How does this story end? Prediction for 2020

Multi-Family and Apartment Investing
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How does this story end? Prediction for 2020

Serge S.
Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes

I am perpetually game planning future moves and this exercise inevitably requires taking a position on how the near future will unfold and the best way to benefit. I am interested in hearing what BP users think is about to unfold. Here is how I see it:

Stimulus provides very temporary tenant relief. April bad debt spikes to 5-15%. 

By mid April the banks tighten lending. Bridge debt disappears. 60-65% LTV becomes norm. DSC minimum over 1.5. Cash out refi impossible to get. Multiple appraisals required. Frozen capital until the market resets to new normal.

By summer economic vacancy of 15% becomes the new normal.

Vegas condos in trendy hotels like Signature MGM, VDARA, Palms are selling for $150-250k.

Hospitality assets will be trading on ten-x auctions and $1M will buy you a 100 key Quality Inn in a decent metro like Tucson, Houston, etc.

Multifamily holds on the longest as operators scale back cap ex and race to the bottom on concessions, rent price, etc.

Retail strip centers in urban sprawl suburbs sit vacant no debt market or tenancy demand. 

Syndicators that purchased in last 24 months in "hot growing" markets like Vegas, PHX, at 3.5% cap rates etc get cleared out by 2021. No point to run large capex value adds without the rent bump but can't pay mortgage without the rent bump = disaster. There will be a whole class of very disappointed investors. 

2019 Hottest SFR markets will become worst performing by 2021. Homeowners get bailed out and are allowed to refi and ride out job loss.

Media pins economic disaster on Trump, Biden gets elected and quickly passes stimulas #2,3,4.

Hoping none of the above turns out true but I've seen this movie before. 

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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y

6-8 weeks and everyone is back to work. 2mm people collect 1-2 months of unemployment and get the government stimulus check. Rent gets paid by 85-95% of all tenants for April and May, then back to normal by July. A few properties that had no reserves are foreclosed on or sold distressed. The overall stock market and real estate market stay stagnate for a few months, with real estate lagging behind as usual by a few months. By the end of Q3 we are back in positive GDP territory and by the end of 2020 we are a net zero growth for the year as a whole. 

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  • Justin R.
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Each country (or region within the country, in the case of the US) has to go through multiple stages:

    1. The "Unknown Phase":  People are afraid.  Lots of emotional psychological reaction instead of logic.  We shelter in place.  Did you hear the National Guard is shipping tanks to enforce martial law in cities?  No idea where the virus is, what it's plans are, so EVERYONE everywhere needs to stop what we're doing.  Panic buying at retail stores.  Great Depression.  React with sledgehammers.  Get the herd to change behavior.  They eventually "get it" and we stop infecting ourselves.

    2. The "Known Phase": Infection rate peaks.  We start getting actual data.  Where is it geographically prevalent?  How does immunity work?  Mutation rate?  Once we start understanding, it doesn't seem so scary to those working on it.  Road to resolution starts to clear.  Market has fully priced in the event.  Herd still driven by fear of unknown.  Educate the herd.

    3. The "Deal With It Phase": At risk populations are still largely stuck indoors.  Travel still largely silent other than logistics travel.  Geographic areas without high exposure begin working again.  Supply shortage (medical and retail) disappears.  Economic activity starts ramping back up.  Medical and public policy system has learned how to best identify and handle cases.  Herd is cautious.  Encourage the herd.

    4. The "Solution Phase": The lessons learned are fresh in our minds, and behavior is changed, but we think of it as an historical event - The 2020 Epidemic.  There are effective medical options to prevent or largely lessen risk of the virus and its descendents.  The next cycle begins.  The herd moves on.  Lots of babies are born.  :-)

    People's anxiety is directly correlated to the first derivative of ... anything.  That works when things are getting worse, but it also works when things are getting better.  If we're going to have a Black Swan event, this is probably the one we want instead of say, a big multi-actor war, structural national financial problem, or American political crisis.   Fortunately, this isn't a problem with an unknown solution, and I see no reason to believe won't be able to execute on that solution.

    In my metropolis in Southern Cali, at least, I'll call April 1 for the start of Phase 2 above, and May 1 as the start of Phase 3.  This early only because we've already prudently been locked down for a while and we'll see that other areas and countries were able to get through it.

