CrowdStreet’s Darren Powderly is joined by Al de Olazarra, President and COO of Parkway Property Investments, to discuss his firm’s rent collections in April, the future repricing of hospitality assets, and how retail real estate is going to change.
Darren Powderly, Co-Founder & VP Capital Markets
CrowdStreet
CrowdStreet
Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.
00:00:05 Hello, everybody, this is Darren Powderly with CrowdStreet. Welcome to StreetBeats. Uh, today I'm really proud to have Al de Olazarra with us from Parkway Properties in Miami, Florida Street. Beats is a opportunity for us to meet some thought leadership industry leads from around the nation. And Al today is gonna share with us his experience as President and Chief operating Officer with Parkway Properties. Al, welcome to StreetBeats. Uh, why don't you tell us a little bit about yourself and, uh, your experience with Crotch Street.
00:00:35 Great. Well, uh, as you said, I'm the President and Chief operating Officer of Parkway Property Investments. Uh, we've got about 21 million square feet of, uh, of assets owned and under management, uh, across the, the Sunbelt, uh, heavy concentration on the mid-Atlantic Southeast and, uh, Texas, but have been active in, uh, pretty much all the Sunbelt markets, uh, over time. Um, you know, it's, uh, it's a, it's a weird time for sure. Uh, you know, uh, you know, you, you hear the word unprecedented regularly. Uh, I'm in my early sixties, um, and I've had the, you know, sort of the privilege or the pain of going through a half a dozen different real estate cycles, but, uh, you know, never anything like this for sure. Um, so on, on the one hand, you know, we've spent a lot of time with, uh, asset management duties the last couple of months trying to prepare ourselves as best we can for what we were imagining would happen, and then what has in fact happened, uh, and then we've spent a lot of time, you know, considering how this creates opportunities as well. So it's been, uh, it's been a fascinating
00:01:47 Time. Let's continue along the path of that thought process, which is the current portfolio and what things you're observing, uh, as not only through the crisis, but also, uh, as Ren collections are, what they
00:02:01 Are. Our experience, uh, you know, obviously the April numbers are in. So, uh, over a, you know, like I said, close to 21 million square foot portfolio, we collected, uh, over 97% of, uh, contractual rent that was due for the month of April. We do expect, uh, year in, year out roughly a, a 1%, uh, you know, vacancy collection loss or, or late payment, uh, over, over time. So, you know, so if you're at 3%, that's, you know, that's a lot more as a percentage. But, uh, in the scheme of things, you know, not bad, really, uh, sure. Better than we were prepared for it to be, and frankly, I think better than most of our peer
00:02:46 Group. So, uh, let's talk a little bit about opportunity. Al. Uh, we're, you know, lots of people thinking that there's going to be distress out there. We should, some early movements so far with some of the distress debt, distressed debt funds, not only raising a lot of money quickly, uh, but also starting to deploy that. So the credit strategies are already sort of underway, exploiting some of distress in the market. Where do you see the biggest changes, the biggest dislocations, and really where do you see the biggest opportunities for the investors listening in today?
00:03:18 Well, clearly the hospitality sector is getting creamed. Um, and, uh, honestly, I don't see a particularly quick recovery there either. Mm-hmm. <affirmative>, um, so I think they're just gonna, there's gonna have to be some repricing in that sector. Uh, yeah. I have no doubt that the, you know, the Marriotts and the Hiltons of the world are gonna be fine, but, um, but there's a lot of people in that space that are not gonna be, I'm sure that high street retail will eventually come back. The best shopping centers will eventually, uh, come back. They'll reinvent themselves. There'll be some fallout. Uh, but, um, you know, there's a lot of kind of second tier real estate, uh, retail real estate shopping centers that were somewhat marginalized before covid 19. I mean, I see this being the end of many of the shopping centers,
00:04:11 Um, a conversation that we had about two months ago, Al and you were saying that last year a lot of deals that were marketed failed to sell because there was a gap between the seller, you know, asking price and the buyer's bid. Right. There's a bid ask, you know, uh, gap that in 2019 caused deals not have sold. Um, what, what are your, what are your views on that today? You know?
