Adapting to the New Era of Real Estate
Published March 18, 2020
The Macro View
The Micro View
Pam Junge, CCIM
Chief Adventure Officer
The Junge Group Powered by eXp
The Macro View
By David Grana
One of my favorite cinematic lines was delivered by the late, great Robin Wiliams in the film The Birdcage: I've never felt such tension. It's like riding a psychotic horse towards a burning stable.
Never has a quote felt more apropos than during the last two weeks. We find ourselves in a very different world today. The Financial Crisis was an awful event, but this has so many elements that are beyond our comprehension.
Treasury Secretary Mnuchin's proposal is to inject $1 trillion into the economy.
Stores, schools, restaurants, and resorts have all abruptly closed. In some cities, people are being told to simply stay at home and not congregate with one another. It’s incredibly difficult to let all of that, along with the many government press conferences, stock market updates, and concerns about one’s own business, sink in. But it is our new reality.
Market analysts are no longer talking about recession as a possibility, but rather, as an inevitability. Events are unfolding quickly, and keeping up is sometimes difficult, but it is a critical part of staying in the game.
Economic Stimulus and Real Estate
Treasury Secretary Mnuchin’s press conference on Wednesday discussed a proposed stimulus package for workers, families and small businesses in excess of $1 trillion. This, however, is just the tip of the iceberg, and the big question that will come up in coming months will be along the lines of which of the many industries that have fallen victim to COVID-19 will be saved from obscurity. Even in the early innings of this economic decline, industries such as airlines, cruise operators, resorts, and oil producers are requesting their own bailout. The trillion dollar question is who, when, and how much?
Flight restrictions and the temporary suspension of mass gatherings and attractions have been devastating for airline stocks.
The answer is not only critical to the economy, but also to the real estate industry. Manufacturers, service providers, and even retail establishments that service all of these industries are feeling the pain. They range from large enterprises to individually-owned businesses. More importantly, they are all tenants in some form or another. Real estate professionals should keep tabs on which industries will be blessed with a rescue package and how far that will trickle down.
"...the retail and storefront brokerage space could see a massive decline in demand from independent retailers and food and drink establishments."
The Return of Big Box?
It wasn’t that long ago when retail developers and brokers declared that big box was dead. Retail was shifting towards smaller, specialized, “experiential” establishments. Gone were the days of big, sterile and corporate, and in was cool, modern, lean and mean. That was a great model, up until the run on consumer staples in the aftermath of COVID-19 emphasized the need for the capacity and distribution network of the Targets and Wal-Marts of the world.
The COVID-19 crisis may bring about a renaissance for big box retailers.
This begs the question of whether times have changed enough for us to see a comeback for big box, or if this is just a blip on the screen. In order to answer that question, one needs to ponder the impact of the many temporary bar and restaurant closures that we’ve seen in cities like New York, Los Angeles, San Francisco, and even Las Vegas. The ability of many of those shops to weather a brief shutdown is questionable, especially in higher rent districts. If foot traffic for many of these shops sees a sharp decline in the aftermath of COVID-19 (whenever that may be), the retail and storefront brokerage space could see a massive decline in demand from independent retailers and food and drink establishments. The time may be coming, sooner than later, for retail brokers to court big box once again.
Amazon Move Boost for Industrial
On Monday, Amazon announced it will hire 100,000 employees for logistics and delivery services in order to meet the surge in demand since the coronavirus starting making headlines in the US. This is another nod for industrial real estate, which appears to be resilient in the face of the pandemic. Home deliveries of consumer staples were already robust in the pre-COVID-19 era. The recent run on goods and the rising need for social distancing has all but guaranteed that last-mile delivery and local distribution centers will continue their growth trajectory. All this is great news if you are an industrial developer or broker.
Amazon's 100,000 employee hiring initiative is a great sign for industrial property.
Don’t Forget Data Centers
Lastly, it’s worthwhile giving a nod to an asset class that many tend to overlook: data centers. In this era of work-from-home, Zoom calls, and an increased reliance on social media and digital streaming, society would be incapable of shifting from our typical analog lives to digital existence without data centers.
Data center investment may see a substantial boost in the aftermath of the COVID-19 pandemic.
If we continue to see this trend of migrating towards working from home, video calls and live-streaming in the aftermath of COVID-19, it only makes sense for enterprises to increase their investment in the data center space. Granted, economic contraction may hamper any immediate growth, but these discussions are already in process to ensure that companies have the digital infrastructure capable of sustaining operations through the next calamity.
