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The Price is…Right? Adjusting Valuations for Pandemic’s Impact

Even before the COVID-19 crisis hit, the question of where real estate values were going was the elephant lurking in the corner of the room. Some submarkets (like Boston, for example) were strong—and getting stronger. Others (like New York City) were suffering declines—primarily thanks to tax law changes passed back in 2017. The limitations on deductibility of state and local taxes, as well as the so-called ‘mansion tax’ had already had a deleterious effect on co-op and condominium prices in New York City, its suburbs, and nearby New Jersey, which are all high-tax areas. Substantial overbuilding in the high-end luxury market also didn’t help prices.

Then along came COVID, and its accompanying economic shutdown—which has changed the realities of work and lifestyle, perhaps permanently to some extent.  Are brick-and-mortar office spaces as essential as they once seemed? Can businesses such as law firms, advertising agencies, even financial institutions conduct their daily operations without a physical space in which personnel can congregate? If not, will an urban lifestyle be as appealing as it once was, particularly if the attractions of that lifestyle—dining out, theatre, nightlife, and the rest—are sharply limited, or fraught with anxiety?

What Does the Future Look Like?

David Eisenbach is an historian, author, and lecturer at Columbia University, and is an expert on urban history, particularly that of New York City. He sees huge potential changes coming. “Density is what makes New York—and maybe breaks New York under COVID-19,” Eisenbach says. “Just look at the subway. If you think flying exposes you to COVID, think about a 40-minute subway ride with a transfer in Times Square during rush hour. Or what about the packed elevator to the 30th floor of your office building, every day, twice a day, five times a week?”

Eisenbach speaks of New York specifically, but his concerns apply to any dense urban area. Density is what packs a city’s restaurants, clubs, and theaters every night, making urban zones the hotbeds of cuisine, culture, and entertainment that they are. But what if nothing’s open? Or the experience of sitting in a restaurant or theater is stressful? What if great urban pastimes like window shopping or taking in a concert are now anxiety-provoking? City-dwellers are often quick to counter complaints about the cost and hassle of living in a crowded metropolis with examples of all the amazing things one can do and see in the big city and nowhere else. But, says Eisenbach, “With all the frustrations and expenses of living in [a place like] New York City”—or Boston, or Miami, or any number of other destination cities—“what happens if there are no perks?”

Eisenbach points out that a big test of the durability of urban lifestyle will be whether schools can reopen in September. Governors, mayors, and city councils are taking different approaches to the question, “but it’s not looking good,” says Eisenbach. After all, if offices and schools aren’t open, or if your office allows telecommuting, you might be inclined to reassess whether living in the heart of a major metropolitan area is necessary—or safe. And if that’s the case, a major reshuffling of residential properties may be on the near horizon.

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