CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity

(WASHINGTON, D.C.) — Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital.

The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­

The Q2 Sentiment Index topline findings also include:

  • Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1.

  • Class B office properties are facing ongoing challenges, attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend.

  • A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability.

  • The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation.

  • Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that availability of equity capital was better a year ago.

Some sample responses from participants in the Sentiment Index’s Q2 survey include:

“Real estate fundamentals are shaping up to be very strong in one to two years. Companies that have a long-term perspective and can be patient will benefit from strong employment growth, demographic shifts, and stable occupancies.”

“The mom-and-pop investors who own class B office are hurting the most. The institutional investors are diversified, so they are faring better.”

“Stability in asset values isn’t just about reaching pre-2022 levels; it’s about establishing a new norm based on sustainable growth.”

Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

FSOC Sees CRE Among Risks to U.S. Economy in 2024

Last week, the Financial Stability Oversight Council (FSOC) released its 2023 Annual Report, identifying commercial real estate among the major financial risks to the U.S. economy in 2024. (FSOC 2023 Annual Report).

Report Findings

  • Developed by the FSOC, the report reviews financial market developments, describes emerging threats to U.S. financial stability, identifies vulnerabilities in the financial system, and makes recommendations to mitigate threats and vulnerabilities.
  • Citing the almost $6 trillion of commercial real estate loans outstanding in the second quarter of 2023, roughly half of which are held by U.S. banks, the report raises concerns about  “a substantial volume” of these loans that are set to mature in the next few years. (Marketwatch, Dec. 14)
  • The report states, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE. Maturing loans and expiring leases amid weak demand for office space have the potential to strain office sector conditions further, which could cause stress to spread beyond this segment of the CRE market.”
  • The report also cites the July 2023 policy statement by the banking agencies on Prudent Commercial Real Estate Loan Accommodations and Workouts, as requested in the Roundtable’s March comment letter, and notes that accommodations and workouts are often in the best interest of borrowers and lenders.
  • The FSOC recommends that supervisors, financial institutions, and investors continue to monitor CRE exposures and concentrations closely and track market conditions. (U.S. Department of Treasury Press Release, Dec. 14)

Looking Ahead

  • In the op-ed, Rodgers stated, “To help rebalance these maturing loans, it is important to advance measures that will encourage additional capital formation. To that end, it is essential to bring more foreign capital into U.S. real estate by lifting legal barriers to investment, as well as to repeal or reform the archaic Foreign Investment in Real Property Tax Act (FIRPTA). Importantly, policymakers must not hike the tax rate on capital gains, end carried interest, or alter the 1031 like-kind exchange provisions.” (ULI Op-ed Dec. 18)
  • The paper also cited that around one-third of all loans, and the majority of office loans, may encounter substantial cash flow problems and refinancing challenges.
  • RER board member Scott Rechler (RXR) was quoted in the Wall Street Journal this week discussing the outlook for 2024. “In 2024, it’s game time. Owners and lenders are going to have to come to terms as to where values are, where debt needs to be, and right-sizing capital structures for these buildings to be successful.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will discuss many of these issues at our State of the Industry Meeting on January 23, 2024.

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Roundup: Lawmakers Seek Action on Affordable Housing Incentives, Senators Push Treasury for EV Recharging Station Guidance, and Joint Tax Committee Releases Long-Awaited “Bluebook”

House Ways and Means Committee members sent a bipartisan letter to House Leadership last Friday urging consideration of the Affordable Housing Credit Improvement Act (H.R. 3238) in any potential tax legislation brought to the floor in 2024. (Letter, Dec. 15)

AHCIA Provisions

  • Since the introduction of H.R. 3238 in May, the bill has garnered strong bipartisan support with 200 cosponsors—100 Republicans and 100 Democrats. (summary of AHCIA)
  • Representatives Darin LaHood (R-IL), Suzan DelBene (D-WA) and others wrote to House leadership urging inclusion of two key changes to the low-income housing tax credit (LIHTC) in any tax legislation that emerges (Tax Notes, Dec. 15):
  • Restoring the 12.5% increase in state allocation of housing credits that expired at the end of 2021, and
  • Lowering the threshold of private activity bond financing (currently 50%) that a project must meet in order to qualify for the maximum amount of 4% housing credits. 
  • The competitive and over-subscribed LIHTC program is a critical federal tool for addressing the widespread lack of affordable rental housing. The arbitrary 50% bond financing requirement creates a barrier to affordable housing production, especially for the growing number of states that fully utilize their private activity bond cap. (Roundtable Weekly, May 19)

Senators Push Treasury to Finalize Rules for EV Recharging Infrastructure Incentives

  • The Roundtable previously submitted detailed comments seeking guidance requesting greater clarity for real estate owners and others contemplating new investments in EV recharging stations.
  • The Inflation Reduction Act generally limits the credit to facilities installed in rural or low-income census tracts. The letter encourages Treasury to adopt an inclusive definition that effectively covers any tract if 10 percent or more of the “census blocks” inside the tract are rural. 
  • The Senators’ letter includes other requests that align with the Roundtable’s comments and aims to help the administration realize its goal of deploying 500,000 chargers by 2030. For example, the Senators urge that the rules treat each port at a refueling property as a “single item” that effectively qualifies for its own credit.

