2023 proved to be one of the most disruptive years in commercial real estate with the impact of higher interest rates, increasing cap rates, and a reduction in debt lending availability. Our overall portfolio across three asset classes, multiple regions, and a mix of fixed and variable debt, has allowed us to manage through these current market factors.
As shared, 2023 was a time to review, rework, and establish new business plans on the current portfolio as needed. It was also a time to cautiously approach the market and seek out opportunistic acquisitions with an error on being conservative. In total we put three new assets under contract for acquisition, two of which closed in 2023 and the remaining asset to close in Q1 of 2024.
We executed on a significant refinance by replacing a restrictive lender, with variable debt, and high debt interest cost, with a relationship lender, more flexible terms, and an improved interest rate. This refinance at The Avenue at Murfreesboro, an open air retail shopping center, harvested an increase in value from our original purchase price of $141M to the 2023 appraised value of $210M.
We distributed over $42M in 2023 to our partners through cash flow and return of principal payments.
2023 Impacts on Real Estate
The residual effects of high inflation, including an elevated interest rate environment, has put downward pressure on all commercial real estate values and cash flows. Operational costs are up amid increased labor and construction costs. Insurance premiums have increased substantially. The restrictive lending environment persists. These factors, coupled with general economic uncertainty and market volatility, pushed buyers to the sidelines in 2023. Transaction volume for the year of 2023 is estimated to be down 45% vs the prior year 2022.
The combination of weakened cash flows and elevated interest rates depressed property values throughout the real estate industry. No sector was immune.
2024 and Looking Ahead
We believe the first half of 2024 will feel like a continuation of 2023, as we expect little to change in the fundamentals relating to heightened operating costs and commercial lending, while transaction volume should remain low. We believe the second half of the year should provide greater price discovery and thus more transaction volume. It remains to be seen, however, how the U.S. economy will respond in the face of a potential economic slowdown. The market continues to debate if we will or will not slip into a recession as the Fed tries to achieve the so-called “soft landing.”
In this environment, our team will continue to stress test our properties and actively manage each asset in order to adapt and adjust business plans based on market conditions.
Operationally, the Equity Street Capital portfolio continues to perform across all three asset classes. Average occupancy across our multi-class portfolio was 93% to end the fourth quarter. The Retail portfolio executed new leases totaling 353K SF. Multifamily portfolio occupancy reached 91%. Our four Florida office properties are 94% leased on average.
It will be critical over the coming year for our properties to maintain healthy cash balances in order to maximize optionality. This includes the ability to fund tenant improvements, refinance, or even exit a property through a sale. Our management is closely monitoring cash flows and exploring ways to reduce or delay capital expenditures in efforts to manage cash positions.
More softening could occur in the real estate market in 2024. While a majority of our portfolio remains fundamentally strong, we may be forced to make some future decisions on specific properties due to timing, capital structure, or debt challenges that are beyond our immediate control. This could involve selling a property prior to the conclusion of our business plan in order to reallocate capital in a more productive manner.
As mentioned before, economic uncertainty presents us with a unique buying opportunity. Loan maturities will force distressed sale opportunities. We are positioned and ready to leverage our industry relationships and network to identify these properties and quickly take advantage of this unique moment in time to acquire assets at opportunistic pricing.
