While the late summer might see a pause in net lease transactions, Camille Renshaw, CEO and Founder of B+E, thinks there is still plenty of interest from large institutional investors.
B+E recently did a series of calls with investors. Renshaw says her smallest client on the calls had $250 million in dry powder, the largest had about $2 billion and the average one had between $500 and $750 million.
“They have capital that they needed to get out,” Renshaw says. “They had earmarked for this year. When all of this [COVID-19 shutdowns] happened, everybody froze, and nobody was spending money for fear of what would happen with their tenants.”
But after April, May and June passed and paycheck protection program loan payments were distributed, Renshaw says institutions gained a better handle on what tenants were paying. “Then they opened [investing] back up,” she says. “So they are coming out with voracious appetite for larger deals. That doesn’t mean $100 million deals, though we’re looking for a lot of those right now.”
Generally, Renshaw says institutions are interested in deals that are $10 million or more. “They’re just trying to get capital out in big slugs,” she says. “They can’t do it in small pieces.”
As institutions seek out larger deals, the 1031 buyers who target smaller assets may move away from the market.
“There might not be as much 1031-exchange demand for smaller assets,” Renshaw says. “Although I don’t think it’ll dry up entirely. There’ve been trades, and people have to exchange. We’re working on a bunch of exchanges right now. But I think you’re going to see the institutional players come in and gobble up a lot of the property because they just have to get the money out.”
Renshaw also thinks tax consequences could force institutions to be active. While there may be a lull in the late summer, Renshaw expects the action to pick back up in the fall.
“They [institutions] come back after Labor Day, and they start spending money,” Renshaw says. “They start cooking like crazy and finding everything they can find.”
Whenever there is a rush to spend money, there are questions about making prudent buys. While any deal needs to meet underwriting requirements, Renshaw says a real estate investment is preferable to the alternative right now.
“The money is sitting in accounts and creating very minimal returns,” Renshaw says. “They [institutions] want to get it into good properties. They’re not going to make risk-averse decisions. They’re going to have strong underwriting for all of this stuff. There is going to be a big drive to get the money out.”
Even if there are more lockdowns with COVID or other economic issues, Renshaw is optimistic investors will spend.
“I think we’re going to continue to stay at the same level or even ramp up more activity because people will just start to figure out how to get deals done,” she says.
