Carrie Fruge, strategic account director at Juniper Square, recently spoke with four commercial real estate leaders based in Nashville about what they see happening in the local market: Ben Bonner, President of Magnolia Investment Partners; Brian Adams, President and Founder of Excelsior Capital; Matt Bodnar, Partner at Fresh Capital; and John Boots, EVP of Finance for CMK Properties.
The group represents a wide range of property types, and overall was bullish on the fundamentals of the city and region. In fact, concerns from the pandemic about density in primary markets may create new investment opportunities.
Investors saying “We want in”
A recent Juniper Square customer survey found that 81% of respondents plan to proceed with fundraising this year, and these leaders provided their perspective on this.
Bonner shared he is hearing investors say “We want in. We’re not necessarily looking for that home run deal any longer. Let’s hit some singles and doubles and put our money in a safer asset class.’”
“Recently we’ve had a lot of people come back in or up their allocation because they feel better about where the world is going to be moving forward,” Adams confirmed. “I anticipate deal volume picking up as summer progresses and various jurisdictions open back up for business.”
Bodnar echoed that, saying that Fresh Capital has viewed this period as a time to expand its investor base. “It’s been a perfect storm in that people basically can’t travel and are sitting around their houses not really doing that much. So we’ve been very aggressive about expanding our investor base, setting up a huge network of new investors through relationships with people who normally would have been very busy and hard to reach.”
“Money is looking for a place to go, and we have found investor demand has shot up during this time,” said Boots. While overall performance in retail has been hit hard by the pandemic, he pointed to dollar stores as a bright spot in the sector. “Dollar General has been a very recession- and Amazon-resistant tenant. They have proven it in 2008 and they’re doing it again now. They’ve proven to be a very good investment for people seeking yield when it’s hard to find in a generally unstable market.”
Strengthening existing relationships
Through the pandemic, strengthening relationships with existing investors has been key. “We have focused on prioritizing investor communications within our firm, being as proactive and transparent as possible. I’ve called a lot of our investors and said, ‘I’m not pitching you anything. I just want to see if I can help any way,’” said Adams.
Technology has helped Adams and the Excelsior Capital team with this.
Being able to use Juniper Square to communicate with our investors during this period, reassure them, and give them 24/7 access to all the data that they could ever want at their fingertips has been huge for us and has really helped us grow over the past few months.
Finding opportunities
“We’re working on a portfolio acquisition right now that’s in the financial services space,” Bodnar said. “That business has been totally unimpacted by the pandemic. If anything, they’re well-positioned to potentially strengthen in an economic downturn. We’ve been trying to find pockets of value within the broader economic tapestry to figure out where we can really generate value.”
According to Adams, the goal is having properties that continue to generate income even amid the chaos. “Cash flow is king and yield is king.”
A challenge is navigating a financing climate in which lenders have gotten more conservative about underwriting and are asking more of borrowers. “Regional banks have gotten a lot tighter in the short run and have given us the indication that we’d have to put more equity in the deal, maybe put recourse here where there wasn’t recourse before,” Boots said. “Despite that, we’ve still been able to get deals done, and still been able to get term sheets on some of our upcoming projects.”
On the plus side, the pause in the market has provided some time to work deals that may have been deprioritized prior to the crisis. “We’ve been able to prioritize a number of development initiatives that had been back-burnered,” Boots added. “Now we’re able to start developing for some of the tenants that we’ve negotiated with to become their preferred developers. So, I think that’s been a good pivot on our end.”
“Nashville is really well positioned”
There is deliberation in the marketplace as to what office properties will look like in short and long term. How many employees will work from home permanently after the pandemic? Will it be a blip or a paradigm shift? Another potential change is companies opting to move from urban office towers to suburban complexes where lower real estate costs will allow for decreasing density inside workplaces.
“Just because office buildings are open for business doesn’t necessarily mean that a company is going to send all their employees back into the office at one time,” Bonner said. “People will slowly work into it over time to see what their workforce is comfortable with, what they’re comfortable with as managers, and what the building owner is doing to protect the workforce of those tenants.”
Based on conversations with tenants, the panelists expect it will take some time for this process to shake out. They warned against generalizing about the future of office real estate today based on the comments of a handful of high-profile companies.
“If you actually read the news releases from Facebook and Twitter and some other groups, it’s not that they’re allowing their workforce to work from home or remotely permanently,” Adams said. “They are looking to potentially leave urban areas like Manhattan or San Francisco for a more ‘hub and spoke’ model where secondary markets like Nashville could really benefit greatly.”
Bonner agreed, adding, “As you see people move from these super dense locations, I think Nashville is really well positioned to accommodate a lot of growth.”
Watch the full discussion below.
