What area of real estate will be hit the hardest?
Real Estate Broker · West Chester, PA · Member since 2017 · 13 posts · 3 votes
What area of real estate will be hit the hardest?
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Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6yOriginally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
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- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
- 6yBrian BurkePro MemberInvestor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
Yup, completely agree with @Greg Dickerson on this one.
- Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes6y
@Tommy Ciccarone
I think class A and many of the class A millennial housing starts
If it will be similar to 08'- kids getting out of college couldn't get jobs, they moved in with mom and dad and haven't moved out to buy anything
History ....
- Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes6y
Originally posted by @Greg Dickerson:
Originally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
Where do you see lower risk in terms of investing/developing - multifamily apartments or single tenant net leased retail and why?
- 6yBryan MitchellPro MemberRental Property Investor · Columbus, GA · Member since 2016 · 634 posts · 337 votes
I’m interested to see how college housing is affected. There will most likely be risk in this space.
- 6yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Industrial is last IMO, we've seen stronger demand for US manufacturing, greater % of inventory buildup stateside, more ecommerce than ever. My money invests in warehouse right now
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
It's all about depth of knowledge within asset classes.
The common investor who might know a little about multiple property types typically invests as a cycle investor. They go in when things seem safe and ride the wave just before it goes crashing down to sell off. Then they are off to look at the next asset class at the bottom poised for a recovery. They tend to price in risk buying at the bottom because they simply do not know much (not a specialist).
Then you have those that STAY within an asset class that are specialists. They could go buy in other asset classes but simply do not want to. The investors can make money in any investment cycle and still know how to extract value when the common investors run for the hills due to limited knowledge of that specific industry.
I love retail. I don't care what people say it's not going away folks. Might be changing but all asset classes do that it's just to varying degrees. Retail is what everyone is seeing as a large shift so they are talking about it more. Most retail that is going away from brick and mortar is clothing type stores. People can buy quality online for clothes and retailers can sell online with better margins not paying high rents per sq ft for high street retail space.
Parts of retail are booming right now. I am busier for business than I have ever been. Certain retail tenants you can't give away but others there are 10 buyers competing to purchase that property with a lease in place. It's a game of the have and have nots. Before the properties just traded at various cap rates across the spectrum based on credit and other factors. Buyers might have taken a chance on a small franchisee for 50 basis points premium but for most investors those days are gone. Buyers and lenders want investment grade credit for the security and will take usually 50 BPS lower in yield for it. After all what is the point of 50 BPS more at purchase if in 1 to 2 years you have a vacant building with no return coming in at inflated rents?
I will counter there is still money to be made in any asset class if you buy right and understand the product on a deep level to help curb downside risk.
I do think hospitality will be the most hit and have a very long recovery period. Retail I feel will change and adapt quicker and bounce back. Street level and local necessity based retail has demand and a place to thrive. Hospitality in a recovery people just do not want to spend high dollars on that whether for leisure or business. They do stay cations close to home at nominal costs.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Tony Nguyen:
Originally posted by @Greg Dickerson:
Originally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
Where do you see lower risk in terms of investing/developing - multifamily apartments or single tenant net leased retail and why?
Multifamily is a much better and safer bet. People need a place to live and housing is the first expense everyone pays before spending money on anything else. The STNL market is under severe pressure and will likely continue to contract for some time depending on how long things last but multifamily has always outperformed every other type of commercial property other than self storage.
- Real Estate Broker · Long Beach, CA · Member since 2014 · 64 posts · 33 votes6y
I think small retail will be hit the hardest. I have already heard of a couple small business in my area which have decided not to reopen after the shelter in place order is lifted. One is a salon in a nice part of town and the other is a thrift store in a very "hip" neighborhood. It seems like a lot of the smaller low margin retail businesses will be crushed by the loss of income. Retail vacancies tend to last a long time. If we see a big increase in available retail space then asking rents will most likely decrease.
