Private Capital Groups Are Actively Buying

Institutional capital may have stepped to the sidelines during the pandemic, but private capital groups are still actively buying. In many ways, it is open season for private buyers to capitalize on discounted pricing and a less competitive bidding environment. Kevin Shannon of Newmark Knight Frank has seen this trend unfold in recent months.

“Because private sales tend be between $5 million and $30 million, it poses more of an opportunity for PCGs to partner with local banks, who are still active. Overall, sales velocity in the last two months has slowed, which, in turn, limited the amount of trade buyer activity,” Shannon, co-head of U.S. capital markets at Newmark Knight Frank, tells GlobeSt.com.

So far, private capital hasn’t been picky. Shannon has seen demand for office, multifamily, biotech, medical office and industrial product since the onset of the pandemic. “Core retail, particularly when anchored by a major grocer, is also getting the attention of family office capital,” he says.

More than asset class, asset profile has driven more investment decisions. “We are seeing safe-core profile transactions trade at or close to pre-COVID pricing,” says Shannon. “For example, a long-term leased Whole Foods or an Amazon last-mile industrial facility is still trading at 4 to 4.5% capitalization rates today and remains attractive within the private sector. Private capital benefits greatly from the comparative tax advantaged returns associated with real estate and therefore can be more flexible and patient on their hold periods compared to many of the well-known real estate funds.”

While institutional capital has largely stepped to the side, there is still some activity. Unlike private capital, institutional investors are more targeted, focusing on industrial properties. “Many institutional investors are actively pursuing core and prime industrial land sites today,” says Shannon. “Life science and core industrial are frequently at the top of their shopping list, and multifamily is also under consideration.”

Shannon also closed his first post-COVID office transaction. “We also recently sold our first significant, post-COVID office deal in Orange County to an institutional domestic core fund,” he says. “Most institutional buyers have now adjusted to the shock and speed of this downturn and are back to evaluating acquisitions, albeit more selectively.”

Beyond these deals, institutions are monitoring the market and analyzing data. “Most of these institutional buyers are monitoring the market and awaiting post-COVID data points before actively pursuing riskier value-add office, industrial and multifamily deals,” says Shannon. “We predict institutional buyer activity will significantly increase for safer-core and core-plus industrial, office and multifamily deals in the second half of the year.”