January 13, 2021
By Dennis Kaiser
The past year in commercial real estate has been one of the more interesting and challenging ones in history and the coming months promise to be equally compelling. As we look ahead, Connect Media queried Crexi’s Robert Anderson, VP of Transactions, to ascertain what he sees for the CRE sector in 2021, as well as insights into what he finds most intriguing about the coming months.
A pressing matter will be the need for innovation in retail and office, according to Anderson. “How do owners and operators reposition these properties, specifically vacant big boxes and malls?” he asks. “In the past, these suffering assets were great opportunities for investors to repurpose the space into storage, but with multiple assets suffering from high vacancy, I believe real estate investors must consider other alternatives like mixed-use, including resi/retail and office.”
Given the turmoil and dislocation that has already occurred, Anderson proposes several focus areas in 2021 and why they deserve attention. They include:
Notes: Short-term bridge notes, in particular, should have higher interest rate exposure so they will be in an interest rate default, not LTV.
Asset Type: Retail, hospitality, and office asset types appear to be hit the hardest by COVID-19 and will all need some transformation to continue to operate in the black.
Location/network: Anderson advises to look outside of the special servicers and towards local, regional banks. These local and regional banks picked up a great deal of lending slack earlier in the decade, while the investment banks were hesitant to dive back in aggressively.
Brokers learned how to navigate the challenges presented in 2020, and in the coming year, they will need to continue adapting and expanding their toolboxes to be successful in 2021.
Anderson says, “Most brokers navigated 2020 by leaning on technology to help market their listings. Successful brokers will need even greater access to data. The more information they have – the better suited they are for success.”
It also appeared that many brokers were acting in more of an advisor capacity to their clients, guiding them through these turbulent times. “Brokers were more focused on how to be advisers to their clients as opposed to focusing on the transaction,” adds Anderson.
For example, he cites many clients/owners in the hotel, retail, and office sectors who took a big hit to their revenue line. This hit centered many client conversations in 2020 around how they had to deal with tenants not performing on their leases. Thus, they spent significant time this year negotiating with tenants and overcoming nonperformance.
Anderson says some approaches worked well in 2020 and some didn’t, and the cumulative effort provided key learnings in the future. He says what stood out was patience and staying the course. “2020 was a turbulent year that at some points appeared it never was going to end, but we got through it, and here we are in 2021. People will be back at full capacity to acquire and dispose of investments soon enough,” he predicts.
Conversely, those who followed a panic reaction did not fare as well. Anderson says, “The market bounced back quickly and is working its way back. Those that were quick to react probably regretted their knee-jerk response after a couple months.”
According to Anderson, the strategies expected to serve sellers the best in 2021 are anchored in holding onto one’s convictions. Yet, “If you’re in a position of necessity to sell, then it would be best to act quickly to beat the rush of inventory that we perceive will hit the market at the end of this year and early in 2022.”
Additionally, Anderson recommends that both sellers and buyers’ team-up with a good brokerage team with a pulse on the market.
Technology served a key role for successful brokers and sellers in 2020, and that trend is expected to continue going forward. “Active brokers and sellers will continue to increase their use of technology as they continue to find that adopting such advancements truly improves their tactics and provides efficiencies,” points out Anderson. “But the most successful ones will find a way to leverage services that work together, so they can eliminate the number of platforms they are utilizing.”
Crexi is a prime example of a technology that helps close deals, notes Anderson. A broker can use the site to list assets for sale and lease, manage marketing efforts and contract for those assets, all while staying onsite to do the market underwriting (comps). A seller can list, manage multiple broker relationships, buy, offer, and educate themselves (through comps) without ever leaving Crexi.com.
Incorporating online auctions into CRE playbooks make sense now more than ever before. Online real estate auctions no longer have the negative (read: distressed) connotation of the past and have become more commonplace this past decade, with a few billion dollars trading hands via auction annually. They have become a viable way to improve deals’ exposure and bidder transparency, which — combined with a date-certain event — can improve execution.
Anderson says, “A major selling point is the certainty of the deal in hand. In todays’ uncertain times, knowing who is buying the deal, at what price, and receiving a 10% deposit to open escrow the same day they execute the non-contingent PSA makes things much more tangible.”
In the case of Crexi, the platform has amassed a large audience in its marketplace business. Anderson says, “Our monthly average users just hit one million and with the glut of distressed properties about to hit the market. Crexi is well-positioned to win that business and have a multitude of qualified buyers engaged and ready to transact.”
There are a host of advantages, efficiencies, and ROI that can be leveraged through auctions to a seller’s benefit. Anderson notes those include bulk sales, a competitive environment, more exposure, certainty of close, and a fun experience. Additionally, auctions provide the ability to set a minimum price (reserve), reach a global market, convey the bidder’s guidance, and make all decisions with maximum transparency.
The growth and adoption of transacting online have been fueled by enhancements and improvements to the auction experience, too. “Auction firms such as Crexi have worked diligently to build a platform that expedites the process,” says Anderson. “That includes a live feed that lets you know the bidder is viewing the site. Crexi’s listing platform also creates a captive audience allowing for shortened marketing timelines.”
Today’s online auction platforms may surprise brokers in that they feature technology that’s continually evolving and improving. Not only is the buyer pool significantly expanded via an online auction, but the process has also shifted away from a past perception that auctions were the last option for distressed assets. Those who use online auctions soon realize it is a viable way to improve deal exposure and bidder transparency, making room for more transaction activity.
Lastly, as more brokers are exposed to an online auction process, adoption will increase. “Earlier versions of the auction had a negative perception from the brokerage community in thinking that they were being replaced, but in reality, the auction process is not effective without a broker’s involvement,” concludes Anderson.
For comments, questions or concerns, please contact Dennis Kaiser