Wow! Unless you have been under a rock the past week, you have heard the news of the S&P dropping the United States credit rating from AAA to AA+. Regardless of your view about the validity of that decision, it came at a bad time. Commercial real estate investment volume was picking up, deals were getting done, and money was slowly but surely coming off the sideline. I am not an economist, but I can't imagine that the events of the past week strengthen investor confidence. At best, I imagine investors taking a wait and see approach. At worst, money will remain on the sideline until some of the questions that went unanswered by the government with the latest debt ceiling increase are finally answered. I believe what investors really want to know is how will the government tackle the long term debt issue. Will there be an increase in taxes, if so, on who? Will there be an overhaul on entitlements, if so, to what extent. And these are just a few of many issues that will have a huge impact on our national economy for a number of years.
So what now? I don't really have a solid answer. My degree was not in Economics it was in Political Science, and I don't remember the lecture on the two party system that was more worried about election positioning, than making sure that the national economy is set on the right path for sustainable growth.
As a commercial real estate professional who focuses on Net Leased Retail Investments I have to analyze the events of the past week and judge how it will effect the Net Lease Retail Investment market in the coming months.
Investors: Basically Investment fundamentals will stay the same, investors will continue to target national credit tenants with a good balance sheet. Those retailers that are of the highest ratings will be sold at a premium. Value add investors will take a slight pause but will make moves in markets with solid and diverse economic drivers. Grocery anchored shopping centers will continue to be a major target.
Sellers: Sellers will need to have a good understanding of the market. Employ the services of a seasoned commercial real estate broker to properly position the asset within market. Sellers need to understand that the asset's value is at the mercy of the market, which is nothing new, but the market maybe a moving target. In uncertain times a good commercial real estate broker is worth their weight in gold. They will have their finger on the pulse of the current market, understand the direction of the current market, they will also know the most active buyers in the current market. Be wary of the brokers that aren't willing to fight for a purchase price, they probably either don't know how to price the asset, or just don't care, and just want the listing. Be aggressive with due diligence periods, it doesn't take a whole lot of time to get all of the necessary inspections done on a property. Limit or don't allow due diligence extensions. Be even more aggressive with the time period to close after the due diligence period. The old saying is that time kills deals, take this to heart. As we have seen, things change quickly, and the less time a deal is exposed to the economy around it, the better.
As always this is not going to be anything earth shattering for the seasoned investor or broker, but when you here the words "first time in history" you are in uncharted territory. So all comments welcome.
So what now? I don't really have a solid answer. My degree was not in Economics it was in Political Science, and I don't remember the lecture on the two party system that was more worried about election positioning, than making sure that the national economy is set on the right path for sustainable growth.
As a commercial real estate professional who focuses on Net Leased Retail Investments I have to analyze the events of the past week and judge how it will effect the Net Lease Retail Investment market in the coming months.
Investors: Basically Investment fundamentals will stay the same, investors will continue to target national credit tenants with a good balance sheet. Those retailers that are of the highest ratings will be sold at a premium. Value add investors will take a slight pause but will make moves in markets with solid and diverse economic drivers. Grocery anchored shopping centers will continue to be a major target.
Sellers: Sellers will need to have a good understanding of the market. Employ the services of a seasoned commercial real estate broker to properly position the asset within market. Sellers need to understand that the asset's value is at the mercy of the market, which is nothing new, but the market maybe a moving target. In uncertain times a good commercial real estate broker is worth their weight in gold. They will have their finger on the pulse of the current market, understand the direction of the current market, they will also know the most active buyers in the current market. Be wary of the brokers that aren't willing to fight for a purchase price, they probably either don't know how to price the asset, or just don't care, and just want the listing. Be aggressive with due diligence periods, it doesn't take a whole lot of time to get all of the necessary inspections done on a property. Limit or don't allow due diligence extensions. Be even more aggressive with the time period to close after the due diligence period. The old saying is that time kills deals, take this to heart. As we have seen, things change quickly, and the less time a deal is exposed to the economy around it, the better.
As always this is not going to be anything earth shattering for the seasoned investor or broker, but when you here the words "first time in history" you are in uncharted territory. So all comments welcome.
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