Michael DeGiorgio sees opportunity nearly everywhere for the alert commercial real estate (CRE) investor who recognizes what's new and what's not in the new normal emerging in response to a global pandemic.
DeGiorgio is the founder and CEO of CREXi, an online marketplace for buyers, sellers, brokers and property managers. Managing his business and constant communication with other industry stakeholders over the years has given him an inside perspective on what's happened -- and what happens next.
He does see some gloom, but definitely not doom.
A market distressed but hardly in death throes
Rent collections that are beating many expectations, debt relief from lenders, and recession-resistant CRE prices give DeGiorgio this assessment of the current CRE market in America: "Somewhat paused, but holding strong."
He says, "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."
As a result, DeGiorgio says, deals are still getting done and pricing overall is not that far removed from pre-COVID-19 levels and is in some instances par or even more.
Let your money follow the people…even back to town
DeGiorgio sees opportunity in both commercial and residential markets as Americans respond to their own individual realities.
"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," he says.
"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."
The past as prologue
DeGiorgio was working as a vice president at Auction.com as the nation continued to recover from the aftermath of the 9/11 attacks-- or maybe the dot-com bubble burst of 2000 -- than it does 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."
A relatively quick reversion to the mean
DeGiorgio predicts that by fall 2021 the economic climate in the U.S. will return to what it was like in the fall of 2019. "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," the CREXi foundersays, "but life will resume in a manner not too dissimilar to life prior to the pandemic."
The source of his confidence? "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 swans and ugly ducklings for a new decade
DeGiorgio cites San Diego County, Phoenix/Scottsdale, Salt Lake City, Austin, Charlotte, Raleigh, Nashville, "and several cities in Florida" as markets that will prosper over the next 10 years. They share affordable living costs, business-friendly tax codes, ample labor talent, relatively good weather, and amenities attractive to working millennials and retiring baby boomers.
Conversely, he points to the "old-school, iconic markets of the Northeast" as struggling with high housing costs, cold weather, and high taxes. Same with parts of the San Francisco Bay area and Southern California (except for the weather).
But even then, don't completely discount these areas. "A little price softening will be quickly backfilled by demand to work and live in these great international cities, and I believe they will do just fine after some potential correction," DeGiorgio says.
Industrial as an industry hotspot, retail's enticing aroma
As with local markets, DeGiorgio doesn't rule out the possibility of any properly valued sector or property type being a good investment.
"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."
As for retail, the CREXi CEO 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."
That means goodbye to those big department stores, for instance, suffering for years from the tendency to shop in the store and then buy online, and then leveraged to the hilt in buyouts, and now slammed shut by the pandemic. (Check out this Millionacres piece about how a leading Miami multi-use developer is coping.)
"Last, like many others, I like multifamily right now," DeGiorgio 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, lending to a spike in demand for rental housing.
"I think owning multifamily right now is a pretty good place to be."
Even hospitality has a future
While the woes of the hospitality industry are well-documented, DeGiorgio says he sees potential there, too, for bargain hunters who can identify discounts arising from 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," he says. Besides needing people to resume traveling for business and pleasure, there will be added costs to meet new safety protocols for rooms and public areas.
That said, "I would only be wary in the sense that an investor is forced to speculate how quickly a rebound will occur," DeGiorgio says, "but a rebound will occur nonetheless."
Digital CRE activity no longer optional, for now
COVID-19 made online CRE workflows no longer just the province of the tech-savvy few. "Now, in some instances digital activity is the only option, so the balance between manual and digital is shifting, DeGiorgio says.
He says that imperative has prompted accelerated innovation at his own company as it pushes the envelope on CRE tech, but even so, something remains the same.
"That said, we maintain that CRE is a human business, and while digital solutions will make humans faster and more effective, digital activity will not replace the human element."
Find your niche, and there's the bottom line
DeGiorgio's bottom line for the CRE market resonates with sound investment principles long proven over time.
"Don't panic, follow the herd, lose discipline, or trade and make major investment decisions based on the news," he says. "Careers can be made in markets like these. Develop your thesis and find your niche."
For more with Crexi CEO Michael DeGiorgio check out our 5 Foolish Questions.