Originally published on Medium on 3/24/2020

This is going to be short and cover the major takeaways I got from today’s CBRE Covid19 effect on Multifamily call. This is basically my Evernote scribbles in a Medium post and The big Aha! is at the bottom.

Bad news: We already know this but the 2nd Quarter is going to be a shitsow. CBRE is more bullish than Goldman or Morgan (they’ve suggested contraction of 25–35%, CB’s around 20%).

Good News: Muscular monetary and fiscal stimulus. Government istrying to fill gap of 1.8T in direct stimulus plus 2T in monetary stimulus, which is about 20% of us gdp. Thats much bigger than projected losses of about $7 Trillion. (Note: If this plays out for loger than a few months, that number still may bot be enough). China’s bounceback suggests that if we can contain COVID-19 and “flatten the curve”, there’s daylight ahead.

Asset classes getting hammered the worst? Student housing and senior housing (Down 55% vs Apartment and combo REITS down 35–40%). Old people are expected to die a lot and create vacancy while students have abandoned units to live at home. Parents are on the hook as guarantors but there’s a high likelihood they either get some relief or just blanket default. If this is over by the beginning of fall semester, values will come roaring back. If not…

Class A vs. Class…not A: Expectation of more pain in workforce housing as those tenants have less ability to work from home/less savings. Higher likelihood of tenants staying in place vs. moving in both classes and leaseup on new projects will be aysmal. Interesting data point here and something that may be an opportunity:

66% of rents from the 7 big REITS come from California, NYC, Boston, and DC

That’s a lot of exposure to a very few markets and provides a lot of opportunity for smaller players in other markets.

Markets that will do the best: DC AND BOSTON

Markets that will suffer: Houston, Orange County, Orlando bad bad. Atlanta and Dallas because of concentration to airport workers and service industry folks.

Lending:

Banks: wait and see

Life companies: on pause until rate floor visibility

CMBS lenders out of market. Debt funds experiencing margin calls. Some closed

Low Leverage funds still lending at low LTC/LTV

Forbearance: Fannie issuance last night. Requires owners to not evict.

Borrowers must repay missed payments. 3 monthly payment forbearance. Must bring current within 12 months. Freddie following the lead.

Transactions: Majority of pending transactions canceled, reproved or delayed. Investors who locked rate pushing to close.

Lots of sellers ready to go but not releasing properties into the market yet.

PROPTECH IS HERE!: If you made it this far, this is the big, hairy market opportunity.

HUGE appetite for property investors seeking to tour virtually and get as much pre-tour due diligence as possible. Most interestingly, this was an existing trend even prior to social distancing. COVID-19 simply accelerated the bejeezus out of an existing phenomena. Like so:

According to the presenter, the future looks like:

Less brick and mortar due diligence, more Desktop analysis

We’ve already seen a huge explosion in the merger of tech and real estate mostly because Commercial real estate is still largely a Flinstonian endeavor of manual labor and relationshp driven deals. It’s just a space that has been ripe for innovation for sometime and necessity being the mother of invention, here we are.

What does this mean for you?

  1. If you’re an angel investor or VC, seek out and fund founders that are innovating in the virtual showing space. This probably looks like Matterport tours, video walk throughs, and UX/UI solutions that get much more granular about letting a decision maker in LA, Hong Kong, or New York understand the what they’re buying. Floorpans, MEP drawings, roof condition, drones, etc.
  2. If you’re a broker or an agent, figure out your tech stack now. Hosted tours are dead for the next two months minimum and maybe the next eighteen. Post-crisis, consumers will expect this level of virtual service and those who have already built out a platform will be the ones winning the business.
  3. If you’re an owner or a landlord, create relationships with the people above. You’ll need them, and it will probably be cheaper than trying to build out something yourself unless you have the portfolio size to justify it.

If you’ve figured out a way to make this happen already or want to, I’m looking for partners and smart people to align with here. Godspeed

Faraji