Investor Lines are Blurring With Smaller Properties

Lines are starting to blur with small properties.

Investors that typically make small buys are starting to buy larger properties. And, some investors specializing in large assets are looking at smaller deals in the most popular property types, according to a new report from Green Street’s Real Estate Alert.

Private-capital that usually does smaller deals purchased more assets worth over $25 million last year, brokers told Real Estate Alert.

In the more popular asset types where demand exceeded supply—multifamily and industrial—institutions and investment managers bought lower-valued properties.

Investors weren’t just exploring properties in different price ranges. They were also venturing out of their traditional geographies. Usually, wealthy individuals and family offices invest in their home state. However, tax regulations in states like California and New York, combined with the pandemic, pushed private capital to new states. Out-of-state investors accounted for 51.8% of Marcus & Millichap’s transactions in the first nine months of 2020. In 2019, out-of-state investors bought 47.8% of the transactions tracked by Marcus & Millichap.

Investors are looking at “different states with more favorable tax policies. … The deck is being reshuffled,” Sean Fulp, who leads Newmark’s private-capital group, told Real Estate Alert.

While 2020 was one of the worst years in recent history, the market pros surveyed by Real Estate Alert expect sales to pick up each month in 2021 as vaccine rollouts increase and political uncertainty wanes.

Sales volume actually increased in Q4. From October through December, sales of properties between $5 million and $25 million totaled $12.7 billion, only a 6.5% year-over-year decline. Sales declined 12.7% for properties valued at more than $25 million.

Around $37.9 billion in small properties sold last year as opposed to $49.4 billion in 2019—a 23.3% decrease, according to Real Estate Alert. Conversely, assets valued at more than $25 million saw deal velocity decrease by 34.6% during that same period. 

Even with that increase in volume and more investors coming off the sidelines later in the year, Cushman’s Chief Executive of Global Capital Markets And Investor Services Carlo Barel di Sant’Albano says there is still a window for private capital—that is, smaller buyers—to continue winning the bidding contests for larger assets.

“When you talk about the fourth quarter being gangbusters, for private capital, 2021 still presents an important opportunity,” di Sant’Albano told Real Estate Alert. “Even though the large institutions have a significant amount of capital … I think the private players still have time to deploy.”