Anyone actually pursuing anything right now?

Deal people - how’re you feeling right now? My group has been on freeze for the last 6 months or so. Lots of pressure to produce, but little inclination to actually transact. Want to poll the audience to how everything is going for everyone? Product focus? Geo? Underwriting standards? Strategy?

Thx

 

Based on the most helpful WSO content, it seems like the sentiment and strategies in the deal-making space are indeed mixed, reflecting a cautious approach in some areas while others are still actively pursuing opportunities. Here's a breakdown of what's happening across different sectors and geographies, as well as insights into underwriting standards and strategies:

  1. Product Focus:

    • There's a varied focus across sectors. Some areas like multifamily, distribution, and self-storage are seeing more favorable views, especially in commercial real estate lending. This is due to their perceived resilience or essential nature during uncertain times.
    • In the consumer sector, there's an emphasis on tracking same-store sales and sales per square foot to gauge company performance and optimize footprints.
  2. Geographical Focus:

    • The sentiment varies by region, with some areas in the United States, such as the West, Midwest, and Northeast, being mentioned specifically. Each region might be experiencing different levels of activity based on local economic conditions and COVID-19 impacts.
    • Central Asia wasn't specifically discussed in terms of current deal activity, but global geopolitical issues and government interventions are always factors to consider in international dealings.
  3. Underwriting Standards:

    • There's a cautious approach being taken, with a focus on maintaining strong underwriting standards. Some institutions are not sacrificing credit quality for yield, indicating a conservative strategy in the face of economic uncertainty.
    • Concerns about a potential pullback and its impact on commodity prices, real estate, and commercial sectors are leading to a more conservative stance, hoping for significant rate hikes to benefit asset-sensitive portfolios.
  4. Strategy:

    • Strategies seem to be adapting to the current economic cycle, with some firms focusing on writing bigger checks to their bigger and better-credit clients, indicating a preference for safer, more reliable deals.
    • There's an acknowledgment of the uncertainty in the cycle, with asset valuations remaining high and a cautious approach to new deals. Firms are preparing by setting cash aside or being selective in loosening criteria for deals.

In summary, the overall mood among deal professionals appears cautious, with a focus on quality and resilience in the face of economic uncertainty. Strategies and focuses are being adjusted based on evolving market conditions, with a keen eye on maintaining strong underwriting standards and navigating the uncertain cycle.

Sources: Q&A: Non-Bank Commercial Lending, What is your opinion where we are in the cycle and how is your firm preparing for the next 12-18 months?, Real Estate focused hedge funds, Basic Overview of the Consumer Sector, Investment or Lending Strategy by Product - 2020

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

Last 12 months, underwrote maybe a 100 deals. We even went outside of our region and other criteria. We bid on 20 of them and got zero of them. We were very far off on 18 of those, the other two we were a bit closer but there were 1031 buyers that were more aggressive that wanted it.

Its been slow. Layoffs about to happen. I think it'll get worse. CPI number actually is higher than the Fed wanted. Rates are not coming down.  The buyer seller spread is just too wide to make any deal work.

 
Most Helpful

Funny enough, out of the other 18 we bid, I believe only 7 sold. The sellers are not happy with the market pricing.

Theres just so many issues. You mention insurance renewals. Thats a good point. We looked at one deal where seller insurance was $300K. We underwrote $400k. Well we were wrong, we went to 6 different insurance companies and the lowest quote we got was $650K. Yes, freaken $650K. It destroyed our underwriting and IRR. We then asked the seller to share their insurance company's contact. We reached out to them, they said $700K! They basically said theyre only holding onto these low rates for legacy customers, but on a new policy owner they are effectively putting a price increase, hoping that a buyer doesn't use them. The insurers want out. Owners are only benefiting because they're legacy customers.

 

I was just in California for one of the two largest MOB conferences (maybe you were too) ...... health systems say they can't afford and won't pay the new rental rates required for new ground-up properties to pencil.   

 

Operator level. Most are just trying to survive. But the firms that have an appetite- feels like there’s more dry powder in the market than there was in the fall, however it’s all for distressed deals, reset basis type stuff.

Feels super dry for core. Which is funny because on a PSF/per unit basis I don’t hate prices in that space for the right deals.

 

Echoing this. We’re shopping (no pun intended) some of our suburban grocery anchored and infill unanchored strip centers and generating a lot of interest. Lots of groups willing to close all cash and with short DD and closing timelines.

Pricing isn’t where it was it but definitely lots of groups looking to get ahead of a rebound in the market.

 

East coast multifamily and equity needs to stabilize above a 7 uyoc. Have several LOIs out but still disconnected on pricing. Generally bidding a going-in 6 turning into a 7 something. Looking at deals with some complexity on them beyond a normal value add.

 

Curious what rent increases are you assuming? Have seen and heard in general oh the 2-3% bumps going forward are not the norm anymore, does that mean you're UW 0% or negative first year or two or are you still using that growth assumption of a few %?

Seems people are trying to overthink it but even if you UW rents declining in year 1 and 2 you need to see some growth for the deal to make sense.

 

We only work with 4-5 tenants, chase sites at their direction. Try to keep it single tenant to minimize leasing risk. We'll take a small equity position then raise the rest from our investors, and then get some debt to cover the acquisition and construction. LTC has been around 30%. These are bit size deals, relatively, so the capital stack typically doesn't get too complicated. 

 

At a large brokerage shop in the northeast. Work focus is solely on open-air multi-tenant retail shopping centers. Most people are aware of the solid fundamentals now behind the retail asset class and we’re seeing insane numbers of CA’s signed to look at on market deals, seems like EVERYONE is at least curious about retail. Getting between 8-12 offers sometimes more on every deal. People are starting to accept new pricing. Insane pipeline of deals for this year. 

 

Job I left just closed on a suburban surface parked multi deal last week. Looks to be a great deal. They're hoping to close another two this year at least. Absolutely no one I know of in the city is pencils down on new deals except for our traditional equity partners. Too bad for them though - there is a shit ton of foreign money thrilled to get into US multi. 

I meanwhile got zoning approval on a deal about a month ago and submitted for site plan and design review approval about two weeks ago. Looking to be about a three month process (knock of wood) but our partners may close on the land here in a month which would be weird but cool. Negotiating the GMP right now. 

Commercial Real Estate Developer
 

LP shop focused on multifamily value-add. We've bid on a few things with some of our operators but have lost by 5-10% on everything. Our Investment Committee is pretty split right now, half thinking the buying window is closing, the other half thinking pricing still has runway to come down. We are fund structure so fees are keeping the lights on, but still doesn't feel great.

 

Similar story here. Active across asset classes so comparatively RE is a tough case to make.

 

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