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The current pandemic and global response is a once-in-a-lifetime event that has affected all of our lives in significant ways. In addition to rapidly addressing the short-term implications, real estate leaders must begin to think strategically about the long-term implications of the event. As MIT Technology Review’s Gideon Lichfield wrote, “We’re not going back to normal.”

From my vantage point working with multifamily owners to anticipate changing resident demands, the following are five developments that I predict will accelerate in the future, post-pandemic age. Beneath each trend lies an opportunity for owners and operators to capture in the coming years.

1. Increased Adoption Of Delivery Services 

Prediction: The percentage of residents who shop online for necessities will increase, with online grocers seeing the largest percentage of new adopters. Online grocery apps are being downloaded at record-breaking rates. This trend will continue and be a lasting change in the new normal.

Opportunity: Multifamily owners who adjust their operations to best receive and distribute a variety of packages (including perishables and high value) to residents will be at an advantage. The e-commerce boom and resulting increase of packages has been an existing logistical issue for multifamily owners. While smart package mailrooms are part of the solution, it will be increasingly valuable to create additional layers of service to ensure safety and cleanliness, particularly for perishable items.

2. Remote Working Acceleration

Prediction: Remote working will become more widely accepted and employers will increasingly need agile real estate strategies that maximize value and flexibility. Many of us have had too many Zoom calls to remember in the past few weeks. This personal experience is indicative of widespread adoption. In the midst of a chaotic time, tools for remote work have proven reliable for many. This short-term success of remote working coupled with companies’ need for flexible real estate strategies will accelerate the acceptance of remote work.

Opportunity: Residents who are working remotely for a portion of their workweek will desire a third space outside of the home, so multifamily owners who operate a workspace in their buildings will create a competitive advantage. A workspace offering will add the most value when it goes beyond providing a basic space and chooses to align itself directly with end-user needs, such as bookable meeting rooms, programming and events.

3. Automated Public Spaces

Prediction: A general shift in social norms and social behaviors will increase the use of automation in public spaces. Implementation of all types of touchless technology will increase, from automatic doors to voice-activated elevators to hands-free light switches.

Opportunity: Owners who are adept and first to market at retrofitting and adding these smart elements to their buildings will have an advantage. How operators strike the right balance of frictionless automation with human-centered hospitality will be key.

4. Increased Importance Of Property Management 

Prediction: As residents spend more time at home, they will expect more from property management, and the importance of service, cleanliness and reliability will increase. Over time, brand recognition of property management companies will increase and more substantially differentiate one multifamily asset from its competitive set.

Opportunity: Multifamily owners who build a strong consumer-facing brand based on operational consistency will have an advantage. Owners who add additional layers of service, whether provided through an affiliated third party or in-house, will achieve further differentiation, especially in class A multifamily.

5. Human Connection Becomes Increasingly Valuable 

Prediction: The core mission of my company is to draw people out of isolation, which makes this trend particularly important to me. As society moves from wide-spread quarantine to the new social norms, the already existing loneliness epidemic will, unfortunately, continue to grow. In 2018, three in five adults (61%) reported feeling loneliness in the well-documented Cigna study. Tragically, we expect this percentage to rise, which may have serious health implications.

Opportunity: Multifamily owners who create operational rhythms for resident connection before, during and after work will attract and retain a disproportionately large number of residents. This operation likely functions similar to a hotel bar, drawing residents out of units and into a space with opportunities for connection. The current lobby and first-floor amenity space is the ideal location of this connection hub. As technology continues to remove friction and human interaction from the consumer experience, people will be more hungry than ever for human interaction. Buildings and operations that can provide places of connection will be in high demand.

In the age after the pandemic, customer-centric sensibility will be critical to best position existing assets in what will be a more competitive landscape. Winston Churchill famously said, “We shape our buildings, and afterwards our buildings shape us.” The coronavirus will more than likely shape us in such a way that our buildings and operations will need to be reshaped. Multifamily owners and operators who are best positioned to address the change in behavior will not only be good for society, but will perform the best in the new normal.

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Edward Sonshine, the CEO of RioCan REIT. (Courtesy RioCan)

Investors are getting a much clearer picture this week of the impact, so far, of the COVID-19 pandemic on some of Canada’s largest retail-based commercial real estate firms.

REITs such as RioCan (REI-UN-T) and SmartCentres (SRU-UN-T) have released business updates, while Choice Properties REIT (CHP-UN-T) will report its Q1 earnings tonight (April 22) and hosts its investor conference call Thursday. 

As unit prices take a hit from the general market downturn and measures to control COVID-19 — RioCan was off more than 40 per cent year-to-date (as of close April 21), SmartCentres down over 30 per cent, Choice down about nine per cent — the companies are focusing efforts to assist tenants and prepare their business to ride out the turmoil.

RioCan says it collected 66 per cent of expected rents (as of April 20) from its business tenants. It approved two-month rent deferrals for an additional 17 per cent (about $15 million in monthly revenues).

