COVID-19 Pits CRE’s Sudden Change vs. Sustained Strength

A novel coronavirus has pushed the economy onto unfamiliar ground as the solid CRE industry assesses where this path ends up.

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The COVID-19 outbreak and subsequent downturn can feel like the economic train is careening off the tracks. But according to Brian Hatcher at Kidder Mathews, experience shows that these shocks often lead to a stronger overall future. GlobeSt.com spoke to the Seattle-based EVP of Pacific Northwest brokerage division to get his more than three decades’ worth of market perspective here in the early stages of the coronavirus pandemic.

“If there’s any lesson to be learned it is that this too shall pass, and we’re going to get out of this and hopefully be stronger than what we were before,” Hatcher said. “It’s definitely different than recent downturns though. We all knew what was going to happen with the dot-com bust, and 9/11 contributed to that, too. The mortgage downturn was probably self-inflicted, but this one is not.”

Pre-pandemic CRE pros might’ve worried about housing affordability, construction labor shortages, unrealistic underwriting assumptions, unregulated private debt funds and other issues. Now the script has been flipped.

“The problem is the short-term damage, mainly in hospitality and retail, could really have longer-term effects that might drag this into a typical downturn,” Hatcher said. “Any deal with a retail component is going to get a lot more scrutiny than perhaps it has in the last five years. This disruption will make everybody check themselves and pause.”

The Kidder Mathews’ CRE veteran offered Seattle as a potentially powerful case study. On one hand, the big food & beverage-focused market could see up to half of its downtown restaurants not survive the pandemic. On the other hand, Amazon, which was recently said to be hiring more than 15,000 in the next three to five years and, with Microsoft, Boeing and recent growth of Google and Facebook, continue to provide very strong employment opportunity. And even in the midst of the outbreak multifamily properties are getting full-priced offers on quality located projects, Hatcher added. As always big-picture perspective can help in times like these.

“I’m hearing that one-third of the deals are dying, one-third are pausing and one-third are still happening,” he said. “Compare that to 2008 through 2010 when there was absolutely nothing happening. If everything stays on course here I think this might be the easiest downturn we have. I say if with a capital ‘I.’”

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