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Seattle & Northwest  + Portland  + Retail  | 

Investing in CRE in a Volatile Market

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:

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.

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.

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.

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.

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.

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


Inside The Story

Connect With CrowdStreet’s Formigle

About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.

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