{"id":118,"date":"2020-03-27T18:53:53","date_gmt":"2020-03-27T18:53:53","guid":{"rendered":"http:\/\/urbancoreadvisors.com\/blog\/?p=118"},"modified":"2020-05-05T18:57:23","modified_gmt":"2020-05-05T18:57:23","slug":"lets-wade-through-the-noise","status":"publish","type":"post","link":"https:\/\/urbancoreadvisors.com\/blog\/2020\/03\/27\/lets-wade-through-the-noise\/","title":{"rendered":"Let’s wade through the noise."},"content":{"rendered":"\n
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Let me preface by saying that I am absolutely and completely in awe of the strength and resiliency of the entire world working together on this humanitarian effort to bring an end to this pandemic. Those on the front lines who are fighting this war together will ultimately make our entire globe stronger and more connected than ever. Many subject matter experts are producing tremendous amounts of meaningful information specific to the medical side of this situation. As I am not a medical professional, I will not even remotely attempt to pass judgment or speculate on anything medically related. My background is in business, and therefore I will focus this publication on the business and economic aspects of this pandemic. But know that aside from the \u2018numbers\u2019, the most important issue for everyone to focus on is stopping the spread of this virus.  <\/p>\n\n\n\n

Today, business owners are not only\nconcerned about their families and the spread of the pandemic, but they are\nalso concerned about the families that rely on them, their employees. Everyone\nis trying to wade through piles of information, much of which is misinformation,\nto determine their next steps in getting through this crisis. For those of us\nin hurricane-prone areas, this pandemic is just like a hurricane. Your first\ninclination is to protect your home, your business, and your family. The next\nstage is you sit and watch the \u2018spaghetti models\u2019 endlessly hitting the refresh\nbutton on your computer hoping it doesn\u2019t come your way. During a hurricane,\nbusiness owners who have already built contingency plans for such a situation\nbegin to implement those plans. Businesses that did not have a plan start to\nscramble to figure out their next steps to keep their business alive. Everyone\nis planning for the worst and hoping for the best.  Just like a hurricane,\ngeographically there will be areas that will feel the impact much greater than\nothers. This pandemic will be absolutely no different. Case in point, this is\nthe John Hopkins COVID-19 Dashboard Map as of today 3\/27\/2020. China which is\nconsidered the place of origin is now in recovery, and it is clear some areas\nwere impacted significantly while others had minimal impact. And just like\nafter a hurricane has hit, once we see where the damage has taken place those\nwho were less impacted quickly mobilize to help those who need help the most.<\/p>\n\n\n\n

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So to follow are my best estimates\nof what we can expect in the short-term, mid-term and beyond.<\/p>\n\n\n\n

In the short term, defined as\nbeing March-April, I believe we can logically expect the following:<\/p>\n\n\n\n

1.) Millions of employees out of work, rent payments, car payments, and mortgages will be late or deferred. The great news is that our banks and landlords have gained great experience during the great recession. Instead of waiting to react, as they did in 2008, they are moving proactively to go ahead and address the issue. They are not acting in an adversarial way. They are proactively telling their customers if you need help just let us know. \u201cWe are here for you.\u201d Because what they learned in 2008 is that those companies that they helped survive will be clients for life.<\/p>\n\n\n\n

2.) Consumer spending has all but\nstopped, other than household goods and groceries. This will have a tremendous\nimpact on GDP and will likely be the largest decline in history.<\/p>\n\n\n\n

3.) Sales for restaurants, bars, and\nhotels has nearly completely stopped.  Many hotels are less than 1%\noccupancy and the industry estimates it is losing $500 million a week.<\/p>\n\n\n\n

4.) Real estate sales<\/a> have stalled and contracts to purchase are being extended. Leasing will slow significantly over the next couple of months with many tenants choosing to remain in place and ask for short term lease renewals.<\/p>\n\n\n\n

5.) Construction projects<\/a> that are underway will continue business as usual. Those that have yet to start may delay starting temporarily. Those projects in the early planning phase will likely be postponed.<\/p>\n\n\n\n

In the mid-term, as defined as being\nMay-August, I believe we can anticipate the following:<\/p>\n\n\n\n

1.) 40% of workers go back to work by the end of May, 70% by June. Remaining 30% absorbed over the next 12 months. The Stimulus Package will help these groups catch up from March\u2019s loss of income and unemployment should help with getting them through the summer.<\/p>\n\n\n\n

2.) Consumer spending will likely\nfollow the same trend as above. Consumer confidence will remain low for the\nrest of the year.<\/p>\n\n\n\n

3.) The Stimulus Package aimed at\nhelping small businesses will take a little longer to implement but should be\nin full swing by the end of April. So those that can weather the storm through\nApril on their own we likely survive. Restaurant and hospitality will be the\nhardest hit in 2020. Many in these industries will see sales levels substantially\nlower than normal, leading to higher debt and lower cash. Other businesses\noutside of those two industries will see a much less significant impact on\nsales with most running only slightly less than their normal year over year\nrevenue. For those businesses, it will mean slightly lower cash on hand and\nslightly higher short term debt.<\/p>\n\n\n\n

