The Milford Crossing shopping plaza. Photo courtesy of JLL Income Property Trust.
Commercial real estate investors are seeking safe havens in sectors such as grocery-anchored shopping centers as they gauge the depth and duration of the economic crisis brought on by the COVID-19 outbreak.
Acquisitions of properties containing “necessity” businesses such as supermarkets during government-imposed stay-at-home orders continue to move forward, said Scott Holmes, national director of retail for brokerage Marcus & Millichap, in a webinar Friday.
“By far, the [deals] that are moving forward are necessity-based, with grocery anchors, drug stores and national outlets,” Holmes said.
The widespread bans on dine-in restaurant service are forcing a second look at the entertainment-based formats at properties that have added extensive restaurant and fitness components that are resistant to e-commerce competition.
The language of some retail transactions are being modified to reflect the deep declines in customer traffic expected to continue for several months, Holmes said. One seller agreed to place money in escrow guaranteeing that the property would have 95 percent occupancy for at least four months to ensure that the transaction went forward, he said.
Multifamily properties are still assessing the impacts on their rent income from massive unemployment filings in late March, with nearly 10 million Americans filing for jobless benefits. In the short term, landlords can defer payments on Fannie Mae and Freddie Mac mortgages up to 90 days if they suspend evictions for non-payment.
Apartments remain a perceived stable investment category in the short term.
“The owners I’m talking to feel very strongly about the overall market and as we go through this, especially with the workforce housing and the class B and C product, the demand is going to be very strong,” said John Sebree, national director of multifamily for Marcus & Millichap.
Industrial properties had been in demand among investors leading up to the crisis, and could benefit from the continued expansion of e-commerce in lieu of face-to-face transactions, said Alan Pontius, national director of office and industrial. But the sector faces risks from a broader economic downturn affecting manufacturers and other smaller operators.
“The mental picture in peoples’ minds is a giant distribution facility with Amazon in it, but industrial is also a lot of small-bay units with small business tenants. And in that regard, that’s where it gets similar to office and retail,” Pontius said. “These small businesses are suffering.”
