Key Take-Aways
• Business/volume of work has definitely picked up over the past few weeks in many sectors. Residential activity is strong due to low interest rates. Quality credit assets and triple net deals are in high demand.
• Starting to see more bankruptcy – liquidation of assets, particularly in the event planning space and gyms. Seeing some gaming of the system; businesses trying to take advantage of COVID situation.
• Market is strange; there are some areas where there is a lot of velocity. Sellers seem oblivious to the pandemic and are not willing to budge on pricing.
• There has been some news that the Elder and Child Care Program that is part of Joe Biden’s Plan will be paid for by taking away the 1031 exchange, which is positioned as a tax loophole for the rich, which isn’t true. The average size of 1031’s nationally is between $300,000 – $350,000. There’s not too much concern that this would be a top priority, if Biden were to win because there would be many other top priority items on his list (pandemic; economy, etc.).
• Identification letters that are required for 1031s are big deals. People have gone to jail for falsifying these letters or have faced penalties.
• See a lot of mis-information/miscues about local offerings by out-of-state brokers. Could be a real opportunity for local brokers.
• Seeing some loosening of cap rates and re-pricing of deals. Seems to be a push and real motivation to close some deals by year-end.
• City of Marietta and City of Atlanta seem to be moving permits through timely; no real slowdown.
• Requests for signage has come to halt. Commercial office buildings were requesting lots of signage at the beginning of COVID for their buildings, but that has really slowed down. There’s a lot of bidding, but no closure.
• It’s hard to find borrowers in the banking world. A lot of deferrals that were made at the beginning of COVID are about to hit the books. Underlying collateral has diminished; most appraisals are reducing value by 10-15% because of COVID, which will lead to problems for the banks, as they will have undervalued loans. Banks are scrutinizing deals – looking closely at the industry, location and the business.
• Online auction of CRE properties has seen a 40% drop in properties during COVID, but continues to offer a market for sellers. Starting to see an increase in the supply of retail assets, as well.
• VPIX, which provides 3D virtual tour real estate solutions has seen an explosion in growth of 340% since COVID. It an easy software to navigate that allows you easily produce 3D virtual tours of CRE space.
• On the construction side of things, pricing is getting much more aggressive; sub-contractors need work. There are new costs related to COVID due to social distancing requirements, cleaning, signage, and barricade protocols, but overall construction costs are at a net zero. Labor costs are coming down. Lead time for getting materials is longer.