COVID-19’s Impact On The Commercial Real Estate Market

COVID-19’s Impact On The Commercial Real Estate Market

As the Coronavirus (COVID-19) has officially crossed over from epidemic to pandemic territory, it feels like pandemonium has come along with it.

COVID-19’s Impact On The Commercial Real Estate Market

As the Coronavirus (COVID-19) has officially crossed over from epidemic to pandemic territory, it feels like pandemonium has come along with it.

All eyes are now on the financial markets, and rightly so. With the stock market rates plunging, it’s important to remember that commercial property is not the stock market. Its slower moving, less correlated and leasing fundamentals don’t swing as wildly from day to day.

As has been astutely noted in the past: The market can handle good news. The market can handle bad news. However, the market can’t handle uncertainty.

Three weeks ago, the market was at an all-time high, unemployment was at an all-time low, Bernie Sanders was dominating the Democratic primaries and the financial industry was sailing along beautifully. This was three weeks ago.

All eyes are now on the financial markets

Image Credit: USA Today

As the Coronavirus (COVID-19) has officially crossed over from epidemic to pandemic territory – having spread to 100+ countries and resulting in 6000+ deaths – it feels like pandemonium has come along with it. All eyes are now on the financial markets, and rightly so. Stocks have been in a free fall (at the time of this writing, the Dow was down 10% today – its worst single-day of trading since 1987), travel has been banned from Europe, districts in states across the country are closing schools, professional and collegiate sports have suspended their seasons, even Disneyland has shuttered for the foreseeable future.

This article intends to take a quick dive into the impact of Coronavirus on the markets, and more specifically, commercial real estate in the United States.

Despite dramatic Fed intervention – pumping $1.5 trillion into the bond market and announcing it will buy $60 billion worth of Treasuries over the next month – the stock market barreled further into a bear market – which signifies a 20-percent decline from an all-time high. Though the Federal Reserve regional governors will likely decrease their GDP forecast for 2020, they have already dramatically reduced interest rates down to .25% through two emergency cuts.

Finding Security in Commercial Properties

Even though the plunge in rates has led to greater uncertainty in commercial real estate amongst lenders, borrowers and investors, it’s important to remember that commercial property is not the stock market. Its slower moving, less correlated and leasing fundamentals don’t swing as wildly from day to day. Though COVID-19 will hit some aspects of the sector harder than others – namely hotels in the form of decreased demand and hospitality spend – other segments of commercial real estate, like office space, are more insulated and coming into this period from a position of strength.

“If you truly have a diversified portfolio, some of your holdings should be doing better with this recent market downturn. If everything in your portfolio goes up and down in lockstep, you probably aren’t as diversified as you think.”
– Ryan Marshall – CFP

The view of Excelsior Capital is that multi-tenant office space is a relatively safe harbor in the uncertainty of global and domestic markets. We continuously stress the importance of diversification, and investing in real estate is one of the best ways to do so. Our institutional ownership combined with the longer-term duration of our leases provides some stability against continued direct fallout. To put it simply, even if the CDC were to tell everyone not to go to the office and work from home until further notice, occupiers still have leases and rent still has to be paid.

Predicting The Near and Long Term Effects of COVID-19

While the capital markets are more forward thinking and their effects more immediate, leasing fundamentals typically lag the economy, making the long term outlook of commercial real estate hard to predict. We do not yet know how widely COVID-19 will spread, but if it does become contained, we are hopeful the downside impact will be acute with the potential for a surge in activity during the second half of 2020 due to pent-up demand. What we anticipate is a flight to quality as investors seek less correlation to the broader markets and yield-producing assets to hedge against volatility.

Commercial Real Estate Investments Firms

At Excelsior, we believe we are well-positioned to capture this as we’ve created a portfolio centered around income generation to withstand the kind of heightened volatility and concerns about near-term economic weakness we are seeing today. Our portfolio has thus far been resilient, revolving around a core-plus investment strategy, which can be viewed as a grounded play for our more defensive investors. Our investment team is actively engaged with our operating partners and we are closely monitoring property performance. Given that multi-tenant office assets represent 100% of Excelsior’s investments, our operating partners’ primary role is to ensure that we take all appropriate actions to safeguard the health and well-being of occupants. We have been very purposeful in investing in office properties with strong in-place income from creditworthy tenants.

While we can’t control the public response to COVID-19, we can control our individual response. Be smart with your money and be smart with your actions. Wash your hands, be conscious of others and stay healthy. This is something we are experiencing together, and we will get through this together.

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.

Q1-2023-commercial-real-estate-investment-update

Q1 2023 Commercial Real Estate Investment Update

The commercial real estate industry has seen significant shifts and challenges over the past year, and the first quarter of 2023 was no exception.

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Understanding the Waterfall Structure in Real Estate Private Equity Investments

Learn about this distribution framework used in real estate private equity investments. Understand the components of a waterfall structure…

how-much-money-do-I-need-to-start-investing-in-commercial-real-estate

How Much Money Do I Need to Start Investing in Commercial Real Estate?

We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”

benefits-of-owning-commercial-property-over-residential

Benefits of Owning Commercial Property over Residential

While both types of real estate investments have their benefits, investing in CRE can be more advantageous for several reasons.

The Revolution That Wasn’t

How has technology impacted modern finance and created an asymmetrical relationship between Wall Street and individual investors? In this episode, we speak with Spencer Jakab, the author of The Revolution That Wasn’t and editor of the Wall Street Journal’s Heard on the Street column.

Tax Savings Secrets: How Cost Segregation Analysis Can Save You Money

How can cost segregation analysis help real estate investors maximize their returns? In this episode, John Hanning explores the potential benefits of cost recovery studies and depreciation.

What is a Family Owner’s Manual and Do I Need One?

It’s time to make sure you and your family are set up to continue success for generations to come. Today, Josh Kanter shares his journey transitioning from practice as a transactional attorney to reorganizing his family’s activities under a single-family office.

Key Characteristics of High-Performing Family Offices

Are family offices becoming more popular? In this episode, Robert Daugherty dives into the importance of having a functional family office, and the role of the Chief Learning Officer in it.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?
excelsior-capital-logo-icon-white

Disclaimer

Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.

Excelsior Capital

104 Woodmont Blvd, Suite 203
Nashville, TN 37205

Contact Us