Petiz : We expect to see a set of less aggressive , better equitized buyers succeeding in more auction processes than in prior cycles . High-leverage purchasers will have a blended cost of debt in the high single digits which will require near flawless business plan execution and leaves little margin for error , making those few and far between . Meikleham : I ’ m hearing 60 % leverage is the new norm on the few acquisition loans I ’ ve heard about .
MOST OF THE BUYERS THAT I ’ VE TALKED TO BELIEVE THERE WILL BE MORE DISTRESSED ASSETS TO BUY AND DISTRESSED LOAN SALES TO BUY , AS WELL AS RESCUE CAPITAL OPPORTUNITIES IN THE NEXT TWO TO THREE YEARS .
- DENNY MEIKLEHAM
Broad : The least expensive debt will be found on deals with 14 + in place debt yield ( likely equating to 50 % to 55 % LTV ). The lower the debt yield , the higher the interest rates . Fixedrate conservative debt today is in the low 7s . Floating rate debt on “ value-add ” deals is SOFR + 600 ; we are approaching and exceeding double-digit interest rates for these deals .
H : How will bid-ask spreads evolve in 2023 ? Hecker : Basically , the buyers are the ones shifting their prices upwards , not sellers decreasing theirs . Accordingly , more gaps are expected to get filled in 2023 versus 2022 due to the amount of money exceeding the actual deal flow . Human : The spread is probably as wide as it has ever been right now . One way or another , we expect it to narrow next year , either as the risks of recession recede and buyers have more confidence , or recession bites and sellers adjust their expectations . Petiz : Transaction volumes are expected to see a lull as buyers will be more cautious in the face of near-term macroeconomic headwinds and leverage cost and availability . Similarly , not many sellers will be under pressure to transact and , as such , will have very firm views on the value of their assets . The bid-ask bridge may be large enough to terminate or postpone several sale processes . Meikleham : I expect offers to be between 10 % to 15 % below what they were in June 2022 going forward .
It ’ s much easier now for an acquisition executive to explain to their investment committee why they should not buy an asset , rather than why the deal makes sense .
BASICALLY , THE BUYERS ARE THE ONES SHIFTING THEIR PRICES UPWARDS , NOT SELLERS DECREASING THEIRS . ACCORDINGLY , MORE GAPS ARE EXPECTED TO GET FILLED IN 2023 VERSUS 2022 DUE TO THE AMOUNT OF MONEY EXCEEDING THE ACTUAL DEAL FLOW .
- DENNY MEIKLEHAM
Broad : Owners who have strong cash flow and remaining term , say three years and more , on their loans will either hold on to their properties or , if they do transact , will use the in-place debt and its existing terms to drive value . On the other hand , owners with short debt maturities and / or large CapEx needs may have to transact . This latter group will have some tough decisions to make .
H : What are the most coveted asset types ?
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