Finding Opportunity in Retail

Negative headlines and store closures have scared some lenders away from the retail sector. Are the headlines a true reflection of opportunity in retail? PSRS believes there is still opportunity having completed $235,000,000 in loans on retail properties so far in 2017. However it’s important to work with a knowledgeable partner. Here’s more:

What is the word on the street?

Kostas Kavayiotidis of PSRS says, “What lenders want is always dynamic. One of PSRS’ correspondent life companies temporarily exited the retail market, and for the next few months, they’re not looking at retail deals anymore.  That attitude will change over time, but periodically, PSRS is seeing that for some lenders a particular asset class might fall out of favor.”

What are the national retail experts saying?

In JLL’s US Retail Outlook, the firm reported that news stories about the rise of store closure announcements have been accompanied by headlines predicting the end of retail as we know it. Beyond acceleration in the number of store closures, there will also be an increase in the amount of space being closed in other words, larger stores are closing. Other trends include:

• Ecommerce penetration is a reality and it’s growing (although not as much as some people fear)
• Consumer tastes are changing especially as millennials increase their prominence and buying power
• Consumers want experiences, convenience and value. Stores that fulfill those functions well will stay open. Those that don’t will close.

What is the best strategy for retail investment?

Michael Tanner of PSRS says to “start looking early if you know that you have a maturity coming up. It is best to find a few lenders that you like and do some repeat business with them and get a few favors built up.” PSRS also notes that lending is always relationship based, but for borrowers with retail assets, now is the time to collect and cash in any favors. A relationship and a good track record are needed today for retail borrowers going forward.

Kavayiotidis adds, “PSRS has an exceptional relationship with our lenders, because they know that we can deliver the deals, when we say we can.  When we talk to them about a deal, it’s because we believe they are a proper fit for the deal; we don’t waste their time.  We have a lot of long-standing insurance company relationships that we lean on, on a daily basis and throughout the year.”

He continues, “Being a mortgage banker is about the experience you have and the number of deals you get done, but it’s also about the arrows we in your quiver.  Our hit ratio is higher than our competitors. Consequently, we get better service and better terms from those lenders for our borrowers. We tell clients to start the process. Let’s get quotes, find out who the proper lender is going to be for the deal, request the loan application, review, negotiate the loan application, and then, if you need to wait a few weeks, you can do that. But now you’re in a position to take advantage of any decrease in treasuries so that you, the borrower, have the luxury of rate locking when you want to, rather than letting the market dictate.”