Many have tried to make the case that U.S. private real estate fund values have bottomed. Don’t believe it.
Persistently low property yields below borrowing costs signal that yields on popular property types such as warehouses, apartments and storage facilities need to rise further. We have rarely seen negative leverage stories with happy endings.
In fact, over the course of 2024, we have continued to make the case that although public REIT prices bottomed in late 2023, private commercial real estate fund values in the United States, on average, have further to fall. We see continued evidence of this.
However, there is one type of property that we believe has bottomed: shopping centers — open-air, necessity-driven shopping centers, to be more specific.
UNFOLDING THE RETAIL APOCALYPSE
For many years, the United States was over-stored. The opening up of the suburbs in the postwar period, abetted by the interstate highway system,