Archives for May 2020

In general asset prices are vulnerable to further economic dislocation but CRE appears to be in the cross-hairs.

The current pandemic and global response is a once-in-a-lifetime event that has affected all of our lives in significant ways. In addition to rapidly addressing the short-term implications, real estate leaders must begin to think strategically about the long-term implications of the event. As MIT Technology Review’s Gideon Lichfield wrote, “We’re not going back to normal.”
From my vantage point working with multifamily owners to anticipate changing resident demands, the following are five developments that I predict will accelerate in the future, post-pandemic age. Beneath each trend lies an opportunity for owners and operators to capture in the coming years.
1. Increased Adoption Of Delivery Services 
Prediction: The percentage of residents who shop online for necessities will increase, with online grocers seeing the largest percentage of new adopters. Online grocery apps are being downloaded at record-breaking rates. This trend will continue and be a lasting change in the new normal.
Opportunity: Multifamily owners who adjust their operations to best receive and distribute a variety of packages (including perishables and high value) to residents will be at an advantage. The e-commerce boom and resulting increase of packages has been an existing logistical issue for multifamily owners. While smart package mailrooms are part of the solution, it will be increasingly valuable to create additional layers of service to ensure safety and cleanliness, particularly for perishable items.
2. Remote Working Acceleration
Prediction: Remote working will become more widely accepted and employers will increasingly need agile real estate strategies that maximize value and flexibility. Many of us have had too many Zoom calls to remember in the past few weeks. This personal experience is indicative of widespread adoption. In the midst of a chaotic time, tools for remote work have proven reliable for many. This short-term success of remote working coupled with companies’ need for flexible real estate strategies will accelerate the acceptance of remote work.
Opportunity: Residents who are working remotely for a portion of their workweek will desire a third space outside of the home, so multifamily owners who operate a workspace in their buildings will create a competitive advantage. A workspace offering will add the most value when it goes beyond providing a basic space and chooses to align itself directly with end-user needs, such as bookable meeting rooms, programming and events.
3. Automated Public Spaces
Prediction: A general shift in social norms and social behaviors will increase the use of automation in public spaces. Implementation of all types of touchless technology will increase, from automatic doors to voice-activated elevators to hands-free light switches.
Opportunity: Owners who are adept and first to market at retrofitting and adding these smart elements to their buildings will have an advantage. How operators strike the right balance of frictionless automation with human-centered hospitality will be key.
4. Increased Importance Of Property Management 
Prediction: As residents spend more time at home, they will expect more from property management, and the importance of service, cleanliness and reliability will increase. Over time, brand recognition of property management companies will increase and more substantially differentiate one multifamily asset from its competitive set.
Opportunity: Multifamily owners who build a strong consumer-facing brand based on operational consistency will have an advantage. Owners who add additional layers of service, whether provided through an affiliated third party or in-house, will achieve further differentiation, especially in class A multifamily.
5. Human Connection Becomes Increasingly Valuable 
Prediction: The core mission of my company is to draw people out of isolation, which makes this trend particularly important to me. As society moves from wide-spread quarantine to the new social norms, the already existing loneliness epidemic will, unfortunately, continue to grow. In 2018, three in five adults (61%) reported feeling loneliness in the well-documented Cigna study. Tragically, we expect this percentage to rise, which may have serious health implications.
Opportunity: Multifamily owners who create operational rhythms for resident connection before, during and after work will attract and retain a disproportionately large number of residents. This operation likely functions similar to a hotel bar, drawing residents out of units and into a space with opportunities for connection. The current lobby and first-floor amenity space is the ideal location of this connection hub. As technology continues to remove friction and human interaction from the consumer experience, people will be more hungry than ever for human interaction. Buildings and operations that can provide places of connection will be in high demand.
In the age after the pandemic, customer-centric sensibility will be critical to best position existing assets in what will be a more competitive landscape. Winston Churchill famously said, “We shape our buildings, and afterwards our buildings shape us.” The coronavirus will more than likely shape us in such a way that our buildings and operations will need to be reshaped. Multifamily owners and operators who are best positioned to address the change in behavior will not only be good for society, but will perform the best in the new normal.
Source: “Five Opportunities For Multifamily Real Estate In A Post-Pandemic World“

The tenants of many medical office buildings have closed their offices temporarily, but the long-term prospects for this property type are robust.
While hospitals and health-care facilities have been inundated by an influx of COVID-19 patients, many medical offices that offer non-emergency services have seen the opposite occur.
The property type’s solid fundamentals prior to the virus, however, promise a relatively rapid rebound when the economy is up and running again, according to Marcus & Millichap’s April special report on medical office buildings.
With many shelter-in-place orders in effect, communities across the U.S. are avoiding unnecessary travel and exposure, including those patients seeking elective surgeries or nonessential surgical and dental procedures. As patients decide to reschedule their appointments until further notice, many medical offices aren’t generating revenue and have had to partially, or fully, close.

