Investment Strategies to Deploy in the Current Market

Adam Levin and Robert Johnston with Levin Johnston of Marcus & Millichap recently shared insights and trends resulting from the industry response to COVID-19, and say activity levels will increase once the crisis passes.

PALO ALTO, CA—COVID-19’s impact on the economy has left many investors rethinking strategies–even in strong, high-demand markets such as the Bay Area. While some investors are sidelined as this pandemic evolves, many view this as a time to take advantage of strategic commercial property investment opportunities.

In this exclusive, Adam Levin, executive managing director, and Robert Johnston, senior managing director with Levin Johnston of Marcus & Millichap, recently shared insights and trends resulting from the industry response to COVID-19. In addition, they shared advice for investors looking for opportunities in this uncertain time. It’s been more than a month since shelter-in-place orders were enacted in the Bay Area. What impacts have you observed on real estate investment activity thus far?

Levin: Coming out of a record-long bull market, many of today’s players experienced this upswing for the majority of their careers. A lot of what we’re seeing is simply increased caution when it comes to moving transactions forward and planning for the near future. People are now realizing they–and their ‘sure-bet’ investments–are not invincible.

One of the most significant immediate impacts we’ve observed is that lenders are being much more conservative in their underwriting and are even closing their doors completely to some borrowers at this time.

That said, there is still ample capital available and we’ve found that pre-established trust is crucial to securing competitive terms. For example, we’ve been able to help our clients secure financing even within the last few weeks through leveraging our own long-standing lender relationships. Are there opportunities in this environment?

Johnston: It is a misconception that the industry has come to a screeching halt. In reality, the degree to which transactions are being affected varies greatly and can depend on which stage in the process they were in prior to the pandemic, as well as several other factors.

In the Bay Area market specifically, we observed investor demand far outweighing the supply of available properties for sale at the beginning of the year, especially for multifamily product. While there may be additional hoops to jump through and delays, this demand still exists for well-located assets.

For example, we have over 500 multifamily units as well as some retail properties currently in escrow in the region and are witnessing buyers proceeding to remove contingencies to get deals closed in some cases. How can investors take advantage of the current market and mitigate risks?

Levin: Naturally, there is no established playbook on how investors should respond nor is there a crystal ball to predict the many uncertainties that remain even as we reach what is hopefully the peak of the pandemic in the US. However, we are very optimistic that this will not be a full-blown recession and delays will be short-lived.

In fact, lengthened closings can be an opportunity for renegotiations that can benefit both buyers and sellers. Drawing on our own expertise throughout market cycles and understanding that lowered returns are temporary and yields will increase, we’ve been able to successfully advise our clients and complete satisfactory closings since the pandemic was declared, and anticipate several more to follow in the coming weeks.

While investors should navigate this time with caution and delay moving forward with transactions for which they cannot currently complete full walk-throughs or due diligence because of logistical issues caused by the strict orders in place, we remain confident that activity levels will see a robust increase as we overcome this hurdle. “SOURCE: GlobeSt.”



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