This article describes the impact of Covid 19 on the Commercial Real Estate market.

1. VALUE
INTERRUPTED
L
ike a fog rolling in from
the sea, the COVID-19
virus spread across
the planet inflicting
sickness and death in its path.
The entire world seemed to
shut down overnight, with stay-
at-home orders, mask mandates,
social distancing and a whole
new lexicon arising from this
new threat.
Before the pandemic, working
for the tax assessor was good.
Values were steady, commercial
real estate was thriving, and
property tax appeals were
manageable. The future seemed
bright and there was hardly a
cloud in the sky.
But in 2020, the skies turned
dark, and all of our lives
changed.

2. SEPTEMBER 2021 Fair+Equitable 9
BY TIM WILMATH
F
riends and family often
assume we appraisers are
experts in all things val-
ue-related.
When the pandemic hit,
people would ask, “What
is going to happen to the real estate
market?”
There was tremendous uncertainty
and virtually everything, including real
estate, came to a sudden stop. Politi-
cians, economists, and health profes-
sionals expressed pessimism in the face
of the worsening crisis.
In April 2020, United Nations Deputy
Secretary-General Amina J. Mohammed
said, “We have moved to a recession
that will be worse than the one we ex-
perienced in 2008.”
THE BEGINNING
While headlines focused on climbing
infection rates, business closures and
job losses, most of us in the assessment
profession wondered how the pandemic
would impact the value of property.
With ominous predictions and scant
transaction data, some turned to eco-
nomic data, such as GDP (Gross Domes-
tic Product) and the stock market to help
evaluate the health of the economy and
potential value impact from the virus.
GDP is the total monetary value of all
the finished goods and services pro-
duced within a country. Some econo-
mists consider it a scorecard of econom-
ic health.
Before the pandemic, GDP growth in
the United States had been steady, aver-
aging about 2% annually.
That changed in the first quarter of
2020, when GDP
declined 5%, and
then after the
virus became
widely known,
dropped a
whopping 32.9%
in the second
quarter.
That was the
largest drop on
record for the
U.S., even great-
er than the Great
Depression when
GDP dropped
28.6% in 1921.
Although the percentage drop dif-
fered around the world, the trend was
the same: A modest drop in Q1 2020,
followed by a deep decline in Q2. In fact,
the GDP decline during 2020 in the UK
Will the real estate market
weather the pandemic?
United Nations
Deputy Secretary-
General Amina J.
Mohammed

3. 10 Fair+Equitable SEPTEMBER 2021
was the worst since the Great Frost of
1709, 300 years ago.
The DOW Jones Industrial Average
was humming along in early 2020.
In fact, that DOW set a record on Feb.
12, 2020, reaching 29,500 points for the
first time in history.
But by late March 2020, after the
pandemic had become widely known,
the DOW dropped to 19,173 – an as-
tounding 35% drop in a few short weeks.
Stock markets around the world suffered
similar drops.
London’s Financial Times Stock
Exchange 100 Index (FTSE 100) dropped
32% from February 20, 2020, to March
23, 2020, a massive decline in a single
month.
Before the pandemic, the lodging in-
dustry was on a 10-year roll of increas-
ing room rates, high occupancy and
strong profits.
Hotels were doing so well it inspired
significant new construction to meet
the growing demand. At the close of
2019 there were 15,000 hotel projects
with over 2.4 million rooms in the
construction pipeline worldwide.
That is where the hotel industry
stood pre-pandemic: record room
rates, record occupancy, record profits,
and record new construction.
Then the virus struck.
Overnight, worldwide hotel occu-
pancy tumbled from typical rates of
around 70%, to less than 25%, or worse.
Travel vanished and hotels went from
record-breaking performance to locked
doors and empty rooms.
The dramatic, even shocking drop in
occupancy, was unprecedented. If you
had purchased stock in the Marriott
Corporation pre-pandemic, you would
have paid about $150 per share.
By late March 2020, the price of Mar-
riott’s stock had fallen to $75 per share,
a stunning 50% drop in less than three
months. That drop and the worsening
metrics did not bode well for the future
of the hotel industry.
THE MIDDLE
Almost every country on Earth suf-
fered the effects of the virus. COVID-19
dashboards became a daily feature on
television news shows and positivity
and death rates climbed every day in
every corner of the globe.
The virus spread rapidly throughout
the world as nations imposed lockdowns
to slow the spread.
Despite those actions, sickness and
death only seemed to grow.
No one questioned whether the world
was entering a recession. Instead, most
wondered how deep it would go and how
long it would last.
IMF Managing Director Kristalina
Georgieva said in June 2020 economic
predictions were grave.
“The IMF is projecting global eco-
nomic activity to decline on a scale not
seen since the Great Depression,” she
said. “It is truly a crisis like no other.”
Morgan Stanley economist Ellen Ze-
ntner had similar a projection.
“As we move into April, it will be both
a surge in layoffs as well as a shutdown
in hiring that will bring about the dark-
est days for the labor market since the
financial crisis.”
Despite comparisons to the pandemic,
the great recession of 2008 was quite
different.
It was caused by a bursting of the
Clockwise, from top: Kristalina Georgieva,
Ellen Zenter, and Roberto Azevêdo
Real GDP: Percent change from preceding quarter
Source: U.S. Bureau of Economic Analysis

