With little warning, COVID-19 has quickly impacted the lives of most people on the planet and led to growing uncertainty that has greatly impacted the financial markets. How should real estate investors react to the current state of affairs and develop appropriate short and long-term strategies? We would like to offer several perspectives to guide our clients and readers.
1. Before you change lanes, first look at the rear-view mirror.
While history cannot be fully counted on to predict the future, it is useful to first review similar past events to guide us on what we should do next. Although COVID-19 may develop into an unprecedented event, it is far more likely that it will follow patterns matching other large virus outbreaks such as occurred with SARS, H1N1, and MERS, among many others.
A recent report by Marcus and Millichap (see below) that reviewed the impact of past pandemics on real estate investments, noted that while all resulted in short-term market volatility,
“The markets stabilized in the range of three to six months on average. Barring a devolution into a far worse global health emergency—job creation and economic growth will both decelerate but remain positive. This should support real estate fundamentals and lead to a relatively stable outlook for the sector over the remainder of the year.”
The suggestions in this report are consistent with our advice to clients and investors to maintain a long-term outlook and avoid rash short-term decisions.
2. Real estate fundamentals remain sound.
A report published in early March by Avison Young stated that:
“It should be noted that demand for real estate investments remains at a high level, with multiple sources of capital active in the market. Any reduction in interest rates and bond yields will also encourage further flows of capital into the real estate sector.”
In many urban US markets, demand for housing remains high and while many people are temporarily reducing spending on discretionary items such as eating out, taking vacations, going to sporting events, etc., we all continue to find ways to keep a roof over our head – and landlords continue to collect their owed rent.
3. Stay calm and minimize exposure to those who predict doomsday scenarios.
Unless you decide to become a hermit and move to a cabin far away with no access to outside communications, you will not be spared from a flood of headlines about COVID-19 and be witness to hour-by-hour market corrections and adjustments. Rather than listening to prophets of doom and gloom, look to experienced real estate experts for their suggestions and advice. As Marcus and Millichap point out:
“COVID-19 is unlikely to have severe, long-lasting effects on the commercial real estate sector. Falling interest rates will propel refinance and acquisition activity and investors will be able to lock in low interest debt . . . so investment activity should remain stable despite a lack of confidence in the wider economy.”
These perspectives are largely based on how markets responded to past pandemics and the current situation with COVID-19 remains unclear. If matters become much worse than what has been experienced in the past, different outcomes could certainly arise. Due to the success of many of our investors who use the lessons of history to guide their investment strategies, we side with the conclusion of the Marcus & Millichap report which expects reduced but still positive economic growth even in the face of these uncertain times along with continuing underlying demand for solid income real estate growing markets.
Please contact us via email at info@FirstGuardianGroup.com or via phone at 866-398-1031 to learn more about current income producing real estate investment opportunities plus strategies to defer taxes on the sale of real estate assets.
We wish all of you to stay healthy as we get through this challenging period.
Coronavirus Outbreak Special Report by Marcus Millichap
COVID-19 Global Real Estate Implications by JLL
COVID-19 Impacts on Real; Estate by Avison Young