Recently, I was requested by a real estate publication to provide thought leadership on the coronavirus and to answer a few questions. This is a summary of those questions and my responses. As soon as I receive the publication I will send to everyone.
1) Can you give one or more specific examples of how the coronavirus has affected financial markets, especially the stock market?
The coronavirus has affected financial markets, especially the stock market due to the following:
- A decline in global trade and travel will negatively impact earnings and economic growth;
- The risks to earnings may be underestimated in current stock prices moving us into a bear market and causing a recession. There is a potential of no earnings growth in 2020;
- As a result of Just In Time (JIT) Inventory, plant closures will result in global supply chain disruptions causing inventory shortages. For example, the Port of Los Angeles cargo is expected to have a 25% reduction in February;
2) Can you offer one or more specific examples of how the coronavirus has affected real estate?
Real Estate is not immune from the coronavirus. Here are a few examples of how it could impact the Real Estate industry:
- A reduction in purchase/sale transactions;
- Owners of Warehouse properties may have empty shelves as a result of supply chain disruption(s);
- Tourism and Hospitality properties may have lower occupancies resulting in a reduction in NOI;
- Retail and Restaurants Tenants may have less customers causing margin pressure impacting their ability to pay rent to owners;
- Multifamily owners could see a spike in late payments and vacancies in the event Employers miss payroll, delay hiring and/or begin laying off workers;
The good news is that the 10 year Treasury dropped below 1.3%, thus it is at historical lows and a great time to source cash out refinances and secure low interest long term debt. Also, if you are an owner of a Data Center Property you should be fairly immune/protected.
3) How many years have you been in the industry?
I have been an investor in the industry for the past 20 years.
4) Is the coronavirus the biggest crisis you have seen during your time in the industry?
Yes, I have never seen anything like the coronavirus crisis. It’s different due to the fact that a) It is deadly, b) It can be transmitted in the air, thus unable to contain, and c) A vaccine will take time to develop, perform clinical testing and commercialize. I have heard a normal vaccine development process typically takes 2-5 years and the development of this vaccine could be accelerated to 18 months. Thus, it’s the unknown of how long we will need to live with the status quo and the damage it will cause in the interim.