NEWPORT BEACH, CA—A confluence of factors is creating what investment management giant Pimco calls “a blast of volatility for US commercial real estate that we anticipate could lower overall private US CRE prices by as much as 5% over the next 12 months.” Within that volatile atmosphere, though, “attractive investment opportunities” will be created for “nimble investment platforms,” Pimco's John Murray and Anthony Clarke write in a new report, titled US Real Estate: A Storm Is Brewing.

The litany of factors causing the turbulence—“volatility in public markets, tightened regulations, maturing loans and uncertain foreign capital flows”—is familiar to industry players by now. These are especially pertinent to CRE, write managing director Murray and VP Clarke, because pricing gains since the downturn have been driven not by improving fundamentals but by capital flows.

“But capital flows have grown unstable over the past year due to fears over interest rate hikes and, more recently, events such as political and economic uncertainty in China,” Murray and Clarke write. “While this instability began in the public CRE markets, it has blown in to private CRE as well,” especially in non-major markets.

It's the secondary and tertiary markets, write the authors, that will bear the brunt of the anticipated pricing declines over the next 12 months. On the other hand, the same pressures that will be brought to bear on commercial property values “could create opportunities across US CRE debt and equity markets, both public and private.”

Murray and Clarke foresee “attractive entry points for nimble capital that understands CMBS structure” as a combination of reduced dealer inventories and the 10-year wall of maturities begins to alter underlying CMBS credit profiles. They also cite comparable opportunities in the public equities and private real estate markets, and note that “sustained periods of public market volatility, as well as disproportionate foreign capital demand for core assets, could create attractive arbitrage opportunities for larger platforms that can acquire mixed portfolios from forced sellers.” For flexible capital, the authors conclude, “this storm might be a welcome one indeed.”

NEWPORT BEACH, CA—A confluence of factors is creating what investment management giant Pimco calls “a blast of volatility for US commercial real estate that we anticipate could lower overall private US CRE prices by as much as 5% over the next 12 months.” Within that volatile atmosphere, though, “attractive investment opportunities” will be created for “nimble investment platforms,” Pimco's John Murray and Anthony Clarke write in a new report, titled US Real Estate: A Storm Is Brewing.

The litany of factors causing the turbulence—“volatility in public markets, tightened regulations, maturing loans and uncertain foreign capital flows”—is familiar to industry players by now. These are especially pertinent to CRE, write managing director Murray and VP Clarke, because pricing gains since the downturn have been driven not by improving fundamentals but by capital flows.

“But capital flows have grown unstable over the past year due to fears over interest rate hikes and, more recently, events such as political and economic uncertainty in China,” Murray and Clarke write. “While this instability began in the public CRE markets, it has blown in to private CRE as well,” especially in non-major markets.

It's the secondary and tertiary markets, write the authors, that will bear the brunt of the anticipated pricing declines over the next 12 months. On the other hand, the same pressures that will be brought to bear on commercial property values “could create opportunities across US CRE debt and equity markets, both public and private.”

Murray and Clarke foresee “attractive entry points for nimble capital that understands CMBS structure” as a combination of reduced dealer inventories and the 10-year wall of maturities begins to alter underlying CMBS credit profiles. They also cite comparable opportunities in the public equities and private real estate markets, and note that “sustained periods of public market volatility, as well as disproportionate foreign capital demand for core assets, could create attractive arbitrage opportunities for larger platforms that can acquire mixed portfolios from forced sellers.” For flexible capital, the authors conclude, “this storm might be a welcome one indeed.”