The Next Perspective in Real Estate ®

The Next Perspective on the State of the Capital Markets

Local, regional, and national statistics reflect that real estate investment activity remains lower in 2020, comparatively speaking. That comes as no surprise to Next Realty’s Nextperts®: Managing Director, Eteri Zaslavsky, and Director of Acquisitions and leader of the Next Equity Program (NEP), Branko Kuzmanovic.

Most investors and owners continue to assess their properties to better understand operations and issues related to rent collection, tenant health and potential vacancies. Still, the consensus is that new listing volume is increasing and has been for the last 30-60 days.

Zaslavsky expects that trend will continue, especially into the first quarter of 2021.

“We’re hearing a lot of real estate brokers and investors say that we’re through the worst of the recent crisis,” Zaslavsky says. “Sellers likely will begin to test the market. At the end of the year and into 2021, sellers will have a better understanding of the impact of the general election, the state and trajectory of the economy, and targeted allocations of their available funds.”

Zaslavsky adds that current interest rates are very good and haven’t changed much since before COVID-19.

“If you bought something today and locked in rates, there would be breathing room to be able to solve issues that could come up.”

Perhaps one of the driving forces behind a general lack of capital market activity is the discrepancy in bid-ask spreads.

“In many cases, sellers are looking for pre-COVID values,” says Zaslavsky. “Buyers are looking for prices to reflect a certain level of distress from sellers.”

In looking at how the markets have changed, and the appetite for certain assets, Zaslavsky says there is a lot of interest in single story office properties that offer diverse rent rolls. These investments carry a perceived level of safety that comes with assets that have private entrances and no common areas. She also noted that in the retail sector, grocery anchored centers are extremely popular, even with increased expenses, because sales volumes have substantially increased.

According to the Nextperts®, though a distressed market is likely imminent, these changes are not happening as quickly as many would have anticipated. The Next team attributes the slow change, in part, to lessons learned from the previous recession and, in some cases, to new adjustments in underwriting practices.

Kuzmanovic works closely with the Next Equity Program (NEP), a program where Next serves as an equity resource and partner for smaller, local owners and developers. He reports that although activity in that program has been slow, he believes there may be strong future opportunities through NEP. These opportunities will most likely include partnerships with groups experiencing some level of distress, who are looking for a capital source to keep a project moving forward.

“In the early stages of the current climate, we were seeing primarily broken deals that sellers and brokers were looking to get back on track,” Kuzmanovic says. “Distressed assets were not on the market as banks have a better understanding of their situations and owners were actively working to determine individual asset conditions.”

“Clarity will help the NEP program as well,” he adds. “Once people have a better understanding of economic conditions and the markets reach a level of stabilization, people can adjust. That will be good for them and good for NEP.”