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Oz Buzz #45: Forecasts For Office, Industrial, Retail, Hotel, Multi-Family
“Capitalism without bankruptcy is like Christianity without hell.”
SNAPSHOT: FORECASTS FOR OFFICE, INDUSTRIAL, RETAIL, HOTEL, MULTI-FAMILY
Right now, millions of people are rolling out-of-bed in pajamas and handle their job from their kitchen. Owners of companies – lawyers, bankers, etc. – are having an epiphany: We do not need all that space! They face having to downsize (save costs) or finding they actually need less office space.
Maybe less space, but same number of employees. Less space and intro of shift work for half home and half office? Half morning work, half afternoon – out of same smaller space.
Landlords will continue to have to evaluate the outcomes… Who will come back, who will want to reduce, who will cancel the lease? Landlords are also going to need to assess how to respond to requests for rent relief/reduction.
TO DO:Assess your office space needs with a cold practical eye. Both tenants and landlords face challenges but also opportunities. Be ready for that new world … maybe outside advice is needed for tenants to optimize smaller space, for landlords to rethink uses.
The Port of Vancouver reports an 85 per cent decline in volume of Chinese container shipments with 50 per cent fewer total sailings. Logistics companies in Toronto have reported 60 per cent fewer inbound containers. Perhaps less need for storage. Or storage increase in some areas (like oil) and less in others.
TO DO: Expect your Industrial tenants to downsize. Get used to less space. Assess their risk tolerance to determine inventory levels required to handle different disruption scenarios. Tenants get outside help to evaluate your business of the future. Landlords? See above under office – get ready, Industrial: Will be all right but not all…
We are training everyone to shop online. Old people that did not even know how to turn on a computer, now learn about the joys of online ordering and next day delivery.
Fewer shoppers overall. Necessity-based retailers, primary grocery and pharmacy will find their traffic remains very high. Everyone else diminished … some nonexistent. Many will never reopen.
Fact is, there were already over 1100 mall closures in the USA BEFORE the virus. When one big box store closes, 20 smaller stores suffered from loss of traffic… many will NEVER reopen.
Restaurants, hair salons, all depend on DAILY users. Competition will intensify and some will not survive. Others won’t / cannot pay rent / mortgage. Those that were hanging on, may find the debt load strangling and give up. (The biggest names in the world are in or near bankruptcy.)
TO DO: Realistically analyze the re-opening of your business. If there is little hope, cut all costs now! As a landlord stay close to your tenants – real close. Look for new tenants together (mitigate losses) if you have doubt. All retail will not recover… Do not buy but sell retail spaces…
Multi family: Troubled. Developers need minimum sales or banks will call loans. Some developers laid off all marketing staff. all. Some developers rumoured in difficulty. There will be mergers.
Currently 90% local buyers … buying properties that can close in 3 to 6 months. Long time presale buyers are in ‘wait and see’ mode. Still, rental properties in multi family will do the best.
Returns. More social distancing in apartment building common areas. More redesigns…
TO DO: Actively pursue sales. Use unique new incentives for qualified buyers that commit now. I mean REAL MEANINGFUL incentives. NOT – free wine. Maybe 2 cars, yes! Maybe car plus total new furniture. Car sales are down 75%, furniture even more. Developers that buy bulk can offer great incentives…
Markets not only report sharply lower sales but also lower listings (so lower sales are logical). Everyone sharply down in April, including Montreal’s first month of fewer sales in 61 months. Sideways – wait do not rush: Eyes wide open … only buy deal of a lifetime. All residential will go sideways to down – psychology is one of fear…
But once we have solved the virus problem, cashflow residential will still be great.
TO DO: Young people will likely still move to their high-tech companies IN town. Families and older people … will be moving out of town more often than not.
