Post Covid Opportunities
Besides the obvious plays like multifamily what other opportunities you guys and gals think are gonna be available post covid?
[{"id": "g1p0df9", "text": "I'm also curious what people think. I wonder if there are good net lease opportunities out there for asset classes that are much more desirable today. \n\nData centers,. life science, industrial, cold storage etc.", "replies": [], "depth": 1}, {"id": "g1p2bs7", "text": "The easy answers are industrial and MF but I\u2019m pretty bullish on office at the right price point. People will be going back to work eventually and WFH gets old fast. Tenants will reconfigure employee office hours to maybe 2 or 3x per week in the office which will require less overall space, so definitely something to look out for", "replies": [{"id": "g1pa65e", "text": "Why office? I\u2019m anticipating a lot of office spaces to be vacant with more of the workforce working remotely", "replies": [{"id": "g1pcllx", "text": "Short term, yes, office is terrible. If there\u2019s a value add deal at a A or B class level that makes sense that person should buy it. Over the next 12-18 months people will be working from home ALOT. \n\nHowever, mid 2021 early 2022 everyone is going to be back in an office. WFH is not productive, work gets done in a physical cohesive environment. Doing team exercises or presentations over zoom and slack sucks. \n\nLeased space will shrink overall but it\u2019s not DOA like retail. If there\u2019s an asset available that you or a client likes you should take it\n\nEdit: [US Bank building in DTLA just traded way below market value. If you can ride out the storm, deals can be had ](https://oue.com.sg/doc/SGX_Announcements/2020/07/OUE_Disposal_of_U.S._Bank_Tower.pdf)", "replies": [{"id": "g1pd92e", "text": "I will say wfh has made massive strides over the past few months to the point where doing it the odd day won't be a big deal. But otherwise yeah companies will try to bring people back. I do think wfh might prevent companies from expanding if they can hire more people while making some people work from home.", "replies": [], "depth": 4}, {"id": "g1pe7o0", "text": "But what makes you think working remotely isn\u2019t a permanent shift? I disagree that remote work is not productive. There\u2019s been some studies that show that worker productivity is pretty comparable to coming into the office. I think a lot companies are now seeing that they\u2019re pretty much just as productive and see an opportunity to cut costs on office space. I\u2019m not saying every company and every industry is going to do that, but I think there will be a large chunk.", "replies": [], "depth": 4}, {"id": "g1pgz1x", "text": "Facebook, has been leasing space in NYC over the past few years. They began mulling over more space right before covid. They just signed a lease for 730k sq ft in the old post office. People are going to eventually go back to the office.", "replies": [], "depth": 4}, {"id": "g1wrb6o", "text": "I kind of agree that \"everyone is going to be back in an office\", though it won't literally be everyone.  But it'll be enough that offices are meaningfully filled.\n\nWhere I'm less sanguine is how much space.  I disagree that WFH is not productive.  It's not productive for some people, but for many, there's virtually no difference.  My own team has been uninterrupted by WFH.  What I figure is part-time WFH.  It's too convenient to ignore, people want it, and enough major announcements have been made around it that it's going to matter.  Absorption's been pretty bad in office lately.\n\nSo under that assumption, there's no way companies keep the same space per worker they had.  Your office space isn't as productive, that means you downsize it.\n\nThere probably are opportunities in office, especially in newer office, because the office as a central point of business is not disappearing.  But I bet a lot of older stuff gets taken behind the woodshed.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1p4yo0", "text": "Where are y\u2019all seeing this? Literally everything is being bought in Austin, TX. I doubt there will be many opportunities.", "replies": [{"id": "g1q8rzh", "text": "No one is being evicted yet and foreclosures haven\u2019t started yet. Maybe give it 6 months?", "replies": [{"id": "g1qo723", "text": "Yes blood isn't in the streets yet", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1pcjfw", "text": "Turn offices into bounce houses for kids", "replies": [], "depth": 1}, {"id": "g1pdsgy", "text": "Industrial CRE right now is flying in my area. I have clients calling asking for all sorts of different industrial properties. Cold storage facilities are a new trend with grocery delivery steadily growing.", "replies": [], "depth": 1}, {"id": "g1pjhta", "text": "MF opportunities?  Where are you seeing this?  