The Future of Real Estate Post-Coronavirus

Published on
May 4th, 2020
Duration
35 minutes


The Future of Real Estate Post-Coronavirus

The Expert View ·
Featuring Nick Halaris

Published on: May 4th, 2020 • Duration: 35 minutes

Nick Halaris, president of Metros Capital, joins Real Vision to talk about the impact of COVID-19 on the real estate market. Halaris breaks down what he has witnessed in terms of rent collections, transaction volume, and risk appetite in every sector of real estate from residential to commercial. He discusses how coronavirus might alter many real estate business models like those of co-working, co-living, and short-term rentals permanently. Based off information he has garnered from Metros' own portfolio and conversations with his peers, he shares his perspective on what the future of real estate could look like post-crisis. Filmed on April 28, 2020.

Comments

Transcript

  • NH
    Nicholas H.
    5 May 2020 @ 21:17
    Hi Everyone! Sincerely Appreciate all your support and ideas from the comments below. Will try to address some of the questions on the next update.
    • ND
      Ned D.
      8 June 2020 @ 02:38
      Great presentation. Post-COVID affordability is a major issue. High priced areas like LA and Bay Area will get slammed. Cap rates have to increase to reflect lower rents and higher vacancies. Markets NOT on the Coasts will be less impacted and probably present a better opportunity for long term cash flow growth. Hotels are overbuilt and extremely overpriced. Billions will be vaporized in this space and many large, functionally obsolete full-service boxes will never reopen.
  • LW
    Lorenz W.
    25 May 2020 @ 12:47
    What do people here think about the CRE REITs like STOR or Healthcare REITs like WELL after they’ve come down about 50% off their all-time high? Personally I am happy to buy and hold them for the very longterm at those levels.
  • JP
    John P.
    7 May 2020 @ 01:57
    If you ask a broker, especially a residential broker, it's always a good time to buy real estate. Zillow and Redfin are brokers so no surprise that they think the market won't go down.
    • BT
      Bryan T.
      21 May 2020 @ 21:28
      I'm director of a financial planning firm and yes, I've had real estate brokers who I've known for years in some cases and I've referred them to clients and collectively we've come to that same conclusion with many of them. If you're paid based on creating a transaction, you need to create a transaction...in order to be paid.
  • KM
    Klayt M.
    5 May 2020 @ 04:58
    IMO, as a renter, people continued to pay their rent even though politicians were telling them they didn’t have to because they don’t trust politicians.
    • GV
      Gabriel V.
      15 May 2020 @ 20:29
      I'd argue that their distrust of politicians is a great mindset to have
  • DS
    David S.
    5 May 2020 @ 00:28
    Really terrific interview. Great insight into the housing market at such an important inflection point. Nick was clear, knowledgable and comprehensive in his analysis. Thank you for this helpful information.
    • BH
      Bachar H.
      13 May 2020 @ 14:24
      🦝🐀🐁🤗🐃🐁🥺🛎🥺🔻🇪🇭🇪🇭😅🔊🤞🏽
  • MR
    Maxim R.
    5 May 2020 @ 00:19
    Good interview, thank you Nick and RV team. RV- Please bring more Real Estate content, for active real estate investors/developers
    • BH
      Bachar H.
      13 May 2020 @ 14:22
      🤯🤣🙏🏽🛎🛎
  • CA
    Chad A.
    13 May 2020 @ 06:00
    Great interview! Nick, thank you so much, I really enjoyed your perspective. RE is under-covered on RV. I am in KC, MO and am always amazed at what happens on the coasts. I have about 40% of my nw in and about 30% of cash flow from duplexes here. I feel so fortunate (thus far). I have been so lucky regarding all CV-19 developments.
  • SP
    Steve P.
