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It wasn’t all that long ago that co-work spaces were the darlings of CRE. As recently as September 2019, there was a 70% increase in flexible workspaces, despite the massive difficulties encountered by industry leader WeWork.
Short-term leases, affordable rents, communal creativity and networking, and shared common spaces were celebrated, notably by small businesses and start-ups looking for a cost-saving operational alternative. Just last year, the concept was becoming even more specialized with niche co-work spaces—shared offices geared to very specific ideas, such as construction, women, LGBTQ, and musicians, to name but a few.
Then, COVID-19 happened. At least for the time being, shared spaces in a time of social distancing don’t make a ton of sense.
While larger companies with office space were able to adapt through employees working remotely, many shared space tenants, operators, and landlords floundered. Adapting to remote work has added strain on smaller businesses. The economic shutdown has forced many of them to close for good, opt not to renew short-term leases, or walk away with months of unpaid rent.
The combination of a lingering lockdown and expectations for yet another mass redesign of offices—this one with a nod toward social distancing—caused many experts to ponder the viability of shared workspaces. For many, the concept was on life-support.
Other analysts, however, say, “Not so fast.” They note that the sector hasn’t been around long enough to weather an economic downturn. In a sense, it must find its footing to prove its mettle and survive. And in their view, shared workspaces may be what a post-pandemic world needs, offering small businesses without fixed office space a necessary outlet for workers.
At the start of the lockdown, when businesses across the country were forced to adapt, remote work seemed like a novel, short-term measure required to stem the virus’s spread. For workers long accustomed to daily commutes, the effort in those early days was approached with a sense of humor as they fumbled with technology and did their best to avoid interruptions. But what was hoped to be a temporary glitch has dragged on, even as the country re-opens.
As new cases continue around the country, corporate offices weigh keeping employees at home and maintaining permanent office space. In turn, what was once a novelty is now taking its toll on creativity, productivity, and mental health. Shared workspaces—with appropriate precautions—may wind up being an antidote to isolation as corporate offices remain unused or are downsized.
Shared workspaces also have the potential to provide a support structure for small businesses that operate on the edge of local economies. By coming together under one roof, there is a greater possibility for networking, sharing ideas, and gaining access to resources.
Shared workspaces will need to adapt to COVID-19. The high-density model will likely have to change in favor of a more socially distant property. This may include the addition of freestanding dividers and privacy areas, as well as regulating the number of people allowed in a conference room.
It will also be imperative for co-work space managers to adhere to health measures outlined by the CDC and other leading state and local agencies. This effort may include taking temperatures, increasing air exchange, sending sick workers home immediately, increasing the frequency of cleaning common areas, and maintaining transparency with other members should an individual become ill.
With re-opening and constant reminders of a “new normal,” perhaps it’s time to regain a sense of control by having a say in exactly what that will be. For co-work spaces, it means gaining a better understanding of members’ circumstances, concerns, and fears—and working to address them. It could involve examining flexible hours so members can work at off-peak times, providing discounts for longer lease agreements, and updating cancellation policies to meet new demands.
It also means taking a different look at communications and marketing material. Post-pandemic adaptations, such as a new floor plan and health-conscious policies, should be highlighted. And enhanced cleaning policies should be completed and communicated.
Morris Southeast Group continues to monitor CRE trends and possibilities as the economy weathers COVID-19. To learn more about what we can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Long before COVID-19, countries around the world were facing a common crisis: affordable housing. Especially hard-hit were global cities in which developers were keenly interested, and rents were outpacing wages for low- and middle-income renters. The solution for many housing advocates and politicians was a new round of rent-control legislation.
For some, the idea of rent control is a dirty phrase, while for others, it’s a call to action. From London to Berlin, Barcelona to New York, politicians were lobbied, policies debated, and new laws and regulations enacted. By early 2019, the movement reached Florida, where several state legislators introduced rent control measures. Although HB 6053 died in May of that year, rent control is a topic that’s not expected to go away.
