A few weeks ago, I spoke to an old friend who had a high-flying career in financial services both in New York and London before retiring to, basically, tend to his garden. We talked briefly about what I’m doing at PCRP Group, and whether he would be interested in becoming a passive investor, explaining all the myriad tax advantages, the resilient, unparalleled annual returns, and the fact the investment is in a physical asset – a building – rather than a corporate equity, which is, at the end of the day, only as valuable as the paper it’s printed on.

My friend ­– Dave, let’s call him – said he already had enough of his assets – about 10 percent ­– exposed to real estate through REITs. “Let’s see what the market does,” he said.

In the past few weeks, Dave and others like him rode the Roller Coaster of Risk that always hovers just about the public stock market. Sparked by fears related to the coronavirus outbreak – a risk on no one’s radar just a month earlier – the Dow Jones Industrial Average lost 12 percent over that period. REITs were not immune, either. And while it clawed back some value Monday when central banks in the US, Japan and the EU promised to do what was necessary to halt the slide, a subsequent rate cut on Tuesday exposed a stark reality: No one knows what will happen next or if government intervention can stop the erosion of value that puts the retirement dreams of hundreds of millions of people at risk. Look at this midday chart from the Wall Street Journal:

Dave and I go way back, and I know he can take this punch, just as he weathered 2008, thanks to the success he had building up a war chest earlier in life.

Not Everyone Is Dave

But for those investors who remain “overweight stocks” – that is, who have put their life savings and their retirement hopes heavily into stocks, surprises like this could be devastating, especially if they’re expecting to live on dividends.

Think about it: A couple planning to retire next spring who loses 12 percent of their life savings overnight might just decide that retirement is now out of the question. For tens of millions invested primarily through 401Ks and mutual funds, this moment is inducing a palpable and sickening sense of déjà vu, with memories of 2008-2009, when the Dow lost 53 percent of its value in just nine months. Even those who rode the February tiger well had to live through the stress and uncertainty of finding that, once again, their financial fate is not in their hands.

It doesn’t have to be like this. PCRP Group investors (and others who put money into alternative investments as Limited Partners in multifamily real estate) had few concerns in this scenario. Of course, a global economic turndown eventually lowers all boats. Yet the current crisis holds out very little risk for commercial residential real estate.

Indeed, as the giant asset manager CBRE notes in a new report,[i] the commercial real estate sector as a whole will face little impact, with the risks concentrated in hotels and retail due to possibly lower tourist visits as quarantines and other policies are promulgated. But for multifamily residential, the impact will be minimal. “CBRE’s full-year outlook for 2020 is not materially affected.” And its 2020 outlook[ii] forecast good things ahead, with vacancy rates in multifamily well below the long-term average and rent growth continuing nationally at 2.6 percent annually, and much higher in the markets PCRP Group targets.

Partly, this is down to the fact that, unlike 2008-2009, the mortgage market has nothing to do with the current crisis, which is about global trade and the credit markets it supports freezing up. Multifamily actually performed quite well during the worst years of the Great Recession, but because the crisis originated in shoddy practices in the single-family market, values in the single-family housing market were devastated. Multifamily residential occupancy rates chugged along nicely through the worst of the crisis, especially so-called “B” and “C” class or “workforce housing,” the kinds of properties that in PCRP Group’s portfolio.

I would go as far as saying that the multifamily investor is shielded more comprehensively than just about any other investor category at the moment.

Lessons and Reminders

Resilience is just one feature of multifamily real estate investing at this moment. 2020 also happens to be a banner moment for tax policy, with investors enjoying multiple ways of defraying the passive income such investments produce even as PCRP Group’s General Partners manage rehabs, improvements and other aspects of the project to maximize appreciation. (For more, see my previous note, Inevitable? Well, Death We Can’t Help You With. Taxes Are Another Story).[iii]

As we look forward, no one knows for sure how bad the current situation will get.

  • Will the market continue to “correct” next week, or will brokers conclude the selloff was a panic and pile back in?
  • Is China’s contention that new cases are declining believable? Does that even matter at this point with the coronavirus taking root and spreading abroad in countries what won’t have the capacity to shut down entire cities and provinces as the authoritarian Chinese did to Wuhan and Hubei?
  • Can the Federal Reserve and other central banks, already holding interest rates to historic lows, cut enough to make a difference? Many economists doubt it and have been warning that the monetary weapon is just about out of bullets.

I’m experienced enough as a global macro analyst to have an opinion on all those things and more, but also honest enough not to pretend I know the answers. (For smug self-assurance, tune into CNBC sometime).

What I will say with assurance is that commercial residential real estate is a sheltered harbor in this storm. Home is where the heart is, and as a little girl from Kansas once said, when the winds really kick up, “There’s no place like home.”

Imagine even a worst-case scenario for coronavirus, that it kills thousands in the US, sparks mass quarantines, factory and school shutdowns and a complete ban on travel abroad.  What will seem more valuable to human beings at that moment than a secure home to shelter in?

Multifamily real estate offers unprecedented resilience in the face of global crises like these. Corporations will find it difficult, in this globalized world, to keep factories humming along with the virus affecting their supply chains, and that problem will trickle down to retail and hospitality and other sectors. But the right property in the right market will chug right along, as they did in 2008’s crisis, with tenants paying rent, quarterly distributions flowing to investors, and the building itself appreciating along the way.

At the risk of repeating myself, remember this line about the crisis that has market forecasters struggling for explanations:

“CBRE’s full-year outlook for 2020 is not materially affected.”

See if your financial advisor can say the same.

Michael Moran is Managing Director and Co-Founder of PCRP Group. To book time to discuss how our investment strategies can produce tax advantage income, long-term gains without the ride on the Risk Roller Coaster, email him at mike@pcrpgroup.com



[i] Viewpoint: Potential Impact of Coronavirus on US CRE Industry, CBRE, February 19, 2020 https://www.cbre.us/research-and-reports/US-Viewpoint—Potential-Impact-of-Coronavirus-Outbreak-February-2020


[ii] 2020 Real Estate Outlook, CBRE,  https://www.cbre.us/research-and-reports/2020-US-Real-Estate-Market-Outlook-Multifamily


[iii] Inevitable? Death We Can’t Help You With, But Taxes Are Another Story, PCRP Group, January 24, 2020 https://pcrpgroup.com/inevitable-well-death-we-cant-help-you-with-taxes-are-another-story/