Investors Prefer Debt Investment During COVID-19 Era

Real estate debt investment has become more attractive relative to equity investment during the COVID-19 pandemic, institutional investors said.

The Pension Real Estate Association, Hartford, Conn., surveyed institutional investors including insurance companies, real estate investment trusts and pension funds about the coronavirus outbreak. It found nearly 40 percent called debt investment more appealing under the present circumstances than equity investment. Just over 22 percent of respondents said debt investment has become less appealing than equity and 38 percent saw little change or had no opinion.

More than two-thirds of respondents said they believe appraised values will have “material uncertainties,” due to present circumstances, PREA said. Nearly 25 percent said appraisals conducted during the pandemic may be “somewhat” less accurate than before. Just over 5 percent believe appraisals conducted today will be as accurate as under normal circumstances.

Most institutional investors continue to work remotely, the report said. More than 90 percent said all or most employees are working from home. Half of those employees said they would prefer to work remotely at least part time even after the COVID-19 threat subsides. Just over 12 percent said they prefer to be in an office and would rather not work remotely at all after the pandemic.

“I do not want to return to a high-rise office building with no control over air systems and windows that do not open,” one survey respondent said. But others noted being in the office and able to work with a team “is far more efficient and productive.”             

Investors are responding differently to the pandemic based on the property type they own or invest in, PREA said. For retail properties, just over half of investors have held initial discussions with lenders about debt payment forbearance or other restructuring and nearly one-quarter have actual forbearance or restructuring agreements in place. But for the industrial sector, less than 20 percent of investors have had even initial conversations about forbearance and well under 10 percent have such agreements in place.