CRE Markets are poised for Growth in 2024

Distress in the commercial real estate market has bottomed out, and conditions will soon be on the upswing as more investors from the private equity world seize opportunities to jump into the space, according to Newmark (NMRK) CEO Barry Gosin.

“I think the good news is that we’re at the point where I don’t think it’s going to get worse, and sequentially, it’s going to get better,” Gosin said Tuesday during the Real Estate Board of New York’s (REBNY) annual commercial brokerage holiday luncheon at the Metropolitan Club in Manhattan. “I’m fairly optimistic about the next couple of years.”

Gosin said in the keynote interview, moderated by Cathy Cunningham, executive editor at Commercial Observer, that the commercial real estate market is poised for improvements as more understanding is reached on the future of cap rates after the Federal Reserve raised interest rates by nearly 300 basis points to fight inflation. While property owners have lost 40 to 50 percent of the equity in their investments as a result of the Fed’s policies and $800 billion of loans are due over the next two years, Gosin stressed that the CRE markets are close to gaining more clarity on future valuations.

The market environment is paving the way for new investors to emerge in the CRE space, according to Gosin, especially among private equity firms, given the decreasing amount of lending from banks in the past 18 months.

“It will be really mercenary money, and it will be expensive money, but it will take some time to develop,” Gosin said. “They are just waiting for the moment, and I think the moment is pretty close.”

With individual CRE markets, Gosin said he feels positive about the future of San Francisco despite having lower office occupancy than other large cities. He added that New York is also well positioned for a bounceback with its "middle-of-the-pack" metrics with occupancy and vacancies.

“There is no city that has the energy of New York,” said Gosin, a Brooklyn native. “There is nothing like this city."

The dislocation in the CRE debt markets has been felt even with a successful brokerage like Newmark, where capital markets business is down 60 percent, Gosin said. However, the firm has found other ways to stand out amid the volatility, including increased leasing volume.

Newmark has a “talent first” mentality and added investment sales giants Doug Harmon and Adam Spies along with their team from Cushman & Wakefield last February. The firm was selected by the Federal Deposit Insurance Corporation shortly thereafter to sell roughly $60 billion of loans from Signature Bank after the bank’s March failure.

As the year draws to a close, Gosin said he is bullish on 2024 for not only Newmark but also the CRE market as a whole.

“In a weird way, if the cap rates go higher, the next run will be longer,” Gosin said. “We just have to live through the period of uncertainty, which we’re in, but in my view, I think it’s over."

While he has encountered a myriad of market challenges throughout his lengthy CRE career, Gosin stressed that brokers can persevere through any cycle by working hard and building relationships. He recalled the stock market crash of Oct. 19, 1987, and how his team needed to adjust their plans based on the drastically new economic conditions that resulted.

When asked by Cunningham what the best holiday gift CRE could receive this year would be, Gosin answered “lower interest rates.”