Originally published on June 8, 2023 by Natalie Fidlow, CFA for NAIOP.
“Volatility and uncertainty” describe the current state of the markets, according to Tom Griggs, managing director and head of industrial & logistics for the East at Hines, with the past 12-18 months presenting a difficult environment. Griggs led an expert panel discussion on the outlook for the industrial real estate capital markets at NAIOP’s I.CON East.
Is there light at the end of the tunnel?
Peter Nicoletti, head of capital markets in New York at Colliers International, recalled the third quarter of 2022 when the markets seized up. “In the following months, spreads on deals slowly started coming in until January of this year, when Silicon Valley Bank and Signature Bank failed. At that point, spreads blew back out.” Lenders are risk-off. Colliers International does have $1.8 billion in construction deals and has noticed that there has been a tightening in underwriting standards. Now, a deal’s loan-to-cost is around 55-65%. The days of 85% are gone. Nicoletti anticipates seeing more competitive pricing as those investors who moved to the sidelines return.
Jack Fraker, president and global head of Newmark’s industrial and logistics capital markets, said investors are looking tactically. There used to be premiums to bringing portfolios to market, but he sees sponsors thinking they will get more money by splitting up properties now. Beth Demba, head of capital deployment for the East at Prologis, noted that Prologis is currently finding opportunities incrementally by adding to its existing portfolio. They also keep leverage low, less than 20%, at the deal level.