skip to main content

What’s a Broker to Do? Tight Vacancy and High Interest Rates Mean No More Slam-Dunk Deals

July 9, 2024

Brokers Have to Get Creative — as in Create Deals

Brokers need to study their local markets like never before and know who the top buyers and sellers are, stressed Michael Lindman, head of sales for data and intelligence for Crexi, which aggregates commercial property data, including loans, sales, portfolio details and contact information. Investors struggling to find local opportunities are turning to Crexi to find the markets with both overt and hidden opportunities and to identify the best investment sales brokers in those markets, he said. “We just aren’t living in an environment where a broker can market a listing anymore and get a dozen quick offers,” said Lindman. “They may be coming off career years, but brokers are, by definition, people who work to arrange or negotiate a deal, and that’s incredibly true in this environment.” The implied emphasis there is on “work.”


Regional retail leasing brokerages also have become more active in mixed-use developments, said Hall, especially in transit-friendly suburban markets. “They are doubling down on their understanding of local market dynamics, demographics and consumer preferences,” she said.


And tenant representatives are showing Class B and C properties to clients who previously have gone for only Class A space. As consumption patterns changed post-COVID, premium centers with the highest foot traffic got very selective about tenants, said Ron Goldstone, executive vice president at NAI Farbman, the brokerage arm of Farbman Group. In the past, Class A malls had about a 20% advantage over their B and C counterparts in attracting highly desired tenants, but that’s grown to 50% or more in 2024, he said, stating: “There are fewer and fewer options.” Competition is so fierce that retailers are starting to look at the better-located Class B or even C centers to achieve growth, he added.


To find deals for its retailer clients, his office keeps a watchful eye on vacancies in the best locations. “This includes driving through the markets that clients are targeting for expansion and tracking CoStar by the hour,” he said. “And if we see something pop up, we contact the client immediately.”


Investors and their brokers are digging deep to find distressed property owners with lopsided loans coming due, then approaching them about selling in hopes of bringing new retail to market, Lindman said. “Given the current state of interest rates, a lot of owners with short-term debt coming due are going to be faced with a tough choice: refinance at a higher interest rate and double or triple your interest expense, or sell.” That means property owners could be convinced to become property sellers.


Avison Young also is eyeing distressed property debt, said James Nelson, principal and head of New York City tri-state investment sales for the company’s capital markets group. Based on the lender profile and origination date in a commercial mortgage-backed securities loan, the firm can determine if it’s five- or 10-year note and thus know on which properties debt is coming due. “This is what’s driving a lot of [building] sales,” he said.


Avison Young, for its part, also “is considering new approaches and out-of-the-box opportunities,” Nelson said, sometimes in places building buyers don’t normally look. His office recently sold a building for a client after listing it on Zillow listing. The buyer was seeking a penthouse but decided instead to buy the entire building. Though the Zillow approach was a one-off — “Avison Young won’t be looking to Zillow to expand its investment business,” Nelson laughed — the creativity to create deals is what’s needed now. Avison Young, for example, also is reaching out directly to end users and their brokers for recent Manhattan listings like 606 Broadway and Tribeca’s 56 N. Moore, which Nelson said offer strong branding opportunities. In New York City, retail property demand “is certainly picking up,” especially on high streets, said Nelson.


Nelson said tenant rep brokers should suggest that their clients buy their spaces if possible instead of leasing, especially if the structure will be delivered vacant. Investors tend to shy away from vacant retail buildings because they’re hard to finance, “but this could work perfectly for end users,” Nelson said.


View Full Article Here


Categories: Blog Post