THE POST-COVID-19 MOB MARKET

The COVID-19 pandemic has already left its mark on different facets of commercial real estate like office leasing, construction and retail. While the medical office building market was not spared, its strong market fundamentals prior to the emergence of the new coronavirus offer signs of a healthy market after the pandemic ends.
The national vacancy rate for medical office buildings was 90 basis points below the trailing 10-year-average of 9.7 percent, according to the report. The U.S. market also saw 6 million square feet of medical office space absorbed in 2019. Following demand, the below-average availability of medical offices has led to a steady stream of new properties, with deliveries hitting 10 million square feet. The statistics have attracted the attention of private investors looking for assets between $1 million and $10 million.
Once the COVID-19 pandemic is under control and the economy recovers, the medical office building market is expected to bounce back. The combination of an aging population, expanded medical insurance coverage and new treatment options equate to a growing demand for health care and the medical offices that come with it. Once the economy begins to return to normal, the backlog of work due to closed offices and rescheduled or canceled appointments will likely bring a sudden influx of work for medical-office staff.
And once the market returns to normalcy, the report noted that well-located assets with the infrastructure to handle modern medical needs will be in high demand. Specifically, medical office building demand may grow in non-urban markets as younger Millennials begin to move away from urban centers.
Source: “Medical Office Buildings Poised for Quick Recovery“

It’s been a rough few months for the economy, and we could all use a little good news.
For America’s 81 million homeowners, here is some: While retirement accounts and the stock market may have cratered, home values are hanging tough.
The National Association of REALTORS® (NAR) reports the median existing-home price for all housing types in March was up 8 percent from March 2019 as prices increased in every region.

And with a proper recovery and the right policies, there is a great chance that home values will remain fairly stable even as home sales temporarily fall while Americans shelter-in-place.
The pandemic also hasn’t stopped real estate transactions outright like in many other sectors. A recent survey of NAR members found that one-quarter of REALTORS® had at least one client go under contract during the second week of April without physically seeing the property. Deals are proceeding with the growing use of new technology like remote notarization.
Even those pausing their real estate transactions still plan to buy and sell once again within a few months.

What’s more, NAR research unveiled earlier this year found that, since 2013, the median family net worth for all homeowners has increased by nearly 15 percent.
Data from the study strongly suggests that “sustainable and affordable homeownership” remains the best opportunity “most households will ever have to improve their long-term net worth and financial security.”
Property ownership is turning into a financial rock for many Americans during this crisis, and Congress has gone to great strides to help protect that investment.

For those who can no longer pay their mortgage, new forbearance rules allow them to put off payments for up to a year without impacting their credit.
Helping people struggling with rent and mortgage payments is a good thing, but we also do not want to spur another crisis down the line for property managers and owners who do not have relief from their obligations. Policymakers should take a comprehensive look and beware of unintended consequences.
For REALTORS® who have seen a dramatic drop in their business (right as the crucial spring buying season arrived), new benefits like forgivable small business loans and unemployment assistance not normally available to the self-employed or independent contractors are helping them weather the storm.
The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) fund were created so quickly that banks had a hard time keeping up with demand. Money ran out for the PPP in two weeks, and another round of replenishment sped through the legislative process. PPP and EIDL grants got billions more in funding and will help keep millions more employed. Congress deserves credit for responding in a bipartisan and lightning-fast way even if the rollout of those programs was less than perfect.
We’ve heard from many REALTORS® around the country who have secured PPP loans and saved scores of jobs. People like Anthony Lamacchia of Waltham, Mass., who reports he can now keep all 47 of his employees on the payroll.
The strength of the housing sector will be critical to our national recovery. After all, the real estate industry makes up nearly one-fifth of the U.S. economy, and every two houses sold creates one American job.
America has been experiencing a housing shortage for years as demand for homes has consistently outpaced supply in most major U.S. markets. NAR’s Chief Economist Lawrence Yun has stated his expectation that, once we get through the worst of this crisis, housing demand will reemerge quickly. Our economic recovery won’t be a slow-build like what followed the 2008 financial crisis.
America’s financial and lending systems look vastly different today than they did before the Great Recession shook America’s economic core. Changes to strengthen lending standards and eliminate loose credit have pushed default and foreclosure rates toward record lows.
It has never been more clear that property ownership is still one of the best and safest investments an American family can make.
Economic downturns and public health crises—no matter how severe—will never change this fundamental fact.
But what has become even more apparent is that during this crisis, home has become more important than ever.
If Congress continues to be a champion of the American people and protect homeownership, by all indicators, real estate can and will help get our economy going again.
Source: “Is Real Estate America’s Rock During the Coronavirus Crisis?“