Is this the time for Real Estate Investing?
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”
(Charles Dickens, a Tale of Two Cities, published 1859 - set during the French Revolution 1789 – 1790’s)
In 2024, Americans people elected a new president (Trump) who promised to “Drain the Swamp”, and right size our country’s budget and tax system. Part of this process has included a plan which increased tariffs and reduced American financial commitments to countries around the world to reduce Federal debt. Through his economic decisions he has created some level of economic uncertainty, which is causing a challenging economic environment. In this article we will review some of the recent successes and failures and highlight why there might be investment opportunities available.
Even though in March 2025, total nonfarm payroll employment rose by 228,000, and the unemployment has seemed to stay stable at about 4.2% ( from the US Bureau of Labor Statistics https://www.bls.gov/ces/), as of April 2025 , the American stock market has lost $9.6 Trillion dollars of valuation since the president was sworn into office for his second term in January 2025.
See chart below (https://www.marketwatch.com/livecoverage/stock-market-today-dow-s-p-and-nasdaq-set-for-further-losses-after-1-679-point-blue-chip-tumble/card/u-s-stock-market-has-lost-9-6-trillion-in-value-since-inauguration-day-6NL1f3p5I5eUhbOGt2Wy)
The American Dollar has lost almost 10% of its value since the president has taken
office (see chart below), reflecting a weakness in the economy.
The president’s goal is to strengthen the American economy by increasing manufacturing jobs in the United States. He wants to encourage Americans to buy American made goods rather than goods imported to the United States. He also wants factories to be reshored to the United States. Given the high capital costs and the time, it takes to build new factories, it will take some time to see these decisions bear fruit. It would be easiest to reopen factories that have been closed like sawmills that are closed due to lack of lumber and cabinet making factories that have closed due to the slowdown in home construction. https://www.woodworkingnetwork.com/news/woodworking-industry-news/plant-selloffs-closures-and-more-top-trending-stories. That would take a serious reduction in interest rates, and the President is aware of that.
https://www.washingtonpost.com/business/2025/04/15/dollar-investors-treasuries-safety/
https://www.bostonglobe.com/2025/04/15/business/us-dollar-value-trump-tariff-war/
Loan Maturity Wave:
At the same time in 2025, a large volume of commercial real estate (CRE) loans are expected to mature, with a record $957 billion maturing, a 3% increase from the previous year, representing 20% of the outstanding commercial and multifamily mortgages. This is due to the combination of extended loans from 2024 and a significant amount of loans reaching their maturity dates. While the total lending volume is projected to increase to $583 billion, the situation presents both challenges and opportunities for the CRE market. https://www.mba.org/news-and-research/newsroom/news/2025/02/10/20-percent-of-commercial-and-multifamily-mortgage-balances-mature-in-2025#:~:text=SAN%20DIEGO%20(February%2010%2C%202025)%20%E2%80%94%20Twenty,Association%27s%202024%20Commercial%20Real%20Estate%20Survey%20of Mortgage Bankers Association
Here’s a more detailed breakdown of the real estate challenges faced by the Trump administration.
Refinancing Pressures:
The high volume of maturing debt will put pressure on borrowers to refinance, which could be challenging given current interest rates that are between 2 and 3% higher than they were five years ago.
Potential for Defaults:
The combination of maturing debt, financial stresses on borrowers, and potentially higher interest rates could lead to a rise in delinquencies and defaults, according to Jimerson Birr. Https://www.jimersonfirm.com/blog/2025/02/the-approaching-commercial-real-estate-financial-crisis-a-looming-threat-for-lenders-and-borrowers/
Market Uncertainty:
The overall market environment remains uncertain, with factors like higher interest rates, rising operating costs, and potential for slowing down consumer spending, adding to the challenges.
Opportunity for Growth:
Despite the challenges, the CRE market also presents opportunities. The industrial sector is expected to continue to perform well.
Office Sector Challenges:
The office sector continues to face challenges due to hybrid work policies and valuation pressures.
Multifamily Sector Challenges:
Multifamily CRE also faces challenges, including potential oversupply of multifamily dwellings (especially in the Southeast) and rent control issues in some markets.
We expect the supply demand imbalance to resolve over the next thirty-six months.
In the meantime, inflated operating expenses and still-elevated interest rates continue to pressure net operating income for multifamily borrowers, especially those on interest-only loans.
https://www.fitchratings.com/research/banks/us-bank-ratings-to-weather-commercial-real-estate-exposure-in-2025-23-12-2024
Interest Rate Sensitivity:
Higher interest rates continue to pressure net operating income, particularly for multifamily borrowers on interest-only loans, according to Fitch Ratings.
“The largest banks with assets over $100 billion have reported the highest levels of non-performing non-owner occupied CRE loans and charge-offs. However, overall relative exposure is much lower than for regional and mid-sized banks. Lower short-term interest rates will not reverse the decline in CRE values since the pandemic. However, they will marginally improve refinancing prospects and debt service on floating-rate loan.”
https://www.fitchratings.com/research/banks/us-bank-ratings-to-weather-commercial-real-estate-exposure-in-2025-23-12-2024
Summary:
Covid-19 has significantly changed our real estate environment. Most affected is the office marketplace where at many locations across the US employees went home to work at their home offices. This resulted in many empty office buildings, particularly in urban environments. As a result, office centric real estate investors may be faced with buildings that are vacant or partially vacant. About 40% of the office stock in the United States could be deemed stressed and many of these buildings will end up in REO (real estate owned status) and will be foreclosed on by Lenders.
Due to overbuilding and the continued push to return illegal immigrants, multifamily buildings in some states (especially in the Southwest) will face higher vacancy rates as well. As the economy shrinks due to increased pricing and marketplace uncertainty, retail businesses are filing for bankruptcy and either repositioning themselves or closing. Many retail centers are faced with increased vacancy rates.
Nationally, estimates of properties in distress currently vary from 11.5% to 12.9% of the existing commercial loans, with a particular focus on properties financed using Commercial Mortgage-Backed Securities (CMBS) loans. https://www.globest.com/2025/02/11/multifamily-distress-jumps-to-129-marking-significant-yoy-increase/, https://www.globest.com/2025/04/01/regional-banks-stabilize-but-cre-lending-risks-persist/
Where is the upside? The market is adjusting to the vacancies. Sellers are lowering sale pricing for their projects and thus CAP rates are slowly creeping up to meet market interest rates. Buildings that are full are selling for competitive CAP rates, but there are rental concessions and lower rents in the offing as property owner’s scramble to keep buildings full and cash flowing.
There is cash and motivation to lend. Financial institutions want to replace their 3.5% loans with 6.5% loans with a higher yield. Money Market Funds “ (MMF) balances ended 2023 at $5.87 trillion and grew by approximately 15% over 2024, reaching $6.75 trillion as of 18 December 2024 (source: Investment Company Institute [ICI]). This remarkable growth underscores two significant factors: the wealth effect is massive, and people and entities are conservatively holding on to more cash, in case of need or opportunity. https://www.ssga.com/us/en/institutional/insights/q1-2025-cash-outlook
Herein lies the opportunity for real estate investors. Cash is available to invest. Many investors are waiting for a marketplace adjustment, while their current properties generate cash flow. Given the recent stock market losses, we may also see an increased appetite for real estate investments, which are perceived as a safer place for investors to sit out recent tariff negotiations. Increased tariffs might also slow down new construction, possibly increasing value for existing buildings.
This may be the time to consider buying deeply discounted properties as Lenders work on moving stressed loans off of their balance sheet. Additionally, as the baby boomers near their late sixties and seventies they are getting tired of managing their properties and want to reposition their assets and trade real estate for a more conservative cash position or invest with Syndicators.
This is the time for patience and with an eye open for opportunistic investments. Be prepared to buy a foreclosed property. Blackstone is planning ahead and assembling cash in funds. In a recent article Blackstone CEO Stephen Schwartzman is quoted as saying “the best time to invest is (in a) risk- off world. We do some of our best work in times of volatility.” Many investors made a fortune in the 1990 downturn, there might be similar opportunities available for you coming up.
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services in 1986 and successfully grow the company from 10 to almost 100 employees, with over Two Billion dollars of real estate under management. He then merged with Criteria Properties in 2021 to establish Bluestone Real Estate Services, where he still serves as an associate broker.
In 2023, Cliff formed a real estate consulting practice, Cliff Hockley Consulting, LLC. designed to help real estate business owners, managers and investors improve their bottom line.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate related topics.
Cliff is the author of two books 21 Fables and Successful Real Estate Investing: Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He can be reached at 503-267-1909, Cliffhockley@Outlook.com.
