Buyers, sellers and to a lesser degree, lenders, are gearing up to do deals going into 2025. TKG has been meeting with new institutional acquisitions professionals hired by firms looking to become active buyers. Private buyers who have sat quietly the past two years are beginning to make offers again. The past two years many sellers had been nervous about listing for sale into a down market. Those sellers are beginning to re-engage, under the belief that the market has now found stability.
The third quarter saw a turbulent ten-year treasury. From late July to mid-September rates fell by 65 basis points. Then, on a positive jobs report, rates reversed course and climb back to 4.30%, higher than they began the quarter. The fed dropping interest rates on September 18th was an important psychological move, especially in the private market space. This move is important, showing lenders, buyers, and sellers, that borrowing costs are unlikely to trend higher. Actual borrowing costs from local and regional banks are currently coming in between 6.25%-7.25% for commercial property. We remain optimistic, that with inflation largely behind us, we will see banks’ lending in the low five percent range in 2025.
Actual sales data remained sluggish in the third quarter, however anecdotally we are seeing much higher levels of under contract deals, especially in the sub $10 million space. In October we closed on 11 Malcolm Hoyt Drive. The property sold for $4.25 million to a high-net-worth buyer, after receiving ten offers during a 4 week marketing process. High quality industrial properties, priced reasonably, are selling with multiple offers. Functionally obsolete properties, especially in the $5+ million range are seeing fewer bidders. The hottest segment of the market, by far, is in the sub $5 million owner/user space, where we currently have three properties under contract.
Across the industry, transactions continue to be difficult to close. Lenders are paying attention to the details, especially physical building condition and environmental concerns. We have seen multiple deals in the past month where lenders have escrowed for roof repairs, something they historically wouldn’t have noticed. PFAS is emerging as a new chemical that both buyers and lenders are concerned about. One that doesn’t always have obvious threshold levels or cleanup solutions. TKG is hosting a webinar on November 19th discussing emerging trends in the environmental space.
Going into the 4th quarter all eyes will be on the election, interest rates, and leasing activity. Many decisions have been put off over the past two years. With the elections and cyclicle issues behind us we expect a more active deal making environment going into 2025.
