Wave Of Pandemic-Related Foreclosures Lead To Opportunities For Real Estate Investors

The COVID-19 Pandemic has undoubtedly changed our collective world.  It has affected almost every facet of the human existence.  The hospitality and entertainment industries along with the rest of the economy, have been decimated, resulting in widespread unemployment.  One result of the economic fallout has been a severe increase in the rate of default for tenants and borrowers.  This is true in both the residential and commercial context.

In an effort to control the damage caused by the economic downturn, moratoria have been put in place that effectively prohibit most evictions and foreclosures.  However, as the moratoria are lifted, we will see an influx of foreclosures and evictions of epic proportion.  The foreclosures and evictions will result in an increase in vacancies for office, retail, and residential properties and more inventory in the real estate market.  This will also lead to increased opportunities for real estate investors.

Savvy investors can take advantage of the increased inventory and historically low interest rates to invest in real estate.  They must be cautious when choosing the type and location of properties they choose to purchase.  While many businesses and industries have suffered due to the pandemic, others have seen dramatic increases in revenue.  For example, data centers, grocery-anchored retail centers, healthcare real estate (medical office buildings, hospitals, urgent care centers, and surgery centers), self-storage, e-commerce, delivery services, and wireless infrastructure have all been performing well during the pandemic; some have actually seen considerable growth.  These are definitely strong investments that will provide long-term stable growth, but they are not necessarily bargains.

The bargains will be found in distressed or underperforming properties, but investors need to analyze the particular market carefully.  Before the pandemic, analyzing a particular market meant looking at the typical factors such population growth, job growth and affordability.  The pandemic has caused investors to adjust the way they analyze the market.  Investors now must consider the impact the pandemic has had on the market.  An area that was already declining before the pandemic will now have a tough time rebounding once the pandemic ends.  An underperforming market that is closely connected to a growth market can provide good opportunities for investors that can assume some risk.  A distressed market that can be redeveloped to attract growing industries is a great option for investors with access to capital and an entrepreneurial spirit.  As new industries develop in the market, there is potential for residential growth to support the new workforce.  An investor’s particular goals and risk tolerance will determine the best market for their investment.  

COVID-19 has resulted in both a humanitarian and economic crisis but can offer unique opportunities for a well-informed and diligent investor.  It is important to consult with legal counsel and professionals before wading into a new market.  Our firm regularly counsels clients in the structuring and execution of real estate investments.  

Real EstateMaria Moller