MAKE OFFERS IN KOOTENAYS, Vancouver Island, Sunshine Coast… We have learned to do the social distances … maybe we like more of It… Get quality professional realtor (order takers are dead), stay connected in your area … look for MUST SELLs… Owners read: 21 ways to make your home sell faster at jurock.com
Here will be the biggest crash. We already had too many hotels. Many will not re-open in the same form. (Social distance, half occupancy, restaurant, revenue, banquets revenue, buy money making gatherings). And then: What will it cost to reopen? The value in the ‘hotel asset’ is destined to crash.
TO DO: We never like hotel investments. Stay out! Same for REIT hotels.
Australia has seen over 700,000 students leave for their home. However, Trudeau government reportedly is still approving immigrants … time will tell if they will actually come, once planes land in Canada again. Immigration and students were a large part of our expectations for strong markets. The uncertainty here … has to be watched closely.
Q: David Rosenberg stated on April 22nd that the world faces a depression 10x worse than the Great Depression. What is your call? A: I think he said 10x worse than the economic problem of 2008. Either way Mr. Rosenberg has always taken a much more negative view of the future than most other economists. Still, I like some of his reasoning, though. Clearly nobody knows what the recovery looks like, in my view though there will be a recovery. Not back to the same old world and some areas not even similar, but a recovery, nevertheless. Mr. Rosenberg also recommends buying gold, and you know my view on that. Look at: ARMSTRONG CRASH AND BURN (below).
Q: You continue to talk the Canadian dollar down. Seeing as our trading partner is the United States, is it not more likely that the Canadian dollar goes up, rather than down? A: I get this question several times a month, we are not the United States. Canadian deficits will surge, both corporate and household debts are already in a dire state.… oh, and then there will be NEW HUGE Government debt!
This year there has been a bloodbath of currencies vs the USD. We would have been a lot worse off if we were not so closely connected to the US. For instance: The Russian Ruble is down 17%; the Turkish Lira down 18%; the New Zealand dollar down 12%; the Hungarian Forint etc. etc.
These currencies all go down for their own reasons based on their economic performance, there national debts, and the outlook for recovery. The US, for perhaps the wrong reason, will remain – in our view – the strongest currency. The IMF sees Canada drop by 6.5% in GDP (in our view it will be a lot worse) and therefore we see the dollar closer to .65 cents and by the way, Mr. Rosenberg sees it a lot lower.
For good measure: I have never liked the euro either. In 2018 we saw it being equal to the US by now (and we were wrong so far). But the euro is definitely also a currency I would stay away from. Ok, while I am at it – I do not like the pound either… Think: Which currency do you want to own?
Q: Ok, you are a real estate guy, what will it be: Vlike recovery or U? A: No one can answer! This is a different world. No historic precedent. Not a thing to compare it to. What took 3 years before (depression, economic crisis) now only took 2 months! Shock to our culture, our systems of operation, our world. There will be a recovery, but whether “V” or “U: or “L” or “I” … we are not going back the way we were. The issue is not whether and how we re-open our businesses but whether they will stay empty once open. Who will now buy a car, a boat, anything new? People will take whatever money they have (particularly from Government) and will retire debt or save … first – before being back to being a nice consumer … there will be no instant stimulation – no going back ‘the way we were’. However, there will be unbelievable deals for those that actively work at it. Look for that deal of a lifetime! Ask why has Buffet 129 billion in cash. Why do the other multi billionaires?
Q: I thought your March Ozbuzz was brilliant. Analysis of past crashes, etc. But also your view on the length of the virus. I quote you: “It is also clear that China (Wuhan) had a massive event for 3 weeks. It peaked and now they only have cases originating from outside. If the US and Canada follow that pattern, we could be peaking in April, then go down and we could be out of this much sooner than anyone is predicting. Our RELENTLESS media IS causing panic by CONSTANTLY REPORTING”. Oh Guru, where are we going now? A: Blush … actually I received a few fine comments. Thanks. I think we have had enough – many more qualified – people venture guesses abut the virus. Some – Bill Gates for instance – downright scare me. However, if you read Ozbuzz 45 carefully, my world view is petty clear. It ain’t the virus that’s the problem now.
