Shopoff Perspective

1. What is Shopoff doing differently, as a business, now that we are all working remotely and not traveling?

Like most businesses, we have moved fully remote for all of our employees and have suspended all travel. As the health and safety of our employees and clients is always our top priority, we are continuing to monitor and follow all guidance from the CDC as well as local, state and national government.

Thankfully, we already had a business continuity plan in place. Much of our operations were set up to go remote, and the transition has been relatively painless for our company, as a whole. For example, we were still able to finalize our audits and get thousands of K-1s out to our investors over the past few weeks thanks to our paperless invoice system, which made this a seamless process.

We’ve also instituted additional company-wide and department-wide weekly meetings to ensure we are all staying connected, and I’m happy to say business has really continued much as usual. As a real estate company, we’ve of course had to adjust certain activities, such as site visits, during this time, but video conferencing has really helped us bridge the gap in many of these areas. With most city governments now going remote in the coming weeks so they can once again operate, we anticipate being able to move forward with many project approvals with really only minor delays.

2. What do you think the outlook is for the real estate market in terms of a rebound?

In the short term, we will see a downward price adjustment in the real estate markets. Sellers and buyers alike are trying to wrap their heads around pricing in a time where it is nearly impossible to get an accurate assessment of property value. I’d anticipate we’ll see price reductions from motivated sellers who need to unload property, and many opportunistic firms such as ours will move quickly to take advantage of these opportunities. In addition, I think sale volume will decrease during this time, as many owners will now hold onto their properties and reevaluate their disposition timelines.

Another issue the commercial real estate market will face is capital. With values hard to determine, it may be difficult for companies to secure the financing they need to purchase a property. It will also likely be difficult to secure construction financing at this time, especially for hotel projects, as the hospitality industry continues to take a beating during the safer at home restrictions.

On the bright side, I do think we’ll see a complete recovery in about a year. The real deciding factor here will be how long the virus will keep people from working, socializing and traveling – the quicker it is under control and life is back to “normal,” the quicker all markets will recover.

3. How about the alts industry in general; when will it rebound?

Much like the real estate market, I think the recovery for the alternatives market will really depend on the virus and how long we are all self-quarantined to reduce the spread. I do think investors will come back to the alts industry sooner rather than later, especially with the current volatility in the stock market making alternatives an even more attractive option for investors. And for some companies that are well positioned to thrive during a downturn, capital should continue to be allocated to alt strategies that can find potentially produce upside.

4. What is Shopoff’s new business strategy – do you anticipate your acquisition or disposition volume to increase or decrease in the coming months?

At Shopoff Realty Investments, we’ve always had an opportunistic strategy*, focusing on properties that have a value-add component or properties where we can transform the property’s current-use into its highest and best use. These are often repurposing strategies*, such as the transformation of obsolete commercial into much needed single and multifamily residential, or the repositioning of challenged commercial assets. That strategy* will certainly not change, but we will likely need to adjust our specific targets in terms of both location and property type, given the recent economic changes.

I anticipate we’ll continue to focus on California in the coming year but will broaden our interest in the rest of the country, as individual markets are impacted in different ways. California is always attractive for us because values tend to stay consistent in the large markets, despite economic fluctuations. And with the state’s need for additional housing, we’ll continue to look for opportunities to capitalize on the housing deficit with both multifamily and single family projects.

We’ll also look at product type differently now, as some industries are being impacted more than others. For example, the hospitality industry should present some interesting opportunities now that many hotels’ profits are being hit hard during the pandemic. So instead of looking at a property as simply a hotel, we will instead look at the land and location itself and determine if hospitality is really the best use, or if we can use our entitlement expertise to reimage and potentially enhance the property value with another use.

5. How do you see the business world changing post-pandemic?

The change in the way we all do business during this crisis will certainly have an impact on how business is conducted post-pandemic as we find our new normal. I would anticipate many companies will be reevaluating their physical footprints, as they are currently getting to experiment with remote workers. I’m sure many companies will find the value in remote work and may in turn require less office space, or perhaps just a different type of space, as a result.

I also think we’ll see an even further adoption of remote meetings, with companies more closely evaluating the need of their employees to physically travel to meetings. Personally, I am finding I am still able to create meaningful relationships without as many face-to-face meetings. Not that video calls could ever truly replace human interaction, but I do think many companies may pull back on employee travel and continue to utilize things like Zoom for less important meetings.

6. What asset types do you feel are most recession-proof in this environment? 

I think that largely depends on the market, but housing and industrial seem to be strong asset classes across the board right now. As I previously mentioned, housing can be fairly recession-proof simply because there is such a deficit in terms of housing supply in many markets – especially in California and other large urban cities, where the population growth demands additional housing options. In fact, according to recent analysis, the 5.9 million single family homes built between 2012 and 2019 do not offset the 9.8 million new households formed during that time.

Industrial may also be a hot market, as the demand for delivered goods has increased substantially during the pandemic. I would image many people who never ordered their groceries and other items online pre-pandemic will enjoy the convenience and continue to order online post-pandemic. That may drive a need for warehouse space across the country to hold goods and make delivery timing more efficient.

7. How has the Fed cutting rates to zero impacted commercial real estate?

So far, not very much. While the fed rate is low, most lenders are not providing commercial loans during this volatility, or if they are, in many cases, the spreads have increased more than the underlying index has decreased. Having said that, I do expect that once the economy stabilizes, even to a moderate degree, rates will start to drop for commercial assets, and lending will free up for qualified buyers. In the long run, this should have a positive effect on those with maturing debt as well as those buying and selling assets.

8. What would you suggest to an investor or advisor who is looking for good investing options in today’s market?

My answer today is the same as it was before. First and foremost, how you invest, if at all, should be based on an investor’s financial status, risk tolerance and a variety of other personal factors. Second, should you choose to invest in today’s market, you should be entrusting your capital to managers who have a very long track record of performance, through multiple cycles, executing on a consistent strategy. Finally, find a sponsor who has a strategy that can take advantage of the current market dislocation, which includes having the right relationships to uncover opportunities where others may not see them, combined with the knowledge and experience to execute on the acquisition and business plan of those assets. In both good and challenging markets, there is always the potential for opportunity.

9. You have managed your business through many cycles – how is this one different from others, and do you see any unique opportunities today that may not have been available in previous cycles?

This is a different environment than any I have experienced in that it wasn’t economic issues that started the problems, but rather a virus. And, because of the uniqueness of the crisis, how long it may last, how to deal with it and its impact are all largely unquantifiable. However, real estate fundamentals have not changed. With the application of experience, knowledge, resources, diligence and vision, the right managers may be able to find opportunities that are less visible to others and try to transform that opportunity into value.

*There is no assurance that this strategy will succeed to meet its investment objectives.

Shopoff Realty Investments is an Irvine, California-based real estate firm with a 28-year history of value-add and opportunistic investing across the United States. The 28-year history includes operating as Asset Recovery Fund, Eastbridge Partners and Shopoff Realty Investments (formerly known as The Shopoff Group). Performance has varied in this time frame, with certain offerings generating losses.

This is not an offering to buy or sell any securities. Any investment in Shopoff Realty Investments programs involves substantial risks and is suitable only for accredited investors who have no need for liquidity and who can bear the loss of their entire investment. Securities offered through Shopoff Securities, Inc. member FINRA/SIPC, 2 Park Plaza, Suite 770, Irvine, CA 92614, (844) 4-SHOPOFF.