I’m doing my part for social distancing! As I’m working from home, I looked out the window and noticed a lone biker weaving while riding down the road. They suddenly came inches away from hitting a parked car. Were they drunk? No, they were wearing a mask and their glasses fogged up and they could no longer see! This case highlights an interesting conundrum, how do we ascertain risk in the age of a pandemic? What does this mean for real estate?
The Coronavirus risk
I see the updates every morning. There were x cases of coronavirus reported in Y city. Unfortunately, this number does nothing to tell the real risk. There have been studies showing that the actual number of people infected could be between 10 and 80 times the number of confirmed cases. In NY there are likely millions of cases more than what has been reported.
For example, Eagle county Colorado, home to Vail and Beaver Creek, was one of the initial virus hotspots with thousands of visitors throughout the country in a virtual “petri dish”. Based on this information, one could reasonably conclude that Vail and Beaver Creek were “high risk” areas. The data tells a different story, there have been five total deaths in the county with a population of over 60k full time residents and several hundred thousand during the ski season when the virus started circulating. This is radically different than the headlines would have us believe with the constant barrage of how many coronavirus cases are being reported.
Risk has changed: Perception vs Reality
The above numbers in Vail highlight how actual risk and perceived risk has changed as a result of the pandemic. In Vail, the actual risk is extremely low; to be exact there is less than a .008% probability of death in Eagle county. To put this into perspective the risk of getting struck by lightning is considerably higher at .03%. Unfortunately, the perception of risk is considerably higher for the virus than lighting. I haven’t seen a single article on how to stay safe from lighting in the Vail paper, but hundreds on the virus!
The new risk of coronavirus to real estate
Unfortunately, regardless of the true risk, perception seems to be ruling the airwaves! This will have profound impacts on real estate
- Office: Recently there was a push for shiny new offices and large corporate campuses. Then the virus hit, workers immediately shifted to remote work and companies are rethinking their long term strategy. Office in general will get hit hard from the virus as remote working continues and companies migrate to smaller suburban offices.
- Retail: most big box will not make it through the pandemic from Nordstrom to Gap to countless others, the migration to online jumped overnight and is unlikely to ever come back
- Multifamily: multifamily in general will be fine through the pandemic as people will always need a place to live and not everyone can or will want to buy a house. Multifamily will get interesting though. There has been a huge shift away from exterior corridors to more “modern” buildings with interior hallways, elevators, etc… Unfortunately all of these items are less desirable today due to the risk of the virus spreading. Apartments will have to adapt to the new paradigm to minimize risk to tenants.
- Locations: Businesses will sharply pull back from inner city core locations as a way to possibly mitigate risk. They will also look to diversify geographically to smaller markets. For example, they might do a remote office in Denver and downsize in Seattle or New York
- Single Family: Anyone who has been stuck with two kids and spouse in a small inner city apartment is likely rethinking their long term sanity😊 and living arrangements. As more jobs migrate to virtual, there is no longer a requirement in many cases to live in a large city. In the short term there will be a migration to the suburbs for the perceived safety and larger amount of space.
There is a radical divergence between actual risk and perceived risk. Take the biker for example, the actual risk of getting infected by a virus riding on a road by themselves is considerably lower than hitting a vehicle (or getting hit by one) due to impaired vision from a mask. Unfortunately, perception is currently ruling the discussion which will drive radical changes to real estate and the economy in general.
Additional Reading/ Resources
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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