'Mercury Is No Longer In Retrograde': Brokers Ready For A Post-Rate Cut World

In the hours and days since the Federal Reserve cut interest rates by 50 basis points, commercial real estate brokers have been inseparable from their phones, even more so than usual. 

The announcement led to an immediate vibe shift from a slice of the industry that had been suffering from a crisis of confidence.

“Mercury is no longer in retrograde,” said Okada & Co. CEO Christopher Okada, referring to an astrological phenomenon that is believed to cause bad luck. “It’s been in retrograde for 18 months.”

Though deals are not yet being signed and likely won’t until additional cuts in the future, brokers now have the opportunity to position themselves for the dealmaking that has long been missing from the market.

In the first half of 2022, as interest rates remained at all-time lows and the economic impacts of the pandemic faded, buyers flocked to the market. In New York City, $11.7B was spent on investment properties.

But as rates and uncertainty rose, buyers and sellers went into hibernation. Just $5.8B of properties traded hands in the first six months of 2024. This week’s Fed announcement has already begun melting the ice and waking the players.

“Call volume is up. Email volume is up,” B+E CEO and co-founder Camille Renshaw said. “We have the most offers circulating right now on properties we've had listed for a year or more.”

A large part of that is confidence, which, for many, surged immediately. That is expected to increase if interest rates are dropped further, as Fed Chairman Jerome Powell signaled they would.

Thursday, a day after the Fed’s announcement, the stock market celebrated, setting new records. The S&P 500 jumped 1.7% to an all-time high, the Nasdaq composite soared 2.5% and the Dow Jones Industrial Average went up 1.3% before setting a new all-time high on Friday.

The FTSE Nareit index of REIT stocks actually dipped slightly Thursday, but that followed a 3.7% gain the previous week as investors anticipated a cut.

“People look at headlines,” Tri State Commercial Realty Vice President of Investment Sales Jack Sardar said. “It’s definitely a psychological change.”

For real estate, where spending can’t be done on impulse, a broker can assist in building up and maintaining that confidence. It helps that nine Federal Open Market Committee members project 50 bps in additional cuts this year, with one anticipating an additional 75 bps, according to materials released following Wednesday's Fed meeting.

Much of the CRE analysis in the aftermath of the cut predicted activity to pick up in six months because that's how long it can take to find a deal.

But for a broker coming out of an 18-month transaction lull amid a sea of competition salivating to earn a commission, the work starts now to make sure they are the first person an owner thinks of. 

“An interest rate cut is a great reason to call somebody,” TerraCRG CEO Dan Marks said. “This is a moment to continue doing what works every single day. Get here early, stay late, make as many calls. It's our job to be front of mind.”

That’s especially true after more than a year of stress for owners with looming debt maturities. 

The CMBS delinquency rate has crept up to 5.4% in August, an increase from 4.3% a year ago, according to a report by Trepp. The percentage of loans that are 60 or more days delinquent, in foreclosure, lender-owner or non-performing balloons is now 5.2%.

“It boils down to being like, ‘Dude, don't worry,” Okada said of his approach to owners. “‘The recovery is starting. Just hang in there, it's starting.’”

Nick Dries, who founded brokerage REbrick Real Estate Advisors earlier this year, said that he is “highly caffeinated” following Wednesday’s news. 

“There’s been a lot of patience,” Dries said. “Now we're going to be in a much more business-friendly environment. There's going to be more leasing traction, more deals getting done.”

However, if interest rate cuts allow properties to sign more leases and landlords do better financially, sellers may pull back on deals. Sardar said that he’s already had sellers reevaluate.

“There are more buyers on the battlefield. Now sellers are saying, ‘I was willing to sell my property six months ago because I owed money to the bank,’” Sardar said. “‘Now that I know rates are going down, and I know I could refinance in a year and the bank extended my loan for a year, I'm not as motivated to sell anymore.’”

Calling from a real estate gathering at a shooting range upstate, Compass Vice Chair Adelaide Polsinelli took aim at the energy this week, calling it “momentary optimism.”

“No one has confidence in the Fed, so I think that's why those of us who are ho-hum about it are saying, ‘Yeah, OK, a little too much, too little, too late,’” Polsinelli said. “It brings people back to the table, but we don't know what table we're at. Are we at a table for a lender? A borrower? A buyer?”

Still, the news has some brokers gearing up for a big burst of activity by staffing up after a lengthy period of lower employment.

“We’re hiring,” B+E’s Renshaw said. “Brokers who haven't gotten deals done in a bit, are frustrated and looking for a shop that's busy, I’m happy to talk to those folks.”