What is happening to retail during Covid-19? What is happening to offices? Which REITs could be good investments right now? Which areas are going to thrive, or not, during this crisis? Which asset classes should you keep in mind? Deidre Woollard is a writer and editor for Million Acres with two decades of experience covering all aspects of real estate. She comes from a long line of landlords, renovators, and contractors currently invested from Massachusetts to California.

What are you seeing is happening in commercial real estate nowadays?
I think there's a lot of things happening right now. Certainly the biggest impact is definitely being felt in commercial across the hospitality and retail with so many closures in different states. We're starting to open up in various areas, but it's all still very tentative. And one of the things I think that everyone is worried about is is a secondary outbreak and another round of closures.

What do you think is going to happen to the real estate market, given your thoughts of where the shutdown is going, and if we're going to have a second outbreak?
I certainly think it's challenging, definitely certain sectors are being affected more than others and some sectors are benefiting a little bit. One of the things that we're seeing is industrial real estate, there's an ongoing need for last mile warehousing. Industrial was the top performing sector last year, and it will probably be a relatively strong sector this year. Whereas hospitality and retail are being very heavily affected. The revenue per room in hotels is at historic lows, and it'll be a slow recovery for some of those sectors.

You wrote a very good article recently. Do you mind sharing some of the bullet points from that article?
So that was some research from our data researcher on Million Acres. The author, Jeffrey Marino looked at retail employment by sector. And so seeing which markets are going to be at most risk because they have a high level of retail employment and therefore there could be a lot of unemployment, which would therefore lead to people not making rent, drops in housing prices, people needing to leave the area and go somewhere else for jobs. One of the things that we're seeing about this crisis that's a little bit different than last recession is just that sort of ripple effect that's happening. People can't make rent and then landlords are having trouble making their payments and that goes outward from there.

How bad do you think it will get?
I think it really is going to depend on this reopen and how slow it is, how much things really change. And of course, the vaccine. I think one of the things that everyone is talking about right now is that there is a possibility of a vaccine, or I've also heard of immunity certificates. But that's also certainly risky because we wouldn't know necessarily if immunity is total.

If you had unlimited funds to invest today, when do you think you would deploy that? And in which asset classes would you focus on?
One of the interesting things is that everyone is watching the residential real estate market and looking for prices to drop, and it doesn't seem like that's going to happen anytime soon, because supply and demand are pretty well matched right now. One of the sectors that we've been looking at over Million Acres is multi-family real estate investment trusts, for example. Multi-family was already predicted to have a pretty strong year this year. There's obviously a lot of demographics that support multi-family continuing to grow. Household formation is on the rise. I feel like multi-family is still going to be strong, especially in those markets where you have a lot of tech employment. Places like Seattle, Charlotte is a good example. Southern states have really seen a lot of people moving in and so you when you have that high population, those are good spots for multi-family. 

So you would invest in industrial and multi-family in tech hubs, is that fair to say?
Yes. Definitely looking at the tech hubs, looking at where people are moving to, looking at where there is a younger population.

What do you think will happen to the retail sector?
I think retail is an interesting sector because there are different parts of retail that will be strong and different parts that will suffer more. One of the things that's happening right now is Simon Property Group is reopening some of their malls. As they're doing this, they're starting to put different rules in place in terms of how many people you can have in the mall, or an individual store, having hand sanitizers available, and things like that. One of the things that we're watching right now with retail, is what does the new retail look like? How much foot traffic can you have in a store? And how much foot traffic do you need in order to pay your rent? One of the things that's been very interesting over the past month is to see how many of these bigger retailers stopped paying rent, or are partially paying rent. Cheesecake Factory stopped paying rent in April. The Gap had stopped paying rent. So the large malls are definitely having difficulty. But one of the things we're also looking at is smaller retailers. Single store, strip mall type of locations, those are actually still doing fairly well. You have some things like gyms which are closed. But we're also seeing stores like 7 Eleven, CVS, Walgreens, those have actually benefited during this crisis. Those are strong places for leases.

If tenants are not paying rent, that will definitely hurt a ton of landlords who will therefore potentially go into foreclosure because they cannot pay their mortgage.
One of the factors there too, is if they can get a PPP or an EDL loan. There was the first round of funds that came out from the Cares Act and a lot of people applied for it. You've probably seen some of those articles about loan shaming when some of the bigger retailers or bigger restaurant chains, took a loan and then had to get it back. So there's a little loan shaming going on. But for the smaller sort of mom and pop retail those loans are a lifeline right now and are actually helping some of these stores stay afloat.

