Investors in strong equity positions could have the opportunity to acquire assets at significant discounts come the end of the year and moving into 2021. However, it may require a broadening of one’s risk tolerance. As multifamily and industrial continue to produce reliable cash flows, their value is holding. On a recent Bisnow Webinar, a panel of real estate investors said industrial has “even sold at higher than their pre-coronavirus rates.” It is likely to assume that fund managers needing to deploy investors capital will seek the safety of these asset classes, yielding attractive sales to current property owners.
The real discounts will be found in the retail and office properties. According to Anar Chudgar, Managing Director at Artemis Real Estate Partners, the firm is “close to closing a transaction for an office building in a gateway market at a 30% discount to its pre-coronavirus rate” and that “until we find a vaccine, there will be downward pressure on the New York City and major gateway cities’ office sector.”2 On the whole retail assets were struggling before the pandemic. This has only been made worse by the COVID related slowdown in economic activity and a lack of desire by shoppers to enter retail environments. This incredible distress to specific retail assets could lead to outsized opportunity willing to put the time. Conversion of retail into alternative asset classes could provide incredible returns. This strategy however would require experience in construction and development but could be a perfect fit for the right investor.
Regardless of the investment strategy, investors should consider their risk tolerance, analyze deals combining sound fundamentals with their personal investment thesis of the financial landscape, and look to capitalize on distressed assets when available. Firms are already beginning to make moves on distressed opportunities with Starwood Capital investing $325 million a mortgage REIT is June. Boston-based Rockpoint Group completed its latest capital raise by exceeding its own benchmark by 25% to close at $3.8 billion, a fund targeted at the office, hotel, and residential sectors.3