Deals are today are almost all off-market
NAREIM Acquisitions meeting
January 19, 2021
Sellers are no longer going out to the full market with a transaction, the NAREIM Acquisitions meeting heard this week.
Instead, brokers and sellers are concentrating on certainty of execution by going out to a select group of potential buyers.
Covid-19 and work from home has changed many aspects of the real estate investment management business. For investment teams, it’s resulted in how acquisition professionals source new transactions, and how they build new relationships with prospective sellers.
The group agreed that – as firms remain largely desktop – it was critical to find ways to build new relationships online.
Deals are largely built around relationships, the ability to know someone, spend time with them, laugh with them, eat and drink with them and understand them as a person and as part of an organization.
That ability to network, and build new relationships, has been dramatically curtailed resulting in acquisitions professional leaning in to people they already know. And thinking through new and innovative ways to build new relationships in new markets and segments. Download the presentation on the deal lifecycle process.
Key takeaways from the NAREIM Acquisitions meeting also included discussions on the rise of amenities for office and multifamily in the immediate wake of Covid, as well as how teams are adapting their deal lifecycle process to better understand a market – and conduct due diligence.
One of the most critical aspects of the deal – the ability to kick the tires, inspect the building envelope, the mechanicals, the roof, to understand the cap ex already invested, and the cap ex required to make the business strategy work – has undergone a significant transformation. Where investment teams cannot get to the asset, third parties are touring buildings utilizing video to communicate and walk them through the building.
The greatest challenge, attendees heard, was the inability to understand the context of the asset – the surrounding area, the infrastructure, the people, the sense of community or buzz of a location. Where travel can be undertaken, there is now a realization that the number of people seeing a deal will be reduced significantly. It’s a trend that could remain for the medium term – a select number of investment professionals tour the asset, and report back through video, digital twins and other means to the other people on the investment team.
The use of digital twins – a 2D or 3D model of a physical building, bringing together real-time information from building sensors relating to building installations as well as space utilization – could accelerate post-Covid, not just for asset management and architecture and engineering teams, but also for transaction teams. Members discussed the emergence of baseline digital twins, which provide a less detailed, but lower-cost, quicker version of the full model.
When data is a commodity, where do investment teams look to get a competitive edge? Attendees discussed how they are adapting their research and analytics strategies to include more real-time data on demographics, job growth and consumer appetite.
Back to work office occupancy data: Kastle Systems uses its keyfob/entry card data to provide a snapshot view of live occupancy in offices. The Kastle back to work barometer covers 2,681 buildings in 138 cities.
Vaccination rates: Becker’s Hospital Review ranks states by the percentage of Covid-19 vaccines administered each week. To date, 36m doses have been distributed in the U.S. with 46% administered, resulting in 5% of the population being vaccinated.
LinkedIn. An ability to understand more real-time data on job and industry growth across the U.S. The LinkedIn workforce report data feeds from 173 million U.S. LinkedIn profiles, 20,000 companies and three million posts per month and covers monthly hiring rates by industry, migration, population gains and job openings.
Cell phone, geolocation data: Social media companies know everything about you to the point where they are sending adverts to your feeds before you even realize you want to buy that product. But it’s not just social media companies that are able to access that type of information. Geolocation data provides a treasure trove of information relating to travel patterns within a market, shopping habits (how long people linger in areas/stores, where they go before and after visiting an asset etc), average income and age of a market.
Download CCIM Chief Economist KC Conway's takeaways on emerging data sources to watch for in 2021.
But when can data be too much – or kill a deal?
Members discussed the need – given the mass of data from cell phones, social media and new data sources – to hire specialists, either internally or externally – to aggregate, validate and synthesize the information so it aids the business strategy and doesn’t bog it down under a data overload.
One attendee also raised the issue of gentrifying areas and whether data can kill a deal that is in an area on the cusp of gentrification? Finding the balance between data and experience remains a critical role for investment teams and the investment committee.
What’s on your mind?
Members use the NAREIM meetings and discussions to find best practices to challenges and situations they are facing. Here are highlights of some of the issues on member minds.
The end of micro apartments. One attendee asked if units needed to be bigger or have a work space to adapt to our work-from-home reality, amid an expectation that office workers will be given some degree of flexibility in the future? Members discussed current occupancy rates of urban assets and reasons provided by tenants for not renewing. The most important one cited was the need for more space, followed by neighbor noise and people chasing concessions.
Rise of the amenities. Both for office and multifamily assets, “you will need every amenity you can think of” to entice people back to the office and into apartments in the short-term. For office, one member said cost-sensitive companies will embrace the savings provided by work-from-home; but for companies traditionally taking Class A space, space needs will change and adapt – with amenities (both physical and health and wellness) required to entice workers back to the office.