BHI Sector Outlook - CRE
October 2024
The commercial real estate sector never stands static; that’s why it’s important to have a strong financial partner to help observe developing trends and serve as an additional source of reference that can provide guidance and expertise to partners and prospects venturing into new projects.
The real estate industry stands to benefit from declining interest rates more than any other sector of the economy.
Multifamily experienced an enormous runup—in value, in occupancy and in new supply in a post-Covid era. This sector experienced a slight cool down when rates rose, but with construction projects typically taking two to three years to finish and ground-up developments often taking five years from plan to finished product, the ‘under construction’ inventory created some instances of oversupply—interestingly enough—in markets (e.g. Nashville, Austin) that witnessed strong inflows from the net migration seen during the Covid era, which drove many out of HCOL states and toward the sunbelt under the prospects of remote work.
What we’re seeing now is a bounce back in RTO and, in turn, a strong demand for both rental and for sale apartments in the NYC market. This secular trend’s impact on inventory is evermore magnified by the slowdown that the city just experienced due to the sunsetting of the 421-a policy and the uncertainty surrounding how the development community would adjust their project plans around the new 485x program.
RTO is helping the office sector reach an easier equilibrium as well. The prevailing doom and gloom forecast that CRE would be the next shoe to drop in the banking system and owners and banks would have massive holes in their balance sheets from these office loans never hit at scale. Even though office buildings aren’t full—there hasn’t been an existential stress; banks are actively restructuring loans and providing additional flexibilities to help borrowers.
On the hotel industry side of the CRE spectrum—it’s continuing to remain very city-specific in terms of demand. Over the past few years, many banks found themselves overexposed to hotels and took a pause on new hotel loans. Our balance sheet at BHI wasn’t as impacted—potentially because we picked the right people to work with and worked in concert with hotel owners to help them navigate through a tough period—but now we’re witnessing our class of clients here doing well as a whole and back on their feet.
And lastly, retail remains a category we’re not overly indexed in, however it’s worth noting that the sector has experienced a mini renaissance in the last 12-18 months. Everyone was operating under the prevailing assumption that e-commerce would fully supplant brick and mortar but there is an uptick both with shoppers going back to physical stores and ecommerce-originated companies themselves now turning toward renting out physical locations. While we’re not demonstratively realigning our investment thesis, it will be interesting to watch how retail continues to do heading into and through 2025.
At BHI our team has a wealth of expertise and experience in commercial real estate lending throughout the U.S. We understand the ebb and flow of the market, but more importantly, we take the time to understand the nuances and unique challenges of each project. So whether you’re starting new construction, or redeveloping, repositioning or refinancing an existing income-producing property, we can take the complexity out of the financing process and structure creative solutions that address your needs and your timeline.
Jacob “JJ” Weinstein is the Head of CRE and Healthcare at BHI and brings an extensive knowledge of the industry formed from his 20 years of experience leading massive commercial real estate loan portfolios and empowering his team with data, technology and process improvements to continually improve customer experience and customer outcomes.
To learn more, Contact Us to connect with JJ or another subject matter expert from our team.