Looking at the ICSC Las Vegas Convention from an investment front, the overall tone was positive in terms of available equity capital but lacking in transaction activity and results. Most institutional groups have capital ready to deploy, are looking for the highest quality deals in any given market and are willing to pay market rates for the right assets. However, few of these properties are on the market and that could be a trend throughout the year. If that is the case, this supply/demand imbalance could compress cap rates for these properties when and if they become available.
There has been an increase in distressed asset activity on the special servicer side, which will keep this class of assets on investors ‘watch lists’ throughout the year. The remainder of the retail investment market (not high quality or distressed) has seen low demand or activity over the past year as there is still a pricing gap between buyers and sellers and little debt available that is accretive to yield requirements. Until the debt markets open-up or competition drives up demand, these assets will reside in ‘pricing gap neverland’.
Further, looking at economic fundamentals, many investors realize we have a long road to recovery ahead of us. While consumer spending has increased, the basis for this increase is in government transfer payments and people dipping into their savings. This unsustainable consumption model must be fixed before we see any solid economic recovery. Looking into the remainder of 2010, investors will keep a watchful eye on the ‘highest quality’ targeted assets and hope for the best on the capital markets and economic front. There will be a select few properties on the market that have sellers with unique disposition objectives and will need to find buyers with motivated capital to complete the transactions.