Over the past couple of weeks, we’ve had many discussions on what the future holds. And while we look forward to everything operating at full capacity again, we’ve taken the time to outline the developments and trends that are influencing our industry. Here’s what you need to know.
Changes to IRS Requirements
- The Federal Reserve takes additional actions to provide up to $2.3 trillion in loans to support the economy. Read more.
- 1031 Exchanges: 1031 exchanges with a 45-Day Exchange Period or 180-Day Exchange Period deadline between April 1 and July 15, 2020 will have an automatic extension to July 15, 2020.
- COVID-19 Information & Resources Center
Private Capital Trends to Watch
- There will be limited investment transactions over the next couple months.
- Deals under contract are pushing critical dates and deadlines out 60 days.
- Underwriting and appraisals are much more complicated and lean heavily on post-crisis assumptions.
- Smaller deals, $1 to $4 million, will be in highest demand if available debt decreases.
- 1031 buyers are still actively looking for replacement properties.
- Landlords considering selling a month ago will wait to see what happens.
- Buyers perceive values to be lower. Cash buyers will expect discounts.
- Sellers don’t think anything has changed. They believe the market will rebound in six months. They won’t offer discounted assets for buyers looking at long term holds.
- Buyer demand for net leased grocery stores, pharmacies, gas stations, and dollar stores is robust.
Tenant Trends to Watch
- Large operators will be positioned to do much better than smaller “Mom and Pop” businesses.
- Some businesses will not reopen, especially “Mom and Pop” shops and smaller neighborhood tenants that were already experiencing financial issues before the crisis.
- Restaurants will be going to be hit the hardest. They may have a slow recovery depending on new consumer behavior and potential seating distance requirements following the gradual reopen of the economy.
- Many national tenants have contacted their landlords and notified them that they will not be paying April rent. In some cases, tenants have requested to restructure their lease or notified their landlords that they’re not paying rent for an extended period.
Landlord Trends to Watch
- Landlords will process rent as soon as it is received.
- Tenant rent deferment requests will be handled on a case by case basis.
- If the tenant is still open for business, landlords should expect some form of rent payment.
- The current situation calls landlords to collaborate with their tenants to come up with a flexible resolution.
- Landlords will need to be proactive and work with tenants to understand their situation; provide them resource information and updates on the PPP and unemployment benefit; and verify they have applied for all available benefits.
- Landlords will need to be transparent with lenders. Communicate early and often.
- Landlords should make all mortgage payments until an agreement has been worked out with their lender.
- Local lenders are responding quickly to borrowers with a bank relationship.
- Conduit lenders are near impossible to find someone to deal with.
- Some landlords will not pay real estate taxes and the penalty will be a low interest loan from the county.
Lender Trends to Watch
- Lenders will be most likely to finance STNL properties with long term leases to credit tenants, self-storage properties with long term operating history, and industrial properties with long term operating history.
- There will be strong lender preference for QSR with strong operators, gas and convenience stores, discount/dollar stores, pharmacies, and properties with BBB+ credit tenants.
- Hotels, office, and multi-tenant retail centers will be more difficult to get financed.
- New loans will be evaluated on a case by case basis. Your reputation and the relationships you’ve created will be essential.
- Majority of conduit lenders will be on the sidelines.
- Life insurance companies will mainly be on hold, waiting to see what happens in the upcoming weeks.
- Larger lenders will still lend. However, they’ve bumped their pricing by 50-75 basis points.
- Some banks and credit unions are operating as usual, but they’re limiting exposure by providing maximum loan amounts.
As experts on net lease investments, our proven track record of success is based on a comprehensive approach to achieving our clients’ goals. If you need help coping with challenges unique to the COVID-19 pandemic, reduce your financial risk and contact us as soon as possible by emailing us or giving us a call at (720) 989-1031.