Hodes Weill’s 2021 Market Commentary
Won’t Get Fooled Again
As we reflect on the year just ended, it is hard to imagine anyone anticipating the events that transpired, though in hindsight, maybe we shouldn’t be so surprised after all. We’ll leave that debate to the politicians, pundits, scientists, immunologists, and climatologists to decide, but 2020 was a year during which we saw a confluence of risks that have been hiding in plain sight for years.
We will skip the now familiar, and overused, references to Zoom, WFH, social distancing, and virtual-everything, though we would like to recognize the real estate investment management industry for evolving, adapting and finding creative solutions to advance business initiatives in a difficult year. Our industry largely maintained the continuity and intensity of work and investment plans when all the familiar ways of doing business suddenly had to change. Investors and managers navigated these challenges and rose to the occasion.
When we were drafting this annual commentary last January and projecting about the year ahead, we commented that we were “struck by the remarkable similarity” of our outlook to the prior couple of years. Well, we imagine that our readers would have been happy if the markets in 2020 had been as “boringly the same” (our words!) as the prior years. We acknowledge that we missed the mark by a wide margin.
That being said, we also went on to write that “despite conflicting market signals, geopolitical tensions, and another year of increasing valuations, global investors are staying the course and continuing to deploy capital into real estate assets...”.
So, while we were as wrong as possible about market conditions once the impact of the Global Pandemic was felt, especially the uncertain outlook for future tenant demand across many property sectors, we nailed it with respect to the increasing impact of geopolitical considerations, and a continued rise in valuations for a couple of the hottest real estate sectors.
The point is not that we were almost right. Rather, we want to focus on how institutional real estate investors addressed and underwrote these “unprecedented” (the most overused word of 2020) risks. We began the year knowing that the world was awash in geopolitical risk; that there was a significant divide in the US that was likely to be inflamed in a Presidential election year; and that there was substantial evidence of climate change that could have a major impact on real property — from forest fires to hurricanes to rising waters. We even had the first inklings about COVID-19, given that an event like the pandemic had been predicted for years.
And now, even with the benefit of the knowledge of the past 12 months, have we changed how we underwrite and assess these risks? Do we see more risk or opportunity ahead?
So, as a new decade unfolds, amidst unprecedented (there’s that word again) change and challenges to how we originate, underwrite, diligence, value, and forecast, we are pleased to share our 2021 Market Commentary.
View our full market commentary below: