Economic Updates from Dr Peter Linneman
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all right so good afternoon and welcome to Walker and Belmont Wednesday webinar I’m Susan Webber your moderator I would like to welcome Willie Walker an expert economist dr. Peter Linderman William Peter will discuss updates on the crisis Peter’s research in the outlook for commercial real estate and our economy thank you for joining us and now I will turn the call over to Willie Thank You Susan and good afternoon everybody it is Wednesday which means it’s the Walker webcast greatly appreciative of those of you who have taken the time to join us today I had originally had Colorado Governor jared Polis lined up for today and as many of you saw governor Paulus had to go to Washington to meet with President Trump today and so at the last minute I called up my friend Peter Linderman and said you want to come back on seven weeks after the two of us talked at the beginning of this crisis and Peter very nicely agreed to come on and join me so I’m very much looking forward to the next hour and engaging with Peter on a host of topics many of which he has done a lot of research on and other topics that he and I just have a lot of I hope informed opinions about and so thank you for being here with me today Peter I will say next week we have dr. Peggy Hamburg joining me she is the former administrator of the Food and Drug Administration for six years from 2008 to 2014 and I’m very much looking forward to hearing about if you will the health side of all of this from dr. Hamburg and it should be a really interesting and engaging discussion I have a lot of homework to do between now and next week as it relates to all of the therapeutic drugs being developed and vaccine development and really kind of do dive into all of that I want to start off as I usually do by saying that you know close to 80,000 people in America have died due to this virus and those deaths are very real their real loss their real pain and close to 40 million Americans are unemployed today which brings with that real concern and stress noting that Peter and I are going to talk about today belittles the deep sorrow for the losses of life nor the real concern that many many people hold today as it relates to their future from both an employment of food a shelter and an overall care standpoint nonetheless we are going to dive into issues that are at this time somewhat controversial there’s a lot of pressure tension going on in our country right now as it relates to opening or staying shut and I think it’s important to dive into these issues and to to some degree debate them flesh out sand the more salient points during this I think Peter and I will talk about the what the value of a human life is that is not something that isn’t easy either calculation or something that’s easy to talk about but when we are talking about an economy when we are talking about health you have to somehow try and put numbers to this to have a structured discussion I also want to put forth that I was listening to something that Michael Milken said a couple weeks ago and I’m in complete agreement with it there is no there will be history books written about the response to this crisis and what people didn’t didn’t do there is no reason to look backwards and either praise or blame what people have done in the past all we can do is focus on the data that we see in front of us today the reality that we are all living and then to take actions to move forward and to hopefully build action plans that allow us as a society to move beyond the current crisis and with our lives and to get our economy back up and going I want to back up for a moment to last week Walker Dolloff announced earnings on Wednesday and I just come from that earnings call when I did my conversation with Glen Duncan I just want to underscore a couple quick things that I mentioned last week first we had just closed on the largest transaction that Walker and Dolloff had ever done which was a 2.4 billion dollar financing of a large multifamily portfolio in the mid-atlantic I think it’s noteworthy appointing that only and that at these times where many people believe that there is not financing out there to do a deal of that size and scale is not only a great accomplishment but it does speak to the fact that there is still in certain places and with certain asset classes liquidity in the market the second thing that I mentioned last week was that in the month of April we did 1.9 billion dollars of flow business outside of that 2.4 billion dollar deal we did another 1.9 billion we are doing a lot of refinancing in the multifamily space right now at leverage levels of anywhere between 50 and 70 percent and at coupon rates of anywhere between 2.5 and 3.5 percent depending on the leverage level depending on location of asset occupancy etc etc but whether it’s with Walker and Dunlop or many of the other providers of capital out there there is capital out there for assets today we have the somewhat Goldilocks scenario and it’s hard to think that there’s any Goldilocks scenario out there today but a very very low base rates and then very tight spreads given the amount of buying that the Federal Reserve is doing today in agency CMBS and so for those properties that have solid occupancy great fundamentals and great sponsorship there is capital out there for refinancing the final thing that I would mention as it relates to the state of the market right now is that make collections as I mentioned last week the early returns were looking better than April I would reiterate that since the beginning of May what we have seen as collections either on top of or slightly better than the month of April in the multifamily space I would underscore as we talked about during April that the a and B class assets in multifamily are collecting ninety five percent and north the one area where we are seeing I guess two areas we are seeing some weakness is a is first in the C Class properties so at lower income levels you’re seeing some weakness where collections might be in the eighty-five to ninety percent range and then the second is on small loans smaller loans clearly are showing some weakness as it relates to sponsorship and people who might own one or two four or five unit multifamily properties they’re getting hit hard with someone moving out and losing a quarter of their rental income and they are reaching in for pull endurance the numbers that came out last week on Fannie Mae and Freddie Mac is parked well Baron’s in the month of April Freddie Mac was at 1.7 million dollars of loans seeking forbearance Fannie Mae was at 385 million so a very significant difference between Fannie Mae and Freddie Mac due to a number of things one I would put forth that the Freddie