In conversation with Eli Tene.
Eli Tene
If there were a list of words to describe 2020, “uncertainty” would be near the top. In every sector and in every community, people are wondering what tomorrow holds. Real estate is no different. And in every community, the questions are similar. Has housing peaked? Will interest rates stay low? Should I buy, sell, or hold? Will the elections affect the market? Is there opportunity amid the turmoil?
Eli Tene is a real estate entrepreneur with over thirty years of experience in the industry. Tene and his business partner, Gil Priel, own Peak Corporate Network along with several other real estate businesses. With offices in Los Angeles and New York City, they provide a range of services; residential and commercial brokerage, 1031 exchanges, conventional and bridge financing, escrow, trustee services, short sale negotiation, distressed real estate acquisitions, and hotel and restaurant renovation.
During uncertain times, learning from people like Tene—those with depth and breadth—is always a strong bet. The following are highlights from my recent conversation with Tene in which he shares insight on the questions everyone is asking.
Chaka Booker: What trends are you seeing that will affect real estate?
Eli Tene: Working from home is no longer stigmatized and video conferencing is acceptable. That will affect where people choose to live. Before Covid-19 the trend was to move into the city, get a smaller place, and not deal with traffic. But now people can have quality of life in the suburbs, maybe a house instead of a condo, because they can work remotely. Another trend is we were used to the beautiful experiences—restaurants, entertainment, shopping. But after five months of not having that, people are saying, “I don’t need to go to a restaurant four times a month. I’ll go twice.” We also see homeowners working with their lender to give them breathing room. By the way, it’s not only homes, it’s cars, it’s credit cards. I think at least half will never catch up on their payments. We have a foreclosure company and the lenders we’re servicing are getting ready for the end of the moratorium on foreclosures.
Booker: What will the short-term effects be?
Tene: Real estate has taken a real hit, but thanks to low inventory, we have not seen the bottom fall out of the market as in past cycles. In May, home sales dropped in California by more than 35%, primarily due to the pause in open houses. What you have now is catch up demand from those initial months because people still need to move. We have low inventory because people aren’t sure whether to sell. Low interest rates are bringing buyers, creating high demand, so prices go up. In my opinion, this will end by the end of September. I think it will go back to normal demand, compared to the current high. The question is, which way will inventory go?
Booker: And in the longer term?
Tene: Before Covid-19 the market was already changing. After 30 years of working in real estate, I see signs of a peak, no pun intended. I think inventory is going to go up. I think we will be feeling a recession somewhere between December and March. Post-elections, the government will not spend the way they are now. People need money, but there is a limit to how much they can print. The current president, like any other president, will try to make things look good until the election. If he gets another four years, he won’t have the same pressure. If another president comes in, he is going to have a reality check and do things that make sense economically. High unemployment numbers will continue to cause headwinds to a full real estate recovery. I see the market starting to correct—home prices could flatten even if inventory stays low. Larger homes will be in demand due to remote workers with families needing an additional bedroom for a home office. We should be looking out for rising foreclosures as forbearance plans and moratoriums come to an end. Even with stimulus plans and the Federal Reserve’s work to suppress short-term interest rates, it may not be enough to mitigate the pandemic’s damage to the economy. There will be a cycle, possibly 2021, where we will see rising delinquencies, foreclosures, and short sales. Our real estate short sale negotiation work is already getting busier. The effect won’t necessarily be as strong as in 2007, but the impact will be on everything. It will affect residential and commercial markets. The impact of remote work will change the office space market. You’ll see a lot of change in use for hotels, offices, and retail.
Booker: Tell me more about the commercial market…
Tene: We’re seeing a lot of conversions. Converting hotels to residential units, convert office space, retail, and others to storage. You may have heard about Amazon looking at empty mall space for fulfillment centers. People are rethinking how to use space. Many organizations are staying remote until January. People will get used to that. By the way, this trend also started before Covid-19. If you are a small business owner and you can save $2,000 or $3,000 a month in rent, you might do it. Amazon was already swallowing small retailers, now retail is suffering even more, so commercial vacancies will grow a lot. It is becoming very clear that the big box retailers will be the last standing and have actually shown record sales during this period.
Booker: What advice do you have for homeowners?
Tene: This moment is very temporary, in my opinion. Based on your home equity and record low interest rates, this could be the right time to downsize or upsize to a new home. Do your research on prices and market conditions. In this market, you can almost rest assured your home will sell at or above the right asking price. But you can only go so far researching online to determine the value of your home on your own, so work with a real estate professional. If you’re not selling, make sure you have the best interest rate, or refinance. Don’t wait, because I think after the election, the rates will move up. In our finance company, we’ve seen a 50% increase in refinance activity.
Booker: Any advice for home buyers?
Tene: You might have better prices in a few months, but I doubt rates will be as good. This is a great time for well-qualified buyers. Even though borrowers are under more scrutiny, lenders have relaxed a few guidelines compared to March and April which will allow more buyers in. You should buy—but buy smart. You should always ask yourself, what is best for my resale value? Stick to the basic rules. Does it have a good floor plan? Or maybe higher ceilings? Think about what will help you sell more easily if you have to sell during a bad period. You don’t want to buy the most expensive house in the neighborhood, be at the average or below. Is the house on the corner across from a school, or in the middle of the block? Buy in the middle of the block.
Booker: What advice do you have for entrepreneurs and business owners?
Tene: The first thing I did after realizing we are in a deep downturn was to deal with the situation head on. You must face that reality. But then focus on the opportunities that arise, as they always do. I’m convinced opportunities are coming that will be once in a lifetime. My advice is do not let yourself be consumed with the bad. Look for the opportunities. For example, we immediately reactivated our short sales platform, but now with better technology, access, extras, and improved processes. I could have just dealt with the challenges and downsized. Instead I shifted staff to work on new opportunities and was able to keep people employed with opportunities that will help keep the business thriving.
Booker: Where should entrepreneurs be looking for opportunities?
Tene: Keep in mind the trends mentioned earlier. Use data that is available. Ask yourself, what business will conform with the future? We know people will always need a home, but most brick and mortar retail doesn’t have a good future and office space demand is changing. We also know people are living longer, and they want good quality of life, that’s a growing area. So, conversions to senior living becomes an idea to consider. People’s habits are changing, how they buy food, how they entertain themselves. You see more restaurants creating outdoor space, that is beautiful, I hope it stays. So, what could that mean for their indoor space? Try to project what the future will look like. We are seeing increases in our work with hospitality and hotel renovations. They are rethinking how they use their space. It depends on your context, your city. Space might be converted from office or hotel to residential. Or storage space could be an opportunity. Don’t lose sight of the fundamentals, customer service, transparency, easy to use. If you are selling anything, it needs to be with the ability to sell online. I heard a quote that said we should use this time to connect to our future customers. That mindset is how you lift yourself from ordinary to extraordinary.
The conversation has been edited and condensed for clarity. Chaka Booker is a leadership development expert and author of Mastering the Hire: 12 Strategies to Improve Your Odds of Finding the Best Hire.