Pursuing acquisitions has become difficult on so many levels, to put it mildly. Buyers have moved from years of having to play in a relentlessly hyper-inflated seller’s market, to a nearly complete absence of new properties being offered for sale. The virus has infected commercial real estate. Sellers and buyers don’t know how to price properties, so owners hang on to them.
The issues buyers deal with today start with not getting inside units. Brokers can’t take marketing pictures, buyers can’t perform due diligence, and inspectors can’t inspect. A lot of lenders are not quoting loans on properties because of uncertain income streams. Courthouses are not open for title searches.
But even more basic than that, who knows what’s coming this month or next. Job loss? Vacancies?
Sellers generally take longer to react to changing markets than buyers. I have not seen properties getting discounted or heard brokers say anything about sellers being more willing to negotiate today. Some still want to sell but believe they can ride this out and income won’t be much impacted. Maybe.
Others want to hold their property, not sell at a discount, and try again later. But because we’re so early in the process, we’re not seeing changes in sellers’ willingness to negotiate pricing and terms. Are you?
We’re still in the hunt, though. We’ll move forward on a property if we can get it under the right terms. We have to assume things like longer close time because lenders are short-staffed and can’t get access to the property, higher interest rates, and no hard money until all the contingencies are waived.
And some extra clauses in contracts. Like a Force Majeure clause that includes global pandemics and Covid 19, a Covid 19 element in the financing contingency, a material adverse change clause. Talk to your attorney about these.
I’m tuning in to podcasts and webinars on these topics. It’s great to hear from experts like attorneys. Were you in a contract to buy? Don’t automatically assume you have to back out and take your losses.
Talk to all the parties involved, get them to share in the pain and to understand that if they force you to back out, their next buyer will require terms worse than yours. Communication!