Landmark Links July 14th – Calling the Bluff

rounders-john-malkovich

One Big Thing

Well, its official, the State of California has now backslid into full-on shutdown mode.  Yesterday, the governor ordered all indoor restaurants, movie theaters and all bars statewide to close as a result of coronavirus cases once again rising.  To add a sprinkling of salt on the wound, the LA Unified and San Diego Unified School Districts announced that they would both not be returning to classrooms in the fall.

Health debate aside, there is absolutely no positive way to spin this from an economic standpoint.  California is by far the largest state economy in the US and it is nearly impossible for that economy to get back on its feet with a massive portion of the service sector shuttered and parents unable to work full time with kids at home for school.  For those who can afford a nanny and tutors – or private school, this is an inconvenience.  For those that cannot, it is a severe economic hardship.  It is especially brutal for those businesses and employees who were shut down, re-opened and are now forced to close again.

The bottom line is that this makes an extension of government programs like enhanced unemployment insurance a near certainty.  If there was ever any doubt about the programs being extended, this should put an end to it.  We are in an election year and it would be political suicide for either party to stand in the way of some sort of relief when hundreds of thousands, if not millions of people have been mandated to leave their jobs.  If the feds were bluffing about ending enhanced unemployment benefits, that bluff has now been called.

What I’m Reading

Upward Pressure: The acceleration in ecommerce due to the pandemic is driving even more demand for last mile distribution in urban and more densely populated suburban markets.  This ultimately will eventually accelerate the trend towards warehouses that are built up, not out.

Rich Get Richer: The COVID pandemic is a perfect storm for big companies with large balance sheets to grow more dominant while small ones struggle to survive.

Assembly Line: Apartment construction is becoming a new focus in Silicon Valley as startups aim to make the development process look more like a car assembly line than a traditional construction site.

No Place Like Home: The housing market has been soaring of late as a rebound in demand outpaces supply with mortgage rates pinned at historic lows.  However, colder fall and winter months typically portend a slowdown which could be worse this year if permanent unemployment continues to rise.

Crystal Ball: Sam Zell is now predicting that a U-shaped recovery will begin sometime this fall but still sees no signs of real price discovery in the market today.

No One is Spared: Better alarm systems and a trend towards people holding less cash has led to a bear market for burglars.

Stage Fright: Historically, the American economy has thrived on the forces of creative destruction – where weaker businesses fail and are replaced by stronger startups with new ideas during times of turmoil.  However, during the COVID pandemic, we seem to have lost the stomach for the economic turbulence that comes with it.

Charts of the Day

Source: Mortgage Bankers Association

Source: S&P Global Market Intelligence

WTF

Surprise: A gender reveal party ended yesterday with the mother-to-be getting punched in the face by her boyfriend’s brother because Florida.

Protect This House: A British man was detained by police after biting a seagull who he said ‘wanted his McDonalds meal.’

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 14th – Calling the Bluff

Landmark Links July 13th – Creative Destruction

Riviera Impolsion

What I’m Reading

Creative Destruction: All of the empty retail spaces that will be amplified by COVID 19 could set the stage for a re-thinking – and ultimately a resurgence – of brick and mortar retailing.  And they could become the next land grab for ecommerce’s biggest winners.

Insatiable Demand: A new report from JLL found that an increase in ecommerce spurred by the pandemic could result in demand for industrial real estate reaching an additional 1 billion square feet by 2025.

Tip of the Iceberg? The anticipated drop in real estate values is starting to appear in major commercial real estate markets.

Divergence: Temporary unemployment is falling, leading to positive jobs numbers.  However, below the surface permanent unemployment is on the riseSee Also: The NY Fed’s weekly economic index has once again turned lower.

Back Home: COVID has sent millions of adult Zoomers who should be starting their careers back home to live with their parents, stunting their economic growth in a similar manner to what happened to millennials during the Great Recession.

