Interesting Topic: Nationwide “Recession” Market Updates?
I’ve been apart of this subreddit for a while now and am curious to see if any one is noticing anything interesting during these down times?

For example, I work for a GP that has noticed some LP’s backing off of deals because of rising interest rates. I personally thinking backing off now is interesting, as these interest rates create the biggest barrier to entry and only the top can make it through.

I think commercial real estate is a relatively safe industry, but downturns do change development. Interested to see what everyone has to say.
[{"id": "ie4z88e", "text": "Interest rates are just one part of the puzzle.  Inflation, energy costs, asset valuation, and debt markets are just a handful of other factors CRE investors are likely to consider on a deal by deal basis.\n\nOf course the industry is safe, but high risk deals will still get turned down by firms based on their own analysis of their financial wherewithal.  \n\nYou say yourself that \u201cthese interest rates create  the biggest barrier to entry and only the top can survive.\u201d  It\u2019s not hard for some LPs to determine they need to shift their investment criteria in an attempt to stay as strong as possible.", "replies": [{"id": "ie53gub", "text": "I am not saying that it was unheard of for this LP to shift their investment criteria, but they are almost completely reconsidering all projects. Not a small LP either, have multiple developers in their pipeline.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ie504q3", "text": "I\u2019m at one of the large brokerages and our top sales teams had a handful of deals in pipeline that either are dead or went from &gt;50% happening to probably not happening.", "replies": [{"id": "ie536lu", "text": "Interesting! I\u2019m not surprised. I feel like developers/investment companies were trying to sneak by on these super low rates for a while.", "replies": [{"id": "ie6b04u", "text": "I\u2019m not sure you understand the impact of rising interest rates on potential deals.\n\nFirms aren\u2019t trying \u2018sneak by\u2019 anything &amp; interest rates aren\u2019t a barrier to entry that impacts small developers disproportionately to large.\n\nMany deals that pencil with a 4% interest rate don\u2019t pencil with a 6% rate. It\u2019s really is as simple as that.", "replies": [{"id": "ie6fk6a", "text": "I understand what you\u2019re saying, and I am a newbie to the CRE investment side of things so I\u2019m just getting use to it. I tried to say that the deals penciled in at 4% don\u2019t make any sense at 8%.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ie55jey", "text": "I work for a large developer in the south east\u2026\n\nConstruction costs is killing us and making us hold off on some of our pipeline.", "replies": [{"id": "ie598lz", "text": "That\u2019s been the story for years though, right?  I worked for a large developer and they were saying that five years ago.", "replies": [{"id": "ie5depg", "text": "Construction has gone up 50% since February 2020. That\u2019s a huge increase that wasn\u2019t seen in the years prior.", "replies": [{"id": "ie5f2v6", "text": "50% in what market?  We just bid out a big project and it cost less than the identical one we bid out 1.5 years ago.", "replies": [{"id": "ie5n6fv", "text": "Why do you think that is?  I am about to rebid a project.  Nervous where it's going to come in at.", "replies": [{"id": "ie6ayqf", "text": "Lumber, labor, appliances are all way up", "replies": [{"id": "ie6cf82", "text": "Lumber is back down though and labor should be pretty stable again.  My project was union though so the union wages havent gone up with inflation\u2026.yet.  Appliances are a hard one, they are difficult to even procure.", "replies": [], "depth": 7}], "depth": 6}, {"id": "ie6ch3a", "text": "I think people are nervous about the economy and are trying to fill backlog.", "replies": [], "depth": 6}], "depth": 5}, {"id": "ie6awb2", "text": "Prices were already up a good bit 1.5 yrs ago. I\u2019m talking about stick built garden style apartments specifically.", "replies": [{"id": "ie6ckyg", "text": "Yeah, I\u2019ve heard that market is struggling with costs.  Although the price of lumber is way down again.", "replies": [], "depth": 6}], "depth": 5}, {"id": "ie6b2co", "text": "Bullshit.