How should I approach value today?
Property valuations of non-hospitality related asset classes are down approximately 5% – 10% with many investors requiring a ‘credit’ guarantee on all rents for new acquisitions. We are also starting to see a systemic shift in underwriting, with a drastically more conservative outlook on vacancy, future rent projections, and operating costs to account for heightened safety standards. The silver lining to this ‘bottoming’ in underwriting assumptions is that investors are gradually becoming more comfortable evaluating new deals.
Urban multi-family rents are holding steady with tenant demand even up slightly, while ‘close-in’ suburban product appears to be outperforming the market. Based on recent conversations and interviews, rent collections of Class B apartment buildings in Boston are averaging in the mid-90%. Most experts believe that work force housing poses the biggest credit concerns.
Office vacancy continues to drag on asset values, as absorption and lease rates are still unclear, particularly when tour activity remains tepid. Another conversation of topic is space utilization in this ‘new normal’. Are people taking more space to socially distance or less in anticipation of more remote working? Should companies shrink the office footprint in favor of store front space with a street presence? Across the board, decision makers are rethinking their future space needs and objectives.
Investor appetite for warehouse and logistics buildings remains strong in anticipation of future demand. Greater Boston has a limited supply of true, institutional industrial and high-bay warehouse but offers an abundance of flex industrial product for tenants between 5,000 – 50,000 square feet. As the e-fulfillment movement takes shape, we anticipate antiquated retail centers looking much more like distribution facilities in the near to medium-term and potentially with different ownership.
Is owning the real estate my business occupies financially advantageous?
Corporate owner-occupiers concerned with the availability of cash should asses the benefits of selling the facility and leasing back space to free trapped equity. Even a sale-leaseback of bank-owned corporate headquarters and branch locations could offer some much needed liquidity. Often times real estate owned is the largest asset on a company’s balance sheet and during uncertain economic times, companies should focus all available capital on mission critical business operations.
As a lender, are you concerned about your borrower’s wherewithal to complete a partially completed construction project?
Boston Realty Advisors can help identify a new sponsor to assume the loan and take over the project or identify secondary/mezzanine financing for the existing borrower.
How can lenders reduce exposure to problem loans?
Selling a loan or a pool of loans is often times the best approach for a lender to mitigate risk while still collecting most if not all of the unpaid balance. We recognize that a broad marketing effort can present concerns over lender liability. To offset this, Boston Realty Advisors is a direct buyer of loans though an affiliated entity.
What CRE is financeable?
Top-tier sponsors with significant net worth and liquidity are still achieving ultra-low rates on well-located, stabilized properties. Leverage points across asset classes are gradually coming down and loan structure is increasing. We are starting to see lenders require principal & interest reserves of one-year regardless of the deal profile. While banks and credit unions are highly selective on new construction, Boston Realty Advisors is in the debt markets daily and has identified alternative capital sources actively lending on ground-up projects.