On March 27, ULI Colorado’s chair Mike Zoellner of ZF Capital moderated a panel of experts considering the effects of the CV-19 challenge on ULI members, their businesses, and the greater community. More than 240 people attended via Zoom to hear the perspectives of:

• Anita Kramer, Senior Vice President, ULI Center for Capital Markets and Real Estate;
• Michael Gifford, President & CEO Association of General Contractors (AGC) Colorado;
• Bill Mosher, Senior Managing Director, Trammell Crow Company, and
• Paul Washington, Market Director, JLL Denver.

Interpreting the crisis for our audience, the panel covered such topics as multifamily, office, housing, and investments. Kramer, a principal researcher of ULI/PWC’s annual Emerging Trends in Real Estate report, updated that report by saying that the crisis could hasten the departure of Millennials from core cities to “hipsturbia,” where they will expect urban amenities like brewpubs and walkability in suburban settings.

She added that the “office market will have to adapt,” with a possible reconsideration of the “side-by-side” co-working model.

Zoellner opened with these comments:

“Our goal this morning is to provide a balance of some green shoots and opportunities out there, but also be honest. A major positive right now has been our collective response to this virus. There has been a realization that we are all part of one humanity, one planet and one community.

“That said, we are suddenly in unchartered waters. Many of us were generally prepared for a recession or correction, but not a global pandemic. Historically, in times of uncertainty in the economy and reduced user demand like this, Real estate capital markets have tightened and are likely to retreat. Liquidity is being questioned in corners of the bond market not even thought about 30 days ago.

“Several large law firms report a collapse of transactions that were either in design development or even with nonrefundable money at risk.

“The hardest hit product types are definitely hotels, coworking office, student housing, retail and Land. Each of these are segments are either frozen or what were thought of as assets are now liabilities. High-density office and residential are suddenly being reevaluated by their users.

“On the positive side, several investment alternatives appear to be holding up well. Convenience stores, self -storage, industrial (especially distribution facilities), and single- family rentals are stable.

He then asked panelists to respond to three questions:

1) What surprised you the most in the last 30 days?

Paul Washington:

• We were already down 8 percent in all product types in the first two months of 2020. CV-19 is accelerating a slowdown.
• The Federal Reserve rate cut was a surprise with financial markets not at risk…. And the market reacted negatively.
• Certain sectors are performing well, especially industrial related to the supply chain. We’ve been able to close a few deals in the industrial sector.
• The tech sector is performing well, which provides a strategic advantage for the U.S. This is an important tool as we go into the new normal.

Bill Mosher

• I’ve been through 7 or 8 downturns and this is the first that is a demand-based debacle, given that 70 percent of our economy is consumer based.
• “I thought this would be a 30-60 day pause, but it appears it will be more like the great financial crisis of 2009.” Quoting from a new JP Morgan Economics Report, Mosher said this will be “a recovery more like the global financial crisis than a weather disaster.” This pandemic is unprecedented for modern societies and economies. I don’t expect this crisis to go away until we have a vaccine in 12-to-18 months. I suspect it will impact social norms and change our world in unknown ways over the next 5 to 10 years.

Michael Gifford

• The scramble of new rules and directives from government and municipal offices at all levels, many of which did not at first consider construction as an essential service
• Colorado has a dispersed executive model, which means each municipality can make their own orders. But they have all been supportive of continuing construction so far.

2) What segments of real estate are most impacted?

Bill Mosher

• Short-term rental businesses such as hotels and co-working. The impact is sudden – hotels have gone from 70 percent occupancy earlier this month to less than 5 percent today.
• Consumer-oriented services, especially general retail and restaurants.
• Financial markets. The debt markets will be tighter. Equity markets will be impacted by the effect on insurance companies and pension funds. Uncertainty generally results in tighter capital markets.
• In the longer term, office demand could be impacted. Companies are seeing they can operate remotely and will take a hard look at future office use and design. The biggest impact will be on speculative office development.
• Multifamily: With more people feeling financial stress, there will be growing pressure for more affordable housing and perhaps rent control. The design of multi-family will be evaluated: we’ve been reducing the size of units and increasing the communal experience.
• Supply chain related businesses will benefit, perhaps including more onshore manufacturing and increased inventories of certain goods, including medical related supplies.
• Inflation could be a factor in the future as we pay for this trillion-dollar bailout.
• The impact of density and the design of our spaces will be re-evaluated.

Paul Washington

• Co-working spaces, which represent 2.5 percent of Denver’s market, will be severely impacted.
• On the positive side, there will be a “flight to quality” globally that reflects the strength of our currency and the quality of our assets. The U.S. has well-maintained, well-positioned properties that are a good investment risk; stable government; positive tax policy.

Michael Gifford

• Projects that are early in construction will feel less impact.
• When project goes inside for work like drywall, we’ll need to slow down to comply with new regs from state depts of health, OSHA, and Dept of Labor. Will see big impact on specialty trades: it will be important to keep cash flowing through from financers, bankers, GCs, to keep that group of businesses healthy in the long term.

Anita Kramer

• On retail the longer-term impact will accelerate on-line shopping, which has been 12-13 percent on retail sales. That will push the pressure on brick-and-mortar stores even more.

3) Where will the first opportunities come as the crisis passes?

Paul Washington

• Financing, especially re-financing, will benefit thanks to the historically low interest rates.
• “Non-essential” retail will go away presenting opportunities to redevelop retail sites with compact, mixed-use projects.
• We’ll see a big backlash against China. As a result, we’ll rethink and reboot our onshore supply chain.
• Hotels could change uses, for example being repurposed for affordable housing.

Bill Mosher

• I can’t imagine which sector will come back first, but we are an entrepreneurial people and will identify opportunities. You already see this with restaurants converting to carry-out and delivery
• Resorts should come back as people will prioritize outdoor recreation
• The world has changed… but I think we’ll hang together and understand we’re all in this together.

Comments edited for length and clarification. A partial recording of this webinar is available here. Due to technical difficulties, ULI Colorado is unable to provide a complete recording.