In the wake of the COVID-19 pandemic, aka “the black swan event of 2020,” and the subsequent economic uncertainty that it has triggered, real estate investment managers and operators must reassess risk, and accordingly recalibrate their respective underwriting metrics.
Capitalization rates are intended to encapsulate and reflect appropriate risk premiums above a base rate. However, the rapid spread of the coronavirus has inhibited the ability to accurately assess and predict short-term and long-term risk premiums across all asset classes. This will require a wider margin of safety when deciding whether to purchase an asset in the current climate.