Chart of the Day

The blue bars get the headlines but the white bars are far more important.

a screenshot of a cell phone: Moving in Opposite Directions

Source: Bloomberg

WTF: 

Dream Job: A bidet company is offering $10,000 for one lucky person to spend their summer testing a toilet paper alternative, and blogging about their pooping experience.  In related news, its been fun writing for you guys but I think I’ve found my true calling.

Karens Gone Wild: Phone videos of Karens flipping out over businesses that have mandated that customers wear masks is my new favorite internet genre.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 13th – Creative Destruction

Landmark Links July 10th – Domino Effect

domino

What I’m Reading

Domino Effect: Excellent quote from Josh Barro of New York Magazine on the downstream impacts of commercial buildings falling in value:

“This isn’t just a problem for people who own buildings. When buildings fall in value, that’s usually because fewer people have cause to work and shop in them, which corresponds to reductions to income and consumption for individuals. And because cities and states depend heavily on taxing commercial properties and the activity that occurs in them, a shock to commercial real-estate values is likely to cause yet another problem for state and local government budgets.”

Hunkering Down: As businesses reopen, more than 40% of people who spent money on movies, event tickets or at bars before the pandemic now plan to spend less on those activities, according to a new survey for CreditCards.com.

On the Offensive: Walmart is planning on launching a long-awaited subscription membership platform later this month that is intended to compete with Amazon Prime.

Adaptive Reuse: Struggling malls with vacant big box space could become attractive as inexpensive alternatives for both co-working space for people who want to work closer to home and large gyms that put a premium on social distancing.

Approaching the Cliff: The AP is now picking up the story that I’ve been writing about since April – renters and multi-family property owners are about to be in a world of hurt if enhanced unemployment expires as scheduled at the end of this month.

Bright Spot: Mortgage applications to purchase a home rose 5% for the week and were a remarkable 33% higher than a year ago as mortgage rates hit another new low.

Chart of the Day

Uneven impact.

Source: Financial Times

WTF

Don’t Make a Sound: Reopening theme parks in Japan are banning yelling on roller coasters in an effort to stop the spread of coronavirus.

That’ll Be a No From Me: An enterprising French baker is switching up her bread recipe by using wheat fertilized with female urine harvested from public restrooms.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 10th – Domino Effect

Landmark Links July 9th – Outside the Box

Cat box

What I’m Reading

Outside the Box: In most distressed investing opportunities, the holding period is relatively short term – buy an asset that is underperforming at an attractive price, bring in fresh capital, lease it up at market rents and then sell.  Converting dying malls to another use can take a decade (or more) thanks to entitlement challenges, which makes it a tough fit for distressed investors accustomed to seeing a relatively quick turn of their capital.

Split: Debt funds that maintained balance sheet discipline in an incredibly competitive environment prior to the pandemic have largely continued lending through the crisis.  Those that binged on back-leverage as a way to enhance decreasing yields have not.

The Waiting Game: Great quote from Yieldstreet’s Senior Director of Real Estate Mitch Rosen in Globe Street yesterday about the difference in how distress surfaces in public and private markets:

“I think people don’t realize how long the workout process is in commercial real estate,” Rosen says. “With the public markets, you can drop 40 percent [of value] in three weeks, but real estate doesn’t work that way. The peaks and troughs are far longer in duration, and the distance between them is also much longer. I think the impact of what we see now is not going to be felt for six to nine months out, at least.”

No End in Sight: CMBS delinquencies continued their spike in June with retail and hospitality assets unsurprisingly leading the way.

Tangled Web: Domestic road trips were supposed to be the ticket for a relaxing vacation this summer.  However, inconsistent rules about testing an quarantines – and enforcement – from state to state have created confusion among travelers.  

Chart of the Day

Low income consumers, who typically spend less on discretionary items, is back to pre-COVID levels.

SourceHugo Ste-Marie, Portfolio & Quantitative Strategy Global Equity Research, Scotia Capital

WTF

Star Crossed Lovers: A man driving a stolen car crashed into a woman driving another stolen car in Oregon.