Mac if you will threshold for granting forbearance is a little bit lower than the Fannie Mae threshold for granting forbearance second on Fannie Mae loans there is a cash sweep on the property when it goes into forbearance whereas on Freddie Mac there is not a cash sweep and I think the final one is back to the small loan point Freddie Mac in the multifamily space has done a huge volume of small loans in the past several years and I think that inside of that 1.7 billion there is a very significant cohort of small loans that have come back in asking for forbearance Peter and I’ll talk about that a little bit later as it relates to forbearance and what he is seeing in not only the multifamily space but across other asset classes this is the next comment that I would make is a little bit along the lines of what Peter I think is going to talk about in a moment which is sort of losing the plot and I think it’s very interesting where we sit today as it relates to what people are expecting either at the state level or at the national level on reopening our economy we went into a shutdown to allow our country to build up the testing capacity the personal protective equipment and the hospital capacity to be able to deal with this virus to the best of my knowledge I never heard a single politician either at the national level or at the state level we are shutting down until we have a vaccine to this virus never said they all said we need to build up the testing capacity the PP&E and the hospital capacity to be able to deal with this virus and then move forward but it feels like today there is a sense out there that if people step outside of their homes if they start to get back to work that there’s an expectation that the virus is somehow gone away that we can’t go back to work we can’t keep moving forward until we have a vaccine and it’s interesting because dr. Fauci who everybody respects tremendously yesterday in the hearing said quote some suffering and death that could be avoided will be avoided but it could even set you back on the road to trying to get an economic recovery well clearly doctor foul Qi is correct if we stay locked down there is suffering and death that could be avoided but I think as Peter is gonna dive into in a moment what is the cost of that and did we ever and enter into this lockdown with the thought that we were gonna try to avoid all suffering and all death because if that were the case we would be locked down for years to come I want to touch quickly on states and testing before I get to Peter and that is that there is a lot of question marks as it relates to testing at a state-by-state level and there is a there was a Harvard study released last Thursday which stated that only nine states are running enough code 19 tests today to contain a future outbreak they’re all pretty small states Alaska Hawaii Montana North Dakota Oregon Tennessee Utah West Virginia and Wyoming and so you have larger states such as Georgia Texas and Colorado which per the Harvard study don’t have enough testing today to quote-unquote open back up but they have governors who are taking stances to get their economies back up and going and I think one of the things that many of us are grasping for is some rules of the road do you look at the Harvard do you look at the Hopkins study do you look to the federal government do you look to the CDC do you look to your state the other thing that has come out as it relates to overall testing is there right now in the u.s. we’re running on average about 250,000 tests a day and many people believe that that testing number needs to get up closer to a million tests a day somewhere between 750 on the low end and a million on the high end to make it so that there is enough testing across the country to be able to get everybody into a sort of a confidence level that we can get back to it who knows exactly what that number is but clearly testing capacity is coming online quite soon the other thing that I looked at was the Atlantic magazine has got something called the Cobra tragic tracking project and the Cobra traffic tracking project has gone to take a look at how states are set up along a number of different ratings which include reporting testing outcomes as far as ICU capacity ventilators demographic data figuring out who in their population bases doing what and then they get a bonus for overall Hospital capacity and so there are 14 states with a plus ratings per the Kovac tracking project that the Atlantic is doing and those are Arizona Florida Georgia Iowa Indiana Kentucky Massachusetts Michigan New Jersey Oklahoma Oregon Rhode Island Virginia and Wisconsin what I like about that is that there is objective measures which are talking about all the component parts on a state-by-state basis that people can go to to say is my state on a number of different metrics ready to go and kind of looping back to the previous comment then I’m going to go to Peter the Washington DC Convention Center today is set up with 450 beds that are ready to take overflow capacity out of the hospitals the Army Corps of Engineers has set up 37 makeshift hospitals across the country very similar to what they’ve done in Washington the convention center to deal with overflow capacity in hospitals that is what we set out to do six or seven weeks ago hopefully those beds don’t need to be used but that was what we set out to do was to set up that excess capacity and it is in place I certainly hope that after spending the time and effort to set up the capacity hey it’d be great if we didn’t need to use it but boy would it be a shame for us all to be lulled into the thought that the virus has come and gone we take down the capacity and then we have a resurgence in the fall and we don’t have that capacity still in place second thing is many have heard about the virus getting into children and causing symptoms similar to Kawasaki disease we talked about it on my children’s national board call yesterday the good thing about it it has plenty of parents including myself concerned as it relates to the implications of this virus on the child population but the good thing so far about this disease which they haven’t there’s actually a technical name to it now but there there it is a variation of coded 19 is that it is treatable it is highly treatable and that while three kids have died unfortunately from it all the medical professionals they know what to do they know how to treat it the final piece that I’ve talked on before I turn to Peter is student housing some of you may have seen the California University system came out yesterday and said they will start the fall in remote learning two thoughts on that one I have spoken to a number of people who own student housing properties who’ve been in close contact with school systems across