Creating a Flight to Safety or just Operational Turbulence?
A number of investors have inquired about our view of the effect of this new coronavirus strain on their real estate investments, workforce multifamily specifically, and real estate in general. Frankly, it is still too early to tell. That said, based on the limited real-time information available in real estate, below are some factors and our thoughts on what we believe will be significant over the next 6-12 months.
Flight from risk: investor capital flowing out of equities and corporate debt. Clearly the black swan event of COVID-19 has caught the markets by surprise (with the NYSE & CBE hitting the circuit breakers multiple times in a few days), an arguably over-levered corporate sector has already seen bond spreads widening.
Government/central bank reaction is critical: there is not much left in the traditional monetary policy toolkit, but we could see central banks reverting to risky asset buy-back programs and/or additional non-conventional programs to facilitate end point lending. Substantial fiscal policy announcements have already been made, but likely much more will have to come to better provide a temporary social safety net given the general lack of sick leave and healthcare availability to many in the U.S.
Perhaps a Flight to Safety?
Though we are seeing a flight from risky assets generally (with the 10-yr US Treasury already trading well below 1%), and considering there are no guarantees for any at-risk investment, investors have a heightened need to put capital to work to meet future liabilities.
What we are hearing from elsewhere in real estate:
At Ballast Rock Capital we help originate and distribute countercyclical and recession resilient real estate funds. Please feel free to connect to learn more about how we work with experienced real estate professionals to offer investors the opportunity to invest in income producing assets with a positive social impact.