Will Transaction Activity Accelerate in 2021?

 

  • Prospects for a strong rebound in investment activity in 2021 are positive
  • There is tremendous capital on the sidelines in the form of consumer savings and money market funds
  • With the election behind us and the vaccination roll out in progress, uncertainty will likely abate in the new year
  • As a result, this unprecedented wave of pent-up demand could be released into the marketplace
  • The re-engaging of this capital will support commercial real estate and the broader economic recovery

 

Metrics Point to a Positive 2021 Outlook

  • CRE transactions in 4Q 2020 are estimated to be significantly above the level of the 2Q 2020 trough
  • The ongoing vaccine rollout and recently passed $900 billion fiscal stimulus will boost this momentum

Fiscal Stimulus Key to Sustain Economy and Real Estate

  • The new stimulus includes a $284B infusion to the PPP, giving small business forgivable loans for re-hiring staff
  • Additionally, $600 in stimulus checks and $300 enhanced unemployment will bolster spending and rent collections
  • The new stimulus and health solution will also work to help alleviate investor uncertainty

As Uncertainty Abates, Investment Activity Will Rise

  • Reduced uncertainty could unlock the approximate $5T in Money Market Funds and $16T in saving deposits
  • Capital will initially flow to properties like Apartments, Single-Tenant Retail, Self-Storage, and Industrial
  • Urban Office, business-catering Hotels, and properties in vacation markets will take longer to reap these benefits

Over $2.5 Trillion in Savings Waiting on the Sidelines

* Through December 23
Sources: Marcus & Millichap Research Services, Board of Governors of the Federal Reserve System

 

 

 

 

 

 

 


(click to play video below)

Low Rates Create Favorable Real Estate Investment Climate

 

 

 

Reported by John Chang

Director of Market Research – Marcus and Millichap

  

 

Distress Investors May Have to Wait as Long as 3 Years for Non-performing Loans to Come to Market

 

Distress investors have been racing to the market in anticipation of snapping up deals. For the most part, they are finding, to some chagrin, that there are little properties and loans available at deep discounts. There has been much posting about when these transactions will come to market—the end of summer and the fourth quarter are two popular timelines—but a better question might be to ask, why are there no distress deals available now? That answer in turn becomes a straight line to the question of when.

CBRE analysts believe one major reason for the lack of distress on the market is that most lenders, outside of CMBS, are being very accommodative to troubled borrowers.

And even some CMBS borrowers have been able to navigate the structure’s complicated rules to gain loan forgiveness. Urban Edge Properties, to cite one example, just announced it has completed the refinancing of its mortgage loan for The Outlets at Montehiedra, in San Juan, Puerto Rico. The existing $119 million CMBS loan consisted of an $83 million senior note and a $36 million junior note. The $36 million junior note will be forgiven, according to Urban Edge, and the senior note will be replaced by a new ten-year $82 million mortgages provided by Banco Popular de Puerto Rico.

In short, whether the lender is a bank, conduit, debt fund, or life company, we are in an era of forebearageddon—a coin termed by Brian Stoffers, global president of CBRE’s debt and structured finance group. Stoffers used the phrase during a webinar recently hosted by CBRE.

Banks, in particular, have been having constructive and accommodative conversations with clients and they are more likely to keep troubled loans and properties on their books, he said during the online event. “I don’t think we will be seeing large, distressed transactions coming out of the banks.”

Loan sales as well, while they have picked up materially, are seeing few signs of distress, Patrick Arangio, vice chairman of CBRE’s national loan and portfolio sale advisory, also said during the webinar.

“Buyers have been reaching out to us, expecting a glut of non-performing loans,” Arangio said.

But the type of sales that are happening are typically portfolios backed by assets that were less favored before the pandemic, he said. The properties might be functionally obsolete, be older boxes, have poor window lines, or maybe in secondary locations within their markets. Arangio believes that these investors will start to fixate on these shortcomings in ways they did not before COVID-19 and they will eventually come to market.

Other loans are being sold for liquidity, he continued. Then there are those loans that, while paying in the short-term, are expected to experience a downturn at the property level. Some of these are coming to market, he noted.

Arangio as well points to the thoughtful approach lenders are taking in negotiations with borrowers and he expects this to continue for some time. How long exactly? That is the billion-dollar question, Arangio said.

