Managing Deals In An Increasingly Challenging Market Environment
As the real estate market slows down, deals are taking longer to close. Lenders and buyers are scrutinizing every step of a transaction to walk away with the best terms possible as deal margins shrink. But this behavior is expected based on where we stand in the real estate cycle. Many of us who have weathered several cycles in Miami have seen these issues before. What can we expect in the near future?
- Transactions will require a higher level of sophistication – from real estate brokers to lawyers – to help sellers provide the increasingly detailed information required by buyers and lenders to close a deal.
- When underwriting transactions, investors and their brokers will have less room for errors in order to meet the yield requirements. Seasoned real estate professionals are equipped to handle this pressure.
- Lenders are putting more pressure on investors to prove revenue. The income generated by an asset has to be verifiable and pass a “cash-flow stress test.”
- Buyers will increasingly become more proactive while interviewing tenants during the due-diligence process to ensure the cash flow is stable.
- Brokers will play a pivotal role in facilitating many of the demands lenders require to verify the financial strength of tenants. This is even more applicable when verifying foreign investors, who are subjected to increased layers of scrutiny by lenders.
The good news is that a recent survey conducted by Marcus & Millichap and NREI shows plenty of interest from investors and capital to be invested. Sentiment has cooled in the past 18 months and there is more caution in the market but, according to the survey, investors still hold a favorable outlook on fundamentals and access to capital, spurring many to proceed with plans to expand portfolios.
We expect new challenges in our evolving real estate market as investor optimism eases while evaluating acquisitions and dispositions with increased scrutiny.