Part II of our Two-Part Series

Since mid-March, we’ve received a lot of questions from investors about the implications of the COVID-19 virus for multifamily real estate and PCRP Group’s business model given the uncertainty of the times. We’ve answered a lot of them individually, but it struck me that taken together this would be a great resource for our entire community of investors.

This is the last of our two posts on this topic – though questions continue to be answered individually by our team via email. Feel free to keep sending them to And here’s a link to Part 1.

4. Are your climate resilient markets proving more resilient to COVID-19, too?

Readers of our insights feed will know by now that when we say resilient, climate is a big but hardly the only factor we weigh. For instance, we avoid Midwestern flood plains, earthquake zones and regions prone to severe drought, too. But my background as a former Partner at the global risk consultancy Control Risks has trained me to use a simple tool to stress test any project: scenario analysis. (For instance, I did this piece on the stresses facing the office market: Commercial Real Estate and COVID-19 – Three Scenarios – for one of my clients in March).

So “resilience” goes beyond natural disasters. It means looking at job creation and the diversity of the region’s economic engine, demographics and migration patterns, education levels, insulation from high taxes and landlord-bashing regulatory risk like rent control, and the existence of the kinds of research universities and public institutions that tend to survive regardless of the business climate. Did we factor in pandemics? Not specifically, but numbers so far suggest that the factors we do look at were pretty good at predicting how resilient the regional response has been.

Our primary focus markets – Atlanta, Denver, Indianapolis, Columbus, North Carolina’s medium-sized cities (Charlotte, Greensboro, Raleigh). Each of these represent dynamic, youthful, and climate resilient markets with many or all the attributes described above. They also generally represent the most densely populated communities in their states. Despite this, they have suffered relatively low death tolls compared with other areas, they’ve been leaders in adaptation and are in the vanguard of large communities charting their way to some kind of renewed economic activity.

Indeed, only one figures in any way on the CDCs list of most effected cities, and in the case of Marion, Ohio, located 50 miles north of Columbus, the spike has been traced to a large prison.

Of course, this could look very different in two or six months. Prematurely reopening local economies can court disaster; and a second wave in the autumn may unfold very differently. But for now, PCRP Group’s markets have shown much greater resilience than similar sized cities in coastal regions or other areas we leave to others.

5. When do you see the market turning around, and in what kind of shape will it be in?

 Our current thinking is that risk is nearly impossible to price into any large real estate project right now. That is likely to remain true until at least October, when we will know for sure whether a second wave of the virus flares (and assuming that a vaccine is neither discovered nor widely available by then). As I mentioned in “Waiting for the Buffet Moment” last month, we expect that multifamily operators working on very thin or non-existent margins will tough it out through the summer in the hope of further largesse from Washington that will not be forthcoming.

By Q3 2020, we expect to see a large number of viable properties coming onto the market, though at first at prices that still do not fully square with the magnitude of the crisis we’re suffering through. Buy Q4 or at the latest Q1 2021, with little or nothing left in the tank and patience from their investors and creditors exhausted, that Buffet moment will be upon us.

Of course, that’s just a forecast, and many things can affect it. The second wave, of course, or a radically more generous stimulus package from Washington (unlikely but not impossible from an administration up against the electoral wall and which has shown no concern for US debt levels). The health of the US mortgage industry and banks in general, too, will matter and cannot be taken for granted. But we believe that very favorable conditions for our investors will exist in late 2020 and early 2021.

6. Everyone always says diversification is really important for investors. Why shouldn’t I put more money into the stock market which seems to be recovering instead of locking it up in a longer-term multifamily project?

Investors are sovereign: in effect, you are the kings and queens of your castles. But the stock market, which spent much of April setting new records for panic selling, promptly demonstrated its detachment from the so-called “real economy” (and, I would argue, reality) but clawing back half of its historic losses.

As of May 11, the Dow Jones Industrial Average is back where it was in August 2017. But its gyrations on March 20 wiped out a half decade of gains, and its movements seem increasingly to resemble a casino more than an assessment of financial fundamentals (See my March piece, “How’s that Stock Portfolio, Dave?). But don’t take it from me: The Economist magazine, Mark Zandy of Moody’s, and my former boss, the economist Nouriel Roubini, all see enormous risk in the stock market right now.

Compare owning a stock like Boeing, which as of this writing is down 60% from its pre-crisis level, to an apartment building, which even in the worst-case scenarios (and my former boss Nouriel can go on about those) is still a brick-and-mortar asset that with enormous value. I own some stocks, too. And two motorcycles. It keeps life interesting. But my retirement: multifamily real estate.

7. How does COVID 19 affect longer term prospects for those of us looking for passive income in retirement?

And that brings us to the $1 or $2 or $50 million question: Does COVID-19 change anything about the favorable tax advantages, passive income distributions and other benefits of being a multifamily real estate investors. Well, of course – but in a good way.

From a macro perspective, it is almost inconceivable that the United States will emerge from this crisis in better shape than it went in. Advocates of the “V” shaped recovery notwithstanding, US debt levels are soaring, our quite uneven response to the pandemic (in which, on a deaths per capita basis, we are the undisputed superpower of Planet Earth), is chipping away at the global influence that has helped make the US economy the most dynamic in the world.

All of that, to me, suggests that holding hard assets – including some stocks and bonds, sure, but also gold, silver and a lot of real estate – is the way to prepare. Companies will emerge from this crisis grievously wounded; some may not emerge at all. Their shareholders will be left with nothing – not even a tax write off to cushion the blow.

Back in January, when the new virus was just a news story in China, I wrote about the enormous tax and passive income advantages of being invested in multifamily real estate. Passive investors – also known as Limited Partners (LPs) – who invest in our multifamily projects avoid headaches like maintenance, insurance, filling apartments, dealing with tenant complaints or local tax issues. Those are PCRP Group’s problems. Instead, in a typical deal, the LPs collect a quarterly distribution of 7-to-8 percent annually and get some very active help from the US tax code (For a full list of these benefits, see my January piece here. In a time of uncertainty, owning tangible assets is a smart move.

Of course, many people involved in creating an investment group might add here: “There’s never been a better time to invest in multifamily real estate.” I’m not going to do that. First of all, it’s a cliché. But most importantly, it is not true. This is a moment to focus on your loved ones, your health and keeping your powder dry. As Buffett himself said at Berkshire Hathaway’s annual shareholder’s meeting on May 3, “You can bet on America but you’re going to have to be careful about how you bet,” he said. “Markets can do anything.”

And there’s nothing more American than the real estate these assumptions sit on.

Always remember, at PCRP Group, we love talking about multifamily real estate, the basis for our views and how investments in our projects can produce lasting, tax-advantaged, sustainable and resilient income streams for decades to come. If you would like to learn more about the advantages of multifamily investing with us, email me at to schedule a call or just to chat.