the country and I I have to say I’m a little disappointed that in mid-may the University of California has made the decision that they are going to jump to that without waiting to see how the economy opens back up waiting to see what type of therapeutic drugs might be developed over the summer and the final thing is to basically look at is there is there anything else that will change when we move towards the fall they obviously need to give clarity to and their parents and people who are paying for their education as it relates to financial planning for the fall but the second piece is that many students from my understanding still want to go back and be in the community where they are learning that’s clearly the case right now is we’re ending the 2020 school year where many many many students in off-campus housing even though the campuses have been shut down have stayed there and continued to learn remotely with their friends and colleagues around them in the student housing property I would not be surprised if many of those students head back to campuses in the fall for off-campus housing and that you actually get very significant rental numbers out of those properties and I would also say that there are plenty of parents who if they can afford it are saying boy it’d be really nice if my college-age daughter or son could head back to their own living environment after having been in their house for the last several weeks two months and so let me now turn to Peter because it was seven weeks ago on March 25th Peter when the two of us were talking about where things stood and you would outline the potential economic damage that would be caused by a prolonged shutdown so here we are seven weeks later have we accomplished what we set out to do and how bad is the damage Ginn so let’s pleasure to be here Willie and I feel like one of these guests that come on a late-night talk show after a real star is cancelled you know but it’s a pleasure to be here unfortunately Willie basically what we talked about on March 25th is what happened I wish I’d have been this accurate in all my forecasts unfortunately I think it was about that easy I apologize they’re doing some heavy construction outside my building here so there’s only so much we can do but what’s the damage as we sit here today probably 45 million unemployed as we sit here today forget the data which is laggy about 45 million unemployed on a hundred and sixty to a hundred and sixty-five million labor force so that’s 25 26 percent unemployment that’s the highest and recorded that would be the highest and recorded US history the data is lagging we started with five million at the beginning of March so probably forty million people have gone unemployed in the last what’s that about ten weeks now that’s deep as you know it’s highly concentrated in certain sectors though it’s spreading because if those certain sectors aren’t doing business it ripples onward GDP as we speak none annualized is probably at about six and a half to seven percent below the last week of March that’s not annualized if you annualize that comes out in the range of 35 37 percent that’s a lot of economic activity lost now what is that about 1.2 1.4 trillion it’s a about 1.25 trillion just roughly and I think we’re losing about 21 billion a day 22 billion a day is another way to you know remember how grace used to have the debt clock and you just saw it roll and CNN has the death clock you see it roll this is the lost GDP clock and it’s basically it’s basically a billion an hour is a way to view it and so every our world we’re down another billion we’re down another billion we’re so by the time you and I are done we’re down another billion so it’s ugly now there’s been a lot of money punked into the system and and I’d like to come back to a couple of points you make so I hope we swing back to them but when we spoke on the 25th of March one of my overriding concerns with social unrest because I did four see this type of unemployment and if you say when people go on unemployment they usually get somewhere between a thirty five and sixty percent drop in their income on unemployment and I kind of sat there going if we’ve got 40 forty five million people unemployed at forty fifty percent of their income it’s not good and I also mentioned just you recall the class of 2020 which is graduating now and for high school college not getting jobs they don’t qualify for unemployment so bear that in mind however they did one thing I don’t know whether it was intentionally smart unintentionally smart it doesn’t matter if you earn less than about a thousand dollars a week that’s fifty thousand a year you are making more unemployed than you were making employed and that’s true until the end of July now you say why do I think it’s intelligent they bought peace with that they bought peace so that a whole bunch of people think of like 40 million people unemployed making of which probably eighty percent of them are making more than they were making before can’t do that forever but it did buy peace and in fact with an election coming up I’d be shocked if that doesn’t get extended from the end of July probably to the end of the year as you know $600 top-up a week that does that that’s what let’s dive into that for two seconds because as you well know there Nancy Pelosi last night proposed three trillion dollar shanell stimulus plan that many Republicans responded to this morning some people probably saw Rob Portman senator from Ohio on squawk box talking about this issue of if you will moral hazard that if you’re paying people more money to sit on the couch than to go out and work that people aren’t going to get back to work and so senator Portman was basically saying I don’t approve with what is in that proposed bill that the house is supposedly going to vote on tomorrow or on Friday which is to extend that $600 per week boost on a weekly basis until the end of the year given that there are no jobs right now for people to go back to do you not think that the if you will to put in Democrat and Republican lenses the Democrat pushing for the extension of that until the end of the year as you just said probably wins over the more sort of moral hazard we can’t have people sitting on the couch rather than going on finding a job in two you actually start to see job growth coming and that then kind of dub details into when do you think we’re gonna start to see job starting to reappear again all right so you know that normally I think both parties are wrong about everything this is a rare case where both parties are right there is a discouragement it’s not so much moral hazard it’s a discouragement phenomena which is why the hell should I work if I’m doing this well not working and particularly for lower wages it’s a big differential some