Originally published on RISMedia, Dec. 20, 2020.
The initial shock and challenges of COVID-19 on commercial real estate (CRE) practitioners—and the expectation that property values would suffer immeasurably—may have been a bit premature. While there's little doubt that COVID-19 has and will influence the future of commercial real estate, investment opportunities, like practitioners and property values, are more resilient than the doomsday scenario many initially feared.
As a real estate broker and professor at the Goodman Center for Real Estate at Lehigh University, anecdotal evidence suggests that most commercial real estate sectors are very healthy, with some booming. Of course, it's true there are some retail businesses that didn't survive the quarantine, or aren't likely to, and there are some commercial real estate deals that were stalled or cancelled, while other firms are rethinking their office needs. But all of that equates to the creation of tremendous opportunities.
As an example, multifamily has never been hotter. Investors, like many who decided to pull money out of the stock market and pour it into solid assets, are making money on the spread between what they pay in interest rates—which have never been lower—and what they can charge in rent. Even if property values go up or down in the long term, investors who lock-in these low fixed rates are going to realize significant long-term returns. And, for retail, office and industrial opportunities, there are incredible financing deals available like SBA (small business association) loans as low as 2.25 percent, accompanied by up to 90 percent loan-to-value ratio.
Other CRE opportunities that present themselves in challenging times typically come from the re-purposing of assets in order to meet market demand. When several small towns in Central Pennsylvania were hurt by the fading coal industry, savvy investors re-purposed storefront assets to multifamily. In today's market, investors are re-purposing existing properties to leverage the consumer shift to online buying and the surge in e-commerce. My firm, and others, are putting together investor pools to buy into the continued expansion of warehousing distribution facilities, especially on the East Coast. For example, a developer in our area took down an enormous 30-year-old office building with a beautiful glass tower and put up three mega-warehouses. Another client is converting the anchor store of a fairly large shopping center from a department store to a medical facility.
As far as practitioners, my advice is to provide consultative guidance and strategic planning as well as space design and property management. Your focus should be on the opportunities and keeping your mindset optimistic. If we do this, and the capital markets stay intact, I am bullish about 2021.
Like other recessionary periods, American businesses, governments and citizens will pull together and use their collective ingenuity and creativity to power out the other end of these tragic times. Savvy investors will never look back and say, “I wish I would have bought then.” That's where we are right now. If you're going to invest, now's the time to do it. We will see more multifamily buyers, and the re-purposing of assets to meet the market demand for medical and long-term care facilities, and warehousing distribution centers.