said for some of the asset classes like retail, hotels and even office
that rely on CMBS as a prime source of financing.”
There’s still a very deep bidding pool for core deals in the major
markets, says Levy. “The choppier ones are deals that are outside of
the major markets and have a large value-add component.”
Some sellers, especially those looking to trade distressed assets,
are trying their luck despite the weaker economy, and have put
large portfolios on the market for sale of late, says Grinis.
Distressed assets currently make up about 25% of all asset sales
in the US, but Fasulo believes the industry is in the middle to late
innings of the distressed cycle. While some markets still suffer from
large numbers of distressed assets, “in many of the primary markets
we are rapidly seeing the pool of distressed
assets decline to the point that the thoughts of
picking up great properties on the cheap have
left investors’ minds.” He adds that many dis-
tressed property investors have been forced to
change strategy. “It has actually been remark-
able how some markets have been able to
overcome some of their troubles.”
Also of note is the slight decrease in the
amount of one-off property sales since the
S&P downgrade, says Grinis. July saw a slow-
down in overall sales in most major markets.
According to RCA, the office and industrial
sectors experienced year-over-year declines in
volume, while retail and multi-family sectors
sported sales increases that were below recent
levels. Hotels, particularly the luxury and full-
service components, were the only major sec-
tor to go unscathed, recording a 208% increase
in sales during the month of July.
However, most observers say that while the
US debt downgrade may have caused investors
to step back and reevaluate their strategies, it
certainly hasn’t turned them away from the
market. In fact, most are more likely to attribute the dip in sales volume to the typical summer slowdown in activity, rather than to any
long-term economic conditions.
For the most part, Levy says that it’s too
early to tell just how much of an impact the
uncertain economic climate, and chiefly the
S&P downgrade, will have on the investment
sales market the remainder of this year. He
points out that August is usually a slow time of
the year for sales activity and a few investors
have already jumped back into the market.
Wilcox, too, hasn’t seen a marked decrease
in activity since the S&P downgrade and
believes that core deals in prime markets will
continue to attract investors looking for alternatives to the bond or Treasury markets that
have depressed yields. However, he is concerned that due to economic uncertainties,
fundamental underwriting assumptions on
rent and occupancy growth, etc., may be
changed, which could slow down the momentum that now exists.
Brodwin speculates that the remainder of
2011 will likely be “more of the same,” with
high-quality trophy properties in core cities coming to market and
attracting significant interest. However, he expects 2012 to see a
large increase in transactions.
There is definitely sufficient capital for investment sales and the
recapitalization of properties that would fuel a recovery, but at
present the supply of marketable properties to attract investment
does not exist, contends Grinis. “The deleveraging process and
cleaning up of balance sheets takes time,” he says, nothing that
while transaction activity could double and even triple in the next
three to five years, it won’t even come close to 2007 levels. ◆
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