There is no easy answer because, besides lender forbearance, the property markets are also being supported by government relief programs and the federal expansion of the unemployment program, which is being used by many apartment dwellers to pay their rents.

It is hard to say when these programs will be stopped and when lenders will become less forgiving with forbearance, Arangio says—and how that will impact the distress loan market.

His best guess: “We expect the expiration of forbearance may lead to a material increase in non-performing loans in the next 36 months,” he says.

 

Source: GlobeSt By Erika Morphy | June 03, 2020, at 04:26 AM

 

COVID -19 has disrupted the normal market equilibrium of supply and demand, creating a unique window of opportunity for attracting exchange-motivated capital.

Despite commentary suggesting a stalled transactional market, Marcus & Millichap has seen near-record levels of closed transactions in 2020. As the 1031 exchange market leader, we know that nearly 40% of these sellers will become buyers.

 

 

Moreover, the health crisis has slowed new listings, further amplifying the opportunity for sellers to capitalize on the imbalance in place today.

 

Marcus & Millichap has the industry’s largest sales force of commercial real estate advisors and long-standing relationships with private clients, the primary source for 1031 exchange capital. Contact us today to take advantage of the small window for tapping this unique market opportunity.

 

 

 

 

Answering Top Questions from Real Estate Investors

John Chang – Director Research Marcus & Millichap

 

IRS Loosens Timelines for 1031-Exchange Buyers

Section 1031 of the Internal Revenue Code enables real estate investors to defer capital gains on income-producing property when those gains are used to acquire a like-kind investment. Colloquially, a 1031 exchange is the transaction in which an investment property is liquidated and the proceeds from the sale, including capital gains, are used to acquire additional income-producing property or properties. For the exchange to meet IRS standards, buyers have 45 days from the initial sale to identify a replacement property of equal or greater value and 180 days to acquire that asset.

 

In an effort to relieve pressure on 1031 timelines while much of the country is shut down and lenders are focused on processing thousands of loans initiated under the CARES Act, the IRS has temporarily altered the requirements to meet its standard. Under the new guidance, both the identification and acquisition of the replacement property or upleg, has been extended. If the identification deadline falls between April 1 and July 15, the new deadline is July 15. Likewise, if the 180-day purchase deadline falls between April 1 and July 15, the new deadline is moved to July 15. Further guidance from the IRS may be necessary due to a conflict with existing rules in Section 17 of Rev. Proc. 2018-58 that extended 1031-exchange timelines during a federally declared disaster.

 

The implications of the altered guidance will impact all stakeholders active in the 1031-exchange market, including a significant number of investors already on the upleg of a transaction. Shelter-in-place orders slowed the pace of closings, which could have left some investors responsible for capital gains taxes despite identifying a replacement property and attempting to purchase the asset within the allowable window. As investors seek clarity on conditions, some identifications may be delayed until closer to the July 15 deadline, creating a potential new bottleneck on intermediaries.

 

Investors will welcome additional breathing room at a time when most steps in the process are taking additional time. The pressure on buyers to identify a property that will close quickly rather than one that meets investment goals has been alleviated, and longer due diligence periods may change the type of attractive properties they can identify. It reiterates to sellers that the investment market continues to close transactions despite headwinds. Furthermore, the attractiveness of existing available properties may change as buyers reevaluate post-pandemic conditions.

 

Marcus & Millichap Capital Group

 

Marcus and Millichap | April 2 Live Webcast
Real Estate Investment and Financing:
Facts, Myths and Navigating Forward
You are invited to a live one-hour webcast covering:
  • Most Up-to-Date Economic Assessment
  • Government Initiatives and Potential Impact
  • State of the Real Estate Financing and Transaction Markets
  • Challenges and Opportunities by Property Type
Thursday, April 2, 2020
4:00 p.m. Eastern/1:00 p.m. Pacific

VIEW RECORDED REPLAY

Host:

HESSAM NADJI

President and Chief Executive Officer

 
Panelists:

SCOTT M. HOLMES

National Director, Retail 

 
 

ALAN L. PONTIUS

National Director, Office & Industrial

 

JOHN S. SEBREE

National Director, Multifamily 

 

JOHN CHANG

National Director, Research Services