Wall Street Firms Targeting Distressed Assets Amidst Slump in Values

A trend is emerging that indicates Wall Street firms have their sights set on distressed commercial real estate assets with slumping values. Several firms, including Goldman Sachs and Cohen & Steers, have announced they are raising billions of dollars to invest. The market distress has been exacerbated by rising interest rates, inflation, and a rise in vacancies in some sectors.

Commercial property sales have been slow in 2023, in part due to owners’ reluctance to take a loss on their investment. But the tides are turning – a growing percentage of property owners are succumbing and unloading their investments in the current market environment. Office properties (think high-rises and not single-story garden offices), which have been affected by a slow return-to-office rate, are experiencing record vacancies which is contributing to the dip in value. Refinancing and skyrocketing insurance rates are also posing a challenge for many investors, affecting sectors that historically have been resilient to inflation, like multifamily.

Property values peaked in the third quarter of 2022, and since then have fallen 10 to 15 percentage points, with further decline expected as we enter the fourth quarter of 2023. This dip in value, combined with an increase in foreclosures and owners defaulting, has created an ideal environment for investors both large and small.

This movement in the market mean that sales activity is anticipated to increase as sellers compromise on price. This benefits not only the heavy-hitting Wall Street firms, but also savvy investors that are able to capitalize on distressed assets, even in a volatile market. Many of these investment opportunities may only be available off-market. Because of that, I suggest you find and work with an experienced commercial real estate advisor with knowledge of off-market opportunities.

Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.