How does this story end? Prediction for 2020

How does this story end? Prediction for 2020

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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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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  • Real Estate Professional · Tampa, FL · Member since 2017 · 104 posts · 47 votes
    6y

    It ends like this:

    1> Airlines, bars, restaurants, Casinos, Cruises, the entertainment industry , malls, and misc companies will get bailed out using taxpayer money. 

    2>These bailed out companies will take the money and pay compensation to their top-level executives, continue to do stock buybacks

    3> The stock market will rally.

    4>The average joe taxpayer will get NOTHING and will be our of the job and screwed- AGAIN.

    5>After many are dead and there is full-fledged fright leading to a mandatory lockdown, the cases might drop

    6>Persident/GOP will say he is solely responsible for fixing this and will take full credit and will take no blame for this.

    7>DEMS will resort to the usual tactics with their tails between their legs.

    8> CNN/MSNBC/FOX will continue to do their crap reporting while profiting from the stock market rally and bailouts

    9>Toilet paper/Hand sanitizer hoarders will try to return their excess toilet paper to Walmart

    10> Going forward BP members will ask every 5 days the following question in the forum - Is there a recession coming? , Is it a good time to Buy? and ADD new question every 5 days- Is there a pandemic coming?

    11>Bankruptcy cases will increase.

    12> President will get re-elected for his "fantastic" "bigly" handling of the situation.

    13> We await the next disaster.

  • Investor · United States · Member since 2018 · 565 posts · 356 votes
    6y
    Originally posted by @Serge S.:

    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. 

    I think that's an optimistic assessment. 

  • Investor · United States · Member since 2018 · 565 posts · 356 votes
    6y
    Originally posted by @Serge S.:

    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. 

    Another thing is that during the great depression we had less population density in large metropolitan areas and many people coming out of the agrarian age had basic survival skills. Now the population has increased considerably, most people live in large cities and no one has any basic survival skills. Do the math folks... 

  • Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y
    Originally posted by @Krishnan T.:

    It ends like this:

    9>Toilet paper/Hand sanitizer hoarders will try to return their excess toilet paper to Walmart

    This made me LOL 

    Costco is already refusing returns from hoarders.  



    https://www.foxbusiness.com/lifestyle/costco-toilet-paper-returns-coronavirus

  • Member since 2020 · 3 posts · 1 vote
    6y

    @Serge S.

    None of us know where or when this season ends. But it will, and after an unknown period of time, life will go on, somewhat changed, just like it did after all previous market corrections. In the meantime, look up, be prudent, and do the right thing by all those in your sphere of influence, enjoy spending time with your spouses and your children. We will all survive, be stronger because of the experience, and move on to be even more successful.

  • Michael K GallagherBusiness Member
    Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    @Serge S. very interesting take, also very thorough.  Given thats what you think will happen are you looking to make some adjustments to capitalize on the situation or are you of the mind to hold steady and wait? 

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    Since people keep bringing up Italy's numbers, let's look at a flu study done on Italy:

    https://www.sciencedirect.com/...

    Highlights

    •

    In the winter seasons from 2013/14 to 2016/17, an estimated average of 5,290,000 ILI cases occurred in Italy, corresponding to an incidence of 9%.

    •

    More than 68,000 deaths attributable to flu epidemics were estimated in the study period.

    •

    Italy showed a higher influenza attributable excess mortality compared to other European countries. especially in the elderly.

    Abstract

    Objectives

    In recent years, Italy has been registering peaks in death rates, particularly among the elderly during the winter season. Influenza epidemics have been indicated as one of the potential determinants of such an excess. The objective of our study was to estimate the influenza-attributable contribution to excess mortality during the influenza seasons from 2013/14 to 2016/17 in Italy.

    Methods

    We used the EuroMomo and the FluMomo methods to estimate the annual trend of influenza-attributable excess death rate by age group. Population data were provided by the National Institute of Statistics, data on influenza like illness and confirmed influenza cases were provided by the National Institutes of Health. As an indicator of weekly influenza activity (IA) we adopted the Goldstein index, which is the product of the percentage of patients seen with influenza-like illness (ILI) and percentage of influenza-positive specimens, in a given week.

