TAKEAWAYS FROM TURNAROUND MANAGEMENT ASSOCIATION’S REAL ESTATE PANEL

Turnaround Management Association hosted an interactive presentation coupled with a Q&A to discuss the challenges and opportunities real estate professionals have seen in local and national markets due to the effects of the COVID-19 pandemic. 

Greg Milligan, Executive Vice President at Harney Partners served as moderator for the panel, which featured Paramount’s Managing Partner and co-founder Joel Waxman, Virtus Real Estate Capital’s Chief Investment Officer Kevin White, and A&G Real Estate Partners’ Managing Director Douglas Greenspan. Here are some of the topics covered and the key takeaways from the panel.

DISTRESSED OPPORTUNITIES

Distressed opportunities aren’t anticipated until Q1 of 2021. If you are seeing distressed opportunities outside of hospitality or retail today, they were probably broken pre-COVID.  

HOSPITALITY

Issues in the hospitality industry are coming to surface much quicker than other industries. However, distressed hospitality play could be favorable because demand could be at pre-COVID levels in two years from now.

WORKFORCE HOUSING

Post COVID, workforce housing has seen the least amount of disruption and as an asset class, has typically been more insulated from economic shocks. Additionally, many universities may rethink campus housing so that it is less dense, which would redirect students to off-campus options.

OFFICE SPACE

The biggest paradigm shift will likely be seen in the office sector, as offices everywhere have been forced to close and adjust to a remote working environment. In many cases, companies have realized that they can continue to operate efficiently with a remote workforce and are now thinking through rent costs, which generally are one of the biggest fixed expenses for any company. Its unclear what the long-term implications will be to office space, but there’s no doubt its going to be different

MORE LIFESTYLE CHANGES

As companies offer more permanent work from options to employees, we will likely see a shift to a more suburban lifestyle.  Remote employees will migrate from more expensive cities to locations with lower taxes like Austin, Texas, Denver and Florida. While a city like New York saw an immediate exodus, it is an anomaly and will bounce back. However, the pandemic will act as a catalyst for those considering relocation to expedite their plan. 

LATE CYCLE / COVENANT LITE LENDING PRE-COVID

Even before the COVID virus hit, late cycle lending and lax underwriting standards had been running rampant. In 2018, 87% of total loan issuance were Covenant Lite loans! To put that into context, in 2007 only 27% of total loan issuance were covenant lite.  While COVID quickened the pace of corporate defaults and bankruptcies, many of these companies were dead in the water even before the pandemic hit.

THE CURRENT DECISION MAKING PROCESS

With so many changes happening so quickly, decision makers must be defensive, but also keep our eyes open for opportunities . There is no telling what the market will be like tomorrow, and in most sectors it is still too soon to tell. When we think about value, its not what the value was yesterday, or last week, or 3 months ago, its what it is right now. 

All parties are remaining as flexible as possible, but believe the effects from the pandemic will take longer than expected to play out. Although the situation is tough on everyone, players are acting conservatively while maintaining an optimistic outlook.

Listen to the full panel recording to learn more.