2024 is shaping up to be a year of transition from impatience with the economy, to grudging acceptance that low interest rates are gone for good and consumer and worker shifts are here to stay.
U.S. multifamily rents are declining at the exact same time as a 40-year high of new supply (554,000 units) comes online and tens of billions of dollars of floating-rate bridge loans are maturing.
About $1.2 trillion of debt on U.S. commercial real estate is scheduled to mature in 2024 and 2025. Much of this is highly levered because rates were low 3 or 4 years ago, and putting as much debt as possible on a property seemed a no-brainer. Developers and owners expected rates to stay low and rents to rise, making refinancing a non-event. But now interest rates have risen, rents are falling, property values are declining, and securing bank refinancing is problematic.
With uncertainty remaining a dominant theme in 2024, workforce housing should continue to be one of the most attractive segments for real estate investors due to consistent renter demand. In periods of high inflation and high interest rates, middle-class Americans are often priced out of homeownership and class A rentals, driving high occupancy and renewal rates in workforce housing communities. This is a product that should keep its value, in good times and bad, and well past the uncertainty still facing investors in 2024.
Rescue capital will be a big theme for next year across all sectors. The banks might kick the can down the road a while like they did during the great recession, but in the end, the private market is going to have to step in with rescue capital. Already, there are numerous funds raised and ready to deploy rescue capital for distressed CRE. The returns these funds will likely achieve should exceed those equity could deliver on a new deal right now.