Oh, what a year! How 2020 will reshape our lives!
It is that time again, when I take some time to reflect on the year that is almost behind us, as well as look forward to one of the most anticipated new years in our lifetimes, 2021.
To prepare, the first thing I did was review my previous year’s letter, to see how well I forecasted what was in store for 2020. Although, I had felt a recession was on the horizon last December, I didn’t believe it would occur in 2020. It pays to have humility, as I clearly missed that forecast. Even in January and February, as news of the COVID-19 illness was making its way to the press, our economy appeared to be mostly running smoothly. Then mid-March came around, and we all had a new reality.
In an instant, we had to pivot our business and our personal lives to accommodate what had now become a global pandemic. In a matter of weeks, we went from a strong economy to an environment of fear, panic and hoarding of basic staples. The stock market took one of its largest tumbles in history and unemployment skyrocketed. I, for one, went into a state of high anxiety. From the perspective of Shopoff Realty Investments, I was concerned about how our properties perform; was this a repeat of the Global Financial Crisis, or worse; and, could we afford to retain our staff? This pandemic-induced concern forced our team to get into action. Our executive team and other managers stepped up and prepared to tackle an onslaught of problems and did so in stellar fashion. Initially we focused on defense – keep our assets sound and managing cash flow. We also stepped up communication with our investor base, distributing six comprehensive market updates throughout the year, along with our scheduled quarterly reports. And, in keeping with the technology adaptation that accelerated during the pandemic, we pivoted to a video update process, to augment our prior written reporting. In the midst of all of this, we had to endure another very partisan national election. And once again, it appears as a nation, will manage through a peaceful (but sometimes tumultuous) transfer of power. As with each election that preceded this, there are winners and losers. Some of us are pleased, and others, not so much so. I look for bright spots – one of them being record or near record voter participation across the nation. Additionally, I am pleased to report that several races, in cities key to our real estate portfolio, went well in our view.
One clearly unexpected impact of COVID on real estate was the uptick in the single family business. Our sales came to an abrupt halt in March and April, but by May, the conversations were more optimistic and we began to resurrect transactions at prices that, for the most part, matched or even exceeded pre-COVID levels. We had been planning for a robust disposition year, and although clearly not all of the sales materialized, 2020 will be near the top for number of successful transactions compared to the past decade. Even with that, much of what we thought would be sold in 2020 will now move to 2021 sales, with only a limited delay. Another benefit that we experienced during this time has been that we have been successful in continuing to advance our strategies, including achieving city approvals on entitlements, completing improvements and obtaining financing, despite what others have experienced. I attribute to where we have thoughtfully focused our acquisitions, our teams inspiring dedication and robust experience, and the depth and quality of our relationships and reputation in the marketplace. Our ability to solve complex challenges, overcome shifting obstacles, and execute on our business plans, has allowed us to turn what could have been a damaging year into one our best ever.
As an example, I am pleased to report our collections at our portfolio exceeded our early expectations, having dipped to 88.7% in April, but quickly recovering to 100.3% in November. This is the result of a well-curated portfolio and very thorough asset management. The Shopoff team went above and beyond to engage with our tenants to maximize collections and minimize the long-term impact to property values. Our group has performed at the top of its peer group in this aspect.
I would be remiss to not cover COVID’s impact on the interaction between work life and home life. Many of us weren’t familiar with the acronym “WFH” prior to March. Now, it will likely be a permanent part of our language going forward. Families have had to adapt to this new order. Parents and children now have to get work or school done in the same space. I have been impressed with how well families have adapted. We have become quite efficient with new forms of communication and ways to manage our personal and business interactions remotely. In fact, we were one of the first companies in California to convince a city to move their meetings to Zoom and obtain a project approval remotely. We went on to procure over a dozen project approvals in this new public venue. Adaptation is an absolute necessity today to succeed and I have been inspired by how individuals, families and business have so efficiently and effectively adapted and transitioned technologically and personally.
I have been blessed to spend more time with my wife and business partner, Cindy, during this year, as my business travel was mostly curtailed. Although, I miss the face-to-face contact with our clients, partners, asset buyers and sellers, and other relationships, it was a pleasure to spend much less time in an airplane seat. I know I will be travelling again, as will many of you, but I expect I will be more discerning on which trips I take. Additionally, while I am laser-focused on our business and its success, and that impact on those who invest with us, I have been exposed to a bit more balance in my life in 2020. Riding my bike with friends and playing golf almost every week are no longer optional in my weekly planning, but are now integral, as I, like many others, endeavor to best manage my work-life-health balance. I plan to continue to develop great leaders at Shopoff, and focus more of my efforts on direction and vision for the future.
This now leads me to the part of this letter where I attempt to see into the future and plan our business for the coming years. I can tell you that I have listened to and read more economic forecasts this year than I have in the past five years. Earlier in the year, I am not sure they were of great benefit because none of them knew the course of the pandemic. It appears, we are now at both the darkest and brightest spots of the year, and events are beginning to gain clarity. Undoubtedly, we have hard times ahead in the near term with COVID-19 related fatalities increasing at an alarming rate. And yet, the critically important vaccine was approved for use this week, and the speed at which it was created is nothing short of a medical miracle. I believe we will largely have COVID-19 under control in the second or third quarter of 2021, and the world will begin to return to some level normalcy. We will be able to see kids and grandkids, travel to interesting places, and go to concerts and sporting events again. I look forward to that moment.
I am enthused about the level of opportunity that I expect to exist for Shopoff Realty Investments in 2021 and beyond. We have a best-in-class team prepared to tackle the most diverse array of opportunities of any company of comparable size. We tend to move toward ideas that are evolving and offer the highest risk adjusted profit potential. We see opportunities in tired, worn out shopping centers that we can convert to new residential communities. The hospitality industry has been battered this year, and we are pursuing several hotels with the concept to convert to work force housing. Additionally, we continue to add construction expertise to our team and plan to develop a number of new projects in the coming years.
I am optimistic about the future of our nation, and I am hopeful that 2021 will be the beginning of a period of personal, social, political and economic improvement, reconciliation and growth.
As a company, I believe we are well-positioned to capitalize on new opportunities that may yield favorable results to our partners while adding value to the communities we invest in.
I wish all of you a happy holiday season, and a healthy and prosperous new year.
The views, thoughts and opinions expressed in this outlook belong solely to the author. This outlook is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification.
This market outlook is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Readers should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.
An investment in a Shopoff limited partnership involves a high degree of risk, including the possible loss of your investment, and is illiquid with an uncertain liquidity date. Past performance and/or forward looking statements are not an assurance of future results. Securities offered through Shopoff Securities, Inc. Member FINRA/SIPC.
This is neither an offer to sell nor a solicitation of an offer to buy any security. An investment in a Shopoff limited partnership involves a high degree of risk, including the possible loss of your investment, and is illiquid with an uncertain liquidity date. Past performance is not indicative of future results. Securities offered through Shopoff Securities, Inc., member FINRA/SIPC.