Wiped: A woman was arrested for domestic battery after getting into a physical altercation with her live-in boyfriend over toilet paper because Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 9th – Outside the Box

Landmark Links July 8th – Tightening the Belt

TIGHT-BELT

What I’m Reading

Tightening the Belt: Commercial real estate financing for major rehab and construction projects is becoming harder to get and more expensive while leverage is falling.  This should eventually lead to lower valuations since real estate falls in value for two reasons: falling income and rising risk premium.  However, it also will also eventually result in less supply. The final result is that this will be a very uneven recession since the impacts are being so unevenly felt across real estate asset classes.

Calling in Sick: The NBA’s reopening is a cautionary tale for the US economy – some people may not be so keen on returning to work in this environment.

Rational Exuberance?  The stock market rally since March has been both puzzling and epic.  However, a closer look at data shows that its nothing like the 1990s internet bubble.

Good News/Bad News: The current recession will likely be deep but relatively short.  The bad news is that it will be a long, winding road back to recovery which will largely hinge on infection flare ups and renewal of government supportSee Also: The OECD is warning against the withdrawal of emergency measures designed to support employment.

Chart of the Day

Most of the job loss headlines are focusing on total unemployment.  It’s like nothing we’ve seen before but is improving.

However, the large numbers above somewhat obscure the more important permanent layoff numbers.  These are nowhere near previous recessions yet.  However, they are dropping quicker than they did back then and show no signs of a turnaround.

Source: Calculated Risk

WTF

Bombs Away: Penguins aren’t just adorable, they can also shoot their poo up to four feet. (h/t Adam Werblow)

Heading Somewhere? A jogger found a human head on the side of a road because Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 8th – Tightening the Belt

Landmark Links July 7th – Picked Over

grocery

What I’m Reading

Picked Over: The Federal Government extended the property identification period for anyone in the middle of a 1031 exchange when COVID broke out.  However, we are quickly coming up on the July 15th extension deadline and a dearth of debt capital and potential acquisition targets have buyers scrambling.

Watch List: So far, multi-family has weathered the COVID storm surprisingly well.  However, a potential end to government support payments just as we are seeing a resurgence of infections could put renters and landlords under pressure. FWIW, I still believe that there will be an extension of some sort on enhanced payments – we are, after all in an election year – but it won’t come until the 11th hour.

Whiplash: Many surviving US restaurants were just beginning to see their business recover.  Then a resurgence in COVID infections hit, leading to a new round of government restrictions that have cash-strapped owners wondering how long they can survive.

Adaptive Re-Use: Walmart is turning some of its parking lots into drive-in movie theaters.

Conspicuous Consumption: U.S. consumers are buying again, but their shopping patterns show broad fears of persistent health risks amid the pandemic.

Cruise Control: Networks of self-driving trucks are getting close to becoming a reality in the US.

Chart of the Day

We may be entering a slowing phase of the labor market reopening.

Source: Oxford Economics

WTF

Brains: Health officials in Florida have sounded the alarm over the discovery of a rare, brain-eating amoeba in the county that encompasses Tampa and several other cities.  However, given that this is occurring in Florida the poor things are probably going to starve.

Up in Smoke: A plane carrying 860 lbs of cocaine crashed on a highwaybecause Mexico.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 7th – Picked Over

Landmark Links July 6th – Stressed Out

stressed-out-dogs-thumb

What I’m Reading

Stressed Out: The largest U.S. banks might lose as much as $47.6B on commercial real estate loans over the next two years in a worst-case scenario, according to the Federal Reserve’s latest stress test results.

Cold Comfort: The pandemic has only enhanced the attractiveness of the cold storage sectorSee Also: Online could make up 6.4% of total grocery sales by 2021, compared to pre-COVID projections of 4.6% and up from 3.1% at the end of 2019 (h/t CJ Collins).

Different Angle: Simon Properties, the largest mall owner in the US, is making a run at JC Penney’s bankrupt parent company most likely as a way to get to the real estate that it owns as a redevelopment play.