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ie57kqd", "text": "I work for one of the larger PE firms with international exposure and their pipeline has completely cratered. Do you want to be the one fund who bought at the top? Everything is being repriced and retraded and everything else is pushed back. It\u2019s a challenging market with not a ton of deal activity/ pricing clarity.", "replies": [{"id": "ie6b6x1", "text": "This", "replies": [], "depth": 2}, {"id": "ie6fo8i", "text": "I work at a MF and this is our house view", "replies": [], "depth": 2}, {"id": "ie6fr4r", "text": "Awesome insight", "replies": [], "depth": 2}], "depth": 1}, {"id": "ie5cuip", "text": "From what I am hearing, it is constructions costs killing deals. Interest rates are not helping, but when costs have doubled and take twice as long making things pencil is not easy.", "replies": [{"id": "ie6x98g", "text": "Single tenant build to suit - disposition target pricing dropped 5% in 6 months and construction estimates increased 12%.  We\u2019re getting squeezed but still moving forward.  Interest isn\u2019t significant on our debt since its a short hold and high-demand asset but impacting dispo values for the potential buyers.", "replies": [{"id": "ie7cpva", "text": "What are you seeing on construction timelines? I am getting quoted 12 - 16 weeks for standard commercial office doors and 60 weeks for electrical panels....", "replies": [{"id": "ie806nt", "text": "I\u2019ve heard that about panels.  Don\u2019t have timing yet as these are courtesy estimates but on another project I have brick pavers that are 6 months+ out and angle stops for our water lines that simply can\u2019t be found right now and no idea for ETA.  Won\u2019t need those till CofO but one of many things keeping me up at night.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ie5gd5c", "text": "We are continuing development projects and investments but have largely curtailed new projects and are waiting to see where the market goes. I also work in Capital Markets and loans are definitely closing but have slowed as rates increase.", "replies": [], "depth": 1}, {"id": "ie6px95", "text": "Work in industrial. 6 months ago at a NAIOP panel, all the heads of the large LP players in the space agreed that a vacant warehouse is worth more than one that has a lease in place (because rent growth has been double digits in most markets the past few years).\n\n6 months later, same guys have more caution. I think in industrial, a recession will be more delayed than most other sectors, but a lot of newbies that just came into the space are not prepared for this current market and are fading away. Demand still outweighs supply, vacancy rates are sub 5% in most markets. But I\u2019ve already seen deals start to retrade, both for land deals and core assets. Inflation will cool off the double digit rent growth. Lots of LPs that have been underwriting large YoY rent increased over the next few years are starting to tighten their expectations. Recession and continued inflation will also have a trickle down effect to demand; if consumers have less money to spend there will be less flow of goods through warehouses.\n\nI\u2019d be nervous if I\u2019m a newbie industrial land developer that has bought in the past ~6 months in markets  with lower barriers to entry (e.g. non-coastal markets) or if I bought a sub-5% cap core building with long term leases in place.", "replies": [], "depth": 1}, {"id": "ie6rvu8", "text": "I work in land development for residential use mostly in TX metros, my clients have expressed great concern and some seem to be scaling back/cancelling deals.", "replies": [], "depth": 1}, {"id": "ie7eqx1", "text": "I work for a small development/REPE firm. \n\nI am seeing deals fall through left and right but many sellers are still holding firm with their pricing.\n\nI think in the next few months we\u2019ll see a bit of a flash sale in the MF space. \n\nIt\u2019s already happening in really small markets. I\u2019m seeing Class C assets in negative growth markets being marked down 20-30%.", "replies": [{"id": "ie83ocv", "text": "Very interesting", "replies": [], "depth": 2}], "depth": 1}, {"id": "ie87wel", "text": "We are monitoring all markets, waiting to strike when appropriate.\n\nWhen that is\u2026 I don\u2019t know\u2026", "replies": [], "depth": 1}]