people have gotten 40 50 60 % increases by going on unemployment so they’re definitely right in the quote Republican side saying that’s a concern the Democrats are right in saying but they aren’t saying it as bluntly as I’m about saying it is to buy peace it is to buy no social unrest it is to avoid Newark riots I don’t mean the riots would be in Newark I mean totally devastating kind of riots the kind we’ve seen in our lifetime in Detroit and Newark and real riots where huge amounts of capital in life are put at risk and lost forever and so if you ask me I they’re both right and for me to say either is right is quite a concession but to buy peace i give I’d suffer a little bit because peace is critical until we get it back up so don’t get me back up go — getting it back up for a second I heard you say talk for a moment about the the when you think we start to see jobs coming back on and what the take-up rate is okay so we have we had we have a little evidence from sweet not a lot there are two phenomena going on I’ll go back to the the night the NBA shut down the night the NBA shut down I went to a sold-out Sixers game okay but it was already clear kovat was in the air and so forth and attendance was about 90 to 95 percent sold out but attendance was 90 to 95 percent that was I don’t want to and there was going to be always some dimension of I don’t want to I don’t want to go to the concert I don’t want to go to the restaurant etc right then and that based on Sweden probably would have taken our unemployment from five million people unemployed to 10 or 15 million unemployed the I don’t want to would have happened would have happened that’s not the government’s fault no matter what they did that was going to happen maybe even though taken it to 20 million the other is you can’t you cannot right and that has been the government shutting down and some of the shutdown as you said was the shutdown I always heard was the same reason flatten it out give us time to put these temper facilities it is time to get mass production etc up and what happened is mission creep and mission creep is a classic phenomenon though the famous one in my lifetime was John Kennedy as president sends some military advisors to V it to South Vietnam and within five years we have a hundred thousand soldiers doing front-line combat how did that happen and it was mission creep not ill intended probably ill-informed misguided not willing to admit mistakes all human stuff the other is you start out thinking you’re fighting one enemy and then it evolves it becomes political the other is how did World War One start Archduke Ferdinand and his wife are assassinated by a anarchist and the next thing you know the major industrialized powers of the world are at war how did that happen right and historians are still doing that I think historians will look back at this and go how did this which may kill 300 thousand this year I mean who knows how many it’ll kill still to be determined how but by the way we have three hundred and thirty million people and we do know now you pointed out the current death we know that about 60% of the deaths not to be cruel my mother was one of these people not be cruel but sixty thousand of to be sixty percent of the deaths are people in nursing care not just in senior living in nursing care and we know from independent data before this the median life expectancy is somebody in senior live in the in nursing is five months five months the good news of this disease is that sixty percent of its victims had a life expectance see of around five months as opposed to if it killed a lot of children or healthy and so forth I’m noting its good news it is the relative good news and so the mission creep here has been extraordinary how does the comeback would occur the comeback occurs when the can’t do hands it over to thee I don’t want to do as long as the can’t do the government is deciding the government is going to come up with 50 decisions for a million situations we’re going to come up with millions of answers for millions of situations your office there is a very different thing opening than my office in Philadelphia than Macy’s then a shoe repair shop then a McDonald’s than a big bar there are millions and there’s no way no way a government can ever figure out all those answers and what we are now in is a can’t do world that can’t do world is well intended but it’s crushing we need to get into the we won’t do so I’ll give you the best example I think I mentioned on the 25th I live within a couple of blocks of University of Pennsylvania hospital system that way couple of blocks Thomas Jefferson University Hospital that way to major national international medical they’ve been ghost towns ghost towns because all elective has been said no so here are and almost all they have are Medicaid patients because that’s most of the nursing home who are brought in or emergency victims so they’re going bankrupt they’re getting huge subsidies from the government not to do cancer screenings hard screening colonoscopies all that stuff so to help the medical system deal with one thing we’ve destroyed all this other here’s how it comes back though will you want this is my good thought for the day by the way after one more funny thing nestled between all the medical office that you would imagine if two blocks that way is one major medical two blocks that way is another is a marijuana dispensary they have been allowed to stay open they have been allowed to stay open but cancer screenings have not been allowed to stay open that’s when the can’t do world dominates because any intuitive says that does it make sense that it doesn’t make sense but now let me give you the best news that I’ve come up with for years we’ve been saying our healthcare system eats up about 18% of GDP it eats up about 18% of GDP how awful that is and not that 18% about 2% of GDP is eaten up in the last year of people’s lives okay so that those are facts and that covin dimension is that 2% right now it’s a big part of that 2% the last year of people’s life by the way maybe it’s up to 3% now right of GDP but most of medical shut down so what was eating 18% of GDP might be eating four or five percent of GDP when the can’t do say you can get colonoscopies you can get cataract surgery you can get you know go through all the list you can have your hip replaced when they say that occurs do you understand that about 14% of our GDP comes back pretty quickly and I want to I want to take that into so that’s exactly the type of thinking that I wanted to get to here Peter as it relates to that’s a snapback and just as a quick aside on my children’s call yesterday we were losing about a million dollars a day back at the beginning of April we’re now down to after cost-cutting in things of that nature summer