    Results

    We estimated excess deaths of 7,027, 20,259, 15,801 and 24,981 attributable to influenza epidemics in the 2013/14, 2014/15, 2015/16 and 2016/17, respectively, using the Goldstein index. The average annual mortality excess rate per 100,000 ranged from 11.6 to 41.2 with most of the influenza-associated deaths per year registered among the elderly. However children less than 5 years old also reported a relevant influenza attributable excess death rate in the 2014/15 and 2016/17 seasons (1.05/100,000 and 1.54/100,000 respectively).

    Conclusions

    Over 68,000 deaths were attributable to influenza epidemics in the study period. The observed excess of deaths is not completely unexpected, given the high number of fragile very old subjects living in Italy. In conclusion, the unpredictability of the influenza virus continues to present a major challenge to health professionals and policy makers. Nonetheless, vaccination remains the most effective means for reducing the burden of influenza, and efforts to increase vaccine coverage and the introduction of new vaccine strategies (such as vaccinating healthy children) should be considered to reduce the influenza attributable excess mortality experienced in Italy and in Europe in the last seasons.

  • Member since 2018 · 6 posts · 0 votes
    6y

    @Serge S. I don't view it that way at all. These archaic, unwarranted shut down and shelter-in measures will be quickly rolled back. Trump not going to let his presidency, and America, go into an economic crisis over a virus than arguably has the same fatality rate as influenza - which we deal with every season.

  • Member since 2019 · 4 posts · 0 votes
    6y

    I will keep lending until the end.  Without hope or money it will be a long struggle for all investors.

  • Stephen KeigheryBusiness Member
    Rental Property Investor · New Orleans, LA · Member since 2018 · 717 posts · 555 votes
    6y

    @Nick Rutkowski I am up for the owner financing and subject to deals

    Home Buyer Louisiana4.855 Reviews
  • John KosterPro Member
    Investor · Valley Village, CA · Member since 2012 · 147 posts · 142 votes
    6y

    The economy was weak for a full year after 9/11 and initially that event only affected the travel industry.  Wall Street overreacts to earnings reports that are only 2% off of projections.  Now imagine how they are going to react next quarter when projections are off 50% or more for almost EVERY SECTOR?  The bloodbath has just begun.  

    Stocks, Bonds and Real estate were bubbles set to pop or correct without any external event.   

    It took 274 days for the market to turn into bear territory (-20%) in the last downturn.  It took JUST 24 DAYS to do so this time.   I will be shocked if this isn't worse than 2008-2009 and not surprised if we have a lost decade like the 1930s.   Hoping to be wrong!

  • Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
    6y
    Originally posted by @Christopher Brown:

    Just to put some meat on the hypotheticals of this thread: I am in my 180-day period for a 1031 exchange with $2mm in escrow and two properties under contract: a stabilizing self storage deal in a growing but small market and a NNN deal with three QSR tenants in Tampa. I had intended to close on the NNN deal and to syndicate the storage deal, but that was two weeks ago...

    I have NO idea how to move forward with either property and my 180 days is up first week of May. Financing for NNN QSR is basically frozen - my really attractive CMBS debt got pulled, though the local bank says they think they'd still fund it - and the possibility of rent abatements or the spaces going dark in the next six months certainly seems like it could be a possibility. And while I have the reserves to float a longer lease up for the storage deal, the prospects for continued growth in population/rents in that market suddenly seem much less attractive.

    Because my 1031 cost basis is so low, I'll pay basically 45% in cap gains if I don't close on either deal. But paying the taxes and having $1mm cash on the sideline all of a sudden seems almost attractive!  

