Archives for January 2021

The vaccines helped to fuel retail spending at the end of the year, giving investors a reason to re-enter the market.

Retail sentiment took a turn at the end of 2020. The sector was hit hard by the pandemic, and capital investment halted. However, the announcement of two vaccines helped to fuel consumer spending at the end of the year, and gave investors a renewed confidence in the eventual recovery of retail.
“Despite the significant increase in COVID-19 infections and deaths in the fourth quarter of 2020, investor sentiment for retail has begun to recover due to the optimism over the efficacy of the two COVID-19 vaccines currently being deployed in the US,” Gary Glick, a partner at Cox, Castle & Nicholson, tells GlobeSt.com.
The rebound in retail spending could help to drive increased retail investment in 2021, particularly for shopping centers. “It is anticipated that shopping center investment sales will start to normalize based on abundant liquidity, low cost of capital and attractive returns toward the third quarter of 2021. This financial environment will reward investors with a wider yield spread and additional gains from asset value appreciation.”
In fact, shopping centers, regional malls and other distressed retail assets will become the target for retail investment in 2021. According to Glick, these assets will provide the best pricing and opportunity as well as room for growth, thanks to a receding pandemic and a growing economy. “Because commercial real estate investment firms are having a difficult time acquiring industrial, manufactured housing, suburban office and apartments, and fully leased food store/drugstore shopping centers at acceptable cap rates, it is anticipated that an infusion of new private equity capital and institutional capital will be utilized to acquire malls and distressed shopping centers,” he says.
In addition to decreased investor demand, a lack of capital has also stunted retail investment in 2020. Next year, capital activity will still be limited as lenders are looking to mitigate risk. “While COVID-19 has affected nearly every aspect of commercial real estate in one way or another, one of the most fundamental consequences has been in lending, where strategies are being adjusted for a post-pandemic environment,” says Glick. “Many lenders are facing substantial headwinds and, as a result, underwriting criteria has become more conservative. This conservative lending environment has resulted in fewer options for shopping center borrowers.”
Source: “Retail Investor Sentiment Turned at the End of 2020“

Data analytics, virtual touring and leasing, document management and other real estate tech tools continue to mature as more investors adopt them.
Nearly a year into the COVID-19 pandemic, we are living in the most tumultuous real estate market any of us has seen. Not surprisingly, proptech has largely marched in lockstep with the real estate industry it serves. Some companies have thrived in this new reality, while others have struggled mightily or even been forced to close shop.
Over the course of this real estate cycle, one of the constants has been the growth of real estate technology, and despite certain speed bumps in 2020, we expect that growth to sustain itself for the foreseeable future. As we continue to experience market volatility, political and social unrest, as well as rapid shifts in the way people interact with their properties, this is clearly a time of uncertainty. At the same time, we saw a strong bounce back in proptech investment in the second half of 2020, and that factor—combined with other positive indicators like Airbnb’s successful IPO—points to the continued vitality of many of these technologies.
As we kick off another year, here are three of the key trends we’re looking at that will drive the proptech sector in 2021:

The primacy of multifamily and rent tech

A year or two ago, countless millions of Americans spent half their waking hours in an office, but today that time is largely being spent at home. Now nearly a year removed from the familiar environs of an office, many companies have already decided that remote work will be a permanent fixture after the pandemic has passed. In light of that, technologies that improve home offices and address the increased wear and tear multifamily buildings are experiencing will take a dominant role.
For example, high-speed connectivity has become much more than an amenity, but a truly essential utility. Building-wide wifi solutions that provide ubiquitous broadband and cover the entire property have already been introduced in a growing number of properties—a development that benefits both residents and operators, who each rely on building connectivity for a greater number of tech tools (e.g. self-touring). We see this trend continuing in 2021.
Additionally, buildings that are now occupied 24 hours a day are being physically taxed more than they were prior to the pandemic, with more water flow, electricity and HVAC usage. And as property managers are struggling with an uptick in resultant work orders, they also have to adapt to socially distanced operations. With these driving forces, technology that supports building operations/communications for maintenance staff at multifamily properties will see increased demand.

