Headlines

What’s new in the world of Real Estate

• The office real estate recovery may take awhile

• New industrial REITs are launching

• Existing-home sales and prices rose

• More hotel deals are on the horizon

Plus: Compass settles, more NAR settlement aftermath, a nightmare open house, and more

Listing of the week: Rihanna’s $25 million condo

Performance

Market Updates

The office market could take longer to recover than it did after the 2008 financial crisis. This according to a report from Fitch Ratings that expects “permanent property valuation impairments” and a long road to recovery. While values have already fallen an estimated 35%, compared to 47% after 2008, the current interest rate environment, the rise of remote work and an increase in distressed properties could lead to further declines. Fitch projects the financing delinquency rate on office buildings to jump from 3.6% currently to 8.1% by the end of the year and 9.9% by the end of 2025, surpassing the rates seen in 2008. They project the pace of recovery to be even slower than the five years it took after 2008, so investors will have to be patient if they enter the market now.

Three different institutional investors are launching industrial real estate investment trusts (REITs). Morgan Stanley (under the name North Haven), Fortress Investment Group and ElmTree Funds are all reportedly at different stages of creating the new REITs, all of which would focus on industrial properties. Fortress has already committed $142.7 million to six properties, while ElmTree bought their first property while North Haven has not bought anything as of yet. These three would represent the first new private, non-traded REITs of the year and are another bullish sign for industrial real estate, as many investors pivot away from office properties.

Sales of existing-homes rose 9.5% in February. However, even with that strong monthly gain, the level of sales still lags 3.3% behind where it was in February 2023. This data comes from the National Association of Realtors (NAR), which also found that the median price rose for the eighth straight month and is up 5.7% year-over-year. Meanwhile, new-home prices dropped to the lowest point since June 2021 and are down 7.6% year-over-year, as higher mortgage rates have forced homebuilders to lower their prices.

The slow hotel transaction market may start to pick up. While high interest rates have made the cost of capital prohibitive for a lot of would-be buyers, it may start forcing owners to unload buildings at a discount. As hotel brands pressure building owners to renovate underperforming properties, they could decide that selling is the better option. It’s not yet a buyer’s market, but interested investors should be patient and ready to pounce.