Smaller Sales Shine Amidst Larger Deal Declines
"Adaptability through different economic markets make smaller sales an attractive option to their larger counterparts, making them an option for investors seeking to diversify their portfolios." William Levy, Founder and Senior Director - IGRE
In the evolving CRE landscape, smaller sales are making a surprising comeback over their larger counterparts, defying conventional wisdom.
Trend reversal: Historically, CMBS loans below $50 million were considered more vulnerable to delinquency than their larger counterparts. However, recent data from Trepp’s CMBS Delinquency Report reveals a break from this norm, marking only the third time this has occurred in 13 years. Such counter-trends often indicate unique investment opportunities, hinting at a chance to capitalize on undervalued assets.
Comparative analysis of sale volumes: A report by Green Street highlighted that property sales totaling $38.89 billion were recorded in the first half of 2023, a sharp decrease from the $55.12 billion of the prior year. When segmented by sale volume, sales in the $25 million-plus range witnessed a staggering 61% YoY drop, while the $5 million-to-$25 million bracket experienced a milder 29% fall.
Changing dynamics: The current trend is attributed to a change in buyer demographics. Private buyers, which include family offices, wealthy individuals, and small syndicates, are more active during economic hardships. These investors, unaffected by institutional constraints, can adapt to high volatility, making strategic purchases while waiting for market recoveries. Larger institutions and corporations often overlook smaller deals due to comparable resource investments required, giving private capital buyers a competitive edge.
➥ THE TAKEAWAY
Big picture: Private capital buyers are now in a favorable position, often aided by robust banking relationships and a potential preference from banks for smaller, more manageable deals. As the market dynamics evolve, these smaller transactions not only prove their resilience but also highlight the strategic value they can offer to discerning investors.
By Jordan B. - Aug. 29, 2023
Posted in CRE Daily