Different regions around the world have their own set of circumstances for a housing crisis, and South Florida is somewhat unique. A joint effort by RCLCO Real Estate Advisors and the Urban Land Institute’s Terwilliger Center for Housing found that US construction favored larger, more expensive homes and multifamily projects over middle-class housing for more than a decade. The result was a lack of anything affordable for families earning between 80–120 percent of the region’s median income.
Exacerbating the problem in Florida—with its status as a sun-drenched vacation mecca—were projects that specifically catered to wealthy foreign and out-of-state buyers. Locals, in many instances, were left out in the cold. And the problem has only gotten worse as rents in the region have skyrocketed.
In any discussion of runaway rents and affordable housing, it’s understandable that some sort of rent control would be a proposed solution. After all, it’s not a new idea.
Some historians believe Julius Caesar enacted the first such law, while in the US, the idea was used to address the impact of a housing shortage between the two world wars. Recent efforts have included five-year rent freezes, enforced rent reduction, reducing the amount that landlords can raise rents within and between tenancies, and “just cause” eviction provisions.
Then, there is the flip side. Critics are adamant that rent control does not live up to its intentions. The major complaint is that it discourages developers from building while encouraging some landlords to neglect properties or flip them into condos. The inevitable result is a reduction in the supply of leasable properties and higher prices. In other words, the rent-control solution is viewed as a short-term fix for an immediate symptom, rather than a long-term plan to address the underlying issues.
Thanks to state statute 125.0103, which makes it impossible for any county, municipality, or government entity to impose price controls upon a lawful business that is not a government agency, rent control in Florida essentially doesn’t exist. When coupled with rent-control legislation in other states, the Sunshine State looks very attractive to developers.
This is good news for developers, owners, and landlords, but the fact remains that some tenants can’t afford to lease property. Consequently, some municipalities have adapted by offering incentives to developers—and all parties agree that more can be provided. For inspiration, they’ve looked to other locales:
While each side debates the pros and cons of rent control, it’s fair to say there is no one-size-fits-all solution. What works for one city may not for another. There should, though, be an exploration of ideas that could work for all parties here in South Florida—and ensure that affordable housing exists for our residents. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
It’s interesting to look back at the early predictions on how COVID-19 would impact the CRE industry. Many analysts, either hopeful or looking at something unprecedented, only offered confident short-term calculations. Long-term projections typically referred to a domino effect, but the answer to questions about “how deep and how long?” have been “We don’t really know.”
The nation, however, is now on the other side of the short-term impact—at least, the first one. In addition to a loss of life only seen during certain wars and previous pandemics, the virus has marched through the US economy, pillaging most sectors. With record unemployment, trillions of dollars in stimulus money, numerous lost businesses, and a recession, how will CRE rise out of the settling dust?
As of this writing, the May unemployment rate provided a glimmer of light at the end of the COVID-19 tunnel. With states reopening for business, 2.5 million jobs were added in May, and many officials seized this opportunity to celebrate some good news. The highest gains were seen in the restaurant/bar/food service industries, with hospitality coming in second place, construction in third, and healthcare in fourth.
Economists, on the other hand, are urging everyone to proceed with caution. With estimates ranging from 13.3% to several points higher (depending on how the number is calculated), the unemployment figure doesn’t yet indicate economic recovery. Most new jobs were for part-time positions, an indication of the fragility of the American economy. And with 30 million Americans still out of work, the unemployment rate remains the highest since the late 1940s.
Recovery, regardless if it’s V-shaped or U-shaped, will take some time, particularly for CRE. Nearly half of commercial rents were not paid in April and May. Many tenants—including national chains—have indicated they will not be able to pay rent for months to come. If large retailers are saying this, then the situation for smaller businesses is even worse.
This adds up to a chain reaction: landlords may be forced to file bankruptcy, CRE prices may drop, banks and private investors may hold back on funding for commercial projects, and local governments may see unpaid property taxes.
Many experts forecast the economy to stabilize in the third quarter and start to recover in the fourth, but CBRE projects CRE to fully bounce back 12 to 30 months later, depending on the sector:
Despite the caution on unemployment numbers and the prediction of a slower CRE recovery, investors interested in playing the long game that is commercial real estate investment are in a very interesting position. Incredibly low interest rates and discounted property prices give investors an opportunity to expand real estate holdings. Particularly attractive are properties owned by smaller landlords who are less equipped to deal with a COVID-19-controlled economy.