    Nationally, I think the perception that business and life are riskier than we thought adds a risk premium to just about all investments for a while. CAP rates rise somewhat. Planned capital investment stays paused for the rest of the calendar year. We've got negative GDP growth for the year. Flat in 2021. The world doesn't feel great, but it economically feels more like recovering from a concussion than anything else.

    Posting hard predictions, with dates, online feels oddly vulnerable.  But, we'll look back in a year and see how accurate (or crazy) this all sounds.  

    9Reply
  • Account Closed
    Member since 2020 · 24 posts · 16 votes
    6y

    I highly disagree with the assertions that the curve will flatten in a couple of weeks and we will get back to normal. It is just starting to grow.  If you see China shut down all businesses and imposed draconian measures in Wuhan in January, and is only now starting to reopen some of their factories (about 2-3% of all businesses). This is 2 months after the initial closure, which we started only 10 days ago.  Their measures were far more drastic and overreaching (for various political reasons), so in best case scenario, if we followed their footsteps, it means we will be clear to open our economy around mid to end of May. However, we have to take into account that we cant just go ahead and expect life to be back to normal. 

    This will have an impact on a lot of businesses, and we all know how long it took to recover from the recession even with $700B poured in the economy and record low rates.  With the rates practically at $0 now, there isn't much more adjustment to be made. To add to it, our deficit was already at $1T and now with the talks of a $2T bailout, it will double. This cannot be ignored either. I would say it will be about 3-4 years to recover from this. 

    As far as the bottom, I think we will reach it in July - August. Companies are yet to post their quarterly results for Q1 and then Q2 will be a slaughterhouse. It is easy to lay off workers in an event like this (not saying this in a bad way) but companies will be very cautious rehiring them afterwards. It took less than 18 months for the US unemployment rate to go up from 5% to 10% in 2009 but 7 years to go back to that (in April 2016).  

    2Reply
  • Connor O'Brien
    Chicago, IL · Member since 2017 · 175 posts · 86 votes
    6y

    @Christopher Brown if its already in escrow can you pivot and put it into a deferred sales trust (DST) or opportunity zone fund?

    @Joel Owens whats the outlook for low income area investors who use cash only? Will these areas become ghost towns as better areas become affordable? or will laid off workers flock to lower rents? 

    If anyone is interested in cash investment strategies in Gary Indiana check out this video by Armand Academy!

    https://www.youtube.com/watch?...

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    6y

    I'm going with the zombie apocalypse sometime in mid-June

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  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    6y

    As a contractor , I see new construction in the pipeline stopping . My neighbor owns a large civil engineering firm , projects in the design stage have been shelved for a bit . Those already up and running will finish . Contractor friends are getting jobs canceled . ( I have had 1 and possible another )  I thing the flipper around here will get hit hard .  I think this year will be a break even at best . I have friends and neighbors in positions in Government , medical and finance , and they are concerned about the economy

    1Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y
    Originally posted by @Andrew Syrios:

    I'm going with the zombie apocalypse sometime in mid-June

     I'm going with Mad Max Road Warrior in mid July.  

    2Reply
  • Robert Beardsley
    Member since 2020 · 117 posts · 84 votes
    6y

    mid July things will start to settle down. we will have a slow recovery to start because everyone will be scared. but by July (2021) of next year confidence will start coming back and that will be the start of the recover. i dont think it will be as bad as 2008 but it wont be a crazy bounce back like some think either. 

    0Reply
  • Llewelyn A.
    Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
    6y

    I still remember reading posts that people should leverage as much as they could otherwise they will have equity, which some people here called "Dead Equity."

    This will end badly for the unprepared but fantastic for those of us who played it safe.

    Others may think that NYC is a bad market because of all the support for renters. However, I may give up a few crumbs but I'll eat the pie in a year or two.

    Of course not all RE Asset classes are going to do well, btw. For instance, commercial RE that has a Mom and Pop restaurant.... I feel sorry for them. There is no political will to save them, unfortunately. But I'm not here to rehash the morals of equality of support.

    BUT.... for my buildings in A and B areas in Brooklyn, just like in 9/11.... I'll survive this crisis since I'm about 50% LTV with significant cash flow.

    I was given notice by one of my tenants who owned a Restaurant that she couldn't support the rent anymore for her 1 Bedroom Garden Apt in Bed-Stuy renting for $2,500.