    9 May 2020 @ 21:51
    What this discussion on LA commercial real estate fails to address is “Hollywood accounting”. LA is the wage theft capital of America, because Hollywood’s managers pursue a policy of under paying people, or not paying them at all. The excess funds are laundered through other services, like real estate! It’s a real thing. Everyone in Hollywood has been or knows someone that’s been robbed working in the industry. This includes the retail, especially restaurant and transportation industries. Celebrities put pressures on their management to get costs low who put the pressure on small business owners else suffer being black balled. Hollywoods black money economy funds a ton of market mispricing, like those $1000 square foot shops on Melrose which remain empty (no one shops on Melrose, you’re either at Beverly Center or WeHo...) are complex money laundering spots, with money acquired through wage theft. On average, an employee serving the film industry (all the way from maids cleaning wealthy homes to line cooks and servers) lose an average of $6,000 a year based on my wage theft study. (Started studying it as I noticed not being paid OT etc and speaking with people that admit things like “oh yeah it’s normal you might have to wait 3 months for your money!) so, this is something NOT DISCUSSED because many people, many many important people would lose their jobs. It’s petty theft every week, straight up financial burglary by years end. Not kidding - LA’s commercial real estate market is the sum of market price dynamics and wage theft. If the Feds passed federal anti-wage theft legislation with actual criminal / jail / prison sentence penalties, real estate values would lose 20-30% a square foot as launders get caught. Unfortunately people like myself can’t speak up cuz liable and slander out here will get your name put on a spreadsheet and every hiring manager will have it on their “red list”. It’s a real thing. Can’t make this up - LA is wage theft capital of America, because they can get away with it. 90’s was worse - back then celebs openly joked about contract killings but it wasn’t jokes...
  • KN
    Khai N.
    7 May 2020 @ 13:19
    Any mention of Industrial real estate such as warehousing or industrial REITS?
  • NP
    Nathan P.
    7 May 2020 @ 01:57
    Great view from someone who is actually seeing the impacts in all of the traunches of the rental space! I wonder what the following impacts are going to be though? As time goes on and income continues to lag, how will landlords try to handle it? forbearance? forgiveness? evergreen the lease in some way? seems like once the value that starts evaporating from balance sheets a fire sale may be in our future..
  • RI
    Roxana I.
    6 May 2020 @ 22:43
    Hi Nicholas. I enjoyed the video and I'd like to hear your views on the Australian real estate market. If you could address that in a future update, it would be great!
  • JM
    Julien M.
    4 May 2020 @ 18:13
    Was looking forward to having RV bring someone to finally discuss CRE. But this fell way short. Nick seems like a nice guy but does not provide much depth or useful dialogue on the state of CRE, you could pull up a Bloomberg/Real Deal article that would sum up his video in a 1/4 of the time. Would be nice to have someone discuss relevant themes in CRE like flow of institutional capital (domestic + foreign), cap rate compression/expansion in larger context of capital markets over the last decade, current bright-spots like last mile distribution and logistics assets near gateway cities, differences between how workforce housing vs Class A multifamily is performing in this environment (compared to '08), political headwinds such as rent control and commercial rent control, commodification of housing (single family + multifamily) since the post war period, evolution of the capital stack, risk appetite and incentives for LPs vs GPs over the last decade, and finally demographic changes.
    • JB
      Jonathan B.
      4 May 2020 @ 21:01
      Julien, agreed, would definitely be interesting to hear. Follow this more than I would like to - cities such NYC, Amsterdam, Berlin and many others have not so much Wework, but big tech (NYC - Google, FB, AMZN), and start ups as the marginal buyers while Amazon effect ravaged their retail sectors. All this stuff has been highly institutionalized with search for yield. German for example is broadly owned by pensions, sovereigns. And it was all very expensive globally. He is right about the cap rates. Main argument was that it was all priced "attractively" because treasuries and bund yields were low. Lots of inked spilled about Berlin's resi market in past year. Nordics market, again highly institutional, but too small for last players. Massive wave of money was pushed into everything and anything including student housing by GPs, etc.. buy Provo because of BYU and Silicon Slopes, central Madrid is supply constrained (add in any narrative you would like for Austin, Nashville, Bangalore, Munich), and so it went on the never ending search for yield. Blackstone and Prologis are the big warehouse (ecommerce) gobblers. Was a great panel in 2016 with Zell, Gray, and Sternlicht that I pinned to my monitor back then as Zell was, yet again, very correct: On being pessimistic compared to Jon Gray or Barry Sternlicht: “I’m not as optimistic, but then I use my own money.” o Not finding ways to deploy capital in CRE today. Happy to sell to Jon and Barry.
    • JB
      Jonathan B.
      4 May 2020 @ 21:18
      Apologies, please read big tech as marginal buyers and start ups as rent side. Regarding Nordics meant to say too small for largest players as opposed to last.
    • JM
      Julien M.
