Steven Silverman is a commercial real estate (CRE) broker at Friedman Real Estate, specializing in the acquisition and disposition of properties nationwide. He’s worked in multifamily, single and multi-tenant, office, industrial, hospitality, and self-storage facility assets. He also assists clients with tenant and landlord lease representation, sale-lease-backs, 1031 exchange, and a range of CRE advisory services.
Recognized as a leader in auction transactions, we spoke with Steven to get his insights into why buyers are favoring retail, even though it’s one of the most impacted property types affected by COVID-19. Read on to learn how commercial real estate investors view retail properties as attractive investments with favorable growth potential.
Crexi: What does the current retail auction landscape look like today, six months post-COVID?
SS: Fortunately, there has been a significant amount of dry powder and liquidity sitting on the sidelines for several years, which is now being deployed into CRE during the COVID period. From an investor volume perspective, we’ve also seen a significant uptick of net new and existing buyers bidding on auction properties during the pandemic. Sellers are motivated, and while pricing has been impacted a bit, we’re not experiencing a “fire sale” situation by any means. We expect the same activity to continue into the end of the year and Q1 2021.
Crexi: How do current distressed retail assets hitting the market compare to distressed assets from the 2008 Global Financial Crisis (GFC)?
SS: We’re still very much in the early innings of an impact on the commercial real estate business. Most commercial loans remain in forbearance, and when you add the unprecedented stimulus, PPP loans, etc., the COVID situation has been far different than the GFC when the world came crashing down all at once.
With that said, there is not a flood of distressed retail assets on the market, although we do expect that to change early next year. The struggling retail narrative is very much real, especially on Main Street. Big businesses, particularly with an ecommerce presence, will continue to strain local retailers, and we’re sure to see more loan defaults throughout the industry in the coming months and quarters.
Crexi: What are investors looking for most when it comes to retail assets? What is the sentiment and thinking behind their searches?
SS: Everyone in the retail investment community is looking for stable tenants that can weather the ecommerce storm. Dollar stores, service-based retail, drugstores, auto parts, QSR, etc. are performing exceptionally well. Many investors currently are avoiding multi-tenant shopping centers with large boxes, given the current difficulty of backfilling.
Crexi: In which markets are you seeing the highest level of interest and activity, and what factors contribute to their transaction volume?
SS: The Southeast, and Midwest, as well as specifically Texas, continue to perform exceptionally well. Buyers on the coasts are having difficulty finding attractive cap rate yields, while the Midwest offers value-add opportunities not found in other markets. Compared to other states, Texas has the fastest-growing population in the country and incentivizes investors with no state income tax. The Southeast continues to attract investors from across the country, given its climate, population growth, and overall retail outlook.
Crexi: What advice would you give to your peers representing retail assets at this time?
SS: Keep calling and servicing your clients. This is not the time to sit back and wait. You need to be more proactive than ever right now!
Crexi: What trends should investors keep an eye out for in the retail asset class?
SS: I don’t believe retail is dead. I firmly believe that it’s merely evolving. Out with the old, in with the new. Are we overbuilt across many markets? Absolutely. However, I believe in America’s entrepreneurial spirit — I am confident that empty boxes and small shop spaces alike will get backfilled by modern retailers and alternative uses to thrive in the new, post-COVID economy.