Q: On Michael Campbell’s CKNW Money Talks radio, you spoke strongly against retail property investment. I own a number of retail stores and I have no vacancies. A: Unfortunately, there will be a tsunami of bankruptcies in the retail and energy sectors in particular. While no one has the exact number, 30-40% of all retail stores will never reopen. The same may apply to restaurants, travel agencies, theatres, etc.
It is not a question of liking retail or not, it is a question of: A. As an owner to love your tenants and help your tenants and be prepared for the need to release your unit. B. As a tenant, talk to your landlord, try to negotiate more favourable terms and if you are intent on leaving, tell them now. C. As a buyer of retail: DON’T! (Unless it is – you knew it – a deal of a lifetime)
Q: Ozzie, can I hire you as a ‘ZOOM’ speaker to my company? A: Yes, go to ozziejurock.com under products/consultation
Q: Where do you see interest rates going in 2021? Mr. Campbell warns of a possible increase in rates. A: Always always heed Mr. Campbell. But this is a US election year, in addition to all governments of the world striving to keep interest at 0%. In past years we have always recommended having your mortgage term come due in a US election year. Like magic, when presidents want to get re-elected, they keep interest rates low. In my view it will be a good time to lock in all investment real estate mortgages at these very, very low current interest rates for at least the length of time you intend to keep the property. It is a massively good and cheap INSURANCE POLICY.
Q: You are only interested in real estate and do not talk about the stock market. What about bonds? A: Go to YouTube and watch Ray Dalio in where he says ‘You’d be pretty crazy’ to hold bonds right now. He is the 36thrichest man in the world, a historian and while I do not hope for some of his predictions to come true, he is noteworthy … if interested in bonds.
Q: Thank you for reminding me to get my HELOC variable rate changed over to a locked variable. I was not aware that my current HELOC was really a demand loan and could be called anytime. A: Not only could it be called at anytime, the fine print states that you could be charged by the bank to pay back 3% per month on your loan on demand. (See below also for business credit lines.)
Q: I have sat on the sidelines with my cash and missed a huge upside. Now what? A: I know a thousand people that wish they were in your position. Who says you have to do anything? This level of uncertainty should make you sit tight. Who says you have to make a bet!? Because that is what it is – what ever you do today, it is a bet … against BIG money, program trading, crazy government actions. Sidelines…looks downright sweet to me.
BUSINESS CREDIT LINES
We need to remember is that we are seeing headlines of a “virus crisis” but that is not our problem. Our problem started with and is a massive “liquidity” crisis. The crisis is of such dimension that currencies are collapsing because countries cannot pay the soaring increases in the US dollar debt loads, huge corporate and household debts … and literally a shortage of dollars.
I have seen in past crisis how easy your “favourite” bank cancelled your business credit line.
My advice? If you have a credit line of $20,000, $50,000 or whatever and you have not used it, take it out. Invest it in GICs and see the difference of what you pay in interest and what you get in interest as an insurance policy that the money will be there when you need it. Look at what the big boys are doing: Boeing called a $19B credit line before it was needed. TrezCapital in Vancouver froze all redemptions two weeks ago. If you have any monies in a fund, MIC, or other, that can happen to you. Take it out while you can. Or if you manage a fund, freeze your redemptions. (Some of the biggest corporations are stopping dividends this week, soon there will no one be paying them!) LIQUIDITY IS THE PROBLEM.
NEW 2020 IDEAS
If you want to buy gold – get gold jewelry (but get 22+ karats) … no tax. No declaration, no confiscation.
