Investors Await Federal Reserve for Commercial Real Estate Price Discovery, Says Colliers U.S.
Gil Borok, the CEO of Colliers in the United States, recently appeared on ‘Squawk on the Street’ to discuss the impact of bank failures on commercial real estate and the ability to finance commercial properties.
Borok emphasized that investors are currently facing an imbalance between buyers and sellers, primarily due to the significant rise in interest rates.
This situation has created a holding pattern in the market, making it difficult to raise capital for commercial real estate projects.
Borok believes that the key to breaking this deadlock lies with the Federal Reserve.
If the Fed is finished raising interest rates, as they have signaled, it could lead to price discovery in the market.
Once buyers and sellers have a clearer understanding of the cost of capital and debt, they can reach an equilibrium.
However, Borok notes that investors must wait for the Fed’s next move to gain a better understanding of the market conditions.
When asked about the impact of bank failures, Borok acknowledged that they have caused tighter credit conditions across the economy, including the commercial real estate sector.
Nevertheless, he also pointed out that this tightening of credit has partially fulfilled the role that the Fed would typically play in normalizing pricing.
While the impact has not been severe or widespread, regional bank failures have had some effect on the industry.
Regarding price expectations, Borok explained that there will always be a price for properties.
The question is at what price sellers are willing to sell or invest in converting buildings.
Some buildings can be converted, but not all of them, and the market is becoming aware of this fact.
Class A buildings with desirable amenities and new constructions are experiencing high demand, and rental rates for these properties are expected to remain stable or even increase.
Therefore, the commercial real estate market will likely see a divide between different asset classes.
In terms of Colliers’ portfolio and investments, Borok expressed confidence due to the company’s diversified platform.
Colliers engages in brokering buildings and facilities across various sectors, including industrial, retail, and multifamily properties.
They also provide leasing, management, and valuation services.
Borok emphasized that diversification helps protect against market fluctuations, allowing them to navigate the current challenges in the capital markets.
As the industry awaits the Federal Reserve’s next move, investors and stakeholders in commercial real estate continue to observe the market conditions closely.
The hope is that with the Fed’s guidance, price discovery and equilibrium can be achieved, facilitating a more stable and prosperous commercial real estate landscape.