2/3/2024 0 Comments Impact real estate management![]() Behavioral changes that may outlive the crisis As such, liquidity and balance-sheet resilience have become paramount. It’s no surprise that-when shoppers avoid crowds, universities send students home, and retailers, restaurants, and hotels close their doors-owning and operating those properties is a less valuable proposition. 1 REITs amid a pandemic, Green Street Advisors, April 3, 2020,. As of April 3, by one estimate, the unlevered enterprise value of real estate assets had fallen 25 percent or more in most sectors and as much as 37 percent for lodging (the most extreme example). By contrast, self-storage facilities, industrial facilities, and data centers have faced less-significant declines. Assets that have greater human density seem to have been the hardest hit: healthcare facilities, regional malls, lodging, and student housing have sold off considerably. The market seems to have pivoted mostly on the inherent degree of physical proximity among an asset class’s users-even more so than on its lease length. Not all real estate assets are performing the same way during the crisis. “Concession” and “abatement” are the words of the day, and players are working rapidly to figure out for whom they apply and how much. ![]() Meanwhile, many asset owners and operators face drastically reduced operating income, and almost all are nervous about how many tenants will struggle to make their lease payments. Many developers can’t obtain permits and they face construction delays, stoppages, and potentially shrinking rates of return. Service providers are struggling to mitigate health risks for their employees and customers. Since the virus outbreak, however, this reality has changed, and real estate players have been hit hard across the value chain. Over the past several years, real estate investments have generated steady cash flow and returns significantly above traditional sources of yield-such as corporate debt-with only slightly more risk. Those that succeed in strengthening their position through this crisis will go beyond just adapting: they will have taken bold actions that deepen relationships with their employees, investors, end users, and other stakeholders. The smartest will now also think about how the real estate landscape may be permanently changed in the future, and will alter their strategy. Most real estate players have been smart to begin with decisions that protect the safety and health of all employees, tenants, and other end users of space. And, as the crisis affects commercial tenants’ ability to make lease payments, many operators will need to make thousands of decisions for specific situations rather than making just a few, broad-based portfolio-wide decisions. Some players will feel an even greater sense of urgency than before to digitize and provide a better-and more distinctive-tenant and customer experience. Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. To respond to the current and urgent threat of COVID-19, and to lay the groundwork to deal with what may be permanent changes for the industry after the crisis, real estate leaders must take action now. Beyond the immediate challenge, the longer this crisis persists, the more likely we are to see transformative and lasting changes in behavior. This has created an unprecedented crisis for the real estate industry. ![]() Physical distancing has directly changed the way people inhabit and interact with physical space, and the knock-on effects of the virus outbreak have made the demand for many types of space go down, perhaps for the first time in modern memory. Instead of traveling and going out to eat at restaurants, consumers across the world are tightening their purse strings to spend only on essentials-primarily food, medicine, and home supplies-and getting these delivered much more often. The working world moved rapidly from business as usual to cautious travel, office closures, and work-from-home mandates. People can no longer meet, work, eat, shop, and socialize as they used to. In a matter of weeks, the lives of so many have changed in ways they had never imagined.
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