Given the uncertainty in the markets right now, are any of you in closing on deals that you’re nervous about? If so, what makes you nervous about them? What is getting you comfortable about them?
There have been tons of portfolios traded in the past 30 days, and I’ve been curious how other groups are getting comfortable (specifically on MF).
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Work in the mf brokerage space. Bidder depth is non existent. Groups are going backwards or completely out from first to second round. Lots of groups reassessing strategy. It’s rough out there.
What market and asset size?
New business is realistically fucked until volatility tames itself. Thankfully on deals in underwriting, we have rate locked a majority of them around a 2.70-2.95% treasury.
I expect this summer to be even more quiet than it usually is.
Every deal I see either there is a big retrade or seller completely backing out. Have heard of people giving up deposit worth of tens of millions dollars as well.
Kinda reminds me of when COVID first started in March/April 2020, but this time I expect it to be real and last longer.
Experiencing this first hand. We’ve been retraded twice now on a multi property we’re selling. The second time was a 5% price cut so the buyer could resize their loan.
On the couple of acq opportunities we’ve tied up, we’re taking significant financing risk as we’re banking on yield curves coming down and securing financing closer to closing. Rent growth is still strong though and should remain that way in growth markets for at least another year.
We’ve 3 sales in process. All have done relatively well on pricing, but bidder depth was worse than expected. We’re not in exclusivity on any acquisitions, there’s a pretty limited number of opportunities on the market right now and it’s a very high bar to get through IC. Most of what we do is development, so it’s very hard to get comfortable with construction costs / financing terms / occupier demand given the first two are 1-2 years out from IC and the latter is 3-4 years out from IC. Need to build in significant buffers to each which all goes back to land price.
I assume you’re on the LP side so I’m curious if you’re seeing any material shifts in JV terms (cost sharing, promote). Our IC is also very sensitive to construction risk but we’re still seeing a pretty big gap between trades and replacement cost in certain markets so I feel like we’re missing out on some opportunities.
Not yet, doubt they will shift drastically. I’m in Europe where it’s less market standard for GPs to bear cost overrun risk (open to correction on this from others if they’re securing this in their deals). I don’t think promote structures will shift other than hurdles changing if return requirements change. There’s still a lot of capital to be deployed so credible GPs should still be able to get good terms assuming they’re good at capital raising and their deals are of institutional quality. Less credible GPs with sketchier deals will find it harder to get attractive promote structure as capital in this space will become more discerning.
We’re seeing a lot of issues on construction costs now, GCs not willing to provide fixed price contracts unless there’s such a significant margin in them that they’re not attractive to the employer. Some are building in mechanisms where if inflation goes above x% (on either contract as a whole or particular work packages) cost is split between GC and employer, others are doing fixed margin on works packages which are procured on an open book basis. As a result lenders are looking for higher cost overrun guarantees or greater contingency in budgets.
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