Get the Hook: Five Things Buyers and Sellers Need to Know

By Robert Bach, National Director, Market Analytics, Newmark Grubb Knight Frank

When writer’s block sets in, I have a sure-fire remedy: Get the Hook. Not the giant hook used by vaudeville theater owners to drag bad performers off the stage. I’m referring to my colleague, Hook McCullough, managing director of the national investment properties group at Newmark Grubb Knight Frank. I asked Hook the following question: What are the five most important trends/issues/things that commercial property buyers and sellers need to keep in mind through the remainder of 2012 and the first half of 2013. Here is his response:

1. The fate of the capital gains tax is top of mind for buyers and sellers. Many sellers have accelerated their sales to close by year-end to be assured of maintaining the favorable 15 percent rate. Common wisdom is that if President Obama is re-elected, the rate is likely to increase. But the massive debt may require both parties to revisit this issue within the next few years no matter who is elected.
2. A bit of a gap has opened between buyers and sellers. Buyers are solving for aggressive yields and using very conservative market assumptions. Sellers, of course, are more optimistic. The gap is showing up in a leveling off of sales in 2012. The acceleration of sales off the 2008-09 lows had to come to an end, so maybe the leveling off simply means that the market is hitting its cruising speed. But part of that leveling off is related to the general uncertainty surrounding the U.S. and global economies, the election and the “fiscal cliff” – an environment that encourages buyers to maintain a conservative bias.
3. Every client wants to know where interest rates are headed. The election may bring some clarity … or not. Even economists can’t agree whether the biggest threat is deflation or inflation.
4. The increase in distressed properties coming back to lenders in the next couple of years will be a wild card. There is more than enough capital chasing very few opportunities, and many wonder if those institutions that lent money in 2005 and 2006 are expecting those seven- and 10-year notes to default. Many of those investors have seen their equity disappear and know that refinancing may not be prudent.
5. Clarity seems to be the biggest factor weighing on the minds of investors. Can investors count on a 9 – 10 percent unleveraged return and 14 percent leveraged return? Buyers and sellers are cautious, fearing another potential recession and want to know how to evaluate investment opportunities in such a low-visibility market.