Savvy buyers made a fortune after the 2008 crash, picking up real estate at distressed prices. Investors hoping to spot bargains in the latest slump can watch these trends.
4 min
Is the pain over yet for U.S. commercial real estate? The answer might be yes for stocks but no for the assets they own.
A record $205.5 billion of cash is earmarked for investment in U.S. commercial real estate, according to dry-powder data from Preqin. But good deals may not be available for another six to 12 months. Here are some trends investors can watch for signs of when it is the right time to buy.
How Much Are Values Down Already?
U.S. commercial property prices have fallen 16% on average since their peaks in March 2022, according to real-estate research firm Green Street. Unlike the 2008 crisis, when a lack of credit hurt the value of all real estate, today’s downturn has hit some types of properties much harder than others.
Unsurprisingly given remote working, offices are the worst performers, having lost 31% of their value since the Fed first began raising interest rates. The discount isn’t as enticing as it sounds, as troubled buildings need heavy investment to bring them up to a standard that will attract tenants, or to be redeveloped for new uses.
Meanwhile, prospects for snapping up America’s e-commerce warehouses at knockdown prices look slim. Warehouse values are down just 8% from peaks to reflect higher financing costs, and top industrial stocks like Prologis don’t look cheap either, trading close to net asset value.
Apartments might be a better bet for those hunting for distressed assets. Prices for multifamily apartment buildings have fallen by a fifth since March 2022. Some owners who paid top dollar for properties during the pandemic using short-term, floating-rate debt may be forced to sell if mortgage repayments become unmanageable when their interest rate hedges expire.
Property Sellers Are Still Demanding Yesterday’s Prices
Sellers are holding out for prices that are no longer realistic. MSCI’s bid-ask spread reflects the difference between what U.S. property owners are asking for and what buyers are willing to pay.
As of July, the gap for multifamily apartments was 11%, the widest it has been since early 2012, when the property market was still recovering from the 2008 crash. The gap for office and retail is a bit narrower at around 8%. Price expectations are closest for industrial warehouses, where sellers want just 2% more than buyers are willing to pay.
The market will be sluggish until one side caves. In the second quarter of 2023, investment in U.S. commercial real estate was down 64% compared with a year earlier, according to data from CBRE.
As the bid-ask gap narrows, it will signal that valuations are approaching more sustainable levels. But this will take some time. It was five years after the 2008 crash before buyers and sellers saw eye to eye on prices on the hardest-hit assets like apartments—although the adjustment should be much faster this time.
What Could Force Sellers to Slash Prices?
The number of properties that slip into distress will be key for bargain-hunters.
So far, there haven’t been many forced sales. Only 2.8% of all office deals in the U.S. in the second quarter were distressed, according to MSCI.
This may be because loans haven’t matured yet. “Owners don’t want to take a loss but once there are refinancing issues, they will have that come-to-Jesus moment with lenders,” says Jim Costello, chief economist at MSCI Real Assets.
Even if forced sales are still rare, the value of U.S. property in distress—in default or special servicing—is rising. In the second quarter, an additional $8 billion of assets got into distress, bringing the total to $71.8 billion, according to MSCI. Including properties that look at risk, the pool of potentially troubled assets is more than double this amount.
Investment-grade corporate bond yields suggest that property prices have further to fall
Owning commercial property is a bit like owning a corporate bond, only slightly riskier: You bet on the solvency of a tenant, with more uncertainty about the value of the capital you’ll get back. For at least the past 20 years, investors in U.S. real estate have required a return premium of 1.9 percentage points over the yield on investment-grade corporate debt, according to Green Street’s director of research, Cedrik Lachance.
Right now, real estate only offers a 1.3 percentage point premium. For the relationship to return to normal and make property attractive again, U.S. real-estate prices need to fall a further 10% to 15%.
The share prices of listed property companies also point to further falls
Publicly traded real-estate stocks provide a live read of sentiment toward property markets. In the U.S., listed property companies currently trade at a 10% discount to gross asset values, based on Green Street data. This is a good proxy for the size of the price falls that investors still expect in private real-estate values.
Investors can also keep an eye on property stocks for signs of improvement. “Listed real estate is a leading indicator for private in downturns and also recoveries,” says Rich Hill, head of real estate strategy and research at Cohen & Steers, who points out that there are already green shoots. At the end of June, REITs had risen in value for three consecutive quarters and were 13% above their lowest point in the third quarter of last year. Based on how long it usually takes for a recovery to feed through to the private market, property values could hit the bottom within six to 12 months.
All this suggests the best strategy is to buy property stocks but to wait to purchase physical real estate. “If you want to bottom fish in real estate now, do it in the public markets,” says Green Street’s Lachance.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
The Australian leather house has opened an immersive four-day pop-up in Manhattan, unveiling its Bloom Collection and redefining what a product launch can look like.
Following the successful launch of its Palais Collection, MAISON de SABRÉ has unveiled a new modular handbag system offering more than 720 styling combinations.
Georgetown agent Jamie Peva blends history and real estate on Instagram, turning local stories into a powerful sales strategy.
5 min
On a recent morning in Georgetown—Washington, D.C.’s oldest neighborhood—real-estate agent Jamie Peva strode down leafy N Street, brimming with historical tidbits.