The Micro View
By Pam Junge, CCIM
St. Patrick’s Day 2020. That was the night the lights went out in Vegas…
While most Las Vegans were wrapping up watching Governor Sisolak’s press conference ordering the closure of all non essential services for 30 days, those who had not given credit to this monumental event were suddenly waking up to the seriousness of the situation. Although we are still at the precipice of a potential crisis, the events of the past two weeks have shaken families and business owners to their core.
Nevada Governor Steve Sisolak orders the closure of non-essential businesses for 30 days.
For decades, Las Vegas has been an economy centered almost exclusively around entertainment and tourism. It was no wonder that the result of being a so-called “one trick pony” resulted in its total decimation during the Great Recession, with an unemployment rate in excess of 14% at its nadir.
Fast forward to 2019. Las Vegas was experiencing strong economic activity, continued investment in its core tourism industry, as well as an expansion and diversification into non-entertainment professional occupations. Southern Nevada continued to outpace the nation in terms of overall employment growth, but did we diversify fast enough? There are about 60,000 workers in Las Vegas with union contracts sitting at home tonight contemplating their future. Despite generous promises from giants, like MGM, who have pledged to pay their employees during the shut down, the uncertainty of the recovery and totality of this crisis is unfathomable for most.
Las Vegas' unemployment rate at the end of December was 3.5%.
Lest we forget, every other “non-essential” service provider, such as hair stylists, gym trainers, or our favorite bar and pub owners. Every small business and their family is affected. All eyes are on the government for a bailout and how they choose to distribute it. It will be telling to see if they favor the very backbone of Las Vegas, our resort industry, in an effort to get families back on track so that our main revenue engine can flow once again.
The situation with the housing market will continue to unfold. It’s too early to see a trend just yet, however, the numbers reported by the Greater Las Vegas Association of Realtors indicate status quo - business as usual today. The only difference is a nominal amount of price reductions than normal, however, nothing indicating a widespread panic at the moment.
Thanks to government lending regulations put in place after 2008, homeowners are generally sitting on properties today with equity and affordable payments. The key will be to hold over homeowners that have been financially hit in the interim. Relief could be in sight. The Federal Housing Finance Agency is already offering mortgage relief options to those affected by coronavirus. Also, President Trump is pushing a plan to send money directly to Americans in response to the pandemic, saying it's time to "go big" to boost the now-stalled economy. How much the checks will be for is still unknown, but they're considering $1,000 each and pushing to send out checks within the next two weeks.
My team has been making and fielding calls to clients for the last several days. We have clients with job security moving forward confidently on home purchases in the median price range. Each and every client and each and every purchase is unique, however, we do know that owning a home, historically, is a wealth-building tool and a family foundation. With extreme pressure on rents and low interest rates, homeownership payments (in the median price range) will likely become equivalent or less than rent payments with the luxury of stability. It’s a sensical move if a family can commit to being in that home for five or more years.
In my view, the most interesting element to unfold will be the fundamental and inherent changes in the way we do business in the future because of the current forced, technology based, social distancing. I started working with a cloud-based brokerage almost one year ago for that very reason - I no longer saw the value in owning brick and mortar and found that I could put more money in my agent’s pockets by leveraging technology. Today, social distancing has forced our community to do just the same. Out of the schools and online. Out of the office and online. Zoom and Google Hangouts are now everyday words. How will this affect our commercial market and the viability of office and retail space in the future? We are fundamentally social creatures, however, people-centric businessing may have just been pushed to critical mass - thank you coronavirus. Repurposing buildings and how we use them could be the next big business!
Private capital continues to sit on pause, poised and waiting for opportunities to arise in the real estate market. Historically, wealth transfers from the stock market to real estate assets, and Las Vegas could be prime with opportunities by the time this story concludes.
The Las Vegas community is not a stranger to tough times. We’ve come together and persevered #vegasstrong on more than one occasion. This time is no different, from the guy next door to large corporations. I’ve seen school teachers offering live-stream tutoring and science labs, Cox Cable increased all our internet speeds in an effort to keep us working effectively from home, a Realtor delivering a dozen eggs to one of his clients, Amazon committing to hiring 100,000 new employees…. Families will get to know one another again in the next 30 days. It’s the Spring Break that never ended.
We will continue to keep you updated.
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