Products You May Like
This recession is divergent from past downturns, both in its onset—a pandemic that triggered a global economic shutdown—and its trends and patterns, which are still emerging. During a digital conversation last week hosted by George Smith Partners, panelists—Bethany Logan Ropa of UBS Investment Bank; Tim Sullivan of Meyers Research; and Wes Rogers of Landmark Properties—discussed what has been most surprising as the market shifted in the last few months.
Sullivan noted that the trends have widely varied based on the market and the severity of the COVID-19 outbreak, meaning that the impact in New York City looked much different than in Austin, Texas. Jobs were also lost at a much faster rate than in past recessions. “We lost more jobs quicker than any other downturn than in the history of the US. We are hoping that it is going to come back quickly,” he said. Sullivan also was surprised to see quick spending action and a relatively unaffected home building industry. “The power of fiscal support from the government has been amazing,” he said. “Don’t discount it, and has probably been the thing that has kept both sides together. The resiliency of the new home market has been remarkable. Some builders are trading at stock prices above where they were before COVID.”
Rogers and Ropa were both surprised at the resiliency in certain aspects of the market. For Rogers, the firm’s student housing portfolio has outperformed expectations. “When this crisis started, we identified some important risk areas and went into a contingency plan there,” he said. “The first thing was the impact to universities, which pretty immediately went into online classes. We have about 40,000 students, and we were really concerned about whether or not they were going to continue to pay rent and if they would continue to pre-lease for the fall.”
However, student housing rent remained stable. Through April, the firm had more than 97% collections and only saw a quarter of students vacate units. Preleasing activity has also surpassed expectations. Prior to the onset of the pandemic, Landmark Properties was ahead of schedule on preleasing activity compared to last year, and the losses in the first months of the pandemic did not offset those gains. “Leasing velocity slowed for the first two months and narrowed the gap, but in the last couple of weeks, we have seen velocity pick up even relative to this time last year,” said Rogers. “We are almost 85% preleases in our portfolio, which is about 1.5% better than where we were this time last year. Students seem to be pretty confident that universities are going to open and they are going to come back to their classes.”
For Ropa, REIT stability has been the most surprising change in this downward shift, especially compared to the 2008 financial crisis. “There were a lot of lessons learned by the public REITs to make sure that they can manage their debt maturities and what happens if the capital markets shut down and they can’t refinance debt or issue equity,” she said. “In the last decade, there has been a lot of planning and really optimizing balance sheets to make sure that in any given year, there was no significant debt maturity tower, no development pipeline where they couldn’t handle the spend and a dividend that was well covered by free cash flow.”
As a result, the REITs were prepared for another economic disaster, like this, and are much more capable of weathering this storm. “Coming into this crisis, you saw the REITs better positioned than they were in 2008,” she Ropa. “They have been planning a decade for this.”