Hartford Business Journal

HARTFORDBUSINESS.COM | AUGUST 21, 2023 5 Deal Watch Commercial property sales in Hartford and across the state are down significantly this year as higher interest rates and other factors slow deal flow and put downward pressure on prices. PHOTO | COSTAR Higher interest rates, economic uncertainty sink CT commercial realty sales volume James C. Smith Jayne D. Kelly Jeffrey Dunne By Michael Puffer mpuffer@hartfordbusiness.com S pending on Connecticut commer- cial property sales plunged 67% during the first half of 2023, as higher interest rates and other factors reduced deal flow and prices. The decline in activity signals a slowdown in Connecticut's economy, which recorded one of the lowest first quarter GDP growth rates (0.3%) in the U.S. The office market saw the largest drop in sales volume by dollar amount, down 82% year-over-year, according to data aggregated by realty brokerage and consulting firm CBRE. But even sectors that saw significant investor activity coming out of the pandemic, like multifamily and industrial, saw double-digit declines in deal activity. Overall, $850.9 million in office, apartment, retail and industrial property sales were recorded in Connecticut during the first half of 2023, compared to $2.6 billion in deals during the year-ago period, CBRE data shows. Much like homeowners, commer- cial property holders are reluctant to sell off properties, knowing the money yielded will not be enough to buy comparable real estate given recent jumps in interest costs, said CBRE Vice Chairman Jeffrey Dunne. "Unless they have a reason to sell, they aren't selling," Dunne said. Multifamily and industrial properties remain the most durable investments, Dunne said, but even those asset classes have taken a hit. Connecticut saw $1.5 billion in multifamily sales during the first six months of 2022, but only $475.4 million in apartment deals during that period this year. Industrial property sales slumped during the first half of 2023 to $129.2 million vs. $287.9 million in the year-ago period. Most deals getting done either have assumable debt involved in the trans- action, or are smaller in nature, Dunne said. He expects deal activity to pick up significantly in the second half of 2023, but at lower dollar amounts. "My pipeline is a lot better for the second half," Dunne said. Michael Goman, co-founder and principal of East Hartford-based real estate consulting firm Goman+York Property Advisors, said there is a widening gulf between what buyers are able to pay and sellers are willing to accept. "This is pretty typical of these kinds of times," Goman said. "You have this search for value. We see this in everything we are doing now. There is still a lot of economic uncer- tainty over where we are going in the future." Many investors who sold on the high side of the market over the past two years will wait to see if prices hit a new low before putting money back into the market, Goman said. Banks cautious James C. Smith, former CEO of Webster Bank and owner of banking consultancy JCSmith Advisors, said bank regulators are increasingly concerned about lenders' exposure to commer- cial real estate. "It's deemed to be more risky than it was a few years ago," Smith said. "There is good reason to be cautious because what is it worth? The real issue is the big gap between the bid and the offer. What does the buyer think it's worth? What does the seller think it's worth? If they can't get to terms on that, there's going to be no financing either." Jayne D. Kelly, executive vice president and chief commercial banking officer at Ion Bank, said the Naugatuck-based lender closed a record $220 million in commercial real estate loans last year, largely focused on residential development. Ion seems to be on track to come close to that mark in 2023, she said, closing $109 million in commercial real estate loans during the first two quarters. Ion includes single-family, for-sale projects in its commercial real estate loan tally. These projects, as well as multifamily, have held strong in 2023, but other commercial real estate categories have slowed, Kelly said. To diversify its portfolio, the $2.1- billion asset bank is pursuing oppor- tunities in self-storage, light industrial and mobile home parks, she said. "We are watching our concentra- tions," Kelly said. "We are looking to balance and remain diversified in the portfolio." Ion is also tightening its credit underwriting standards, Kelly said. KeyBank Chairman and CEO Christopher M. Gorman said the Office market leads way in CT declining sales volume ASSET CLASS 2023 SALES VOLUME (JAN.-JULY) 2022 SALES VOLUME (JAN.-JULY) % CHANGE Office $72,675,000 $410,127,549 -82.3% Apartments $475,474,112 $1,517,818,975 -68.7% Retail $173,569,997 $392,218,814 -55.7% Industrial $129,230,974 $287,949,021 -55.1% Source: CBRE

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