I have been asked several times during the past couple weeks about the impact COVID-19 will have on real estate and my answer is, we can only speculate because this is still playing out and we have no idea of the pandemic’s duration or total impact.
We are certain it is severe. It is unlike anything we have experienced in recent times. What I am sure of is the normal approach, the typical attitudes and strategy, is not likely to work and maybe will cause more damage.
Are we resilient? Can we absorb these impacts in Phoenix as a place? Yes, but it will take a “shared” mentality. Resiliency is ability to absorb shocks. Resiliency of places and populations is derived from well-formed formal and informal social networks and systems – the ways and means of helping each other. Our required response to this crises is the opposite – maintaining distance and having limited connection.
The systems we need are impeded, restricted and in some cases unable to function. Technology may help to remain connected and supportive as well as offer some comfort. We need more than just comfort. We need collective support.
Real estate is an industry where value is derived from others using and paying for use of space, but those very people and organizations that establish that value are now prohibited. They are closed down or at risk of closing. Business are shutting down, and people are losing their jobs.
How do we respond? Foreclose, lock-out? What good does that do when there is no replacement for those tenants. Forbearance at all levels is the best approach. Do we do more community damage by enforcing our contractual rights as owners? Do we recognize the need for shared value — in this case, a shared community value? The values we seek to defend, protect, enforce are derived from the community, not the buildings themselves.
Real estate is more than a source of cash flow, wealth and income. It is the physical infrastructure within which society functions and communities exist. Shared value recognizes that we derive value from the community and as such the corollary also exists, that of shared responsibility, support, risk and, yes, suffering.
The entire system that is real estate industry needs to recognize that forbearance and support for those who establish our value is needed.
This crises will end, we just don’t know when. But when it does, what is left? I hope the industry, including lenders, recognize that just because they can foreclose, lock out, evict, doesn’t mean it results in a better outcome and possibly it makes matters worse. No one knows what happens, what impacts there will be, we can only speculate. What we know is our decisions require careful, thoughtful, non-traditional and more compassionate thinking.
In closing, think of these words from Martin Van Buren: “Mutual forbearance and reciprocal concessions: thro’ their agency the Union was established — the patriotic spirit from which they emanated will forever sustain it.”
Mark Stapp is executive director of the masters program of real estate development at Arizona State University’s W.P. Carey School of Business.
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