    I posted an Ad in mid-March and received 40 inquires and 5 applicants. The best applicant rented the apt within 10 days of the first posting and I took the ad down on the 2nd Sunday.

    The couple made over $200k in income and savings equally of $200k in the bank.

    They wanted the apt because they had 2 dogs in a large apt building which they felt was a Petridish for the Coronavirus since there were 100s of people that lived in their building.

    They felt that if they were to self-isolate in an apt with dogs, best to be in a Garden Apt where the entrance is completely separate than the other 2 apts in the building (it's a 3 Family with a separate entrance to the Garden Apt).

    The couple also both work remotely.

    YES..... in a Crisis there are still good RE and bad RE.

    YES..... in a Crisis there is over-leverage and safe leverage.

    It's really how you are driving your Investment Vehicle. While the Pandemic made the windshield foggy, if you can turn on the flood lights, you are good.

    One more thing I see in previous posts. Some people come on here and say... "See... I told you that investing in NY was bad... I TOLD YOU SO". That's not helpful. Try to post something that others can benefit from. 

    There... I said my peace.

    8Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    Yikes - none of you are bullish at all?

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    6y

    Nobody knows. The China model points to 3-6 months to turn things around but they actually have a functional and competent government and mostly compliant population. The US has a narcissitic infant for president supported by traitorous sycophants, a propaganda arm spreading dangerous misinformation and a population that goes buys guns as a response to a pandemic. So all bets are off. My fear is that the bozos in charge will open things up under pressure of Wall Street and rather than taking the pain now and solving the problem, they will create an even bigger disaster down the road. Personally, I have close to zero debt, a pile of cash and am sitting in Singapore where they have this much better under control. Im worried and upset as anyone and I don't know how my investments in various lending funds, syndications and rental properties will do for the next few months. But I do know I will most likely survive and just wait it out. But 2020 doesn't look too rosy. 

    2Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    @Christopher Brown I am in a similar place..... in the middle of a 1031 and i have no idea what to do.  Its terrifying. I wish the feds would say all 1031s have been extended x days....while i am going from free and clear to 60% ltv in MF i feel your pain :(......

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    I'll save your predictions.  Here is my response:

    ==banks tighten lending by mid April== Exactly what the Fed does not want to happen. Banks realize there is a performance decline across all real estate assets. And they should alter the LTV ratio, unless if business sentiment is rapidly improving. i.e. Coronavirus is in decline.

    ==economic vacancy of 15% becomes the new normal==   I think you are applying this to multi-family.  That is not an unreasonable estimate.  Performance in most real estate assets will contract, with hotels leading the pack.

    ==Vegas condos in trendy hotels like Signature MGM, VDARA, Palms are selling for $150-250k.==   It will take a LONG time to unwind the debt on these condos - through foreclosures.  Both Federal and local governments will prevent a foreclosure wave.   Cheaper to not collect for a year, rather than take back mass  properties.

    ==Hospitality assets will be trading on ten-x auctions and $1M will buy you a 100 key Quality Inn in a decent metro like Tucson, Houston, etc.==    No way.  Hospitality will recover in conjunction with the ebbing of the virus.  Your discounts are too severe.  Some overleveraged operators with weak properties will lose their properties.  More likely the defaulting notes are sold, than taking them through the foreclosure process.  

    ==Retail strip centers in urban sprawl suburbs sit vacant no debt market or tenancy demand.==   Many of the weaker properties were already in serious decline before the virus because of online retail.   There is a lot of obsolete retail properties in our future.  Corona made it worse.  Unlike hotels, these assets will not bounce back after Corona.  Corona changes our culture a bit and accelerates people's preference towards online shopping.

    ==Syndicators that purchased in last 24 months in "hot growing" markets like Vegas, PHX, at 3.5% cap rates etc get cleared out by 2021==   Remember that syndicators make their money in fees.    Apartment performance returns to normalcy after Corona, quicker than other assets.  A weak economy keeps more people in apartments.  Any bump in interest rates upwards and these all go back to the bank. Keep in mind, these ARE good assets. Just bad pricing.

    ==2019 Hottest SFR markets will become worst performing by 2021==  Not sure about this.  But the high end of the market should get crushed.  

    1Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    6y
    Originally posted by @Mary M.:

    Just curious- china is going back to work and schools are reopening..... does this change anyone’s prediction?

    I think we see a month or two of shut downs.... people will go on unemployment or get disaster relief aid and the govt will send out 1200/mo per person for as long as needed....  

    Businesses should start applying for SBA disaster loans....

    It will be bad....but if china is any indicator, maybe a few months of bad then we see a slow return... oh and as for school.... so kids have an extra couple months of summer vacation.... not sure how that spells the end of the world?

     The chinese government was sterilizing the streets when people were on lockdown. 

    They doing nothing in Canada.. just stay home and it will go away.. easier said then done

    1Reply
  • Jason Taliaferro
    Real Estate Agent · Baltimore, MD · Member since 2014 · 113 posts · 71 votes
    6y

    I hope it will fall somewhere between It will be alright, and doom and gloom. My gut says it will be closer to gloom and doom. I think what people aren't realizing even if people went to work immediately the severe damage has already happened. I hope things don't get worse but they are pretty bad. I hope everyone is liquid enough to make quick pivots. You can make money in any economy. Look for opportunities there will be more.

    1Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y
    Originally posted by @Jason Taliaferro:

    I hope it will fall somewhere between It will be alright, and doom and gloom. My gut says it will be closer to gloom and doom. I think what people aren't realizing even if people went to work immediately the severe damage has already happened. I hope things don't get worse but they are pretty bad. I hope everyone is liquid enough to make quick pivots. You can make money in any economy. Look for opportunities there will be more.

     You can make money in any economy. Look for opportunities there will be more.

    People couldn't for 10 years during great depression.  Hopefully technology & improved banking system make your statement above true.  Although some 3rd world countries like Haiti sadly are maybe currently as bad off as during Great Depression. 

    0Reply
  • Jerryll Noorden
    Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
    6y

    In marketing one says,  ":Don;t put all your eggs in one basket"... use several marketing venues right?

    The same goes for businesses. We have an online business (SEO) and a house flipping business. The online business has never been better and we are making  enough in one business to sustain both businesses.

    Don't wait it out, take control of your situation, and secure your income!

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    Here is John Hopkins tracker for numbers. It seems numbers are not going up too fast or maybe I am reading it wrong.



    https://coronavirus.jhu.edu/map.html

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  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y
    Originally posted by @Joel Owens:

    Here is John Hopkins tracker for numbers. It seems numbers are not going up too fast or maybe I am reading it wrong.



    https://coronavirus.jhu.edu/map.html

    https://coronavirus.1point3acr...

    i like this one better more geared at us.  imo it's exploding in some areas. 

    0Reply
  • Casey Rolland
    Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y

    @Joe Splitrock

    Many people who are optimistic on this site may not live in the state of WA, CA or NY. I also have families in S.Korea and I have been reading/talking about them every day about what that country is doing to hold this virus since mid-Feb. IF US did what S. Korea is doing, I would feel a lot more optimistic but US is not. Chinese military was present outside of all residential area, in Wuhan Only one person per household were allowed to go outside of their apt once/week, limited to grocery shopping. 

    I am afraid a lot of people don't understand what it took China or S. Korea to contain this virus which is very Drastic measures which US citizens would never allow it to occur. That is why I am afraid that this is not going to end in 2-3 months. It's going to drag on. This will not sink in until several hundreds people starts to die per day like in Italy (hopefully much lower number...). I see that people in middle section of America with low confirmed infection rate being optimistic. Just give yourselves 1-2 weeks and see what happens...

    6Reply
  • Mark Tran
    San Jose, CA · Member since 2008 · 3 posts · 0 votes
    6y

    @Serge S.

    Nice read!

    0Reply
  • Jason Taliaferro
    Real Estate Agent · Baltimore, MD · Member since 2014 · 113 posts · 71 votes
    6y
    Originally posted by @Kirk R.:
    Originally posted by @Jason Taliaferro:

    I hope it will fall somewhere between It will be alright, and doom and gloom. My gut says it will be closer to gloom and doom. I think what people aren't realizing even if people went to work immediately the severe damage has already happened. I hope things don't get worse but they are pretty bad. I hope everyone is liquid enough to make quick pivots. You can make money in any economy. Look for opportunities there will be more.

     You can make money in any economy. Look for opportunities there will be more.

    People couldn't for 10 years during great depression.  Hopefully technology & improved banking system make your statement above true.  Although some 3rd world countries like Haiti sadly are maybe currently as bad off as during Great Depression. 