Jackie Kennedy once lived on the street, he said. So did Ben Bradlee, former executive editor of the Washington Post, along with a former Miss America and a powerful U.S. Senator. Bradlee’s widow, author Sally Quinn, and Eric Schmidt, former CEO of Google, own stately homes there.
“I’ve seen a picture of Lyndon Johnson coming out of this house,” said Peva, passing a Federal-style brick mansion. “Also, the Beatles went to a lawn party here.”
Peva, a 60-year-old agent with Washington Fine Properties, has sold Georgetown real estate for over three decades, often traversing the neighborhood by bicycle. Of the roughly 2,500 houses in the historic neighborhood, he has been involved in the sale of 460, he estimated. A self-styled historian of the neighborhood, he knows stories behind its houses and their owners going back generations.
With a knack for lively storytelling, he shares his knowledge with some 37,500 Instagram followers, who have made Peva—sporting the bow ties he has worn since boarding school—an unlikely social-media influencer. Many of his followers are locals, and most have no plans to buy or sell real estate—until they do. It is then, according to Peva, that his spirited reels bring him to mind.
“It’s the digital version of a refrigerator magnet,” he said.
After Peva’s first video in November 2023, his eponymous Instagram account sparked a 10% increase in sales volume in the first year, and another 20% the next, he estimated. “It’s been very good for business, there is no question about it,” he said.
But Peva’s posts have also made him a local celebrity. As he walked down N street, the driver of a Mercedes station wagon slowed down to honk and wave. A lady walking a large dark gray dog stopped to ask what he was filming that day (a reel about a Colonial-era bottling plant.) Peva knew the dog from walking his two springers, Jumpy and Peggy-O, in the neighborhood.
“I need to make a video about the pooches of Georgetown,” he mused.
A growing number of real-estate agents now use social media to sell, and some have millions of followers with reels featuring ultraluxury pads, selling tips or reality TV-style reports on their daily lives. While Peva posts about his listings—and sometimes those of other agents—he mostly focuses on Georgetown history, local businesses and community events, saying his goal is to benefit both his business and the neighborhood.
“If we don’t find something genuinely interesting and worth sharing, we won’t do it,” said Peva’s daughter, Violet Peva, a New York social-media strategist who films, edits and posts his reels. “We cover many topics, not just real-estate information.”
Peva is originally from Connecticut, but has lived in Georgetown for over 30 years, currently in a cottage-style house with a white picket fence. Over the years, Georgetown has changed. The Georgetown Set, a powerful group of Cold War-era residents whose Sunday-night potluck dinners are said to have swayed U.S. policy, has long faded away. The community is still home to high-profile Washingtonians, including a Republican senator and several cabinet members. But it increasingly also attracts technology and finance executives, according to Peva. He now routinely signs nondisclosure agreements, ensuring privacy for wealthy clients. The shift has made him rethink his marketing approach.
“For years, a big part of our Georgetown business was made up of people who maintained a low profile,” he said. Real-estate agents were similarly low-key. Today, curb appeal is more important, he said, and agents are promoting themselves more. “As this change was underfoot, I was thinking that I needed to evolve myself too,” he said.
Though his own social-media use is mostly limited to following sailing accounts, he asked his daughter to help him post his listings online. Violet, now 26, started coming to D.C. once a month to film his reels. After an early video, on a condominium building called the Elliott, her sister Fern called her to report: “Daddy’s blowing up on Instagram,” Violet recalled. The reel got over 50,000 views. The next two each drew over 300,000. Peva’s most popular post ever, with over 838,000 views, was about the Grateful Dead playing in Georgetown. Sometimes, Peva interviews Georgetowners such as Quinn, the author, or Jamie Stachowski, the owner of a local butcher shop.
Peva, who majored in history in college, now spends up to two hours a day on research, usually in the morning while on his stationery bike. Online, he pores over old newspapers or the Library of Congress website, and he has a collection of articles and books—in and out of print—about Georgetown.
Companies often approach Peva for promotional posts, he said, but he turns them down, feeling that followers would lose interest in constant commercials. One exception is a recent paid post on Mount Vernon, the former home of George Washington. Peva wanted to share its history, he said, and didn’t want to lose the opportunity to another Instagrammer.
Anthony Arend, a professor at Georgetown University, has lived in his current home for 19 years without any plans to sell or buy real estate. But he follows Peva and often likes his posts.
“He is very charismatic, he is energetic, and he obviously knows a lot about the community,” said Arend, who has referred house-hunting friends to Peva.
One of Peva’s biggest deals—the $10.5 million sale of a 19th-century Italianate mansion—came after he made two 2024 reels featuring the property. In March, he sold the longtime O Street home of Tim and Jane Matz for $5.8 million after featuring it on his Instagram. Peva had showed them the home 25 years earlier, with Violet in a baby carrier on his back.
Last year, Kate Watts, 49, a digital consultant, called Peva to sell her late father’s three-bedroom house on Q Street; her husband had seen Peva on Instagram. In an October reel, Peva praised the architecture of the house, designed by modernist Hugh Newell Jacobsen. Halfway through, he mentioned an open house the next day, ending with an upbeat: “Did I also mention this house is for sale? $3.75 million!” The reel got 27,000 views, the open house was packed, and the buyers made an offer at the list price on the same day.
