What to do in a bifurcated real estate market?
“This is precisely the time when artists go to work. There is no time for despair, no place for self-pity, no need for silence, no room for fear. We speak, we write, we do language. That is how civilizations heal.”
~ Toni Morrison
In 35 years in the business, I have seen a lot of crazy things, but the current market is befuddling. The word I like to use is that we are in a bifurcated market. The economy is in a strange place right now. The current environment is encapsulated in a chart that Nick shares below this month. The chart shows the homeownership rate spiking to its highest point in a decade alongside the mortgage delinquency rate also at a decade long high. How is that possible?
We are seeing this same bifurcation in our daily activity. We are seeing dozens of tenants not paying rent, going out of business, or asking for a forbearance. This is flowing through to owners who are struggling with cash flow and loan payments. At the same time, there is little inventory for sale, and we are seeing multiple offers on some sale deals. Some of this is caused by a backup of 1031 buyers, a lot because of unnaturally low interest rates, and some because of buyers who think this is their last chance to buy. In recent weeks, we have seen landlords clamping down on tenant delinquencies and this is causing more tenants to start throwing in the towel.
We are seeing office tenants who have been working from home (WFH) that are not renewing and instead deciding to make WFH permanent We are seeing restaurants, nail salons, and dry cleaners just whither on the vine. There is a wave of silent failure sweeping over 80,000 permanently shuttered businesses from March 1 to July 25th. Thirty-one percent of owners reported lower sales in the past three months.
Yet, the home improvement industry is booming, rich from refi money, new home sales, and people working from home. It appears, however, that consumers with extra money in their pockets skipped the mall and shopped at big boxes instead. According to Retail Metrics, mall-based retailers have seen their earnings plunge 256%! Yet Walmart and Target report record-breaking sales!
So, what is a person to do? In the past, I have said we profess to innovate, adapt, and overcome. I still hold to that motto. But this month I’m going to talk a little about motivation. I believe that one of the outcomes of COVID-19 seems to be dumbing us down. I call it “COVID Stupid.” I’m not talking about a mask or no mask here. I am talking about people’s lack of attention, attention to detail, and inabilities to get a job done. Bringing things to a stop has seemingly caused the inability to get things going again. I hear and see people saying, “I know what to do, but I just don’t do it!”
Here’s the thing, motivation isn’t something you’re born with. It is something that you create. This is especially important right now during quarantine as we are all in a Groundhog Day existence. Our bodies and brains are craving change and achievement because every day feels the same. So, this is not only important to reach your goals but also improve your sense of wellbeing. Remember, it is never too late to create.
Another symptom of “COVID Stupid” is free-floating hostility. Unfortunately, we have always lived with a level of angst in our society. Discourse has always been there. The problem today is technology makes it so easy, and so public and so fast. Here too, I have a story and a solution.
I am back running after breaking my toe but I have had this pain in the ball of my foot. I went to the chiropractor and explained the situation. Of course, he cracked this and pulled that, and I am now much better and back on the road. But what he told me was the real magic. He explained that once the muscle tightened the only defense it had for the next injury was to get tighter until finally, you are just one tight ball of a mess. The cure? Stretch and be flexible. Hmmm…sounds like the cause and cure of “COVID Stupidity!” Relax, be flexible, stretch outside your comfort zone!
Please give me a call or email me if you would like an analysis of your properties’ value or to discuss what you should be doing with regards to the Coronavirus pandemic and its impacts on your business, tenants, or property (Nick Zech, 858-232-2100, firstname.lastname@example.org).
Have a great month ahead. Be creative, flexible, and motivated, I know the Team at CDC is. Hope you enjoy the story…
The Greedy King
Once upon a time, there was a very Greedy King who loved eating cream puffs. He ate them for breakfast, lunch, and tea – even dinner! In fact, he ate so many that all the bakeries ran out of pastry and the dairies out of cream.
So, the Greedy King ordered that every store in the land become a bakery or dairy. There were to be no more grocery stores, no hardware stores, and no clothing stores. You can imagine how dreadfully inconvenient it all was!
Very soon the King grew so fat that he started bulging out of his clothes – but because there were no clothing stores, he couldn’t buy any new ones. Then one day he sat on his throne, and ‘crunch!’ it collapsed under his weight. But there were no furniture stores, so he couldn’t have it mended.
‘You must go on a diet,’ said the doctor. ‘And eat fresh fruit every day.’ But of course, there were no grocery stores. The King began to realize how foolish he had been. He called back the storekeepers and told them to start their businesses again.
And after that, the King only allowed himself one cream puff a day, which he ate for dessert after supper!