Similarly, foreign investors, especially those from Latin America, are looking to the long-term strength of the US market as a means of surviving the pandemic’s economic fallout in their own countries. With an eye toward shopping centers and mixed-use properties, Latin American investors—some more accustomed to economic uncertainty at home—see promise and stability in US income-producing assets.
Each day, especially as cities and counties have reopened, we have all heard the phrase “new normal.” And while there are some confident predictions to make, how that situation will look remains fluid. With any economic and CRE recovery discussion, it’s important to remember that other issues can quickly have an impact: consumer anxiety, civil unrest, and a second wave of the pandemic, to name just a few.
Morris Southeast Group is keeping a close eye on all of these factors, and we will continue to revise our outlook and provide information as events unfold. If you have questions, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
It’s time to take a break from COVID-19—somewhat of a break, that is. When the lockdowns started in March, area roadways were mostly absent of traffic. This presented an opportunity to speed up several major infrastructure upgrades in the Miami area, including interstates 395 and 195, as well as the Dolphin Expressway. The lack of traffic translated into a lack of inconvenience for commuters during these projects, and the result is hoped to be an early finish.
At the same time, the virus took the spotlight off of Ft. Lauderdale’s own infrastructure issues—last year’s series of water main and sewage line breaks, including one that was the largest in South Florida history. The city became a good example of the overall issues that the U.S. has with old infrastructure.
In the simplest terms, infrastructure is all of those systems and structures that allow a country to function. From communication systems to the power grids, roadways to railways, and water delivery to sewage removal, all of these items allow people to live, work, play, and move. They are also instrumental in growing the economy and allowing it to function.
To that end, maintenance, improvements, and expansion of infrastructure are key ingredients to the success and strength of commercial real estate. The more reliable or efficient these systems are, the more competitive a specific area can be—and that adds up to a stronger economy, higher property values and rents, and an increase in occupancy. For example, one study indicates that rents for office space located near public transportation are nearly 80% higher than those farther away.
Every four years, the American Society of Civil Engineers (ASCE) publishes its Infrastructure Report Card. In its most recent 2017 report, the U.S. received a D+ (poor). Issues on the national level include a $90 billion backlog of transit maintenance, 6.9 billion hours lost in traffic, an abundance of power outages, and failing wastewater treatment plants. At best estimate, the country is 30 years behind many of its global counterparts.
Florida fared better but not much, receiving a C (mediocre). Of greatest concern, according to the report, is the state’s drinking water, roads, public transit, energy, wastewater management, stormwater impacts, and coastal vulnerability. And all of this is strained by a population that increases by one million people each year.
Whether it’s on the national or local level, the bottom line is that failing or poor infrastructure hurts CRE. According to JLL, these issues have a tremendously detrimental impact on business operating costs, construction and production delays, and job growth and business expansion. Therefore, they hurt the demand for commercial properties.
As with many things in life, it all comes down to money. And necessary infrastructure improvements—typically financed through public-private partnerships—would require the United States to invest more than $2 trillion over the next 25 years on repairs and upgrades. According to the ASCE, funding sources could come from infrastructure trust funds, raising the motor fuel tax for the Highway Trust Fund, and implementing rates and fees to maintain and upgrade various infrastructure systems.
This, however, is 2020. And all roads, crumbling and otherwise, lead to COVID-19. A year ago, the sum of $2 trillion over 25 years was an unheard-of amount of money. But now, the government has spent well over that amount in just a matter of months to offset the economic crisis.
But is there a silver lining to the pandemic?
According to the World Economic Forum, the pandemic’s economic fallout may be just what American infrastructure needs—an opportunity to initiate a “New Deal” for the Age of COVID. Despite the Federal Reserve having exhausted its options to combat the recession, fiscal policies, innovative projects, and federal action regarding infrastructure could help right the economy. Among the suggestions are:
Infrastructure is a funny thing. It’s always there, just under the surface, and no one ever really pays attention to it—unless something goes wrong. While our plates have been full for the past few months, we can’t afford to continue to ignore all of the facets—systems, services, and people—that make our communities function. And perhaps one of the lessons from COVID-19 is that we have to build something better.To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Once upon a time—2019, to be exact—real estate experts were touting the stability and strength of the off-campus housing market. Long overlooked, the student housing sector was enjoying tremendous growth—reaching an investment volume of $11 billion, a number which had “more than tripled since 2014.”
