“Don’t loose your cool”
Thorsten Leischke | VLR Germany GmbH
Only very few of us have ever experienced a comparable situation. Therefore, none of us have any idea how long this corona situation will continue and how bad it will ultimately be. By this, I am not just referring to the further development of the pandemic, but also to the long-term economic consequences. Let’s hope that the significant restrictions will at least not be in vain but serve their purpose and effectively slow down the spread of the virus. No one can make any serious predictions on how economic life will continue and when the status quo ante will be restored. Nothing reflects these current uncertainties better than the developments on the capital markets.
Is it therefore right for real estate investors to fall into a kind of shock-induced paralysis and postpone or cancel all planned deals as a precaution? I think that would be the wrong reaction. As an existing investor with a long-term investment horizon, I have to be convinced that a deal makes sense based on fundamental criteria and should not allow myself to be driven by exogenous shocks, if at all possible. For example, once I have identified an attractive buying opportunity, I will base my judgement on criteria such as location and condition of the property, existing tenants, long-term leasability or vacancy risk, and the expected regular rental income, or I discover potential for strategic measures for forced appreciation. From a long-term perspective, none of these criteria are significantly impacted by the current corona environment – although in certain cases it may make sense to renegotiate the terms and conditions. But anyone who cancels a real estate transaction because of the corona situation was probably already not 100 percent convinced before.
However, this does not mean that the real estate markets will remain completely unaffected by the corona crisis. Some tenant groups will very quickly find themselves in a situation where they lack the liquidity to pay the rent. Just look at the restaurant and hotel industry or certain retailers, for example. Depending on the severity of the economic crisis, even residential and office buildings may be affected at times. Fundamentally, however, the corona virus will not change the shortage of space in major German cities. This is why an investment that was attractive before corona will also be attractive in the long term after corona. There are currently many reasons to be cautious – but there is no reason for panic and paralysis.