So, Mr. “Advisor,” how is the market?

The most common question I get from a client or at a networking event is, “How is the market?”

Everyone in business has heard this icebreaker question before. However, how do you answer it?

Most will say, “There is still buyer demand, but interest rates are slowing things down. Nobody wants to sell.”

A few will say, “Many buyers who were aggressive previously have slowly disappeared as current market conditions have made it significantly harder for deals to pencil out, especially with interest rates rising 10 times in the last year. Sellers do not want to sell and be forced into a 1031 exchange and feel the pressure to scramble to find a replacement property in today’s low inventory environment."

I would say, “The buyers who remain disciplined are still underwriting and getting deals over the finish line. While the current interest rate market has made some Buyers take a step back, other experienced buyers have made the readjustment to their strategy and leaned on fundamentals of ownership, track record, and banking relationships to acquire deals in what most consider a down market. We do know that 2024 will have the most combined debt maturities we have seen for a decade, which should lead to additional acquisition opportunities. Sellers, on the other side, with debt maturities lingering, are extremely mindful of their operations as it is imperative for them to keep the momentum of NOI growth before they are required to search for debt in an unstable debt rate market. For some of our clients, insurance has increased 20-50% and the overall cost of business (maintenance, payroll, utilities, taxes) has taken a real toll and forcing tough operational decisions. We are continuously finding hidden gaps in operations for our clients, keeping them on the right path to accomplish their portfolio goals. Sellers are still working their loss-to-lease, which represents some degree of controllable growth and is a portion of why we are seeing a 15-20% difference in buyer pricing and seller expectations.”

The last response leads to such a stronger conversation about actual market conditions instead of giving them an answer that they can simply Google themselves.

When I get asked this question, the key is to show that you ACTUALLY know what is happening in the trenches. Showing that you are having real conversations with Owners and Buyers in your market and hearing what they see on a day-to-day basis.

Yes, it can be long-winded, but if the person is truly interested in investing millions of dollars in the region, they want to know all the data in detail so they can make the right decision for their family and investors. Ideally, they call me again to ask for more data that only I would know.

In an era when data is readily available, it can be hard to cipher through everything and apply it to your own situation.

Another great question I get from Owners/Sellers is…”I saw that XYZ Property sold, and my property is better. Isn’t my property worth more? It sold at X Price, at Y cap rate, with Z average rent.”

While these are great talking points and metrics to discuss, it's usually more involved than those three items. Since my business is based on talking with owners and reviewing sales comps, I look to go deeper into the data so I can better understand how the comparable achieved those numbers. I have made it a habit of reaching out for some additional info that is not usually found online.

Simple questions I ask:

• What was the debt like? Assumable? LTV? Interest rate? 1031 Exchange Buyer?
• What were the rents like? Why were they higher or lower than the market?
• How renovated was the property??Capital Expenses? Any deferred Maintenance?
• What was the initial goal of the investment? Flip?
• Why did they sell?
• How are utilities handled??

Because I ask detailed questions to owners who have transacted, I can share better-quality data that is either unavailable or glossed over.?

That is the goal. Show that you know what you are talking about.

Show that you do this every day.

Show that you speak to more owners, developers, appraisers, lenders, and buyers to collect and share relevant data with the people who need it.

If you are interested in hearing important details about the current market trends, sales comparables, and how it relates to your investments…

Then go ahead. Ask me how the market is.

www.justin-ferguson.com