The multifamily space is relatively safe depending on the market that you are in. In dense metro areas where housing was scarce before covid-19 I think you will continue to see demand. The property management company that I use is still leasing units and they have seen an increase in demand for smaller units.
- 6yAndrew HoganPro MemberRental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
Also agree with @Greg Dickerson. Currently, in talking with clients each day I'm seeing the most severe and immediate effects to retail and hotels. But skilled nursing/assisted living, office, SFH, will soon follow the downward trend.
Large multifamily - primarily upper workforce housing in good locations if financed and operated right, is what will make it through to the other side with minimal devaluation no doubt. Originally posted by @Greg Dickerson:
Originally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
My view is the STR is covered in the "hospitality first".
My 2 STRs have not had a $1 of rent since the second week of March. Prior to then we had a couple vacancies were our units had virtually zero vacancies for the last few years. Literally, they have had such few vacancies that maintenance/cap ex items had to be done in the time between check out and check in (we replaced a staircase in ~2 hours once). We have adequate reserves and all of our April LTR rents were paid. As long as the LTR rents are being paid, we can cover the STR long term (at least to the end of summer at which time we would consider converting one or both units to LTR).
There are a lot of STR owners who are over leveraged and did not have adequate reserves. Some of these LL did not run their pro forma numbers with anything other than STR rents. Converting to LTR will not allow them to cover their payments. No one knows what will happen, but I suspect there will be some STR owners that will need to sell. So far I have not noticed any decline in value where our STRs are located but I expect it to come.
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Dan H.:
Originally posted by @Greg Dickerson:
Originally posted by @Tommy Ciccarone:
In reading and discussing I am hearing different opinions on real estate sector that will be hurt the most? Retail / Office / Industrial/ Multi Family
There's no debate. The big three are hospitality first, retail second and office third. Housing both SF and MF will feel some effects depending on how long this goes but nothing like the big three with the exception of STR. They are taking a huge hit and the longer things go the more difficult things will get for that market.
My view is the STR is covered in the "hospitality first".
My 2 STRs have not had a $1 of rent since the second week of March. Prior to then we had a couple vacancies were our units had virtually zero vacancies for the last few years. Literally, they have had such few vacancies that maintenance/cap ex items had to be done in the time between check out and check in (we replaced a staircase in ~2 hours once). We have adequate reserves and all of our April LTR rents were paid. As long as the LTR rents are being paid, we can cover the STR long term (at least to the end of summer at which time we would consider converting one or both units to LTR).
There are a lot of STR owners who are over leveraged and did not have adequate reserves. Some of these LL did not run their pro forma numbers with anything other than STR rents. Converting to LTR will not allow them to cover their payments. No one knows what will happen, but I suspect there will be some STR owners that will need to sell. So far I have not noticed any decline in value where our STRs are located but I expect it to come.
Yes I agree. A lot will depend on how long they are shut down. There are also a lot of people that did the AirBnB "arbitrage" play that have left the owners in a bind. One bright spot in all this is people will still take their vacation in a house when this is over vs travel abroad, cruises, hotels and airlines so that should give drivable destinations a boost this year assuming we get back by end of May.
- Multifamily investor · Boston, MA · Member since 2017 · 281 posts · 521 votes6y
@Tommy Ciccarone If only we had a crystal ball... Logic says that since everyone is working from home, small businesses are closing (at least for now), or have cash flow issues, that retail and office will suffer the most. HOWEVER, those who are liquid will have tremendous buying opportunities here.
Multifamily will do well depends on the market and the strength of the tenant base. Properties with more service workers will see a decline in rent collections. On the other hand, JP just announced that they had increased the credit score required to qualify for personal mortgages to 700, and bumped the down payment from 10% to 20%, which means ---- fewer people can buy home, which will lead to an increase in demand for multifamily. The verdict is still out, but many multifamily operators didn't feel a lot of pain in April. We'll have to wait to see how May is going to play out. We are still looking for deals in the multifamily space.
- Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes6y
Besides the obvious retail & offices. I think people are are lying to themselves thinking multifamily is bulletproof. Many of the bigger properties are purchased as a collective and most people don't have the stomach to weather a recession even though they think they do.
I see many of these over leverage syndications going down the drain quick! I feel for those on interest only loans, with these huge preferred returns they are pressured to pay out every month.
Many tenants are laid off and probably hopeful they will return to work, but what happens when many of these companies begin to realize they can operate without having a huge staff and the current business model becomes the new norm? Occupancy is going to slowly decline in multifamily.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
Timeline to develop STNL depending on area could be 6 months. Timeline for a larger multifamily project and lease could be many years to completion. Much more risk in the development cycle for larger projects and lease up. Profit can be much bigger but so is the risk in dollars.
This is why many of these multifamily owners do not want to develop. They want to take older properties for less per sq ft than they could build for and retrofit and increase the rents.
In the short term multifamily is getting pounded. Many syndicators are suspending distributions. In the long run well positioned assets likely fine.
I used to sell the larger multifamily buildings and still do sell some off market from time to time but I enjoy retail much better. I invested in residential and didn't like it all but that is just me. My clients that own the Davita Dailysis STNL didn't get a rent relief request and the checks keep on rolling in.
It's not about not owning retail it's about what to own WITHIN retail to insulate risk more.
Retail you can own passive assets at a more smaller price point that multifamily. Example to get passive with multifamily you need about 80 to 100 doors of direct ownership to build in scale and systems. At 80,000 a door to own directly you are talking 6,400,000 to 8,000,000 in purchase price. Conversely retail with a credit tenant investment grade necessity based business for 2 million can be bought with about 30% down and get passive.
Pharmacies, some STNL medical,grocery, national auto stores,dollar stores, etc. are still performing well and lenders are bullish on them. It's the retail centers with mom and pop to regional credit where lenders are lowering LTV's,imposing hefty reserves,etc. Some are not even lending the next few months for MTNL unless you had a 3 top investment grade tenant with long term leases then some still are in the game. Most lenders want the 2 to 3 months rent requests to work themselves through on the retail centers and see post covid what the new normal is. Lot's of REIT's and institutional sellers for retail centers are not bringing assets to market and waiting until July, August when markets and lending are more fluid.
Banks have at least 3 things going on right now.
1. Most of the workers have to use remote access which slows things way down to do anything.
2. They are getting hit with tons of PPP applications for relief.
3. They are getting deluged with requests from existing commercial property owners for loan workouts while landlords consider tenants rent abatement requests.
Everyone is chasing the cheese (money) to get through the short term issues.
Drive thru QSR is about 30 to 35% down as most is thru drive thru anyways. Most of that being down is less cars on the road and less lunch business because working from home so not as many fast food trips per week. Dine in models even the national chains are about 60% down and making the rest on carryout and delivery. Most eat in people want to be waited on and eat hot food there. They do not want to pick up carryout or have a delivery service deliver them luke warm food they are paying premium prices for. That model for most of the sales does not work in most instances.
The economy will come back in smaller increments and things are slowly brought back online. Retail is alive and well. Of course has to go through correction process JUST LIKE multifamily and other asset classes will have to adapt to change. People can say retail apocalypse, retail is dead,etc. Retail investors will just keep watching the millions in profits roll in while everyone is thinking the industry is a sinking ship. That's less eyeballs on deals that I might be looking at. It weeds out the casual buyer with limited knowledge of the industry because they just see risk.
- Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes6y
Originally posted by @Joel Owens:
Timeline to develop STNL depending on area could be 6 months. Timeline for a larger multifamily project and lease could be many years to completion. Much more risk in the development cycle for larger projects and lease up. Profit can be much bigger but so is the risk in dollars.
This is why many of these multifamily owners do not want to develop. They want to take older properties for less per sq ft than they could build for and retrofit and increase the rents.
In the short term multifamily is getting pounded. Many syndicators are suspending distributions. In the long run well positioned assets likely fine.