The great appeal of entering this sector comes down to two key items. First, the variety of properties, from single condos and duplexes to multi-family properties, means there is something for every investor level. Second, off-campus housing has a history of stability. University enrollment tends to remain consistent in times of market volatility and during economic downturns.
As long as there are students, there is always a need for housing.
Experts could never have predicted college life in 2020 and the drastic change in education during the COVID-19 pandemic, however. As large and small group gatherings were discouraged and/or forbidden, as businesses shut their doors, and as cities quarantined, universities and colleges followed suit. Classes were canceled. Dorms evacuated. Students returned home to live with their families and resume coursework in an online world.
Many students in off-campus housing faced a particularly tough challenge. Without access to university services and with the loss of both off- and on-campus jobs, many of them returned home. Others worked out plans to quarantine with a friend. Either way, apartments—with leases ending at the end of the spring term or in August—became nothing more than storage units away from home.
The result has been a significant financial challenge for both students and landlords. Many owners and property managers worked with renters to waive late fees and pointed them toward assistance resources. However, many students still have to pay rent on what is essentially a vacant property. And at the moment, the fall 2020 semester will most likely not provide answers that will satisfy all parties.
By April, many students were already making housing arrangements. Leases set to begin in September 2020 have already been signed and deposits made—but as the summer months progress, there remains a giant question mark about what else COVID-19 will deliver, especially as states and cities begin the delicate task of re-opening.
The re-opening process, as of this writing, is still new. With anti-mask and anti-social distancing protests growing, it has yet to be seen if these movements or the phased re-openings will result in a second wave of infections before the start of the fall term.
Universities, reeling financially from the on-campus housing refunds of the spring semester, will have to weigh re-opening with remote instruction. Efforts to start classes will require a redesign of the college experience. Some of these changes and issues will likely include:
For owners of off-campus housing, this uncertainty can roll either way. If colleges remain closed and resume online courses, the need for off-campus housing will again be at a minimum. Broken leases, cancellations, and sublets are sure to follow. But if classes resume, the combination of single-dorm occupancy and U.S. students now unable to study abroad may help spur demand for off-campus living arrangements.
While no one really knows which way the COVID-19 wind will blow, each university is making its own decisions on approaching the fall 2020 semester. As long as there are students, there will be some need for off-campus housing—either for this term or in academic years to come. And there are a few key issues for investors to keep in mind:
Like many of you, Morris Southeast Group is looking forward to the day when COVID-19 will be history. Until that happens, we must adapt to conduct business in this new normal. And our team is here for you. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
For a few years now, there have been whispers of an impending recession. For all of that talk, though, it has always seemed to be coming but never quite happening. With the arrival of coronavirus onto the world stage, a recession (and potentially worse) is inevitable. Economists are closely looking at global indicators, and investors and non-investors alike are in an economically fearful state of mind.
One factor used to gain a better picture of both the global and domestic economies is bond market performance. And now is a good time to review what the experts have been seeing.
While stock market performance gets all of the headlines, it’s the bond market—quietly performing in the background—that economists also study to gauge the economy. Although bonds and stocks tend to compete with one another for investment dollars, bonds traditionally do not have the levels of volatility and speculation associated with stocks.
As a result, bonds—a tool for the government or corporations to sell off debt—are often considered a better gauge of understanding the mindset of many investors. The bond market can sometimes provide a good picture of the economy 6 to 12 months from now.
One of the first indicators experts consider is the yield curve in the bond market. Generally speaking, the curve is based on the yields of various bonds with various term structures and maturity terms. The most commonly watched yield curve is between the two-year and 10-year bonds. Traditionally, short-term bonds have lower yields than long-term bonds because investors require more compensation for having their money tied up for a long period.
