(L-R Top: Paula Van Vleck and Bill Pon; L-R Bottom: Kimberly Handley, Meg Watkins and Al Eastwood)
None of us have escaped the effects of the COVID-19 pandemic, but one of the industries that is perhaps most deeply enshrouded in question marks is real estate. The current condition of real estate appears to be somewhat stable, but moving forward, it’s anyone’s guess what will happen.
In an effort to paint a picture of today’s real estate scene, CBN interviewed five commercial brokers at Coldwell Banker Bain (CBB) about how business is going right now, and what they foresee for the future. The overall scenario is that deals that were in the works before the COVID-19 outbreak took hold are mostly still solid, but new deals are far less certain. While most real estate business can successfully be conducted from home via phone, emails and teleconferencing services, some transactions simply must continue to take place face-to-face with the necessary precautions. Also, the pros shared that the pace at which business can be conducted has slowed down somewhat, because professionals are busy transitioning to the new normal, and working from home has created an immediate need to acquire new skills.
“I’m concerned about everybody remaining healthy, but I’m also really concerned about the economy staying healthy, and what could happen if this goes on for too long,” said Paula Van Vleck, who has been licensed in real estate since 1981 and has been with CBB for eight years. “It’s amazing what we can do via email. We are grateful for technology; if we’ve ever needed it, we need it now. But it’s still important sometimes to meet with people face to face to close a deal. That’s challenging now.”
“Our business is very reliant on working hand-in-hand with other businesses such as bankers, escrow officers and brokers,” said Bill Pon, who has been in real estate for 28 years and with CBB for 2-1/2 years. “Fortunately, we can still do this over the phone and through email, but it’s taking longer to get responses. It’s going along smoothly; it’s just a different working environment that people are having to get used to.” Pon said he still has solid deals in the works, and that he continues to have some showings. “People are still willing to meet onsite; we just keep our distance.”
Kimberly Handley, a real estate veteran of 30 years who is a newcomer to CBB, agrees that COVID has changed the way realtors show a property, particularly if it’s occupied by a seller or tenant. “We have guidelines set out by the Oregon Association of Realtors, the National Association of Realtors and our local MLS for disinfecting and making sure no illness is present. The safety of the clients is top priority,” she said. “It takes a lot of creativity and outside-the-box thinking to keep transactions together in a market that has fluctuated so much in the past 30 days.” She added, “We are doing video conferencing and virtual meetings or updates now more than ever, working harder than ever to revamp and focus on how to best serve our clients in the economic climate we are now experiencing. The good thing is that Central Oregon real estate has never failed to be a good investment, and it will continue to be so.”
The effect of COVID on commercial real estate is two-fold: it is influencing the buyers’ willingness to purchase buildings, as well as the leasing of space inside the buildings. In some cases, building owners own a facility outright and have the freedom to help tenants with leases, explained Meg Watkins, who has been with CBB for about three years following a career in the medical industry. “But others are paying mortgages on their building and don’t have that flexibility. There is no single answer to this; circumstances are different for everyone, so decisions are being made on a case-by-case basis.”
Watkins was on the verge of a very large deal when the pandemic hit, she said, and because of it, the deal has been put on hold. “We will be waiting to see what happens before we move forward. It’s the right call given our current situation. But you just don’t plan for things like this,” she said. “I feel fortunate that I have such great clients. We can pull it off the market for now and be patient to wait for a better time when we will be less vulnerable.”
Van Vleck has a client who owns a wellness center and leases the building, which is filled with practitioners who do facials, massage therapy and other treatments and services that are all on hold for now. “She’s okay for April, but not sure about May,” said Van Vleck. There are rent deferment programs in place, she said, but tenants must be able to show that their lack of business or individual income warrants reduced rent. “Some are getting reduced rent now, but that money will be tacked on at the end of their lease,” she said.
Handley says COVID will affect lease rates in the short term, but that longer-term outcome will depend upon the results of the stimulus package. “Landlords need to be willing to work with their tenants in their lease obligations, always striving to keep the tenant if possible,” she said. “That makes much more sense in a down market than having an empty space and no revenue, in order to keep the integrity of the investment.” She added, “We have a supply-and-demand mentality and a lack of commercial inventory, and our population keeps growing with people coming from all over the country. We have to calm clients’ and investors’ fears, including whether or not they will have employment, and come up with solutions. Yes, the phone is still ringing, but we have many clients who are waiting 30 days to determine what they will do in purchasing or putting a property on the market.”
