Goldman Sachs Exchanges Falling rates: A salve for real estate?
Sep 24, 2024
Lotfi Karoui, who heads credit, mortgages, and structured products research at Goldman Sachs, joins Jeff Fine, the global co-head of Alternatives Capital Formation. They dive into how the Federal Reserve's rate cuts could potentially ease pressures on the real estate market. The discussions reveal challenges in commercial real estate stemming from maturing loans and the differing performances of new vs. older office buildings. They also highlight the ripple effects on housing affordability, offering a glimpse of optimism amid market fluctuations.
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Improved Macro Backdrop for CRE
- The commercial real estate sector is sensitive to both growth and interest rates.
- Currently, conditions are improving on both fronts compared to March 2023.
Limited Rate Reprieve
- While falling rates offer some relief to commercial real estate, much of the impact has already been priced in.
- The majority of CRE loans are fixed-rate, tied to longer-term yields, which have already decreased.
Averted Crisis
- The anticipated banking crisis and liquidity squeeze haven't materialized, partially because lenders allowed borrowers more time.
- This allowed the market to stabilize and values to adjust, preventing systemic risk.