4.) I expect residential real estate sales to bounce back fairly quickly. Commercial sales will be a little slower to recover. Business owners will be more trepidation to purchase due to their desire to hold onto liquidity. Leasing<\/a> will be slow through the summer while companies replenish their cash positions.<\/p>\n\n\n\n

5.) Some construction projects will be put in holding patterns. Investors will want to see pre-leasing<\/a> activity improve before pulling the trigger to break ground. You may likely see projects be split into smaller phases and\/or separate contracts for site work and vertical construction. Construction supply chains may see some interruption but as long as building timelines are not overly optimistic they should present relatively low levels of risk. Cost to build will likely come down due to trades cutting their profit margins to ensure a solid supply of work through the rest of 2020.<\/p>\n\n\n\n

In the long term, as defined as\nbeing 2021 and beyond, I would expect the following:<\/p>\n\n\n\n

1.) In 2008, corporate America and\nthe financial industry learned an extremely valuable lesson in why a company\u2019s\nbalance sheet is so important. 2020 will prove to be the year that all\nconsumers and small businesses learned that same lesson. For anyone that was\nnot a saver, they will be now. Unfortunately, I am not sure all will have\ngrasped that concept completely but I think some will. Unemployment should\nlikely recover to levels below 6% in early 2021 and back below 5% in late 2021.<\/p>\n\n\n\n

2.) As we move into 2021 consumer\nsentiment and spending will begin to recover and likely return to levels we\nwere experiencing pre-pandemic.<\/p>\n\n\n\n

3.) There will be businesses that\nfail during this time. They are likely the same ones that already had trouble\npaying rent before the pandemic. The stimulus package will keep many small\nbusinesses from failing. Those who have good working relationships with their\nbank will likely be getting calls soon from their bankers telling them how to\naccess stimulus funds.<\/p>\n\n\n\n

4.) The small businesses that do\nfail will add more inventory on the real estate market and that additional\ninventory will need to be absorbed. I don\u2019t anticipate that being a huge number\nbut it will have an impact. The additional inventory will temporarily cause\nvacancy rates to increase and rental rates to decrease. My advice is for\nsellers who don\u2019t need to sell, hang on for a little while this will be\ntemporary. Real estate markets that will be impacted the most will be in the\nepicenter of the outbreaks. Markets that experience limited impact from the\npandemic and can get back up and running quickly will suffer the least and be\nback to normal the fastest. Businesses will begin to rethink work from home and\nremote working. However, it is important to note this has already been\nhappening for the last several years and this pandemic will just show employers\nthat it can be done. But, I suspect employees having now experienced the social\ndisconnect that is created by this forced work from home status will likely\ngrow in their appreciation for working collectively in a traditional work\nenvironment. So yes it will create some change, but it will not be the sweeping\nchanges that people think. I believe the area that will see the largest change\nwill be industrial and manufacturing, which was already experiencing great\nsuccess. Post-pandemic manufacturers will rethink the concentration of their\nsupply chains oversees. They will begin bringing back manufacturing to the US,\nnot wholly but in part, to improve their supply chain strategies. This will\ncreate a mini-industrial boom for the US over the next 5 years.<\/p>\n\n\n\n

5.) Construction pricing will\nimprove which will be a good thing for the economy. Construction pricing has\ncaused housing unaffordability and slowed development growth. In certain\nmarkets this has caused over-concentration of\nproduct types. When construction pricing corrects it will have a positive\nimpact on the entire economy.<\/p>\n\n\n\n

Conclusion: Pre-pandemic the\nunderlying economy was the strongest it has been in history. As an aside, if\nthis was going to happen, you couldn\u2019t have picked a better time from an\neconomic standpoint. Cases in point, think about it if this had happened in\n2008. Because the economic issues at hand are caused by a virus\/natural\ndisaster and not underlying economic problems, the way forward to improving our\neconomic conditions are tied to curing the virus and not massive long term\noverhauls of our financial system or corporate greed. Everyone agrees we will\nfind a cure and the US government has stepped up to remove barriers and shorten\nthe time to get drug trials underway. <\/p>\n\n\n\n

The media has (like they always do)\ncreated complete panic over misinformation and terrible reporting. Moving\nforward before you hit the \u2018share\u2019 button, fact check. When you strip away the\npolitics of this matter and go straight to the subject matter experts for\naccurate information you will be at ease.<\/p>\n\n\n\n

The take away is this, Stay Calm, Be Safe, Use Good Judgement.  Thank the everyday medical heroes and first responders keeping us all safe.<\/p>\n\n\n\n

This Too Shall Pass.<\/p>\n","protected":false},"excerpt":{"rendered":"

Let me preface by saying that I am absolutely and completely in awe of the strength and resiliency of the entire world working together on this humanitarian effort to bring an end to this pandemic. Those on the front lines who are fighting this war together will ultimately make our entire globe stronger and more […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-118","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/118","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=118"}],"version-history":[{"count":9,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/118\/revisions"}],"predecessor-version":[{"id":134,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/118\/revisions\/134"}],"wp:attachment":[{"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=118"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=118"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/urbancoreadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=118"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}