📉 CRE deals dropped 50%, but there's a twist

👋 Happy Father’s Day, Best Ever readers! Shout out to all the dads out there who are showing up and doing their best to raise good humans. Here’s to you!

In today’s newsletter, CRE deals decline, Trump pivots, Class A makes a move, one investor shares a horror story, and more.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

🌎 U.S. vs. EU: Global investors are redirecting capital from the U.S. to Europe amid policy uncertainty and stagflation risks. Europe's rate cuts and defense spending boost appeal while U.S. tariffs and tax concerns shift sentiment.

↪️ Trump Pivots: President Trump is modifying his immigration crackdown as deportations create worker shortages in agriculture and leisure. With 42% of farm workers lacking legal status, he promises a "common sense" approach.

💰 Mixed Bag: Crexi's May report shows mixed results across asset classes, as retail prices fell 2.29% to $199.94 PSF amid tariff uncertainty, office rose 8.81% to $167.06, and industrial climbed 7.29% to $104.40. Multifamily remained flat at $201.93 despite strong absorption.

🏥 MOBs Rising: MOB occupancy reached 92.8% in Q4 2024 as outpatient volumes are projected to grow 10.6% over five years. New construction fell to a historic low of 0.8% of inventory, driving rent growth of 2.5% across key markets.

🏢 Premium Boom: Office sales over $100 million surged nearly 50% YoY as investors target premium assets amid growing scarcity. JLL estimates 35% of U.S. office stock is obsolete, while delinquency rates fell from 11% to 9.8% and bidding pools jumped 65%.

🏆 TOP STORY
CRE DEALS DROPPED 50% IN MAY, BUT THERE’S A TWIST

The CRE market hit a speed bump in May, as the LightBox CRE Activity Index declined to 105.5 — still well above 2024 levels but down from 109 in April, signaling a shift from Q1's breakneck pace. The market isn't retreating, but it's definitely recalibrating, with capital becoming increasingly selective about where it deploys.

May's transaction data tells the story:

• Nine-figure deals held steady with 45 transactions closing, showing institutional and private equity capital remains aggressive at the trophy asset level.

• Mid-tier activity cooled dramatically, with $50-100 million deals dropping to just 37 from April's 69, a nearly 50% decline.

• Smaller sponsors are getting squeezed out as tighter lending channels and restrictive financing make deals harder to execute.

Where the Money’s Moving:

• Multifamily continued its hot streak, capturing 15 nine-figure deals as fundamentals strengthened. With vacancy rates falling to 4.8% and new supply slowing, investors bet big on rental demand.

• Office defied doom narratives with 16 nine-figure transactions, though it became a true barbell market. Trophy assets like Manhattan's $1.1 billion sale of 290 Madison Avenue proved liquidity existed at the top, while distressed opportunities created value plays for savvy buyers.

• Industrial showed nuanced demand, with Class A facilities commanding premium prices while well-positioned Class B assets attracted yield-focused investors. The sector appeared to be approaching equilibrium as the development pipeline contracted.

Market Dynamics Are Shifting: The data pointed to a market where capital hadn't disappeared — it was concentrating. Institutional buyers remained active but demanded either ironclad fundamentals or clear repositioning stories. Meanwhile, smaller players reliant on traditional financing channels found themselves increasingly sidelined.

THE BOTTOM LINE

May's moderation isn't cause for alarm. It's evidence of a maturing market exercising discipline. With recent positive economic signals, including favorable CPI data and potential trade deal progress, many expect activity to rebound in H2 2025. But it likely won't be a rising-tide-lifts-all-boats recovery, as capital continues to chase precision over speculation.

💰 CRE TRENDS
CLASS A OCCUPANCY HITS 95.7% IN MAY

U.S. apartment occupancy is hitting new highs across all price tiers, with Class A units making a dramatic comeback to reach 95.7% occupancy in May — the highest rate since June 2022 — according to RealPage. This surge has flipped the traditional occupancy hierarchy, with Class A apartments now nearly matching Class B units (95.8%) and surpassing Class C properties (95.6%).

• YoY gains: Class A led with a +170 bp increase, followed by Class B (+150 bps) and Class C (+140 bps).

• Historical shift: Pre-COVID, Class C typically had the highest occupancy, Class A the lowest. Class B now dominates.

• Supply pressure easing: Class A units, previously hurt by new construction competition and resident home purchases, are recovering.

• All classes now exceed pre-pandemic five-year averages.

This occupancy reversal signals that supply pressures on luxury apartments are finally easing, suggesting the new construction wave may be stabilizing and higher-income renters are staying put longer than expected.

🎙️ BEST EVER PODCAST
A CRE HORROR STORY THAT DESTROYED OCCUPANCY

Matt Drouin, managing partner of Oak Grove Development, joined Amanda Cruise and Ash Patel on the Best Ever CRE Show this week, where he shared an absolute horror story he encountered at one of his office properties. He was repositioning an 11-story historic office building when both elevators failed simultaneously.

Here’s what happened, in Matt’s words (condensed and edited for clarity):

"We had both passenger elevators in an 11-story building go down. So, if you can imagine the tenants that were on the 11th floor of the building — they were not very happy having their clients and customers hoof it up 11 stories of stairs. 

We were thinking, Okay, if one goes down, we'll work with our elevator contractor to get it back up. But we had no idea that worst-case scenario, two are going to go down at the same time. Absolutely not.

They were down for three months. And that was long enough. The occupancy of the building plummeted.

These elevators were installed in the 1970s and 1980s using analog equipment. There's nobody who works on these things anymore. These control boards — you look at them, and it’s like looking at an Atari. We had to call in a lot of markers from elevator companies and found a company in the foothills of Virginia. We shipped these things out, and they rebuilt them and sent them back.

An elevator modernization project is about $270,000 a pop. So we're talking over half a million dollars to modernize both passenger elevators. On a $3 million building, half a million dollars is a lot of money.

That's when we decided we had to make a decision on redeveloping this building."

🎙️ To find out what Matt and his team did with this property, and more, listen to the full episode here.

🎓 BEST EVER TIPS
HOW TO BUILD YOUR INCOME-REPLACEMENT ROADMAP

REVERSE-ENGINEER YOUR INCOME TARGETS

Most passive investors react to whatever deals land in their inbox instead of working toward a specific target. The sophisticated approach? Reverse-engineer your income goal first. Create a spreadsheet showing exactly how much capital you need at what returns ($1.2M at 8% = $100K annually), then layer in deals based on actual historical performance, not projections. This becomes your filter: If a deal doesn't fit the math to reach your goal, pass immediately. You'll stop chasing shiny objects and start building with purpose, transforming from reactive investor to strategic capital allocator.

💰 For more tips like these, download the FREE replay of our most recent webinar with passive income expert Pascal Wagner.