I used to sell the larger multifamily buildings and still do sell some off market from time to time but I enjoy retail much better. I invested in residential and didn't like it all but that is just me. My clients that own the Davita Dailysis STNL didn't get a rent relief request and the checks keep on rolling in.
It's not about not owning retail it's about what to own WITHIN retail to insulate risk more.
Retail you can own passive assets at a more smaller price point that multifamily. Example to get passive with multifamily you need about 80 to 100 doors of direct ownership to build in scale and systems. At 80,000 a door to own directly you are talking 6,400,000 to 8,000,000 in purchase price. Conversely retail with a credit tenant investment grade necessity based business for 2 million can be bought with about 30% down and get passive.
Pharmacies, some STNL medical,grocery, national auto stores,dollar stores, etc. are still performing well and lenders are bullish on them. It's the retail centers with mom and pop to regional credit where lenders are lowering LTV's,imposing hefty reserves,etc. Some are not even lending the next few months for MTNL unless you had a 3 top investment grade tenant with long term leases then some still are in the game. Most lenders want the 2 to 3 months rent requests to work themselves through on the retail centers and see post covid what the new normal is. Lot's of REIT's and institutional sellers for retail centers are not bringing assets to market and waiting until July, August when markets and lending are more fluid.
Banks have at least 3 things going on right now.
1. Most of the workers have to use remote access which slows things way down to do anything.
2. They are getting hit with tons of PPP applications for relief.
3. They are getting deluged with requests from existing commercial property owners for loan workouts while landlords consider tenants rent abatement requests.
Everyone is chasing the cheese (money) to get through the short term issues.
Drive thru QSR is about 30 to 35% down as most is thru drive thru anyways. Most of that being down is less cars on the road and less lunch business because working from home so not as many fast food trips per week. Dine in models even the national chains are about 60% down and making the rest on carryout and delivery. Most eat in people want to be waited on and eat hot food there. They do not want to pick up carryout or have a delivery service deliver them luke warm food they are paying premium prices for. That model for most of the sales does not work in most instances.
The economy will come back in smaller increments and things are slowly brought back online. Retail is alive and well. Of course has to go through correction process JUST LIKE multifamily and other asset classes will have to adapt to change. People can say retail apocalypse, retail is dead,etc. Retail investors will just keep watching the millions in profits roll in while everyone is thinking the industry is a sinking ship. That's less eyeballs on deals that I might be looking at. It weeds out the casual buyer with limited knowledge of the industry because they just see risk.
It sounds like (with any real estate class), Joel, you're seeing there will definitely be corrections in the retail space depending on the 'sector' of real estate?
Are you talking about niching down into medical or pharmacy and "recession proof" sectors...or you think more now is a better time to double down on office buildings, QSR etc.?
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes6y
Originally posted by @Ellie Perlman:
@Tommy Ciccarone If only we had a crystal ball... Logic says that since everyone is working from home, small businesses are closing (at least for now), or have cash flow issues, that retail and office will suffer the most. HOWEVER, those who are liquid will have tremendous buying opportunities here.
Multifamily will do well depends on the market and the strength of the tenant base. Properties with more service workers will see a decline in rent collections. On the other hand, JP just announced that they had increased the credit score required to qualify for personal mortgages to 700, and bumped the down payment from 10% to 20%, which means ---- fewer people can buy home, which will lead to an increase in demand for multifamily. The verdict is still out, but many multifamily operators didn't feel a lot of pain in April. We'll have to wait to see how May is going to play out. We are still looking for deals in the multifamily space.
I am not sure why they did that. They still have their DreamMaker 3% down program for low credit scores. Seems inconsistent.
- 6yJoseph CacciapagliaBusiness MemberLender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
I agree with the general consensus of hospitality, retail, and office, but I'm surprised no one is talking about the impact on student housing. Colleges were some of the first institutions to close down, and many closed through the end of the semester before there were any other shut downs locally. Student housing was already facing some pretty terrible demographic headwinds, and now the whole world understands how easy the transition to distance learning can be. I think we could see a big shift in the way people "attend" college. I personally know a few people that are considering whether or not they'll go back.
