The pandemic has realigned how business is being conducted in the commercial real estate sector, ranging from how properties are being valued to future investment plans to how property tours are being. It's also refocused attention on metrics that in recent good years have not been very important: namely investment volumes and rent collections. It has been quite a change, it hardly needs to be said, with companies today actually releasing statements on their rent collections.
This hasn't been that much of an issue in the net lease space, although clearly the category has been affected as well. That is, at least, one takeaway from a virtual event we held yesterday to preview our GlobeSt NET LEASE Conference, which, due to COVID-19, has been rescheduled to September 16-17 at the New York Marriott Marquis. The virtual event ran from 12 to 4 pm ET and featured video networking and a state of the industry town hall.
Viewers from around the country attended the event to hear from panelists Barclay Jones, EVP for iStar, Teddy Kaplan, portfolio manager for New Mountain Net Lease, Glen Kunofsky, managing director with Marcus & Millichap's net lease group, Gino Sabatini, head of W.P. Carey and Chris Capolongo, managing director with Angelo, Gordon's net lease strategy group.
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Perhaps the headline takeaway from the event is that panelists and attendees (there were several audience polls taken during the event) are not expecting a significant drop in investment volumes when all is said and done for 2020.
Certainly there has been a pause in deals in general for the last two months, Capolongo said. "There are so many assumptions that go into a deal that are unclear right now, such as financing and rents." But for net lease, he added, the fewer closing have been more about the reaction by debt markets and people's view that the risks have changed, as well as a growing bid ask spread.
Over time the market will figure that out, especially in net lease, he said, which is more straightforward to underwrite.
Kunofsky reported that Marcus & Millichap has closed 107 transactions in the last three months. He credited that to the natural pull investors have to hard assets during turbulent economic times.
"We've closed deals with institutions in the last few months and we have done some sale leaseback transactions with REITs to help them generate capital for their tenants."
Indeed, Kunofsky reported that the sale leaseback market is "popping" as it can be a good alternative to debt financing.
The group has brought out many listings and Kunofsky is bullish about the sector's performance. "I think our transaction volume will be up this year," he said.
Of course, on a category-by-category basis, the case for net lease's pandemic performance becomes a bit more nuanced. Net lease retail has its own set of problems, not surprisingly. But other categories, especially those that focus on critical operating assets, such as W.P. Carey does, are doing fine. Rent collections for the REIT have been terrific, Sabatini said. "We focus on assets like factories, R&D, distribution facilities. The tenant always pays rent on these assets."
Come back for further coverage of this virtual event where we will look at the categories that are performing particularly well, what is in store for net lease retail and some choice predictions about cap rates.
If you want to watch the event please visit here to register. After registration you will have access to the video.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.