Finding Opportunities Amid Uncertainty

At the start of 2020, the United States real estate market was as healthy as it had ever been. That all changed as COVID-19 disrupted the global economy, halting the day-to-day functions that kept the real estate market thriving. As the world slowly starts to re-open, many questions remain about the future of real estate—particularly around risk and opportunity attached to real estate investing.

We sat down (virtually, of course) with brokerage executives and agents from across the country to get their expert insights and market knowledge on this complicated topic. From New York City, Ellie Johnson, President of Berkshire Hathaway HomeServices New York Properties. Weighing in from Las Vegas, Mark Stark, Chief Executive Officer of Berkshire Hathaway HomeServices Nevada Properties. And representing the great American West, John Sofro, Broker/Owner, and Pam Rheinschild, Assoc. Broker/Owner of Berkshire Hathaway HomeServices Sun Valley Properties.

Q: Why is now a good time to invest in real estate?

Mark Stark: Based on our current reality, now is a great time for people to diversify their holdings into real estate. Taking into consideration how much of their investments are in stocks, how comfortable they are with stock market volatility while tying this back into their personal investment strategy and timelines, it may be prudent to take some money out of the market and reinvest those dollars into real estate. Due to the current crises many markets have greater opportunities than they would have had otherwise.

The most important thing to remember is what your ultimate goals are—it’s really such an individualized conversation. I have clients who come to me and say, “You know, Mark, I want to maximize my return.” I go, “Really? Are you sure about that? Let’s say we do something that maximizes your return, but if it goes wrong, you take a big hit on your capital. Are you OK with that? No? OK, so you don’t want to maximize your return ultimately.” And through conversations like that, we end up taking proportionate risk based on what they’re trying to accomplish. So first and foremost, for those moving forward with investing during this time of opportunity, I’d recommend getting very clear on your objectives and working with a real estate professional who takes the time to understand your long- and short-term goals and can guide you in the right direction.

Q: Ellie, I’d like to pick your brain specifically on something Mark just touched on: In times of crisis, there is opportunity. New York City has certainly taken a hit because of COVID-19, but what are some strong opportunities that should be on investors’ radars right now?

Ellie Johnson: I think the best areas to look for investments, in New York City particularly, are in new developments. I am talking about all price points. Some of these projects were in financial distress before the pandemic and they are in further and greater distress now. Developers need to close deals. Therefore, they are offering great incentives, because if they do not reach the thresholds needed to keep their projects going, those assets are going to change hands and be financially restructured.

Another thing I want people to remember is that you can’t move the island of Manhattan. While things are tough for us now, we are still closing deals. To give you an example, we just rented an apartment north of $20,000 a month to a family who’s relocating from New Zealand. Another transaction that got some press was a South American investment group that purchased apartments on the Upper West Side, north of $27 million. When asked “Why now? Why New York City?” their answer was, “Because we still feel it’s the safest place for us to keep our money.”

If we go back and look at historical data around different challenging periods that were beyond the control of humanity, we survived, right? Right now, there are investors looking to capture that small opportunity with distressed properties, but overall, every investor should remember that location, location, location is still the one main characteristic of a good investment—and New York City will always be New York City.

Q: An interesting flip side of that sentiment is that certain smaller markets are now seen as “hot” prospects for investors. John and Pam, are you seeing an influx of interest in Sun Valley, and what are some investment opportunities in resort areas out west?

John Sofro: This is all unchartered territory, but I think we all believe there will be a movement from people living in urban areas to places like this. We are hearing and seeing lots of interest in long-term rentals here—these are families, affluent families, looking for a complete lifestyle change.

There is an appetite for development, but no developer here wants to compromise or jeopardize the quality of life that we have here, so there are visionary restraints on what can and cannot be done.

Pam Rheinschild: That being said, for investors, there are opportunities happening with developments. While we’re pretty well locked into our topographical restrictions—we’ve got stringent restrictions on developing hillsides, wetland areas, set asides and environmentally sensitive areas—that’s forced a lot of redevelopment to promote some infill, higher-density, multifamily living.

Q: What advice would you give to someone who hasn’t traditionally invested their money in real estate?

Ellie Johnson: Now more than ever, investors have to rely on their long-term relationships for information about where the opportunities are. And they need to really be working with experts in the particular type of investment they’re seeking.

This is not the time to work with your friend, who might be a great residential broker, but has no expertise in areas that could actually be great investments for you. If you’re looking for a specific type of investment, work with professionals who specialize in that area. And I think that portfolio, institution and asset managers are going to be very busy. They are great resources for the broker community, and vice versa, because they need our input to value their assets. And we need their assets for transaction deals. Whether it is changing notes or actually when you’re repositioning, you’re going to see a lot of good support between those two entities.