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How Real Estate Will Emerge From the Great Global Quarantine

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Some trends develop slowly. Like a tree, they start out as an inconspicuous sprout and grow in a way where their progress can barely be noticed by those watching it closely. Over time they develop into a much larger plant, spreading its shade over everything around it. These slow changes make it hard to remember what it was like before they happened as if we had been living under their shade our entire lives. Other trends grow more like weeds. You look outside after a heavy rain to find that they have overgrown your house. Their growth is so sudden that they make it hard to believe, even though they are now the only thing you can see.

This virus is a weed. It seems like the entire world has changed. In just a few short weeks it has overgrown the entire world. Our health, our work, our society, everything now seems enveloped in its underbrush. When we started writing our yearly Propmodo Metatrends series about the trends changing the property industry, this virus was nowhere on our radar. Now, it seems like the only thing people talk about. Rightfully so. This has prompted us to look at the spread and subsequent reaction to the COVID-19 virus as a Metatrend itself. 

Going forward, all of our Propmodo Metatrends 2020 content will include some analysis of how the virus is affecting the trend. How could it not? We are past the point of wondering when this disease is going to go away and leave us alone. Now we are to the point where we need to understand how to limit the negative impact of it and what the lasting effects will be.

The full effect of the recent, unprecedented turn of events will take a while to emerge and we hope to comment on them as they do. What we do know right now (at least at the time I am writing this, the weeds could have taken a different shape by the time you read it) is that the real estate industry is going through a previously unimaginable strain. I would call it a stress test, but that would downplay the consequences. Make no mistake, this isn’t a test. We will not be able to ask for a redo and the results will be final.

Stopping the spread of a deadly virus has taken a global effort to stop our lives and stay home. Many have lost their income and are left wondering if they can pay rent. “Unfortunately, there’s going to be a lot of pain in our industry, and it’s driven by the financial hardship that our tenants are experiencing,” said Ryan Coon, co-founder and CEO of Avail, an online property management tool. “When tenants stop receiving paychecks or have to close down their own businesses, they simply don’t have the income to pay rent.” This has left many renters looking for rent freezes and prompted the federal government exploring mortgage and rent assistance measures. 

Whether these measures will get passed in time or will be enough to stop the cascade of defaults that would come when the largest asset class in the world stops earning revenue is yet to be seen. If renters are able to use force majeure clauses in their contracts, claiming that being prevented from working is an “act of God” and therefore grounds to break leases or not pay rent, it could leave managers without money to pay bills and landlords with less valuable buildings. Coon thinks that the system can handle the shock but that ”a longer crisis will likely have a much larger impact that won’t stop with some property owners going under. It could result in loan defaults that cause some financial institutions to go under, too.” We all still have scars from the last time financial institutions were not able to stand under the weight of property defaults. The world seems very different than it did when a man-made credit crisis strangled our institutions in 2008 but, then again, the world seems very different now, too.

At a time where renters might not be able to even afford to pay their rent, they are also in need of extra services. Residential buildings that are usually empty during the day, while its residents go about their lives, are now full, full-time. Kristjan Byfield is the co-founder of Base Property Specialists, a residential property company in London and The Depositary, a rental deposit solution. “With people at home, this will put greater strain on properties leading to greater wear and tear, greater demand on buildings systems and appliances leading to more maintenance issues,” he said. But, when it comes to people’s shelter in times of need, failure is not an option. “Residential property managers need to be geared for this,” he said, “they need to be able to keep a building running whilst minimizing the risk to tenants, contractors and any other relevant parties.” We will likely see more buildings utilize automation to help reduce the need for direct employee contact. Even the most intimate of roles like door attendants and office managers might be converted into remote jobs.

Having so many people at home in the middle of the day will also have utility implications for many buildings. Most states have higher energy rates during the day and some even use the highest daytime usage to determine the base rate for the entire year. Buildings are now, more than ever, relying on their analytic software to help them keep their residents comfortable, while also working towards their energy usage and sustainability goals.

Trapped in their homes, people are finding ways to get the world delivered directly to them. Physical goods clogging the world’s logistic arteries as we order everything from almond milk to zinc lozenges to our doorsteps. Buildings are having to deal with the increased visitor traffic of delivery workers carrying bags full of baked ziti, Tito’s vodka or Cannabis indica. Digital packages are also being transported to our domiciles for our consumption. Video conferences have gone from a work tool to a social activity. The property industry is learning how to use digital imaging to survive. Property showings, service calls, equipment diagnostics, everything that isn’t a lifesaving function, has to all be done remotely. Previously used for entertainment, VR, AR, and new 3D imaging technologies are now becoming the way we experience the off-screen world that exists outside of our houses. 

As fast as weeds grow, they also die. All of us are hoping that this will be a temporary change, one that will die out as soon as the rains stop. But the world after will likely never be the same. Real estate organizations will have to try to relearn everything for a world where we all need to be prepared to shut down our entire global economy at any moment. Our physical and digital worlds will need to be built to handle the chaos that is the human psyche

If you do dare to go out on the streets, which now seem only inhabited by villains and heroes and very little in-between, you can almost taste the bitter collective worry. But, at times it seems to be mixed with sugary optimism. We all know that life will go on. Yes, this virus is a huge health threat, but it is not an existential one. The underpinnings of our society have so-far held together, the social contracts, for the time being, remain unbroken. Our economic system always seems to be able to right itself, we just want to make sure that it doesn’t drown those of us underwater in the meantime. Getting our economy back as fast as possible will require us to be more sophisticated in financial systems. We will call on the newfound decision making augmentations that machine learning and artificial intelligence provide to help guide us back to stability. 

Let’s hope that this trend, this viral bramble that we all seem to be caught in, dies as quick as it grew. Let’s hope that we can keep the human suffering and economic loss to its barest possible minimum. Let’s also not be so naive as to assume that we will be going back to business as usual after this. We will never understand the value of properties the same way, not their monetary value or their intrinsic societal worth. The talk has been about flattening the curve, not stomping out the infection altogether. Even if this virus gets cured overnight, the lesson we have all learned from this will change every generation hereafter. We need to be prepared for another battle with contagion of some kind, any kind. We need to remember that there will always be trends that we had no way of preparing for and be able to adjust our worldview accordingly.

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