1031 Exchange Opportunities Emerge as CRE Market Stabilizes
With most of the results of the election in and another interest rate cut made by the Federal Reserve, CRE investors now have more clarity about what the future landscape could look like. Julie Baird, president of tax-deferred 1031 exchange firm, First American Exchange Company, which allows transactors to dispose of properties and reinvest, sees a buying opportunity emerging in the market.
But “trepidation” might remain for the rest of the year, she added.
“I think we'll start to see some stability in the market,” Baird told GlobeSt. “And as rates come down, there will be more opportunities.”
First American also views the current environment as an opportunity for its 1031 exchange as buyers on the platform normally have less debt and more cash.
“They may be able to come in at a price and then refinance when rates go down in a year or two, a little more easily than someone that is going to rely on more debt financing for an initial purchase,” Baird said.
Baird predicts that in 2025 there will be an uptick in activity for distressed assets. However, she believes the opportunity won’t just be exclusive to that category.
“If somebody has the ability to buy now, as prices are a little bit more depressed, they will then get the advantage of the upside,” she said, as investors could look to sell them later and cash in on the appreciation.
DIFFERENT BY ASSET CLASS
But of course, every asset class will be different. For example, multifamily has slumped with supply, and office is still recovering from the pandemic lows, caused by remote work.
In the next year, Baird thinks the industry will see a “fair amount” of distressed debt for office, which could create an opportunity for buyers. Multifamily could be set to boom as construction starts have begun to fall.
It’s “more like your typical business cycle, not necessarily a fundamental shift in the market,” Baird said of the asset class.
“Once this new supply comes online, they get leased up, those assets are going to increase in price and become higher demand.”
And with consumer spending down and credit card debt up, Baird expects to see headwinds for the retail asset class.
But generally across CRE, she is bullish and hopes that the rate cuts will lead to an uptick in deals as we head into 2025.