Early in this New Year, a retail landlord who owns over 200 buildings remarked to me: “Cash is king, always is. That’s why I don’t have any mortgages on any of my buildings.” Of course, not all buyers are in a position to follow his model. Very few retail buildings transferred in the last quarter of 2022, and it’s my guess that volatile financial markets shoulder the blame. Few could get loans, and those who could faced very high LTV figures. About the only buyers were owner-users who could get SBA loans with 10% down, or those who, like the aforementioned gentleman, were sitting on massive reserves of cash. Cash is King.

With those facts on the table, it makes sense that cap rates for high-quality retail properties really haven’t gone up. However, they also haven’t gone definitively down. Maybe we can say that cap rates for A+ retail have wiggled a bit. There’s a lonelier story for non-A+ locations.

OK, if LTV and cap rates shouldn’t guide transactions, what should?

Another major landlord recently said to me, “There are no bargains out there today. But that’s okay, never buy a bargain.” Meaning: He’s only looking for top-tier locations, and far less worried about return projections. He went on to say that “there are very few problems in real estate that aren’t solved with time.” So what’s his metric to see past temporary market fluctuations and identify true quality? Rather than cap rates, he focuses more on price per square foot. He sees in that figure the hallmark of endurance. “New York isn’t going anywhere,” he told me. “Go take a picture of it.” Which is exactly what I did for this post. Embedded in it are the buildings that have delivered value for retail owners for decades, and will be doing so decades from now.

Trever Gallina | Marcus & Millichap | Vice President Retail Property Sales

Trever.Gallina@Marcusmillichap.com | 917.692.9929