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Investor Puts Portfolio In 'Coma'

Clockwise from top left: Newmark Knight Frank's Anne Klein, Post Brothers' Matthew Pestronk and Linneman Associates' Peter Linneman.

When the coronavirus pandemic struck in March, Philadelphia investor Peter Linneman put his holdings into a "coma" until he could figure out his next move in the wake of the worst health crisis in more than a century.

Linneman defines a "comatose" property as one where he is spending "no more than absolutely necessary." He has asked forbearance for properties where operating income doesn't cover debt payments.

Linneman is the founding principal of Linneman Associates, a real estate advisory firm, is CEO of the American Land Fund and KY Realty, and is the founding chairman of Wharton's Real Estate Department.

He said during a Bisnow webinar last week that he has also added to his cash position in his portfolio, but declined to answer specific questions about his strategy.

Linneman said he was surprised by the economic destruction left in the pandemic's wake, calling it "the most unusual financial situation in the history of the United States."

"As the shutdown occurred, I figured that if it lasted more than two weeks, it was going to be a disaster economically," he said on the webinar. "I didn't know in April if we'd collect 95% of our rent from an apartment complex or 14%."

His views were backed up by Post Brothers Apartments President Matthew Pestronk.

"People always say this time it's different," he said. "It really was different."

For one thing, the economic slowdown wasn't caused by people taking risks they shouldn't have, such as the housing bubble that triggered the recession earlier in the decade.

"Luckily, our standard underwriting has held up fine," Pestronk said. "We haven't even had a material diminution of rental income at all in our apartments. Commercial has been better than we expected but not exceptional in the retail part, and it's been fine in the office buildings."

Like others in the commercial real estate sector, Linneman and Pestronk were skeptical of the claims made by some that many people working from home would never return to the office.

"Everybody is going to work at home? That's insane," Linneman said. "Surveys show something like 70% of the people don't want to work from home. "

Pestronk, for one, can't wait to get back to the office, declaring he "hates" working from home.