between two hundred and three hundred thousand dollars a day and you know there’s a break-even number as it relates to getting back for elective surgeries to getting us to break-even by sometime in June so there are there and Children’s Hospital by the way does not have the influx of Kovac cases like normal adult hospitals would have but nonetheless to your point as it relates to we run the very real risk of killing our first line of defense to this virus by prolonging this shutdown for too long and gutting the staffs and gutting the actual operations of these hospitals right when we need them the most but let me talk for a moment about the sectors that have gotten most hit back to your forty five million dollar number and ask you whether you think the rebound you just set it on health care for instance some interesting numbers between this crisis and the great financial crisis of where we’ve lost jobs and then your thoughts on them coming back so for instance in leisure and hospitality we have so far lost seven point six million jobs versus a total of five hundred four hundred and fifty four thousand in those sectors in the great financial crisis educate the education and health services exactly what we were just talking about so far have lost two point five million jobs versus actually adding jobs during the great financial crisis as people went into health care people went into education professional and business services it’s almost a wash 2.1 million now 1.6 million in the GFC retail 2.1 million now a million in the GFC manufacturing up significantly as far as job losses 1.3 million now versus two millions right down from the GFC of two million and then the other final one that i put out there the two other ones one government interestingly law almost a million jobs in the government sector already in the Copa de crisis versus actual growth in the government sector during the GFC of 48,000 jobs and then construction clearly construction was a huge job loss in the GFC of 2.2 million we have only quote-unquote lost nine hundred and seventy five thousand jobs in construction so far in this crisis so as you look at that specifically back to your point as it relates to you know once Healthcare comes back that can snap back in is getting jobs back in leisure and hospitality for instance where you’ve seen the lion share seven point six million jobs lost is that going to snap back or is that a slower recovery similar to construction starts getting construction jobs back as we clearly saw during the GFC so this time they’ll come back when they can’t do as the can’t do disappears where will there still be don’t want to do travel entertainment concerts ball games Disney etc there’s very little evidence of any that anybody gets this from outdoor exposure by the way so things like Disney will come back far faster than something like movie theaters and so again it’s not one size fits all and so I think what you’ll probably see is by year-end if they can’t do receipts you’ll have you’ll have a tripling of demand or quadrupling of demand for travel and hotels so that will still only get it back up to about 40 percent or 50 percent right still got a good way to go but there are people I mean there are people there are things the constructions gonna get worse in the near you know it’s gonna as projects finish there’s not going to be something replacing it in the pipeline so your since this housing starts fall off what about commercial construction same way commercial construction is going to fall off look you know the coming I keep making two people is with 25 to 30 percent unemployment it’s generally hard to imagine any sector doing well right it’s just any business it’s very hard to man it’s easy to imagine some business is not doing as badly but it’s hard to imagine a lot of business is doing better even something like cleaning offices right you know outsourcing cleaning of offices you’d say well they’re gonna do a lot better yeah but some offices are gonna shut down so they’re even going to take a hit right it’s so everything is relative in that regard the hardest slow is to come back will be indoor entertainment oriented and travel and leisure winter when hotels as they come back it’s my view is it’s going to come back much better in branded than non branded why because I don’t know I if Christmas said if you’re listening you don’t have to pay me for what I’m about to suggest because I’m not an ad guy I love Chris he’s fabulous but you know I can see Hilton doing a campaign commercial showing how we clean this every hour and then we do this and you know you can just see the commercial right of how they clean everything Chris actually spoke earlier this week about the fact that they’re gonna put a tape on the door to your room that when you you know similar to the way that they when they clean toilets sometime in hotels you open up the web and it breaks the seal and says to you someone cleaned it they’re gonna be doing that on the outside of the room and so I exactly to your point Peter those people who can create the sense of suit charity around the experience are going to be the winners and Airlines the the big airlines are going to do fine by the way my guess is will have never been safer from transferable diseases that we’re about to be for the next year or so in an airplane or a subway or hotel because come on they you know they’re going to be you can drop stuff eat it off the floor in those places going forward they’re going to be unbelievably hygienic by any historic standard so they’ll come back but it will take time it will take time but so you have the the quickest to recovery will be hair salons the next will be health care health care my guess is 90% of the drop like it’s your Children’s Hospital 90% of the drop is because you can’t do 10% is because I don’t want to do and so you could get that snapping back quite quickly and then as you go across the board it it’s you know what are you doing what is it that you’re doing it will be a bit virtuous and the reason I mean by virtue is what I mean is as they come back health care I’ll just take health care as around me all these jobs come back to do the elective stuff what’s going to happen is they’re gonna have to buy more sandwiches right and the nearby little restaurants will do well since the nearby little restaurants doing well orders for pickles will do better and and on you go in the virtuous cycle so let’s let’s take that then to housing starts and generally speaking housing and then we’ll run through the various asset classes and your views on where things stand today and how people are sort of fighting the good fight in some instances so you said construction way down so housing starts sort of fall off a cliff are you long single-family housing because there will