Ask the Expert: Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How are Equity Providers Feeling About Beginning to Invest Again?
90 days ago equity capital was looking for opportunity. Institutional investors had been successfully raising equity for the promise of mid teen returns and 1.6+ multiples. Acquisitions and ground up development were getting serious looks from those fund managers looking to put their bundled capital to work in a strong market. With low vacancies and few issues, 2020 would be a great year for investors and there was more on the horizon.
Then COVID-19 hit. The market took a collective pause and for the next 75 days sat on its hands and waited. They waited to see where this was going, how severe it would be and what property types would be the most and least affected. Pending deals were sometimes put on hold or dropped altogether and nobody had a solution.
Over the next 2 months the bad news continued to chill any appetite for investors to invest. Some were and are holding capital for distressed assets, others just stopped investing wondering how long before the market would try to make a comeback. Senior Housing, Retail, Hospitality, and ancillary services like paid parking, public events, schools and gathering and sports facilities were closing down with little or no end in sight.
Now we know much more about the virus, its characteristics and contagiousness. There’s light at the end of the tunnel for many property types. Multifamily is still going strong with both acquisitions and ground up development getting serious looks from equity capital. Atlanta landlords report high occupancy and very low delinquencies. Office properties are also getting strong interest from equity. Hospitality, Senior living and Retail are struggling to get back to favor as senior COVID deaths and limited non-essential travel cause Airlines woes, hotel closures and retail bankruptcies. But there’s still demand for opportunities. Investment groups are sitting on a lot of cash and for investment managers to get paid well, they need to invest. Many are more cautious today and rightfully so. Nevertheless, most think we are through the worst of this which maybe was the unknown, and are looking to stronger demand and opportunity for the 3rd and 4th quarter of 2020 and high expectations for 2021. Given that deals like that take time to put together many investors and working diligently now to focus their equity capital on strong sponsors who have relevant expertise and control a site or property in a good market.
Director, Franklin Street Capital Advisors