What do developers need to do to adjust to these challenging times? One key factor, simply put, is money. "Companies need to have enough to take care of what they already own and to take advantage of investment opportunities as they arise," said Tom Walsh, principal of Normandy Real Estate Partners. "The REITs are in a good position because they have been able to raise enough money."
There is indeed money "sitting on the sidelines," said Jonathan Schultz, managing principal of Onyx Equities LLC. "But it is trying to figure out what to do. The capital markets are trying to determine where the pricing should be," a factor he attributed to the lack of transactions and the amount of available space. "The greatest challenge is to attract new tenants," confirmed Todd Anderson, portfolio manager for Hampshire Companies. "Leasing is the name of the game, and it is tough work in this market. The biggest factor out there is the empty space."
More than ever, the bottom line is what matters most for landlords and tenants alike, ventured Eugene Diaz, principal of Prism Capital Partners LLC. "The biggest issue today is the value of your property, and low debt levels are important in terms of staying ahead of the market."
Panelists agreed that attracting new tenants will continue to be difficult. Besides concession packages and reduced rents, "tenants want locked-in value over the next 10 years," said Alex Klatskin, partner, Forsgate Industrial Partners. "Tenants are increasingly investigating landlords," said Anderson, noting that in the past it was more likely to be the other way around. "They want to make certain that their potential landlord is well-capitalized."
Noting that it can be very costly to move, "landlords are trying to make people want to stay," Schultz said. "At the end of the day, landlords need to be flexible." He also raised the issue of the so-called "gap," the difference between what current tenants are paying and what potential tenants are being offered. Simson pointed to an example of a potential tenant being offered a rate 20% less than a 10-year tenant, which did not sit well with the latter. "It is an issue, and landlords and tenants need to have a strong dialogue," he said.
In terms of financing, "we are seeing 50% to 70% loan-to-value," Klatskin noted. "A wall of debt is coming our way, and the more offers you get, the more competitive it will be." Schultz agreed that money is "chasing product, but if there is any 'hair' on your deal, lenders are very conservative. But this will be a great opportunity to invest in New Jersey. It will take time, but there will be great buying opportunities." Klatskin concluded, "We have to grow our way out of this problem. And after the 'drunken years,' everything is on the table."
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