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Impact of COVID-19 on Real Estate Investments

By Austin Brattli

CFA Investment Foundation certificate holder

This article looks at the impact of COVID-19 on real estate investments. The COVID-19 pandemic has impacted real estate regardless of ownership by—individuals, companies, and PE firms.

COVID-19 has profoundly impacted lives worldwide with devastating effects as infected people are dying, and the worldwide economy has taken a nose-dive to depression-era levels. It is estimated that 50 million people globally have had the virus and over 1.2 million people have died from the virus as of November 8, 2020[1]. While the world races to develop COVID-19 vaccines, most countries have enacted strict regulations to help reduce the spread of the virus or level the curve so that hospitals are not overwhelmed. Examples of these regulations include curfews, stay-at-home orders, and restrictions on non-essential work. These restrictions, while essential, have caused havoc on the world economy and has resulted in a behavioral shift in work and shopping, from in person to online.

COVID-19’s Impact is Permanent

The change in commerce behaviour began pre-COVID-19, yet it was catapulted forward during COVID-19. Shoppers are buying online due to closed malls and shopping centres. Of the restaurants that have not closed, delivery is now the new trend. Uber reported that in the three months ended June 30, 2019 vs 2020 the mobility (Uber) and delivery (Uber Eats) revenues have inverted[2]. Business travel has been replaced by zoom calls. Universities and school systems are switching to online teaching.

Figure 1: Uber Revenue Showing Shift to Delivery

McKinsey & Company is suspecting that the behavioural changes brought about by COVID-19 restrictions may outlive the COVID crisis[3]. This would mean a permanent switch from urban to suburban residential and commercial real estate, brick and mortar stores to online, and shopping malls to online shopping warehouses and distribution centres.

We saw firsthand how companies, almost immediately after the COVID-19 outbreak, moved to work-at-home models creating “ghost towns” in many major cities. It appears as the deurbanization trend is not going to change according to PERE[4]. Several companies have already announced that they will never completely leave the work-at-home mode. Many large companies have also announced they will relocate their workforce away from major cities. For example, Paul Singer’s Elliott Management, an investment management fund, announced in October 2020 that the firm is relocating from New York City to West Palm Beach, Florida[5].

The net effect of the exodus from cities is soaring vacancies for both residential and commercial properties in major cities. The astounding vacancy rates will undoubtedly affect PE firm’s portfolios that include real estate investment. For example, renters may switch from a $5,000 per month apartment in New York to a $2,000 per month rental house in the suburbs. Commercial rentals are also looking for any opportunity to get out of a lease as offices have been vacated resulting from work-at-home policies, or closures of stores, restaurants, movie theatres, and gyms due to COVID-19.

Moratoriums for Non-Payment of Rent

To provide temporary relief to residential renters, governments imposed eviction moratoriums for non-payment of residential rents at the start of the pandemic. The U.S. Center for Disease Control and Prevention has extended the residential rental eviction moratorium due to non-payment for the period of September 4 through December 31, 2020[6].

State and local moratoriums against evictions for non-payment of residential rent may be extended beyond the Federal moratorium. For example, Washington State has a moratorium on residential rental evictions through December 31, 2020. Commercial tenants in New York have also benefitted from a moratorium on eviction for non-payment of lease payments at the start of the pandemic. In September, Governor Cuomo of New York extended a moratorium protecting commercial tenants from eviction through January 1, 2021[7]:

Eviction moratoriums do not release tenants from the accumulating rental liability.

But it should be noted, that for both residential and commercial tenants, the eviction moratorium does not release the tenant from the accumulating rental liability.

Come 2021 when the eviction moratoriums expire, there may be a significant amount of evictions, likely followed by bankruptcies for many tenants that cannot pay the back rent, further impacting the real estate market.

Impact on Cities

Most cities depend heavily on revenues received through real estate taxes from property owners and commercial tenants. Yet with commercial and residential tenants vacating metropolitan areas, city’s property tax and commercial renters tax revenues are dwindling.

In New York City, property tax represented 45% of all tax dollars collected in FY 2019[8]. Companies renting commercial space in New York are faced with a 6% commercial rental tax, and similar taxes in other cities.

New York City property tax rates can be up in the 4-5% range, not including the 6% Commercial Rent Tax (CRT) charged to the commercial tenants[9]. Per the New York Citizens Budget Commission (CBC) the effective property tax rate is the highest for Utility property (e.g., electric utility generation and transmission facilities), large rentals, and commercial property[10].

Figure 2:  NYC Effective Tax Rate by Property Type

Increased vacancies and non-payment of rents may prohibit owners from making their city/state real estate tax payments. The non-payment of real estate taxes will lead to the city’s tax lien sales of properties at depressed values. The depressed values will also impact the value of surrounding buildings. With the spiralling devaluation of real estate, future real estate tax collections by cities will fall as well.

Impact on Landlords

As commercial and residential tenants leave metropolitan areas to avoid the COVID-19 virus, calls to defund the police has also led to increases in crime. The result is a dramatic increase in commercial and residential vacancies which has put pressure on owners to grant concessions to attract the diminishing renting population. Rental concessions might include two months or more of free rent, no application fee, and no move-in fee. Reduced rental income, increases in cleaning and maintenance costs due to COVID, and increased concessions are pressuring the margins of the landlords and decreasing the property value. With no profits, landlords are facing the threat of losing properties of tax lien sales.

