A Look at Industrial Investments During COVID-19
We are facing an unprecedented global crisis that will have a lasting impact for months and years to come. Not since 9/11 has life been altered in ways that will require drastic modifications to our daily routines. Time was needed to heal then, and it likely will take a while to return to some sense of normalcy after the current pandemic. But what can we do now to make the most of what is available while continuing to conduct business?
A common misconception right now is that all deals are on hold and there isn’t much left to do but wait. According to Minneapolis-based SIOR Mark Kolsrud, senior vice president of Colliers, waiting would be a mistake.
Transactional opportunities are still plentiful—if you know where to look. The industrial sector in particular is thriving in many areas, and in some instances, even struggling to keep up with overdemand. Many suppliers of essential products are over-capacity and seeking new storage options to meet demand. Those kinds of non-essential storage facilities are a prime place to modify assets and capitalize on the situation.
“We are getting calls daily from investors looking to buy,” says Kolsrud. “This is not a down market when it comes to investments. We are representing buyers looking for opportunities throughout the country.”
According to Kolsrud, investors are still looking to close transactions in the current economic climate. He would know, considering he just closed the largest deal in Minnesota history, an industrial portfolio sale comprised of 59 properties and 7 million square feet that sold for nearly $650 million. The record-breaking sale came about when a large investment firm sought to expand its Midwest and West portfolio to expand its holdings and capitalize on the Twin Cities’ booming investment market.
While it may seem like an anomaly, miracle, or fluke depending on where you stand, this transaction indicates a few trends in the market:
- Large investment firms are seeking to close transactions.
- Industrial property is more popular than ever, due to its high liquidity and sustainable momentum. It is a sector that continues to grow amidst a pandemic that has brought global economies to a standstill.
- Bigger is better: multi building portfolios are the most sought after product
With transactions still happening, the COVID-19 downturn is no time for commercial real estate professionals to tread water. So how can you capitalize on those potential industrial investments and deals? Here are four considerations Kolsrud suggests abiding by while working on closing a transaction in 2020.
1. Know Your Investor
Not every investor is the same. Some have dry powder and debt sources, while others have large barriers to capital. Underwriting the equity behind each investor is crucial.
Additionally, some investors do their best to make every closing as smooth and pain-free as possible. Others have a reputation for re-trading deals, which can make the 30- to 60-day due diligence window even more frightening. Be wary of these investors, as the current pressure on the investment market is providing incentive for more misbehavior than ever. If you know that an investor is not likely to re-trade the deal, you can ensure yourself—and your client—greater peace of mind.
But even for the most trusted investors, approvals could be difficult. Knowing the approval process for a buyer is key to closing a transaction—a conservative investment committee can kill a deal after months of careful negotiation.
2. Consider Your Client's Portfolio
This is the most labor-intensive step in the process. First, you will need to assess the situation carefully from the point of view of your client, and there are some critical questions to consider: Is there a need to sell a portfolio, and can it be sold? What type of buildings does it consist of? Where are the buildings? Are the tenants credit-worthy, and what are the physical and capital needs of the portfolio? Does the client want to sell, and what are the incentives to do so? Is your client looking for a way to manage retail, hospitality or office property costs?
Additionally, you may need to break up the portfolios into sub-portfolios to maximize value, or the portfolio may be worth more than the sum of its parts. It may also work to capitalize the portfolio, meaning that the owner continues to oversee property operation and is able to monetize the portfolio with new investors. This is a win for new investors too, as they benefit from the owner’s experience in the market.
Second, determine what type of buyer is best. Every portfolio presents unique opportunities and challenges. Depending on the portfolio or sub-portfolio in question, selling to a large-presence investor that buys core product, selling to a developer or even completely repositioning the portfolio are all valid options to consider.
3. Utilize an Established, Expert Network Like SIOR
SIORs can help you identify potential clients who need your expertise or spacing availability. “My SIOR designation gave me insight into my specific market and helped me develop relationships with professionals and investors in markets all across the country,” said Kolsrud.
4. Value Integrity Over Income, Every Time
When faced with a temperamental market and uncertain future like we’re seeing today, it may be tempting to place a higher premium on just getting all parties to sign on the dotted line. Don’t. Now is the time to think about long-term relationship building. Deals are still going through, so be patient and leverage your network, knowledge of the investor, and deep insight into a client’s portfolio to negotiate a transaction that will benefit all parties involved. And if turning a deal down or shelving a transaction for later is the right thing to do, trust your instincts as a professional and know when to hit the pause button for another day or walk away. Kolsrud recently closed a large deal after working on it for 21 years. It really can be worth the wait.
“Utilizing the power of my designation demonstrated to clients that I not only had extensive experience, but that I would also be a trustworthy partner,” said Kolsrud. “SIOR professionals are known for being innovative, hard-working, and ethical experts in the market, and we would not have gained this reputation without every member working day in and day out to do right by his or her clients.”
So, whether you are dipping your toe into the investment waters to revitalize your industrial portfolio, or you are simply trying to diversify, today’s climate is actually great. However, the most important sentiment to take away is to simply reach out to your clients and listen to their needs. Just being a friendly ear or offering guidance can go a long way toward securing deals well after the pandemic has passed.
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About the Author: Alexis Fermanis is SIOR's Communications Director, overseeing communication strategy and development. She also writes and presents for SIOR on occasion. Contact her at afermanis@sior.com and 202.449.8226