Webinar Recap: The Death of Retail Investment Properties... Again
According to recent headlines, investment in retail real estate is dead…again. But a quick check of the data shows that’s not the real story, at least here in the Pacific Northwest.
Our May webinar reviewed the data and provides an analysis of where retail investing was during the height of COVID-19 and where it's going as America opens back up. We were joined by Sean Tufts, Partner at Capital Pacific.
While there’s been a lot of pain for mom-and-pop shops and restaurants, data from Capital Pacific, a commercial real estate firm with investments in the Pacific Northwest and nationally, show that retail sales are up 56% year-over-year and there’s still a lot of pent-up demand.
Beneath the Obvious
A look beyond the headlines reveals other critical takeaways from the year that was.
2020 global deal volume tanked by 26%
National REIT rent collections cratered to 50% in April 2020 and jumped back to 90% by year-end
Northwest area collections outpaced other regions by 5-15% despite early and tight restrictions and lockdowns
Rising construction costs made many deals requiring renovations unaffordable
The only deals in works were national credit tenants and single-tenant properties, fueled primarily by ground-level retail requirements force by cities.
Zoning restrictions prohibiting new drive-thrus bumped the drive-thru rent premium to 50%
National shutdowns drove egregious enforcement of force majeure clauses
New paradigm
Investors should consider these factors when planning for 2021 and beyond:
Refis will struggle under requirements for additional capital, which could break free some deals.
Deal structures will include more guarantees and/or holdbacks
Lenders will seek larger reserves and holdbacks as insurance against further shutdowns but may be more flexible on extensions and maturities
There will be debt availability for some deals, but not all
An increase in short-term, flexible leases with percentage rent, rent reductions, termination rights and full financial and performance reporting related to force majeure
Landlords will learn from 2020 and require security deposits to provide breathing room during future shutdowns.
Grocery and pharmacy sectors will evolve dramatically with the expansion of Amazon pharmacy, restrictions on drive-thrus and delivery/pick-up staying strong
Creative property owners will invest in repurposing, vertical development and raze-and-replace opportunities arise
Potential changes in state and federal capital gains taxes could make this the right time to exit for certain investors
Transaction flow and velocity will increase as investors with pent-up capital from 2020’s dearth of deals drive to buy
You can get more details on these topics by watching the full session below. This information doesn’t constitute financial advice. Always check with a real estate investment or financial expert before making decisions.
As always, reach out if you have any questions.
