In this video, Head of Real Estate, Noel Purcell, speaks with NAREIT’s Sarah Borchersen-Keto on the REIT 2021 outlook and where he believes M&A activity is headed.
Transcript
Sarah Borchersen-Keto:
I'm Sarah Borchersen-Keto and in conjunction with Nareit's REITweek: 2021 Investor Conference, I am speaking today to Noel Purcell, Managing Director and Head of Real Estate at Mizuho Americas. Noel, thanks for joining me today.
Noel Purcell:
Thanks for having me.
Sarah Borchersen-Keto:
What changes and lending activity have you seen across the commercial real estate landscape in recent months, and where do you see trends heading?
Noel Purcell:
Sure. Well, look certainly going into COVID, we saw a widening of the pricing and certainly a tightening of the credit risks that banks were willing to take. Obviously, that was something that continued through the summer of last year and going into the fall of 2020, but post-Labor Day, I think we started seeing a loosening of that. There's been significant liquidity in the marketplace, certainly for the last six or eight months, and that's only increased post-New Years. So for this stage of the game, we think the liquidity is basically back to where it was pre-COVID levels. And we think that most of the underwriting criteria that we see in the marketplace is basically back to where it was at pre-COVID level. We see terms being given on refinancing for the general lease space right back to that same structure that we saw probably in early 2020 before this wonderful world kicked in for all of us. And we all had to deal with it.
But at this stage, I think that that's going to continue. The reopening trade that we see in the marketplace really seems to be pretty broad on the different sub-sectors of real estate. You still have concerns about certain sectors of retail, but those were there pre-pandemic, you're thinking BC malls and regional malls, those types of things that were e-commerce concerned pre-COVID continue to have their struggles. Certainly, on the hospitality level, we've still seen actually the back end of it. We see really good trade happening on that level. And we see a lot of bookings happening certainly in the second half of 2021.
So that destination travel that we saw struggling so hard during the COVID crisis seems to be recovering. But it's still at this stage of the game in its infancy of that recovery. So I think overall, I think you're going to see a consistency of pricing, consistency of structure from this place forward, as we saw, basically pre-pandemic in a relatively normal time that will, of course, be subject to the fact that we hope that we're not going to see some type of a reoccurrence of some of these hybrids of the virus that folks are dealing with both in Europe and other parts of the world, India, for sure and what have you, but where we are right now, I think that's what we say.
Sarah Borchersen-Keto:
Are you seeing any tightening of underwriting standards, and does that vary by property sector?
Noel Purcell:
No, actually certainly not in the recent we saw that, as you said during the early parts of COVID, but we don't see it now. I think at this stage. I think there's a good balance between where the structures are for both the banks and for the issuers. And from that perspective, I think the standards are in pretty good shape. And from that perspective, I don't believe we're going to see any real significant tightening, but you're going to see, I think, around the edges, the tightening that you would normally see in a recovering market, you're certainly going to see pricing continue to tighten a little bit more. You're certainly going to see liquidity continue into the marketplace at this time. So you get that tightening you would get in a normal recovery trade, but beyond that, I don't see anything now.
Sarah Borchersen-Keto:
M&A activity has been particularly active in the REIT sector in 2021. Do you anticipate that remaining in place for the rest of the year?
Noel Purcell:
Well, I think a lot of people hope so. We think there's consolidation in certain industry subclasses that'll happen. We think that'll happen in the healthcare area for sure. But the reality is that with these prices and these valuations, it's going to be difficult for the private equity players to jump in here and justify some of these acquisitions that we've seen them do up to this point. Having said that, that group is always active. We're around the hoop with a lot of those folks, and they're always thinking collectively about how to get something done and does it make sense? So we do think it will continue to be an active discussion. We do think there'll be active trades going on during the year. And we think there'll be consolidation in certain areas that'll certainly look to something like the healthcare area that we're looking at as a real consolidation trade.
Sarah Borchersen-Keto:
Noel, thanks so much for joining me.
Noel Purcell:
Thank you, Sarah. I appreciate you taking the time to do this.
Sarah Borchersen-Keto:
And for more from REITweek 2021, be sure to visit Nareit's website, reit.com.