be no new supply and therefore if you actually own you’re going to get price inflation if you will in the existing stock or a single family housing looking for a train wreck because of the five million homes that have gone into forbearance and are going to end up causing even further damage to Fannie and Freddie’s financials once those loans go from forbearance into foreclosure near-term it’s hard to see anything going up a lot in value there there could be little exceptions look what’s it take to want to own a home it takes confidence a job so you can get a mortgage a down payment and an income well if you have high unemployment a lot of people can’t get the loan they don’t have the income twenty five percent unemployment does not exactly exude confidence and the values of assets being down Hertz down payments right so single families got a single family ownership got a difficult near future just by the way ultimately it’ll be fine it’ll be fine but in the meet next year or two it’s hard to see how it does well so they roll that’s it well that’s a multi and the fact that there won’t be new supply on the single family side Multi occupancies are holding up pretty well right now to your previous point as it relates to the cares act and the $600 per month thumb has been keeping rent rolls strong I think you said in in something I read that you thought that occupancy economic vacancy would get up to about twelve percent so eighty eight percent payroll collection I think that’s a little low from my take but let’s use your eighty eight but you also said that that’s gonna have people who need it get forbearance but you’re not gonna see many foreclosures on the multi side so your general outlook as it relates to multi is constructive relative to other commercial real estate assets absolute absolutely here’s my concern about multi it’s very simple supplies going to slow down big time that’s fine that will help I go back it’s hard to find an industry that does well in a world of twenty five percent unemployment so what will happen right now they’re getting unemployment checks and they’re paying when their lease comes up in July if they’re unemployed are they going to renew are they going to move back to month some are going to move back to mom I’m not saying all but some that otherwise if they had a job would keep running so you’re not going to lose many people to homeownership but you’re gonna lose some people to twenty five percent unemployment moving back to mom and they’re not going to be replaced by the class of 2020 because the class of 2020 has no jobs and if you think about the extruder of the economy right out of this ends you have some people dying and going to single family and whatever right and in this end you have the class of 2020 coming in you have no class of 2020 coming in you still have my way don’t just think of young people in apartments I own an apartment project where we have a fair number of seniors and some of them are going to die in the course of things or move in with their children there’s no class of 2020 to replace them so I don’t think it drops to 88 or 90 immediately I just think what happens is that oh there’s nobody new coming this way there’s some going out that way and with 25% unemployment a lot of them that are currently renting moved back home and when I say back home it could be with their uncle I don’t care who it’s with right that’s the scenario I see it is helped by the single family weakness but it isn’t offset is what I think let’s go to the next if you will best asset class which is industrial if you own industrial that happens to be an amazon distribution facility or is taking products to get to an Amazon distribution for City facility lucky you and sit on it what about industrial around ports as imports and exports fall dramatically as I said this about a month and a half about a month ago about a week or so after our first talk is that imports and exports are going to get killed why put aside nationalism and so forth very simple reason when our income is up we buy more stuff from everywhere including abroad and it has to come in and go through a port or and through an airport and be broken down and so forth and when they in foreign countries have higher income they buy more of our stuff and it has the throughput if you’re around those throughput points they have less money we have less money less exports less imports less handling throughput the near-term going to be very adversely affected and to that any nationalism reshoring etc it will dampen it further your Amazon is at the other extreme so you have those kind of two extremes if you will right but I think the hardest hit will be port and near airport where they’re handling I don’t mean they’re handling Amazon kind of shipping I mean they’re handling import/export kind of coming off of planes and there’s as you know there’s a lot more than that than people realize you know next office long-term leases Walker and Dunlop friend space and 40 buildings across the country and we’re not cancelling leases right now but will obviously take a look at what our footprint needs to be going forward and how many people are going to be coming into offices and then also what the square footage is on a per person basis so they’re the two sides to that one some people may continue to work from home the flip side to it is the space you need for the people who come into the office and they actually expand what’s your thought on office and and and more specifically than that Peter urban office versus suburban office do you think that this sort of disintermediated world to your point as it relates to entertainment Disney comes back much quicker than then then movie theaters because people are outside do you think that suburban office actually gets a boost in the arm because people don’t want to take public transportation or any kind of transportation to go to an urban core office building yeah the thing people forget about office Willie is there a long-term lease assigned there are long term leases so let’s you mentioned Amazon let’s say Emma’s on has a long term office lease and one of my buildings let’s assume they want to go to the suburbs for the reason you said they they got lease with me for the next nine years so those decisions about city summer directionally I think you’re right there aren’t going to be many people at the margin able to make that decision in any near-term there just aren’t don’t that many people who are have their lease role and have the capacity to put the money into moving or find a landlord in the suburb who’s got the money to put in building out the space right so that’s gonna be a bit of a free so directionally you’re probably right near-term I think what you see is a leasing kind of freeze until the tenant figures out