Bob Knakal is the Senior Managing Director and Head of New York Private Capital Group for JLL
Editor’s Note: This guest post is an excerpt from the LightBox CRE Expert Predictions for 2024.
I expect rates to ease in the first half of the year. As importantly, this signal and the correlated confidence that comes along with it, means that lenders should start to compress spreads as the market to put out capital becomes more competitive.
In past market cycles, it typically takes 12 to 18 months for sellers to become in-tune with the new market and after that, capitulation occurs. Recent investment sales in the New York City market suggest that this capitulation phase may have already begun. In Q3’23, Manhattan property sales over $10 million dramatically increased, at a quarterly volume that was nearly double each of the totals from the first two quarters of the year. The Fed dropping rates will have two impacts – one good and one bad.
- The good? The uber wealthy investors who have been waiting for the bottom will now be ready to purchase.
- The bad? Sellers will do all they can to hold as they wait for further drops in rates and hope for increases in values.
The best-case scenario is that rates drop more than expected. In an election year, this would not be a surprise. When interest rates go up, it’s not necessarily bad for real estate (depending on what’s going on in the broader economy) but when they come down, it’s always good for real estate.
Among the hidden areas of opportunity are the land market, which is the biggest opportunity in New York City today. Land values are significantly lower today and, at the next cyclical peak, they should be at least double where they are today.
Maybe someone will sell a New York City building in exchange for Bitcoin.