Business As Usual Is Over: A Conversation with Dave Bragg
Business as usual is over. It might sound hyperbolic, but it’s true. Global markets have had one of the worst months on record. The New York Times estimates that the unemployment rate is at 13%. The private sector has mobilized into a wartime economy. The labor market is seeing the most radical disruption since World War II.
We’ve detailed the necessary steps we are taking to safely ensure business continuity during this period. In addition, we are using our platform to get smarter and share what we’ve learned building a flexible workplace platform.
Throughout April and May, we will host twice-a-week, 30-45-minute webinars focused on how we can help companies manage this uncertain time. More to come.
To kick off this series, Amol Sarva sat (virtually) with Dave Bragg, Managing Director at Green Street Advisors, an independent research and advisory firm concentrating on the commercial real estate industry.
Below are some key takeaways from their conversation:
Business as usual is over
Given that the private market deal activity has quieted significantly, Green Street pays close attention to publicly-traded real estate investment trusts (REITs) to best understand market behavior.
According to Green Street, since February 21, REITs are down 34% compared to 24% for the global S&P 500.
For private market investors, this insight adjusted for leverage can provide you with a figure to understand how real estate values have declined in the same period.
Historically, Green Street has found that REIT performance is “predictive for private market pricing. Directionally, this sends a pretty bearish signal for private market pricing.”
Conclusions Vary Across Property Sectors
According to Green Street, if you own data centers or data centers REITs, not much has changed. Performance implies only a 3% decline in asset value. Similarly, self-storage facilities have proven to be resilient during downturns, and this time is no different. Green Street’s data suggests a 12% decline in asset value.
On the other end of the spectrum, senior housing, malls, lodging, and offices are down between 25-35% in asset value.
While these changes in asset value are a strong indicator of the impact of COVID-19, Dave and Amol point out that in certain sectors, such as hospitality and senior housing, COVID-19 has helped accelerate an already downward trendline.
During the conversation, Dave noted that this does not appear to be a “blue-collar recession”, meaning the impact is broad, including the office market. The shape of the recovery will look different depending on the shape and health of the property sector.
To better understand what recovery might look like, Dave and the Green Street team plan to monitor four indicators in the short-term:
- Weekly rent payments, and how much did that vary across properties and markets
- Policy reaction at the state and local level
- Implementation of the CARES Act
- Actions of the credit markets. Are we seeing issuances of credit, driven by action taken by the Federal Reserve?
To watch the full replay, click here.