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Ok, let’s put this down and see how this ages. Kind of been mentioned before, but still there’s talk of “doom for commercial real estate” without mention of current capital markets vs just decimation of fundamentals 1/
In order for broad, crash level (note: not just kinda lower) pricing to occur, sale volume has to flood the available capital (yes I know this sounds obv), and today, capital is plentiful AND animal spirits still high AND very limited seller activity. Few reasons: 2/
If your property not in trouble, you’re not selling. Why would you? Cash flow still good/fine and buyers want a discount. No sale.
If your property is weak to effed, your lender is working with you for now, and TBD but decent chance for continued flexibility. No sale. 3/
If your property is weak to effed, your lender is working with you for now, and TBD but decent chance for continued flexibility. No sale. 3/
Now one day that will change, lenders less forgiving, and some owners forced to sell. But these will first be the obsolete/in trouble pre-covid stuff. Those will trade low but meaningless comps. Mostly irrelevant to the value of decent, viable properties. 4/
leverage has been pretty low for a decade. Maybe it started to tick up later, but not broad, and nothing that can’t be handled with some preferred equity instead of a fire sale (expect a good bit of recap activity) 5/
And properties that are at least fine to good in ok locations have a very strong underlying bid and are currently pricing to low returns (that 19% IRR 2x deal you’re gonna slide in here with is on beautiful assumptions, don’t @ me) 6/
Big price chops for good RE needs demand to continue to suffer badly, which (currently) seems unlikely outside some very specific pockets.
In the meantime, one off “Zomg this SF office sold for 60% of 2018 price!” is worth retweets (imma do it too) but wouldn’t extrapolate /7
In the meantime, one off “Zomg this SF office sold for 60% of 2018 price!” is worth retweets (imma do it too) but wouldn’t extrapolate /7
ps. Hotels are most vulnerable to falling deeper through cracks come end of year. /done