4. SEPTEMBER 2021 Fair+Equitable 11
housing bubble, triggered by financial
institutions’ risk taking, subprime
lending, and excessive inventory in the
residential real estate market.
The COVID-19 recession was caused
solely by an unexpected health crisis
that shocked an otherwise flourishing
financial system worldwide.
That position was echoed by Rober-
to Azevêdo, former Director-General
of the World Trade Organization, who
said, “I want to emphasize that the
underlying causes of this econom-
ic crisis are very different from the
previous ones. “Our banks are not
undercapitalized,” he said.
“The economic engine was in decent
shape. But the pandemic cut the fuel
line to the engine.
“If the fuel line is reconnected
properly, a rapid, vigorous rebound is
possible.”
Many of the imposed lockdowns
were lifted worldwide starting in sum-
mer 2020.
Some businesses began to reopen,
albeit with mask restrictions and social
distancing. The United States govern-
ment provided financial stimulus to
businesses and residents, injecting a
much-needed economic lift.
As shown in the graph on the pre-
vious page, that assistance helped fuel
a third quarter 2020 rebound in GDP
growth in the U.S. of +34%, almost
reversing the losses experienced in the
first half of the year.
Most European countries had a
similar rise in GDP during Q3-2020,
although by varying degrees.
By late summer 2020, the DOW Jones
Industrial average had climbed back to
27,500 points, still short of the re-
cord-setting level of 29,500 before the
pandemic.
Marriott’s stock had climbed to $100
per share, a significant increase from
its low point of $60/share at the begin-
ning of the pandemic, but well below
its pre-pandemic price of $150/share.
As 2020 rolled on, a smattering of
hotel sales started trickling in, pro-
viding some of the first hard data that
could be used to evaluate the pandem-
ic’s impact.
LW Hospitality Advisors, a New
York-based hotel consultant firm,
tracks hotel transactions in the United
States with sale prices greater than $10
million. In the fourth quarter of 2019
(pre-pandemic), LW Hospitality report-
ed 54 sales nationwide, with an average
sale price per room of $450,000.
In the second quarter of 2020, after
the pandemic hit, LW Hospitality re-
ported only six sales (over $10 million)

5. 12 Fair+Equitable SEPTEMBER 2021
with an average sale price of $169,000/
room.
Not only did the sale volume drop off
a cliff, but the price per room fell to an
average rate not seen in many years.
Restaurants, theaters, music venues,
and businesses that relied on people
congregating suffered greatly during the
pandemic.
Overnight, restaurants closed, and
employees were left without jobs. Before
the pandemic, U.S. restaurants were
generating $65 billion in sales each
month.
That changed in March 2020 when
sales dropped to $46.1 billion, and then
down again in April 2020 to $29.9 bil-
lion.
Some restaurants that could provide
drive-thru, pick-up, or delivery service
managed to stay afloat.
Fine dining and other “sit down”
restaurants suffered the most, because
of a lack of off-site services that helped
fast-food and take-out restaurants
survive.
Retail properties were hit with a dou-
ble punch during the pandemic.
Not only were most brick-and-mor-
tar stores shut down for many months,
they also suffered from the expanding
encroachment of online shopping.
In 2015, e-commerce represented
7.4% of worldwide retail sales. By 2021
that figure has almost tripled with
e-commerce owning approximately
19.5% of global retail sales.
Although retail occupancy may return
to pre-pandemic levels, the industry
will need to evolve in the face of grow-
ing e-commerce.
Online shopping has increased de-
mand for distribution warehouses and
other industrial properties that en-
sure timely delivery of ordered goods.
Because of this, the industrial market
escaped largely unharmed and even ex-
panded during the pandemic while the
retail market continued to struggle.
The immediate effect to other com-
mercial property types was harder to
quantify.
Millions of people worldwide va-
cated office buildings, but most office
leases are long-term and would extend
through the pandemic, masking any
immediate impact. Multifamily per-
formance was steady, assisted in part
by government stimulus that helped
tenants pay rent.
Despite initial fears, the U.S. residen-
tial market thrived in the face of the
pandemic.
Prices rose dramatically during 2020
and into 2021. According to the Nation-
al Association of Realtors, the average
single family home price in the Unit-
ed States reached an all-time high of
$350,300 in May 2021.
Many factors contributed to this
rising price trend, including low interest
rates, lack of inventory, increased vaca-
tion home buyers, and more first-time
home buyers.
Although the Great Recession of 2008
hammered the residential market, the
COVID-19 recession left it unscathed.
THE VACCINE
Like a lighthouse sending a beam
of hope through the fog, a vaccine for
COVID-19 was announced in November
2020.
Overnight, hope turned into reality
that our world could, and would, return
to normal. This was welcome news for
the real estate sector.
In many places, stay-at-home or-
ders were lifted, mask mandates were
dropped, and people began socializing
again.
After the vaccine was announced, the
U.S., Germany, Italy, China, Russia, and
many other countries saw swift and

