As panic mounts regarding the Coronavirus, investors will be concerned about how less travel and more social isolation will impact income producing properties. No one saw this specific malady coming. However, with our then current economic expansion very long in the tooth we did warn investors that most assets are fully valued and may be subject to downward price revision if a Black Swan event (an unpredictable event that is beyond what is normally expected and characterized by their extreme rarity and impact) occurs. That event has arrived.
This is why we urged investors to diversify their exchange equity with DSTs. The fungible nature of DSTs allows investors to diversify over many different property types in many different locations. With or without the coronavirus, at this point in the asset price cycle, diversification is your friend. Further elaborating on this diversification theme, we urged investors to look for properties that benefit from some type of imbedded contra cyclicality. We specifically mentioned both healthcare and government.
As the population ages, increasing demand for healthcare goods and services is inexorable. The current pandemic hugely exacerbates this.
Concomitant to this is government and its response. Therefore, properties associated with our supporting the delivery of these services are probably good bets.
The corollary of this is the further hollowing out of bricks and mortar retail. A problematic property sector just got a whole lot worse. Social distancing will accelerate the movement of business on-line. The primary beneficiary of this will be Amazon. Unsurprisingly they just announced the hiring of another 100,000 people in response to this crisis driven increase in demand for on-line services.
Misery loves company so the coronavirus will also permanently change the way we work. Traditional office properties, which have never lent themselves well to the DST format, are being ushered out the door. With companies shuttering corporate campuses and headquarters buildings every day, a lot more folks will be working from home. Even when things return to ‘normal’ they won’t all go back.
On a brighter note, self-storage appears to be a beneficiary of the current crisis. With colleges and universities closing their doors and sending kids home, demand for storage has spiked. Properties in proximity to campuses are filling up. The principal demand drivers for self-storage are death, divorce, downsizing and dislocation. The current pandemic is a generational dislocation event.
The current crisis means a new business era is dawning, think 1989, 2000 and 2008. New trends such as cheap energy, remote work, on-line education and a peripatetic work force may shape the long-term economy. Try to anticipate this with regard to investment real estate.
This material and views are prepared solely by the author and does not necessarily represent the views of the affiliates. Statements concerning financial market trends are based on current market trend, which will fluctuate.
Projections are inherently limited and should not be relied upon as an indicator of future results. Historical figures and performance are not indicative of future results. This is for informational purposes only and does not constitute an offer to buy or sell any investment.
DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.
Because investors situations and objectives vary this information is not intended to indicate suitability for any investor. This information is not meant to be interpreted as tax or legal advice.