Portland-based CrowdStreet hosted a webinar titled, “The State of the Commercial Real Estate Market and the COVID-19 Impact.” CrowdStreet’s Ian Formigle, Chief Investment Officer, was joined by Dr. Julia Freybote of Portland State University and Karlin Conklin of Investors Management Group, in a discussion about “investing during volatility: The state of the commercial real estate market and future investing considerations.”

Property types were ranked worst to best at this moment in the health crisis in the U.S. as follows:

Hospitality
Asset classes that will be hurt in 2020:

• Already heavily affected by the health crisis
• Occupancies down to single-digit percentages in certain markets
• Locations are closing – citing Force Majeure for imminent defaults
• Distress is coming fast to this sector

CrowdStreet Outlook and Marketplace Strategy:
Monitor the space and seek opportunistic deals as early as Q3. This asset class could bounce back in 2021, presenting a major buying opportunity later this year.

Senior Housing
Asset classes that will be hurt in 2020:

• Was already dealing with supply headwinds at outset of pandemic
• Expect absorption to halt until worst of pandemic is over
• Weaker operators may fail, creating opportunities for stronger operators to acquire assets at good bases

CrowdStreet Outlook and Marketplace Strategy:
Monitor the space and seek opportunistic deals as they emerge. This asset class still has underlying fundamentals tied to it – the needs side of the equation is not going away. COVID-19 may present an opportunity to acquire senior housing assets at a bottom in late 2020 or early 2021.

Retail
Asset classes with mixed effects in 2020:

• Assets with heavy food and beverage or large gathering spaces already heavily hit
• Assets with credit tenants will fare far better
• Grocery-anchored centers holding up well
• Grocery sales are skyrocketing
• Overall, debt coverage ratios for retail were strong heading into March – the sector can absorb a strong hit and still service debt

CrowdStreet Outlook and Marketplace Strategy:
Avoid deals with weaker rent rolls. Seek value-add and opportunistic deals where asset values are impaired, but where underlying fundamentals remain intact. A major buying opportunity for this sector will emerge as stores and restaurants reopen.

Office
Asset classes with mixed effects in 2020:

• Nonessential ground floor tenants, such as cafes and restaurants, could shutter their doors in office buildings, potentially denting NOI
• As long as large tenants can pay rent, office sector could see only a minor impact
• Some uncertainty over how office tenants will behave after one or more quarters of remote workplace operations

CrowdStreet Outlook and Marketplace Strategy:
Case by case. Deals with credit tenants, and/or longer weighted average lease terms in great locations, will present value. Scrutinize deals with weaker rent rolls or that assume heavy lease up, which is not likely to happen in the short term.

Industrial
Asset classes with mixed effects in 2020:

• Large Class A distribution may see weakening demand, particularly in the largest markets as port activity declines
• Last-mile distribution already seeing increased demand, as companies scramble to adapt to everyone wanting everything delivered to their door
• Overall, values are holding steady

CrowdStreet Outlook and Marketplace Strategy:
Pursue last-mile distribution deals, and monitor larger distribution centers that are more reliant on port traffic.

Multifamily
Asset classes with mixed effects in 2020:

• Continues to hold up and price well. Core assets are being aggressively pursued by lenders
• Class B should remain resilient, as it presents the best affordable living option
• Expect occupancies to hold strong for stabilized assets. Those in lease up likely to be affected, as we are entering prime leasing season just as people are starting to shelter in place

CrowdStreet Outlook and Marketplace Strategy:
Case by case. Aggressively pursue deals where special situations present pricing value. As long as deals don’t enter into lease up in 2020, ground up still looks promising, but need to monitor likelihood of construction delays.

Self-Storage
Asset classes with positive effects in 2020:

Counter-cyclical effects typically boost this asset class in a downturn. The four D’s of self-storage:
• Downsizing
• Divorce
• Dislocation
• Death

CrowdStreet Outlook and Marketplace Strategy:
Pursue deals that underwrite well with strong sponsorship, and are located in markets with relatively low supply per capita.

Manufactured Housing
Asset classes with positive effects in 2020:

• Currently, the darling of all CRE
• The most affordable of all housing, this sector will continue to perform well
• No new supply and strong NIMBYISM make this asset class attractive, but also difficult to site new locations

CrowdStreet Outlook and Marketplace Strategy:
Aggressively pursue any deals that underwrite well.

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For comments, questions or concerns, please contact Dennis Kaiser