Like everyone, our past few weeks have been dominated by COVID-19 and its impacts on all aspects of everyday life. While health and safety remain our primary priority, we recognize that our work must continue. We are all trying to understand what COVID-19 and the rapidly changing landscape mean for the multifamily industry, our business and our clients. While we can’t predict what will happen in the coming months, let alone days, as we monitor and adapt as necessary, here’s what is top of mind for us:
Investment Capital Remains
At the Pension Real Estate Association Spring Conference in the beginning of March, consensus was that there is still an abundance of capital available in the U.S. markets. Certainly, much has changed since then, but we expect that U.S. commercial real estate will remain a safe haven for investors. Indeed, it has produced attractive risk-adjusted returns for the last 30 years.
We would anticipate that net operating incomes won’t grow as strongly as they have been and that we’ll experience some dislocation. However, in the current interest rate environment, real estate is still a good investment opportunity and multifamily in particular is more recession proof. Rightly, everyone is exercising prudence. Though we might experience a slowdown in overall production, it’s not likely that this will drastically change how investors view the commercial real estate landscape and invest in it going forward. More than ever, investors will be looking for strength, sophistication and safety.
Location Matters More Than Ever
Location, location, location – it’s a cliché of real estate, but in the current environment, location will likely play an outsized role in who is able to capitalize on opportunities. Proximity to properties being marketed will be key, at least in the short term. We don’t anticipate that buyers will consent to sight unseen purchases, so prospects who are within striking distance of viewing properties will have a greater chance of buying. As an advisory firm, we will be relying on our local market expertise and client base even more to connect buyers and sellers with the right opportunities.
Additionally, we expect to see less foreign capital active in the market. Again, distance will likely prove prohibitive to their ability to tap U.S. real estate opportunities as aggressively as the local players, particularly if the current measures in place are prolonged.
A Technology Revolution Is Underway
At our recent national sales meeting, technology was a key topic as we look to leverage the proprietary tools we’re developing to deliver unique actionable insight for clients. But technology tools are meaningless if they’re not widely adopted and to say COVID-19 is super-charging technology adoption for our organization and many others across the globe would be an understatement. What we learn about commercial real estate sales in the next 4 to 6 weeks will likely change the industry forever.
In particular, we expect that the way we as a multifamily industry market properties during COVID-19 will be revolutionized. Virtual property tours, which have been a topic of interest and exploration but haven’t taken hold, will certainly break through in the coming weeks and months. While they won’t replace on-site interviews, they will be a strong supplemental tool in getting clients up to speed on opportunities and supporting their investment decision making. Best practices will emerge around engaging clients remotely, sharing virtual tours and how to leverage all the resources we have available to adapt how business is being done. We expect it will be a period of unprecedented creativity and expansion of our virtual role.
Commercial real estate has always been a fast-moving industry. It’s what has drawn many of us to it. Evolving government regulation, rental trends, economic conditions, demographic shifts and more have always demanded that we be nimble, thoughtful and strategic even as we try to act quickly and decisively on behalf of our clients. Our current situation demands the same of us and all commercial real estate investors.
– Keith Misner & Dori Nolan