their world I mean they’ll renew if they’re a real business but until they figure out their world the other thing I think you see is if you just did your office forget the we works I’m talk about you Walker Dunlap you know a real company if you just redid your offices with butcher blocks shoulder to shoulder hot seat etc and you and I have been in a lot of offices like that of tenants who were really proud of it show their space over the last two years those people right now are contacting landlords and designers saying how do I undo this in a hurry and that means I was in a conversation this morning we works of the world we work in radicular is going to give back some space in the good buildings the space they’re going to give back could become the expansion space to deal with I need a bigger footprint to get my people back to work it may not be with we work as the landlord but the landlord takes it back and does it in the weaker buildings that’s different so I think it’s actually more space got to be got to be and I had been writing for years at the cognitive output of that kind of space was very low based on the cognitive literature we can’t text and drive at the same time we don’t deal well with interruptions and I had been writing about that I thought eventually people would get it the health is going to get it not the cognitive part so I’m not so dour on office the hardest thing office has to deal with in the near term is vertical transmission even in a two-story three-story suburban building most people aren’t going to walk the stairs right they just learn so you’ve you’ve got the vertical transmission issue is just gonna have to be worked around it’s just gonna have to be worked around and I will say buddy gets in and faces the wall I don’t know I will say to that one of the things that we have a coping task force at Walker and Dunlop and as you can imagine we’ve chewed through every single issue you can possibly chew through and the one of the frustrating things about all this is that nobody has experienced this before so if I pulled you into the discussion we were talking about the great financial crisis you’d have great insight into how what you saw on the great financial crisis and how people dealt with it well long etc you’d be a leader in that room on this one there is no leader in the room there’s no one who could say hey I got all the experience on how you deal with this thing so might a sport and I have been dealing with this and the issue there are 12 different opinions on every single issue and there’s nobody who can say well I know exactly what the answer to that is I will say and all these people are wrestling with these very real issues we sat .
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around yesterday for I don’t know 20 minutes 30 minutes talking about exactly that point that you just raised in your elevator well I came into our office building today and guess what Seabees already taking care of it for me when the owners of this building you’ve taken care of it you got a line that you get into you’ve only got four people who get into a car you got tape on the floor or where you’re supposed to stand and everyone’s gotta wear a face mask and that’s the rules and regulations of this building and so we were sitting there saying we need to set a walker and Dunlop code on a nation national basis the building management has taken care of that for us if you will that’s the million solutions for a million situations as opposed to a government saying here’s what it’s going to be and by the way my guess is they’re going to start with four core elevator and then they’re going to find out that that’s perfectly healthy and they’re gonna do the six great as long as everybody has a certain quality mask right and then they’re gonna do nine and as long as they have a certain quality mask and maybe you’re checking their temperature in the law I don’t know right that’s the million solutions I’m talking about big time so we have limited time and I want to get your thoughts on a couple quick things the first is there are you may not find a lot of opportunity in multifamily in industrial and in office because those three asset classes probably will hold up quite well and there is bound to be opportunity in retail and hospitality and so I have a question not so much on how bad it gets but when should people think about jumping in-you you know you did the work work out of Rockefeller Center back in the early 1990s you watch the GFC where we watch Bear Stearns fail a lot of people thought that the economy was act okay in the summer of 2008 only to watch Lehman Brothers fail and the economy fall off a cliff and I think I’ve heard you say before you know wait till the blood starts to dry a little bit when’s the when should people start looking for opportunities unless you’re playing with bad money that is I can invest it if I lose it that’s fine so I’m not I’m not talking to that and by the way we know people like that right that they’re going to take a certain amount of their money and it’s man money and not their nothing wrong with that so I’m talking about not bad money I was reminded I don’t know if you know who was don’t ask why I was watching the Hall of Facebook all of Fame induction video on YouTube a Bob Uecker Bob Uecker was a terrible he was a major leaguer but a terrible player is a catcher and but he was a fabulous announcer for like 44 years still alive and a very funny man and I encourage you if you’re a baseball fan to go to youtube and watch his Hall of Fame induction see anyway it’s appropriate to what you’re asking he says you know I caught Phil Niekro probably the greatest knuckleballer in the world and I heard all these catchers say how difficult it was to catch a knuckleball and I didn’t find it hard at all I just waited till it stopped rolling and it was no problem at all to pick that pick it up from there right that’s kind of for most of us catching a knuckleball is too hard right just too hard for most of us unless you want to try to do it for fun you want to see could I do it the pros can’t do it I mean most people and most people I know are looking and looking and looking but they’re kind of waiting for the ball to stop rolling and and by the way if they missed the greatest opportunity of all time that’s fine so what yeah so what so and if I got it when it’s twenty-five thirty-five percent back that’s all right you know that’s okay so I think most people are going to pause retail is going to be particularly hard because it’s a hard sector it’s a real operating sector hotel the same way it’s a real operating asset and so those are going to take not just buying the asset but the operational I learned real estate from many people but out loud than most of all and I remember in 1990 I was young