What Can Investors Learn From the Coronavirus Pandemic?
- By Acquisition Consultants
- April 20, 2020
With each new challenge that arises, there are unique lessons to learn. While there is no way to precisely predict the future of any industry, in the wake of the coronavirus pandemic, there are lessons professionals in the commercial real estate (CRE) sector can walk away with. These will help investors succeed in the future and avoid the repetition of past mistakes. Below are key takeaways from the COVID-19 crisis to assist in informing your upcoming investment decisions.
Pay Attention to the Economy
Prior to the coronavirus pandemic, there were trends that foreshadowed a forthcoming economic downturn. On Monday, March 9, all three stock market indexes lost incredible value when the Dow sank 2,000 points — its worst day since 2008 — and the 10-yield Treasury yield fell below 0.5% for the first time in history. Furthermore, a number of economists predicted a possible 2020 recession due to the following signs of a faltering economy:
However, once the Federal Reserve stepped in, they implemented a strategy to protect the market by dropping interest rates to 1.25%. Such panic-inducing trends not only demonstrated the impact of the coronavirus on the economy, but how individuals were reacting to this unprecedented pandemic.
Diversify Your Investments
Various properties have been affected by the coronavirus pandemic, all of which create rippling effects in the commercial real estate industry. While the hospitality and travel industries are facing great declines in revenue, grocery stores, delivery companies, and pharmaceutical businesses are booming.
Recent government orders have required uninfected citizens to stay home, practice social distancing when outside, and only venture out for essential items such as groceries, gas, and medicine.
With state-mandated closures of non-essential businesses, retail stores and malls are largely empty. Such closures in the retail sector will result in large decreases in revenue that will affect the bottom line of investors who are unable to collect rents or lease vacancies during the quarantine. One lesson would be to diversify the types of assets with properties that are allowed to remain open for business during times of crisis.
Most investors have a highly leveraged portfolio and have little remaining liquidity. This is dangerous and leaves investors will little to no financial strength to weather an economic storm. Instead, investors are urged to keep a hearty reserve for each asset and to always maintain liquidity elsewhere. Even during the worst of times, if you have a history of financial strength, banks will lend you money and you will have funds to seize remarkable opportunities.
What Does This Mean for CRE Investors?
There is still much to learn from the COVID-19 pandemic; however, no evidence suggests the need to panic. On the contrary, wise investors can capitalize on the currently low interest rates and dropping sales prices. It would be shrewd to stockpile funds and purchase some of the failed assets during distressed times.
Always at Your Service
As new information develops, the team of CRE experts at Acquisition Consultants continues to stay up to date and ahead of the curve. With over 25 years in the industry, we have learned how to prepare for the unexpected and protect the interests of our CRE clients. To learn more about our commercial brokerage, property investment, or asset management services, contact us today.