      5 May 2020 @ 01:24
      Jonathan, One of the problems in the CRE market is that institutional capital forgot to properly assess risk when the "hunt for yield began." Cap rates are essentially just a gauge of risk, higher cap rates = higher risk. When capital began flowing out of (NYC, SF, LA, etc.) seeking higher returns they were just chasing cap rate compression (creating somewhat of an illusion of low risk markets). It's the natural cycle of CRE investing. What happened in some Florida submarkets like Orlando (multifamily) during the last 5 years is a perfect case study for this. While the fundamentals might have been sound in the beginning, it was getting overly heated. Capital flooded the market and cap rates on multifamily traded at historical lows. Industrial RE is having a similar moment. Once a largely sleepy asset class, cap rate compression became rampant and values soared while rent growth began to slow in some areas. You mentioned Blackstone and Prologis...their investment activity in the space has been astonishing but they just have one goal, scale. In my area, rents for Industrial RE peaked in 2018 (with the feds last rate hike) but demand for these assets remain strong and its important to note that industrial RE is the type of CRE most closely linked to the actual economy. Industrial does has some more runway, especially now but its starting to feel bubbly. I think the CRE industry needs a lot more reflection on this last cycle especially on value, I certainly am taking this time for that.
    • JB
      Jonathan B.
      5 May 2020 @ 14:09
      Julien - I appreciate the insights. While it may or may not be a good idea, I finally saw it all when fund's were being raised to roll up vet practices as a yield play.
    • SB
      Scott B.
      6 May 2020 @ 00:47
      Show me the Bloomberg article that summarizes this market space in 1/4 of the time. You negative nellies are a real buzzkill. I found this interview quite compelling.
    • JM
      Julien M.
      6 May 2020 @ 16:18
      Jeffrey, I don't mean to be negative, just giving constructive criticism. We come to RV for depth and analysis that you just cant get anywhere else. CRE is a whole other asset class that deserves its own dedicated section but this content should still be held to the same standard. I may be biased but if someone is going to talk about the topics covered in this video then he or she should provide the depth that RV commands. I became a subscriber to understand what is happening in financial markets to much greater detail than whats on CNBC.
  • LC
    Liliana C.
    6 May 2020 @ 04:43
    Thanks Nick, nicely done! I can relate to most of your perceptions about the LA market as I live here as well. The one data point that I'm viewing differently than you is the state of multi-family supply (tight) and rents (stable). I had actually already begun to see large inventory of rentals come to market due to high prices/lack of affordability. Covid accelerated this IMO as I'm seeing even more supply and rental declines, especially in the higher priced neighborhoods. Really enjoyed your insights. Thank you!
  • DM
    Douglas M.
    6 May 2020 @ 02:35
    Half of those books are on my shelf as well. I've gone through "The Power Broker" a few times myself.....
  • JC
    John C.
    5 May 2020 @ 12:01
    Good interview and analysis. Need to get him back to follow up in a few months
  • JM
    John M.
    4 May 2020 @ 17:20
    Thanks Nick, I'm down in Orange County and wanted to share another interesting multi-family data point: the Irvine Company is reducing rents in some communities to 'market rate' reflecting about a 5-7 percent haircut. I suspect they are being proactive, reflecting their post COVID market assumptions.
    • JG
      Juan G.
      5 May 2020 @ 00:05
      Assuming is exactly what they are doing. try more like a 60 to 70 percent cut when all this is over.
    • JC
      John C.
      5 May 2020 @ 11:29
      As Juan G said, try 50% in OC depending on how this ends. We are in the beginning stages now and the 2nd order effects have not materialised yet.
  • RA
    Robert A.
    4 May 2020 @ 17:36
    Nick was great and very glad to see a bit more Real Estate coverage on the RV platform. It would be nice to see some quality RE updates bi weekly on cap rates, credit, rent collections and forbearance issues as things are rapidly fluctuating on the ground during these times. Thanks To curator Milton for responding to our requests for more quality Real Estate updates.
    • DB
      Douglas B.
      5 May 2020 @ 00:59
      Agreed, would love to see this as well
  • TA
    Truitt A.
