How is the real estate market? Should I buy? Should I sell? Should I refinance or restructure debt? What do you think will happen with residential and commercial real estate prices? Will people ever go back to work or will they always just work from home?
These are some of the questions I get asked daily. No one knows for sure exactly what the market will look like in the next few months or even a few years, but it does not really matter in my opinion. What real estate investors need to be focused on is the long term. Anything less is nothing more than speculation. Same applies with any kind of investing.
I have been in the real estate industry for over 30 years and I have seen everything from earthquakes to the savings and loan crisis to the .com bust to September 11 to the Great Recession to our most recent challenges and more. In every case, people tend to overreact short term to the financial impact because of fear, anxiety and uncertainty.
Yes, things will look different in the months and years to come, but not nearly as much as most people think. The roads will be packed with cars again (it’s already started), BART (Bay Area Rapid Transit) and trains will be full, and people will “go” back to work. There is too much value, creativity, culture and productivity that will be lost if people are not spending a lot of time together in the office. Without that, people will not feel an emotional connection to their company and its leadership team…and that will lead to higher turnover, which is a massive expense. People need to go back to work for social interaction and for their mental health. For most, work is the only place they socialize and connect with people.
No one really knows for sure what things will look like in 12 to 18 months. That said, the farther out you go, the clearer the picture gets. I am a long-term bull on real estate in Silicon Valley and the Bay Area. There is no place else like it on earth and there is a limited supply of real estate and that is not going to change.
Since the wheels came off the economic track back in March starting with COVID-19, the residential real estate market has held up much better than I would have expected…so has the stock market for that matter. Prices pulled back anyplace from 5 percent to 15 percent off the highs back in April but then stabilized, and buyers are out in full force taking advantage of the low interest rates as the federal government has flooded the economy with cash. Now the problem is low inventory of properties for sale.
Regarding the impact on commercial real estate, I see much of the same. Will commercial buildings, hotels and restaurants have less people in them? Yes, but that does not mean they will need less space. There is actually an argument to be had that they will need more space. Office space per employee has gone from close to 500 square feet per employee 25 years ago to less than 150 per employee today. With COVID-19 and social distancing, I have to believe we are going to see office space per employee needing to increase. Let’s say it only increases from 150 square feet per employee to 250 per employee…that is 67 percent more space per employee. Even if 25 percent of the workforce worked from home full or part time, there is still going to be a shortage. And yes, I do think more people will be working remotely in the months and years to come but not nearly to the extent many think.
Tom Tognoli co-founded Intero in 2002 and built it into the largest real estate company in Silicon Valley and one of the top real estate companies in the United States—doing in excess of $12 billion in annual sales volume at the time of his departure. Tognoli and his partners sold Intero to Warren Buffett’s Berkshire Hathaway in April 2014. Tognoli continued on as CEO of Intero after the acquisition. Today, Tognoli is a partner at 1Flourish Capital, an active real estate investor and developer, angel investor and advisor.