Real Estate Capital Scoreboard® – July, 2020

Chicago, Illinois, July 1, 2020 – The stock market rebound and rising COVID-19 cases, particularly in the Sunbelt and Western states, drive headlines. The commercial realty markets, too, regain momentum, particularly in the multifamily, industrial sectors. Datacenters also attract higher investor demand, as demand for internet usage increases with more workers operating from home.

Two key CRE trends emerge for mid-year, including:

Price Discovery: Acquisition volume recovering, but price discovery surfaces with sellers and buyers assessing the pandemic impact on cash flow stability. Retail and hospitality properties witness the most stress, with office assets ranking close beyond with prices dropping ten percent or more. That said, investors still attracted to CRE, as yield spreads remain attractive compared to alternative assets such as similar-risk investment-grade bonds (spreads of 75 basis points or more favor real estate).

Ample Funds: Despite depressed market conditions in specific product sectors and markets, abundant funds exist for purchasing assets. Numerous sources, including private funds, public syndicates, and institutional investors, remain flush with cash in search of yields. For example, mid-teen yields attract development capital and preferred equity reaches mid-to-higher-single-digit returns.

Mr. John Oharenko, director of the Real Estate Capital Institute, notes that “Investors search for bargains during the pandemic, but deals are hard to come by as too much sidelined cash floods the capital markets.”

Leave a Reply

Your email address will not be published.