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COVID-19 Featured News Trends

2021 Forecast: Retail Investment Market Prime for Private Capital

As COVID-19 and rising competition from e-commerce challenged the retail market in 2020, it’s no surprise that investment in retail real estate took a hit. However, while the retail market will continue to face hurdles in 2021, certain groups of buyers and sellers are well-positioned to benefit from the current environment.

Franklin Street’s retail investment sales team had a strong year in 2020 and expects the market to perform significantly better in 2021, as the retail sector rebounds. Below, two of our firm’s leading investments sales experts offer their insight and predictions for the year ahead:

Greg Matus, Senior Vice President, Investment Sales

“For owners of quality retail properties who want to access their equity, now is a great time to sell. Although buyers are continuing to proceed with caution, well-performing retail assets are in high demand due to very limited inventory in the marketplace.

We can expect retail investment sales activity to pick up significantly in the second half of 2021, as there’s a lot of capital out there causing pent-up demand.

Properties with strong streams of income are achieving cap rates just as high, if not higher, than they were pre-pandemic. This is especially true for single-tenant properties and smaller strip centers in the $1 to $5 million range.

While financing may be tricky until underwriters can see a clear end to the pandemic, private equity investors are eager to buy, creating an ideal situation for owners of these types of retail properties.”

John Tennant, Senior Director, Retail Investment Sales

“The retail sector will see continued store closures in 2021 as retailers pivot to more online sales, potentially causing vulnerable, undercapitalized tenants to close their businesses as traffic continues to decline. During the latter half of 2021, some of this vacancy will be absorbed by non-retail tenants, especially in the B and C tier centers. 

For buyers, the bottom line is that despite the current challenges facing the retail market, there are still many opportunities to acquire stable, income-producing assets – especially if you have cash in hand.

As institutional investors continue pull away from non-core assets and urban markets, where a recovery could take significantly longer, private capital investment will be the main driver in 2021. We are already seeing private equity and venture capital funds seeking to finance new retail ventures as long as the returns are commensurate with the risk.

This increased private capital activity, combined with loosening COVID restrictions, should ultimately lead to a bounce back in transaction volume over the course the year.”

Read part 1 of this blog series on the retail leasing market here.

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Ask The Expert COVID-19 Trends

Ask the Expert: In Today’s Current COVID-19 Environment, Do You Hold or Do You Sell Your Retail Asset?

Ask the Expert: In today’s current COVID-19 environment, do you hold or do you sell your retail asset?

It depends on the retail asset class. Single Tenant (NNN) net lease asset cap rates will continue to hold and for certain tenants you could see further cap rate compression. If you have a credit tenant with several years left on the lease it may make sense to hold. All essential retail uses, (drug stores, dollar stores, convenience/gas) will be leading the way in the NNN lease arena. Compressed cap rates could mean better pricing for sellers but finding the next upleg trade property may prove to be difficult since they are in high demand. Uncertainty lies within the multi-tenant strip retail and larger big box (Power) centers. The net operating income (NOI) for the multi-tenant assets is a moving target today, so buyers will be looking for discounts in this space. Seller’s, however, have not adjusted yet to what will certainly be post-COVID-19 pricing. If there is additional tenant fallout or consolidation, over the next twelve months, which is likely, the market will start to see pricing shift and cap rates can be expected to continue to increase for this retail asset class. We have advised specific clients who own multi-tenant assets to take what pricing is on the table now versus waiting six to twelve months in hopes that the economy or pricing improves down the road.

John Tennant
Senior Director
John.Tennant@FranklinSt.com

404.832.1250
Ext. 0409

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Ask The Expert COVID-19

Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How are Equity Providers Feeling

Ask the Expert: Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How

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.

Bob Boyd
Director, Franklin Street Capital Advisors
Bob.Boyd@FranklinSt.com
404.832.1250
Ext. 0450

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COVID-19

Landlords, Retailers in Metro Atlanta Impacted by COVID-19 Seek Middle Ground in Lease Negotiations

Landlords, Retailers in Metro Atlanta Impacted by COVID-19 Seek Middle Ground in Lease Negotiations

Excerpted from REBusiness Online
The financial impact the COVID-19 economic shutdown is having on tenants and landlords is a difficult mix of immediate drastic reduction (or elimination) of revenue, along with little or no ability to forecast when the end will come. This combination of severity and unclear duration makes finding potential win-win compromises a real challenge for tenants and landlords in the metro Atlanta area.

