Institutional Money Heads Back to CRE Investing Says PGIM Real Estate Head

For the last two years, the CRE markets have wondered when the big money — the reported huge amounts of capital sitting on the sideline — would re-enter.

Well, we might have our answer now. Head of U.S. equity at PGIM Real Estate Soultana Reigle recently told MarketWatch that big investors seem to be considering potential investments, which is the first step to them getting back in regularly. It would be a market bottom.

“From a valuation perspective, what has been evident to us is that we are flattening out,” Reigle told MarketWatch. “People are anxious about missing a window.”

The drop in the yield of the 10-year Treasury to 3.73%, down from 4.69% in April 2024, is another sign of stabilization.

This isn’t the first time organizations have pointed to a possible market bottom. MSCI called a possible market bottom in the second quarter. The firm said that the deal volume and pricing fall “came to an end,” using data from the RCA CPPI National All-Property Index. Year-over-year changes in dollar volume and pricing seem to have turned a corner. Both volume and price were still negative year-over-year in the first quarter of 2024 but were zero by Q2. That was an end to six continuous quarters of commercial property prices. If the trend line continues, Q3 should see both volume and pricing move back into positive year-over-year growth.

If Moody’s was right in August, even the office market may be nearing bottom. There were two signals. One was the annual year-over-year change in transaction volume. At the beginning of the fourth quarter of 2023, volume change stood at about -50%. By the end of the three months, the change barely entered positive territory. The first quarter of 2024 saw an increased gain as did the second quarter.

The other major factor Moody’s noted is increased activity at large losses. Over the last 18 months, many major CRE players and analysts have discussed the fall of office valuation. And yet, there hadn’t been that many large buildings selling at big losses, like $100 million or more. That type of sale is important to finding a bottom. In 2022 and 2023, there were perhaps two or three such transactions. In 2024 Q1 there was one. In Q2, there were seven.

Prospects of a bottom are what would attract institutional investors looking for acquisition bargains. But there could still be some rough experiences for owners and investors.