The Shifting Buyer-Seller Balance

By Daniel Hoogesteger, Managing Director, Sands Investment Group

Once reluctant owners have now recognized the time has come to sell. Pricing remains high but there is a growing sense that we have reached the top of the market, and sellers are anxious to take advantage of existing momentum.

Among buyer categories, demand remains strong from 1031 exchange buyers looking to trade out of multifamily or retail assets. However, it’s the private and institutional buyers who review real estate opportunities day in and day out that have turned conservative, becoming ever more selective than even 12 to 18 months ago.

There are a number of variables causing the current market shift:

• Historically, real estate is a cyclical industry. The economy remains in an expansion phase, according to most economists, that began in June 2009. According to the National Bureau of Economic Research, there have been 11 business cycles from 1945 to 2009, with the average length of a cycle lasting about 69 months, or a little less than six years.
• At the end of 2015, the Fed raised interest rates by 0.25 percent. And at this point we expect to see one more rate hike this year.
• There is a shift in supply and demand as more product hits the market. During the last few years there was a wide delta between the amount of product available and buyer demand. However, we’re now seeing an increase in the overall supply, creating a state of equilibrium.

Despite these cautionary variables, we don’t expect a slowdown in investment sales in 2016. What we are seeing and expect more of will be an uptick in the amount of escrows that fall out. This is a symptom of more available product as buyers look to tie up multiple properties.

The best strategy, considering the current state, is to be more diligent in thoroughly qualifying buyers before entering into a contract. This is the best way to prevent a false start and to better manage the transaction process with the buyer. Agents should specialize in a sub-product type, because in-depth knowledge by product type has proven to be beneficial in effectively qualifying the right buyers and managing the transaction to ensure a positive outcome.

Now more than ever, look proactively and strategically at the performance of any existing real estate portfolio, taking into account the variables that we are all experiencing. That way you can better assess the right strategy for the near and long term and improve market timing.