I don't know much about these loans and how long they will be able to help these stores survive. Let's hope they will be able to survive for the long run. But I'm, I'm just a bit concerned for these mom and pop stores.
It's definitely harder for the smaller landlords. And one of the things that we're seeing with larger retail locations is that some large companies are also using their real estate as collateral. An example of that is Macy's, in getting loans, they can use the value of their real estate. Macy's actually owns a lot of real estate, including their giant flagship Herald Square location in New York.

Let's move to REITs, Real Estate Investment Trusts. Do you have any thoughts on what is going to happen to them?
It has been a wild ride for real estate investment trusts over the past month or two with the stock market. One thing that usually happens in a downturn stock market is that the real estate investment trusts tend not to take as big a hit just because real estate tends to be a more stable and slow moving part of the stock market. Whereas something like tech tends to go up really high and then down. But this time, because a lot of those real estate investment trusts are tied to places that have been closed, those real estate investment trusts have also been hit. Simon Property Group, which is the mall retailer I mentioned earlier, or some REITs that are tied to restaurant chains, etc. They've been really impacted by this and so it's been a much slower journey for them. So when I look at REITs, I'm looking at what types of REITs are best protected. Prologic, which is the largest warehousing REIT, or data center REITs. Right now we're all using so much data. We're all at home. We're all on zoom. Data center REITs invest in those data centers that basically houses all of our data in those giant computers that keep all of this, all of this zooming running, so those are a good thing to look at as well.

How about the ones that don't have these asset classes and their investors are pulling out, they have to sell their real estate in order to give the cash back to the investors, right? What happens then?
I think that is a concern for the hospitality REITs because they don't have any income coming in. And so that may be a concern. Are we going to see some hotels closed? Possibly. I think one of the things that is really uncertain right now is how much is behavior changing? We've all changed our behavior temporarily. But are we going to be changing our behavior permanently? And a lot of that comes back to that idea of a vaccine and how comfortable and safe we feel, even with something like Airbnb. Will people feel safe staying in people's houses? Will there need to be a day off in between guests or something like that in order to keep people safe, and to make people feel more secure? A lot of this is about psychology and how we feel about the places that we go. Will we feel safe in a movie theater with hundreds of people? Will we feel safe at sporting events? All of that connects back to real estate.

It seems like a lot will be to be determined.
There's definitely a lot to be determined. I think one of the things that's important is to keep an eye on the unemployment numbers, keep an eye on the jobs that are being created. I feel like this is also an opportunity in the real estate industry. One of the things that we're seeing is how much real estate agents have increased their use of technology and increased their ability to do things virtually, whether it's virtual tours, or using drones, or doing document signing online. One of the things that has come out of this is that there's a lot more remote online notarization. Before all this happened, you could only do remote online notarization in about 23 states. And now more states have temporarily allowed it and may allow it permanently. The good thing about this is that it's pushing real estate in a way to be more technologically adept at finding out what we really can do without needing to be together in the same space.

That is a very good point. Real Estate has always been a laggard on the technology side.
I think one of the things we're learning is that we don't have to have all that paperwork.

Is there anything else that you think is important that our audience should know?
Another sector that we're looking at that I find really fascinating is office space, and co-working. There's a lot of debate right now about what the future of work looks like. And if co-working will continue to be popular, and if so, what shape it will take. And one of the things that is being debated is whether or not you will need to have more space or less space per person. Because in the past few years, the amount of space per person in an office has gradually gotten smaller and smaller, partly due to this open floor plan offices. But now if we need to have social distancing, whether it's temporary or more permanent, and you have to have six feet of space in between, you could actually see companies need to take on more space, because they'll need to put in that type of spacing inside an office. We may actually see some companies needing to reconfigure their spaces. And another question that I have with regard to remote work is, certainly a lot of companies have let their employees work remotely now, even the ones that were resistant to it in the past, so we may see some companies doing some sort of staggered situation where certain people come in one day and don't come in another day, or have more flexibility. So that may change the office landscape as well.

That's a very good point. A friend of mine that works at Apple says that that's exactly what they will do. One day, one group can come in, the other day, the other group will be able to come in. It will be interesting to see if it will either have companies rent less or more, as you said, and I have no idea what will happen.
I think it will definitely depend on the company. And I think some of this is absolutely temporary. And some of this may be more permanent. One of the things I think about is the types of things that happened after 9/11. And how the country sort of changed and we felt unsafe in certain areas. There were certain behavioral changes that shifted for six months, maybe a year, and then gradually, things got back to normal. And I suspect depending on how long this particular crisis goes, and whether or not there is a secondary outbreak in six months, I think that some behaviors will change permanently and some will change temporarily, and then gradually we'll go back to the way we were.

Deidre Woollard

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