Survey Results: Investing in Uncertain Times
The global outbreak of COVID-19 has provoked immediate and unprecedented economic impact: 30 million Americans filed for unemployment over six weeks in March and April, including a record high of 6.9 million the final week of March; consumer spending fell by 7.5% in March, the largest drop in 40 years; and unemployment is forecasted to reach 16.4% in May, the highest figure since the Great Depression¹.
Even in the best-case scenario, the economic pain will be significant, with impact rippling out through every sector of the economy in ways that are not yet fully clear. Still, we know that the precipitous shakeup of asset pricing and dislocation of demand will create opportunity for investors. Individual investors are better positioned now than in the wake of the financial collapse to tap into opportunities created by a rapid reordering of macro trends and societal patterns. Investors of all stripes are taking stock of their asset allocations and reevaluating long-term strategy.
A Gallup survey conducted in the first two weeks of April – when economic impact of the pandemic was on full display – indicated that only 21% of Americans think stocks or mutual funds are the best long-term investment². At 35%, real estate now leads among Americans as the asset class expected to yield the best long-term returns.
Current Perspective of EquityMultiple Investors
At EquityMultiple, we take a keen interest in the viewpoints of accredited individual investors – both their asset allocation strategy and overall outlook. To gauge the perspective of investors during these uncertain times, we conducted surveys of hundreds of investors before and following the global outbreak of the COVID pandemic. We conduct these investor sentiment surveys periodically to better understand investor preferences, and to identify opportunities as we pursue new deal flow that fits within our overall thesis and underwriting guidelines.
Here are some of the key insights:
- Two-thirds of surveyed respondents who have registered for EquityMultiple – but who have not yet invested – plan to invest this year, following the outbreak of COVID-19.
- Investors are less focused on current income, and more focused on appreciation, following the global outbreak.
- Related, investors now express slightly more interest in development projects, and significantly more interest in entitlement projects. Interest in Stabilized projects decreased.
- With respect to property types, the largest drop-off in interest is within Hotels and Offices. Affordable Housing, Mobile Home, and Senior Housing showed the strongest upward movement post-COVID.
- The asset class that has gained the most interest among surveyed investors (post versus pre-COVID) is Healthcare.
- Investor sentiment regarding positions in the capital stack – or payment priority – was largely unaffected by the outbreak. Investors indicated a marginal increase in desire to invest in senior debt positions, subordinate debt, and common equity. Investors indicated
- While around half of investors do not see tax-advantaged real estate investing as relevant to them (before or after the outbreak), there is more interest in 1031 Exchange investing and larger Opportunity Zone investments (of more than $100k) now, following the outbreak.
- Overall interest in investing in alternative assets as a whole has increased slightly. 53% of investors plan to increase their overall portfolio allocation to alternative investments, compared to 47% who plan to pare down exposure over the next twelve months due to COVID-19.
- The share of investors intending to allocate more than $1M+ toward alternatives in the year head increased post-outbreak.
- For those who expect to allocate less to alternatives going forward, a plurality stated the main reason as “concerns over the Sponsor or manager’s ability to execute.” This stands to reason: idiosyncratic, market-specific challenges make it all the more critical to examine Sponsor experience and resourcing.
For context: EquityMultiple investors are accredited individuals with varying degrees of investing experience, but all possessing at least a baseline knowledge of alternative asset investing. The majority of EquityMultiple investors are professionals in high-income fields – the median age is 42 – but many are nearing retirement or retired.
The Bottom Line
Returns of private-market real estate investments and other alternative assets are a function of manager skill, experience, and timing: the skillful discovery of undervalued assets and timely exit in slow-moving, inefficient markets. This is true in any stage of the business cycle, but it may be particularly true now and in the coming months as the economy moves toward recovery. Sponsors and other managers of physical assets must have the wherewithal to manage construction and ongoing maintenance while observing social distancing and other protocols.
Individual investors are wise to seek sponsorship that practices foresight with regards to future needs of tenants and shifting demands, as COVID-19 will leave a lasting imprint on business, society, and all real estate asset classes. Related to this, there should be renewed interest among real estate investors in longer-term projects and asset appreciation, as compared to the premium put on shorter holds and payment priority that we saw during the perceived peak of the market. Participating at a riskier position in the capital stack becomes more appealing when asset repricing creates the opportunity for lower basis. Our survey results indicate that investors have come to this same conclusion.
We hope that you find this perspective useful as you consider your portfolio allocation going forward. While we will conduct periodic investor surveys going forward, please know that we welcome your feedback and thoughts on asset allocation at any time.
¹Source: Morgan Stanley
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