In this video, we unravel the forces and trends reshaping the landscape of property ownership and housing transactions.
Join us as we analyze the factors contributing to this shift, from changing demographics and economic conditions to evolving consumer preferences.
Gain valuable insights into the implications for both buyers and sellers in a market that seems to elude traditional categorizations.
Whether you’re a seasoned investor, a first-time homebuyer, or simply curious about the state of real estate, this video provides a comprehensive exploration of the evolving dynamics that make today’s housing market uniquely dynamic and unpredictable.
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Transcript:
Chris Bounds 00:00
How do you see the market playing out over the next 1218 months? How is it now? I mean, how is it now? Because I’m sure you’re putting out a lot of offers, and you’re talking with a lot of brokers. So what’s the sentiment now? And how do you see that changing or evolving over the next 1218 months?
Rob Beardsley 00:16
So the market today is what I like to say, a nobody’s market. And it’s been that way for a while, people often argue, is it a buyers market? Is it a seller’s market, I really feel like it’s nobody’s market. Because if you talk to people who are trying to sell a deal, they’re unhappy. And if you talk to people who are trying to buy deals, they’re also unhappy. And essentially, what we have is a very wide bid to ask gap in the market not, which was resulting in very few deals actually getting done, because, generally speaking, you have sellers with pricing expectations up here, and buyers with pricing expectations down here, who’s going to blink? Yeah, so and that’s exactly right.
And that pricing adjustment process doesn’t happen overnight, just because interest rates have gone up and the market has changed, cap rates have gone up. That doesn’t mean sellers are willing to recognize a change in the value of their asset or even a loss overnight, it’s going to take a lot of time for sellers to capitulate, and maybe become forced sellers due to their debt structure, or due to their declining operations potentially. So I do think over the next, certainly over the next 12 months, we’re going to see a resolution to this nobodies market. And the bid to ask gap will tighten enough to the point where we’re going to see a decent resumption of transaction volume. Because right now there’s there’s not many deals getting done. And that’s not fun for anyone. So I’m optimistic that we’ll really see that gap being bridged, do
Chris Bounds 01:48
you think most of that is going to come from operators under bridge and or floating rate debt?
Rob Beardsley 01:57
Yeah, I think that’s going to be a driver for sure.
Chris Bounds 02:01
If at the end of the day, if interest rates are at a point where you can if you’re Enbridge and you can’t refinance, it, you can’t meet the debt coverage ratios to refinance put you in a bind, you either gotta raise more money to a capital call, or you gotta sell. But there’s also folks that may have longer term loans that are floating rates, and that, that that puts pressure on them.
Rob Beardsley 02:30
Yeah, and I think it takes a long time for an owner, and in particular sponsor, to want to get to that to get to that point where they are, essentially, fire selling or selling. Not necessarily at a loss, but just not meeting their business plan, especially for a sponsor, it’s to their benefit to do whatever they can to extend the loan, or make a capital call as negative as a capital call is, it’s better than selling for a loss. So for those that are sitting on the sidelines, hoping and waiting for all these distressed deals, to come to the market and be able to pick off buyers who are distressed, I don’t I don’t really think it’s going to happen. I think there’s a lot of liquidity out there. And there’s a lot of time as well.
And so the gaps in the capital structure can be bridged through preferred equity through capital calls through third party, you know, rescue capital of sorts. So, rather than a bunch of people flooding the market, selling deals at a discount, I think there’s going to be a lot of restructuring plays and things like that. And then, after a while, a couple years of people trying these certain restructurings and buying more time, then eventually someone may capitulate and say, All right, we’ve tried everything. We just need to sell, we’ll break even or we’ll take a loss, what have you. And that’s, that’s what I think may occur in the next couple years.
Chris Bounds 03:59
Yeah, there’s another scenario too. And it’s the writing maybe on the wall, but either due to inexperience or blinders, they’re not quite seeing it. And as, as things play out, eventually, it’s the head in the sand kind of scenario. I mean, I saw that in the single family space wasn’t falling off him at all in the crash, like the oh eight in the years following that, but I imagine it’s just human psychology at some point that may happen, probably very rare occasion, hopefully, but especially for their investors. But now, on the other side of it, you also have investors that they’ve locked in seven years at 3%. So do they need to sell now even though their business plan might have them? Maybe, maybe not. It really depends on what their investor base is, but they definitely have more flexibility to right out uncertainty To see what happens over the next year or so, see if rates drop. So, yeah, it’s gonna be interesting.
Rob Beardsley 05:08
Yeah, and that’s the magic of long term, fixed rate debt. There’s a lot of people that have done that and are sitting pretty and they’re able to sleep well at night. And that is a very beautiful thing.