Yield rates are determined by the Federal Reserve, investor demand, and the banking industry. A change in rates changes the curve. Essentially, there are four types of curves:
While most economists agree that inverted curves are rare, the world economy had been drifting in and out of an inverted cycle for months before the current crisis, especially in European and Asian markets. The pre-coronavirus strength of the US economy in other sectors—such as consumer confidence, job growth, low interest rates, and yields slightly above those in other countries—seemed to be compensating for the inverted curve and holding off a recession.
This outlook started to change in February of this year when coronavirus fears swept around the globe. By March, in an effort to provide support for the economy, the Federal Reserve, in a coordinated effort with the Bank of England and the Bank of Japan, slashed its key interest rate to just above zero. Stocks tumbled, and the yield curve for 10-year bonds fell below that of two-year bonds. Simply stated, the steeper the inverted yield curve, the louder the recession alarm.
In a “normal” situation, some experts believe an inverted curve cycle can be good for CRE. To protect the yields gained in short-term bonds, investors turn toward the strength of commercial real estate. Similarly, investors looking for the higher yields once promised in long-term bonds also look to CRE, specifically in the industrial and multi-family sectors.
These days, as you are well aware, are far from ordinary. While lower interest rates are designed to encourage borrowing, this recent cut happened at a time when businesses have been forced to shut their doors, and workers are quarantined to their homes. Additionally, this is entirely new territory, and there is really no way to predict how long the impact of coronavirus will last—nor how deeply it will cut.
Supply lines, like those needed for remodels and new construction, may be disrupted. At the same time, some economists believe the Fed acted too swiftly, limiting a key policy tool usually reserved for counterbalancing an actual recession.
Experts are presently looking at three recovery scenarios: V-shaped, U-shaped, and W-shaped. In the first case (V), there is a rapid return to normalcy, with eased travel restrictions, the discovery of a vaccine, and growing confidence to re-open schools and businesses. On the other hand, a U-shaped recovery is slower, with coronavirus holding the steering wheel for the global economy. And W-shaped is a worse scenario, with a recovery hit hard again by further outbreaks and negative economic impacts.
As virus data is collected and analyzed—and indicators show the economy potentially moving into one of these scenarios—banks will respond accordingly.
The only accurate predictions that can be made, right now, is that the emphasis will remain on the essential health and welfare of billions of people—and that COVID-19 will continue to take a drastic toll on the global economy.
As always, Morris Southeast Group is committed to meeting your CRE needs. More importantly, we want all of you to stay healthy, heed medical advice, and take necessary precautions for you, your families, and your businesses.
To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Since its earliest days, the cornerstone of Donald Trump’s presidency and his administration’s argument for re-election has been the strength of the economy. Talk of an inverted yield curve and a potential recession was often negated by the power of other economic indicators, such as low unemployment numbers. This strength was not only great on the home front but it also economically emboldened the U.S. internationally, especially when compared with European nations.
This fact wasn’t lost on many of the CRE industry’s top players. In two Q1 reports from early 2020 (the National Investor Sentiment Report and the Real Estate Roundtable’s 2020 Q1 Economic Sentiment Index), executives, lenders, investors, and brokers remained optimistic for 2020.
Even with a Presidential election on the horizon, both reports indicated a pre-election surge in investments to make money work, followed by a wait-and-see approach for the post-election cycle. It was all nothing out of the ordinary, given the data available.
Then, COVID-19 arrived and turned these predictions and expectations upside down. While it’s a maxim that investors are afraid of the unknown—a big reason for the wait-and-see approach—the virus has single-handedly presented this country, its economy, and its politics a big, heaping bowl of unknown and instability. The longer it lingers, the more likely it is that COVID-19 will be a presence during and after the campaign. And, no matter who wins, the virus is sure to be front-and-center in the Oval Office.
For the United States, the numbers, as of this writing, are not good. The country leads the world in cases (more than a million) and deaths (topping American casualties suffered in the Vietnam War). At the same time, economic stimulus packages expanded the national debt to new heights, tens of millions of Americans filed for unemployment benefits, and countless small businesses were left in loopholes as funds in the Paycheck Protection Program were swallowed up by large corporations.
