Our Take On Coronavirus & Real Estate
/I think responding emotionally to the short-term panic in the market would be short-sighted and we encourage investors to slow down, view the board, and make intelligent, strategic decisions. The real estate market thus far has not been substantially affected by COVID-19 – outside of the lower borrowing costs we’re seeing in the market today. Capitalization rates have not moved, which widens yield spreads for investors who are locking in debt under todays terms compared to a few weeks ago. While panic in the market is forcing sell offs in public equities, this will likely push investor capital into bonds and alternatives like real estate. Capital fleeing from stocks increases capital demand for real estate, which will likely force real estate prices up and cap rates down. Cash flowing real estate with appropriate leverage from the cheap debt options available in this market is one of the greatest hedges on the current stock market environment and the potential inflation in a recovery. While stocks have gone done down in the last week, has the value of the properties we each own gone down? Absolutely not.
Also, the coastal markets have been in the highest degree of panic. During economic corrections, coastal market have far wider swings in pricing volatility than do markets in the Midwest. Also, because the corona virus has arrived at our doors through travelers coming from abroad, the affect has been the most immediate and is the worst in coastal markets with high international travel. In times of volatility, the Midwest has demonstrated itself to be a safer bet. This makes markets like Kansas City ideal for investment in the current market climate.
“From ITR Econonmics on the coronavirus: So for now we should just play the odds, plan on what is normal or has always happened before and stick to the business of making money. We'll let you know if the leading indicators are telling us otherwise. We'll blast it out from the heavens. But for right now, you just stay the course. Work your plans and play into the business cycle and manage through the business cycle. That's all we can do. That's all you need to do.”
https://itreconomics.com/coronavirus-impact-economy
Additionally, we are not paying full freight for any of these properties, as shown in the appraisals for Grocers. If our other 2 properties went to market, they would likely trade 50-75 bps lower than what we are buying them for.
I’d like to point you to this interview that Buck completed with ITR about the similarities between the roaring 1920's and where we're at now: https://www.wealthformula.com/transcripts/198-when-is-that-depression-coming-anyway-2/
This also is an interesting article/fact to look at: https://www.theverge.com/2014/12/30/7466989/the-ebola-outbreak-was-political-just-like-every-disease-outbreak
Oh, and Blackstone: https://www.costar.com/article/846771284/blackstone-reit-raises-12-billion-from-global-investors
All in all, we're doing the right things. We stay the course, we focus on cash flow and e-commerce resistance tenants. We raise our $ and keep doing great deals. And we will be the ones that prosper while others sit on the sidelines.
Additional Resources
https://product.costar.com/home/news/shared/705627172
https://www.bisnow.com/south-florida/news/capital-markets/coronavirus-mortgage-rates-103355