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  • Writer's pictureGantry

ConnectLA 2024 Key Takeaways

Connect Los Angeles was everything you would want out of a Southern California commercial real estate conference during a tough market cycle: Labor pickets, downtown lunch hour traffic, a 4.3 earthquake, uninspiring Fed updates, and yet more than 500 attendees still gathered to discuss the key drivers of today’s market. Optimism reigned, but the discussions were frank, with the general sentiment resigned to the hard work ahead to stabilize asset financing, navigate disruption, and transact actively in this new climate.

The details were in the breakouts and conversations over the course of the day, but the general takeaways from the stage include:

  • Don’t expect to see a return to pre-volatility rates in the year, or even years, ahead. This is a higher for longer cycle and downward shifts in rates will be nominal this year. General sentiment put 10-year treasury expectations in the 4-4.25 range by year end.

  • Business is down for all sectors of the CRE market. It will be rough on sellers / borrowers if interest rates stay at current levels. If rates climb further, CRE will be challenged.

  • The current market is showing opportunity in 3D. Disruption, dislocation, and distress. For many this will result in strategic investments and launch carriers but for some, these conditions will result in substantial pain. We are still in the early days of asset distress, but there may be less distress than speculators hoped.

  • Digesting the higher costs of capital has put ever greater emphasis on operations and operative costs. Pricey insurance, punitive tax policies, and rising labor costs are hitting proformas hard. Tenant credit is a key element to today’s valuations.

  • Interestingly, discussions on bank financing were minimal as the general sentiment of the room pointed to abundant liquidity from alternatives in their absence. Bridge lenders are a viable option for projects still in transition or value-add acquisitions.

  • Life company and CMBS loan programs makes the most sense for permanent debt in the current cycle. Both have their strengths and appeals. Life companies have remained active since 2020, while CMBS is poised to grow substantially in 2024.

  • Industrial and multifamily assets remain the preferred asset classes for investors and lenders alike. Retail, self storage, and medical office follow. Durable income properties will remain highly targeted allocations.

  • Institutional investors will walk away from property that is upside down in the current market cycle and move on quickly. Private investors are more likely to pursue asset retention strategies and re-capitalization. There is liquidity in the market to assist.

  • Office is as challenged an asset class in the current cycle as retail was during the consumer shifts of the past decade plus. It’s all about relevancy. Pain will be felt in this sector until assets trade at values commiserate with renovation, re-tenanting, or finally demolition in preparation for new, more relevant development.

  • Gantry is well positioned to navigate this market climate. The firm’s extensive roster of life company correspondents and debt sources offers a unique value proposition for clients by presenting options for optimal financing in a tough cycle.

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