Vaccine Hopes Rally Markets, What’s Next for Real Estate?

Monday’s announcement of positive Phase 3 results from Pfizer’s vaccine trials caused one of the largest stock market rallies ever, which has continued throughout the week. The anticipated timeline for approval is this month. December – vaccinations for most vulnerable. January – vaccinations for first responders/health care workers. March/April – should be widely available. Experts such as Dr. Fauci and Sir John Bell are predicting life “returning to normal” by Spring 2021. Stay at home stocks such as Zoom saw values drop. Sectors including “return to normal” stocks such as tourism, airlines, movie theaters, theme parks rallied. Interest rates moved as the 10 year treasury jumped from 0.80% (Monday morning) to 0.98% as of today (look for 1.00% as a key technical level). The prospect of an “endgame” to the COVID crisis should theoretically return yields to their pre-COVID levels (10 year at about 1.50%). It will be interesting to see how this affects capital markets and lending criteria on the different sectors. Will next summer see consumers back to pre-COVID “normal”, ie. returning to indoor restaurants, movie theaters, gyms and traveling to crowded conventions? Lots of variables remain. For example, no one expects office occupancy to snap back to 2019 levels. The switch to work from home, either part time or full time, will remain for many workers. Lenders will be scrutinizing these trends when determining underwriting standards going forward. It’s definitely a game changer for hotels and retail. Owners in distress can now see their way to a better day. This may stave off the feared bloodbath of properties and loans being sold at bargain prices. Lenders typically reluctant to foreclose on properties will hopefully help existing borrowers get to a mid 2021 recovery. Of course, this brings the spotlight back to fiscal and monetary policy. Will there be a help for small businesses, tenants, homeowners, commercial real estate owners, etc? Congress is again sending signals that a stimulus will pass. Now the anticipated timing is before year end during the lame duck session. December 11 is the deadline to avoid a government shutdown. Stimulus could be baked into that. Hard to predict in today’s environment. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners