Property market slowdown increases confidentiality in large property sales

Transactions are shifting from open to so-called "off-market" processes.

No property owner wants to be left vulnerable in a volatile market if they cannot meet their asking price for their property. As a result, the market for large real estate transactions is shifting towards "off-market" sales, i.e. transactions that are based on secret bilateral agreements rather than an open public process available to all potential buyers. This is intended to reduce the consequences of a possible refusal at a crucial moment in the closing of the transaction.

The reason for exiting the market has a very specific context. It remains to be seen how the rise in interest rates will affect the skepticism that has built up in the financial sector since the collapse of the SVB. Since the end of last year, real estate transactions have come to a standstill. The main problem is that access to financing has become more expensive and difficult, so buyers are looking for higher margins, which immediately drives down the value of properties. No one wants to be the first to buy a property if prices continue to fall, so buyers and sellers are at odds over how much less each property is worth. As a result, there have been 25 large real estate deals worth €3 billion in recent months.

"Many of these deals are moving to an off-market format, which, because it is less visible, allows both parties more scope to adjust the price," admits Sergio Fernandes, chief investment officer at consultancy JLL. He goes on to say that the duration of open processes tends to be longer, while the cost of financing and the price expectations of sellers and buyers fluctuate from week to week.

Ignacio Martínez-Avial, managing director of BNP Paribas Real Estate, agrees that there are more off-market transactions "because owners, especially those who do not need to sell, prefer not to put their capital at risk, while if there is an interesting offer from a really interested investor, it can be better negotiated".

According to Gonzalo Ladrón de Guevara, executive director of capital markets at Savills, during "rapid growth" cycles, investors who want to sell properties tend to organize open processes, as competition drives prices up. But they prefer to test the price in a limited process with only the most active investors, he continues, in market conditions such as the current one, when the benchmark is still unclear.

Colliers chairman and CEO Mikel Echavarren adds that open processes make sense when there is intense competition and real bidding is possible. "As institutional investors demand lower prices than the sellers suggest, bilateral transactions have to be structured with other types of buyers, most of whom are very long-term investors who make investments without financing.

In the sales process, large landlords often use agents and consultants, including representatives from JLL, CBRE, Savills, Cushman and Wakefield, BNP Paribas Real Estate, Knight Frank, Colliers, Catella, EY, PwC, KPMG, and Deloitte. Real estate agents consult the contact lists of these firms when it comes to off-market properties.

According to Ladrón de Guevara, the asset is sold bilaterally to a single interested party or a small group of carefully selected potential buyers, rather than being put on the market in a sales process open to all potential buyers. "Our job is to fine-tune this selection, and we can only do this with a deep understanding of the market that allows us to identify the two or three investors who will be most interested in the asset and can maximize its sale price," he says. "To do this, it is crucial to have a strong relationship with the potential seller and to have a pulse on the investors who are willing to offer the owner's target price," he continues.

 

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