While much uncertainty remains around the COVID-19 pandemic and its effects on multifamily, commercial real estate professionals are confident in the industry’s ability to withstand and recover by 2021.
According to Berkadia’s 2020 Mid-Year Powerhouse Poll, conducted in early July with insights from nearly 150 investment sales brokers and mortgage bankers, 55% of the Berkadia professionals agreed that the current market activity is better than expected compared with their initial thoughts on COVID-19’s impact. In addition, 34% said the market is in line with their expectations.
“COVID-19 continues to have a profound impact on our economy, and while no industry is immune, we have been buoyed by the resiliency of commercial real estate, including steady rent collection and continued deal activity,” said Ernie Katai, executive vice president and head of production at Berkadia.
Even though transaction volume has been lower than initial projections for the year, over two-thirds of respondents, 69%, said they expect that capital conditions will return to normal next year.
Respondents also assessed the property types they expect to better weather a prolonged economic slowdown, with Class B, 85%, true affordable, 81%, and Class A, 69%, at the top of the list.
With housing instability exacerbated by the economic downturn and increased unemployment, Katai said a renewed focus on affordable housing could be a silver lining during the pandemic.
“This pandemic has demonstrated how vital safe, reliable housing is for the stability and well-being of our communities,” he said. “While the affordable housing market has been impacted by COVID-19, it has performed better than other asset classes and is comparatively well positioned for recovery.
Investor interest in multifamily properties targeted toward low-income households has continued to rise with the ongoing need for affordable housing throughout the nation. As a result of COVID-19’s impact, 81% of respondents agreed that investors will be more interested in affordable properties than before.
Berkadia respondents also most frequently cited modifying tax credit policy, 76%, local and state government intervention, 61%, and regulatory changes for the government-sponsored enterprises (GSEs), 43%, as the top three potential solutions for improving the affordability crisis.
During the pandemic, investors have reassessed their strategies. When asked how investors’ actions have changed since the pandemic started, respondents shared that they saw investors seeking immediate financing on currently owned properties, focusing on operations rather than deals, pausing all portfolio activity, and seeking advice on how to react to the market.
With social distancing and work from home, respondents also shared that even post-pandemic they believe virtual inspections and tours, remote working, and smaller conferences will be more common. In addition, 92% agreed that the commercial real estate industry will continue to advise clients more remotely than it previously did post-COVID-19.
As commercial real estate continues to adapt to the COVID-19 pandemic and look toward a recovery, Katai urged the industry to take the long view.
“While it’s easy to get caught up in the near-term impacts of the pandemic, we cannot lose sight of the significant events on the horizon—the election, the LIBOR to SOFR transition, possible GSE reform—that will inform the direction of our industry in the coming months and years,” added Katai. “It is incredibly important to take the long view when it comes to the commercial real estate industry. The industry has weathered periods of significant transition before, and we are confident of our ability to work through this one just as we have done int eh past and will face again in the future.”