Lower interest rates and more loan restructuring can help negate any negative trending of NOI on some CRE projects - by Michael Zysman

Lower interest rates and an increased number of loan restructurings will be well received by the commercial real estate industry. Over the past 12 months there has been a negative trend for NOI for many properties across the country.

Revenue for hospitality assets have generally decreased due to less business and personal travel. Multifamily has seen some weakness as well due to many markets being overbuilt and weakness in some areas of the economy, which leads to lower rents, increased vacancies, and increased collection loss. Retail and office have seen revenue issues for a period of time, and they seem to be continuing. Although, the highest quality retail and office have been doing well on the revenue side.

Expenses across the board are up due to continued inflation. Even though the rate of inflation has decreased, the total inflation incurred over the past few years has been substantial and it does not appear there will be deflation to “right size” the excessive inflation that our industry incurred on the expense side.

Short-term interest rates are expected to be lowered in the near term which should bring much needed relief to many properties with floating rate debt and increase the number of new developments. If long term interest rates decrease and availability of credit increases, it will help many landlords refinance into long term fixed rate debt.  Allowing banks to restructure an increased number of overleveraged deals on quality projects can have a positive effect on the industry as well.

I am optimistic that our industry will see a swift recovery in the near future.

Michael Zysman is the managing principal of City Bay Capital in Miami Beach, FL.