    Hi Chris, sorry to hear about all of the difficulties. You may have already considered  this, but to follow up on what @Dave Foster said, I wonder if private money might make sense for a while, even if the rates are not great. Not a lender myself, but I know people who used it during the last crash to push good deals through, and were happy in the long run. Self storage, from what I know, has often done even better when economy has issues and people are transitioning, so perhaps trying to hold on to at least that deal would probably be  solid. Of course, having cash and waiting for opportunities is never bad! 

  • Investor · Winston Salem, NC · Member since 2016 · 60 posts · 18 votes
    6y

    Thanks Shiva.  My problems aren't any different than anybody else's in this crazy new world!  And not really problems compared to what other folks are dealing with...

  • Rental Property Investor · West Covina, CA · Member since 2019 · 16 posts · 6 votes
    6y

    @Jason Bott I'm a commercial insurance broker in CA and I'm seeing action taken on several fronts in attempts to prevent cancellations. On 3-18-20, the CA dept of insurance issued a notice requesting all insurance companies offer their policyholders at least 60 day grace periods to pay their premiums. We're also seeing companies who are taking additional measures like offering installment plans and even self-imposing moratoriums on non-payment cancellations. The situation is very dynamic right now and I can say that there's a real concerted effort to assist policyholders in maintaining their coverage. I would encourage all policyholders to be proactive and reach out to their brokers and/or carriers to see what premium relief is available to you. Your state's dept of insurance is also a great resource for you. In CA go to www. Insurance.ca.gov. Wishing you all the best!

  • Investor · Fishers, IN · Member since 2012 · 520 posts · 499 votes
    6y

    We sold all our Single family rentals and apartments back in 2000-2004 and have been investing in Self-Storage since 2005 (Thankfully).  Rentals are up, and lenders are turning back to the Asset Class with the lowest loan Default rate - Self-Storage.   Businesses downsize, and individuals downsize during a recession which creates a huge surge in demand for Self-Storage. 

    We've been waiting for this since 2012, and can't wait to start the big Self Storage Land Grab all over again.   We've already seen an increase in response rate to our mailers and our lenders and private equity partners are chomping at the bit.     

    As for most of the rest of the posts on this thread - I agree, it's going to be a tough road for all the folks who have enjoyed the market gift of the past several years.  And for those who weren't prepared or thought that we would never experience another recession will be left on the sidelines - as Jay Heinrichs said - Deja vu all over again.

    We're adding staff and getting up a little earlier these days!   Game on Gang, time to reap the rewards to be had in real estate during a recession!

    carpe diem. 

  • Chester, VA · Member since 2018 · 30 posts · 5 votes
    6y

    All depends on how quickly countries around the world get control of the outbreak. If the US opens up too soon, it could be truly disastrous. Beyond correction territory.

  • Patrick AllenBusiness Member
    Realtor · Tucson, AZ · Member since 2014 · 241 posts · 139 votes
    6y

    This is my first major market shift and I'm just guessing here, but:

    - Residential markets take a noticeable hit in March/April offers and thus May/June closings. RE prices do not peak in June/July as they usually do

    - As vacancies pile up *some* landlords result in panic selling June/July, but not enough to be statistically relevant (at least in my own market in AZ). Only investors with approved financing & who continue to analyze deals for the entire intermediary are able to grab these distressed sale opportunities. 

    - Accelerated activity begins June/July, moving the peak selling months into late summer/early Fall. This altered demand window could be extended later into the Fall, depending on how schools handle re-opening for the '20/'21 school year.

    - A recession hits (National GDP fails to grow in Q1 & Q2), but only in the statistical sense: Q3 & Q4 numbers suggest a continuation to the bull market until after the election. Many RE markets do not feel the recession apart from our current sense of uncertainty & lifestyle limitation.

    - After "pressure testing" the idea during the quarantine period, businesses will feel more empowered to allow work-from-home plans to employees. This will stimulate growth & expansion of those businesses, but have trickle down effects to certain niches of commercial real estate (Retail & Office Spaces)

    - Prices, DOM & Absorption rates continue to soar at a rate which substantially outpaces inflation, causing a broader recession in the RE markets within the next 24 months.

  • San Diego, CA · Member since 2018 · 9 posts · 5 votes
    6y

    I’ve seen some mentions of Y2K on here. Though I was not working in IT at the time, I’ve read Y2K would have been a disaster had companies not taken drastic action to mitigate it. I think parallels can be drawn here: if drastic action is taken to stop COVID-19, in retrospect it will not seem like a big deal. This makes the drastic response seem unnecessary even though it was.

    "The Y2K bug did not become a crisis only because people literally spent tens of billions of dollars in effort to fix it. And in the end, everything kept working, so a lot of people thought it wasn't a crisis at all.”

    https://news.ycombinator.com/item?id=22556156

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Patrick Allen:

    - After "pressure testing" the idea during the quarantine period, businesses will feel more empowered to allow work-from-home plans to employees. This will stimulate growth & expansion of those businesses, but have trickle down effects to certain niches of commercial real estate (Retail & Office Spaces)

    Yup, the corporation I work for is already probing people on how this is working out right now. So far, very positive feedback. Especially helps since we were looking at expanding our footprint here, but were running out of our current office space. 

  • Lender · Los Angeles, CA · Member since 2015 · 800 posts · 229 votes
    6y

    Harmony... just why are you putting a timeline of 2020 on the end of this question? how can you measure the ripples as they get so far away you can't see them crest any longer, but they are still there

  • Real Estate Broker · Member since 2019 · 3 posts · 1 vote
    6y

    I've had this idea for a while about multi-tenant retail centers converting to last-mile delivery centers to adapt to the e-commerce world, and the current situation could open the door for those opportunities for creative active investors and fix-and-flip buyers who want to get some CRE exposure. I recently heard of a college buying a vacant shopping center to re-purpose for their trade school programs, and a healthcare company buying an older, failing mall to use as a sort of medical office park. Anyone had any experience with converting vacant retail to something totally different? I'd love to hear how that works from an investor perspective.

  • Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    6y

    Prediction:

    The government has validated their new tool to instill fear and reduce liberty will successfully work and they'll have a nice precedent set for the next crisis.

    The inflation tax and tax on inflation tax will continue to be tools of choice to prop up our terrible fiscal policy in an attempt to manufacture "safety" for people that the taxpayer can't afford and government can't provide.

    Real estate landlords will be screwed, particularly in the more left-leaning locales.  Consider it a "wealth tax" for those who are being fiscally responsible. 

    All the while the media will slant everything as much as possible to instill fear and sell ad spots.  People won't learn their lesson and will react similarly in the next manufactured crisis.


  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    6y

    The unemployed will be rescued in our new safety net. Wealth is redistributed through higher taxes in an attempt to narrow the gap between the haves and have nots. Welfare for many as they are replaced through automation. 

    It is all about printing money and higher taxes. At some point there really will be a reset. Maybe something like what Mexico did when they devalued the peso cutting the value in half. There will be consequences for unlimited monetary easing.

  • Mike LambertPro Member
    Investor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Jeff S.

    I don’t know if your predictions will happen. I don’t think so but you never know. I’ve learned so long time ago that most of the predictions end up being wrong so I’m not participate in that game.

    Yet you mentioned that Mexico devalued the peso so its value was cut in half. This is factually incorrect. The peso is a free floating currency and the Mexican government doesn’t intervene to bring it up or down. Yet the Mexican peso has lost half of its value compared to the US dollar over the last few years because of market forces pushing the dollar strongly up against all the emerging market currencies.

    Since we talk real estate, this is by the way why so many Americans are retiring in Mexico and buying property there. Their cost of living keeps going up as the prices of everything keeps going down but the value of their real estate keeps going up because “quality” real estate in places foreigners are buying is traded in dollars.

  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    6y

    @Mike Lambert if you had invested in Mexican debt in 1994 you'd have experience your money being hugely devalued. While you may be earning 11% you would lose value big time.

    The Mexican peso crisis was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by capital flight.[1]:50–52 
    From Wikipedia, the free encyclopedia

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