Institutional investors in waiting game on real estate investment

Real estate companies, just like many other businesses, are in a bizarre holding pattern, waiting for some of the measures necessitated by the coronavirus pandemic to ease.

“You do have a certain amount of time you can hold your breath and the video technology and so forth has enabled us to hold our breath longer, but at the end of the day, you can’t really build, run and operate a business 2D. You need to be live,” said Jon Love, founder and chief executive officer of KingSett Capital Inc., during a webinar hosted by the Empire Club of Canada on Tuesday.

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For institutional investors with a global presence, certain parts of the transition haven’t been quite as burdensome, according to Michael Turner, president of Oxford Properties, the real estate arm of the Ontario Municipal Employees Retirement System. “To some extent, that footprint we have set me up to be able to manage this way because I’m accustomed to calling people in the morning in Asia and at night in the Americas and Europe in between. The leaders of our business are distributed among different continents, so I am accustomed to connecting with my leadership team remotely so that hasn’t been a huge adjustment.

“For people who didn’t believe in . . . some of the tools we’re using right now, I think they’ve gotten on the wagon, if you will, otherwise they’re not able to be very productive. So that’s been an enabler for us. . . . But there’s only so much you can do in this sort of a forum.”

As that waiting game continues, questions arise about how the global experiment with working from home over an extended period will impact the demand for physical space in which to work, shop and play. “The financial crisis has been intervened by policy-makers, but we still have the compounding, serious knock-on effects on our economy. And I think it will vary,” said Turner.

He pointed to cities like Sydney that are already beginning to lift restrictions. However, different types of real estate will suffer the impacts of the crisis in different ways. Hotels, for example, are one area where demand may rise back up more slowly. “The areas where we have to build confidence for people to come back and the adjustments to get back to normal are greater, that could be a 12- to 24-month following.”

Read: Institutional investors set to pull back on real estate investments in 2020: survey

And while Turner said there are genuine concerns regarding some areas of real estate’s fundamental demand drivers, he pointed to the resiliency that humanity has shown in the face of tragedy before. “After 9/11, no one was ever going to live in a big American city again and no one was going to live at the top of a tall building. That likely impacted people’s anxiety and decision-making for 12 to 24 months after that event. But after that people said, ‘No, we want the vibrancy of lower Manhattan back in our lives . . .  . So I think it’s early to talk about the way in which the world is going to change fundamentally.”

While the demand for space to conduct day-to-day business will return, how those spaces are designed in the future is likely to change, he said. “We’re going to harden some of the ways we interact with each other in space to enable a safe environment and one of the consequences of that is de-densifying. And you can see how you really pick up a lot of demand for space very quickly as soon as the design standard goes from 100 square feet per person to say 175.”

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