    5 May 2020 @ 00:48
    Great interview - very knowledgeable about a variety of asset classes within real estate. I am in the hotel investment industry and off the cuff, investors believe value of hotel real estate is likely down around 30% from YE 2019 values - in some cases, more (i.e. large hotels with significant meeting space and numerous F&B outlets). Likely very little if any debt liquidity for the hotel market until late Q3 / Q4 of this year, and then it will likely be expensive bridge loans looking for 50% LTV and interest rates in the 8 - 10% range. Loan sales will be the most liquid market for the near future. There will likely be a large amount of hotels for sale (bank owned / in special servicing) to hit the market later this year and into 2021. Economy hotels have held up fairly well. Smaller, select service hotels (Hampton Inns, Courtyard Marriotts, etc.), will be the first to start to come back in the next 18 - 24 months, with drive to, leisure markets also fairing better than most. As Nick touched on, the big question is how are some of these hotels that were already in a bad financial position repurposed into other asset classes (likely apartments). The major hold up on that discussion will be the brands as there are major liquidated damages associated with terminating their franchise agreements.
  • KB
    Kirk B.
    4 May 2020 @ 22:57
    Excellent interview regarding real estate markets. I have been a commercial real estate developer/investor for 50 years, and currently, in "retiremen,t" manage my own portfolio of residential real estate. I found Nick's commentary very fresh, honest, and perceptive, displaying common sense and street smarts. The questions posed led the interview to a informative and and helpful discussion regarding estate markets in the United States. Good job, Nick and RV.
  • GH
    Gabrielle H. | Real Vision
    4 May 2020 @ 22:51
    Hi everyone, we've seen some of your comments about not being able to playback the video--after looking into it, we discovered some subscribers may be struggling to access the video because our video hosting site is having issues with servers being down in the UK. They're working to resolve the issue swiftly. We're keeping tabs on the situation, and we apologize for the inconvenience this has caused some of you.
  • JR
    Jason R.
    4 May 2020 @ 21:23
    Thanks for speaking Nick. You come across very clear and honest. feel very similar to your views of the future. Many investors used way too much leverage, and the replacement owners will ask very conservative in the future. You are right to question the viability of Rent cash flows --- one of the biggest assumption people are making is in the "Return to Normal" calculation. Certainly, there remains much to be answered in all sectors fo real estate.
  • AA
    Aaron A.
    4 May 2020 @ 21:20
    Wait until unemployment insurance runs out on the 30+ million people who have applied over the last month. THEN you will start seeing a lot of mortgage defaults. Way too early to make a call on this. I liked his rational analysis.
  • JF
    Janet F.
    4 May 2020 @ 21:20
    Excellent informative interview. Thank you Nick Halaris and Real Vision.
  • MT
    Mark T.
    4 May 2020 @ 21:05
    I own a home that I rent out in a small college town on the west coast. I'm proactively lowering rent for the next 12 month lease term in expectation that the campus will be closed in the fall and the rental market will suffer and rents will plummet. I'm hoping by doing this it attracts someone other than students to rent my house long-term. Already seeing similar homes up for sale since late February still on the market with 1 or 2 $10k price reductions. I don't think this is a good sign.
  • DL
    Desmond L.
    4 May 2020 @ 15:17
    Hi Nick, Thanks for the great interview with full of information. Do you have real estate investments in Hawaii in your portfolio? If so, how have they been doing and do you see many distressed properties with great upside potentials? How do you see Hawaii hotel and rental properties will play out in the next two years? Much appreciated in advance! Best, Desmond
    • RA
      Robert A.
      4 May 2020 @ 19:42
      The shortest flight in a tube to Hawaii is 5 hours (from WC). Until tourists and vacation home owners/renters believe it’s safe to spend the 5 hours in the tube with strangers, I think you answered your own question.
  • AH
    Allan H.
    4 May 2020 @ 19:33
    Nick seems to be a good guy and has some insights. For RV there is a lot more to be done here.
  • DM
    Dominic M.
    4 May 2020 @ 19:31
    "Americans aren't looking for handouts; they're looking for a chance to be successful." +100
  • DM
    Dominic M.
    4 May 2020 @ 19:26
    Great discussion - I got a lot out of this. Thanks to Mr. Halaris. I would appreciate seeing more real estate-focused conversations from RV in the future.
  • DM
    Daniel M.
    4 May 2020 @ 18:27
    I love how he's just giving facts and numbers. this is 10/10
  • HC
    Hahns C.
