Coronavirus RE Market Update 3/17

March 17, 2020

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The market tumbled again yesterday. Investor fear is exceeding reality. It's important to react to what the market is doing and not what you think it will do. I don't have the answers for that, but hope to right some quick hit posts daily or every couple of days to give brief summaries of what is happening.

Additional Fed Tools

There are some additional tools the Fed could implement to help slow down the crisis. The first is the Term Auction Facility which provides short term loans to banks. There is already an option referred to as the emergency-loan discount window. Banks do not like using the latter because it signals solvency issues to investors. Term Auction Facility which is used only in special situations is seen in a more favorable light.

The second is the Commercial Paper Funding Facility which allows for three month loans to an entity that purchased commercial paper directly from eligible issuers. The concern is that given the amount of fear right now in the market place the Fed's efforts to slow the decline won't be extremely helpful. In essence the market fear is the problem and not the market itself.

For RE Investors

Don't try and catch a falling knife. The introduction of this much fear into the market place is going to make things happen irrationally. I personally am not trying to actively trade this market. In the RE market, credit markets are going to be slow to close any loans and many sellers aren't sure how they are impacted.

For example, most landlords and property managers, like myself, don't know if tenants will have issues paying their rent. If say 30% of the workforce is unable to pay their rent then real estate values at least in the short term will fall dramatically. Most landlords I talk to don't have enough excess cash to remain solvent. Given the widespread issue government intervention is all but guaranteed.

If there is fear of this happening I believe that the Government will offer rental assistance to folks. If every adult in the US was given say $3k then total stimulus would be $630B. A reasonable number and would prevent any sort of rapid fallout for folks. Easier said then done in terms of execution.

Short term rentals will be impacted the most and for the longest. We are in the process of marketing some of our Airbnb as long term rentals at reduced prices. Sidelining Airbnb plans for 12 months might be the smart thing to do here.

I met with other RE entrepreneur's as well. The feeling is to wait it out a bit. The biggest mistake people made in 2008 was getting in a little too early. Everyone who came a little late was fine. I'll rely on the 100s of years of experience in that room and delay looking for deals at the moment.

Conclusion

As always we are here for you to answer any questions you have regarding the real estate market and property management. Don't hesitate to reach out I'll be home for awhile.

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