CRE Capital Markets Improving

Last week, Fed Chairman Powell acknowledged for the first time that rate hikes were having the desired effect of slowing inflation. The market believes that 1 or 2 more 25 basis point rate hikes are coming, and the Fed may pivot by the end of the year (although Powell has done everything to discourage that view). In the commercial real estate capital markets, we have observed that many lenders that were out of the market in Q4 2022 have resumed quoting new transactions. Lenders are now seeing an endpoint to the Fed rate hike cycle, which allows them to dial in on cap rates and property values. This is good news for commercial real estate as more competitive financing is available. Additionally, some recent data suggests that the Fed may successfully engineer a soft landing or that a recession will be short and mild. The biggest contrarian data point is simply employment. January’s jobs report showed payrolls increased by 517,000 and the unemployment rate is 3.4%, a 50-year low. Interest rates have dropped considerably, and the yield curve has flattened (though it is still inverted). CRE transactional activity is picking back up as the process of price discovery continues.

By Matt Kirisits, Vice President at George Smith Partners

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If you have an inquiry regarding George Smith Partners’ commercial real estate financing, please contact your GSP representative or Jessica Mania, at (310) 867-2974 or jmania@gspartners.com