Real Estate – A Possible Safe Haven During Times of Uncertainty
As the world continues to deal with the uncertainty of a global pandemic, investors remain on the lookout for opportunities to place their capital during these volatile times. While U.S markets have remained resilient and two of the indices even closed at new record highs on August 24th, many fear that the intervention from the Federal Reserve is simply delaying the inevitable and propping up “zombie companies” whose stock would have otherwise become worthless during this time. Are the equity markets the only play for investors during this time? We don’t think so.
While not every sector of the real estate asset class has come out unscathed during these unprecedented times, some have proven more resilient, while others have presented a unique opportunity to invest during this recessionary period. Lodging, retail, and office have been some of the hardest hit sectors while niche sectors such as cold storage, self-storage, life sciences, medical office and data centers have seen some growth. Another sector that has remained strong during the pandemic is Class A multifamily properties. According to the National Multifamily Housing Council, the percentage of renters who paid on time in May, June, and July, was 84%, 90%, and 84%, respectively. Meanwhile, Class C multifamily renters that paid on time in July was only 69%. Self-storage which has usually been known for its resiliency during recessionary periods has also held up well. According to Nareit, the July Total Return for the FTSE self-storage REIT was 6.6%.
Finding the right sector is only half the battle, selecting the right market or sub-market is just as vital. Secondary markets continue to draw people who are seeking a lower cost of living, a friendlier tax environment, affordable living options, and job growth. Net population migration in secondary and tertiary markets has been 200% higher than major metropolitan areas since 2014. This trend hasn’t been limited to residents. Large corporations across the nation are seeking refuge into more affordable markets. Apple is under construction with their $1 billion campus in Austin, Texas, Tesla will be building their largest assembly plant in Travis County Texas that will employee at least 5,000 workers, Deloitte built their newest 102,000 square foot service delivery center in Phoenix, Arizona, and AllianceBernstein chose Nashville, Tennessee for their new headquarters. The trend seems clear as these companies seek locations with more favorable market characteristics not only for themselves, but for their employees.
Many investors still have the 2008-2009 recession that was caused by the subprime mortgage fiasco and other weak points in our economy fresh in their minds, it is important to remember that the current recession was caused by an external force, the Coronavirus. While a recovery for our economy is largely dependent on a vaccine for the virus, we are of the opinion that investors shouldn’t shy away from real estate or other investments during these unfortunate times. They should use them as a tool to rebuild communities and create jobs through the infusion of long-term capital. This isn’t a recommendation to haphazardly make investments in any and all asset classes or sectors. It is a reminder that even during times of uncertainty and volatility, well vetted investments in the right markets can yield positive results for investors over the long run.
Our team at Opp Zone Capital manages the OZC – Southern US RE QOF, a Qualified Opportunity Fund with a focus on high-growth and undervalued areas in the Southern US region. We take a diversified approach across property types and geographies and focus on the development of mixed-used properties, specifically multi-family, and self-storage through new developments and acquisition of properties for renovation. Our thesis aligns with the trends illustrated in this blog and we believe that the markets we have chosen are primed for growth in a post-pandemic environment. We believe that these are the opportunities during times of unpredictability that investors can rely on for quality long-term investments.