Market down 15-30 percent? Am I wrong?! What is going on across multi, industrial, office!!
Over the past few months, nothing seems to be penciling across various institutional markets we have been looking at for core plus and value add.  With interest rates at 6percent, and cap rates in the 4-5 range, you are getting terrible LTV and you can’t even get good bridge terms.  How are people making deals work?! The talking heads on LinkedIn, have all gone to hiding!! What am I missing. I am seeing leveraged returns in single digits so pref/bridge is laughable unless you are an idiot who believes in 5 percent rent growth!  What am I missing?!  Even then, i think it’s worse for developers.  Replacement cost are way above transactions values today.

Anyone earring of lay-off yet?  I know some of the big brokerage are laying off but curious about REPE, developers, banks, etc.  thoughts?!
[{"id": "iztx3gg", "text": "I'm ~20% off on most deals we're underwriting. There remains dislocation between buyers and sellers expectations. I think it will remain for the first half of '23. We need stability in the bond market before other assets can fall in line and lenders can tighten spreads.", "replies": [{"id": "izu2rm4", "text": "What cap rate are you typically using for multifamily in top 25 MSA?", "replies": [{"id": "izutfen", "text": "4.5 to 5! And closer to 4.5!!  I have heart of a national rest walking away from a development deal in my market!  Things aren\u2019t looking good.", "replies": [{"id": "izv7bec", "text": "On the multi family side, if you\u2019re talking anything over 100 units there are zero buyers right now.", "replies": [{"id": "izvbqv2", "text": "I'm buying everything I can ..... it's the sellers who think rates are still 3% and haven't had their coming to Jesus moment yet.", "replies": [], "depth": 5}, {"id": "j0amqke", "text": "False!  I know of institutional quality deal that will close this month at a mid 4 cap!! I also know another deal at a 4.6 cap.  West coast market in a tech corridor!!  Merchant developers need to sell, no matter what! More off market but yes, really hard to get things done today!", "replies": [], "depth": 5}], "depth": 4}, {"id": "izvcqhb", "text": "Anything under a 5.5 cap is dead on arrival right now (unless its a brand new build)", "replies": [{"id": "izvezha", "text": "No way! What market are you looking at?  5.5 seems like a stretch!! Thinking 4.5 to 4.75.  \n\nNo one will sell you a 5.5 deal for multi in a core location.  Not even SF multi even though it\u2019s a shit town!! Literally :(", "replies": [{"id": "izwoieh", "text": "Brokers are telling me that buyers are saying they need a low of around 4.75% for good quality, in-fill MF. Of course all the most recently closed sales are still a solid 50 bps or more below that. 50-55% LTV. Pretty tough to nail down what and support values at the moment.", "replies": [], "depth": 6}, {"id": "izwrmbj", "text": "I should have clarified .....  anything less than 5.5 is dead to me, as an investor (of course there are exceptions).  Once you run the numbers with rates and insurance, there's simply nothing there to be happy about. Popomodern has some great answers below that echo my thoughts.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "izylq7y", "text": "If the cap rate is several hundred basis points less than the Freddie Mac interest rate, you've got a problem.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "izu44bb", "text": "Bridge debt seems risky. Correct me if I am wrong but bridge debt is typically short term and higher interest right? It\u2019s possible that by the time you refinance and get an appraisal, you could be looking at a higher permanent interest rate along with a lower appraisal.", "replies": [{"id": "izuixno", "text": "Bridge typically prices over the 30 day or one month term SOFR and floats. We were just quoted a 325 bp spread over one month term which is trading ~4.28. A deal needs a lot of uplift to make a 7.53 rate pencil on a ~5 cap deal.", "replies": [{"id": "izv14b8", "text": "Lol we're quoting 1-month sofr+ 5%, or 9.5% all in and getting 0 business lol. Work at a big lender but not a bank", "replies": [{"id": "izv1e8a", "text": "Terms for us are typically 24 months but up to 36 months. Work in a niche asset class. We do not do non-recourse", "replies": [{"id": "izvll8e", "text": "Is that for pref equity or bridge?!  We were looking to come into a construction deal as an LP.  55 LTC and tag on pref equity.  I can\u2019t even get to 70 percent based on debt yield.  And it would be cash in at REFi!! It looked ugly.", "replies": [{"id": "izy3a4j", "text": "Haha cash out refi days are gone \ud83e\udd23", "replies": [], "depth": 6}, {"id": "j0j69t3", "text": "I'm just talked straight bridge with Fannie/freddie/hud as the exit", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "izu62gv", "text": "Yeah, that's about where we are until caps and rates revert.  You're not gonna get that rent growth, so until caps come up or rates drop down the market is going to freeze up. In fact it already has frozen up, Q3 volume is down 25% or so, YoY.   Historically, by the way, rates come down.  Caps come up, but they're very slow, so the market will unfreeze about six months after rates drop and revert against caps. I'm thinking 2H23 for a reversion.