Real Estate Predictions Post COVID-19

We’re bullish on barber shops!

A few investors have asked me what the commercial real estate world looks like post virus. This is obviously uncharted territory, so no one truly knows what’s next. Those that claim certainty are amateurs (i.e. economists).

However, it’s useful to start thinking through first and second order consequences so we can identify opportunities quickly.

There should be plenty of targets. The V shaped recovery argument feels like a pipe dream to me. The economy is a giant ship, it can’t turn on a dime.

Pain comes swiftly, recovery takes time.

Under that premise, below are some top-down thoughts on the next 12-24 months for various real estate asset classes. Unlike the Great Financial Crisis, I suspect not all asset classes will suffer deep losses. There will be some clear winners that come out of this relatively unscathed.

Here we go:

The Good:

Manufactured Housing

(shocker – I started with one of my and probably your favorites)

  • Transactions have slowed, but the private equity love fest continues. Plenty of new entrants hungry for scale. The consolidation (from mom & pops to professional operators) phase accelerates
  • 100+ pad parks and portfolios in reasonable size markets will continue to command top of market pricing as long as interest rates say near record lows
  • Occupancy and net operating income can still grow (albeit more slowly) in recessions – we’re seeing the defensive nature of manufactured housing playing out in real time
  • Large owners are reporting April collections of around 97%, which is unreal given the circumstances. Its early, but May collections look strong as well
  • No long-term structural changes to the industry due to virus. Business as usual

Single Family Rentals (Bulk Owners)

  • Near term collection concerns due to job losses, but once country “re-opens”, this emerging asset class could benefit from crisis. There will be – at least temporarily – additional net migration away from dense cities that were hit hardest by the virus
  • We didn’t overbuild homes this cycle – supply / demand story for large rentals is strong
  • Freddie Mac research survey found that 84% of renters still believe renting is more affordable than owning, an all-time high for the survey
  • Still difficult for the average American to qualify for a mortgage – lenders overcorrected from the credit crisis. This leads to more demand for rentals
  • Millennials are still human beings….I think. As soon as that second / or third kid arrives, they too will want another room to escape the crazy – if only for a brief, but glorious ten minutes. Bye, bye Sunday brunch, hello Home Depot. Or perhaps I’m wrong and this is me justifying my life choices


  • Online shopping Tsunami counterbalances short term demand loss
  • Asset class is unphased thus far; April collections were 95%+
  • Some markets are definitely frothy and overbuilt, but growth should bail most owners that can hold long term  
  • Class A properties (cross dock, 25+ clear heights, in major distribution markets with direct access to major highway or railway infrastructure) feel defensive given the circumstances

The Pretty Good


  • Showing resilience (at least for April rents – 93%+ rent collections), Class A (nicest assets) are outperforming. Growing job markets with tight zoning laws are ports in the storm
  • Buyer beware of markets where new construction has spiked – construction has finally outpaced demand in many cities
  • Underwriting projections (rent & occupancy) that looked modest two months are probably wildly aggressive today – expect lower near-term growth


  • Short term – less impacted by COVID due to longer term leases from credit tenants (this excludes those landlords that thought it was smart to lease half their building to WeWork
  • Long term – more problematic. A subset of companies will downsize space or non-renew their leases. However, there are plenty of parents that once fantasied about working from home but are now taking conference calls from the car in the garage
  • The vast majority of large firms are going to keep their headquarter offices. However, plenty of satellite offices will be on the chopping block
  • In other words, the “death of office” calls from the cheap seats are exaggerated, but I still wouldn’t want to own a lot of office product in tertiary markets right now

Self Storage

  • Has performed well in prior recessions
  • Businesses and homes will be downsizing to save money – all that stuff needs to go somewhere (why that somewhere is not the dumpster is beyond me, but Americans love their junk)
  • However, most 24 hour city / major markets are still overbuilt. There will be some distress opportunities (from builders that overleveraged late in the cycle) – will be interesting to see if increased demand (downsizing) outweighs these supply issues in high supply markets

The Ugly

Malls (Retail)

  • Luxury malls and outdoor entertainment centers will recover (we all have to get out of the house and do something Friday night). People don’t impulse buy as much online, they are much more likely to blow some cash after a couple salty margs at The Grove (insert your local trendy outdoor mall). Plus, if shelter in place has taught us anything, it’s that home is boring. The crowds will return
  • However, the remaining small market, Sears / JC Penny anchored malls built in the 1980s are now on suicide watch

Freaky, post-apocalyptic mall coming to small city near you

Strip Malls (Retail)

  • Ouch. Do not pass go, do not collect $200
  • April rent collections were between 20-50%
  • High percentage of poorly located strip centers without a via grocery store or “essential business” anchor are TOAST – many of these will be converted to alternative uses. Get ready for more trampoline parks!

Gaming (Casinos)

  • On life support until therapeutic solution or vaccine arrives. However, last time I checked, gambling is still addictive and being the house is a legal way to steal.
  • The firms that make it to the other side will gobble up competitors and have a bright future.