Pricing is 1-3% less than pre COVID levels and the only 2 favorable narrative that brokers or operators are trying to sell to me are that capital will flow from other sectors (meaning they basically assume some level of cap rate compression to make their numbers work) OR that interest rates are so low that you can achieve favorable starting yields.  This also basically ignored the steadily increasing bad debt levels that the market has been seeing. \n\nI\u2019ve bought approximately 5,000 units in the last 5 years and have been a net seller for the past 2 and this current environment (on the investment side) scares me more than the environment just prior to COVID.", "replies": [{"id": "g1qolaw", "text": "It's gonna be a play after. We are still during covid. Evictions haven't happened yet.", "replies": [], "depth": 2}, {"id": "g1wo6rm", "text": "Yeah, I think the positives of MF is more about long-term demand not going away.  When you've got office and retail landlords sweating bullets about whether their tenants will want to be there/exist in a couple years, it's at least more comfortable to be in space where absorption is still kind of positive (overall, I'm familiar with the downtown story) and no one is calling the sector obsolete.  Your point about increasing bad debt levels is well-taken, though.", "replies": [], "depth": 2}, {"id": "g217ou7", "text": "Not sure what markets you are in but I am seeing pricing back to pre-COVID levels in most markets with hard money also back. Collections are strong, and the delayed housing starts due to the pandemic will amplify the housing supply demand imbalance. Overall, multifamily shouldn\u2019t scare you unless you are over-levered and/or trying to lease up right now.\n\nOh, and I haven\u2019t even gotten into the increase in institutional investor demand.", "replies": [{"id": "g22433i", "text": "Yeah this guy hasn't purchased 5,000 units in the past 5 years and been a net seller. He's smoking crack because if you're a legitimate apartment owner and operator, you're in pure acquisition mode strictly because of how low interest rates have been in the multifamily sector. Not to mention everything that is going on with Fannie and Freddie. \n\nMost apartment communities have wait lists, and the residential home market for some reason is still on fire. I'd wager its going to be tough to find a great recession 08-09 apartment deal. The demand for apartment living is just to great and people will always need a place to live. Some large owners (who this guy claims to be) are getting under 3% rates with 10 years schedules  amortized over 30. When the flying fuck has money ever been so cheap in this arena? It hasn't. \n\nCushmans CEO had a good piece on MSNBC last week about the state of office and what the outlook of that market will be in the next 18-24 months and it's not as bad as I would have expected. I think the only \"steals\" or receivership deals you'll be seeing after this is over is hotels, and Class B/C office buildings in secondary and tertiary markets, and quite possibly, some Class A location office buildings in Class B condition in tier 1 cities. And if Biden gets elected, retail and industrial will just be utterly and completely destroyed.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1pjr40", "text": "Ghost kitchens", "replies": [{"id": "g1ql31j", "text": "Some rich tech guy was getting into \"cloud kitchens\" a while back. Very interesting idea.", "replies": [{"id": "g1qr2jy", "text": "That would be former Uber CEO Travis Kalanick. Cloud Kitchens has $500 million in funding and their [business model is great](https://www.cloudkitchens.com)", "replies": [], "depth": 3}], "depth": 2}, {"id": "g1qmw3k", "text": "What are ghost kitchens?", "replies": [{"id": "g1qqgm7", "text": "Restaurant kitchens built out in industrial buildings for delivery only.\n\nThere could be a dozen different restaurants built out in one warehouse and then delivery services would just go there instead of navigating a retail location.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1pu6zt", "text": "I find ourselves in a unique opportunity for student housing. \n\nTraditionally, enrollment in college increases during a recession-in a way they\u2019re pretty recession proof. This is an extreme exception because of distance learning-for the first time in modern history, students are not showing up to college. But, distance learning has proven to be pretty ineffective, and most students have shown they want to return as soon as it\u2019s safe. \n\nBecause of this, there is going to be a very small window of opportunity to purchase an almost recession proof asset at a discount. \n\nIt is CRUCIAL to pick the right college, though. College enrollment will decline by about 15% in the near future, thanks to a declining birth rate from 2008. Many small, unknown colleges, cannot afford