COVID-19 Impacts on Multi-Family Investing
On Wednesday, March 11th the World Health Organization officially declared the outbreak of COVID-19 (Coronavirus) a pandemic, acknowledging that it is likely to spread to all countries across the globe. There have been cancelations of major events, significant travel restrictions, a massive sell-off in global equity markets, and a rise in volatility for virtually all investments and asset classes. There will be negative macro-economic consequences, although the severity and duration remain uncertain.
We certainly share in these same concerns and have been monitoring the situation closely as we understand that historically, reduced population mobility during pandemics has the potential for greater economic impact than the illness itself.
There is no doubt that economic activity is highly globalized in nature and that disruptions in business activity will have a ripple effect that will slow economic growth in the short term, but a degree of bounce back is likely, albeit perhaps unevenly distributed.
In terms of the private equity commercial real estate business, we expect and are preparing for the secondary impacts that will accompany this period of reduced economic activity. Elevated uncertainty and risk may cause some developers to delay investing. Despite this, demand for real estate remains high. While there will be some slowing in the short term and the long-term market impacts will evolve as the situation does, we are optimistic about the outlook for multi-family investing.
In response to the situation with COVID-19, interest rates are at all-time low. Additionally, multi-family investments are long term investments and will only be affected in the short term by the slowdown from the disease. Soon, the economy will require stimulus while recovering from the virus and an investment could aid in those efforts. Low interest rates create the perfect recipe for maximizing your return on investment, and many economic experts believe the commercial real estate market is one of the few safe ventures during this uncertain time.
Real Estate Fund Intelligence reported in early March that the real estate market would act as such a safe haven for investing, arguing that the most affected businesses would be those that relied on day-to-day economic participation such as those in the hospitality sector. While the markets may very well remain uncertain for the next year or so, long term investments will not be affected in the same way.
While the negative effects of this economic slowdown will not be witnessed in the long term, the benefits have the potential to be great over the lifetime of construction loans. The rock-bottom interest rates offered by the Federal Reserve allow for more flexibility and the ability to finance projects at much lower prices.
Another report from Marcus and Millichap outlined the potential growth outlook based on what we learned during the original SARS outbreak as well as H1N1 in 2009. In those pandemic cases, markets saw short-term volatility followed by stabilization within three to six months. Of course, the global response to COVID-19 has not been seen before, and the market response cannot be predicted entirely.
By looking at the data from the past and numbers that are being updated every day surrounding the multifamily real estate market, we are encouraging potential investors to act with caution but to understand the opportunity that has arisen for expanding portfolios in this market.
Additionally, our is blessed to be in a position where we are at various stages of the development process on several multifamily projects across different geographic markets, meaning we are still a good 18-24 months away from completion and stabilization allowing us ample time for things to settle down and go back to normal. All of this though, further reiterates our data driven process and econometric modeling to understand local market conditions, and its ability to withstand economic volatilities.
It is still a great time to invest and set yourself up to take advantage of current market conditions.
If you have any further questions, or would like additional information about our strategy, next stages, or to talk at greater length regarding any of your real estate investing questions, schedule a free consultation at https://marketspacecapital.as.me/. Until then, stay safe!