As the stock market lost the gains made in recent years, debates raged about how and when states should re-open for business while combatting fears of lack of virus data and predictions of a second wave of infection.
Overseeing all of this is a White House that has swung from mentions of “total authority” to “no responsibility.” According to a recent NBC News/Commonwealth Fund poll, 53% of respondents had little or no trust in Trump providing information about the pandemic—though a significant minority of respondents do (at least, “somewhat”). COVID-19, it seems, is running the show on its own terms.
About the only thing that is certain in these uncertain times is that the long-predicted recession is rapidly approaching and will most likely remain for some time. A “normal” recession is often described as an economic correction—two consecutive quarters of economic contraction that follow a period of growth. As companies face financial struggles, lay-offs follow, and new jobs are not created. This then trickles over to consumers who choose to save money and spend less.
The COVID-19 recession, though, is different—primarily because it occurred suddenly and rapidly on a global scale. Despite efforts by the Fed to lower interest rates, the enormity of the crisis was apparent by the end of Q1. Q2 is already stacking up to be another economic train wreck—and that would signal the official start of the COVID-19 recession.
Predicting the path of the recession is anyone’s guess since this is unlike anything most Americans have ever witnessed. Managing the downturn will depend significantly on managing the quarantine. A strong effort in the latter aspect can mean a quicker end to the first; any missteps, though, could mean a more prolonged recession (or worse).
The 2020 race may be the year when many of us say, “Once upon a time, our only concerns about a Presidential election were cultural and social issues, foreign policy, tax codes, trade policies, and cap rates.” COVID-19 has forced Americans to look at the race through personal and national health lenses, rather than strictly a political one. Expect all candidates to present plans to not only manage the virus but also to rebuild the economy and attempt to address the personal situations of constituents.
As of yet, it’s too early to tell what those plans will be—or even how a recovery will look. Some models indicate a V-shaped recovery, while others look like a U, W, and an L. These last three all involve serious economic scars and a lingering malaise. No matter the model, though, the key for investors is always to be proactive, prepared, and agile. At Morris Southeast Group, we are holding firm to the belief that we will emerge from this crisis stronger, and that we must rely on each other to achieve this goal. To that end, we are here for you. To learn more about what Morris Southeast Group can do for you, now and in the months leading up to the election, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
When we talk about life, there is a very good chance that there will be a bright line differentiating how things were and how things are: pre-COVID-19 and post-COVID-19. That line represents the moment when our everyday actions—from grocery shopping to socializing to leasing office space—changed.
The same may hold true for the Federal Reserve. Formulas and data that worked a year ago, or even during the Great Recession, haven’t had a chance to take hold because the economy remains in the grip of COVID-19. While government officials and scientists debate the timeline for re-opening the economy, millions of Americans and investors are waiting and wondering about what happens next—and short- and long-term answers still seem up in the air.
It wasn’t all that long ago—December 2019, to be exact—when the Federal Reserve, bolstered by a low unemployment rate, an expanding economy, and a healthy and appropriate inflation rate, said that interest rates would remain steady throughout 2020. Then, COVID-19 happened.
On January 21, 2020, the CDC confirmed the first case of COVID-19 on U.S. soil. By March 3, the Fed announced its first action, slashing interest rates to help protect an economy already slowing down as a result of the spreading crisis—a dramatic increase in new diagnoses, a growing death toll, and rampant unemployment as preventative lockdown and quarantine measures escalated.
Twelve days later, with an economy slowing to a snail’s pace, the Fed announced an additional cut, bringing interest rates to near-zero—edging the Fed closer to exhausting its ammunition to stimulate the economy during a recession.
Before COVID-19, many economists debated the Fed’s use of super-low interest rates to keep the economic expansion on track in 2019. Essentially, by making money more affordable to borrow, it acts as an incentive for people to get money out of bank accounts and into the economy.
Nevertheless, critics worried that the low interest rates could create a false sense of investment security by encouraging borrowers to take dangerous risks, creating asset bubbles that could eventually burst, and supporting zombie companies that are actually slowing growth. In other words, some argue that the Feds’ best preventative-efforts may have merely been delaying an inevitable recession.
