GlobeSt. selected Greg Friedman as a 2025 Rainmakers in CRE Debt, Equity & Finance
Congratulations to Peachtree Group's Managing Principal & CEO, Greg Friedman, for being selected as a 2025 Rainmaker in CRED Debt, Equity, & Finance by GlobeSt.
Adapting to Change: How Higher Interest Rates are Shaping Commercial Real Estate Investment Strategies
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Peachtree Group recently had the privilege of hosting David Bitner, a renowned expert in the commercial real estate industry, on our quarterly market update call. As the global head of research for Newmark, a leading commercial real estate advisor, David's insights on the ongoing transition in commercial real estate (CRE) were invaluable. His discussion outlined a significant shift in the commercial real estate market, highlighting the transition from a low-interest rate environment post-Global Financial Crisis (GFC) to a period of higher rates that are reshaping investment strategies.
Highlights from the conversation included:
- Interest Rates and Market Transition: The shift from historically low interest rates to a "more normal rate paradigm," emphasizing the end of a prolonged period of declining rates. This shift will likely affect all risk assets, including commercial real estate, by reducing the tailwinds that previously inflated asset prices and supported various investment strategies.
- Impact on CRE and Investments: As interest rates rise, the cost of borrowing increases, impacting the valuation and affordability of real estate investments. This shift could lead to higher capitalization rates (cap rates) and change the dynamics of investment returns, making it crucial for investors to adapt their strategies accordingly. Floating rate debt, once considered a cheaper option, may no longer be the most economical option due to rising rates.
- Market Volatility and Opportunities: While increased volatility in the market is expected as it adjusts to the new rate environment, it also brings a silver lining of opportunities. This can lead to both risks and opportunities. While some investors may face challenges, those with "dry powder" or readily available capital might find attractive entry points into the market, fostering a sense of optimism amidst the changes.
- Long-term Outlook and Strategy Adjustments: Investors need to prepare for a sustained period of higher interest rates and adjust their strategies to remain viable. This includes expecting higher costs of debt and being cautious of investment valuations that do not adequately account for the new economic conditions.
- Banking Sector and CRE Debt: There's a concern about the impact of rising rates on the banking sector, particularly smaller regional banks heavily invested in CRE loans. The potential for increased defaults and financial strain on these banks could lead to broader economic implications if not managed carefully.
- Long-term Implications for Asset Values and Investment Returns: The long-term outlook is cautious, with expectations of continued market adjustment to the higher rate environment. This adjustment is anticipated to be gradual, with investors continuing to reassess risk and return parameters.
Overall, the discussion highlights a transformative period in the commercial real estate market, prompted by the shift to a higher interest rate environment. This change presents an opportunity to refine investment strategies, enabling investors to navigate and capitalize on the evolving market dynamics effectively.
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GlobeSt - In a challenging era for CRE finance, these men, women, teams and companies have demonstrated exceptional prowess in navigating choppy waters. They managed to steer through a period of elevated interest rates and successfully grappled with falling property valuations, a trend that has made refinancing particularly tricky for many in the sector. Moreover, they have shown an uncanny knack for operating within capital markets that have become increasingly stringent. Their innovative solutions and steadfast leadership have paved the way for new opportunities in what has been an unpredictable market.
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Schwab Network: Real Estate Value "Mismatch," Better Buying on Horizon
Greg Friedman offers a wide perspective on the real estate market. He uses the 10-year treasury yield as a market indicator but notes inconsistencies in the latest trends compared to real estate.
Greg Friedman offers a wide perspective on the real estate market. He uses the 10-year treasury yield as a market indicator but notes inconsistencies in the latest trends compared to real estate. Greg believes there will be better buying opportunities on the horizon once real estate finds a bottom to build a new foundation. Listen to the full broadcast on Schwab Network.
Dislocated Markets Amidst Trump 2.0 Economic Risks
In a timely and insightful conversation on the Peachtree Point of View podcast, host Greg Friedman sits down with Mark Zandi, Chief Economist at Moody's, to discuss the current economic landscape and what investors should be watching.
In a timely and insightful conversation on the Peachtree Point of View podcast, host Greg Friedman sits down with Mark Zandi, Chief Economist at Moody's, to discuss the current economic landscape and what investors should be watching.
Recession Risks on the Rise
Zandi doesn't mince words about the current economic situation. He notes that the probability of recession has jumped from 15% to 35% in recent months, primarily due to policy decisions – especially the escalating global trade war. While he believes the economy remains"fundamentally sound," Zandi warns that continued policy uncertainty could tip the scales toward recession within weeks.
"If he continues down this path for another couple, three, four weeks, recession will be more likely than not," Zandi cautions about the administration's trade policies.
Interest Rates and Commercial Real Estate
For commercial real estate investors, Zandi offers a sobering perspective on interest rates. Despite the administration's desire for lower rates, he believes the 10-year Treasury yield (around 4.1%) is appropriately priced for a well-functioning economy. Unless we enter a recession, Zandi doesn't foresee significant rate decreases in the near term.
Commercial real estate, which Zandi acknowledges has"been in a recession the last three years," faces continued challenges. While he believes much of the valuation adjustment is complete, a broader economic recession would mean "another leg down in valuations and pricing."
Key Indicators to Watch
For investors trying to gauge recession risks, Zandi offers practical metrics to monitor:
- Weekly initial unemployment claims: Safe at 225,000, concerning above 250,000, and recessionary at 300,000
- Consumer spending patterns, which have "flatlined" since November
- Housing market metrics, particularly new construction activity
Private Credit Markets
On private credit markets, Zandi noted that private credit has played a critical role in recent years, stepping in to provide capital when banks pulled back, which he believes helped the U.S. avoid a recession. The market has grown rapidly, now estimated at $1.7 trillion and surpassing the high-yield bond market and rivaling the size of the leveraged loan market.
The Bottom Line
Zandi's parting advice? "Buckle up." With policy uncertainty, trade tensions, and shifting consumer sentiment, the economic road ahead promises to be bumpy.
To hear the full conversation and gain deeper insights on navigating these challenging markets, listen to the complete episode of Peachtree Point of View with Mark Zandi on your favorite podcast platform.
