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Today's Risks and Opportunities in the Real Estate Sector

By Aron Youngerwood, Lucrum Realty

May 14, 2020


The impact of this horrible coronavirus is difficult to quantify but certain real estate sectors are clearly impacted more than others based on the recent trends. Real estate valuations and appraisals will see a corresponding decline. Lenders and CMBS servicers are tracking and taking note.


1.      Hospitality


With the severe drop in travel and mandatory closings of hotels and other resorts, hotels will likely be the hardest hit property type. This was similarly seen during the 2008 financial crisis.  The American Hotel & Lodging Association reported a historic drop in room demand and direct job losses: "As of March 25, seven out of 10 hotel rooms were empty across the country per STR".


What’s the Opportunity?


Hotels and other hospitality centers may see benefits to repurposing themselves as apartment buildings (New York provides a good example of this), subsidized housing or even medical facilities.


2.     Retail


Similar to hotels, malls, restaurants and other retail centers have been required to close and/or seen a swift drop in business.


What’s the Opportunity?

Helping tenants increase their on-line deliveries will certainly help (recall Amazon’s acquisition of Whole Foods). Also, demand will likely grow for tenants in the grocery anchored retail, food store and pharmacy space.


3.     Multifamily


Senior Housing and Assisted Living will likely be hard hit given the high-risk population, the costs of additional mitigation measures and staffing issues.


Student Housing – with university closures, rising costs of tuition and a shift to online learning, this sector will likely be impacted.  If universities re-open prior to the next school year, this impact will be mitigated.


Multifamily – as job losses set in, rent delinquencies will likely increase. This, together with State and local prohibitions on eviction and court closures will exacerbate issues.  The recent 90-day forbearance program will help but will likely be short-lived, unfortunately. 


What’s the Opportunity?

The FHLMC 90-day forbearance program will help allowing owners to defer payments of certain loans to be repaid over 12 months.  Many banks appear to be following the lead being set by Fannie Mae and Freddie Mac on this and offering similar forbearance programs.


4.     Office


With more and more employers now working from home or remotely, employers are now getting a preview of what a significantly smaller office footprint could look like in the future. If Zoom, Slack, Google, Vonage and similar technology companies can facilitate remote working that delivers good results for employers during this outbreak, then expect demand for smaller office footprints to accelerate as a result of Real Estate Advisory in the coronavirus.


Like other areas of the market, certain office tenants will face increased hardship from the current economic environment increasing the risk of delinquencies and bankruptcies.


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