Advertise on social media. Indeed, large corporations have stopped social media advertising. Today get the best price for Facebook, LinkedIn, and Twitter advertising – EVER! Facebook, LinkedIn etc … are all cheaper than ever. Also, advertise on Kijiji (all our tenants come from here), Craigslist … the same. Also use local bulletin boards. Post on www.realestatetalks.com or bcred.ca…
Put your ad into a form of a question in Twitter. Yes, Twitter. In a normal ad on Facebook etc., if you put an ad, a dozen companies will answer with an offer. If you ask a question on Twitter, dozens of people that need the product or service answer you directly.
Car sales are down 75%. There are hundreds of leases in default. Best car deal? Assume someone’s lease. I have seen offers of: ‘Assume my lease and I will pay you $3,500, $5,000’ (in one case $11,000). A chance to get into a luxury car, with costly upgrades, pre-paid services etc., etc. all done.
Same for assuming commercia leases. In another lifetime, one of the largest office buildings in a major Canadian city could only get tenants that paid HALF of the common area costs and NO rent!
Can you say boats? How many boat loans will be the last payment an owner will make after everything else he may have to pay.
Get used to the word “stink bids” … think about what a stink bid would be … then make offers, offers offers… You don’t get it … learn these magic words “So what? Next!”
All that money created out of thin air has to come out as inflation… big idea? Buy cashflow real estate (next year) and see above.
People will save more. The stimulation packages will not stimulate, but go to payment of debts first, and then ‘keep safe’ second … long way before it gets spent and then stimulates economy. Unfortunately, businesses will go broke. TD bank say we will not return to ‘normal’ till 2022. Agreed. Get away from stimulus… There is too much of it. In fact, all that stimulation will not stimulate … anymore. Create a space for your brain from all that input! Say STOP!
Put some structure back into your life without the talking heads. (Make your bed first thing, enjoy the morning sun. Look at email only from 11 – 12.) That is, it! This time at home may be the best thing that ever happened to you…
Your dislocation from office, the same people is GREAT!
Do not talk to anybody, read. Need to block out a time for work? No, block time to think.
Turn off the TV, the phone. I MEAN: TURN.OFF.THE.TV. AND THE. PHONE. Bet you can’t!
If you hang on every one’s word on TV and SM … you will be no different!
Use the learning experience to experience YOURSELF!
ARMSTRONG – CRASH AND BURN
Shutting down the economy is unleashing a Great Depression far WORSE than that of the 1930s. Our political leaders are absolute morons. This has demonstrated that they have no common sense and the abuse they have inflicted upon society for the political benefits is just mindboggling. There is NO HOPE IN HELL that the economy will recover. We are looking at a crash and burn into 2022. All the headstrong people talking about hyperinflation and the dollar will crash who lost a fortune on the way down since January, are going to lose everything between now and 2022. They remain absolutely clueless as to even what capital formation is all about.
EYEBROW RAISER OIL FOR NORTH AMERICA – GET RID OF OPEC
From Michael Campbell’s Money Talks: Michael interviewed Diane Francis who advocated that:
Canada and the United States should join forces by banning all oil imports from Saudi Arabia, Russia and other OPEC countries and replace it with oil produced right here in North America.
What a grand idea! An OPEC-free market would protect our two countries from price shocks and ensure our energy independence. Given OPEC’s ongoing sabotage of international oil markets, a bilateral energy pact will be essential going forward.
The U.S. and Canada produce as much oil as Saudi Arabia and Russia combined and can produce more than enough to meet our combined domestic needs.
A bilateral deal will simply mean that eastern Canada will get all its oil from American, rather than overseas, suppliers. The U.S. and Canada each have more than enough capacity to meet that additional requirement, and then some. This would ensure that our oil supply would be secure and less vulnerable to cartel pricing schemes.
Go to www.realestatetalks.com – Some 2,500 members (47,009 posts) talk real estate. Ozzie created this bulletin board in 1998!
If you are in a real estate related industry of any sort (realtor, appraiser, lawyer, home inspector, etc.) list yourself in Ozzie’s free British Columbia real estate directory at www.bcred.ca.
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