Top Three Insights from MSCI Real Estate Client Day
Our recent Client Day at our New York headquarters explored MSCI’s newest Debt Intelligence tools and benchmarks to analyze property debt and distress and featured MSCI Research that examined the current state of CRE investment markets. Read our top three insights from the event below:??
MSCI Real Assets kicked off our Client Day from Chief Economist, Jim Costello, who presented top five investment markets by volume as of Q3 2024. One market that stands out: Phoenix. Our latest Real Capital Analytics (RCA) data shows that Phoenix has recorded one of the largest growths in transaction volume across US markets, an increase of 22% over the same period last year. This remarkable growth in deal making has placed Phoenix as the 5th largest US market by volume, previously 8th in 2023.? Apartments and industrial properties account for the largest share of deal volume in the metro, totaling transaction volume to $9.2b year-to-date. Deals like the Desert Club – a 95% occupied 497-unit multifamily property in North Scottsdale, supported the market as a top performer in 2024. RCA transactions data reveals Clarion Partners sold the asset to Weidner Apartment homes in September for $187,500M.??
Secondly, the wall of commercial property loans is looming and refinancing sectors with weaker demand and higher interest rates poses risk. However, it isn’t until 2027 when the largest tranche of loans mature, according to MSCI’s Mortgage Debt Intelligence (MDI). In 2027 alone, $477M across all property sectors will require resolution: repayment, refinancing, or loan extension. MSCI has been tracking distressed properties and just last month recorded the distressed office property, Bluffs at Playa Vista in Los Angeles, having sold for $188.5M, a staggering 45% of the original sale price from 2016. MDI’s data provided unique insight into loan default status during July and a Trustee’s Sale scheduled in August, eventually selling from Edward J. Minskoff Equities to a joint venture between Lincoln Property Company and Strategic Value Partners in September. Understanding loans marked as distressed (troubled, REO, special servicing) ahead of an auction may provide opportunity to capitalize on.?
Lastly, not all markets are equally in distress. Using MDI’s newest feature – Loan Trends & Trades – it’s apparent that the share of properties selling as distressed are almost double in San Francsico than the national aggregate. Loan Trends & Trades is a comprehensive dashboard that can be applied to the entire MDI database, covering 400k+ loans, and enables the visual investigation of property, market and borrower/lender trends. Interestingly, office markets like Boston experiencing fewer distressed sales than San Francisco because of the higher concentration of biotech employment – an industry where remote work is relatively not feasible. Conversely, San Francisco’s larger share of tech employment is likely to feed weaker demand for space as the barriers to remote work are less function dependent. This downward pressure on demand in San Francisco has led to some of the market’s recent distressed sales.??
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