banks are forced to confront significant losses on their property loans.
According to David Bouton, a senior executive in Citi’s commercial real estate division, regulators have expressed a strong interest in banks’ commercial real estate (CRE) exposures.
However, he mentioned that lenders were more flexible towards investors compared to the 2007-09 global financial crisis due to their increased capital reserves.
Some individuals were eager to downplay any similarities to the worldwide economic downturn.
According to Richard Spencer, the head of real estate in Europe, the Middle East, and Africa at GSAM, banks are currently in a more favorable position, equipped with the necessary capital to make decisive moves.