Joint Tax Committee Releases “Bluebook” Describing Recent Tax Laws

Joint Committee on Taxation logo
  • On Friday, Congress’s nonpartisan Joint Committee on Taxation released its long-awaited explanation of recently enacted tax laws.
  • The so-called “JCT Bluebook” is often relied upon by Treasury officials and federal courts when implementing and interpreting tax statutes. 

Congress reconvenes in Washington the week of January 8, where they will face a fast-approaching deadline for fiscal year 2024 spending bills and additional priorities, including a tax package.

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The Roundtable’s Jeffrey DeBoer Recognized as a “Top Lobbyist” for 2023

Real Estate Roundtable President and CEO Jeffrey DeBoer

Real Estate Roundtable President and CEO Jeffrey DeBoer, above, is one of the “Top Lobbyists” in Washington, DC for 2023, according to the widely-read Capitol Hill publication, The Hill.  This is the sixth consecutive year that DeBoer has earned the recognition. (The Hill, Dec. 6)

  • The Top Lobbyists 2023 list includes “impactful advocates (who) stand out for the results they’ve delivered for their clients, companies, trade associations and advocacy groups in the nation’s capital.”
  • The Hill also noted that after pandemic restrictions were lifted, “these top lobbyists had to navigate a divided Congress—and not just the traditional Republican and Democratic divisions” as a flood of regulatory activity flowed from the Biden administration.

DeBoer commented, “I am honored to lead The Real Estate Roundtable’s policy advocacy efforts and very humbled to be included on The Hill’s top lobbyist list. This personal recognition by The Hill reflects the collective efforts of the Roundtable membership, leadership, and staff. Together we work very hard to deliver non-partisan, data-based policy positions, guided by what is good for communities, job creation, and the economy. This has always been the foundation of our organization’s effectiveness, and it has proven to be even more critical given today’s increasingly challenging policy environment.”

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The Administration and Congress Continue to Urge Federal Agencies to Return to the Office

Although the Biden administration and Congress continue to urge federal agencies to end pandemic-era telework policies, officials acknowledge they have yet to reach their return-to-office objectives, with only about half of cabinet agencies having achieved the goal of workplace return by January. (Axios, Nov. 30)

Congressional and Administration Efforts

  • On Wednesday, a subcommittee of the House Committee on Oversight and Accountability held a hearing titled, “Oversight of Federal Agencies’ Post-Pandemic Telework Policies,” to discuss the current status of telework policies within various federal agencies.
  • White House Chief of Staff Jeff Zients has been privately urging cabinet secretaries to address the significant number of federal workers who continue to work remotely, encouraging a shift away from persistent work-from-home practices. (Axios, Nov. 30)
  • RER Chair John Fish (SUFFOLK) (above) was quoted in the Wall Street Journal, voicing the industry’s concern for stalled return to the workplace. “Other parts of the country with large federal workforces are also struggling to bring back workers. “Whether you’re talking about downtown Boston, or Denver or Northern Virginia, occupancy is down substantially,” said Fish. (WSJ, Nov. 28)
  • Unions representing federal workers strongly support work from home and have pushed back against the Biden administration’s workplace return goals. (BGov, Sept. 14; Federal Times, Aug. 7)
  • Since the pandemic, Congress has held multiple hearings and introduced legislation in both the House and Senate aimed at solidifying official government definitions of remote work and enhancing the accountability and transparency of federal telework policies. (Roundtable Weekly, Oct. 20)

Roundtable Advocacy

  • The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023)
  • In August, the White House ordered cabinet officials to increase the return of federal employees to their offices. (Roundtable Weekly,Aug. 11)

Roundtable President and CEO Jeffrey DeBoer has repeatedly emphasized that remote working by federal employees is undermining the health of cities, local tax bases, and small businesses.

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White House Holds Property Conversions Briefing for Roundtable Members

Last week, the White House hosted a virtual briefing for Roundtable members to discuss federal loan and guarantee programs at the federal departments of Energy, Housing, Transportation and the General Services Administration that may assist with financing commercial-to-residential conversion projects.

