As we near the end of 2024, there has been a noticeable shift in optimism in U.S. commercial real estate, particularly in seniors housing where market and operational fundamentals continue to improve, outpacing other asset classes. Equity and debt capital markets participation has jumped significantly, and deal activity is robust.
Real estate investors and lenders have largely flipped from a “wait and see” approach since The Federal Reserve began their rate hike campaign against inflation in March 2022 to a more active portfolio management and strategic investment mode in the second half of 2024. This shift is largely attributable to federal funds rate decreases at the last two meetings (September and November 2024), completion of the U.S. Presidential Election, and a resilient economy and labor market.
The Federal Reserve has messaged optimism in the fight against inflation, labor markets, and the economy as a whole. This has led them to cut rates in September (50 basis points) and November (25 basis points) with one meeting left this year in December. While there is still a sense of cautiousness, with numerous data points being monitored by The Federal Reserve as they look to reduce to long-term target rates, investors have significantly benefited from these rate cuts with a positive effect for both existing borrowers and new acquisition activity.
Treasury bonds continue to be volatile, but yields are still lower than they were throughout the majority of 2024. The seniors housing sector presents an opportunity for meaningful, positive leverage, given current cap rates versus the current cost of fixed rate debt.
With the uncertainty of the presidential election behind us, investors can now focus on what new policies will be put in place come 2025. This will continue to be monitored by the investor universe, but in the near term, the noise and uncertainty surrounding an election cycle has dissipated and given investors more confidence to make mid to long-term decisions.
Berkadia Seniors Housing & Healthcare continues to actively advise our clients, offering strategic alternatives to help them achieve their goals. We have executed transactions including investment sales, development loans, new bridge debt, acquisition financing, and even significant cash out refinancings. Over the second half of 2024, borrowers have generally seen improved spreads, more favorable terms and some additional lending options enter or re-enter the market. With markets pricing in additional rate cuts in the next year, continued operational improvements, additional rental rate growth and recycling of capital through healthier capital markets activity, Berkadia will continue to help drive value for our clients in 2025 and beyond.
-Senior Director Garett Sacco, Berkadia Seniors Housing & Healthcare