CRE Deals Fell 50% YoY, But Prices Remain Resilient

In 2023, U.S. commercial real estate transactions fell by over 50%, but discount-seekers were disappointed as prices remained high.

CRE Deals Fell 50% YoY, But Prices Remain Resilient

In 2023, U.S. commercial real estate transactions fell by over 50%, but discount-seekers were disappointed as prices remained high.

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Good morning. U.S. CRE deals fell more than 50% in 2023. But the 2009-style discounts they hoped for haven’t materialized—at least not for the buildings they want to own. Meanwhile, two Manhattan office landlords received $100M in tax breaks to upgrade their office properties.

Today’s issue is brought to you by RE Cost Seg. Unlock the tax benefits of your property and put more cash back in your pocket.

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While Prices Remain Resilient, US CRE Deals Plunge Over 50% in 2023

In 2023, the U.S. commercial real estate market witnessed a steep decline in transactions, dropping by over 50%. Yet, those eyeing steep discounts were mostly disappointed, as property prices remained stubbornly high.

Limited deals: According to MSCI data, transactions fell to just $374B, a 51% decrease from 2022 and 14% lower than in 2020. Despite the decline, prices remained strong, with the RCA CPPI National All-Property Index revealing an 11% decrease from peak levels reached in early 2022, around the time of the Fed’s interest rate hikes.

Between the lines: While some real estate sectors, like central business district offices in cities like San Francisco, saw a significant drop in value (40%), others remained stable. E-commerce warehouses maintained their value, and apartments experienced a 15% decrease. Hotels and niche sectors like self-storage facilities are also holding their value, potentially benefiting from factors like crackdowns on Airbnb rentals in major cities.

Impact of high rates: Contrary to the 2008 GFC, high rates haven’t triggered substantial distressed sales yet, contributing to the resilience in property prices. Although landlords face more financial strain, with rent covering about 1.6x mortgage costs (below the long-term average of 2.1x), it’s still above the minimum requirement for loan underwriting. 


Big picture: Contrary to pessimistic headlines, the U.S. commercial real estate sector displayed resilience in 2023, with sales driven by immediate liquidity needs rather than broad distress. This protected premium properties from major price slashes, though some areas like downtown offices might see declines. The sector's elasticity is further highlighted by a 14% rise in REITs and $240 billion in raised investments, suggesting potential for high-yield returs similar to those after the financial crisis, dependent on future economic conditions.


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✍️ Editor’s Picks

  • Sliding sales: Homebuilder D.R. Horton (DHI) shares slump nearly 10% after missing home order estimates, plans to maintain discounts and incentives.

  • Luxury flip: Blackstone (BX) agreed to sell the Arizona Biltmore hotel in Phoenix for a cool $705M to London-based Henderson Park.

  • The Art of the Deal: Arnaud Karsenti, managing principal of 13th Floor Investments, discusses the state of CRE in Miami, including the potential for distressed investment opportunities.

  • Rent revolution: Rent payment platform Bilt raised $200M, doubling its valuation to $3.1B. Bilt allows users to pay rent with a credit card and offers spending rewards.

  • Checking in: Over 22K hotel rooms were in the pipeline in the Dallas-Fort Worth area at year-end, leading the nation in hotel development.


  • Mortgage boom: Commercial and multifamily mortgage borrowing and lending is projected to rise 29% to $576B in 2024, according to the Mortgage Bankers Association.

  • Debt delight: Multifamily debt outlook turns positive for the first time in 10 quarters, with debt becoming "more available," according to a national apartment CEO survey.

  • Fair quota: NYC settles a lawsuit over the 50% affordable housing rule, agreeing to lower the threshold to 20% until 2029.

  • Fraud frenzy: Over 70% of major apartment landlords noticed a rise in fraudulent rental applications, with an estimated 40% increase in the past year.

  • Waiting for Powell: LA real estate developers are facing obstacles such as high taxes and regulatory challenges, but remain optimistic about the market's long-term prospects.

  • Housing hunt: The HUD is investigating potential discrimination by DC landlords against low-income voucher holders, including overcharging for rent.

🏭 Industrial

  • Chillin' in Florida: Related Fund Management secures $74M in financing for a cold-storage facility in central Florida to be operated by RealCold.

  • Pension pause: The LA County pension fund sold the Powerline Business Park in Deerfield Beach for $72.3M to Investcorp.


  • Mall makeover: A Houston-based affiliate of a real estate group led by Jiashu Xu acquired a high-profile San Jose regional mall and restaurant center in a $135M deal.

  • Retail resurgence: US retail sales rose 0.6% in December, up 5.6% YoY, and senior executives at the National Retail Federation's Big Show expressed optimism for growth in 2024.

  • Shopping spree: In an unexpected turn of events, Sears and Kmart's parent company finally expands its real estate holdings after years of selling assets.


  • Rent dodging: Unsurprisingly, WeWork (WEWKQ) is delinquent on $33M in January rent payments across the country, violating bankruptcy law.

  • Tower trio: Key International and Sterling Bay plan to co-develop a 51-story office tower with over 750KSF of office space and 7.5KSF of retail at 848 Brickell Avenue in Miami.


Two Big Apple Landlords Bag $100M Tax Abatements for Struggling Office Properties

Two office landlords score $100M in tax breaks from city


Two Manhattan landlords have secured a hefty $100 million in tax breaks under a city program aimed at transforming properties into top-tier Class A buildings.

Lucky winners: The financial boost is part of the city's Industrial Development Agency and falls under the Manhattan Commercial Revitalization Program (M-CORE). 850 Third Avenue in Midtown and 175 Water Street in the Financial District are the first office buildings in NYC to benefit from Mayor Eric Adams's new tax break. The program aims to support up to 10MSF of renovations for Manhattan's aging and vacant office buildings.

Eligibility requirements: Only office buildings built before 2000 and located south of 59th Street (excluding Hudson Yards and the area around Pennsylvania Station) are eligible for the M-CORE program. Owners must commit to investing at least 75% of the building's assessed value for the renovation.

Some strings attached: HPS Investment Partners, the owner of 850 Third Avenue, will receive a $58M tax exemption for the renovation of their 600KSF tower. As part of the deal, HPS will finance the $63M renovation using investor equity, focus on energy-efficient solutions, lease 5KSF to a childcare provider, and dedicate one floor as an incubator space for growing companies.

Fix or lose it: Meanwhile, 99c LLC, the owner of 175 Water Street, will receive $41M in tax breaks for their planned $150M renovation. The 31-story property, which has been vacant since insurance giant AIG departed in 2020, will undergo a full gut renovation of all interiors, the addition of a rooftop pool, a new four-story retail space, tenant amenities, energy-efficient building systems, etc.


In with the old: The city isn't just giving away these tax breaks for nothing. There's a significant return expected – about $600 million in benefits from 850 Third Avenue and $350 million from 175 Water Street. These figures are based on the anticipated influx of workers back to these upgraded spaces. With 850 Third Avenue sitting at 67% vacancy and 175 Water Street at a staggering 95% vacancy, the city's hopes are pinned on these renovations to breathe new life into these spaces.


The Bureau of Labor Statistics (BLS) recently published its fourth quarter data for the experimental "New Tenant Rent Index," revealing a significant decrease in rent prices for new leases towards the end of 2023.

It's important to note, however, that the "all tenant" index, which employs a similar approach but encompasses existing leases, aligns more closely with the Consumer Price Index's (CPI) rent measurement.

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