Commercial real estate investors all take a different approach to investing, but among every strategy is one shared mantra: buy low, sell high. This has been a tried-and-true method in the industry for centuries, but many investors wondered how the COVID-19 pandemic would change this approach. Avi Philipson, CEO of the investment firm Graph Group, believes it didn’t really have a significant impact at all.
“However, that’s not to say that COVID-19 didn’t heavily influence the CRE industry and CRE investing,” Avi said. “The pandemic altered our lives in unimaginable ways — repercussions we’ll likely be dealing with for an indeterminate amount of time — so it’s no surprise that certain investment fundamentals have been shaken up as well. While some familiar basics, like the buy low, sell high strategy, can still be followed in the wake of COVID-19, there are certainly methodologies that have changed.”
These are the considerations Avi believes investors must keep in mind if they hope to see a return on their investments.
Should I Look for Opportunities or Wait It Out?
The pandemic put a lot of pressure on the commercial real estate market. Even now with pandemic rent discounts continuing to fade away, business travel rebounding slowly and unevenly, and uncertainties around whether big cities will rebound, investors are still trying to navigate the market. Most investors have access to a significant amount of capital they’re looking to spend, but they’re not sure if they should identify opportunities now or wait to see how the market settles.
According to Avi Philipson, this approach will vary by investor, but it’s important to try to separate the current market from what the future market will look like. CRE is experiencing mispricings, dislocations, and other uncertainties, but investors shouldn’t let these responses chase them away from lucrative investments. Even if someone isn’t comfortable investing during the ebb and flows of the market, it’s still important to keep a clear head and look to the future. Every investor should stay tuned into the current market, while also realizing that their investment decisions should be based off of the long-term trajectory of the CRE market.
How Can I Respond to Changing Trends?
Keeping up with a market in a downswing can be challenging and disheartening, but simply changing up your investment approach can ensure you’re still working off of an effective strategy. Trends like rising property prices and population shifts away from major cities leave investors wondering what to do to keep up, but if you’re paying attention to the trends, you can inform your strategy.
Do you invest in multifamily properties? It’s true that people migrated out of larger cities to settle into suburban areas with a little more room, but investors can buy multifamily properties in these areas while still making a return on investment. While rent might be lower, Avi believes the demand is there. Now, you can enjoy a balanced portfolio of both suburban and urban multifamily properties. Since there will always be people who want to live in big cities, investing in urban units is still a smart move.
What about investors who prefer investing in office space? This is a little trickier, as the workforce underwent some of the biggest changes during the pandemic. Business owners quickly initiated plans for remote work options, which left many office buildings empty. Now, even two years after the beginning of the pandemic, 59 percent of workers are still working from home. This won’t remain true for every business, however. A number of companies reinstated in-person work, while others have adopted a more flexible, hybrid work environment. It’s expected that office real estate will recover after COVID-19, although that timeline is still a bit unpredictable. Lower occupancy rates can provide investors with the ability to purchase office spaces below market value, knowing there will be a significant return on investment in the long term.
What Alternative CRE Investments Are There?
Investors can stick to their preferred strategies, but there are other commercial real estate investing opportunities to consider in the wake of COVID-19. Since the beginning of the pandemic, there’s been an increase in demand for walk-in clinics and urgent care centers. Investors can also find lucrative opportunities in the life science sector, where growth has flourished and there’s incredible potential for continued expansion. The industrial sector, which has been hit like other areas of commercial real estate, is still another one to keep an eye on as well.
Commercial real estate was hit hard by the COVID-19 pandemic, but Avi Philipson doesn’t believe it poses an existential threat to investors.
He adds: “My biggest piece of advice is stay educated about present disruptions, but to strategize for the long term instead. If you stick to what’s worked for you in the past, you will be able to shift your efforts and find success investing in CRE even as it’s been transformed by the pandemic.”