Goldman Sachs Asset Management (GSAM) is poised to resume “actively investing” in the U.S. commercial real estate market this year, signalling confidence in a market that has experienced a significant downturn.
The co-head of GSAM’s real estate business, Jim Garman, emphasized that the confluence of declining interest rates and what appears to be the market bottoming out has created a buying opportunity, despite recent challenges.
Market Challenges and Buying Signals:
U.S. commercial property prices, including offices and multi-family apartment blocks, have witnessed sharp declines due to higher interest rates and soaring vacancy rates in the post-pandemic landscape.
The situation has raised concerns among investors, particularly U.S. regional banks with substantial exposure to the real estate sector.
However, Garman sees the market reaching a bottom, driven by the convergence of lower interest rates and a stabilization in prices, as evidenced by active buyers.
Global Deployment of Capital:
GSAM’s strategic shift isn’t limited to the U.S. market. Over the past three months, the asset management arm of Goldman Sachs has been deploying more cash in real estate in Europe and Japan, indicating a broader investment strategy across different regions.
The move suggests a nuanced approach, with GSAM recognizing opportunities in diverse markets.
Despite the buying opportunity, Garman cautioned that the recovery in the U.S. real estate market might not be a swift, V-shaped rebound.
He highlighted the need to navigate through over-leveraged situations in the asset class, suggesting a more gradual recovery period.
However, the underlying strength of the U.S. economy remains a supporting factor for a rebound, contributing to GSAM’s positive outlook.
Differences from the 2008-09 Crisis:
The current downturn in the property market is distinguished from the global financial crisis of 2008-09.
Richard Spencer, managing director in GSAM’s Real Estate Principal Investments Area, pointed out that today’s situation benefits from the resilience of banks, which are in better shape and possess the capital cushion needed to respond to challenges.
This distinction indicates a more robust financial landscape compared to the previous crisis.
