The Federal Reserve's October 2023 Financial Stability Report was not the sort of reading for CRE professionals to quell their fevered concerns about the industry's immediate future.

As the Fed wrote, "Valuation pressures arise when asset prices are high relative to economic fundamentals or historical norms." An apt description for commercial real estate. And elevated valuation pressures can "increase the possibility of outsized drops in asset prices."

The implications might apply to any CRE property, but on reflection, sale-leaseback transactions seem like they might be particularly prone to adverse effects under the current conditions. The problem that appears for both buyer and seller is the potential longevity of the arrangement. Getting caught by an erroneous valuation is bad enough in the short term. Over a longer period, the effect can be magnified, with more to regret over an arrangement that will run years and possibly decades.

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