The Coronavirus Has Changed How To Raise Equity
Nearly 1,000 people registered to watch Bisnow's Raising Equity and Sourcing Deals: The Health of The Capital's CRE Market and Economy webinar last week. Edwards joined Northwood Investors Managing Director Daniel Palmieri, Appfolio Investment Management Director of Product David Gaultiere in the webinar moderated by Bisnow West Coast Vice President Michael Guimond.
Before the coronavirus, the commercial real estate market was riding a historic high. The U.S. economy continued to chug along, posting 100 straight months of employment gains and recording record low unemployment numbers through January of this year.
But commercial real estate economists had warned of another recession and said that business would turn. The pandemic has taken that downturn to a whole other level: in four months, nearly 50 million people have filed for unemployment benefits. A recent Deloitte U.S. economic forecast report said that the coronavirus "will do permanent damage to the American economy."
"The pandemic has dealt a massive blow to consumer spending and GDP, and uncertainty about medical and economic issues will likely hold back investment," the report by Daniel Bachman said.
Palmieri of Northwood said last year, his company enjoyed finding deals in a competitive marketplace.
"It was easier to find deals and there were willing sellers," Palmieri said. "As long as you were meeting the mark, you were able to get transactions done. But today, the private market deal flow has slowed down quite a bit. Everybody is just here waiting for distress."
The hardest part of getting deals done right now, Palmieri said, is you can't physically tour buildings/assets or have face-to-face meetings with clients.
Edwards said, generally speaking, raising capital has also become very difficult.
"With capital being raised, there's going to be some winners and losers since investors are really hesitant to underwrite a new relationship over Zoom," Edwards said. "I think a lot of first-time fund managers that are out in the market might face some challenges. That being said managers that have a well-established track record and strong existing client base will find it relatively easy to raise capital."
To ease the concerns of investors, Gaultiere said Appfolio and other companies have been overcommunicating with their investors during this time, making sure they all know how rent collection is faring and the general market outlook.
The CRE transaction market has also slowed tremendously but it varies by property and region, panelists said. The multifamily and industrial sectors are faring well. Meanwhile, retail and hospitality are struggling. Some companies are lining up to find some distressed retail deals for repositioning.
And despite the current pandemic, Gaultiere said there are deals to be had.
"We have customers whose investors are ready to invest when the right opportunity comes along," Gaultiere said.
Palmieri said while the pandemic has created a challenging environment, "if you believe in an asset, you can definitely underwrite it and come up with a value. Whether or not the seller will agree with you is another question."