Disruption 2020: Unlocked Insights Part 2 - Property Type Takeaways

Following up on our earlier post on Macro Takeaways, today we focus on property type insights from our team of investment professionals. While the overarching positive trends within the debt markets are at play across asset types, unique opportunities are emerging within those specialties.

• Durable long-term cash flows and quality credit are easier to transact. Core capital is starving to get back in, and these types of transactions are pricing at pre-COVID-19 levels. Government-leased and single-tenant and/or triple-net assets are simply easier to price. Buyers are seeking this safe harbor.

• Multi-tenanted office properties are more complicated because of numerous variables with the rent roll, leasing assumptions, etc.

• Tenants are moving at a methodical, slow pace; they want to clearly understand what the workplace will really look like post-COVID. Short-term lease extensions are common for tenants with an impending lease expiration date.

• Industrial is a favored property type today. But large portfolio deals are on hold for the time being.

• Renewed focus on credit — where once there was little difference on industrial cap rates (10–15 basis points) between high-credit and lower-credit tenants, that spread has widened to 30–40 basis points. Multi-tenant industrial is still of interest to buyers.

• Debt is widely available, and pricing is back to pre-COVID-19 levels on a number of deals, particularly middle market transactions. Institutions are on the sidelines.

• Matchmaking is proving successful in transacting multifamily deals (limited distribution, not mass marketing).

• Retail isn’t as bad as you might think. Price discovery is still underway, but neighborhood/community centers are only seeing a 5%–7% price decrease. Far less severe than market perception.

• Half-broken malls are ripe for redevelopment. Site coverage is low, about 20%, offering opportunities for investors and municipalities to create higher and better use through increased density.

Overall, investor sentiment is shifting. Investors are seeing light at the end of the tunnel.

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Click below to revisit Part 1 of the series, Macro Takeaways