How Covid 19 Has Affected The Commercial Real Estate Sector

A recent virtual round table session featured a panel of Accredited Land Consultants from the REALTORS® Land Institute (RLI).

The purpose of their meeting was to discuss the effects of the coronavirus (COVID-19) on the country’s land values and on land market trends.

The panel was comprised of respected land agents from all over the country. One of the key markets that they covered was the commercial and development of land real estate markets.

Most panel participants have seen volatility in other markets as a result of the virus. However, a positive outlook for the land development market is still thought to be justified.

Matt Davis is an Accredited Land Consultant (ALC) at the San Diego office of Cushman & Wakefield. Mr. Davis believes that those in the commercial land development market are facing a significant hurdle right now, and it involves assessing the underwriting risk.

According to Davis, most of the developers, investors, and lenders he works with are confronting that hurdle right now. They can’t quite determine how much of a discount is fair. As a result, they put down their pencils and are hoping to avoid risk altogether.

Davis says buyers are still underwriting deals. However, he adds that the buyers he’s talking to are more conservative in their assumptions than previously.

Those assumptions include lower lease absorption for new construction and no expectations of rent growth for the next few years. The assumptions also include higher cap rates at the exit.

Conservative assumptions will create a lower land value than would have been true one month ago.

As for what to do next, Davis recommends that sellers focus on amassing marketing collateral and preparing to reenter the market.

Davis reports that in the development land market, he sees noticeably different impacts on transitional land. These properties are less likely to be impacted in the short term by market ups and downs.

The most significant effect on transitional land transactions is getting everyone where they need to be when they need to be there.

That means coordinating meetings and site visits with project consultants, municipalities, and everyone else whose presence is needed to complete the transaction.

Overall, Davis says, there is good news on the long-term development front.

The Land Market Virtual Round Table is presented by the RLI 2020 Future Leaders Committee. The full round table presentation offers a variety of insights about the full impact of coronavirus and associated shutdowns on the commercial development land market.

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