“The majority of our properties are considered beacons of the surrounding neighbourhoods where they are located and provide necessity-based essential goods and services during this health crisis,” said CEO Ed Sonshine in a release.

“We are committed to a high level of responsibility, access and support for our stakeholders so that these critical and essential services can be maintained.”

The numbers are similar for SmartCentres, which reported 70 per cent of expected rents collected, after deferrals which were granted to some tenants.

Update from RioCan

RioCan’s portfolio has undergone a significant repositioning during the past two years, with the divestment of most holdings in secondary or tertiary markets to focus on Canada’s six largest urban markets. It is diversifying the portfolio through new developments and redevelopment at existing retail properties.

“More than 90 per cent of RioCan’s portfolio is comprised of grocery-anchored centres, mixed-use / urban centres and open-air centres,” the release states. “Grocery-anchored centres alone accounted for 40.9 per cent of annualized rental revenue as of year-end 2019.”

Many of these anchor retailers are deemed essential services, so they remain open.

On the diversification front, RioCan received 96 per cent of expected rent from its two new multiresidential properties, eCentral in Toronto and Frontier in Ottawa.

The REIT’s support and rent deferral program has been focused on small business, independent tenants and smaller national tenants on a “case-by-case basis.”

As impacts from the pandemic continue, it is also willing to work with any national tenants “while protecting the trust’s rights and financial positions.”

$1B in liquidity

RioCan reports about $1 billion in liquidity as of the end of Q1 2020 consisting of cash, undrawn portions of its revolving unsecured line of credit and construction lines of credit. The trust also has $9.2 billion of unencumbered assets.

During the remainder of 2020, RioCan has about $126 million of mortgage maturities remaining, but it expects these to be refinanced “in due course.”

Its $400 million in debenture maturities in June and August 2020, RioCan says, have been effectively refinanced with a $350-million, seven-year inaugural Green Bond issue completed in  March.

“RioCan’s solid foundation is its resilient, major markets-focused portfolio, which was built to withstand challenges and adversity,” Sonshine said in the release. “We are in good financial health with a strong balance sheet and ample liquidity.”

To preserve cash, RioCan’s crisis management team has reduced spending, including: municipal tax and HST/QST deferrals, energy reductions, maintenance and revenue-enhancing capital expenditure reductions, staffing level adjustments, and streamlining procurement and operating costs management.

Construction at most of RioCan’s current projects continues, albeit at a slower pace, but the trust is stopping “new or early-stage projects.” This will reduce planned spending on development by $100-to-$150 million during 2020, to the $350-to-$400 million range.

Finally, RioCan has withdrawn its growth guidance, and plans to provide a further update during its Q1 2020 investor conference call on Tuesday, May 5.

RioCan’s 2020 AGM is subsequently scheduled for Tuesday, June 2. It will be conducted as a “virtual” meeting.

RioCan’s portfolio includes 220 properties with a net leasable area of approximately 38.4 million square feet (at RioCan’s interest) including office, residential rental and 14 development properties.

SmartCentres update

Transit City Condos at the Vaughan Metropolitan Centre. (Rendering courtesy SmartCentres)

Like RioCan, SmartCentres is also engaged in a major overhaul and repositioning of its portfolio, including an extended $12-billion development program.

Sixty per cent of its current tenant base is deemed essential, including its largest single tenant WalMart which accounts for 25 per cent of SmartCentres’ rental income.

For businesses which are heavily impacted, the REIT has been “proactively reaching out” with support through a rent deferral program.

“The majority of our tenants are healthy and paid their rent. While we are disappointed by the non-payment of rent by some strong capable companies, we still believe that we will collect April’s rent in due course,” said president and CEO Peter Forde in a release. “We expect strong retailers to pay their rent obligations. 

“This also enables us and our peers to support the smaller more vulnerable retailers through this difficult time.” 

To provide additional liquidity if needed, SmartCentres has nearly $6 billion in unencumbered assets, a $500-million operating line of credit and project specific-financing for its ongoing developments.

While construction of several self-storage developments is on hold due too the pandemic, development at the Vaughan Metropolitan Centre continues within government restrictions. The first two condo towers remain on pace for unit closings in late 2020.

“SmartCentres was built for heavy weather,” said executive chairman Mitchell Goldhar in the release. “We have ample liquidity to weather the storm, for an extended period of time, if necessary . . .”

SmartCentres REIT has a portfolio of 157 Canadian properties valued at $9.9 billion. They comprise 34 million square feet of income-producing retail space with over 98% occupancy at December 31, 2019, on 3,500 acres of land.

RELATED ARTICLES:

* Dream and the pandemic: Investor Q&A with Michael Cooper

* Hutcheson, Morassutti look at path to COVID-19 recovery

* Canadian hotels have been major victims of COVID-19

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With federal, provincial, and local governments all hesitating to deliver an end date for when current measures could be lifted, it’s still hard to imagine what life post-COVID-19 will look like.

The number of possible outcomes depend on how each level of government (and subsequently society) continue to respond to the crisis and its economic impact. Hopefully, not only Canadians but people everywhere, use the pandemic to rebuild and create a better world for everyone. Or, we could wake up to something much worse.

