Boulevard of Broken Dreams Reshaping Real Estate Future

Thankfully, construction has been considered an essential service in Denver and has mostly continued business-as usual. Honestly, it’s made me envious of the construction crews as I, like many of you, just want to move freely about again. It’s been refreshing to see the cranes and shovels remain active though, providing a slice of normalcy in the city’s sights and sounds as I sit isolated in my RiNo flat wondering if I’ve entered a Zombie apocalypse.

It’s these types of unforeseen circumstances that drive a real estate developer's vigilance in conducting in-depth scenario planning of the financial outcomes well before a shovel ever breaks ground. Then when we find ourselves in this place, where the original Plan A path falls apart, we can move forward swiftly, with committed and decisive action because we’ve already thought through the outcome of Plan B or C.

So, it’s not surprising that in the April 20 edition of COVID-19: Global Real Estate Implications Paper II, JLL indicates the declining likelihood of a V-shaped recovery, and recommends taking a scenario planning approach to all future real estate development, while maintaining agility and preparedness. Even with the huge hit to Colorado’s Oil & Gas sector which will clearly impact downtown Denver’s CRE office sector, I believe Denver has the ingenuity and resilience to come out of this crisis with way better ways of reimagining how business gets done. That includes how real estate can be reshaped to support that new way of being, living, shopping and working.

But we all know the real impact of the coronavirus crisis will come harshly to light when the projects currently under construction and those just nearing completion are put on the market for sale. Not only will there likely be a glut of inventory that hits the market (remember all those sellers who withdrew their properties when the shelter-in-place shut-ins started) when we slowly begin to reopen the city to resume the normal course of life and business on May 8th. Denver’s Bisnow put a great panel together on their recent webinar, speaking to the broken dreams of a generation of would-be homebuyers and what can be done about it.

Unemployment numbers already at 22% put us in Great Depression territory. In the wake of the stock market crash of The Great Depression, prices dropped 10% per year from 1930-33, accompanied by a similar drop in wages. Clearly, the biggest problem is that with the US government injecting trillions of dollars into our money supply almost overnight – the impact (intended and unintended) will be massive (worldwide). The fear of coming inflation from all that money supply is widespread, but it’s hard to predict exactly how things will go.

I find Neil McCoy-Ward’s economic recovery effort thinking to be clear and valid in his argument. If you’ve not seen his economic analysis videos, I encourage you to take a listen. He’s a funny, dry-wit Brit (is there any other kind? ??) who puts a helluva lot of research into the topics he covers which he breaks down into meaningful dialogue you can actually make sense of in short order.

In essence, Neil’s prediction is this: we’ll initially experience a mildly deflationary period at a rate of somewhere like 0.1% - 3 or 4% as a result of our economy being ground to a halt from social distancing. That’ll drive the price dip we all know is coming. Neil doesn’t mention how long he thinks that deflation period will last, but he anticipates it will be followed by a period of inflation running about 5%, maybe higher, but hopefully not upwards of 10%. He thinks there’s a very slim chance we’d see anything like hyperinflation.

So, what does that mean for real estate? According to Neil, housing prices will crash temporarily as things shake out. Then he believes it’ll go into another boom period because all of this newly printed money supply needs to go somewhere. It will eventually go into stocks, bonds, and even housing as people shake off the shell-shock and get back on the horse to ride again.

We’re already starting to see a bit of softening in prices as the double-edged sword of being able to keep construction moving while most businesses were shut down will translate into a period of oversupply in the market that will need to be worked through before a healthier demand-supply balance is restored. Further impacting demand is the psychological trauma of our biggest pool of homebuyers - the Millennial Generation. Already hard hit by the 2008 mortgage crisis and massive student loan debt, some say they’ve all but given up on the American Dream of home ownership completely. That remains to be seen...

Being a part of Nathan Adams’ redT Homes brokerage and development team, we have a full-time acquisitions team constantly on the hunt, acquiring new pieces of well-located dirt we can set you up to develop with ease… a bit of silver lining for those Developers in this boat, you may find better land buys out there in the coming months.

On the other hand, if you're a Developer with a need to expedite sale of some finished inventory in the Denver metro, redT Capital Partners Equity Fund is ready to provide relief. We can bulk-buy in one transaction, thus infusing the capital to pay off your construction debt without impacting your sales comp stats. Sometimes we’re best to bite the bullet and just get on with things. If you find yourself there, DM me. Let’s talk through a plan that gets you what you need.

This does not have to be your Boulevard of Broken Dreams... We know this crisis will bring opportunity if you are creative in (re)positioning to capitalize on it. Are you doing that? If so, how? Which way are you pivoting your projects? Are you finding alternative paths to address the lending crunch that’s holding back your interested homebuyers? Please share in the comments…or privately DM me…and let’s fuel the growth of new ideas together.