The Ballard Spahr Team was thrilled to be here in Miami at the CREFC Conference and we wanted to share some day one takeaways with our clients and friends.
The first-day sessions provided the near-capacity audience with a range of generally optimistic predictions for 2024, including expectations of multiple Federal Reserve rate cuts. The overall positive outlook was only tempered by uncertainty as to the timing and degree of the expected improvement in 2024 of the macroeconomic issues faced in 2023, as well as the clearing of legacy loans especially in terms of the severity of expected valuation resets facing many office buildings.
There are general expectations for an increase in government-sponsored enterprise (GSE) volume levels in 2024 compared to 2023, although almost all predictions fell short of the GSE stated volume caps and were future interest rate dependent. Affordable housing financing is expected to remain strong in 2024.
Office conversions continued to be a much-discussed topic, despite the myriad requirements and challenges that can rule out the possibility of a conversion in many, if not most, situations without a major resetting of existing debt and/or significant local government support. For the right buildings in the right markets, however, (i.e., strong rental rate markets for top-tier projects) the possibility for a successful and profitable conversion is real.
The continued stabilization of the retail bank deposit market, aided by the projected declining interest rate environment, is expected to provide banks with additional investable liquidity across a range of assets and securities. Delinquency rates continue to be contained despite being elevated depending on the comparison point. Expiring office leases, pending loan maturities, and expectations for lower refinancing proceeds will likely require legacy loans to be cleared or worked out in order for meaningful loan activity to return at many institutions, especially in terms of construction lending. Working through these issues will likely take time while specific restructuring strategies will be both deal-specific as well as likely dependent on the degree and timing of valuation/pricing discovery, and actual and expected interest-rate reductions.
Overall, Monday was a promising opening day for this important conference which reported more than 2,000 registrants, with many first-time attendees. A high level of engagement and energy was apparent throughout the day and at the evening events in terms of the sharing of market information and predictions, and discussions on a range of potential deal and capital investment opportunities, all of which bodes well for what is expected to be both a challenging and opportune 2024 for many in the real estate and finance industries.
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