The pandemic has sent a shock through the real estate markets, and many buyers have canceled or delayed current deals to wait out the new market. Jon Rosenberg of Levrose Commercial Real Estate, however, is encouraging owner-user buyers specifically not to hesitate and to close current deals. Owner-users have different needs and requirements than investment buyers, and securing the right property may be more valuable than any post-pandemic discount that they may get.
“Owner-user buyers are more like tenants in a lot of ways in how they should be thinking about this. Investment buyers are in a different category altogether,” Rosenberg, co-founder and designated broker managing partner at the brokerage firm, tells GlobeSt.com. “My recommendation to owner-user buyers right now is to stand back and ask if the business is going to come out of the recovery well positioned and, if so, is this still the right building. If the answer is yes to those questions, then my recommendation is that they should not stop now. It takes a long time to find the right building.”
Price point is the biggest concern for most owner-users, who are all tightening their operating costs in light of the economic shift. “People have this fear that they could get the building for less after we come out of that, but we don’t know that is going to be the case,” says Rosenberg. “There aren’t enough numbers to show that, and all of the comps are pretty strong. Coming out of this, there could be a lot of pent up demand, which could create a run on the market.”
Pricing and underwriting should also hold up, according to Rosenberg. “For an owner-user buyer, pricing should really be based on functionality: does the building work for you? It is hard to time the real estate market,” he says. “You buy because it is right, and even if there is a dip in pricing coming out of this, I don’t know if it will be substantial enough for the owner-user type product. I would tell prospective buyers to underwrite the same way they did going into escrow and know that if there is a dip coming out of this, it may not be as much as they think, if at all.”
In addition, interest rates are rising in response to the increased risk, so borrowers who are already in the escrow process might have significantly lower interest rates. “Interest rates are rising, so borrowers that are locked to a low rate, it still could be more beneficial to close,” says Rosenberg. “Loan deals are going to be moving slowly on the backend. That is another consideration, based on timing.”
Investment buyers, on the other, hand might want to pause and wait out the market—or at least weigh different risk propositions than owner-users. “Investors have to consider their risk tolerance and the product type, which will have a different set of risk tolerances,” explains Rosenberg. “If you are in escrow on a building that has more exposure, you are going to come out of this with additional vacancies, and that will change the value. An investor has to look at the property, tenant mix and the risk when this is over.”