During a recession, a lot of people go back to school. This may soften the impact some. However, a lot of the back to school people tend to be commuters, so I'm not sure about that. They also might decide to sign up for online classes. I'm not sure where student housing is headed, but I know I'm glad I sold my college town units a while back. I'm curious what everyone thinks about the student housing sector.
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes6y
@Greg Dickerson nailed it.
I suspect that office/industrial/multifamily will be fine in the short term. Industrial and Multifamily (with the exception of high end housing) are likely to remain relatively the same short term and medium term (hard to predict long term with so much uncertainty). I wonder about office long term as many companies realize some of the benefits of remote work and lose the need to larger offices. You may see a lot of the large office spaces start to get cut up into multiple office units since companies can save cost by having people work from home. However I think that's a long term thing, not in the immediate.Hospitality and retail are already getting hit and are likely to continue to get hit until we have a vaccine and then some. I suspect that social distancing is here to stay for a year to a year and a half and quite frankly hotels/short term housing and retails/restaurants likely aren't able to last that long. Aggressive government intervention can keep it going if they continue to release stimulus, but I don't know how far that goes.
I think you will obviously see it come back in the 3+ year period, because people are inherently in need of that when the economy is doing well, but in the present-3 year period I suspect a lot of vacancies.
Hotel long might decline because I think there's a bigger opportunity for Air BnB to disrupt that space even more than they already have for a number of reasons. - Member since 2020 · 26 posts · 43 votes6y
Originally posted by @Joseph Cacciapaglia:
I agree with the general consensus of hospitality, retail, and office, but I'm surprised no one is talking about the impact on student housing. Colleges were some of the first institutions to close down, and many closed through the end of the semester before there were any other shut downs locally. Student housing was already facing some pretty terrible demographic headwinds, and now the whole world understands how easy the transition to distance learning can be. I think we could see a big shift in the way people "attend" college. I personally know a few people that are considering whether or not they'll go back.
During a recession, a lot of people go back to school. This may soften the impact some. However, a lot of the back to school people tend to be commuters, so I'm not sure about that. They also might decide to sign up for online classes. I'm not sure where student housing is headed, but I know I'm glad I sold my college town units a while back. I'm curious what everyone thinks about the student housing sector.
If this goes on for longer than expected and we hit a Great Depression scenario, I'm curious if this ends the dominance of higher education in general. Would such a dire scenario with millions unemployed for a prolonged period of time and digital changes to employment show people that's it's no longer worth it to get into a large amount of debt for a degree that hardly pays off?
Depending on how long this goes on, this can make companies realize that they didn't need as many employees as before, even running at full steam, and that it's possible to have employees do many tasks at home and/or more remotely. How that influences higher education and the corresponding real estate associated with it will be interesting to see.
In the long run I think just about every real estate sector will be fine, in the short term I think it's obviously retail and hospitality (hotels, parks, etc...). Obviously these properties and their businesses are closed right now and in most cases generating $0 in revenue. All of this on top of the fact these particular sectors are under pressure to begin with. There will probably be a lot of businesses in this space that don't make it through this, but with that comes opportunity for the ones that do survive to be bigger and better than they ever were before.
- Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes6y
Agree with the majority-Hospitality is seeing blood, retail, and maybe some slight office contraction. Multi-family MAYBE shaky considering and depending the type of tenant base/class of asset.
- Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes6y
That's the "beauty" of small street level retail, you can convert it to anything you want it to be, whatever is in demand after this is all over and done with. For example fairly easy to convert a storefront into an office or vice-versa. Of course retail will still be around. It's not going anywhere. People will always need "amazon-proof" shops such as hair salons, coffee shops, bakeries, dentists, neighborhood hardware stores, restaurants etc.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes6y
Yeah Pavel people keep harping on retail. More buying opportunities for me and my clients. The junk properties before I passed on will still be overpriced junk now.
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