Pricing Change with COVID
How do you guys expect pricing has moved due to Covid? What do you think it will take to recover? Would it be crazy to think it hasnt dropped?
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There’s definitely going to be some short term impacts to COVID. Our in-house research is predicting a v shape recovery in the medium term. In APAC, there is opportunity for a well capitalised player to rake advantage of frozen debt markets to buy some distressed assets
Yeah I mean alot of underwriting doesn't make sense right now, with low Yr 1 increases if at all in Multi family. which in theory would mean pricing moved down if you solve to an IRR. I have a feeling most people would not sell at lower prices, but does that mean people are going to step up and buy?
I am thinking just less transaction volume for a while.
Market must reset - leasing market will feel it in 6-8 months, and it will work its way up through the entire sector. Cost of capital going up, yields will have to adjust. The market has been waiting for something to break through the froth, and it got it. Rent growth haters rejoice.
My group was accpting offers on a 400 unit multi deal in the southeast. 6 groups submitted offers 3 weeks ago between $75mm and $89mm. We let them all participate in best and final but only two came back with offers last week. The $89mm group decreased their offer to $81mm. The next highest who came back was originally $85.5mm and they dropped it to $73mm. We're choosing to hold the asset till things calm down.
Owners aren't going to sell in this environment unless they need to free up liquidity and vultures will always be there looking for a deal.
For example, we heard that a large player is going to unload several multifamily assets in the next few months to cover the CF shortfalls on the $1b hotel portfolio they bought in 1Q2020. We also heard that another large REPE shop is pulling all offers on existing deals in their pipeline to free up capital and go after opportunistic deals. The recovery is a big question market right now, which is why most groups are sitting on the sidelines. Here's hoping J&J develops a vaccine in the next few months like they say they will.
This. hard to value stuff right now as pencils down for most bidders and TBD how this impacts property performance.
In multifamily, bids have generally decreased 5-15%. As noted above, owners who don't need liquidity are sitting tight. Pricing risk is tough right now, and most institutional groups are sitting on their hands / making sure their house is in order.
Significant disconnect between buyer and seller now. Sellers want same pricing as before as they think this will rebound, also they literally saw the same pricing a few months ago and don't want to sell at a discount. Buyers want a discount because they dont know how long this will last, plus lenders are tightening up, which makes CoC returns lower.
I think this is so true right now. Just a massive disconnect between sellers and buyers. I think this idea of dry powder on the sidelines is causing sellers to not accept that asset pricing has gone down.
I'm of the opinion that sellers are going to have to accept that COVID has significantly shifted asset prices. My local market was running red hot with crazy valuations being pushed through the pipeline. Can't imagine asset prices not taking a haircut post-COVID.
This is exactly the kind of slimy thinking a buyer would have
;)
In development land sellers are the last to budge/adjust pricing in a downturn. I expect that to be the case right now and I see it happening right now in my market (reluctance to adjust land price).
FWIW I work for a bank active in NYC and the majority of our multi-family borrowers are more concerned about the long term economic impacts of the HSTPA rather than corona.
No one knows the impact on pricing because everything has stopped. I have a buyer for a Class-A multifamily that went under contract the first week in March. they are in DD, the rent roll hasnt changed, all white collar tenants who are working from home. Buyer is still chugging along but unless spreads come back in (which they wont) I suspect it will not trade.
The current impact on pricing is directly related to interest rates rather than any perceived change in asset value (only because its far too early to even guess how this will end up impacting real estate prices in the short term. On the lifeco side spreads have blown way out due to corporates. Not sure what Banks are up to. Too early to guess on what this does with any specificity to market rates, escalations, etc but the major problem for deals right now will be their mortgages.
They've been under contract for a month but aren't under application with a lender?
Agencies will hold pricing for 60 days.
They are under DD so I don't really care whats going on with their lender atm. I dont know what agencies are up to right now but pretty much every lender pulled their term sheets that were put out before mid march. After that spreads blew out from 130ish to 275ish.
On the banking side, spreads are out as well. Liquidity premiums are up so this is affecting the banks return on capital. We are being very selective in deploying capital and only looking at deals for our top sponsors. This is pretty par for the course with many banks right now. The pitch to clients might be "we are open for business" but getting something in writing and more than a soft quote will be like pulling teeth.
My bosses are having us re-project all our existing assets that we were planning to sell very soon at mid-teen IRRs (value add MF/retail/office), but have been pushing to only show a 100-200 decrease in IRR. But in the same breath they are harping on the acquisition guys that we're ready to take advantage of 15-20% market price adjustments in the coming months with plenty of dry powder and to sharpen the pencils.
Lol smh
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