The upside to all of this, says Watkins, is that people are working together to get through. “We’ve seen some wonderful community happening between our owners and tenants. We’ve seen great efforts to help everybody through this struggle. Everyone understands that incomes are being affected.”
Finances and the business side of things aren’t the only pieces of the impact of COVID on the business world: The personal and emotional toll is big too. At CBB, co-workers legitimately miss each other, and worry about one another’s wellbeing. “I worry about my co-workers going out. My senior associates are in higher-risk age groups. That weighs heavily on my mind,” said Watkins. “These are my mentors. I worry about how this will affect us moving forward. This is my family.”
In addition to her concern over her co-workers’ health and safety, Watkins says that while she does enjoy being at home to train her puppy, she misses the daily interaction of working side-by-side in the office with her CBB colleagues. “I can’t say enough about my co-workers. I admire and respect them. We are a very small office, so we really work together on a level you don’t get anywhere else.” She added, “I’m a hand-shaker and a hugger. I miss the camaraderie of the office. Having daily interaction is so positive for all of us. We get momentum off each other that just isn’t there now working from home.”
Another of the personal struggles that COVID has presented is the issue of time: The effort needed to care for one’s home and loved ones has also increased with the pandemic, particularly for those who are in older age groups or who have existing health conditions or loved ones with existing health concerns. Sterilization, cleaning and keeping safe while shopping take time, and can take a toll on work life. “My priority has to be sanitation and keeping everything sterile, whether at home or at the office,” said Al Eastwood, who has been a licensed broker with CBB for 23 years. “This has changed our life and our attitude. I take care of things at my house too, and my way of life at home is taking time. My workdays were ten hours; now I work three or four hours per day. I am working both from home and at the office.”
Van Vleck agrees that working from home is not her optimal situation. “Personally, I don’t prefer it. I like to keep my work and home life separate, but I am doing my part and staying in compliance. I’m trying to make my message be one of encouragement and of reminding people of the importance of daily gratitude. Sometimes, I just reach out to see how people are doing.”
While current real estate deals seem to be closing, the COVID-19 situation has created an air of caution where newer deals are concerned.
“We know April is a down month, but May and June remain to be seen. There isn’t a reduction in lease rates yet, but if businesses have to stay closed for a long time, that may change,” said Pon. “Some may not pull out of this. Interest rates going down always helps in a normal time, but we are in a time of uncertainty. Existing business will benefit by the lower rates, and the governmental assistance will help, but with new business activity, those people will wait until there’s more clarity.”
Eastwood says he has been through multiple cycles in the real estate industry, including the recession of 2007-2010. “Many of us experienced that and are now drawing upon a lot of the lessons we learned then. What is different is that this is driven by a health crisis. It has generated suppression of jobs and mandatory concessions.” He added, “The federal and state governments have stepped in and are trying to boost the economy. Lower interest rates will help stabilize things, but there is still a question about how sustainable the current rate levels are; it’s unpredictable. It’s being driven by the major mortgage lenders, and there is lots of instability.”
“Lower interest rates make it cheaper to borrow, and this tends to encourage spending and investment,” adds Handley. “This leads to higher aggregate demand and economic growth. However, low interest rates cannot stay this low, and it could cause inflationary pressure. The effects of low interest rates affect the various segments of our population differently.”
“We are all trying to see how this will shake out,” continues Eastwood. “Everyone understands the magnitude of this; the depth and the seriousness of it, especially over the past four to five weeks. “What we don’t know is the time frame of it. That will depend upon health, including vaccines, treatment programs and natural immunity. We are all going to be subject to this timeline, whatever it is.”
“During the 1918 Spanish Flu pandemic, we weren’t worried about cap rates,” said Watkins. “There is no book to reference on how this is going to play out. There’s just nothing to compare this to; everything we are saying is an educated guess.”
Despite the uncertainty of the times, there is one thing that is certain: All the brokers are hopeful about the future. “Like every cycle, we will pull out of this; it’s just that nobody knows when that will be,” said Pon. Van Vleck believes the industry will see pent-up demand hit over the summer. “I do believe that at the end of this quarantine, we will see some opportunities for buyers. Prices had gotten high here, and those prices seem to be coming down now. I am getting calls from listing brokers who say their clients are willing to reduce their price now.”
“We are optimistic that this is just a little fork in the road that we will overcome, and that we will have an even stronger market,” said Handley. “Again, we must remember that economy dictates our local market to an extent that we may need to think about future inflation. Inflation is one of the biggest concerns for investors.”
Eastwood adds, “In every downturn there is opportunity. Our job is to identify those opportunities for our clients, and help them take advantage of the resources that are going to be presented.”
