The COVID-19 pandemic is a reminder that real estate is not immune to cycles and that underwriting and risk management is "super important," said A.J. Agarwal, a senior managing director on the real estate team of Blackstone Group, to an online audience attending the ULI Fall Conference on Tuesday.
"You literally cannot identify all the risks," Mr. Agarwal said during a panel discussion on the state of the real estate industry.
Real estate executives have to fall back on "generic preparations" such as asset level reserves, Mr. Agarwal said. And he warned against unintentional consequences of the pandemic such as new regulations and taxes that would negatively impact real estate investment.
Speaking on the same panel, Francois Trausch, CEO of Allianz Real Estate, said the pandemic has taught him that "you have to remain humble."
Fifty percent of Allianz's portfolio is office properties, which he said is typical for insurance companies. Allianz executives had viewed offices as a stable asset class and had not foreseen the impact of a pandemic, Mr. Trausch said. Fifteen percent of the portfolio is in retail, which Allianz executives expected to be core properties but is not value added. Mr. Trausch said he has doubts whether there will be enough retailers to fill malls. The one bright spot in retail is that malls are being repurposed, especially in China.
Allianz executives favor student housing because even with online learning, students are renting apartments near the campus so they can be close to their classmates. However, the students and universities are putting pressure on landlords to reduce rents, Mr. Trausch said.
At the same time, the jump to technology everyone anticipated in the Y2K frenzy into the year 2000, occurred 20 years later, he said.
Mr. Trusch added his team can feel the impact of technology now in even the most traditional real estate sectors.