    I wasn't alive during the Great Depression so I have to rely on what I read from history. Kennedy and Getty both saw the moves they made during the Great Depression. Were most people broke yep but we're there people who made decisions so when the economy recovered benefit? Absolutely. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Casey Rolland:

    @Joe Splitrock

    Many people who are optimistic on this site may not live in the state of WA, CA or NY. I also have families in S.Korea and I have been reading/talking about them every day about what that country is doing to hold this virus since mid-Feb. IF US did what S. Korea is doing, I would feel a lot more optimistic but US is not. Chinese military was present outside of all residential area, in Wuhan Only one person per household were allowed to go outside of their apt once/week, limited to grocery shopping. 

    I am afraid a lot of people don't understand what it took China or S. Korea to contain this virus which is very Drastic measures which US citizens would never allow it to occur. That is why I am afraid that this is not going to end in 2-3 months. It's going to drag on. This will not sink in until several hundreds people starts to die per day like in Italy (hopefully much lower number...). I see that people in middle section of America with low confirmed infection rate being optimistic. Just give yourselves 1-2 weeks and see what happens...

     It is because people are like, only 1 person died in my city, then two weeks later, 100 are dying a day, then a week later, 300 a day, then 600 a day. Until people see that in NYC or some other US city, some will just blow this off.

    I am surprised investors don't understand the concept of exponential growth. It can be illustrated very easily using the question, "Would you rather have a penny, doubled every day for a month or a million dollars?" Do the math on this folks!

    The point is this virus has a high infection rate. This started with one person infected in China in December. Infection rate is doubling every 4-5 days. Social distancing slows down the doubling, but doesn't stop it. 

    6Reply
  • George Munoz
    Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    6y
    Originally posted by @Nick Rutkowski:

    @Serge S.

    The Great Correction. I think it all depends on when the government will allow everyone to go back to work. If it’s within a few weeks then we might have saved ourselves from an absolute destruction if our economy. If it’s a few months and the Fed keeps pumping Americans with money then stagflation will be the mid to long term killer.

    As you said and I agree Hospitality, restaurants, and loan options will go first, followed by multifamilies.

    We should have faced this head on in 08 when the problem was smaller. Now we’re about to see the house of cards fall. Who’s up for owner financing deals?

     DUDE, WITH YOU ON THAT!!! Owner financing !!!!

    0Reply
  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y

    This is purely just my personal opinion.  While I agree that the economy has taken a massive hit it's not anywhere near the severe damage level yet.  Right now I believe our recovery is going to be measured in months, not years.  I think Trump has a very difficult task in front of him that will define his presidency.  How does he balance keeping the virus from spreading with keeping the economy afloat?  

    I think it makes sense to ask people to stay home short term but shutting down the economy for 18 months as some of the so-called experts have suggested is insanity.  That would wipe out the world economy and plunge the world into anarchy.  Then a virus will be the least of our problems.  Talk about swatting a fly with a sledgehammer.  

    I don't think the virus situation is over with either.  It could potentially come back once restrictions are lifted.  If that happens hopefully hospitals and our government will have had some time to build up a wall of respirators, masks, and financial contingencies to soften the blow as much as possible for next time.  

    I don't think the world can ever let its guard down again to the extent that it had before all this happened.  Social distancing will have to be the norm for the coming months.  People should hold off on going out, avoid crowds, wear protective gear when possible while out in public, wash their hands, use hand sanitizer, work from home whenever possible.  Certain new habits and lifestyle changes in my opinion should be permanent because it just makes sense to leave them in place. Some businesses will be irrevocably changed because of this situation and it will require some getting used to. 

    I know one thing for sure--I am anxious to get back to work!  

    Stay safe everyone.  

    3Reply
  • Casey Rolland
    Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y

    Some Northern Italian cities don't even test their people for infection because they assume everyone is infected so infection rate doesn't mean much. It's the death rate that is a better indicator. NY Times article showing NY is doubling its death rate every day, US every 3 days. I really hope this doubling rates get lengthened...

    https://www.nytimes.com/interactive/2020/03/21/upshot/coronavirus-deaths-by-country.html?algo=top_conversion&fellback=false&imp_id=60940393&imp_id=680286156&action=click&module=trending&pgtype=Article®ion=Footer

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