Late-stage investment activity will soar

In recent years, the amount of early-stage investment capital flowing to real estate technology has been significant. As proptech platforms have matured, there are many signs pointing to 2021 being the year in which late-stage investment activity takes off.
Most prominent in the media right now are Special Purpose Acquisition Companies, or “SPACs”—so-called “blank-check companies” that enable companies to bypass some of the hurdles of a typical IPO. SPACs are raising capital at record rates, and many proptech companies will use them to go public this year.
But SPACs are far from the only vehicle for late-stage technology investment, and in just the past few months, we’ve seen significant exits to private equity (Thoma Bravo acquiring RealPage) and corporate buyers making strategic acquisitions (MRI acquiring our portfolio company, CheckpointID), as well as via traditional IPOs (Airbnb).
To a large extent, the pandemic has separated the winners and losers within the proptech space, and 2021 will be a year of late-stage M&A that solidifies those market positions.

Self-touring progresses to self-leasing

One of the major trends of 2020 was self-touring, as individuals looking to view apartments increasingly went solo, rather than depend on the assistance (and potential viral spread) of a leasing agent. As leasing teams scrambled to make self-touring a reality, technology like smart locks — which allow prospective renters into units at specified times — online ID verification and mapping software were instrumental.
Looking ahead to 2021, self-touring will proceed to the logical next step: self-leasing. For property operators, self-guided tours are more effective when they’re integrated with a customer relationship management system. Platforms like Funnel Leasing ensure that all of the information about prospective renters is captured prior to a self-guided tour, and then used to make the leasing process as seamless as possible in a touchless environment. Eventually, well-developed CRM software will guide prospects to the point of purchase, where they will sign a lease electronically without having to meet with a leasing agent.
Most of the technologies that facilitate self-leasing have been on the market for years, and some of the largest landlords are already using technology to manage every aspect of the process. As we move into 2021, we’ll finally see all the different pieces come together in the broader market, enabling operators and renters alike to complete the apartment rental process in a truly seamless manner.
Source: “Proptech Takes Center Stage“

Rent deferral was the most popular option, followed by rent reduction, rent abatement, early lease termination, applying a security deposit toward rent and downsizing to a smaller space.

Commercial office leases were on the chopping block last year as companies grappled with the impacts of COVID. Of the companies surveyed in a new Visual Lease report, 50% received some kind of monetary relief, with the majority of assistance coming from Paycheck Protection Program loans, leveraged insurance policies and lawsuits. One in five companies used rent relief funds toward rent obligations during state-mandated business closures, and for half of companies surveyed, that relief covered one to two months’ rent. For the remaining half of respondents, it covered three to four months.
About 54% of companies received some form of rent relief directly from their landlord.  For those receiving assistance, rent deferral was the most popular option (17%), with the majority of companies polled receiving deferral for two to three months. Other forms of assistance included rent reduction (13%), rent abatement (13%), early lease termination (6%), application of a security deposit toward rent (4%) and downsizing to a smaller space (15). Some companies used more than one strategy.
Most tenants receiving rent reductions did so for two to three months, with 58% of companies surveyed netting a reduction of 25% or less. About 33% received a reduction of between 26 and 50%, while the remaining 9% reported receiving a reduction of more than 51%. More than half of companies surveyed received a lease length reduction for two to three months.
Nearly 40% of companies surveyed have either reduced their office footprint or are moving in that direction, a trend underscored by the growing migration of many companies to smaller suburban locations or clusters. Interestingly, the majority of companies surveyed who have sublease tenants said that very few of those subtenants have withheld rent since the pandemic began in March 2020. Nearly two-thirds of tenants said that 10% or less of their subtenants have withheld rent.
“In 2020, we saw more shifts in the commercial real estate industry than ever before. Companies had to adjust their business strategies to accommodate employees, government mandates and the changing economy, which led to new challenges and an acceleration of trends that we were seeing pre-pandemic,” said Marc Betesh, CEO of Visual Lease. “In 2021, the impact of COVID-19 will still be a factor for many organizations. However, we are optimistic that this year, the industry will continue to find innovative ways to adapt to the new landscape.”
Source: “54% of Office Tenants Received Rent Relief from Landlords Last Year“