  • Woof. Going to be a rough 12 months. Triple whammy of virus reducing travel coupled with lower economic demand (recession) and too much supply
  • The messy middle: top-tier hotels locations backed by big investors will survive. Budget road hotels should see occupancy gains soon as more families opt to fire up the van vs. crowded flights. But middle tier hotels in small markets???
  • We’re all Zoom wizards now. Businesses will reduce travel budgets, but conferences will eventually return. For some strange reason Americans can’t get enough conferences.
  • Hotel Brands will matter more than ever. Temperature scanning, sanitation stickers everywhere, virus free wristbands. Traveling is about to get weird.
  • However, well located hotels don’t have a structural problem (looking at you retail). Don’t get me wrong, plenty of small market, middle-tier hotels are going to zero – but Americans are not going to stop traveling permanently. Pretty sure my wife is still going to opt for the beach hotel over the RV.If there is life, there is travel.

Bottom Line: I don’t suspect this is going to be another 2008 real estate crisis where every asset class tanks. The Fed’s money printer won’t allow that to happen as the world is still starved for yield. Real estate provides a healthy spread over sub 1% bon

Therefore, this feels like sharpshooter opportunity to target specific real estate sectors that are facing near term demand shocks. But buyers will need to be patient – unlike stockholders, distressed real estate owners don’t capitulate overnight.

Just be careful in the sectors that are also facing longer term existential issues. As always, there are exceptions and the specific deal / location trumps sector, but why fight the tide?

Apple Creek Mobile Home Park – New Investment

Property Overview:

Address7117 Lincoln Rd. Bismarck, ND
Avg. Lot Rent$360
Market Lot Rent$385
W/S BillingWater paid by property (plan to submeter)
MSA Median Home Price$260,000

Apple Creek consists of 208 lots across 54.60 acres. The property was built in two phases: phase I in the 1970’s and phase II in 2015.

The property is located in Bismarck, ND which is the state capital of North Dakota. Unlike many ND cities, Bismarck’s economy is not dependant on oil production. Bismarck has a strong health care presence and has demonstrated a stable employment base. The state of North Dakota is Bismarck’s largest employer.

The Bismarck MSA population is over 130,000 and population growth within the city of Bismarck surpassed 17% from 2010 to 2017. The MSA’s unemployment rate averaged 3.1% over a more than 10 year period ending in August 2018, which is 360 bps below the national average of 6.7% over the same time span.

We love to see public, education and healthcare companies as the top employers in our markets. Below is a list of the top 10 Bismarck employers:

State of North Dakota (4,600); Sanford Health (3,284); Bismarck Public School District (2,187); CHI St. Alexius Medical Center (2,044); U.S. Government (1,200); City of Bismarck (988); Bismarck State College (719); Mandan Public School District (697); Aetna (660); University of Mary (642); Housing Industry Training (641); MDU Resources Group (592); Bobcat/Doosan Company (582);

Apple Creek has landscaping characterized by mature trees in a country setting. The property offers residents a quiet and traditional neighborhood experience. It has private, paved streets, and all lots are accompanied by paved, off street parking for multiple cars. Residents also benefit from a  playground, basketball court, leasing office and curbside trash pick-up which the park pays for. It is serviced by public water / sewer which the park also currently pays for.

The business plan is bump rents to market and invest capital to start submetering for water in order to bill tenants for their respective usage.

Forbes Article – Should You Invest In Mobile Home Parks? Only If You Like Consistent Returns

Mobile home park investing is not an exciting cryptocurrency, a high-flying tech startup or a trophy office tower you brag about owning. A mobile home park is just a parking lot filled with single- or double-wides that kicks off a lot of cash flow.

I co-own a portfolio of 23 mobile home parks and help real estate investors grow their portfolios with mobile home park investments. There are a lot of unique aspects to the industry that make mobile home parks compelling investments. But, for some strange reason people do not gather around me at parties to learn about the intricacies of them. So, to keep your attention, let’s focus on just one strength most parks share: consistency.

A portfolio of mobile home parks purchased at the right price is a remarkably bankable investment. Mobile home parks deliver profits year in and year out, whereas their cousins (apartment buildings) are often far more erratic. Why?

The rest of the article can be viewed on Forbes via this link:

Signs Your Local Real Estate Market Is Starting To Heat Up

Watch the cranes.

This only applicable for commercial real estate markets, but when development of skyscrapers is booming, that’s usually the beginning of the end.

Ironically, when development deals do not “pencil”, is when developers should be building. Most development funding is approved when times are good. By the time all the projects are completed, the market typically softens. This new glut of vacant space causes landlords to slash rents. So begins the inevitable commercial real estate downcycle. Then, when all the cranes have gone back into hibernation, is precisely the time to go shopping for office, warehouse and retail properties.

You can find the rest of the article via Forbes.


The Need For Private Real Estate

In the past two decades, we’ve experienced two severe market declines, and two slow, tepid economic recoveries.

We live in a new world of lower growth with longer and woefully underfunded retirements. At today’s valuations, traditional stock and bond investments alone – in a low-yield environment – are not going to cut it.

Private real estate funds are the solution. A pool of diversified real estate can offer investors the potential for higher returns, inflation protection and reduced volatility relative to the stock market.

Yet 95% of retail investors do not own any commercial real estate investments.


We believe the reason for this is two-fold:

1. Investors lack exposure to the world of private investments and are not fully comfortable with terminology / investment mechanics.

2. Investors do not know how to find, evaluate and invest in high-quality, passive alternative investments.


Evergreen is making a dent in this problem.