Glen Kunofsky is the Founder and Chairman of the NNN Pro Group and is a Senior Director of the National Retail Group and Net Leased Properties Group of Marcus & Millichap Real Estate Investment Services. Mr. Kunofsky has a track record of brokering, acquiring, and managing over 3,500 commercial properties throughout the United States, representing an aggregate value of over $5.5 billion. His long list of loyal clients including some of the nation’s largest CRE institutions, including publicly-traded REITs, private equity funds, hedge funds, and high net-worth individuals. His vast knowledge, experience, and attention to detail have made him a leader in the industry.
Glen’s firm, STNL Advisors, provides consulting services to franchisors, franchisees, and private equity firms by developing comprehensive real estate solutions for assets in existing portfolios and acquisition pipelines. They currently have 20+ advisors available to walk clients through lease negotiations and other issues in the wake of COVID-19.
We sat down with Glen to get his insight into the impact of the coronavirus, what advice he’d provide to CRE professionals, and how the landscape will change in the wake of current events.
CREXi: What is your overall read on the pulse of commercial real estate today?
GK: My view is market turbulence is actually a good thing for the industry. Values are being impacted negatively across the board, but specific sectors in demand for CRE are moving upwards. There are winners and losers in this environment in terms of property types: People who are overleveraged and not smart will be hit harder than those with intelligent advisors and are well-capitalized. This turbulence will reveal excellent opportunities to buy, and these players won’t get hurt as badly as those who made irrational decisions in a very frothy market.
For example, everything in the last few years focused on the market as a post-Amazon environment. As such, experiential properties and opportunities were in high demand, and those are precisely the businesses hardest hit right now! Movie theatres, restaurants, bowling alleys, anything with large amounts of people that you couldn’t replace on the internet was in high demand. In a post-coronavirus world, those companies and tenants are struggling.
This creates an even playing field for the stronger companies and business models to survive in the end, while weaker ones won’t emerge on the other side. The same thing applies to real estate: strong locations will still see high demand.
I’m confident commercial real estate will emerge, but not without wins and losses. People certainly want to talk longer and in more detail about things on my calls.
CREXi: As a result of the current climate, how do you see technology impacting the future of CRE?
GK: It’s going to have a permanent impact, and there are short and long term tech implications, certainly. I don’t know how quickly people are going to return to commuting long hours and sitting in tight corners inside crowded office buildings in major metropolitans. I think office property types, especially urban offices, may lose in the short and long term. People are getting used to working from home — it may be that a certain percentage of people stay there and urban office demand will go down.
Suburban office has been a weak point in recent years, but now it may be an upcoming winner. Outer cities, smaller offices, and locations closer to homes may be more desirable — tech enables that to happen.
Retail, too, will be affected. People are ordering everything from pet food to toilet paper online, and the Amazons of the world will continue to meet that demand. Other companies with stable digital platforms will impact brick-and-mortar retail, most likely in the long run. The pressure on small companies in strip centers was already there, same with older strip-center type real estates and even big malls. If we went through the coronavirus 10-15 years ago, customers wouldn’t have access to these goods online or order food. They’re not likely to return to the old ways even once this clears.
CREXi: What should brokers keep in mind as they assess changing market conditions? How and what should they communicate with their clients?
GK: This is an interesting question because I’m pretty old school about talking to clients. I’ve actually found that there are plenty of brokers that have adapted TOO MUCH technology and think it can take the place of smart communication with a client. Sending out a market update email doesn’t spark a relationship. Many real estate owners are my age and older — we don’t stay up late or look at blanket market coverage emails. The old-school way of calling someone directly and talking to them about what’s going to happen in the market is still the best method. We’re selling properties with millions in value, that’s worth breaking bread with a client to form a relationship with them (or in this environment, a Zoom call). For brokers, the underlying fundamental is to add value. Period.
CREXi: What sector within the CRE space do you feel will be most impacted? Least impacted? Quickest to recover?
A: I think leasing will be impacted in the near-term pretty hard. We will have some defaults and an increase in higher vacancy areas, and it’ll be difficult in some of those sectors I mentioned above. In a post-coronavirus environment, single net lease tenants who made it through this with a long-term lease will still be solvent and doing well are the entities who landlords will favor. With the volatility we are seeing in the stock market, people who lost 25% of their stock value in two months who also own commercial real estate will clearly see the stability CRE assets provide and gravitate towards those assets in the future. Particularly now that we see such low interest rates, demand will want assets that provide 100% tenancy and won’t have to deal with continually re-networking and leasing to new tenants. An excellent single net lease tenant will be many landlords’ golden goose: a McDonald’s on a corner will perform better more consistently than a whole, closed-down strip mall during and after the coronavirus.
CREXi: What advice would you give your clients during this time? What advice would you give your colleagues?
GK: You must be patient. There’s risk to every investment, and I believe we will all get through it. CRE isn’t a place to make hasty decisions. Stick with your principles, don’t sell or discount too quickly — you have to work your way through this market, and we’ll emerge on the other side hopefully sooner rather than later. Dig into every bit of information before making a decision, study the documents, property, contracts, and hire the best experts to find opportunities in every situation.
CREXi: What are some lessons that you learned from 08-09′ that could be applicable now?
GK: First, it’s always good to have reasonable levels of leverage. My clients that didn’t over-leverage when it was available are in better shape now, as they can sustain a tenant or two not paying for a couple of months. This is not true of landlords who leveraged 80-90%.
For brokers and principals, self-promotion is ever-important. I use the top expert in whatever field I’m researching, so promoting and positioning yourself as the best advisor to help people through the situation is crucial. Don’t get caught up in fees or discounts: in good times, brokers undercut each other to offer the best rates. In times of crisis, people gravitate towards the expert and will pay whatever it takes to get a property to the best place the fastest.
Finally, commercial real estate isn’t day-trading. Remember not to sacrifice fundamentals for deals in terms of the investment market.