On Wednesday, the feds held interest rates steady. Goldman Sachs is now predicting interest rate cuts to begin as early as March of next year. The 10-year treasury has plummeted over 100 basis points in a few weeks. The spread between the two-year and the 10-year treasury has compressed from over 90 basis points to 43 basis points. The economy is still going strong, if not at a slower pace with unemployment at less than 4%. All of these are extremely positive conditions for the near-term investment horizon. Why then, are interest rates remaining so stubbornly high with SOFR and the SOFR spreads remaining at ridiculously high levels? Is this sustainable?

Has THE GREAT WAIT come to an end? The entire CRE universe hit the transaction pause button in 2023. There are hundreds of billions of dollars sitting on the sidelines waiting to pounce. The question becomes: will the distress materialize and provide buying and mezz debt opportunities or will interest rates plummet and bail out compromised capital stacks?

It’s beginning to look like kicking the can down the road with debt refinancing is proving to be an effective strategy for some borrowers, particularly those with sustainable operating platforms and performing properties.

So, what does this mean for CRE in 2024? Here are 10 predictions:

1. Current SOFR rates will fall significantly as both SOFR rate and spreads come in quickly in response to de-risking of capital markets.
2. Borrowers and lenders will keep kicking the can down the road until interest rates stabilize.
3. Expect a lot of product to hit the market in mid-January trying to catch the early wave.
4. Buyers will bite on product with solid cash flow with 4+ WALT and 90+ walk scores.
5. Buyers will focus on sustainable cash flow. “ROC” will drive pricing.
6. Sellers and buyers will meet new price levels - both compromising a little.
7. Buyers will execute with LT debt (cheaper) albeit at 50% to 60% LTV and refi later.
8. Developers will accelerate entitlements and look to start construction by the end of the year.
9. Banks will move to liquidate office holdings and set market price discovery.
10. Office properties will sell at 50% to 70% below pre-Covid values.

As THE GREAT WAIT comes to an end will you be ready for what could be an exciting 2024?

Whether you are a buyer, seller or developer, Corion is uniquely capable of helping you optimize success.