09/17/2020

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Real Estate Companies Anticipate Bargain Prices



Investors Expect Big Post-Pandemic Discounts


Real estate investors are anticipating rock-bottom prices for commercial properties after the coronavirus pandemic subsides. Real estate deals have been curbed during the crisis, as restrictions like social distancing and limited travel have hampered transactions. Buyers are also expecting better deals than sellers are willing to give right now. At the moment, prices are down about 5%, but many investors are hoping they will eventually fall 20% from pre-COVID prices.

Though the real estate market could see a boom in buying and selling, transactions are sluggish at the moment. In April, the European market saw the volume of real estate transactions fall by 65% year over year. Some analysts expect that the American market will see a 35% decline this year, while transactions in Asia will be down 25%.

Investors Have Hundreds of Billions Waiting for Deals


Investors are betting that the current halt in transactions will eventually mean lower prices. Private equity firms around the world have about $328 billion on hand to take advantage of those deals.

Blackstone Group Inc. (BX) and Brookfield Asset Management Inc. (BAM) are two of the major players waiting to scoop up properties once the crisis subsides. Brookfield alone has about $60 billion ready to spend on real estate once opportunities become available.

Despite their big plans, Brookfield and Blackstone are also dealing with their own coronavirus-related difficulties. Blackstone bought $6 billion worth of university dorms in the UK in February, and Brookfield made a $15 billion investment in malls just two years ago. College housing and retail are two industries that have been pummeled by coronavirus closures. The two companies are making plans for how to deal with these precarious investments while also thinking about investing in new deals.

The Waiting Game is Far from Over


Given how unpredictable the pandemic has been so far, most investors feel that it’s too soon to know if the market has hit bottom. It will take some time to see the long-term effects of the coronavirus crisis as well as the impact of government relief efforts.

Patterns in shopping, commuting, and traveling are still so abnormal, that it is hard for investors to come up with prices for hotels, offices, malls, and other properties. Until the coronavirus crisis is mitigated and the economy is able to settle into a “new normal,” it will be difficult for buyers and sellers to agree on property prices.

Though it could be some time before real estate sales tick back up, some investors are willing to bide their time. Many believe that since fewer people will be in positions to buy than will be in positions to sell, there will be deals for those who are able to snap them up. However, the timeline of this potential boon for investors remains to be seen.


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