Investing in 2020 and Beyond
The year 2020 has been a year ups and downs for many, and the world of real estate investment has been no exception. In particular, since the local real estate fund that I help manage has holdings in 11 states, it has given me a front row seat to experience the highs and lows as felt by the different classes of investments in the areas of the country where we are active.
A common theme amongst many of our projects and notes being paid has been delays due to COVID and related government-driven regulation. In some cases, this has amounted to slower than normal turnaround times by the agencies in charge of approvals, in particular on our projects in California and Arizona. In other cases, it has involved lockdowns for extended periods, such as the total moratorium we experienced in New York during the early stages of the pandemic.
The residential markets saw record prices and historically low inventory levels nationwide, so our larger residential developments helped keep us in the black while several of our smaller investments in hotel entitlement and redevelopment projects took a rain check on 2020, with those poised for a return to profitability in 2021 as the Nation starts to see light at the end of the COVID tunnel.
The office market remains in question, as many large companies and their workforces start to reevaluate whether it makes sense to go back to the old structures of work. Fortunately, our fund isn’t carrying any office inventory, but we could certainly explore opportunities to repurpose office buildings as residential complexes as demand drops for a fixed workplace and the need for housing continues to rise in the face of dwindling supply.
With the recent stimulus bill granting an extension on the foreclosure moratoria for 1-4 unit properties, we are experiencing first-hand the effects of a temporary drop in our income on one of our notes where a borrower has stopped making payments, while continuing to collect rents on the property that the loan is secured against. Fortunately, the temporary drop in income from that note is being offset by more profitable investments elsewhere, and there is more than enough equity in the property to recover any defaulted amounts owed to us when the latest moratorium lifts.
The overall effect of having a diversified portfolio, instead of keeping all our eggs in a single note or project, is that the fund has been able to maintain positive returns throughout the pandemic, and the future is looking even brighter as the impacts of the COVID economy slowly recede and we can get back to business as usual on all our investments.
Here’s hoping we all have a safe and happy holiday season in the meantime, and to learn more about the fund you can reach out to me personally or review our information at www.firmusfinancial.net