Our last post discussed the increasing pace of change. Think of how quickly the corona-virus crisis has impacted, not only our economy, but the routines of our lives. There are lines around food markets and shelves are bare. Celebrated sporting events, parades, and other happenings were cancelled. Schools and universities have shut down. And there is fear of essential drug shortages.
How does this impact real estate investing? It may be too early to gauge Corona’s impact on commercial real estate. It is reported that bond markets are sluggish, CMBS spreads have widened, and investors are taking a hard look at retail and hospitality properties that depend upon high traffic volumes. Leasing has slowed as tenants are cautious about new financial commitments in the face of uncertainty.
Is this a lesson for the future? We may take some hits, but the national economy is in pretty good shape. Banks have capital and they are lending. The Fed is providing liquidity as a prophylactic measure, ensuring that there is no credit collapse. Moreover, the federal government is already talking about unprecedented forms of relief to help average people sustain themselves. We’re on the verge of a national election and government is under a microscope. This administration is likely to be aggressive about creating stimulus. We may still suffer a material slowdown but it’s going to pass.
Think of past recessions. If you believe in our country, you must also believe that the economy, financial markets, and real estate will come back. Concerning real estate, we know banks and financial institutions don’t know what to do with problem real estate. In the darkest of times, assuming you are a good manager, lenders will modify loans, forbear, extend maturity dates, and to do whatever is needed to help good borrowers get through a severe crisis.
This is a time to make your business reputation. COVID-19 will present create challenges. Monitor the pandemic, stay in tune with news published by WHO, CDC, BOMA, ICSC, and your local authorities. Listen to the broadcast media but take their reports with a grain of salt. Communicate with your tenants and show them that you care. Right now, BOMA, ICSC, and CDC do not have specific recommendations except to disinfect regularly touched surfaces. Even so, experts say it is unlikely for the virus to pass through building common areas.
If these conditions persist, some owners will feel pressure and panic. Those who show courage and creative sensibility will be positioned to grow. This pandemic is just one example of how our world is now so susceptible to abrupt structural change. Short-term thinkers are playing a speculative game of musical chairs. They will perform well until their music stops. Now, more than ever, the future is about thinking for the long term.
