While the coronavirus-related economic shutdown that began in March sank a number of private equity real estate transactions in the U.S., price discovery issues are being resolved and deal flow is returning, private market players said.

"We're already finding enough deal flow that we're having to filter and be very, very consistent with strategy and avoiding mission drift," Douglas Eisner, co-founder and managing director of Las Vegas-based The Calida Group, said during a June 17 webinar sponsored by the research firm Preqin. The necessity of negotiating deals virtually has altered negotiation and trust-building processes between fund sponsors and investors, but it has not dismantled them.

But while deal flow has come back, the source and makeup of the deals is markedly different than it was before the pandemic arrived. Eisner described a growing divergence between the investment preferences of two key groups: large institutions and high-net-worth retail investors. Where previously both groups' interests were generally similar — strings of singles and doubles rather than grand slams — retail investors on the whole are now less conservative and wanting to swing for the fences.

"We're getting a lot of pressure to do deals and put out money, and we're saying, 'Woah, woah, woah. This is a marathon, not a sprint,'" he said. "And so we're trying to actually hold back and manage people's expectations for deal activity."

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Eisner said private equity real estate investors of all stripes have shown an interest in distressed real estate, but that distressed opportunities have not manifested in the marketplace yet at expected levels.

Roughly 2.9% of closed deals in the U.S. fell out of contract in May, up from 2.1% in April and 0.7% in March, Real Capital Analytics said June 16. The May percentage is more than seven times the monthly average from 2015 to 2019. At the nadir of the global financial crisis, in January 2009, 12.8% of completed deals fell out of contract.

Fund managers on the webinar fielded questions about the near- and long-term future of New York City's commercial real estate market. Daren Hornig, managing partner at New York City-based Hornig Capital Partners, said the city's biggest concern at present is what has been its greatest strength historically — its mass transit system. Millions of workers enter and leave the city through Pennsylvania Station, Grand Central Terminal and the Port Authority Bus Terminal and move around the city via the subway system, and the city population's avoidance of these hot spots in recent weeks has turned Manhattan, N.Y., into a kind of "ghost town," he said.

Hornig said in the long term, young people will continue to gravitate to New York and other coastal cities even if older generations decamp in greater number, with the consequence that the city may become even more youth-oriented over time.

"Ultimately there will be an equilibrium," he said. "Urban environments are here to stay, because ... young people, the talent, especially in the tech world, don't necessarily have the desire to relocate, or start their careers in a suburban environment."