What is your advice for real estate investors right now?
I would say have confidence. This was not created by something bad in the economy, it was created by an exogenous event, a meteor hitting the earth out of the blue. This is not like the financial crisis, when people had a lot of bad debt, so the structure of the economy was problematic. We don’t have that now. We had a fine economy. What the issue will be is so many people being unemployed. Not everyone will come back to work right away. It will take a while for that huge number of people to be re-employed. I t will not be weeks or months, it will be years.
So, given that, you have to be very careful as a real estate investor. Office is going to be challenged, physical retail, hotel will be challenged. Some segments will be fine—like the upper-end multifamily in good, strong markets will be fine. Grocery-anchored shopping centers will be fine. Hotels and hospitality I think will come back very quickly—by the end of this year, travel will probably be near normal. If it’s at 10 percent now, it will be at 50 percent and then going up every month after that. Gaming, I think that will come back by the end of the year as well, with UV lights, and cleaning protocols, and using every other slot machine.
And then in terms of senior housing, it was obviously hit very hard. There was discussion there that a lot of those operators were operating on very thin margins to begin with.
Student housing I think will come back very quickly, most of it is fairly new, and in a lot of it people have their own rooms. My feeling is by the fall, most universities will be back. Online education is fine as a supplement, but most people don’t want to do it [full-time]. The risk would be if there’s another massive wave of infections in the fall, that might change the scenario.
And industrial right now is pretty strong. Data centers are very expensive, but it’s a good play long-term. There seems to be unlimited demand growth there, it’s radically more demand.
And MOBs are definitely a good idea, I am all the way in on that, it feels safer than a hospital since it’s all outpatient.
I think people like shopping, but they will be more careful about going in, some stores may have limits on the number of people who can go in. I think even malls will have a resurgence by the fourth quarters. A lot of people don’t feel comfortable buying clothes and shoes online, you have to try them on. I think a lot of people feel more comfortable looking at even pots and pans, where and how it’s made. It will be a little bit different, but it will be back by the fourth quarter.
And along the way, leading up to a vaccine, there might be treatments that might treat the symptoms. Remdesivir, they already know it’s efficacious. If they produce millions of doses like that, it will be less scary. So, it’s going to be testing, it’s drugs that treat the symptoms and greatly reduce mortality and then it’s a vaccine.
And I also think there will be self-selection. People who are older or have preexisting conditions are going to say: “I am going to be careful, I am not going to go out.” And as a percentage of the population, that group is pretty small. So I think it will shake down, I think people will get back. Even travel, right now people are still afraid of planes, but if people wear masks, if there’s maybe some spacing on the airplanes with nobody in the middle seat, people have got to travel. With so many things, in business, you have to travel. If I do a deal, I can’t look at a picture, I’ve gotta go there, and look at the property and look at the tenants. So, I think again, by probably the fourth quarter, travel will probably be at half of where it was, and then probably climbing every month as people get more comfortable. And the technology might help too, if you can track where you’ve’ been and it will help contain the disease.
There’s an initial overreaction, people think it’s the end of the world, and it isn’t. Hotel to me would be a great thing to invest in right now, just because it’s so beaten down. And necessity retail is really strong. The demise of real estate is way overstated, the demise of hotels is way overstated, the demise of office is way overstated. People need to work with other people in a physical world. For an older person, in terms of their career, it’s okay to work from home. But for a younger person who’s ambitious and at the start of their career, they need to see their boss and their coworkers and be seen by them. This whole idea that we’ll be working from home is not the bright new world.
Even with high-density development and people saying everyone is going to go to the suburbs, that’s not going to happen. People will just get used to social distancing, they are not going to leave cities overnight.