C&W’s Andy Merin Talks NJ Investment Sales in a Post-COVID World
Andy Merin joined Cushman & Wakefield in 1983 and has transacted through a few crises in his time, but even he says that COVID is a crisis unlike any other.
Stationed in the brokerage’s East Rutherford, N.J., office — but currently working from his Hamptons home — Merin heads up the New Jersey investment sales group and has been involved in more than $34 billion in property sales over the years.
As such, even a global pandemic hasn’t stopped the industry vet closing deals on behalf of his clients. Recent transactions include Opal Holdings’ $140 million purchase of 194 Wood Avenue South — a trophy office tower in Iselin, N.J. — in August and BentallGreenOak’s $164 million acquisition of 50 Veronica Avenue — a 925,000-square-foot warehouse in Franklin Township that’s fully leased to LG Electronics — in June.
Commercial Observer caught up with Merin to learn more about what’s whetting investors’ appetites in an ever-changing, post-COVID world.
Commercial Observer: How has your COVID experience been, from a business perspective?
Andy Merin: It certainly has been an interesting experience. I’ve been through a lot of different cycles, everything from the Russian bond default to 9/11 to the financial meltdown of 2008, and COVID is in a class all by itself. I think our team and our business has adjusted very well to it, all things considered, and the deal flow has overall been pretty good. We had a very strong year last year — one of our best ever, in fact — and, while our 2020 revenue is not going to equal last year, we’re very, very busy. We cover four food groups in terms of asset classes, and industrial is just killing it right now. Our industrial partners are doing extremely well.
We’ve been tracking the trends that have been accelerated by COVID, one of them being the interest in industrial properties. How would you describe investor appetite today?
We were at a very high level [of interest] before COVID, and I think we’re back at that level. It’s hard to get hotter than where we were. In the early days of COVID with respect to all product types, people were looking for the COVID discount. And the COVID discount does not exist in industrial assets. People tried to get it in the beginning, now they’re not even trying. Buyers are pretty selective right now, the product they’re looking for is industrial, some multifamily and maybe some medical or life science. They’re pretty particular as to what they want. And if you’ve got the right product [to sell], then you have a nice bidding competition.
Are sellers getting the prices they’re looking for?
I think we’re struggling with the usual disconnect between sellers’ expectations and buyers’ reality. That’s always been a problem, and that’s why they need brokers to help them bridge the gap. I was just telling somebody the other day that for brand-new, Class A apartments, the sellers are looking for four to four-and-a-half caps and the buyer is looking at four-and-a-half to five caps. So that’s the level of disconnect, and where you end up really depends on how much of a competition you can create and who blinks first. Some sellers are pretty disciplined about their price. If they don’t get their price, they’re not motivated.
In terms of the buyers, are you only seeing domestic bidders or some foreign firms in the mix?
Both. Foreign buyers usually like bigger properties than what’s available in the suburbs, but we are seeing them. The issue with foreign buyers during COVID is them being able to actually get out and visit the property. If you have a Korean buyer, they need to have somebody usually from Korea visit. And that’s a real challenge today. How do you deal with quarantining? How do you travel? It’s even a challenge for us if a buyer’s office is on the West Coast and he has to come out east to look at a property. How do you arrange where they’ll safely stay? How are they going to travel to the site? We had five people on a tour the other day and they showed up with five different cars. So that’s a little bit of a challenge.
We’ve seen deal activity pick up in general in the past month or so. Are you seeing this too?
Yes, I’d say activity has ticked up significantly. I think there’s a realization that we have to get back to business and then transactions can happen. Early on, people were waiting to see what the world was going to look like when we got to the other side [of COVID]. And while we don’t have total clarity yet, people are getting more used to living with this pandemic and trying to move on. One of the problems we’ve had is that things move much more slowly during COVID, in particular the banks and institutions we need for the financing. There was a point in time when the major banks closed down altogether to real estate lending for a couple of weeks, but they’re back with a vengeance now.
Are the debt markets getting more competitive again compared with a few months ago?
Yes. There’s definitely more competitiveness today. In the beginning, we’d hopefully find one bank [to do the deal], and it wasn’t always a larger bank, so you had to hope that they could syndicate the loan. We had a few deals that fell apart because the lender agreed to do a certain thing, then they found they couldn’t syndicate all of the loan.
With COVID highlighting the benefits of increased outdoor space, I’d imagine that New Jersey has a competitive edge in terms of projects’ appeal?
My team geographically covers New Jersey, all of New York state except for the five boroughs, and Fairfield County, Conn. Having said that, we’ll do things as far north as Buffalo [N.Y.] and Danbury [Conn.]. But New Jersey certainly seems to have more opportunities. It’s a larger office market than all of those others, and it’s a much larger industrial market.
Are you finding that investors who traditionally have focused on New York City are expanding their horizons to New Jersey?
We have the top team in New York, the [Doug] Harmon and [Adam] Spies team. Since they’ve come aboard, it’s really been a wonderful relationship. We work with them on a lot of our pitches regarding moving New York City money to the suburbs, because our returns are a lot higher than they are in New York and — quite frankly — right now our growth is better. The one thing that COVID has done is driven residential [development] in New Jersey, big time, and they say that we’re going to feel the impact of office [use uncertainty] but we haven’t really seen it yet. People think there’s going to be some migration on the office front — it’s certainly happening on the residential side — and the money is following. We’re starting to see investors, particularly some of the wealthy private families, look at the difference of 100- to 200-basis points on a deal in the suburbs as opposed to in New York City.
What’s been the most surprising thing for you to come out of COVID?
When I look at 9/11, the global financial crisis and the Russian default, those were financial situations that ultimately corrected themselves. What we’re experiencing now is a whole change of life. But there were changes already taking place with regard to how we work, how we live, and how we communicate.
I’m an old-timer and I’ve been at this for quite a while. When I started we didn’t have cell phones, I used to work with paper maps on my lap in my car, and the world was a lot different. I used to kid around and say “The day I need a computer is the day I retire,” and that was the early ‘90s. So changes are always taking place. Working remotely was something I’d seen individuals in other practices and businesses get comfortable with. It was an emerging trend, but COVID really accelerated it. I have a lot of friends who moved here [to the Hamptons] from the city in March, and they’re still here. Many are saying they may give up their apartments in the city and make their Hamptons house their primary residence because they’ve learned they don’t need to be in the office necessarily. Then, if you look at what’s going on with the shopping evolution, I like to go into stores and look at things and see what people are buying. I was slow to punch the buttons on my phone and have stuff show up the next day on my doorstep. But I’ve been converted during COVID.
The one [change] that I’m most curious about is what will happen on the office side. Are corporations going to say, “Hey, we can reduce our overhead and lessen our footprint by encouraging employees to work remotely. And maybe we can even retain better employees, because we’re not forcing them to move into a city, or less expensive employees because they can live in a more rural neighborhood.” But, by the same token, people are saying we need collaboration. So the jury is still out.