6. SEPTEMBER 2021 Fair+Equitable 13
dramatic increases in GDP.
In November 2020, news of
the vaccine caused the DOW
Jones Industrial Average to
surpass its pre-pandemic
level of 29,500, and it has
continued to rise ever since,
breaking records along the
way. Wall Street, at least, has
put the pandemic in the rear-
view mirror.
The hotel industry ral-
lied after the vaccine was
widely available. In July
2021, hotel occupancy in
the United States reached
its highest point since the
start of the pandemic.
From a low occupancy
of 24.5% in April 2020
to an average of 71% in
July 2021, hotels saw a
marked turnaround from
the devastating perfor-
mance of the pandemic
year.
Sales of hotels also saw
a remarkable rebound,
with LW Hospitality
reporting an average
sale price of $331,000/
room in Q2 of 2021, an
astounding 96% increase
from the second quarter
of 2020.
If you had waited
until March 2021 to buy
Marriott’s stock, you
would have been forced
to pay a pre-pandemic
price of approximately
$150/share. Although
things are moving in
a positive direction,
the hospitality seg-
ment was the hardest
hit by the pandemic and
will likely take longer
to recover than other
property types.
For office properties,
the new debate is whether companies
will allow “work from home” which
could potentially impact office space
demand.
In my local market of West Palm
Beach, Florida, the Related Group, a
Miami-based developer, bought two
properties during the pandemic, Phillips
Point and Esperante Corporate Center,
two multistory Class-A office buildings.
The prices they paid equaled or even
surpassed pre-pandemic prices. The
Related Group is nearing completing on
another nearby Class A office building,
360 Rosemary, and is planning to build
another one called One Flagler.
All of these projects are within blocks
of each other and when completed,
Related will control over one million
square feet of office space in Downtown
West Palm Beach.
Pre-pandemic, Related owned zero
square feet of office space in downtown
West Palm Beach.
Of all the indicators for the virus
impact on the office market, the Related
Group’s bet on downtown office space is
the biggest one for me.
Restaurants have rebounded signifi-
cantly from their low point in 2021. The
National Restaurant Association esti-
mates food service sales will increase
11% in 2021, which is a stark reversal of
the 24% drop in sales in during 2020.
That’s a positive direction, although
projected to be about 15% below sales
achieved in 2019.
Monthly sales for restaurants have
continued to increase, surpassing
$65 billion for each of the past three
months, meeting or exceeding pre-pan-
demic levels.
The effects of the pandemic on the
multifamily market were minimal, at
least on a widespread basis. There was
some uncertainty early on, but with the
help of government stimulus, multi-
family vacancy has not been prevalent.
In my local market, apartment projects
represented the top-three highest prices
paid for real estate during 2020.
Eight out of the top-20 new con-
struction projects in Palm Beach County
during 2020 were apartments. One of
the biggest challenge we have had in the
assessor’s office is just keeping up with
the rising rents and prices of multifam-
ily properties.
For other property types, time will
tell if the Covid virus has lasting effects.
Industrial properties weathered the
storm and even prospered.
The effects of the pandemic on the
retail market will vary.
Grocery-anchored shopping centers
will continue to prosper while Class B
and C malls may struggle. Retailers are
not blind to the challenges they face and
will continue to adapt and evolve. Senior
care properties will adapt to new health
protocols but will also benefit from an
aging population.
Despite the Delta variant outbreaks
and mask mandate confusion, if you
visit almost any large city in the U.S.
in 2021, you will see crowded stores
and jam-packed sports stadiums and
restaurants.
The unleashed, pent-up demand
shifted economic concerns from the
pandemic to inflation and worker short-
ages.
Yes, the virus still looms large, and
there are still unanswered questions
related to its impact on the real estate
market.
Will the work-from-home trend con-
tinue and impact the office market?
Will the brick-and-mortar retail mar-
ket endure as e-commerce accelerates?
Will business travel resume, allowing
hotels to host large conferences and
events again?
Despite these questions, the pandemic
fog is starting to clear, and the sun is
starting to shine through.
While COVID-19 continues its grip on
many parts of the world, evidence shows
that once high vaccination rates are
achieved and restrictions lifted, eco-
nomic recovery accelerates.
Recovery will vary as the pandemic
dissipates, but it is becoming clear that
although the pandemic interrupted the
real estate market, that disruption was
only temporary.
As with any storm, clear skies are
always just around the corner.
TIM C.
WILMATH is
Chief Appraiser
with the
Palm Beach
County, Florida,
Property
Appraiser’s
Office.