\n\nAs for layoffs, just the brokerages to my knowledge. Layoffs at PERE or other institutions are not going to be announced as widely, and I'm just not that plugged in.", "replies": [], "depth": 1}, {"id": "izuhsb7", "text": "I was just starting out when the Global Financial Crisis hit in 2008, and was working at a private equity firm doing multi family and hospitality acquisitions.\n\nIf this is anything like that, the REPEs, REITs, etc, will start by stopping all acquisition activities, then laying off acquisitions people.  First analysts and managers, then directors, and depending on the size, potentially higher ups.\n\nMore than likely any VPs and above who were solely focused on acquisitions will probably be moved to focus on something else, like dispositions or asset management, because the firm doesn\u2019t want to lose their connections and intellectual capital.\n\nIt\u2019s a good time to be focused on asset management, and having a portfolio that generates sufficient fees.  Acquisition is the sexy job, asset management keeps the lights on.", "replies": [{"id": "j07fud2", "text": "Totally get this mindset but this isn\u2019t a credit crunch (yet). The fundamentals are very different.", "replies": [], "depth": 2}], "depth": 1}, {"id": "izuih4s", "text": "Everything changes now but not the end of the world. Cap rates will change. Underwriting will change.  Interest rates will be volatile, etc.  \n\nIt\u2019s always about how each deal gets negotiated anyway, based on market trends at that time.", "replies": [], "depth": 1}, {"id": "izuk0th", "text": "&gt;you are getting terrible LTV\n\nMore equity solves *most* problems. What you're observing is a de-leveraging. The L portion will stay depressed until interest rates reverse (or are expected to, futures markets are a fickle beast) so the until sellers HAVE to move on the V part things are going to be slow.", "replies": [{"id": "izumz71", "text": "You are right.  As long as cash is flooding the markets, sellers won't have to budge.", "replies": [], "depth": 2}], "depth": 1}, {"id": "izuliol", "text": "I agree. I\u2019ve started to see CAP rates increase with lower asking prices, but it\u2019s still too far off from what I\u2019d consider acceptable. I think we\u2019ve got another 15-20% drop to go, seems like sellers are not yet in need to drop prices.", "replies": [], "depth": 1}, {"id": "izutary", "text": "I think there is a ton of cash on the side lines, but with yesterdays pricing, they can\u2019t put a deal together. \n\nHearing phoenix is down!! With cap rates up materially.  The LinkedIn talking heads aren\u2019t talking anymore except for the folks bragging about locking in rates prior to 6 months ago and now want market to fall further to pick up bargains!\n\nI am seeing a lot of JV development deals fall through.  Rents are down from the summer, costs are up, lending is up and cap rates are up\u2026 that means nothing is going to work for development!!  \n\nHope we are all save in 2023!!", "replies": [{"id": "izvgu0q", "text": "Phoenix is so funny.  It ended up being a screaming deal if you bought in, say, 2016, but then capital caught up and yields went to amongst the lowest in the nation just in time for the bottom to fall out. I have a lot of faith that it will come back, but capital might get spooked for a couple years, which would make those good deals possible again.", "replies": [], "depth": 2}], "depth": 1}, {"id": "izuzcj2", "text": "Real estate always lags the overall market with cap rates vs interest rates. I think most people are expecting huge cuts in value but with the amount of money on the sidelines versus 2008/2013 I doubt the drop will be that severe. I think the flight to quality will come back in markets like industrial and multi where you were paying the same cap rate in Savannah Georgia and Austin Texas. If interest rates stay high long term, but at least it\u2019s known and expected spreads will thin out. Either construction costs have to come down or values go up from the rent growth from the lack of construction so long as the underlying demographics work. It\u2019s just a slow process.", "replies": [{"id": "izvmudu", "text": "What do you think is a good cap rate for Class C multifamily in Savannah, GA?", "replies": [{"id": "izvucmc", "text": "I know you aren't asking me, but let's look at the 10 year HQM, which tracks high quality corporate bonds. Right now that is 5.60%.\n\nSo, with relative certainty, I can earn almost 6% for doing nothing. No legal fees, no brokers, no level 1 environmental studies, no property management fees, nothing, just a negligible commission on buying the bonds. \n\nSo, if we add in all the brain damage that comes with a CRE asset, and a class C one at that... you would think that cap rates should be at least 100bps higher, right?