this and will shutter. For me, I would only consider institutions with an endowment in excess of $500M, and at least $30,000 endowment per student (meaning they are financially sound currently), and an acceptance rate of less than 35% (meaning they can get less applications and still maintain enrollment).", "replies": [], "depth": 1}, {"id": "g1q4x25", "text": "Could you please define a net seller and net buyers as I\u2019ve heard those terms used by real estate investors. For example, an investor saying they are a buyer of net assets etc.", "replies": [{"id": "g1qdixm", "text": "Net seller: slowly offloading their portfolio\nNet buyer: slowly adding onto their portfolio", "replies": [{"id": "g1qfye1", "text": "Ok what about a buyer of net assets I\u2019ve heard that I believe on one of Grant Cardone\u2019s YouTube videos on his channel. Grant Cardone is a big social media guy and real estate investor if you don\u2019t know who he is.\n\nI\u2019m thinking actually does a net seller mean someone who sells more properties than they buy or has a higher transaction volume of property sales than property purchases, while a net buyer is someone who buys more properties than they sell and has a higher transaction volume of property purchases than sales.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1qesg4", "text": "If work from home does take hold, would there ever be a play for converting office buildings to apartment buildings? I think the biggest expense would be re doing the electric and plumbing. Resining could be a pain depending on the municipality. Probably a play for institutional type investors But if buildings are just sitting empty i could see a play to make more affordable apartments.", "replies": [{"id": "g1qle7a", "text": "There's a highrise building here in Calgary that was built for a single tenant. I've heard that because of that , it's almost impossible to re do the mechanical for separate tenants.", "replies": [], "depth": 2}, {"id": "g1wpcfh", "text": "That was a big play last cycle and could work again, but there's a lot of risk right now for two reasons. 1) Negative demand in downtowns.  Across the U.S., negative absorption is popping up in CBDs.  Long-term demos are kind of weak for the core renting cohort, and on top of that, the same WFH that you're talking about would allow renters to work further from the office, so the demand to be in the downtown decreases.  2) There's like a shit-ton of supply underway in downtowns at the moment.  Everyone was going gangbusters into the CBDs, but with demand turned off and supply still hot, it's gonna take a while to burn that off.\n\nOlder office product could take a while to convert, it's not crazy for developers to try this, particularly in certain metros that might not be oversupplied in the downtowns (they exist).  But it's gonna take a while to convince people to invest in that sort of recovery; they'd need to see signs of a return to positive absorption in downtowns first, and I gotta say, I don't blame them for waiting.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g1qrbbf", "text": "In terms of retail, do you guys see a return to multi-vendor marketplaces (basically smaller malls) or re-purposing malls to support more small retailers and no anchor stores?  Or re-purposing retail space to showrooms?", "replies": [{"id": "g1qrpjp", "text": "I'll add you another. Experiential based retail. Things you have to experience.", "replies": [{"id": "g1qsu50", "text": "Oh yes, thank you.  \n\nI'm currently running my online shop out of my home.  First it was a way to ensure it would succeed without risking a large amount of capital (ultra conservative approach), but now it has proved itself and is growing so I'm setting my sights on moving it out into it's own space in a year or two.  Definitely after the pandemic, and if we don't step into an awful depression that kills it.  (I felt that for the first few years I would get sneered at for being a \"hobbyist\" or whatever, but now having rock bottom expenses is proving to be a boon.)\n\nSo anyway, my dream when I move it out is to be in a showroom situation.  I sell high quality safety products for dogs - right now pure retail.  But I am very particular about what products I carry due to the market niche and my value-add, so when I'm in a brick and mortar, I am thinking of keeping it having a boutiquey or higher-end feel.  I'm tossing around ideas like making it in person shopping by appointment only, and/or sub-leasing portions of the space to local dog trainers.  Sort of like how hair stylists \"rent\" the chair from their salons, I am thinking of the same concept for trainers.  I think it's a very out-of-the-box concept so not sure how it might appeal to commercial landlords.  But this would be sort of experiential retail.  :)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]