|Just the Peaks
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The COVID-19 pandemic has people panicking over past and future investments
From missing rent to wealth-building opportunities, Everest has the full scoop
One unfortunate side effect of the recent coronavirus outbreak is its threat to Americans’ financial stability. The federal government has stepped in with temporary economic stimulus payments for individuals and families, while workers who have been furloughed or permanently laid off turn to state unemployment benefits to save their bank accounts. Still, another significant aspect of the pandemic is its very real impact on investments.
In the world of commercial real estate, a diversity of COVID-19-related disruptions hit home. Transactions have not only slowed (if not stalled) for sellers and investors, tenants are also struggling to pay rent, which has an immediate effect on owners’ cash flow. With such financial turmoil plaguing the nation at the moment, we are left to wonder: What does the future hold for CRE investors? Is my investment safe—or on shaky ground?
“I love volatility”
True, the coronavirus crisis has caused sweeping financial hardship across the country. Stocks are plummeting, jobs are disappearing, and small businesses are struggling. But from an investment standpoint, this time of uncertainty is also one of great potential.
In fact, many people are starting to view this era of self-isolation not as a complete financial catastrophe—but as a lucrative opportunity that may never come again. Industry bloggers like Mehul Nagpurkar of Towards Data Science find inspiration in the words of Peter Lynch, famed American investor, mutual fund manager and philanthropist.
“Human nature hasn’t changed a lot in [thousands of] years. Something will come out of left field, and the market will go down, or the market will go up,” says Lynch. “Volatility will occur, and markets will continue to have these ups and downs. I think that’s a great opportunity, if people can understand what they own. I love volatility.”
The point is, regardless of the pessimism that accompanies a global pandemic, investors should still look for opportunity, manage risk, and make data-driven decisions to protect and potentially grow their wealth until things stabilize. Thanks to market volatility, Lynch was able to realize a 600% return on his investment in Taco Bell in just 6 years.
So, as we monitor the stock market and look to emerging trends in the commercial real estate sector, remember to stay positive—and smart—when making decisions related to new or existing investments. With the help of Karlin Conklin of Kiplinger, Everest has rounded up investors’ top 3 CRE concerns in the age of COVID-19. Have specific questions or concerns of your own? Reach out to one of our expert officers today.
Top 3 CRE Coronavirus Concerns
Q: I’m strapped for cash. If I have money invested in real estate, can I access that equity to pay my mortgage and other bills?
A. Long story short, maybe.
If your commercial properties have not been significantly affected, there is a chance you can tap into that money to get out of a temporary bind. And of course, at Everest, we encourage our partners to keep up with their mortgage payments at all costs. But dipping into your investment may not be possible (or smart) in some cases.
“The challenge now is that the lending market for borrowers is uncertain,” says Conklin. “There’s money available, but the terms can be prohibitive. For example, some lenders are requiring additional reserves to cover 6 to 12 months of mortgage payments. Other lenders are prohibiting cash-out loans. For some owners, a line of credit may be the best option.”
Not to mention, equity is inevitably tied to your property’s cash flow and debt coverage. If tenants are missing payments, this poses even further concern. So while it can’t hurt to try, you’re better off accessing cash in other ways (if possible).
Q: Does this mean I should hold off on new investments?
A. Not at all! But consider the complexities.
When the pandemic first hit, some transactions were able to make it to closing per usual. But those still early in the process were extended to at least 90 to 120 days, with many CRE transactions being halted altogether. After all, it’s difficult to assess a property’s value, operating expenses, net income and other details amidst such an exceptional crisis.
But if you have the patience, you can still pursue your next big purchase.
“There may be opportunistic investing in 2020, depending on how long COVID-19 disrupts the economy,” says Conklin. “Good buying opportunities could include properties approaching the end of their financing term or those with troubled operations. Refinance options have become a lot less attractive in this lending environment, which may prompt sellers to just take a discount on sale instead of taking a loan with low leverage and large reserve requirements.”
Q: Why is everybody talking about asset management?
A. Because passive investment is always good strategy.
When you choose sponsored real estate, you enjoy the best of both worlds. You can take advantage of all the benefits of CRE investment while passing the typical landlord responsibilities onto the asset manager. Conklin explains why this is such a timely topic.
“The impact of COVID-19 is shaping up as a defining moment for real estate asset managers. Some of the weaker asset management teams have ‘gone dark,’ leaving their investors wondering if rents are being collected or if mortgage payments are being made.” Meanwhile, “An experienced asset manager can navigate an investment property through shocks to the real estate cycle. The ability to quickly reprioritize the business plan also distinguishes strong, proactive asset managers from more passive counterparts.”
When your sponsor exhibits a Heightened level of commitment like Everest, nothing—not even a global pandemic—can shut down good intentions and good ol’ fashioned hustle.
Everest says: better days (and deals) are on their way