Investors save money during boom times to buy distressed property when things slow, but what’s a post-pandemic bargain? Should they buy offices or retail? It’s not clear.
MELVILLE, N.Y. – Commercial real estate investors are raising funds to acquire distressed assets, but even with cash in hand, what should they focus on?
Long-term speculation on changes brought about by COVID-19 aren’t clear yet, and these investors face uncertainty about the retail, office and hospitality sectors, says Doug Greenspan, a managing director at A&G Real Estate Partners, during a recent Turnaround Management Association (TMA) webinar.
“One scenario is that many people will go into the office for just a couple of days a week,” says Greenspan. “Even if that’s just 10 or 15% of workers, you’re talking about far-reaching effects on the demand for space and, in turn, the value of office assets.”
The webinar, sponsored by TMA’s Central Texas chapter, focused on the effects of Covid-19 on real estate. Greenspan, whose firm is providing real estate services and advice to the likes of DSW, Ruth’s Chris, IT’S SUGAR, and Cinépolis, talked at length about retail.
“Underlying issues that were visible in retail pre-Covid really came to a head with the onset of the pandemic,” he told the audience. “Retailers that were on everyone’s watchlist have since filed for bankruptcy. Our own Chapter 11 client list now includes, among others, GNC, Pier 1, Ascena Retail Group, Tailored Brands, Tuesday Morning, Modell’s, Stage Stores and Nieman Marcus.”
Before the pandemic, the growth of internet shopping affected foot traffic at malls and stores, which impacted sales-per-square-foot productivity, even in historically strong retail markets. “In the fall of 2019, we were seeing retail rents decline in just about every submarket in New York City,” said Greenspan. The accelerating shift is now spurring some retailers to speed up the implementation of what were formerly medium- or long-term plans to ramp up their ecommerce platforms.
Companies that can ramp up internet sales to balance a decline in their brick-and-mortar locations “are already reaping the dividends,” Greenspan said. “The trend is so pronounced that it is fueling strong pricing for fulfillment space in the industrial sector.”
Greenspan said he’s had a lot of discussions recently with restructuring attorneys, and they made it clear that various funds are preparing to acquire distressed real estate assets, not only in retail and office but also in hospitality.
“As this drags on, they are ready,” Greenspan said. “The capital is out there.”
While uncertainly still characterizes the post-pandemic picture, Greenspan some things are still clear.
“To be sure, retailers are going to be closing thousands of locations,” he said. “It’s going to be tough. This is not the end. But we will see some winners here – smart operators that optimize their real estate to cut costs, improve performance and position themselves for the new normal to come.”
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