Editor’s note (As of the publication of this article, Adam Gottschalk is no longer affiliated with STRIVE)
By Taylor Williams
The industry adage that “every deal is different” has never been an exaggeration or cop-out excuse for explaining trends and transactions — or lack thereof — in commercial real estate. It’s a simple fact that actually speaks to the nuanced, innovative and challenging structures and processes that permeate dealmaking in this business.
The expression is especially applicable to investment sales and particularly convenient to invoke in times of rapidly shifting market and economic conditions. Therefore, a quasi-blanket statement that, all other factors behind held equal, Texas retail owners have minimal reason to sell right now must be evaluated in that context.
As with any large sample size, there will always be multiple exceptions to the rule, and there will always be deals being brought to market as a function of an owner’s unique personal or capital situation(s). But by and large, outside of those scenarios, sources say that Texas retail owners don’t need to force things.
“Unless there’s a life or a capital event — debt coming due or not wanting to add fresh equity to a deal — that forces an owner to move product, the only thing we’re seeing [that prompts sales] are opportunities for development in which an owner needs to sell to level up and move on to the next big thing,” explains Adam Gottschalk, partner at Dallas-based brokerage firm STRIVE.
“We do have to advise owners not to sell for the most part, particularly in core areas of Dallas-Fort Worth (DFW),” adds Patrick Luther, senior managing principal at SRS Real Estate Partners. “Death, divorce, estate planning — those life events might prompt a sale, or maybe there’s an owner who’s raised a fund and has a time horizon that has now arrived. But we’re generally advising smaller investors or family offices not to sell.”
“Then there’s the question of what to buy or exchange into if you do sell,” continues Luther, who is also co-head of the firm’s net lease group. “It’s the devil you know versus the one you don’t. If owners can’t replace what they’ve got, they can just hold onto it, raise rents and improve their portfolio and NOI [net operating income] in that way.”
Selling Is Easy, Buying Is Not
Other sources agree that uncertainty on what to buy post-sale is another key factor that inhibits deal volume.
“Those in the business of buying and selling retail real estate need to know what the next chess move is,” says David Zoller, executive vice president of retail brokerage in Weitzman’s Dallas office. “‘If I sell, what am I going to buy? If I buy, how am I going to buy? Will I leverage it, and at what interest rate, or take equity? Am I paying a reasonable cap rate? What’s the upside potential, the competition and the strength of the tenant? Do they report sales, and are we getting percentage rents?’ There’s a myriad of factors that determine [the answers to those questions], and one of the reasons things aren’t selling is because people can’t buy what they want to buy such that it answers those questions.”
“People who want to buy will find something to buy,” Zoller adds. “They’ll make some offers here and there, but if [a property] isn’t covered with a tenant in tow and doesn’t fit their business plan or doesn’t cover their nut, they won’t make the investment. Seasoned investors who don’t have a reason to sell or have been hesitant to sell in anticipation of lower interest rates — they tend to keep their powder dry and wait for the right deal, no matter how long it takes.”
Gottschalk points to the aforementioned maxim of every deal being different as the only framework through which to assess the problem of what to buy after selling.
“Clients sometimes don’t know what to do after they sell, but the answer depends on what their business plan and investment needs and criteria are,” he says. “If they’re older, maybe they want to have a secure nest egg and consistent cash flow and minimum risk. But if they’re a merchant developer that wants to build with equity partners and flip and move on, that’s a different animal. It really just comes down to individual investment goals.”
Investment sales volume has slipped across commercial real estate as a whole over the past couple years as interest rates have risen, paces of rent growth have slowed and valuations have retreated from their immediate post-pandemic highs. Given the benefit of hindsight, this was to be expected, especially for industrial and multifamily, the two property types that achieved unprecedented metrics in 2021 and 2022. But sources say that general market optimism has improved marginally in the past few months and that overall, deal volume is healthier now than it was eight to 12 months ago.
“There’s been an uptick lately depending on product type,” says Brandon Beeson, principal at Edge Realty Capital Markets. “Rates have come back [down slightly], which helps, and there’s more exchange money out there now than six to nine months ago. There’s more interest in the deals that we’re marketing, and our team’s transaction volume is significantly up from 2024.”
“The three interest rate cuts we’ve had this year are not directly responsible for the uptick in investment sales, but there’s definitely a correlation,” adds Luther. “Velocity and number of offers received do correlate with rates coming down because they pull people off the sideline who might have otherwise been unwilling to make an offer. There’s a sentiment that over time, as rates drop, product will become more expensive and values will improve. You can’t time it perfectly, but the climate is better today than it was even six months ago.”
Luther also believes that deal volume should further improve in 2026 as bridge loans that were originated at the trough of the interest rate cycle come due. For some of those owners, refinancing will not be an option, and those groups may have to bring in fresh equity to avoid selling. Selling might therefore be an attractive option, but there is the stubborn reality that the assets will likely not fetch the same prices as earlier in the cycle.
“We’ve seen a decent amount of product that will need to be sold that was financed with very low rates and short terms, i.e. — five-year money taken out in 2021 that’s coming due,” Luther says. “But everyone wants the prices that were offered in 2021-2022 when interest rates were near zero, and we’re still not back to peak valuations. Cap rates are still 100 basis points off the high end of the valuation range and low end of the cap rate range from that time. So if you don’t have a debt issue and don’t need to sell, you should wait for cap rates to drop further as a seller, not a buyer.”
Breaking Down The ‘Why’
Interest rates aside, other macroeconomic factors may be contributing to improved activity in retail investment sales. Construction costs remain painfully high, prompting groups that might normally build to embrace the concept of replacement cost and buy instead.
