LA CRE Pros Eagerly Await 2024, Hope For Lower Interest Rates, Distressed Opportunities
After the year commercial real estate has had, many Los Angeles-area CRE pros are eager to leave 2023 behind.
For industry professionals who spoke with Bisnow, the year on the horizon holds so much potential: 2024 could be the year interest rates will get at least a little bit lower, that national and world political events will calm down, that Downtown LA shakes off negative perceptions and once again becomes a place synonymous with great restaurants and bars.
For CBRE Senior Vice President Derrick Moore, who deals in retail properties and specializes in Downtown LA, 2024 has already offered something to look forward to: the opening of a 5K SF Adidas storefront on West Eighth Street and South Broadway that was leased in the spring.
“That’s going to be exciting for Downtown,” Moore said, adding that he hopes to see negative perceptions of Downtown left behind in 2023.
Moore was also looking forward to seeing the combined effects of the new Regional Connector stations, the completion and lease-up of some big residential projects and a continued return to the office reinvigorating the streets Downtown. He said he expects restaurants and bars will continue to be an engine for DTLA.
“2024 for Downtown retail is going to be a year where we see the continued success of food and beverage, the neighborhood being a noteworthy neighborhood for that,” Moore said.
He also teased a few retail deals with “national names that we aren’t able to share yet but that are coming in 2024.”
2024 already looks to be starting off better than 2023 did in terms of construction cost escalations, said Jeff Mazmanian, senior vice president at project management and cost consulting company Cumming Group.
At the beginning of 2023, Cumming advised clients that cost escalations were between 8% and 9%. Now, it anticipates cost escalations from 5% to 6%, Mazmanian said.
Based on what he is hearing in conversations with contractors, he anticipates backlogs will reduce for some of the subcontractors and contractors in 2024, probably around the middle of the year, Mazmanian said.
If there is a wrench in the works looming, Mazmanian said the geopolitical climate is one pressure on the market that is especially concerning.
“We have international clients coming into Southern California, and we've seen some pause or some hesitancy [based] on different events that are happening around the world,” Mazmanian said.
Some in CRE have been on pause for a while and are looking forward to finally moving forward in 2024.
Grubb Properties CEO Clay Grubb said he had been anticipating a slowdown since January 2022 and, in preparation, has shrunk his payroll since then and not pursued new projects for the last 24 months. Instead, he has focused on projects that were under contract or in the entitlement phase.
“Unless we see interest rates come down, we’re going to be conservative,” Grubb said.
Grubb Properties is a multifamily developer with five projects under its Link Apartments brand in progress in Los Angeles.
“I would have hoped that it would make sense to look for new sites to potentially start stuff,” Grubb said. “But I don't see that happening in the near future.”
It is a struggle Grubb said many in his industry share. With hardly any equity and the cost of debt so expensive, “it’s going to be really hard for anybody to start new projects,” he said.
That doesn’t mean there won’t be opportunities. Grubb said he sees distress in his sector and anticipates that the company’s energy will be put into buying existing multifamily projects in trouble — projects stuck midconstruction that can’t get money to finish, for instance.
“We're already seeing those opportunities, and I think there'll be more of this,” Grubb said.