Property Conversions Briefing

  • In October, the administration announced a suite of federal resources—including low-interest loans—across various agencies to assist conversion projects aimed at increasing the housing supply, revitalizing urban downtowns, and cutting climate pollution. (Roundtable Weekly, Oct. 27; White House Commercial to Residential Conversions Guidebook)
  • The briefing last week provided members with a high-level overview of the administration’s conversion work and focused on the Transportation Department’s Transportation Infrastructure Finance and Innovation (TIFIA) and Railroad Rehabilitation and Improvement (RRIF) financing programs. (See FAQs)
  • White House staff also announced upcoming workshops with the Department of Transportation’s Build America Bureau to learn more about how TIFIA and RRIF financing can be used for transit-oriented development (“TOD”) that takes the form of adaptive reuse.

Upcoming Workshops – Federal Resources to Support Commercial-to-Residential Conversions

IRA Tax Incentives – 179D

  • White House staff on the property conversions briefing mentioned that green tax incentives enacted by the Inflation Reduction Act (IRA) may be layered with other federal loan, guarantee, and grant programs to support a project.  (See RER fact sheet, “Clean Energy Tax Incentives Relevant to U.S Real Estate)
  • Roundtable Senior Vice President & Counsel Duane Desiderio was quoted this week in Tax Notes on the deduction in section 179D for energy-efficient commercial buildings.
  • “The IRA’s changes to section 179D are good policy, but more changes need to be made for the deduction to reach its full potential,” said Desiderio.” (Tax Notes, Nov. 28). He explained that Congress should make 179D “transferable” by REITs and other private sector owners.

The Roundtable’s Property Conversions Working Group will continue to serve as a conduit between our members and the administration to help design impactful policies that can assist with office-to-residential conversions. Please contact Roundtable SVPs Duane Desiderio ( or Ryan McCormick ( for more information.

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New Analysis Highlights Importance of Like-Kind Exchanges in Current Market Environment

A new analysis by Marcus & Millichap demonstrates how like-kind exchanges are fundamental to the health and financing of the commercial real estate industry, particularly during market corrections and liquidity shortages. (Marcus & Millichap The Importance of Like-Kind Exchanges During Periods of Reduced Commercial Real Estate Market Liquidity, 2023).

Key Findings

  • Commercial real estate transaction volume is down, but like-kind exchanges are up.  Despite a general decline in commercial real estate transactions, the number of 1031 exchanges initiated has increased nearly 15% from 17,467 in the first half of 2019 to 20,070 in the first half of 2023.
  • The analysis attributes the general decline in commercial real estate transactions in the first half of 2023 to the rise in interest rates, stricter lender underwriting, a diminished economic outlook, and a broad spectrum of geopolitical challenges.
  • “The 15% rise in the number of exchanges initiated, when commercial real estate transaction count fell by 22.1%, underscores the importance of like-kind exchanges in periods of reduced commercial real estate market activity.” (Marcus & Millichap)
  • The liquidity generated through LKEs serves as a deterrent against commercial property defaults, consequently reducing risks in the banking and financial systems that could otherwise pose a threat to the broader economy.
  • The Marcus & Millichap analysis draws on data collected by the largest like-kind exchange qualified intermediaries in the country and aggregated by the Federation of Exchange Accommodators, a member of The Real Estate Roundtable’s President’s Council.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue working to raise awareness of the role that like-kind exchanges play in supporting the health of the US economy and the stability of real estate markets.

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NEWS: CRE Executives Report Ongoing Financing and Liquidity Issues Causing Price Discovery Difficulties

(WASHINGTON, D.C.) — Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index.

Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.”

The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices. Any score over 50 is viewed as positive.

The Q4 Sentiment Index topline findings include:

• The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market.

• Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest. Within the office sector, class “A” properties with top of-the-line amenities are the lone high performers.

• An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago.

• Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse.

DeBoer added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.”

Some sample responses from participants in the Sentiment Index’s Q4 Survey include:

“Your perspective depends on what assets you hold and the strength of your balance sheet.”

“The distribution of capital is highly dependent on specific sectors and asset quality.”

“There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.”

Responses by survey participants reflect recent, persistent challenges facing certain sectors and assets. In comparison to last quarter, sentiments on current conditions are down by 1 point, perceptions of future conditions are down by 2 points, and overall conditions are down by 2 points.

Regarding sentiment on the state of current asset values, 92% of respondents believe they are lower than one year ago, 3% feel they are higher, and 5% believe asset values have remained the same compared to a year ago. This contrasts with the Sentiment Survey one year ago, when only 59% of participants expected asset values would be lower in this Q4 2023, indicating a steep decline in current perceptions of asset values.

Survey participants also commented on the availability of equity capital, with 70% noting it is worse compared to one year ago, 3% stating it has improved, and 27% that the availability of equity remains the same. For the availability of debt capital, 86% of participants believe it is worse compared to one year ago, 2% feel it has improved, and 12% believe the availability of debt remains the same.

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

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