\n\n*Blowstar* is saying 5.3% for \"one-star\"/class-C properties in SAV, which of course is probably wrong since there are not enough comps since the rate hikes to accurately say wtf things should be worth. \n\nIn any case, for all the headache of real estate, I would say it should be a 7 cap market. Rent growth is done, and with a 7 cap you barely have positive leverage. \n\nSome of those old buildings are so charming though, gotta admit.", "replies": [{"id": "izvx136", "text": "Any pointers on what to buy that tracks the 10 year HQM and is mostly liquid? Need a good place to park for a while until sellers reset expectations.", "replies": [{"id": "izw973r", "text": "Probably a corporate bond with A, AA or AAA credit", "replies": [], "depth": 5}, {"id": "izwfbeh", "text": "Bonds are liquid, including those that that compose the HQM,  but if you want to also have diversification, maybe an bond ETF with whatever risk tolerance you are looking for. \n\nI can't for the life of me see why anyone is trying to put deals together now. You've got third tier sellers still expecting 4 to 5 caps on dogshit properties, as if their 20 unit slum apartment building is the Park Avenue Waldorf-Astoria. \n\nMeanwhile I can go to sleep and make 6%...  Sure it's a negative real return, but at least there is zero drama. For people in capital preservation mode, I would recommend a total exit from CRE until sellers have their come to Jesus. \n\nI'm just a little fish, but I would guess it has to do with investment mandates, and whatever is left of the tax shelter from the TCJA helping people to book losses on records profits from the fleecing that has been going on post covid.", "replies": [{"id": "j1p2x1b", "text": "1031 Equity\u2026 as long as that\u2019s in place and people have a NEED to sell there will always be deals coming through the door.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "izx03j6", "text": "The \u201cRisk Free Rate\u201d is back. All these people buying low cap rates never had to calculate WACC in Intro to Finance", "replies": [], "depth": 4}], "depth": 3}, {"id": "izw9lpq", "text": "No one knows exactly obviously but over the long term should be a slight spread to more major markets with more solid demographics to adjust for the perceived risk premium", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "izvceph", "text": "Sellers are still delusional with pricing.\n\nThat being said, it feels like a few markets are starting to shake free ..... just a little bit but not into deal making territory yet.\n\nI think you're going to see a lot more deals in the C/B- in 2023, as whoever got caught with that shit and at those prices, are going to be dying en masse.", "replies": [], "depth": 1}, {"id": "izvh2kv", "text": "Work on banking side and most banks are shut down and have been for awhile. Haven\u2019t heard of layoffs yet in the RE groups and I know some banks still hiring up until two months ago. \n\nEverything we see on the biggest deals just requires more equity at this point. Nothing pencils and the days of doing 6% debt yield deals are pretty much over. We continue to see debt books weekly from the big players but it\u2019s a question of what will actually get done. \n\nWe are prepared to just start writing reports and have already looked at what is going to mature next 12-24 months and seeing if can be refi\u2019d. Big players with deep pockets will be able to weather better than those that did 80% LTV with not much for cash on hand.", "replies": [{"id": "j1p36gz", "text": "I\u2019m in PERE and most of us froze hirings. Haven\u2019t heard or seen much regarding layoffs. 6 months will be very telling.", "replies": [], "depth": 2}], "depth": 1}, {"id": "izvn3aq", "text": "Welcome to a world where money isn\u2019t free and deals have to pencil.  Insert &lt;First Time? Meme&gt; here.", "replies": [{"id": "izvpmo6", "text": "lol - it\u2019s Called slapped a cap and hope you aren\u2019t caught with your pants down. I saw so much madness the last 5 years!!! It\u2019s wild!!!\n\nI saw a BOV for for a 100M plus asset come back 20 percent less and I still think that 20 percent number is BS!  \n\nA broker buddy at one of the big 4 literally said his team won\u2019t entertain an assignment unless seller is realistic about price!  It\u2019s getting ugly and I think 2023 will be a blood bath.\n\nEveryone talks opportunity but ignores to look at the skid mark in their underwear \ud83e\udd2d", "replies": [], "depth": 2}], "depth": 1}, {"id": "izvy8yr", "text": "Will be an interesting 18 months as assets in bridge loans mature that were UW to 3-4% permanent financing.", "replies": [], "depth": 1}, {"id": "izvydri", "text": "They will hold long term or who knows.  I am even seeing construction deals that finished lease up into this market look really bad!!! Those deals looked great 6 months ago", "replies": [], "depth": 1}, {"id": "izx8scp", "text": "Cost of borrowing effectively doubled making the financing of virtually any property unaffordable, so buying and selling activity has virtually stopped except for highly motivated sellers.", "replies": [], "depth": 1}, {"id": "izxepq3", "text": "Nothings penciling out currently.\n\nI do see cap rates adjusting, slowly.\n\nPrices lag interest rates. Hoping to find some good deals in 23, hopefully by Q2.", "replies": [], "depth": 1}, {"id": "izxlg9s", "text": "On multi in the southeast, seeing acquisition caps around 4.75-4.95 on in-place RR, lot of loan assumptions trying to be pushed\u2026still a few months out before we see an floating rate debt maturities start hitting market", "replies": [], "depth": 1}, {"id": "j07ogij", "text": "Work on the banking side, we have to adjust loan proceeds by about 20% down from the ask on nearly every deal to make it work.", "replies": [], "depth": 1}]