The following is a thought leadership column from Lanie Beck, Director of Corporate Research, Marketing & Communications and Joshua Campbell, SVP, both of Stan Johnson Company. The views expressed are the authors’ own.
The term “buyer’s remorse” often describes a situation in which someone regrets having purchased an extravagant item or unnecessary service, but these same feelings can also come from missing an opportunity or failing to act when the time is right. Too often in our more than 30-year history, we have heard clients say, “If only I had purchased that asset when I had the chance.” Knowing how to time the market is by no means an exact science, but when conditions shift to a buyer’s market as quickly and dramatically as we’ve seen in 2020, capitalizing on new opportunities can be easier than you think.
In a normal market cycle, the pendulum swings back and forth from a buyer’s market to a seller’s market very gradually, often over the course of several years. But when outside influences strike fast, market conditions can quickly shift. The most recent inflection point caused by today’s health crisis occurred in mid-March when businesses were closed and shelter-in-place orders were issued. Unemployment rose drastically in the weeks following, and the stock market witnessed some of its most volatile days in history. The economic impact of COVID-19 altered market conditions so drastically that it became a buyer’s market seemingly overnight. Uncertainty and consumer fears are, for the time being, driving opportunities, and savvy investors are well positioned to take advantage.
For investors still active in the market, we’ve begun to see a flight to quality, and the most desirable assets are continuing to trade even though we’ve seen overall volume and activity decline. Not surprisingly, those properties in highest demand are leased to essential tenants with strong credit. Leading the charge are drugstores, essential medical providers, grocery stores, home improvement stores, convenience stores, some automotive retailers, as well as some restaurant concepts. Owners of these assets who have been sitting on the sidelines looking for the right opportunity to sell have found it – their properties are in very high demand, and if buyers act fast, they can secure themselves a very desirable investment that may not have been available in a more stable environment.
Furthermore, turbulent times often cause the highest-quality properties to come to market. Owners who never intended to sell, for example, may be forced to, which can create a “once in a lifetime” opportunity for buyers. And if the owner is truly pressed to sell, these unique properties may even be offered at a discount.
Today’s opportunities don’t come without challenges though. Financing, despite incredibly favorable rates, may be difficult to obtain in some situations. Lenders who are slow to act may jeopardize a buyer’s ability to close successfully, resulting in a missed opportunity. Similarly, working with the wrong seller can derail a transaction, so it’s vital for buyers to work with brokers and other professionals who have deep, established relationships with sellers. But the greatest challenge buyers can face in uncertain times is themselves. Having confidence in your long-term investment strategy is important, but being willing to act when the perfect deal presents itself is key.
Any disruption in the market creates opportunities for investors, and there’s no doubt that we’re experiencing a significant disruption. But how long will it last? We entered this period of uncertainty with incredibly strong market fundamentals, and it’s possible that underlying strength could be enough to buoy a fast recovery. If that’s true, the window of opportunity for investors could be very narrow. Those who are well positioned to take advantage of today’s opportunities are encouraged to do so quickly. Otherwise, they risk looking back on these tumultuous times with remorse.