Raub Report: The Sun Will Come Out Tomorrow
April 1, 2020
I am in the process of throwing out all of the magazines and newspaper articles that I use for research for this newsletter. They are no longer relevant as we are leaving the old world and plunging into a new era, because of the quarantines put in place to combat the COVID-19 virus. No one saw this coming. “Social distancing” was not a phrase. It feels like we just hit a brick wall going 90 miles an hour, and the car is still moving forward but stopping fast and the bricks are all still up in the air. What this is going to look like when the dust settles, is anyone’s guess.
“Things that were impossible may now be possible.
Things that were possible may now be impossible.
The world is changing.”
From the Commercial Real Estate perspective it is a total disaster for small retail centers and apartments. Offices are insulated so far, and industrial distribution is really busy. Investment deals have stopped. Don’t even ask about hotels. First, retail centers went from great rates and strong occupancy to having to give rent abatement or deferment to most or all of their tenants, like restaurants, fitness centers, hair and nail salons, chiropractors, dentists, etc. This puts enormous pressure on the Landlords who have monthly mortgages to pay, but suddenly don’t have the rents, and realize that some of these small mom-and-pop businesses can’t come back from a month of no income. They aren’t that well capitalized. Then, apartments suddenly have a huge percent of their tenants that are suddenly unemployed, temporarily at best. So, Class B and Class C apartments are much stressed, too. Office buildings have tenants that are all tele-commuting and few if any personnel on-site. Maybe they will need less square feet of space in the future. Title companies and mortgage companies should do fine because refinancing activity has gone through the roof as a result of the incredibly low mortgage rates. In fact, the demand for refi’s is so large, rates have gone up a little.
“Those who do have ready capital are now looking for good properties
with distressed owners, needing quick cash and looking to sell fast.”
Investment activity has really changed. Those who do have ready capital are now looking for good properties with distressed owners, needing quick cash and looking to sell fast. I think this will drop prices, as the best properties are not going to get strong offers. There must be re-pricing in the market, and since we are still in the middle of the train wreck we can’t tell what will happen. For example, we are working with a client who was very interested in buying a property which had gone to a best-and-final bid sale. Now, the buyer who had it under contract has dropped it and a third buyer backed away, so now our client may be back in. We will see. Things that were impossible may now be possible. Things that were possible may now be impossible. The world is changing. No one’s 2020 forecast is in place anymore and no one is going to make a credible revised forecast because we are still in the middle of this thing. Certainly, the $2-trillion CARES stimulus package will help, should government red tape not delay its impact. And hopefully, our city will not experience heavy casualties so we can return to the new normal as soon as possible. The future will be bright, and we all have to adapt to a different world that is still in formation. Certain fundamentals will remain. Location will remain the most important criteria and good balance sheets, along with cash flow, rule.
We, at Investment Realty Company, sincerely wish you the best and that you and yours will have good health in this new era that is being formed before our eyes.