While deal pipelines across the industry have ground to a halt, companies, teams and individuals are using this sudden influx of time as an opportunity to take up important tasks that, while not producing revenue, will set up future opportunities. They are catching up on conversations, expanding their networks, engaging with social media, doing industry research, continuing their professional educations and learning new skills.

For full story, visit: https://rebusinessonline.com/landlords-retailers-in-metro-atlanta-impacted-by-covid-19-seek-middle-ground-in-lease-negotiations/

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Ask The Expert COVID-19

Ask the Expert: How has COVID-19 impacted commercial real estate construction projects?

Ask the Expert: How has COVID-19 impacted commercial real estate construction projects?

Although most states have deemed construction an “essential” business, there are four (4) major development unknowns: (1) regulatory approval timeframes, (2) banking, (3) availability of materials, and (4) availability of workers.

Most construction projects that are currently underway and still progressing as scheduled. However, local authorities having jurisdiction are not and that is causing much of the delays. Permitting offices are closed, plan reviewers don’t have remote access abilities, site inspectors are advised to stay at home, etc. Many of these government offices are allowing the use of third-party plan reviewers and inspections. There is a process in getting these services approved with each local authority, but once approved, the overall schedule should be expedited due to shorter permitting periods and same-day site inspections.

The second unknown is the banking industry. They seem to be in a holding pattern to see what happens, which is of course preventing the larger construction project from breaking ground. This has been the single biggest delay to the construction industry. There have been a handful of banking groups that are providing the much-needed relief to keep these projects progressing, but the longer-term viability is certainly of concern.

The final two (2) unknowns are the availability of materials and workers, i.e. the main drivers of construction costs. Most think with this pandemic that construction costs will immediately drop. Prior to this pandemic, the pipelines were robust and plentiful. Those pipelines did not go anywhere and for the most part, are being continuing into construction. However, the long-term effect is unknown. Today, material is still in high demand and there is still a shorter of skilled laborers, i.e. construction costs are will remain high. Trends are showing that Q3 and Q4 of 2020 may tell a different story. Pipelines are not filling at the same pace as they were prior to the pandemic. This should open the availability for skilled laborers allowing construction costs to come off their peak. The biggest unknown is materials, especially materials coming from China and from factories that were closed during the pandemic.


Nick Sanfilippo
Senior Vice President
Franklin Street Project Management
Nick.Sanfilippo@franklinst.com
O: 404.649.6277    

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COVID-19

Landlords, Retailers in Metro Atlanta Impacted by COVID-19

Landlords, Retailers in Metro Atlanta Impacted by COVID-19 Seek Middle Ground in Lease Negotiations

Excerpted from REBusiness Online
The financial impact the COVID-19 economic shutdown is having on tenants and landlords is a difficult mix of immediate drastic reduction (or elimination) of revenue, along with little or no ability to forecast when the end will come. This combination of severity and unclear duration makes finding potential win-win compromises a real challenge for tenants and landlords in the metro Atlanta area.

While deal pipelines across the industry have ground to a halt, companies, teams and individuals are using this sudden influx of time as an opportunity to take up important tasks that, while not producing revenue, will set up future opportunities. They are catching up on conversations, expanding their networks, engaging with social media, doing industry research, continuing their professional educations and learning new skills.

For full story, visit: https://rebusinessonline.com/landlords-retailers-in-metro-atlanta-impacted-by-covid-19-seek-middle-ground-in-lease-negotiations/

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COVID-19 Trends

Franklin Street’s Pat Kelly Comments on Covid-19 and Emerging Industry Trends

Excerpted from the Business Observer

Pat Kelly, a regional managing director with Tampa-based brokerage and investment firm Franklin Street and another NAIOP Tampa Bay leaders, agrees that new industrial development — especially of cold storage and freezer space — will likely increase if online grocery shopping becomes part of the crisis’ legacy.

But while the industrial sector may fare well, office and bricks-and-mortar retail will likely continue the struggles each faced prior to the outbreak of the virus earlier this year.

