Heather Placer • Commercial Real Estate Expert

January 2021: Where are the deals? When will the deals come? Where all the rock bottom prices? Where are the foreclosures?This i...

Mon, 25 Jan 2021 14:42:52 -0800

January 2021: Where are the deals?

When will the deals come? Where all the rock bottom prices? Where are the foreclosures?

This is probably the number one question that investors want to know. Well, we may be waiting a while to see these deals, if at all.

After the crash of 2008 (which was more 2010 for commercial markets), lenders tightened up on borrowing requirements. One such requirement was a higher DCR (debt coverage ratio) to assure lenders that owners could sustain more of a loss in a downturn of the market.

The rate of payoff at maturity of the loans will quickly return to pre-pandemic levels unlike the 2010 crisis that lingered for years. Hence the rate of default in commercial loans is expected to be much less this time. This coupled with the low interest rates means there is very unlikely to be a high number of distressed sales.

Source: Costar

GDP (Gross Domestic Product) is predicted to return to pre-pandemic levels in later 2021; largely fueled by increase confidence now that the vaccine is being more widely distributed. This GDP growth is the highest in the southern and western markets; generally, the less regulated the state the higher the GDP.

The following show the highlight of the market, based on interviews of key market participants as well as information from sources such as Costar, CBRE, Walker Dunlop, Virginia Commonwealth University and researched additional information from Moody's, Freddie Mac other national information as well as extensive information from the Appraisal Institute and CCIM Institute.

New job growth is expected to be slower (5 million job deficit) in 2021 as previous workers are returning to work.
The last three months have certainly been an interesting time to be in commercial real estate. With the uncertain and constantly evolving outlooks surrounding Covid-19 and the current political landscape, the questions I get almost daily are:
How is the commercial market? (And) Do I know of any good deals yet?
Well the answers are yes, no and maybe! To dig in thoroughly as to the potential of our Richmond market, we must look at the individual sectors and their trends. Interestingly, one of the biggest shifts seen nationwide is the relocation from CBD (central business district) to suburban office areas. According to Marcus & Millichap, one of the largest commercial agencies in the country, more than half of major trades are now taking place outside of primary metros (primary metros include major cities such as New York and Atlanta). The shift in purchasing has been towards secondary (such as Richmond, Virginia) and tertiary (even smaller) markets. This trend was already starting pre-pandemic and has risen significantly during the last few months, largely due to the reduction of costs. To further analyze the market, we must look at each respective commercial category and its corresponding impingement.
OFFICE
Prior to the pandemic, only 8% of the US labor force worked from home one day or more a week (per the Bureau of Labor Statistics in 2019). Over the last two months various surveys from NAR, Colliers, and Hired.com have all been consistent that between only 7% to 10% of respondents indicated a desire to return to the office full time. In all surveys, the vast majority of people (over 50%, and some up to 70%) preferred to have the flexibility to work...Read More

Looking Foward Not Backwards

Sat, 18 Apr 2020 07:05:40 -0700

Looking forward, not backwards
What an interesting time to be involved in real estate as we experience one of the most unique situations in history. The Covid-19 pandemic has affected all of us. Analysts across the world are trying to measure how the Commercial Real Estate (commonly referred to as CRE) market will weather the storm. As both a salesperson and owner of an appraisal company I am seeing two different sides. The brokers are worried about the appraisers. Is my client’s property going to appraise for at least the sales price? Does the appraiser need to get inside the property? What will the appraiser rely on for data?
Meanwhile appraisers are wondering about the market out there. Should I adjust sales for market conditions yet? When will I know? Will the contract price be re-negotiated? What are brokers doing?
My years as an appraiser allows me to bring value to my buyers and sellers by realizing the methodologies used in the appraisal world. After over 20 years in the appraisal world, this knowledge helps me to find and negotiate better deals for buyer and more accurately help with setting a list price for my buyers. I like to think that the interaction of these two sides helps make me better able to serve my clients on both sides.
What does this all mean in the current time? Well below are some of the highlights from all my research, interviews, and many webinars following some of the top brokerages across the country, the Appraisal Institute, and the CCIM Institute.
The Good:
Let’s start with the good. Industrial properties appear to be faring well and are expected to continue so. Richmond had a very healthy market for industrial properties pre Covid-19. This is expected...Read More

Buying Investment Property

Tue, 05 Jul 2016 12:53:57 -0700

Purchasing residential properties is an easy way for new investors to begin directly owning real estate.
The business model associated with buying investment property for residential purposes is straightforward and most people can grasp the basic cash flow strategy without taking a course in accounting.
However every investor should study and understand the current and expected market conditions and choose only investments that are expected to earn profits under reasonable assumptions. The first step towards developing these reasonable assumptions and buying investment property successfully is to have a rational investment strategy.
Let's examine an imaginary prudent investor's four step strategy.
Step one - Evaluate your goals.
This includes your interests and desired level of involvement. You'll need to consider whether you want to actively manage your properties or if you'd rather be hands-off.
• What type of properties will most likely bring the returns you seek?
• What kind of initial investment do you have available?
• Are you a sole investor or will you be part of an investment group?
Step two - Assess the market.
Simply buying investment property haphazardly all over town can lead to disaster and confusion. It's much simpler to begin in one area and expand as your portfolio does.
If you're considering residential properties as rental units, start your research with the following area attributes:
• The migration of the residents, are they moving in or away from the area?
• How long do homes remain on the market compared to surrounding areas?
• What is the average annual market appreciation or depreciation?
Step three - You'll need a team.
At very least your team should include a realtor and an attorney. As your portfolio grows, you may consider adding a tax advisor and an...Read More

A Return On Your Investments

Sun, 03 Jul 2016 09:13:26 -0700

Part of developing your investment real estate strategy is determining how quickly you need to see a return on your investments.
Is your goal to promote wealth building or an immediate positive cash flow? A positive cash flow is simply when your cash inflow is greater than your cash outflow but wealth building is increasing the value of your holdings and creating a residual income that is self-sustaining and not dependent or affected by one investment.
Of course a positive cash flow is required for wealth building but do not mistake a positive cash flow for wealth. A surplus of $10 can be considered a positive cash flow but one lost tenant can turn a positive cash flow negative. When making investments with wealth building in mind, the return on your investments will be greater but it takes time to develop. Therefore as you are planning your strategy, consider your immediate needs while planning for your long-term goals.
How much are you willing to invest?
If you are investing $30,000 out of your $40,000 personal savings, your immediate goal is probably to create a positive cash flow therefore you may want to consider investing in developed properties with a proven record of producing income; for instance an occupied apartment or small office building.
Occupied multi-unit buildings can generate a quick return on your investments but they may not appreciate quickly and carry additional expenses for upkeep. A well-managed and fully occupied office building can produce a nice income but 18 months of road construction on main access road can send your tenants packing and leave you wanting.
On the other hand, suppose you and nine partners invest $1,000 to buy an acre of undeveloped land to ground lease for a new drugstore. You will not see a positive cash flow for some time - but the value of the land will increase once the store is built and can reasonably be expected to appreciate over time.
In...Read More