To Sell or Not to Sell?: That is the Question; and the Answer May Lie in Whether You can Afford to Hold
FEBRUARY 2024
By normal standards, property deals just aren’t getting done. There’s a gap in expectation between what sellers expect to get and what buyers are willing to pay. Yet valuations are slipping in the office and retail sectors in particular, and the feeling is they have farther yet to fall.
So, the buyers and sellers wait. That led to a shocking 54 percent dip in the investment volume for U.S. commercial real estate in the third quarter alone. CBRE is forecasting total 2023 volumes to have shrunk by 37 percent, year-on-year.
How long can the situation last? And will asset owners be rewarded for what a pessimist would call procrastination, and an optimist would see as patience?
Denominator effect
There’s been a denominator effect for portfolios because it was so difficult to deploy capital in 2022 and 2023, says Jacob Slone, managing director at Harbor Group International. The dearth of new deals has meant that declines in the existing portfolio are magnified.
Even if the denominator of the overall portfolio stabilizes, the numerator of property values have some room for downward adjustment, mentions Tricia Peterson, managing partner at Accord Group Holdings. That means institutional investors with hard caps on real estate allocation — such as pension funds, endowments and foundations — will find themselves overallocated to property as a result. They would therefore need to reduce exposure to remain within their caps.
Peterson adds that how active an investor is in the current market will vary dramatically by type. Overallocated investors may be resigned to higher financing and falling prices, and be “proceeding accordingly, with due caution,” she says. Conversely, more aggressive or opportunistic investors believe now is the time to expand their portfolio and “pencil in the new normal.”
Secondary funds or investors with shorter time horizons may feel they are forced to act, whereas very long-term investors can ride out a correction. “The investor type will be the biggest predictor of which camp they sit in regarding current opportunities,” Peterson says.
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ABOUT ACCORD CAPITAL PARTNERS LLC
Accord, through its affiliates, is a global capital advisor, principal investor and investment manager. With its headquarters in San Francisco and personnel in Chicago, London, Hong Kong and Seoul, Accord engages with a wide variety of participants in the real estate private equity industry. Accord Capital Partners, its broker/dealer affiliate, provides advisory and capital raising services in the United States. Accord Europe Limited, its broker/dealer affiliate, provides advisory and capital raising services in the United Kingdom and Europe. For further information on Accord, visit: www.accord-group.net.