Matt Knagg, advisor at metro Houston-based brokerage firm SVN | J. Beard Real Estate, says that the underlying logic of replacement cost is driving some activity in retail sales today, just as it was this time a year ago.
“The same reasoning still holds true today in terms of how expensive it is to build,” says Knagg. “In many instances, you can find opportunities to purchase existing retail centers for less than replacement cost, which is highlighted in numerous offering memorandums of properties that are for sale.”
“The challenge with existing, mature submarkets is the current land prices for undeveloped sites, plus competition with the existing retail supply,” he continues. “Underwriting the development of a 15,000- to 30,000-square-foot shopping center may require the developer to achievements of $40 to $50 per square foot depending on the class of center and land basis, and the relative submarket may only yield $35 per square foot rents. So you basically can’t lease it.”
Raw construction costs notwithstanding, mass uncertainty on tariffs, trade wars and immigration policies — mechanisms that could easily exacerbate pricing for construction materials and labor — seems to have cooled for now. And debt and equity are generally more available than in the past couple years, provided the key boxes can be checked.
Yet each of those factors represents a small tailwind to retail sales, while the narrative of healthy fundamentals — high demand, low new supply, strong interest from diverse capital sources — is a powerful standalone headwind. In addition, there is the aforementioned fact that peak pricing has come down significantly from a couple years ago, even as rent growth remains healthy. And lastly, as the past year has shown, with the current administration, geopolitical chaos and macroeconomic uncertainty can resurface at any moment.
It’s an unusual combination of market conditions, and unusual conditions usually mean defensive positions in the capital markets. Yet sources say that for deals that are being aggressively marketed and generating offers, sourcing debt and equity, while potentially tricky, is generally not what kills those transactions.
There remains a fair amount of dry powder on the equity side of the capital markets, to be sure. But again, strong retail fundamentals are discouraging owners from selling just as much as tumultuous macroeconomics are giving debt and equity sources pause on acquisitions.
“There isn’t lack of equity; there’s fear of uncertainty, and investors have to overcome that fear to release their equity,” says Zoller. “There are a lot of people sitting on a lot of cash
waiting for the right deal. If you buy right, you’re golden. If you don’t, you need to be a user that can make it right based on performance.”
Zoller understands the rationale behind retailers wanting to own their real estate. Given the benefit of occupancy, these companies can underwrite beyond what he calls “purely investment-related components,” while simultaneously monetizing the asset and creating a higher rate of return.
Knagg agrees that lack of equity is not a major deterrent to deal volume. Instead, any sluggishness in the market stems more from misalignment between deals available for sale and the investment parameters of those looking to buy, as well as general market uncertainty.
“There are a fair number of [equity] groups itching to deploy, and a decent number of groups that are still hesitant and are underwriting their opportunities more conservatively,” says Knagg. “That includes underwriting some level of vacancy even in properties that are stabilized and at full occupancy by the rent roll numbers. So it is taking more work to get commitments from equity sources, but it seems to be slowly getting better.”
“It’s not 2021, when you could put 20 percent down and expect a deal to flow cash,” adds Gottschalk. “Banks need to see a certain debt coverage ratio. Nowadays, you have to put 35 to 40 percent down just for a deal to pencil. Before, people might look for a deal that was 50 percent occupied and put 20 percent down, but those deals don’t exist in today’s marketplace. It’s all about adapting to the debt and equity markets.”
Beeson identifies merchant developers as an interesting segment of today’s market. While those groups by definition contribute directly to greater listing volumes, Beeson says that some of those deals that are currently on the market are slightly overpriced, as evidenced by the number of days they’ve been on the market. However, as the debt markets continue to show improvement, more of these deals should trade in 2026, Beeson believes.
“[The merchant developers] are not long-term holders, so if it’s the right product, they’re eager to get it out there and take advantage of a somewhat heated market — and it is more heated than it was this time last year or even earlier this year,” he says. “There are a lot of merchant builders that developed their assets at a time in which their projected exit [cap rates] were a little lower than what the market is bearing right now. We just try to navigate it by talking to sellers about how to best position [the deal] to capture what’s there.”
“Regardless, there’s been a flight to quality across all retail product, from single-tenant to multi-tenant,” Beeson concludes. “Retail assets with strong credit, longer-term leases coupled with rental increases are seeing the most activity.”
Adding Nonmonetary Value
Speaking of navigation, all brokers interviewed for this story were adamant about one thing: No matter the market conditions, it’s crucial to prioritize the long-term client relationship over the short-term monetary gain from a sale.
“You have to tell the truth and give the hard facts, every single time,” says Zoller. “There’s plenty of business and money out there to be made, and credibility is more important in relationships than business. An average year in which we retain clients is better than one in which we have huge deals and never see those people again. There’s no substitute for how you treat your customer, and what good are we if we can’t tell them the truth and deliver the hard information that they need to hear?”
Creativity is also key to the advisory process, especially during slower times.
“The market truly is what buyers are willing to pay for a property,” says Knagg. “We encourage buyers to give an understanding of their numbers and why they’re underwriting specific parameters. Sometimes the challenge with the bid-ask gap is that buyers think they’re too far apart to submit an offer, that it’s a waste of time and they won’t be awarded a deal. But if you can show a seller the logic behind your underwriting and why it makes sense, that tends to help bridge the gap.”
Even if the prudent move at the time is to hold, brokers can still add value in terms of helping clients plan ahead.
“No tenant is in a building forever,” says Gottschalk. “At some point, after all options are executed, the lease will run out, and an owner will have to re-lease the building or restructure the existing lease. For those who say they’ll never sell, that’s where we can really lean into advisory roles by providing comps and appraisals and other data. It goes beyond the transaction. Investment sales brokers are at the forefront of deals that hit the market that provide real information.”