00:04:37 Yeah, no, it's, it's interesting. You, uh, you, uh, you raised that, I actually had a conversation today with, uh, one of my colleagues who's, you know, got 12 billion of dry powder, a big institutional partner, and, uh, we had a, uh, uh, you know, sort of a, you know, business planning session in mid-January in New York, and we targeted just that particular, you know, phenomenon. So these tend to be, you know, large assets where in fact, you know, sellers expectations and, and frankly, what the brokers told them they should reasonably expect just weren't met mm-hmm. <affirmative>. And, uh, and we had started a process of reengaging some of those landlords in late January, you know, being aware of Covid just by watching the news, but never dreaming that, uh, the things would get, you know, quite as lively as they have. By mid-February, we decided, wait a minute now, we should really take a, a careful look at this.
00:05:40 And we started, you know, going slow, and sure enough, you know, we feel, you know, vindicated that that's the case. Uh, so, uh, none of those deals have traded, and quite frankly, uh, I think a lot of that real estate is, is moderately impaired right now. Because, you know, what happens when you're trying to sell something is you usually take your eye off the ball in terms of leasing. Mm-hmm. <affirmative>, um, you know, if, if you're trying to sell something, you really don't usually get rewarded for the last, you know, three or 4%. You know, if you've, if you've got occupancy that's, that exceeds the stabilized occupancy in that particular market, most buyers won't give you credit for that. So sellers tend to just take their foot off the gas, and, you know, when you think about it, that means they took their foot off the gas in the spring or the summer of 19, you know, believing that they were gonna transact in the third of the fourth quarter. They didn't, and now, I mean, they could be standing on the gas, it wouldn't matter, right? Cause I know there's no activity. There's very, very little leasing velocity right now, and frankly, I don't think there's gonna be for another few months.
00:06:53 A closing thoughts al, uh, for our audience today, uh, from Miami or Parkway Properties?
00:07:01 Well, sure, I mean, you know, you, you, we were touching on opportunities from an institutional standpoint, but, but quite frankly, I think there's gonna be opportunities that are on point, uh, in terms of the, you know, the ultra high net worth individuals that, uh, you know, our, our frequently, you know, partners with CrowdStreet, uh, because you're, you're seeing the same thing at the other end of the spectrum. So, uh, you know, the, the asset size that you guys target, uh, is one that's, you know, very comfortable for, uh, you know, uh, you know, raising the capital, deploying the capital, and, and executing crisply, uh, but usually assets that for the most part would be a little small for the institutional investors. Um, and I think you're gonna see the same lack of liquidity in that space, which to me, whenever you see a lack of liquidity that creates opportunity.
00:07:54 Thanks for joining us today. Uh, it's been really insightful, Al as always fun talking with you. Stay healthy in Miami and, uh, tell Jim we said hello.
00:08:05 Talk
00:08:06 To you soon.
00:08:07 Right. Thank you very much, Darren. Appreciate the opportunity.
00:08:10 Of course. We'll have you again soon.
00:00:35 Great. Well, uh, as you said, I'm the President and Chief operating Officer of Parkway Property Investments. Uh, we've got about 21 million square feet of, uh, of assets owned and under management, uh, across the, the Sunbelt, uh, heavy concentration on the mid-Atlantic Southeast and, uh, Texas, but have been active in, uh, pretty much all the Sunbelt markets, uh, over time. Um, you know, it's, uh, it's a, it's a weird time for sure. Uh, you know, uh, you know, you, you hear the word unprecedented regularly. Uh, I'm in my early sixties, um, and I've had the, you know, sort of the privilege or the pain of going through a half a dozen different real estate cycles, but, uh, you know, never anything like this for sure. Um, so on, on the one hand, you know, we've spent a lot of time with, uh, asset management duties the last couple of months trying to prepare ourselves as best we can for what we were imagining would happen, and then what has in fact happened, uh, and then we've spent a lot of time, you know, considering how this creates opportunities as well. So it's been, uh, it's been a fascinating
00:01:47 Time. Let's continue along the path of that thought process, which is the current portfolio and what things you're observing, uh, as not only through the crisis, but also, uh, as Ren collections are, what they
00:02:01 Are. Our experience, uh, you know, obviously the April numbers are in. So, uh, over a, you know, like I said, close to 21 million square foot portfolio, we collected, uh, over 97% of, uh, contractual rent that was due for the month of April. We do expect, uh, year in, year out roughly a, a 1%, uh, you know, vacancy collection loss or, or late payment, uh, over, over time. So, you know, so if you're at 3%, that's, you know, that's a lot more as a percentage. But, uh, in the scheme of things, you know, not bad, really, uh, sure. Better than we were prepared for it to be, and frankly, I think better than most of our peer
00:02:46 Group. So, uh, let's talk a little bit about opportunity. Al. Uh, we're, you know, lots of people thinking that there's going to be distress out there. We should, some early movements so far with some of the distress debt, distressed debt funds, not only raising a lot of money quickly, uh, but also starting to deploy that. So the credit strategies are already sort of underway, exploiting some of distress in the market. Where do you see the biggest changes, the biggest dislocations, and really where do you see the biggest opportunities for the investors listening in today?
