By: Max Crampton- Thomas
4 min read March 2020 — With the global economy in a state of flux caused by COVID-19, it is important that both the community and industry leaders work together to not only flatten the curve of coronavirus but also help to understand its impact on the various sectors of the economy. It is just as vital to continue looking to the future, post-COVID-19, at what other continuing or emerging trends could have an impact on a specific industry throughout 2020 and beyond. In regard to real estate, Invest: Miami spoke with two of the region’s industry leaders in real estate, David Diestel, regional president, south for FirstService Residential, and Michael Fay, principal and chairman of the U.S. Capital Market Executive Committee for Avison Young. While they work in two seperate areas of real estate, both discuss how the coronavirus has affected their industry, other factors that will continue to spur change and trends they are keeping a close eye on in 2020.
How is the coronavirus outbreak impacting your industry?
David Diestel
Dave Diestel: The outbreak of the coronavirus has brought the country to a screeching halt. I don’t know if anyone was prepared for something of this magnitude that has impacted basically every industry. As the leader in property management in North America, it’s our job to provide support to the board members and residents of the communities we manage. We immediately formed task forces throughout the organization, continuously monitored reliable information from the CDC, World Health Organization, as well as local authorities and health agencies. And the key to our support: communication. On everything from preventing the spread of the virus to working with boards to enhance cleaning and sanitation at our properties to working with attorneys to discuss any change in community rules and regulations. This situation has helped cement the importance of communication during a crisis – to report facts and to keep people calm. And to let our customers know that we’re in this together.
Michael Fay
Michael Fay: We are such an international city at this point that we need to look at how we fit on the geopolitical stage, as well as how the virus will shape how we live in the future. We are always looking at the Latin-American influence within our market, as well as the European, Asian and Canadian influences, given Miami has become such a major, global city. When I first did this interview, the COVID-19 virus was just an Asian problem and not a global pandemic. I truly believe the two asset classes that will provide opportunity and stability as we move through this will be real estate and well-positioned stocks. With Miami being such a global city, and having been through many other crises, we tend to bounce back quickly with resilience. We will continue to see strength in the multifamily sector as well as the industrial sector as we understand new, global supply chain issues. Retail and hotel will see weakness as we move through this pandemic and new way of life for the foreseeable future. There is more capital in the marketplace overall, outside of opportunity funds, with lots of mezzanine equity, loans and regular equity creating a sizable amount of capital. The interest rate environment we are in is the lowest we have seen in the United States. Distressed will have a new meaning.
What other factors will continue to spur or change your market’s growth?
Diestel: The demographic shift in this region is challenging our communities to keep up with the times. New owners and residents are challenging those communities to invest more in technology and in amenities. People are looking for investment back into their community, and also looking for investment into community spaces. These demographics do not just want the standard gym or card room, they want thoughtful programming, focusing on wellness and convenience. One of the drivers of real estate values ultimately comes down to a building’s reputation. When people feel good about living where they live, realtors know people feel good about it and there is a great sense of community. This all drives property values up.
Fay: I’ve been in this business for 36 years. When it’s good, it’s good for everybody, but when it’s bad, it’s great for us. We are highly cognizant of inflexions and disruptions in the marketplace. We built a major business on understanding the bad times better than the good times. We understand how to operate in a bad market better than others. Anybody can be good in a winning streak. Year in, year out, decade after decade, issue after issue, we spot early, watch early and see how things are going. In my own opinion, we will be seeing a recession; however, I believe it will be short-lived because of the strength of the economy going into the crisis. On the negative side, we saw a 14% rise in the homeless population in 2019. The lion’s share of this increase is coming in from other cities in the Midwest. Absent thoughtful solutions, it can really hurt the city. Also, we need to take care of our environment. Global warming is a slippery slope if we do not understand it and deal with it by making rash decisions. Sea rise needs to be studied further. If we have any narrative of investors, owners or companies leaving Miami due to sea rise, our city will have a major issue. We need to think about ways to mitigate it and work around it.
What is a trend in your industry that you are keeping a close eye on moving forward?
Diestel: Short-term rentals are a hot topic throughout Miami, especially in Miami Beach. It’s also constantly talked about in the Florida legislature. Investors are looking to own real estate with the purpose of using it as a short-term rental. Innovations like Airbnb aren’t going away. In fact, communities built for short-term rental are starting to pop up. We are actually in talks to manage two of these types of properties. This is a trend that will continue to evolve. Some cities are not quite there yet in terms of understanding it. We are very active in Tallahassee because there are bills being introduced in regard to short-term rentals. Our position, as both FirstService Residential and as the industry, is to allow the homeowner association the right to govern as they were set up to do. We are educating the legislature and are working to help protect the rights of an individual community.
Fay: The Opportunity Zones will come into much more focus in 2020, and we will gain a real understanding of how it fits into the market. In 2019, many guidelines and an interpretation of the tax code were not available. When Opportunity Zones were laid out initially, they were based on basic census tracking, with governors approving wherever that might be. Several developers were left in the dark and as a result, lots of Opportunity Zone funds slowed raising capital given the uncertainty. There is a lot more clarity now, which is key. The new guidelines issued will have much more effect going forward and an increase of funds and transactions.
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