I’m writing this article to offer my perspective on the past years political climate.
The two big influences on the markets in 2020: Political & Legal Issues and the Coronavirus Pandemic.
Here’s what we can always count on with politics: some people will get their way, some people won’t get their way, some stuff will cost more, some stuff will cost less. That’s how politics work. In 2020, with Trump as President, we’ve experienced government intervention in the markets on a grand scale.
The coronavirus has been no friend to the real estate market or the economy in general. And nobody saw it coming. Prolonged shutdowns and interruptions have caused a historic number of businesses to shut their doors for good. Historic hotels have been forced out of business due to historic low vacancies.
Will the markets be worse under Joe Biden? I don’t think so. Will Joe Biden be a boon to the economy? Highly doubtful.
Will COVID go away anytime soon? Hopefully, but it does not look good as of Fall 2020. Can we expect more covid related disruptions in 2021? Yes, Definitely.
Let’s put this year into perspective. Consider everything we’ve been through in 2020.
A Global Viral Pandemic. The coronavirus has spread to every corner in America. It’s been crazy. I was in New York City in March when shit really hit the fan. One day everything was normal, the next day it was like a ghost town. I was sitting in my hotel room in Midtown Manhattan the day the Dow Jones crashed over two thousand points.
I remember walking through Whole Foods in Columbus Circle and the shelves were completely empty. People were panic buying. All of the water and canned foods were gone. Even the hotel staff was afraid to deliver our room service. It was a wild experience.
Shutdowns & Quarantines. Upon returning home to Colorado, we had to quarantine. I believe the entire country was in quarantine. The real estate market was at a complete standstill. I had a property under contract to purchase that was truly “money in the bank”, but terminated the purchase because all market activity was halted. I did not want to be stuck with a distressed asset. Like everyone else, I wanted to gather all of my cash.
During this time in Spring of 2020, the city was not allowing contractors to work on houses. Everyone had to stay home. Fixing and flipping looked like it was going to take a nosedive. On top of that, the lending industry paused a lot of new financing. I was going through a refinance on several properties and was told I had to wait. Even homebuyer financing requirements increased, requiring lenders to double and triple verify employment status, bank deposits, up to the moment of closing.
Shift to Remote Work & the Digital Economy. We’ve been moving toward a ‘gig economy’ for years. As a result, remote work for independent contractors has been on the rise. The pandemic forced businesses, government agencies to increase their online presence. Businesses were forced, virtually overnight, to go online to service customers.
In the housing market, virtual buying has increased significantly. The market has been hot for awhile, and because of that we’ve seen a lot of sight-unseen offers. Now, virtual tours, sight unseen offers have become more and more popular. Just recently, I sold a flipped property to relocating buyers. The first time the buyers saw the home was the day of closing! That was once unheard of. Now it’s increasing in popularity.
Civil Unrest & Political Division. Protests, looting, and firebombs… WOW. It’s been crazy. There has been a lot of attention on police brutality, excessive force, and treatment toward the accused. It has caused a mass movement of protests around the country. There has been a lot of violence and property damage occurring at the same time. Downtown urban centers throughout the country have boarded up their windows in fear of property damage.
Just a few weeks ago when I was in Denver, I noticed a lot of retail shops that are “Open for Business” have chosen to keep the boards on their windows. It’s a sad site.
CARES Act, Covid Relief Funds, & PPP Loans. Two point two TRILLION dollars was injected into the US economy. $2.2 Trillion. It’s a figure worth repeating. Forget about the national debt and integrity of the dollar — we need to get paid! $300 billion went to one time payments of $1,200 to qualifying adults. $669 billion of the funds were dedicated to small businesses in the form of forgivable Paycheck Protection Program loans.
There were a number of businesses that smacked it out of the park with their loans. I saw five, six, and seven figure paydays for local businesses. It was a very difficult time but the money sure helped!
Eviction Ban & Mortgage Forbearance. The eviction ban and mortgage forbearance was part of the larger CARES act. The eviction ban really scared a lot of investors. It was more limited in scope than the media portrayed. We dealt with tenants who thought it was a free pass. It was a lot of the same tenants that weren’t working before the pandemic. We found out the eviction ban only applied to properties that had a federally backed loan.
Overall, our tenants and the other landlords that I spoke with during the height of the shutdowns were paying as scheduled.
The Federal Reserve commits to 0% Interest Rates through 2023. In an attempt to further support the economy, the Federal Reserve has committed to keeping interest rates at or near zero percent through 2023. I don’t think we were expecting the Fed to raise rates anytime soon. Jerome Powell, Chair of the Fed has stated, “they’re not even thinking about thinking about raising rates.”
Areas of Real Estate with the Most Short Term Downside
Office. Everyone is working at home! In May, Facebook announced plans to keep employees working remote permanently. This is just ONE big company of many that made similar announcements.
Hotels. I’m a hotel buff. From a guest perspective. I really like staying in hotels. I haven’t had a chance to complete any hotel sales but I’d like to at some point. 2020 has been a terrible year for the hotel and lodging industry. I have a fix and flip client that was completing renovations on a boutique hotel in northern Colorado. He completed the six figure renovation right as covid hit. Again, who saw that coming!
Restaurants. Restaurants were shut down for months. Now they can operate at a maximum 25-50% capacity. That’s on top of everyone being afraid to go anywhere! Times are tough for restaurant owners, the service staff, and their landlords.
Retail. Let’s refer back to everything going online as I mentioned above. The pandemic has forced a lot of businesses to shift their model to provide online and digital services. The demand for brick and mortar is decreasing. If businesses can go without the expense, why bother!
Another area of retail that’s of high concern is triple net leased investment properties. Part of Joe Biden’s tax plan is to increase taxes on the wealthy. That includes modifications to the 1031 exchange. If Biden’s plan goes through, 1031 exchanges would be limited to investors that make less than $400,000 per year. That could really put a damper on demand for triple net properties.
Areas of Real Estate with the Most Short Term Upside
Housing. Specifically, single family housing. In Pueblo, the housing demand has not slowed down. We’re seeing homes sell for higher prices than ever before. I’m funding a number of fix and flip projects and I will be the first to say, these guys are making a killing! And homes are selling fast. It’s a beautiful thing to see.
I believe this will continue as long as employment remains stable. We’ve seen lenders tighten up on their restrictions, double and triple checking borrower documents. The Front Range in Colorado is a very popular place to be right now further increasing the demand for housing.
Warehouses. The need for space shifts. Retail is whittling away but that doesn’t mean consumption for stuff is declining. Online retailers and dropshippers are occupying more space than ever before. The demand for warehouses is up. I’m not directly involved in the warehouse sector but I’ve heard good things from brokers such as: low vacancy rates, increasing rents, and high demand.
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