The Impact of the Coronavirus on Private Real Estate

Posted on March 25, 2020

The Impact of the Coronavirus on Private Real Estate | COVID-19 and Real Estate Investing | CGI Strategies

Recently, equity markets lost more than 10% of their value – the largest weekly point drop in US history.

The Coronavirus (COVID-19) is making its presence known in the market.

Ultimately, one thing is certain. This tumultuous time should serve as a reminder and reaffirmation of the way that we invest and do business at CGI Strategies.

Put simply – our strategies are built to withstand moments like this. Why?

Real estate is not the stock market. It’s slower moving and doesn’t swing wildly from day to day – and it’s why we’ve chosen it as our investment vehicle, with an emphasis on multifamily real estate.

That’s not to say it’s going to be an easy ride.

Here’s what we know:

  • With the past 10 years comprised of rapid economic growth, a recession at this time would not be surprising, even without the Coronavirus. With the virus, obviously, it may be far worse than anyone envisioned.
  • Impact on global supply chains is real. In fact, investment bank Goldman Sachs revised their growth forecast for S&P 500 earnings to zero for the entire year.
  • Public markets will likely continue to be rife with volatility until full clarity is realized about the impact of the Coronavirus on the economy.

But, it’s not all bad news.

With the global decline of interest rates, this may actually serve to benefit the long-term outlook of private real estate. Ultimately, this means more money in investors’ pockets right from the beginning of the transaction. Since cash flow is the primary benefit of real estate investment, lower cost of debt will help to make that continue to be possible.

Operational decline on the property level will occur: there is no way around that. And while this absolutely will be true, the fact remains that people need a place to live – and multifamily will perform better in this uncertain time than any other facet of real estate, for obvious reasons.

So what do we do?

We take all the information that we have – borrowing costs, net operating income, and capitalization rates, and make our decisions accordingly. We must keep an eye on the global supply chain’s effect on construction projects – things like this are out of our control and also must be monitored closely.

So in the midst of the pandemic pandemonium, stay the course. Practice a bit more caution, and we believe we will all come out on top, as multifamily real estate investors always do.

Interested in learning more about investing with CGI Strategies? Contact us today.

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