00:03:18 Well, clearly the hospitality sector is getting creamed. Um, and, uh, honestly, I don't see a particularly quick recovery there either. Mm-hmm. <affirmative>, um, so I think they're just gonna, there's gonna have to be some repricing in that sector. Uh, yeah. I have no doubt that the, you know, the Marriotts and the Hiltons of the world are gonna be fine, but, um, but there's a lot of people in that space that are not gonna be, I'm sure that high street retail will eventually come back. The best shopping centers will eventually, uh, come back. They'll reinvent themselves. There'll be some fallout. Uh, but, um, you know, there's a lot of kind of second tier real estate, uh, retail real estate shopping centers that were somewhat marginalized before covid 19. I mean, I see this being the end of many of the shopping centers,
00:04:11 Um, a conversation that we had about two months ago, Al and you were saying that last year a lot of deals that were marketed failed to sell because there was a gap between the seller, you know, asking price and the buyer's bid. Right. There's a bid ask, you know, uh, gap that in 2019 caused deals not have sold. Um, what, what are your, what are your views on that today? You know?
00:04:37 Yeah, no, it's, it's interesting. You, uh, you, uh, you raised that, I actually had a conversation today with, uh, one of my colleagues who's, you know, got 12 billion of dry powder, a big institutional partner, and, uh, we had a, uh, uh, you know, sort of a, you know, business planning session in mid-January in New York, and we targeted just that particular, you know, phenomenon. So these tend to be, you know, large assets where in fact, you know, sellers expectations and, and frankly, what the brokers told them they should reasonably expect just weren't met mm-hmm. <affirmative>. And, uh, and we had started a process of reengaging some of those landlords in late January, you know, being aware of Covid just by watching the news, but never dreaming that, uh, the things would get, you know, quite as lively as they have. By mid-February, we decided, wait a minute now, we should really take a, a careful look at this.
00:05:40 And we started, you know, going slow, and sure enough, you know, we feel, you know, vindicated that that's the case. Uh, so, uh, none of those deals have traded, and quite frankly, uh, I think a lot of that real estate is, is moderately impaired right now. Because, you know, what happens when you're trying to sell something is you usually take your eye off the ball in terms of leasing. Mm-hmm. <affirmative>, um, you know, if, if you're trying to sell something, you really don't usually get rewarded for the last, you know, three or 4%. You know, if you've, if you've got occupancy that's, that exceeds the stabilized occupancy in that particular market, most buyers won't give you credit for that. So sellers tend to just take their foot off the gas, and, you know, when you think about it, that means they took their foot off the gas in the spring or the summer of 19, you know, believing that they were gonna transact in the third of the fourth quarter. They didn't, and now, I mean, they could be standing on the gas, it wouldn't matter, right? Cause I know there's no activity. There's very, very little leasing velocity right now, and frankly, I don't think there's gonna be for another few months.
00:06:53 A closing thoughts al, uh, for our audience today, uh, from Miami or Parkway Properties?
00:07:01 Well, sure, I mean, you know, you, you, we were touching on opportunities from an institutional standpoint, but, but quite frankly, I think there's gonna be opportunities that are on point, uh, in terms of the, you know, the ultra high net worth individuals that, uh, you know, our, our frequently, you know, partners with CrowdStreet, uh, because you're, you're seeing the same thing at the other end of the spectrum. So, uh, you know, the, the asset size that you guys target, uh, is one that's, you know, very comfortable for, uh, you know, uh, you know, raising the capital, deploying the capital, and, and executing crisply, uh, but usually assets that for the most part would be a little small for the institutional investors. Um, and I think you're gonna see the same lack of liquidity in that space, which to me, whenever you see a lack of liquidity that creates opportunity.
00:07:54 Thanks for joining us today. Uh, it's been really insightful, Al as always fun talking with you. Stay healthy in Miami and, uh, tell Jim we said hello.
00:08:05 Talk
00:08:06 To you soon.
00:08:07 Right. Thank you very much, Darren. Appreciate the opportunity.
00:08:10 Of course. We'll have you again soon.