Tax Lien Sales

Many cities, such as New York City, sell owners’ unpaid tax bill and interest to a third party which moves to collect on the outstanding debt in addition to collection fees which can be up to 18% of the outstanding debt. For a landlord with an 8-10 % margin, the New York city tax levies can be as high as 50% of the landlord’s net income.

The Real Deal reported that in September 2020, Governor Andrew Cuomo placed a moratorium on tax lien sales in New York through November 3, the day of the Presidential Election. Yet even with the moratorium, tax liens are piling up, and we have yet to see how Governor Cuomo will react. More than 9,000 properties were eligible for the city’s lien sale as of August 17, 2020.

If the (New York) City Council doesn’t end tax liens, the housing crisis of the 1980s will pale in comparison.

Joe Strasburg, President of the New York Rent Stabilization Association, warns, “If the City Council doesn’t end tax liens, the housing crisis of the 1980s will pale in comparison.”[11]

However, the city sees tax lien sales as a source of cash at a time when it is in desperate need, with COVID-19 having wiped out approximately $9 billion in expected tax revenue. The lien sales would raise a tiny fraction of that amount but have been unpopular with local politicians because past sales have threatened unwitting owners with the loss of their property[12].

Impact on Private Equity Portfolios with Real Estate Holdings

Institutional Real Estate, Inc. (IREI) is a global media firm tracking real estate world-wide. Their “FundTracker” tool tracks more than 4,500 global real estate funds. IREI has estimated that private equity real estate is a global asset class and valued at more than $4 trillion in aggregate[13].

According to EisnerAmper 2019 Private Equity Real Estate Market Outlook[14], North America remains the hub of the private real estate industry, as the destination for the majority (63%) of capital raised in 2018 and, unsurprisingly, the majority (64%) of total PERE (Private Equity Real Estate) deal value also.

Private equity portfolios with real estate exposure have been impacted by COVID-19 due to increased commercial and residential vacancies, increased concessions, increased costs, and eviction moratoriums. With city tax liens sales depressing property values, even more, the impact will be felt the most by holders of real estate in major cities and with higher leveraged investments.

PERE funds generally follow core, core-plus, value-added, or opportunistic strategies when making investments:

  • Core: This is a low-leverage, low-risk/low-potential return strategy with predictable cash flows. The fund will generally invest in stable, fully leased, typically class A, single or multi-tenant properties within strong, diversified metropolitan areas, often in gateway cities.
  • Core Plus: This is core plus additional leverage.
  • Value Added: This is a medium-to-high-risk/medium-to-high-return strategy. It involves buying land or under leased or mispositioned property, improving it in some way, and selling it at an opportune time for gain.

Figure 3: PERE Return by Strategy and Leverage

  • Opportunistic: This is a high-risk/high-return strategy. The properties will require a high degree of enhancement.

In the last couple of years, investors have favoured high leverage strategies. According to the EisnerAmper 2019 Private Equity Real Estate Market Outlook, $7 of every $10 committed to private real estate funds in 2018 went to value-added or opportunistic strategies[15]. Value added and opportunistic strategies are the most leveraged strategies with leverage in the 50-90% range. A higher leveraged portfolio is more likely to feel the impact of COVID-19.


Private Equity firms with commercial or residential real estate holdings, especially in U.S. metropolitan areas will feel the impact of COVID-19 through an overnight shift in behaviour. While online shopping was popular pre-COVID-19, the pandemic essentially shut down in-person commerce pushing online commerce ahead. The move to work from home is the driving force behind the shift from urban to suburban living which is forcing owners of real estate to offer more concessions with higher operating costs.

Landlords are not receiving a reprieve from city taxes and tax levies on residential or commercial properties. Landlords may be faced with depressed property values due to tax lien sales of comparable buildings. Moratoriums on evictions for non-payment of rent is set to end in early 2021 and is expected to create a wave of evictions, followed by bankruptcies for tenants who cannot pay their accumulated rent debt.

Many commercial and residential real estate holders are suffering today and come 2021 when the moratoriums on evictions expire there may be a significant wave of evictions further depressing properties.

[1], WorldOmeter,

[2]      Uber Q2 Reporting,

[3]      McKinsey & Company, “Commercial real estate must do more than merely adapt to coronavirus”, April 9, 2020,

[4]      PERE, “Deep Dive:  How deurbanization has become more than a trending theory”, November 2, 2020

[5]      Fox Business,

[6], The Federal Register,

[7], Mail Online (Daily Mail),



[10]    Citizens Budget Commission, December 22, 2016,

[11]    New York Post, November 1, 2020,

[12]    The Real Deal, New York Real Estate News, October 5, 2020,

[13]    Institutional Real Estate, Inc. FundTracker,

[14]    EisnerAmper 2019 Private Equity Real Estate Market Outlook,

[15]    EisnerAmper 2019 Private Equity Real Estate Market Outlook,

Kings Private Equity Club
Kings Private Equity Club
We at King's College London's Private Equity Club are working on taking the pulse of the vibrant private equity market through monthly publications, workshops and events. Our aim is to narrow the gap between PE proceedings and keen students through quality research and networking– while promoting an inclusive and sustainable approach to the industry.

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