Out-of-State Buyers, Positive Broward Prospects

Although the retail sector is currently in a downturn that will likely continue in the next few quarters, the continued purchasing activity of out-of-state buyers may be seen as a strong endorsement of positive, long-term prospects. South Florida buyers as well as out-of-state buyers are also looking to acquire retail assets in other regions of the Southeast US, including Georgia and the Carolinas.

During the past 12 months, transaction velocity for both single-tenant and multi-tenant retail assets in Broward County has declined. Lenders remain cautious and conduits are largely staying on the sidelines. Spreads for retail properties are currently 265 to 300 basis points over the 10-year Treasury with maximum leverage at approximately 75%. Lenders continue to pay particular attention to the type of retailer and tenants’ credit quality when quoting terms.

Because of the tougher financing requirements, transaction velocity in the single-tenant retail segment has decelerated by 35% during the past 12 months and transaction velocity for multi-tenant assets has declined by 21%. Purchases by out-of-state investors, however, did not decline, and sales of fast-food establishments and restaurants increased. These investors were also involved in a larger portion of multi-tenant deals, reversing a trend recorded in preceding periods.

With the volatility and lack of confidence in the stock market, there is a lot of interest from investors to put money in hard assets like real estate. However, credit quality will continue to be a primary concern among buyers in the months to come. Investor interest is expected to gradually shift from properties in new neighborhoods where household growth has stalled due to the soft housing market to properties in older, established retail corridors. Despite declines in occupancy and increased concessions, multi-tenant assets with shadow anchors will continue to receive competitive bids.

The views expressed here are those of the author and not of Incisive Media or its publications.

Richard Matricaria is a vice president investments in the Fort Lauderdale office of Marcus & Millichap Real Estate Investment Services. He can be reached at [email protected].