Reed Smith Client Alerts

COVID-19 has undoubtedly had a seismic impact on the global real estate industry. In the short term, we’ve seen an inevitable hiatus in deal activity (global investment volumes for H1 2020 have fallen between 30 per cent and 40 per cent below H2 2019 levels). Looking forwards, it is clear that the pandemic will continue to act as an unparalleled disruptor on the industry at large, giving rise to existential challenges, but also presenting matchless opportunities for those that are positioning themselves closest to the new centre of gravity that will emerge from its disruptive force. Whilst deal activity has dipped in the short term, underlying demand for global real assets remains resolutely strong, and many of the world’s largest and most successful real estate investors have spent lockdown busily amassing the dry powder they will use to ignite the opportunities revealed in the aftermath of the pandemic. What this tells us is that the industry is going to bounce back, and that when it does, the recovery will be hard and fast – as investors compete to deploy their dry powder at the bottom of the market into distressed assets in the sectors that show the most immunity to, or indeed that directly benefit from, the pandemic. As the recovery gathers momentum, we are predicting a major uptick in the three deal structures discussed below: sale-and-leaseback, RE secondaries deals, and JVs and club deals.

Authors: Chris Beaumont-McQuillan

COVID-19 has undoubtedly had a seismic impact on the global real estate industry. In the short term, we’ve seen an inevitable hiatus in deal activity (depending on whose report you read, global investment volumes for H1 2020 have fallen between 30 per cent and 40 per cent below H2 2019 levels), largely stemming from the practical difficulties associated with diligencing and valuing assets at the current time. Looking forwards, it is clear that the pandemic will continue to act as an unparalleled disruptor on the industry at large, catalysing various sector trends which, while known about before lockdown, were still then in their infancy (e.g., the flight to logistics and Big Data, and the repositioning of office, retail, and residential). In so doing, COVID-19 is unquestionably giving rise to existential challenges, but it is also presenting matchless opportunities for those that are positioning themselves closest to the new centre of gravity that will emerge from its disruptive force.

It is no surprise, then, that many of the world’s largest and most successful real estate investors (Blackstone and Brookfield, to name but two) appear to have spent lockdown busily calling capital from existing LPs and JV partners, and, indeed, raising new funds – in other words, amassing the dry-powder they will use to ignite the opportunities revealed in the aftermath of the pandemic.

What this tells us is that, although deal activity has necessarily dipped in the short term, underlying demand for global real assets remains resolutely strong, particularly among the elite institutions that make and move the market. This should come as no surprise. In a world characterised by unprecedented economic uncertainty, it stands to reason that investors will tend to pivot towards assets such as real estate that (in spite of the tectonic shifts going on around us) retain their ‘safe haven’ status across most subsectors. This is doubly true, given that interest rates are set to remain at historic low levels for the foreseeable future, thus rendering many other investment classes (particularly fixed income) less rewarding.