The economic effects of COVID-19 are happening so fast it's nearly impossible to keep up. Marcus & Millichap, a real estate investment firm based in Calabasas, Calif., recently released a special report outlining its views on what multifamily investors, owners, developers, and operators can expect as the crisis continues to unfold.

Besides predicting the market's rush to the safety of bonds, the report also pointed out that "historically, pandemic outbreaks such as SARS, the H1N1 'swine flu,' and the 'avian flu' generated short-term market instability that moved toward stabilization over the following three to six months."

The report also provides a reminder about the typical 5% to 7% yields in commercial real estate and that "real estate is a long-term investment offering significantly less volatility than most other investment options." To go a bit deeper, Multifamily Executive posed some questions to John Chang, senior vice president and national director of Marcus & Millichap’s Research Services.

MFE: Do you think the coronavirus is going to have a big effect on M&A activity in the multifamily real estate arena?

Chang: This really depends on the duration and scope of the outbreak. If the extraordinary measures being put in place to restrict the contagion of the coronavirus are only in place for a short time and the outbreak can be curbed, then the effects on the multifamily sector will likely be modest. If the outbreak is severe and restrictions on mobility and consumer spending are in place for an extended period, then the job market will face increased risk, and as a byproduct apartment fundamentals could be impacted. M&A activity would likely be driven by opportunistic drivers if the market faces a more severe setback.

John Chang, Marcus & Millichap
John Chang, Marcus & Millichap

MFE: How is international investing being affected by the coronavirus, and what are the mid- and long-term implications?

Chang: It's very difficult to determine the implications, but with borders being closed and international travel being severely regulated, it is likely that international investment will be curtailed. It must be remembered, however, that international investment comprises a very small segment of the apartment market.

MFE: Will the low interest rates be enough to keep investors interested in real estate deals?

Chang: The record low interest rates have bolstered levered yields significantly, and investors see this as a unique buying opportunity. This should drive a period of increased activity, but restrictions on mobility and tighter quarantines could restrain buyer activity if these measures are in place for a prolonged period.

MFE: Will the stock market gyrations chase most investors into bonds and other safe havens?

Chang: We have already seen a significant migration of capital and a meaningful correction in the stock market. Although some additional movement into bonds and other safe haven assets will continue, an additional wave of movement is unlikely unless there is a major shock to the economic outlook. That said, real estate has an increased appeal during times of financial market turbulence, so additional funds could migrate into this sector.

MFE: Do you think the coronavirus coupled with the turmoil of an election year may end the rosy economic predictions for 2020?

Chang: Economists are dealing with a very fluid climate. In a matter of hours, underlying assumption can be changed dramatically. For example, on March 16, several cities announced curfews, the shutdown of restaurant,s and even the lockdown of movement in the San Francisco Bay Area. Rapid changes of this magnitude will undoubtedly impact economic expansion. However, as uncertainty-driven fear levels subside, U.S. companies will refill the logistics pipelines and consumers will return to the market, delivering increased consumption and reviving economic growth.