I was recently asked about why I'm not writing more about the impact of COVID-19 on the real estate industry and on city building more broadly. The honest answer is that, like everyone else, I've been preoccupied with two other topics: our health and our economy. And as we write this playbook for the very first time and start to think about reopening the global economy, these are the two things we are obviously going to need to balance.
I also don't believe that we're going to see a fundamental reshaping of our cities. Many of the trends that were already underway could get accelerated. But it feels too premature to prognosticate pivotal shifts in the way we are going to live our lives (though they make for good headlines). And, ultimately, I believe wholeheartedly in what Fred Wilson wrote earlier this week: "In person social interaction is the core of being human and I think this pandemic is reminding all of us how vitally important that is."
All this said, it is probably time to talk about what's happening in the real estate / development space.
Much of the real estate industry has been focused on rent collection and on working with all of its various stakeholders so that as many people and companies as possible can make it to the other side of this. Everyone has bills to pay. Tenants have expenses. Landlords have expenses. And I don't think that many people appreciate how interconnected and circular the whole system is. The rents that get paid are, in many instances, being used to fund people's retirements. (i.e. The real estate is owned by pension funds.)
Earlier this week, Slate Office REIT announced that it had collected 97% of April rents and Slate Retail REIT announced that, as of April 14th, it had collected 80% of April rents. These are extraordinary numbers, particularly when you consider that retail and hospitality are two of the hardest hit asset classes right now. Over 60% of Slate Retail REIT's portfolio is made up of essential tenants, such as grocers and pharmacies, which is why this number is so above average for the retail space. This was a deliberate decision made well before COVID-19.
On the development side of things, projects in the approvals phase are still moving along, albeit more slowly. All municipalities have rightly cancelled in-person council meetings and in-person public meetings. But I don't see why these can't shift to an online forum and I hope that we will see that happen sooner rather than later. We are spending time on this. I also see it as an opportunity to reconsider how community engagement is done and how the process can better collect broad-based community feedback. As we all know, public meetings tend to attract one particular demographic.
Pre-construction condo sales and land sales have slowed dramatically. As Charlie Munger mentioned in the Journal this week: "Everybody's just frozen." We are all trying to glean what the future holds. (Charlie and Warren have been remarkably quiet over the last several weeks, but they'll be on the online stage -- on my birthday -- for their annual meeting.) At the same time, we have noticed sentiment start to become more positive over the last week or so and we have sold a number of larger suites at Junction House. In my humble opinion, now is an excellent time to continue making these sorts of decisions if you are in a position to do so.
I will end by saying that we are all trying to find our way during this unprecedented time. Now is not the time for parochial attitudes. We are all in this together. It is our health and our economy. The global economy is far more interconnected than some might think. If any of you know of causes that you believe should be supported right now, I would encourage you to leave those suggestions in the comment section below.
