Who's Right About CRE?

There’s a lot of concern about commercial real estate in the industry, in the press, among experts. Is it as bad as all that? Depends on whom you ask and what type of property you mention.

Colliers U.S. CEO Gil Borok was recently on CNBC with a view on the cautiously rosier side. When asked if many were overstating worries about debt maturities and repayments, he said he thought so.

“There’s no question that there’s going to be distress coming,” Borok said. “The signs are all there. But I also think that we will see banks and other lenders continue to work with borrowers to work through the situation and we’ve seen that historically. The sort of doom and gloom out there, it’s not to make light of it, but it is to say that there are pathways that will be less drastic than what we are hearing in the media today.”

Certainly, many lenders have been working with borrowers. They don’t want properties to crash into their balance sheets. Offering extensions and modifications is a way to keep that from happening, at least for a while.

“And we’ve seen a good bit of that in 2023 and we’ve also started to see repricing of certain assets,” Borok said. “Buyer and seller equilibrium is being reached, which also helps in terms of starting to move volume, sort of a more realistic take on pricing certainly helps the market.”

Borok was also relatively upbeat about office. “You have to remember that certain sectors like office, which have a secular issue since the pandemic, will be more impacted than other sectors like industrial and multifamily, where the fundamentals are much better,” he said. “But over the passage of time now, we’re seeing more normalization in office. It’s not to say that we’ve gone back to pre-pandemic levels in terms of office attendance. Everybody knows that that hasn’t happened yet. But we do see more and more people coming back to the office, whether mandated or voluntarily for culture reasons. That’s pretty common that you’ll see folks coming back for the culture in the office and the collaboration in the office. And as the economy has slowed, employers have been more likely to mandate return to office because there’s not as much competition with companies that might be more flexible.”

But how comfortable should those in the CRE industry get? Barry Sternlicht, CEO of Starwood Capital Group, speaking Tuesday at the iConnections Global Alts conference in Miami Beach, as Bloomberg reported, said, “The office market has an existential crisis right now.”

Sternlicht estimated that the one-time $3 trillion asset class is probably worth only $1.8 trillion now. “There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.”