The Chinese Virus, AKA Corona Virus or Covid-19 Global Pandemic, that has thrown the United States, as well as over 180 other countries into a healthcare and economic crisis, at a level never experienced in modern times. Posted unemployment rates for the United States have reached levels greater than those seen during the Great Depression. That does not take into consideration persons that are underemployed, or not seeking employment. All businesses deemed “non-essential” have been ordered to shut down, violation of which may result in fines, incarceration, or both. Commercial real estate sectors hit particularly hard are the office and retail sectors, which contain huge swaths of businesses deemed to be non-essential. The federal government has been forced to inject trillions of dollars into the economy in an attempt to keep many of these businesses from closing permanently, with another round planned by the administration and congress.
Given the foregoing discussion, it is clear that the Covid-19 has not just affected investor attitudes, it has effectively left this sector in a near virtual state of limbo, indecision, and concern. This equates to risk (both perceived and actual). Increased risk equates in increase return requirements, and logically highest capitalization rates reflecting investor concerns. Investors have no idea if the effects will be somewhat short term, say 6 months to a year, or long term, for many years to come, essentially in perpetuity based upon typical investment holding periods. It is clear that the selection of capitalization rates must take this into strong consideration, resulting in a higher overall capitalization rate.
Commercial lending has also diminished to close to a standstill. Clearly, lenders will most like to seek lower loan-to-value ratios, along with increased interest rates and shorter amortization terms. On the equity investment side of the equation, the equity investor must compensate for the risk and uncertainty in these most affected sectors, by significantly increasing their equity return requirements.
Dear Clients and Friends of Pyramid Consulting Group, LLC,
As COVID-19 continues to spread, and Governor Murphy has declared a state of emergency, we want you to know that we remain open for business and ready to assist you. With the health and safety of our employees, their families, and our clients in mind, we have closed our office and enabled our remote work platform. We will be utilizing virtual meetings and other technologies to ensure we continue providing outstanding service to our clients. We will update you as the situation evolves.
We wish you and your families all the best as we work through this difficult time.
Stan Belenky, MAI, CTA
State Certified General Real Estate Appraiser
Pyramid Consulting Group, LLC
P.O. Box 586
East Hanover, NJ 07936
Phone: 973.887.6877
Fax: 973.887.5133
