MSCI Real Asset’s Chief Economist Jim Costello joins America’s Commercial Real Estate Show to discuss trends in the debt market, including upcoming maturities, transaction volume, and thoughts on interest rate increases or decreases. This covers topics discussed in his recent article 2024 Trends to Watch in Real Assets.
The conversation begins with a focus on the upcoming maturities in the commercial real estate market, amounting to around $1.5 trillion between the present and 2026. The discussion emphasizes the potential challenges arising from these maturities, especially considering recent interest rate increases.
The conversation then delves into the impact of interest rate hikes on property values, using examples to illustrate how even moderate increases can lead to significant value declines. They discuss the varying effects on different property types, with offices experiencing more significant declines compared to the warehouse sector.
Jim Costello highlights the issues surrounding small banks, a significant source of commercial real estate loans, and how they are becoming more cautious in their lending practices. He points out the lack of transparency in the commercial real estate sector, making it challenging to fully understand the situation.
The discussion touches on the softening deal volume in the current market, and the challenges faced by buyers and sellers due to differing expectations. The conversation also addresses the potential impact of geopolitical events, like those in Israel, on the real estate market.
As the conversation shifts to the economic outlook, Jim Costello expresses cautious optimism, pointing out positive indicators such as job growth and consumer activity. However, he remains watchful for signs of weakness, particularly in hiring and job creation.
The discussion concludes with a reflection on the opportunities for lenders in the current market, emphasizing the potential benefits of building relationships and providing loans with safer underwriting. Jim Costello suggests that loans made after a downturn often outperform in the long term.
Throughout the episode, there is a recurring theme of uncertainty in the market, driven by factors like interest rates, maturities, and geopolitical events. Jim Costello’s insights provide a comprehensive overview of the challenges and opportunities in the US commercial real estate and debt markets.
He discusses the lending environment, the affects of the current lending environment on commercial real estate, and the various factors affecting the lending environment.
MSCI is an American finance company headquartered in New York City. The company, also know as Morgan Stanley Capital International, is a global provider of equity, fixed income, real estate indices, multi-asset portfolio analysis tools, ESG and climate products.