Hitting Reverse: As coronavirus cases surge in states like Texas, Florida and California, some phased reopenings are stalling or even being reversed, leaving businesses and property owners uncertain about their future viability.

Falling Like a Rock: San Francisco apartment rental prices continue to plunge.  The average rent for a one-bedroom apartment in San Francisco fell 11.8% year over year in June, following a 9% year-over-year drop in May according to apartment rental platform Zumper.  The same survey indicated that rents in the US as a whole were up 1% YOY for June.

Chart of the Day

Lodging and retail still leading the way when it comes to loan defaults.

SourceTrepp

WTF

Covidiots of the Day: Students in Tuscaloosa, Alabama, who have been diagnosed with COVID-19 have been attending parties in the city and surrounding area as part of a contest to see who can catch the virus first.  The contest involves a cash payout where the students put money in a pot and they try to get COVID. Whoever gets COVID first gets the pot.  Perhaps most shockingly this does not appear to be part of an attempt to go viral (pun intended) on a social media platform.  In related news, the Governor of Alabama has extended stay at home orders due to increased spread.

Desperate for Action: Bettors in New Jersey and Colorado were able to wager on the Nathan’s Hot Dog Eating Contest this year.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 6th – Stressed Out

Landmark Links July 2nd – Restarting the Machine

Leroy simpsons

Quick programming note: Links will be off for the rest of the week, working on a big announcement later this month.  Happy July 4th and we will see you Monday!

What I’m Reading

Restarting the Machine: In a sign that capital markets are stabilizing, sales of new collateralized-loan obligations hit their fastest pace in early June since pandemic shutdowns began.

Transformers: America’s vast stock of fading shopping infrastructure could get a second life as places to live.  If done correctly with both housing and service retail, Such transformation could even bring malls closer to the “village square” concept they were initially envisioned to become.

Relatively Contained: For the most part, corporate bankruptcies since the beginning of the pandemic have been limited to heavily-indebted companies whose industries were already in substantial decline before the pandemic.  The wave of corporate failures strictly due to the pandemic has yet to really materialize.

Musical Chairs: Many apartment dwellers realized that they needed more space once they began working from home.  Thanks to social distancing and not wanting to move during the pandemic, that extra space is often coming in the form of a larger apartment in the same complex.

Sidelined: Creative freelancers—with little job protection and incomes reliant on people leaving their homes—have been some of the hardest hit in the coronavirus-driven recession.  That is particularly bad news for Los Angeles, which has the highest percentage of freelancers in creative fields of any of the 15 largest metropolitan areas in the U.S and is uniquely reliant on freelance workers.

Dirty Money: People have suddenly stopped using money — of the bill-and-coin variety — for fear it may spread the virus. Some worried shopkeepers have stopped accepting it, too.  ATM use is down 32%, according to Visa, and 63% of consumers say they’re using less cash.

Charts of the Day

Source: Goldman Sachs

Source: The New York Times

WTF

Pizza, Pizza: Two Little Caesars workers have been fired after an Ohio couple found pepperonis placed to form a backward swastika on their pizza.  Also, Little Caesars is godawful.

Hard Luck: A man who was hospitalized with coronavirus suffered from a four hour erection as a consequence(h/t Steve Sims). I guess the science is settled and Viagra is not a cure for the virus.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 2nd – Restarting the Machine

Landmark Links July 1st – Stiff-Armed

stiff arm

What I’m Reading

Stiffed: Huge funds like Blackstone and Colony are defaulting on their hospitality assetsSee Also: Blackstone just quit negotiating with the special servicer on one of their limited service hotel portfolios.

Lurking: After sitting on a mountain of dry powder for years, Sam Zell is eyeing the type of distressed acquisition that has made him one of the most successful real estate investors of all time….. but he still thinks that the real opportunities are 3-4 months away.

Crowded Shelter: Warehouse has been rock solid as other real estate sectors have struggled in recent months.  However, it was a crowded asset class – in terms of investor demand – before the pandemic hit and is getting more so by the day.

