COVID-19 and Possible Silver Lining for Colorado Real Estate Investors

The spread of COVID-19, which prompted Governor Jared Polis to issue another order on March 22 urging a greater emphasis on social distancing and working from home, has Colorado in a state of emergency, and no community is untouched. That includes Vail, which was hit early and hard; Vail Resorts had already closed its ski areas in North America before Polis ordered all of the Colorado operations shut circa March 16.

But Greg Strahan, a driving force behind Vail/Summit Property Brokerage, which touts itself as Vail's only buyer brokerage company and the sole vacation-home investment advisory services firm in the central Rockies, understands that the outbreak may produce something many of his colleagues may be thinking about but are currently too timid to discuss out loud.

Fiscal opportunity.

"Every rich guy on the planet wants a good deal," Strahan points out. "So they'll say to me, 'When there's a market downturn, let me know. I'm interested in buying in distress.' But talk is cheap. You can say that when the world is glued together. But when the stock market is going through the floor, you've got to have a lot of conviction, because many people will say, 'It sounded good at the time, but now I'm hunkering down and heading to safety.'"

As a result, he continues, "Success stories about guys who made money in times of distress are rare. You've got to have a lot of financial resources that allow you to go against the grain, or an iron will that lets you realize, 'We aren't going off the edge of the earth, and things will get better later.'"

For high-rollers like these, an event that the World Health Organization defines as a global pandemic could have "a silver lining," Strahan says.

"Advice and counsel is only as good as the person giving it," he admits, then offers an impressive background as evidence that he speaks from authority. He grew up in what he describes as "a real estate family in Los Angeles" and attended the University of Southern California, where he trained as an economist and expert in governmental monetary policy. He subsequently relocated to New York, where he was at the nexus of "the suburban office market boom. When I started working, everyone had to drive an hour downtown to work. But we offered clients alternatives, and you started seeing office buildings sprouting up all over the landscape, so you could be closer to the labor pool."

When he settled in Vail 25 years ago, Strahan admits that he thought it would be like "moving from the NFL to a junior high school. But the resort real estate market is one of the most idiosyncratic asset classes I've ever seen. I thought, 'How hard can it be to figure out a town his small?' But it took me five years to figure out why Vail is what it is."

Today, Strahan, who works in conjunction with his wife, Connie Kincaid-Strahan, has completed Vail-area transactions in excess of $1 billion overall, and he spends his days speaking with "the rich and not-so-famous." But because prices in Vail have basically doubled over the past quarter-century, his clientele has narrowed. Typical doctors and corporate vice presidents, who once could compete for Eagle County properties, have largely been priced out, leaving the field to physicians who own a piece of their practice or executive VPs at the very top of the food chain. "This is being run by a widening wealth gap, and there's no change anyone can make to fix it," he believes. "And that goes for my friends who live in California coastal communities, too, whether it's San Francisco or Malibu to San Diego. This whole conversation has far bigger implications than what happens in the Vail valley."

According to Strahan, investors are willing to pony up $1 million or more (often a lot more) for a vacation home when they experience "the Goldilocks moment," which is fueled by "confidence in employment income and confidence in investable assets." These twin motivators gathered steam in Vail between 2012 and 2017, at which point "the pent-up demand for a better life exploded and property prices went up 20 to 25 percent in a burst." But he expects that for many, this positive perspective will be shaken "if the stock market falls off by 20 percent and they're going to have to furlough your employees to some degree because of the spreading contagion. They're going to take a haircut in their investable assets portfolio, and when they lose money, that makes them very unhappy — which is going to have a big, big effect on the U.S. And you ain't seen nothin' yet. Everyone in the country is going to make less money at the office and in investable assets."

For these reasons, Strahan has concluded that "2020 is going to be a shit show, and it's already a write-off in my business."

So where's that silver lining? "Normally, recessions are driven by disruptions to overpriced assets in capital markets," he contends. "But that's not the case now. This is a health scare and a supply-chain disruption, and it's probably going to burn out by the end of the year. There's going to be a downturn, where everything slows in 2020, and the rebound isn't known. But this is a temporary thing, and people are going to be able to find good deals if they understand the nature of the downturn — that it has much lower risk and a much shorter life span. It's going to be much worse than people think, but it will be over before they know it."

The brevity of the slide predicted by Strahan is something of a wild card — and if there are signs of improvement in the economic sector in just a few months, investors may be less motivated to sell their investment properties at bargain-basement rates. "We'll just have to see how many people respond," Strahan says. "If the downturn is short, it may not be for a long enough duration for those opportunistic things to work their way down to the distress level. But it's certainly an opportunity worth monitoring, and I'd say it applies to other asset classes" — meaning that great deals may pop up on the lower end of the real estate market, too.

As for the optics of profiting from the novel coronavirus, Strahan puts it this way: "These are complicated issues."