and al said to me I asked him about apartments being bought cheaply and you could lower the rent may cleanse it and now I’m pointed out if the problem with retail is even if you buy it for essentially nothing it might not be cheap enough because you cannot lower your rent enough to change the price of Cheerios that was literally as common and if you can’t change the price of Cheerios you cannot affect consumer patterns whereas if I buy an apartment building cheaply enough I can lower rents enough to attract customers right and that’s what makes retail harder and I think hotel the same way I could have the best corner and the best physical design but if it’s badly operated people aren’t going to come so those two sectors are always difficult and given this situation they’re really for the pros I you know there’ll be some money flowing to it trying to side with the pros but and I’ll give you one other back to multifamily I do think there’ll be opportunities not just in multifamily if I said what is the big opportunity going forward the next couple of years it’s really low interest rates have made prepayment penalties on you just can’t do it you can’t sell your building yeah you could take the penalty of a lower interest rate but the way the penalty is calculated usually by discounting at Treasury and so forth the penalty part that the true penalty you can’t do .
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it and I think where the opportunity is going to be is I’ll assume your debt so I’ll discount you to the extent the interest rates too high but not for the penalty part right and if you’re open to that and you can figure out that math and you can work that margin effectively I think there’s opportunity not just in multi but certainly in multi and others because as you know what when I probably the typical buyer you deal with for the last what 10 years once it free and clear right free and clear there isn’t going to be much because all they have to do is say even if you pay me a great price at that free payment penalty I mean it will hold it right and so I think that creativity comes back if you will and it becomes essential and that means GED you put a add-on piece or you know all that kind of stuff for opportunity so final thing because we’ve run out of time and I could keep going with this for much much longer but we are faced with these government stimulus packages and and bailouts and we’ve done you know two trillion in the last one and then they added on to that they’ve done the PPP these numbers keep adding up and adding up and you hear a lot of members of Congress say you know we’re putting on too much debt and we can’t afford it and we’ve got to be thinking about the future of the United States talk for a moment about just the cost of this or the relatively small cost as it relates to flooding the system with not only aid right now to get through this but relative to the four trillion dollar budget that we have what issuing six trillion dollars of debt will actually cost us okay so I have to give you my own bias so people can discount appropriate it’s like when I say I usually think the Democrats and Republicans are both generally wrong right my bias is it’s never been about a deficit or a surplus its are we getting our money’s worth and if we’re getting our money’s worth for what the government is doing then we should do it right and if we aren’t getting our money we shouldn’t be doing it whether we have a surplus or a deficit now with that said I’d say Willie you’re you’re kind of a half a generation younger than me a generation younger than me if you could have reached back in tongue and ameliorated the suffering of your great grandparents and grandparents during the Depression would you love to have given them some money yeah the answer is of course all of us would have it you read about during the Great Depression how awful it was and you say we we happily given them money backwards in time if we could two of ameliorated that paint we can today our grandchildren our children and grandchildren and great-grandchildren can do that today by allowing us the float debt that allows that is paid by future generation who’s going to inherit money from us by the way to partly pay it to ameliorate the pain today and to me that’s we’re getting our money’s worth we’re not gonna get every penny worse someone’s going to be wasted some is going to be defrauded by the mob you know but by and large to ameliorate the pain and suffering of a generation 25 to 30 percent unemployment to ameliorate that I believe my grandchildren who aren’t yet born would be willing to take on some burden when you say what’s the burden look like we started this with about 17 trillion in government federal government death on a twenty one trillion dollar economy roughly I’m just doing round even if we add eight trillion to ameliorate the pain and suffering by the way not eight trillion to build a bridge from nowhere to nowhere to alleviate the pain and suffering right if we do a trillion the thirty-year government bond is below one-and-a-half percent we can carry 8 trillion additional debt for less than a hundred and twenty billion a year on a twenty one trillion dollar economy that thirty years from now will be a thirty two trillion dollar economy and by the way on a government budget that’s four trillion a hundred and sixty billion on a four trillion dollar budget is rounding error absolute round in air so we’re in a moment in history where we can do this by the way so Bob we can’t do that Kenya can’t do that it is the reward for our historic virtue if you will and we should use that we shouldn’t use it for any government spending we should use it for government spending that maintains social order right that maintains a standard of dignity and a standard of living and that helps eliminate this threat of death and it’s easily covered you don’t even have to do taxes to speak of to do it you know if all we needed was a hundred and sixty billion more in taxes that’s trivial when the time comes that’s nothing or of all you have to do is cut a hundred and sixty billion out of the otherwise budget that’s trivial to do so I’m generally opposed to deficits because I don’t think we get our money’s worth this is a generational moment where we do and I think of our unborn grandchildren could vote about it they’d say sure so on that and thinking about unborn grandkids and thinking about bright days ahead for all of us I will thank Peter for joining me today I hope everybody on the line found this discussion between two of us to be hopefully insightful and give you some thoughts as it relates to the world we’re living today Peter thank you again and everybody on the line have a great day we’ll see you again next week thanks thanks Peter thank you yeah .