The US real estate market is on a collision course to address upwards of $1.5 trillion in debt coming due by the end of 2025. DWS Group Co-Head of Global Real Estate Todd Henderson may not be largely concerned about this “wall of debt’s” landfall on commercial real estate, but he does see it shifting paradigms in the credit lending ecosystem.
“The traditional providers of credit [are] shrinking,” Henderson tells Yahoo Finance. “So private credit, from firms like ours and others, it’s a great opportunity for us to get into the market and… generate outsized risk-adjusted returns in the debt space.”
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
Video Transcript
– There’s a number that’s been talked about a lot, $1.5 trillion in debt that’s going to come due by 2025, and investors needing to refinance et cetera. What does that signal about where the commercial real estate market is set up for 2024 or how it’s set up for 2024?
TODD HENDERSON: I’m not concerned about this, quote unquote, “wall of debt.” I’m also not concerned about the overall office sector’s impact on the real estate market. The office sector is a very small percentage of the overall real estate market. And it represents about 1% to 3% of bank balance sheets.
Banks are very well capitalized. They’re 40% better capitalized than they were during the global financial crisis. So a deterioration in office, a continued deterioration in office, which I expect will happen, I don’t think is a, you know, canary in the coal mine kind of event that it’s going to trigger a massive sell off in real estate, or it’s going to contribute to serious banking challenges.
What I do think, though, however, is this wall of debt coming due and additional regulation that is coming for the banks is changing the dynamic of who provides credit to the marketplace. The traditional providers of credit is shrinking. The banks are not going to provide as much real estate credit in the past. So private credit from firms like ours and others, that’s a great opportunity for us to get into the market and we think, generate outsized risk adjusted returns in the debt space.
BRAD SMITH: It seems like the credit conditions though as well, as we’re talking about this, that could be one of the headwinds that impacts as well construction, going into the commercial real estate market. How are you identifying and looking across that?
TODD HENDERSON: It’s a great point. What we’ve seen in terms of construction, and frankly, it’s the reason why I’m so bullish on the real estate market going forward, particularly in the industrial space and the multifamily or residential space, construction in the industrial space new starts are down 75% from their peak, which was a little over a year ago. 65% in the residential sector, in multifamily, in apartments.
I think what you’ll see in 2024 is this narrative that has really already started in multifamily. And that is, well, rental rates have stalled, or they’re even falling. It’s a speed bump, frankly, along the way because it’s not a demand problem, it’s a supply problem. Right now, we’ve delivered so much. We have the highest level of supply we’ve ever delivered in the multifamily space. But because new starts are so low, in 2025, we’ll be at barely being able to keep up with obsolescence in terms of supply.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
