Commercial Real Estate Investment During COVID-19

 

The ongoing COVID-19 pandemic has disrupted dozens of industries across the globe. One of the hardest hit has been the real estate market, where sales have ground to a near-halt over the last few months. While residential real estate sales continue to chug along slowly, action in the commercial sector, especially in major cities that were experiencing unprecedented growth before the pandemic, has been put on ice for the foreseeable future.

 

As a result, many investors have expected to see bargain deals appear on the market, only to be disappointed. Discount property listings resulting from pandemic blues have yet to emerge, contradicting conventional wisdom and defying the expectations generated from previous slumps throughout history. For example, during the housing market crisis of the late-2000s, those with the capital to do so were able to buy up properties at rock bottom prices. Such is, so far, not the case in 2020.

 

With that said, commercial real estate investment opportunities exist for those who know where to find them. HFZ Capital, a real estate development and investment firm based in New York City, has recently taken an interest in real estate investment trusts (REITs) as a means to see profits at a time when traditional property investment isn’t paying off. The company sees REIT shares trading for much less than they ought to be when the value of their commercial holdings gets taken into account. By buying shares now, HFZ hopes to see a significant return on investment in the future.

The decision marks a shift away from the company’s mainstay: developing luxury-grade residential properties throughout Manhattan. If one were to follow HFZCap on Instagram, one would see photo after photo showcasing beautiful skyrise apartments with brilliant Big Apple views. 

Buying REIT shares might be a change of pace, but going outside of a comfort zone is not unusual. The company recently teamed up with another property development firm to purchase a massive distribution center located in Florida. Commercial real estate investment is where you find it.

That’s not to say that it’s as simple as looking up a handful of seemingly undervalued REITs and buying up stock. It’s a bit more nuanced than that. Not all commercial properties currently in limbo are going to rebound in a way to justify the investment. It’s a question of what types of commercial holdings an undervalued REIT possesses. For instance, nursing homes and assisted living facilities are currently considered a risky enterprise for commercial property investment. However, once the pandemic is wholly in the rear-view mirror, these facilities are almost certain to bounce back in a big way.

On the other hand, while there remains tremendous optimism for traditional office space to once again be in demand, many analysts wonder if the current rise in work-from-home employment will become a permanent fixture for most businesses. You’d have to take a hard look at REITs with office space real estate holdings to do your due diligence. Then again, you ought to be doing this with every investment opportunity that crosses your desk.

If there’s one takeaway from all of this, it’s the fact that most folks don’t anticipate a years-long collapse of the real estate market. Unlike previous market woes, the current real estate slump is not the result of macroeconomic assumptions being ripped apart by microeconomic realities. Instead, it’s the result of an anomalous one-off global event. Consider it a testament to the market’s confidence in there being better days ahead.