Concerns Over Small-cap vs. Large-cap CRE Performance Unwarranted: Boxwood Means
Originally published on April 17, 2023, by Michael Tucker for the Mortgage Banker's Association.
Small-cap commercial real estate appears to be in better shape than the larger CRE market, reported Boxwood Means LLC, Stamford, Conn.
Boxwood Means Principal and Co-Founder Randy Fuchs noted news of a looming catastrophe for commercial real estate has recently circulated among the industry press. “[But] while there is plenty of evidence that interest rate hikes have pinched CRE deal activity and shaken asset prices, thereby elevating risks of some maturity defaults, reports of an impending cataclysm appear to be overdone, especially when it comes to the outlook for small-cap CRE,” he said.
Fuchs noted a recent Morgan Stanley research note reflects growing anxiety over a commercial real estate crisis. The report projected a 40% drop from peak valuations because commercial real estate owners, already facing headwinds from a shift to hybrid/remote work, need to refinance more than half their mortgage debt in the next two years. “Similarly, in a separate report KBW said it expects CRE peak-to-trough declines of as much as 30% when higher cap rates and rent changes are considered,” Fuchs said.