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Commercial Leasing Law & StrategyFeaturesLandlord Tenant LawLitigation

Real Estate Acquisition Volume on Fast Track, But Leases Slower to Rebound

By Jeffrey M. Gussoff and Adriana M. Peters
November 01, 2021

Real estate acquisitions and sales are on the fast track, even in this pandemic environment. After a bit of uncertainty at the very beginning of the pandemic last year, deal volume not only resumed, but increased substantially. More than that, the speed at which clients want to sign and close deals has increased, with the time to draft, negotiate and finalize contracts becoming shorter as 2021 progressed. Contrast acquisitions and sales with commercial lease transactions, which have not only taken longer to rebound in terms of volume — but are also taking longer to negotiate and finalize. This article explores the factors influencing these vastly differing tempos.

Acquisitions and sales are driven by a variety of market factors, not the least of which is product type. With the great increase in Internet sales that resulted from the lockdown, the need for warehouse space and last mile delivery facilities has put these types of facilities at a premium. Also, multi-family housing has been strong, locally and elsewhere. Office and hotel properties may be more opportunity-driven for buyers who want to repurpose those facilities or have plans for upgrades and remarketing. As in any real estate market, in-demand properties may sell at a premium, with greater demand resulting in more competition.

Properties that are less in demand may still trade with some urgency as buyers look for both opportunities and properties that can be purchased with Section 1031 tax-free exchange funds that only retain their tax benefit for a short time. In addition to the tax-free exchange driven purchases, favorable interest rates and availability of financing are part of the fuel for this increase in transactions. As we move toward the end of 2021, with possible changes in the availability of tax-free exchanges and the Federal Reserve signaling that higher interest rates may be coming, the need in the last three months of the year to sign contracts and expedite closings may result in an even faster pace.

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