For office space, the health crisis could perpetuate the trend of decentralized work places and cause at least some company owners to reconsider their space requirements, experts say.For full story, visit: https://www.businessobserverfl.com/article/commercial-real-estate-trends-naiop-industrial-office-retail-tampa-fort-myers

Industry groups say Covid-19 pandemic will heighten existing and emerging trends within the industry.

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COVID-19

Franklin Street’s Darron Kattan discusses Tampa’s Luxury Apartment Market

Excerpted from Tampa Bay Business Journal story

Before coronavirus, Tampa Bay’s apartment boom showed no signs of slowing. For the last five years, the Tampa Bay region developed an average of 4,300 apartments annually, and absorption of those units has outpaced delivery, according to CBRE Group Inc. In 2019, more than 4,000 apartments were delivered, with just over, 8,300 under construction.

“Concessions to new residents have recently dipped, as has been the case in many other markets, suggesting that the recent construction boom remains in line with demand,” CBRE wrote in its 2020 outlook for multifamily real estate.

Some submarkets, however, were already showing signs of strain before the pandemic, with rent growth slowing as more new units were delivered, said Darron Kattan, managing director at Franklin Street in Tampa.

“There is a good chance that a jolt like this will cause similar rent reductions as the great financial crisis,” Kattan said. “In those times, we saw up to 30 percent or more swing on the income for multifamily owners.”

Luxury rents began to fall as the pandemic took hold, according to data from CoStar Group.For full story, visit: https://www.bizjournals.com/tampabay/news/2020/04/09/tampa-bays-apartment-market-has-been-white-hot-for.html

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COVID-19 Trends

Franklin Street’s Andrew Wright shares his view on COVID-19 and CRE

Excerpted from Tampa Bay Business Journal story

For the past decade, real estate developers in Tampa Bay and throughout the U.S. have pitched their projects as experiential — social gathering places that are an antidote to an increasingly online lifestyle. 

Seemingly overnight, the novel coronavirus outbreak brought that dynamic to a halt, sending people to the internet for everything from remote work to grocery deliveries. The jam-packed happy hours at Hyde Park Village and community fitness classes at Sparkman Wharf — social routines that draw people to the public realm and encourage them to linger and spend money there — are, at least temporarily, on hold.

“This really, from a psychological standpoint, strikes in the core of that,” said Andrew Wright, CEO and founder at Franklin Street in Tampa. “Not that it won’t come back, because people are social, but if they were to open up the economy tomorrow, would people be rushing to the mall or going to a conference with 40,000 people? I don’t see it.”

It’s too early to say what lasting effects the global COVID-19 pandemic could have on commercial real estate. The pandemic is another major blow to retail real estate and especially enclosed shopping malls, which have long been challenged by the convenience of e-commerce. Even open-air lifestyle centers, with their mix of dining, entertainment and big gathering spaces, could see a temporary drop in traffic when the outbreak ends but consumers are still nervous about spending time in public. But other sectors of commercial property that have been mostly unchallenged by the internet — like the office market— could be reshaped by coronavirus, experts say.For full story, visit: https://www.bizjournals.com/tampabay/news/2020/04/10/for-a-decade-tampa-bays-commercial-real-estate-has.html

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COVID-19 Trends

COVID-19: A Message From Franklin Street’s CEO, Andrew Wright

The current Coronavirus situation presents serious challenges for all of us personally and professionally. As a client of Franklin Street, we hope you are doing well through these difficult times, and we want you to rest assured we are here, ready to help. We are following all local and national guidance to protect our team members so they can remain healthy, safe and ready to address your needs. 

Franklin Street believes we have an obligation to help drive the American economy forward. Our technology systems and support structures are fully operational, and our teams are working closely with clients on solutions that will sustain their business objectives throughout this time of uncertainty. The American economy is coming into this situation as the largest and strongest economy in the world, and we are optimistic that we will not only emerge from this disruption, but our recovery will bring with it significant opportunity for our clients.

Times like these leave me particularly aware that we are fortunate to have outstanding clients and team members. I have every confidence that, just as we have done in the past, our partnerships will continue to deliver value far into the future.

Andrew Signature

Andrew Wright, CEO & Managing Partner