From a real estate standpoint, could we see the market crash? Some experts say that’s unlikely, but the rising unemployment rate, which included the loss of 1 million jobs in March and many more Canadians fearing they’ll be out of work in April, combined with the slowing economy are cause for serious concern.

READ: Average Toronto Home Price Falls Nearly 4% in First Half of April: TRREB

Every industry has already taken a hit, including real estate, with sales, home prices, and new listings down across most of the country. But as physical distancing measures are lifted, the pent-up demand should translate to a significant recovery in home sales and prices, with some analysts saying this recovery phase could likely occur later in the fall.

Which raises the question, what will the real estate industry look like in the post-COVID-19 era, particularly here in Toronto?

Brynn Lackie at Chestnut Park Real Estate Ltd. says, like a lot of other industries, this crisis is forcing those in the real estate space to reconsider the way they do things and how they can better utilize the tools they already have at their disposal. “Creativity and innovation will be the natural outcome of all of this,” says Lackie.

Some signs of creativity are already in place, with buyers, sellers and agents turning toward virtual and 3D-home tours to get eyes on listings, as physical distancing measures and the cancellations of open houses remain in place.

“I think that now more than ever, offering a robust digital experience to market a listing to people safely tucked-in at home will be critical. Not to mention the fact that there are amazing tools available that most agents (myself included until recently) haven’t even begun to explore, let alone utilize – everything from virtual staging to cinema-grade HD interactive virtual tours,” Lackie said.

But as lockdown measures soften in the weeks and months ahead, Lackie says that until there’s a vaccine available or the virus disappears, people will continue to feel vulnerable.

“Let’s meet them where they are. I honestly can’t see how we revert back to ‘business as usual’ anytime soon, so as an industry we might as well take this moment as an opportunity to innovate and adapt.”

READ: COVID-19 Causes 80% Drop in Number of Condo Transactions in Toronto

Lorne Tanz, a broker with Slavens & Associates Real Estate Inc. echos a similar tune, saying that in the post-COVID-19 world he believes virtual tours will be an integral way for sellers to showcase their properties, even once social distancing restrictions are relaxed.

“Previously, buyers would likely see between 10-20 carefully curated photos of a property before deciding whether or not to view it in person. Because of the current limitations of physically showing a home, we’re now seeing a major increase in 3D tours. Buyers can virtually ‘walk through’ a property and get a much better perspective on size, flow, and sight-lines,” explained Tanz.

“My clients have found these tours extremely helpful when looking at properties and I anticipate that more agents will continue to use this technology.”

Even once the ‘curve is flattened’ in Toronto, the need for proper guidelines to be in place to ensure there isn’t another spike of cases in the months to come will remain. And without these guidelines, Tanz says he believes open houses will be “nonexistent.”

“An innovative way to highlight a property is through live-streaming open houses. Potential buyers can log onto a stream via Facebook, Instagram, ZOOM, etc., and get an in-depth tour with a listing agent while interacting and asking important questions about the home. This is definitely a practice that I will continue to use,” said Tanz.

“While nothing can truly replace seeing a property in person, the real estate industry will continue to go virtual and adopt new ways to market and view properties.”

READ: COVID-19 Could Have Big Impact on First-Time Homebuyers

Shaun Denis, CEO of Umber Realty Inc., says he sees the pandemic shifting the industry to be more innovative, with virtual reality, electronic signatures, zoom calls, and virtual open houses acting as just a few of the key pieces of technology already serving as the forefront of this change.

Denis says the pandemic will not just cause the industry to change for agents, but also for brokerages. “At Umber, we have fully stopped the use of cheques and all exchanges of money are now by electronic means. This is something we have been pushing to change for years, but it is now forcing other brokerages into the change.”

“The real estate associations and boards at all levels across Canada have adapted or changed in some way as well,” said Denis. For example, now that there has been a full stop to open houses, Denis says CREA and local boards have now implemented a data field on the MLS that allows consumers to tune in to Live Open Houses conducted by the agent.

Moving forward, Denis thinks the real estate industry will be divided into ‘two camps.’ “In the first camp, you will have agents that will go right back to the way they traditionally did business. The second group of agents will notice the benefits of utilizing technology and implement it into their real estate businesses.”

READ: Canadian Home Prices Could Drop as Much as 5% Due to Coronavirus: Report

While the broad consensus sees the real estate industry shifting to be more technology-driven, Matthew Cracower, a broker for Forest Hill Real Estate Inc., says he sees how showings and open houses are run could change.

“I can see this being limited to two people at a time but if groups are taking the right precautions to tour the home in turns, I see suggested procedures put in place,” says Cracower. “But I don’t foresee any strict bylaws or this procedure being enforced unless there are many who are ignoring these suggested procedures.”

While the end of COVID-19 might not necessarily be in sight, if history has taught us anything, it’s that Toronto’s real estate industry has recovered from dark economic days before.

And it likely will again.

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