Houlihan Lokey - Real Estate Market Update Summer, 2023

This report provides insights on the current trends impacting commercial real estate investors in the summer of 2023. The commercial real estate market is facing challenges due to high interest rates and a slowdown in capital markets, which have led to a bid-ask spread and plummeting sales volume. Transaction markets have essentially halted due to increased divergence in buyer vs. seller sentiment on pricing and turmoil in the debt markets. There remains a strong disconnect on forecasted fundamentals for certain sectors/markets as well as disagreement on how to underwrite yields in this environment. Despite these challenges, savvy operators who can control costs are likely to perform better. Traditional lenders have started pulling back from the market, making room for alternative lenders and structured capital to fill the void at escalating costs. Key market indicators suggest that the real estate industry will be faced with a variety of restructuring situations and create significant buying/consolidation opportunities for sponsors with dry powder. The report also provides insights on how fears of a recession are impacting rental rates and operating expenses for commercial properties, as well as strategies that operators can use to control costs and improve their performance in this environment. Overall, the report suggests that the real estate industry is facing a challenging environment, but there are opportunities for savvy investors who can navigate these challenges.