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Close to the end: CRE value declines to stabilize - some debt plays already played out

NAREIM Portfolio Management meeting key takeaways

June 7, 2024

“We are close to the end.” That was a key sentiment during NAREIM’s Portfolio Management meeting this week – that further declines in the US commercial real estate market are stabilizing, and that the end of the current downturn is close.

Almost half of portfolio managers attending the meeting in NYC agreed that value declines, particularly in the NCREIF ODCE indices, would stabilize within the next quarter. A further 25% expected the downturn to end within the next 12 months.

Already, some sections of the market are back, not least among debt platforms where one deal for a mark-to-mark industrial loan saw 14 debt funds bid versus two to three in 2023. “That’s going to start chipping away,” at debt fund returns, one attendee said.

But where there have been significant value declines, there’s emerging distress.

Where is the distress?

During one discussion on where debt funds were deploying capital, members said value-add multifamily, value-add industrial and construction loans were of interest right now. Another agreed, adding that loan sales from banks refinancing construction loans could be an interesting opportunity, as would amenitized office (in walkable communities) on a reset basis.

  • Despite the lack of appetite among institutional investors for office, the member said: “Office is an opportunity. But investor sentiment is not there yet. It provides coverage for our capital and is compelling at a reset basis.”

The game has changed

Real estate investment managers however have to also reset their own investment strategies and return expectations thanks to a reset in interest rates, and industry-wide expectations rates will be higher for longer.

  • “You are going to see a lot of “Come to Jesus” moments this year and next; but as you look ahead understand that you will “no longer have the capital markets at your back anymore. It’s about focusing on the fundamentals and asset management – managing the cap-ex and getting the op-ex right.”

The NAREIM Portfolio Management meeting saw almost 70 portfolio managers gather in NYC to discuss valuations and the dispersion of returns in 2023/24; debt and emerging distress; AI as well as underwriting sustainability, SEC and org design from the PM perspective.

Key highlights from the meeting included:

Valuations & the dispersion of returns:

  • Office distress and delinquency will become more apparent in the next few quarters, as loan default information becomes more available.

  • To understand current multifamily and industrial performance, look to a deleverage indices of REIT return for the property types – and it suggests that direct investment returns in both property types are about to hit bottom and start increasing.

  • European appraisers are allowed to use non-sales data when judging valuations, a strategy not employed in the US and a concern that fueled arguments US appraisers were behind the curve in the recent downturn. US appraisers can only use arms-length transaction data meaning in downturns loan renegotiations and other data isn’t taken into account. But there is a need for judgments to be measurable and quantifiable, such as looking at a model cap rate or looking at a CRE corporate bond indices, measuring the cost of debt for REITs.

Debt & emerging opportunities:

  • If a sponsor isn’t willing to put new equity into an existing deal, debt managers will consider selling, even when loss severities are 50%. “If you don’t put money in, we should walk away. One year ago, we were willing to work with borrowers, but this year if it didn’t get any better…”

  • When considering investing in existing originations/loans, debt funds need to consider their own opportunity cost. “The opportunity cost often makes the case for a deal.”

  • Value-add multifamily and industrial loans and construction loans are garnering most attention from debt funds today, but hotel financings on a 50-60% LTC basis are also interesting.

  • More multifamily loan deals will start to come to market later this year; and there’s potentially an opportunity in bank loan refis.

  • Spreads are likely down 75bps vs end of H1 2023.


Almost two-thirds of real estate investment managers using GenAI today are doing so for internal communications – with almost half using artificial intelligence tools for RFPs and DDQs.

During the NAREIM Portfolio Management meeting, 31% of members revealed they were allowed to use GenAI within their firms, with two-thirds of manager equally split between not being allowed and AI being still under review.

However, of those able to use AI, the following applications were the most used inside management firms:

  1. 61%: Internal communications, such as meeting summaries, agendas etc

  2. 46%: RFPs and DDQs

  3. 25%: Market research & idea generation

  4. 18%: Quarterly reports

  5. 18%: Investment memos

On a scale of 1-10 (1 being the lowest) AI tools inside management firms were ranked: 2

To read the takeaways from the NAREIM Portfolio Management sustainability discussion, click here.

To access the meeting presentations and attendee lists, please email

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