    4 May 2020 @ 17:11
    Distress in the RE markets don't show up until after the banks stop getting paid. Landlords are more flexible than banks. I am a real estate developer - I think Nick was spot on. Getting new financing will be tricky. Those with good balance sheets will have some good opportunities in the coming liquidation of hard assets. Banks will reach for those assets after the market settles down and the real value of hard assets can be determined more correctly. We have already seen solid local businesses vacate property that turned a good profit pre-COVID. SIDE NOTE - I have been thinking that if RV could present information related to "value" of losses or gains in the employment market. I believe one could determine the average salary of the people that are unemployed it will reveal a lot about their future ability to be employed again. If economist could value weight both the percent employment numbers and percent unemployment numbers it would offer enormous clarity in knowing whether a given sector of the economy will be impacted. For example - if most of the unemployed souls have lower incomes, them a RE builder would know whether those unemployed will impact future home buying. Those that sell good and services have target markets, so knowing whether their markets are impacted would be helpful.
    • JM
      Julien M.
      4 May 2020 @ 18:27
      Distress has begun to already show itself in private markets. Private lenders have been selling their performers to free up cash for their non performers. There's already price discovery happening at an incredibly fast rate. From 90 cents on the dollar to mid 90's with deals that are taking less than a week to close. These are loans that are secured by multifamily in gateway cities to riskier construction loans, New York being the most in focus.
  • Md
    Matthew d.
    4 May 2020 @ 18:03
    Nick, great interview. Really glad you touched on the point of inflation propping up a lot of pro-forma performance metrics. I'm in the REPE hospitality space so I thought I'd also mention that a) the reason that (I believe) that the bid - ask spread you mentioned remains elevated in CRE is due to the fact that the loan forbearance hasn't filtered its way through the system yet i.e. sellers are yet to feel the real pain of the impending liquidity crunch; and b) regarding the CMBS debt - this type of debt can sit with the special servicers for an extended period of time (up to 12 months in some cases) which further delays sellers pricing expectations Appreciate your honest feedback on what you're seeing, hopefully RV will get you back on soon.
  • EO
    Elena O.
    4 May 2020 @ 11:03
    which consultancy companies are working with hotels and REITs to help them restructure? Any names suggestions? Tring to invest in companies that will benefit from impaired balance sheets.
    • DP
      Duane P.
      4 May 2020 @ 17:50
      FTI Consulting does advising on restructuring. It's not cheap though.
  • NC
    North C.
    4 May 2020 @ 17:43
    Thank you for this interview, I typically find RE based interviews to be very heavily bias. I appreciated Nick's straightforward observations of the market.
  • JM
    Jan M.
    4 May 2020 @ 17:42
    Cannot Play Video in several different browsers!
  • SL
    Stephen L.
    4 May 2020 @ 17:36
    great stuff
  • tW
    tgwtom W.
    4 May 2020 @ 16:55
    Been a long time between comments. Outstanding!
  • DT
    David T.
    4 May 2020 @ 16:17
    Nick comes over as an honest guy when talking, No hidden agenda. Feels trustworthy.
  • EK
    Edward K.
    4 May 2020 @ 16:10
    Well grounded, realistic observations. In a sense nothing actionable except preserve capital until some certainty emerges. Do like his ballpark 20% downward projection as this recession/depression is not RE specific so not as drastic as GFC but price action may follow that pattern but less extreme. Ultimately just one of a myriad of problems.
  • GL
    G L.
    4 May 2020 @ 13:42
    Cannot play the video for some reason. First time it has happened. Please could you re-upload?
    • GG
      Gaurav G.
      4 May 2020 @ 15:37
      Agree, not working for me either. Tried on both Safari and Chrome. RV team can you please check? Thanks
  • CB
    Chris B.
    4 May 2020 @ 15:23
    Honest commentary from a knowledgeable resource on the ground. No grand theories; just observations. Refreshing
  • CB
    C B.
    4 May 2020 @ 14:45
    Excellent commentary, and more evidence that the impact of COVID will be deflationary.
  • MS
    Marcos S.
    4 May 2020 @ 14:11
    I had the same problem that GL . could please re upload?
  • Nv
    Nick v.
    4 May 2020 @ 11:01
    1/5 hotels not re-opening in New York is quite a bullish assumption
  • AT
    Atul T.
    4 May 2020 @ 06:07
    Great commentary Nick. Seems more authentic than some of the previous conversations on real estate. I do think you’re right that if we’re unable to find a vaccine or get people back to work there will be serious damage done to the economy. Not just real estate. It is too early to be sure. The San Francisco Bay Area real estate market is also notorious for its affordability problem. What are good indications to look for when trying to figure out what is going on? I believe your narrative about rents being too high. What’s the best way to track ?