Photo by Christopher Huang | Courtesy of Colliers
Jeffrey Myers
Boston Research Director, Colliers
Industry experience: 20
The Federal Reserve cut its benchmark interest rate by 50 basis points last month and is hinting more cuts could be coming. Watching how this plays out locally is Jeffrey Myers, head of the research operation in Colliers’ Boston office. A 20-year industry veteran, Myers synthesizes real estate, demographic and economic variables give Colliers’ brokers and clients with strategic and actionable information.
Prior to joining Colliers, Myers was the deputy director of portfolio and asset management at Massport. During his time with the organization, he and his team managed over 9 million square feet of commercial real estate across 500 acres. Myers was heavily involved in lease negotiations, leasing strategies, tenant relations and market research for the quasi-public organization.
Q: How much impact do you feel this 50-basis-point interest rate cuts will have on capital markets’ interest in real estate investment?
A: The Boston market has gone from about $25 billion worth of multifamily industrial and office lab that we traded over a four-quarter period down to somewhere between $7 billion or $8 billion. So volume is down, really across the board, and when you look at the types of properties that have been trading, if you look in the office sector in particular, the pipeline of sales is so minimal that really, it’s been probably four-plus years since we’ve had a large, class A skyscraper trade in the downtown Boston area.
Most of the properties trading are tending to be properties that are being earmarked for conversion for major value-add strategies, or that are high-vacancy in nature. So, the office market really kind of changed as far as what’s trading there. If you look at the apartment market, volume is down there as well however, you do get more of a mix of the type of properties that are transacting. You’ll get high-rise downtown Boston building selling, you’ll get brand new construction in the suburbs that’s selling, in addition to some of those older walk-up buildings that you’ll find throughout the metro. So, you get a much more diverse representation of what’s out there on the apartment market than you go in office, as far as what’s transacting.
Q: How will commercial buyers and sellers react to the cuts? Is now the time to invest in real estate?
A: As interest rates come down, it makes things easier to pencil but it also could tell folks that [while] the property values may not get any worse, if I can get better financing maybe I should look into that. If you’re selling, maybe you want to wait until those cap rates start to compress some more before you sell. So even as it does start to give reason for transactions to take place, it could also tell people that, no, the market hasn’t fully stabilized, and now that we’re going to be moving the other direction, where are you going to meet? I mean, are you going to wait till it gets to the next level of stabilization, where everybody’s able to agree? Or do you pull the trigger now?
And I guess that depends on how distressed some of these owners may be, because if you were in a highly vacant office property that doesn’t really pencil well for conversion, “end of recovery” could take a long time to get to you. If you want to wait and try to fill up as an office, maybe that distress is knocking at the door a little bit sooner and you might be getting pressure from your lender or from your investment committee boards to help work it out.
Q: Will these interest rates get regional and community banks back involved in CRE or could other sorts of debt sources fill the gap?
A: We’ve seen an increase in CMBS issuance, so that’s something that’s out there and being taken advantage of. We also know that there is a lot of capital that is sitting on the sidelines that’s been raised in funds. According to Preqin data, looking at the midpoint of 2024 they were tracking about $250 billion worth of uninvested capital, with a large chunk of that being focused on value-add or opportunistic placement, but some of that was indeed listed for debt as well. So there’s going to be some funds that are out there and indeed, when it comes to banks, I think it’s going to depend on the institution. Some banks may feel like they’re still over-exposed in commercial real estate, and they’re trying to work through some of the loans on their books. Generally, we continue to see a tightening of lending standards for commercial real estate that banks are enacting so it’s not necessarily getting any easier to go to banks and get commercial real estate loans out of them, but as we see a rebalancing of property values that could impact some of the allocations that are out there in different funds and banks, as far as what they’re able to put out towards CRE.
Q: Will the Fed’s September cut or future cuts help projects get going or in the pipeline?
A: The fact that construction wages remain high, materials costs are still relatively elevated, even if they may not be increasing as much as they were, they’re not necessarily going to go back to the pricing that we saw three, four or five years ago. But if you’re able to actually get a lower interest rate on your loan that you’re taking out to get things built, that theoretically should help more projects pencil but I don’t know that the numbers have moved enough to really put more construction moving forward.
Then it’s also the fundamentals of the matter. Office sector, even if you could build right now, would you break ground. If you’re lab developer, even if you could break ground right now, would you really want to given the overhang of supply? Industrial is not as fundamentally fraught, but there are new buildings out there. If you look at 2023-, 2024-vintage high bay distribution buildings, you’re probably looking at 60 percent to 70 percent of that space that’s recently delivered is still sitting empty. I think it will get filled but this is to say that there’s a little bit more risk there, now, than there was a couple of years ago – but there are developers who are looking to push forward in industrial.
And for multifamily, the fundamentals there aren’t really so bad. We’re in a housing crunch market. There’s lots of demand for housing and so I think that if you’re able to line up financing there and push forward and get through permitting which can be an issue within some areas.
The Five Things Always on Myers’ Mind:
- Cities
- Chess
- Travel
- Science fiction
- Fantasy football
