Mike DeGiorgio’s CRE Opportunities POV

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Michael DeGiorgio, CREXi’s fearless leader, is hardly daunted by the global pandemic facing the commercial real estate industry. In an interview with Millionacres, Mike discussed where he sees opportunities in each CRE sector based on new and cyclical population trends. His answer: opportunity waits nearly everywhere for the shrewd commercial real estate (CRE) investor who recognizes what’s new and what’s unchanged in a post-pandemic world.

While there will be difficulties, Mike is optimistic about market recovery.

The market’s distressed, but not damaged

Beating expectations, rent collections report more on-time payments than anticipated, which in turn is keeping landlords consistent with their mortgages. The consistency coupled with flexible debt relief options from lenders and continued stable CRE prices points to a less bleak outlook than some analyses predicted. Rent collections that are beating many expectations, debt relief from lenders, and recession-resistant CRE prices lead Mike to provide this assessment of the current CRE market in America: “Somewhat paused, but holding strong.”

Per Mike,” [The CRE market is] somewhat paused, but holding steady. Core markets challenged by the coronavirus impacts are likely going to see some initial suffering, but what seemingly happens is when price opportunities and discounts emerge, investor demand fueled by pent-up capital quickly fills the void and prevents significant value softening.”

Deals are still getting done, and pricing has stayed consistent with pre-COVID levels and even increased in more desirable markets.

Follow populations where they roam

Mike explained to Millionacres that residential real estate markets are a good barometer of where opportunities will arise. Individuals will make changes based on their realities, and many are looking to adapt to a post-COVID world. 

“I think following human migration, and job migration will bode well for buyers as people look to move to warmer, more affordable cities right now,” Mike explained in the interview.

“That said, I believe those who pick up property now at a potential discount in major core markets like New York and Los Angeles are going to look really smart in five years when our country re-urbanizes. These patterns are not new.”

Downturns are nothing new

Mike was working in the auction aspect of commercial real estate in the aftermath of the 9/11 attacks — as well as the dot-com bubble burst of 2000 — and says this downturn matches those events more so than it looks like the Great Recession. That’s despite the massive unemployment and other financial disruption caused by COVID-19.

Here’s why: “For one, it’s largely been event-driven. Two, it’s permeated the American and global psyche in a similar fearful way; and three, it’s largely affected how we travel, vacation, and occupy office space.”

“The climate has largely been the result of external events having less to do with economic factors versus the Great Recession, which was systematic and deep.”

We’ll bounce back to averages relatively quickly

Mike estimates that by Fall 2021, the U.S.’s economic climate will return to Fall 2019 numbers. “Some proverbial medicine will have been taken, and some corrections will have occurred, but I think the economy and real estate market will generally be in a healthy, albeit occasionally delicate, place.”

Again, like the 9/11 recovery, “Some healing will need to occur, and our nation’s psyche will have changed some, but life will resume in a manner not too dissimilar to life before the pandemic.”

Mike trusts his gut when it comes to these patterns, “​Some of those predictions are based on data, some are based on gut instinct, and others are based on a lifetime of studying humans and our tendency to revert back to the mean.”

Market growth and decline in the the 2020s

Mike points to San Diego County, Salt Lake City, Austin, Charlotte, Raleigh, Phoenix/Scottsdale, Nashville, “and Florida cities” as growth opportunities over the next decade. Their commonalities? Affordable costs of living, business-friendly tax codes, ample labor talent, pleasant weather, and amenities attractive to both working millennials and retiring baby boomers.

Conversely, Mike told Millionacres that “old-school, iconic markets of the Northeast” will continue to struggle with high rent prices, brittle weather, and elevated taxes. Regions of the San Francisco Bay and Southern California also fall in this category, except they have better weather.

These regions’ troubles won’t last forever, though. “A little price softening will be quickly backfilled by a desire to work and live in these great international cities, and I believe they will do just fine after some potential correction,” Mike says.

Industrial, retail, and multifamily will serve up opportunities

Outside of region-specific opportunities, Mike says individual property classes will shine as the market makes a comeback.

“But, in the current climate, industrial remains favorable for a variety of logistical reasons, and the same can be said for data centers,” he says, adding that office space may emerge as a “surprising star as companies seek more space, not less, to ensure proper employee distancing and to decentralize operations.”

Regarding retail parcels, Mike says, “I smell a big opportunity here for those retailers who better learn how to cater to new customer demands and who can use their real estate as more than just a place to sell items and house inventory.”

Big department stores that were already suffering from online shopping will likely fall out of favor, due to the combination of shifting consumer trends and the forced closures due to the pandemic. 

“Last, like many others, I like multifamily right now,” Mike adds. “People have never spent more time at home, and it’s also in many instances becoming their office. They’re tired of living with roommates and their parents, and most are not in a great position to buy their own house, leading to a spike in demand for rental housing.

“I think owning multifamily right now is a pretty good place to be.”

Hospitality properties are down but not out

While the hospitality industry has taken a radical beating during the coronavirus, Mike tells Millionacres that potential opportunities may pop up for bargain hunters willing to navigate discounts amid the sector’s uncertainty.

“I’m generally pretty bullish on the long-term prospects for the sector. It just may take a little time to sort itself out,” Mike says. People will resume business travel and want vacations, and hotels will strive to meet new safety protocols for rooms and common areas.

That said, “I would only be wary in the sense that an investor is forced to speculate how quickly a rebound will occur,” Mike cautions, “but a rebound will occur nonetheless.”

Digital CRE activity now a necessity

COVID-19 made virtual commercial real estate workflows a necessity in brokerages. “Now, in some instances, digital activity is the only option, so the balance between manual and digital is shifting,” Mike told Millionacres.

This mass adoption has jumpstarted innovation here at CREXi, too, as we push the envelope on CRETech. But each advance we make remains rooted in CRE fundamentals.

“We maintain that CRE is human business, and while digital solutions will make humans faster and more effective, the digital activity will not replace the human element.”

Find your niche

Mike’s final piece of advice was to commit to CRE fundamentals, as sound investing principles have been proven time and again.

“​Don’t panic, follow the herd, lose discipline, or trade and make major investment decisions based on the news,” Mike advises Millionacres readers. “Careers can be made in markets like these. Develop your thesis and find your niche.”


Portions of this article were written by Mark Rapport and originally published on Millionacres, a Motley Fool company on June 8th, 2020.

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Shanti Ryle
Shanti Ryle

Content Marketing Manager

Shanti leads CREXi's content marketing strategies with 7+ years of content development experience, creating everything from blog posts to award-winning podcasts. Previously, she worked on content teams at Snapchat, Weedmaps, and HopSkipDrive as well as developed copy, articles, and media for freelance publications.

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