Deutsche Bank-Thematic Research Why hasn’t real estate crashed-110475029

25 September 2024Deutsche BankResearch Global Cross-Discipline Thematic Research Date Two years ago, real estate was frequently cited as the key thing that was likely to crash and contribute to an economic crisis. It hasn’t happened. And with the Fed entering a rate cutting cycle, and private capital money abundant, it seems real estate is heading into the clear, at least for now.In fact, real estate stocks have been among the best performers this year, especially following the rotation out of tech since mid July. Several positive signs across private and public real estate-related securities since the summer highlight a reduced risk of a potential meltdown in CRE.Office remains the pain point but the impact of the worst-affected assets on publicly-traded securities is limited. Regional banks and securitised products, among the main assets exposed to CRE stress, have performed relatively well given the sentiment that prevailed at the end of 2023.Perhaps the most reassuring sign yet when it comes to reducing the meltdown risk in CRE has come from private capital managers, with dealmaking suggesting a revival in sponsored activity in the sector.While the effect of Fed's rate cuts will likely be balanced with economic growth risks for the riskiest corners of CRE, the impact of the wall of cash private capital firms have amassed in recent years on confidence shouldn't be underestimated. Now, many of those managers are turning their attention to real estate.Luke Templeman, CPAResearch Analyst+44-20-754-10130Galina PozdnyakovaResearch Analyst+44-20-754-74994Deutsche Bank AGIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. MCI (P) 041/10/2023. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Why hasn’t real estate crashed?Distributed on: 25/09/2024 09:19:08 GMT7T2se3r0Ot6kwoPa25 September 2024Thematic ResearchPage 2Deutsche Bank AGTable Of ContentsExecutive summary...........................................................................................3A likely real estate crash was a common view...................................................3Why hasn’t real estate crashed?........................................................................4What about office? Shouldn’t that have crashed?.............................................5Will rate cuts help?............................................................................................7Property owners are still paying off their loans .................................................8… including (crucially) debts due to regional banks..........................................8What the securitisation market tells us............................................................10Meanwhile in Europe.......................................................................................10Private capital is cushioning residual CRE stress.............................................1