Current and Future Real Estate Trends with Cory Thomas in April 2020
As a real estate advisor, investor, and co-founder of IPA 1031 Group, Cory Thomas has a unique perspective on the impact the current pandemic has on the real estate market and shares some insights below. With deep generational roots in Laguna Beach, he names Laguna as the “closest place to Hawaii on the Mainland.”
From your perspective as a property management advisor, what are you currently seeing in this space?
The immediate situation is clear: certain malls, entertainment (casinos, theme parks), hotels, non-essential retail and office properties are shut down in many parts of the country. The big question we are all asking surrounds what the world will look like post-crisis. What I'm seeing, reading and understanding of post COVID-19 scenarios — with respect to real estate values — revolve around future supply and demand as we come out of this. Will entertainment, hospitality, retail, and other social gathering-based properties bounce back to previous demand levels? Or will there be long term destruction of demand from both tenants and customers?
Most believe asset classes with less impact from this shut-down include multifamily, self storage, single family, and, to a lesser extent, healthcare, industrial, and office. With industrial (this includes logistics and warehouse space) the need for people to receive goods through less social contact is stronger than ever. The shift to de-globalization will also help manufacturing properties. Office is a mixed bag.
Speaking of a mixed bag for office spaces, will working from home be the new norm?
One of my investors emailed me this morning about office properties. He suggested that office spaces will be particularly hard hit as more people discover "there is no disadvantage to working from home" and that it will be "great for the environment and a relief to our transit systems."
I understand his point as I am working from home today, but there is something to be said about the energy and collaboration of working with your team in a real office environment.
How has the pandemic highlighted the concept of home?
With respect to multifamily and single-family units, people's homes have become more important than ever. I've been arguing for several years that the long cycle expansion in demand and values of multifamily and single-family (condos, town-homes, etc.) have been enhanced as a result of not only increased wealth and income, but from the increased importance of Amazon, social media, and other online activities. These platforms have made staying home easier and more connected than ever before.
In a way, COVID-19 has pushed many real estate and investment trends into fast forward from where they were before. Retail was already being eaten up by e-commerce/Amazon and industrial has benefited in an enormous way. These trends will continue. I have questions about high density living and how this will play into future migration patterns.
Can you provide any insights on the housing market in Laguna Beach?
I bought my place in Laguna Beach understanding that the economics did not make sense from a cash flow perspective. But I like owning property in Laguna Beach because of the natural amenities, people, and long-term draw to the area. This is my perspective and I believe it is shared by most property owners here. Although prices rose significantly throughout our most recent expansion phase between 2011 and 2019, and while Laguna Beach is one of the most expensive cities by the quality foot of real estate in Orange County, it is well priced when compared with the Bay Area and Los Angeles (Manhattan Beach, Silicon Valley, Silicon Beach Area) when you factor in how nice it is in Laguna Beach.
Orange County did not go through a pricing paradigm shift like the Bay Area and coastal areas of Los Angeles, primarily because we don't have the tech economy and are losing the younger, more dynamic working age population to areas that do.
For me this is good because traffic is lighter and prices are more reasonable than they would otherwise be. Perhaps, if my client is correct and significant numbers of companies and employees shift to working from home, the theme of residential real estate carrying more importance and value will prove true for the future of Laguna Beach real estate.
Still, there are larger economic questions to consider and when our economy does begin to come back online, we'll have a better idea of our future. If there is enough capital destruction through corporate bankruptcies, and our overall GDP does not regain most of what it recently lost, we will have problems with almost all assets. But, barring this type of deflationary scenario, I believe you can buy and hold Laguna Beach real estate. I plan to buy more over time.
What are some opportunities that you see coming from the government shutdown as it relates to the real estate market?
One of the economic leaders who called this situation getting ugly long before anyone else is Mohamed El-Erian, a Laguna Beach resident. He has been providing sound economic insight and advice multiple times a day throughout this pandemic on Bloomberg, CNBC, FT, and other sources. He suggests that the situation changes by the hour as the medical component of this "sudden stop" leads the financial, psychological, and economic components of our system. Mohamed suggested recently that we were super close to a complete financial shutdown, and when that happens all bets are off and social unrest and geopolitical events come into play.
For now, we have avoided the worst with the government backstopping businesses and employees and the stock market's approval. I believe we will get through this with permanent changes, but with a new normal we can all be grateful for — especially in a place like Laguna Beach.
If you’d like to chat further with Cory Thomas about Orange County Real Estate, reach out to him at IPA 1031 Group or directly at 949.874.0556.