The asset management arm of Goldman Sachs is making a bet that the U.S. commercial real estate market has already hit its low point and will resume investment in the sector moving forward, executives said Wednesday.
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Goldman Sachs Asset Management will pick up where it left off in “actively investing,” in U.S. commercial real estate, GSAM co-Head of real estate Jim Garman told Reuters at the MIPIM real estate conference in Cannes, France.
Many firms are still shying away from the market as prices for office and multifamily properties fall, interest rates remain elevated, office vacancies remain high and new construction slows, with some projects being abandoned altogether.
GSAM, however, is optimistic about an industry recovery and is ready to start buying.
“The reason is a combination of interest rates coming down, we feel like the market is bottoming out, and because we're starting to see a floor in prices set by buyers who are in the market,” Garman told Reuters.
GSAM's move follows a sharp downturn for loan originations last year amid fallout from the failure of two regional banks, Silicon Valley Bank and Signature Bank.
The last three months of 2023 ended with an overall decrease in loan activity across much of commercial real estate, according to Mortgage Bankers Association data.
Year-over-year, 2023 saw a 68% decrease in the dollar volume of loans for office properties, a 39% drop for healthcare properties, a 27% fall for multifamily properties and a 7% decrease for industrial properties.
Brookfield Asset Management’s Bradley Weismiller took a dim view of commercial real estate’s future during the global conference, at least when it comes to the U.S. office market.
“Per capita, it’s the most oversupplied office market in the world,” said Weismiller, Brookfield's managing partner for real estate capital markets.
But GSAM offered measured optimism, contrasting conditions today favorably to what led up to the Global Financial Crisis of 2008-2009. Banks today have larger cushions and are better positioned than they were 16 years ago, executives told Reuters.
“We're expecting an extended period of deleveraging, rather than a blanket ‘extend and pretend’ approach or blanket resolutions by lenders.” said Richard Spencer, GSAM's head of real estate in Europe, the Middle East and Africa. “It’s just going to take time to resolve."
In a statement provided to Bisnow, Garman said the company is already actively investing in Europe and Japan “and expect to be active in the U.S. in the year ahead.”
But the U.S. could see a rockier economic recovery, one that could take some time to play out, he said.
“We don’t think there will be a sharp, V-shaped recovery, but believe there will be significant dispersion between property types and sectors, creating a focus on opportunities in sectors powered by technology, demographics and sustainability,” Garman said in his statement.
UPDATE, MARCH 14, 6:25 P.M. ET: This story has been updated to include a statement from GSAM co-Head of real estate Jim Garman.
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