Exodus: Data from Redfin.com shows a rise of people in New York, San Francisco and Los Angeles looking to move to more affordable and less dense areas in recent months.

Silver Lining: Many of the pressures driving increases in materials and labor prices for multifamily construction have lessened as a result of COVID-19.

Shedding: Large corporations are using the pandemic as an excuse to jettison laggard brands.

Chart of the Day

Personal income excluding government transfers is way down in 2020.

Source: Axios

WTF

Always the Ones You Least Expect: A Nigerian Instagram star known as Hushpuppi, who boasted online about his lavish lifestyle of private jets, designer clothes and luxury cars has been busted in a $431 million cyber scam that involved ripping off credit card information overseas.

Let It Rip: A hot mic caught golfer Ian Poulter ripping an epic fart right after his partner teed off on the first hole (h/t Steve Sims).  I golf roughly as interesting as observing grass growing but could watch this all day with the sound on.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links July 1st – Stiff-Armed

Landmark Links June 30th – Amplified

cat

One Big Thing

Whenever we tip into crisis mode, people tend to focus on the big, almost-always temporary numbers.  For example, at one point OpenTable restaurant bookings dropped to zero in the US and TSA checkpoint data fell to almost nothing as did hotel revenue.  These numbers are all at some stage of recovery now, albeit slowly and unevenly.  What I find far more interesting are the marginal, often relatively small changes that tend to be more permanent, or at least take far longer to revert to the historical norm.  While the big numbers get the headlines and shock value, it’s often the smaller, more permanent changes that lead to larger economic consequences over time.  From The Economist (emphasis added):

The pandemic’s effect on office space is less clear. Many workers may find that they quite like working from their bedrooms or kitchens. Others say they miss the camaraderie of the office. Social distancing may also force firms to spread out more, reversing a trend that saw office space per employee fall by half in a decade. If the net effect were a reduction in rented space, it could cause havoc. Victor Calanog of Moody’s, a rating agency, calculates that if tenants in New York gave up even 10% of their space over the next five years, it could result in a halving of rents sought on vacant properties.

First off, this is NOT saying that office demand will drop 10% in NYC over the next five years, but rather illustrating what would happen to rents IF it did.  Second, this is an illustration that everything happens at the margins.  Only a small percentage of commercial real estate space turns over every year (lease expirations, move outs, etc).  The vast majority remains occupied.  Therefore, seemingly relatively small changes in demand (and supply) can cause out-sized movements in rental rates.

What I’m Reading

Here Today, Gone Tomorrow: Pop up retail, which was surging in popularity before the pandemic hit, has a level of flexibility that makes it built for this environment.

Compromise: Pickup is gaining ground on delivery as restaurants and grocers find it to be less of a hassle and easier on the bottom line than expensive delivery options.

Risky Business: JPMorgan analyzed data from 30 million Chase cardholders and Johns Hopkins University’s case tracker and found that higher restaurant spending in a state predicted a rise in new infections there three weeks later.  In-person restaurant spending was “particularly predictive” while higher spending at supermarkets predicted a slower spread of the virus.

COVID 15: Apparel shoppers are finding that they need to buy larger clothes after stress eating and sheltering in place, boosting both sales and returns.

High Stakes:  After months of pandemic-inflicted shutdown, a legal battle over who’s responsible for rent was inevitable and fashion brands and their landlords are taking each other to court. The outcome for any of these cases will set a precedent for the whole industry.

Chart of the Day

More capital is being allocated to real estate.

At the same time, returns are trending downward.

Source: The Economist

WTF

Cooling Off: A Louisiana man was arrested for jumping into a Bass Pro Shop fish tank in an attempt to go viral on Tik Toc.

Like Lemmings Off a Cliff: A drunk woman crashed her pickup truck after picking up a drunk friend who crashed his pickup truck because Georgia.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarklc.com

Landmark Links June 30th – Amplified