Wall Street firms are raising billions in funds in order to capitalize on plunging real estate prices.
As previously reported by The Dallas Express, the commercial real estate sector in the United States has been in trouble for quite some time, partly due to the office vacancies spurred by the COVID-19 pandemic and the corresponding work-from-home trend.
Now, prominent firms like Goldman Sachs and Cohen & Steers are looking to reap the fallout at discount prices, eyeing distressed real estate assets and other commercial properties that have decreased in value in recent years.
“There are selective opportunities beginning to arise for investors that are in a position to take advantage of weakness,” said Rich Hill, senior vice president and head of real estate strategy and research at Cohen & Steers, reported The Wall Street Journal.
Cohen & Steers reportedly plans on raising around $2.5 billion for future real estate acquisitions.
A lot of the weakness in the sector has arisen from the Fed’s interest rate hikes, covered by The Dallas Express, which have led to increased borrowing costs, lower property values, a regional banking collapse, and general capitulation from investors.
According to Hill, commercial property values have already fallen about 10 to 15 percentage points from their 2022 peak and could see another 10-point drop before all is said and done.
“You have to go back to the [savings and loan] crisis and the global financial crisis to see such big declines in property valuations,” Hill told the WSJ.
For example, a commercial office tower in San Francisco acquired in 2014 by Clarion Partners for about $107 million recently switched hands to developer Presidio Bay for $41 million, less than half the value of the previous sale price.
As previously reported by The Dallas Express, Dallas is also reeling from collapsing values, with millions of square feet of unused office space available for rent and about 20% of commercial mortgage-backed securities loans due in the next couple of years.
Vacancy rates in Dallas are roughly 17.2% for office space and 5.5% for industrial space, per CandysDirt.com.
With the number of distressed properties growing each quarter and investors pushing for billions in capital funds, recent commercial investment interest would indicate that the U.S. is due for an uptick in sales activity as more and more property owners capitulate on price and sell their properties at a loss.
Despite growing investment interest from Wall Street, most firms are reportedly waiting to see if the Federal Reserve can effectively steer the United States toward a “soft landing” or if a recession is around the corner.
“Broadly speaking, people are waiting to see what the world looks like,” said Michael Stark, partner and co-head of PJT Park Hill Real Estate Group, the WSJ reported. “They’re waiting for motivated sellers.”
