It’s widely understood that realignment of the bid/ask spread requires some degree of market pain. Many might imagine this as a foreclosure or fire sale scenario. Here’s what I see happening 🔮: Properties built in 2022 are often on 3+1+1 year loans (5-year terms). If the lease-up is underperforming, owners might either wait until 2026 to sell or bail now due to high carry costs. If you aren’t familiar with the term “cash-in refinance,” that’s what will be required for many in a few years— and if they don’t have the cash, sale with a partial loss of equity it is. Looking at past patterns, the devaluation process tends to be incremental. Instead of a property selling at a 30% loss, it might sell at a 15% loss to someone more optimistic. The next owner could sell at a 5% loss or even a slight profit, but still far below the initial target. By this time 5-6 years from now, fundamentals have improved. This isn’t an overnight or singular transaction rebalancing process. Everything happened so quickly during the past few years it’s easy to forget real estate investing is ordinarily a slow game.
Tron Jordheim
6mo
I have talked to a few people just recently who said they had notes due this fall so they are selling now.
Tron Jordheim
6mo
Years ago when golf courses were risky deals, someone told me it was the fourth owner who actually made any money at it.
Healthcare Professional passionate about Population Health, Quality Improvement and Ambulatory Care!
6moAren’t these owners working with 4.5% capital costs. I don’t think there is as much pain and tenants are exiting the older properties and moving to state of the art facilities. Groups that are built on portfolios from the 80s-late 90s will feel More pain in my opinion. If I as a tenant could rent a new unit vs. an older unit for relatively the same cost I will feel more secure with the new product.