Could Real Estate Be A Safe Haven In Uncertain Times?
Right now, the pipeline of real estate deals is at a standstill. In major markets like NYC, brokers can't show buildings, quarantines have halted tenants’ ability to move and government recording offices that control title searches and deed filings have closed.
In the midst of all this uncertainty, 46% of commercial real estate professionals surveyed believe that the coronavirus has negatively impacted buyer attitudes.
“Up until a few weeks ago, the major concern among NYC CRE professionals was how we were going to navigate the new rent laws that were passed in June,” GFI Realty Services President Michael Weiser said. “Now we are all dealing with the economic blows brought about by the coronavirus pandemic.”
Despite this upheaval, Weiser is confident that the real estate industry — particularly the NYC market — will be able to weather the storm, thanks to the strength of the last economic growth cycle and the high demand for city real estate.
Bisnow recently spoke with Weiser to learn more about where he thinks the economy is headed, what it will take to help things return to normal and why he believes NYC real estate will come out on top in the end.
Bisnow: How has the coronavirus already impacted the real estate market?
Weiser: The pandemic has led to a deep economic crisis. The Federal Reserve, the federal government and central banks across the globe have undertaken extreme actions to mitigate the effects on all industries, real estate included. Additionally, there have been indications that New York state legislators have realized that there needs to be aid offered to landlords who are impacted by a potential rent freeze or tenants who are unable to pay, so we may see that soon.
The real question is how badly this crisis will hurt the economy. While some are projecting a short but deep recession that will last approximately two quarters, with a 'V-shaped' recovery in the summer, at this point a 'U-shaped' recovery is more likely at best. That is, of course, providing that we are able to flatten the curve of the spread of coronavirus and return to some semblance of normalcy within the next month or two.
Bisnow: Do you believe this will negatively impact buyer interest in the long term?
Weiser: No. The current crisis is driven by non-economic forces creating an economic crisis. Prior to the coronavirus outbreak demand was strong across all sectors. Just last month, consumer confidence was strong, unemployment was at its lowest point in more than 50 years and wages were rising, particularly for lower-income workers.
While it will take time, once the country’s regular operations are restored, meaning everyone gets back to work, money should be pumped back into the economy quickly, which will restore customer confidence. Ideally, money will flow back into the industry without an increased supply in product, which historically leads to a jump in inflation.
Bisnow: What does this mean for the future of the CRE market?
Weiser: As we look at past crises, real estate has always been a safe haven. Inflation is almost a certainty as the Fed is basically printing money to support and stimulate the economy, and hard assets such as real estate always have always been anti-inflationary investments. We are working with many investors to refinance and restructure their debt to either provide them with terms to weather the storm or build up cash for buying opportunities.
Bisnow: So you believe there will still be investment opportunities?
Weiser: Yes. Owners faced with liquidity needs brought on by the crisis will need to sell, creating buying opportunities. Investment in real estate has always been a long-term play, but in recent years investors have gotten spoiled with high short-term returns. Investors looking for preservation of capital and long-term growth that have patience should be looking at opportunities created by the current displacement in the markets. When buildings are trading at a fraction of previous pricing, investors with cash should buy.
Buying property at a reduced basis for a long-term hold almost always pays off. Who knows, if things go well enough investors may see solid short-term returns as well. Although this crisis is unprecedented, the likely effect will be a steep economic rebound after a deep recession.
This feature was produced in collaboration between the Bisnow Branded Content Studio and GFI Realty Services. Bisnow news staff was not involved in the production of this content.