While the Fed’s response to COVID-19 is also meant to ease the economic pain, it’s largely unable to achieve the result—getting money out of savings accounts and into the economy—because, at the moment, there isn’t much of an economy. As a result, consumers are holding onto their cash for as long as possible as they look at mounting debt and a questionable timeline on when the country may re-open for business.
In all likelihood, it will be a rolling timeline as regions experience different peak times and transmission rates. All phased re-openings will depend on the course of COVID-19, not just the decisions of policymakers.
When the Fed announced its steady interest rate course in December 2019, central banks in Europe and Japan were already trying zero and even negative interest rates. At the time, that meant investors were looking at the United States as a strong option for their own money. COVID-19, however, changed the investment game, leaving many to wonder if the U.S. will follow its global counterparts. While the Fed has given no indication it will take that path yet, it’s not a bad idea to understand how it would look.
Generally speaking, we all know the banking equation. The higher the interest rate, the more you pay to borrow money—from home loans to business loans to car loans. At the same time, that rate also determines how much money consumers earn on savings accounts.
If—if—the Fed should initiate a zero or negative interest rate course, banks would see their profit margins pinched. While they would undoubtedly respond with higher fees, many analysts project that savers and those on fixed incomes would have an increasingly difficult time making ends meet because they won’t be able to get a return on their money. The lower the interest rate dips below zero, the more far-reaching the implications on bond and Treasury yields and the stock market, as well as potential runs on banks and mutual funds.
Since COVID-19 arrived in the US, Morris Southeast Group has stressed three key points. The first is that we are all in this together. It may seem like a cliché by now, but it’s true. Many of our fortunes—economic and health-related—rise and fall together. And where commercial real estate is concerned, tenants and owners must work together to weather the crisis.
The second is that the pandemic is a very fluid situation. In many ways, it’s forcing responses and procedures to strike a balance between sensible policies and humanitarian needs. No one knows exactly what steps the Fed will take next, but it’s clear that it is doing everything in its power to prevent the U.S. from entering negative interest rate territory.
This brings us to our third key point, and that is to be proactive. To that end, investors should create a contingency plan for their investments and money should the U.S. economy enter into zero to negative interest rates—and carefully pay attention to market and economic policies. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
By now, we are all too familiar with the artists’ illustrations of the virus that causes COVID-19. A sphere with spikes, scientists say this family of viruses resemble a sun, and so they call them “coronaviruses.” A more appropriate description of this round, spiky appearance may be a naval mine. Because right now, this country—in all of its regions and sectors—is at war.
One segment being crushed by COVID-19 is small businesses, places that line the nation’s Main Streets and strip malls. It’s these local stores that help define a community. For their owners, they are the dependent children into which they’ve sunk their savings and financial futures. Right now, those children are very ill. And each business’s failure could mean financial ruin for the owners, their families, and their employees, in addition to impacting the communities they call home.
To get a better idea of COVID-19’s effect on small businesses, Main Street America (MSA), an organization dedicated to revitalizing commercial districts, conducted an online survey of 5,850 small business owners from March 25 to April 6. Of these organizations, 91% have less than 20 employees. As in all things related to COVID-19, the numbers are staggering.
There was great fanfare when both houses of Congress and President Trump reached an agreement and signed off on the $2 trillion economic stimulus package. As part of the efforts to help smaller entities, the Small Business Administration (SBA) was put in the lead. But shortly after the stimulus’s rollout, the SBA was swamped with claims and had to adapt.
The hallmark of the act, and one that directly served small businesses, was the Paycheck Protection Program (PPP), a $350 billion fund enabling qualifying organizations to cover eight weeks of payroll expenses. As of April 19, the PPP had run out of money, and additional funding was locked in a political tug-of-war between Republicans and Democrats. A second wave of funding is likely to pass soon, however.
Before the onset of COVID-19, the national debt was already swelling. And the final bill for coronavirus relief will likely send that number to unprecedented levels that have serious consequences. That said, most economists seem to believe—as of right now—that the combination of the ability of financial markets to absorb this debt, consumer demand in a post-COVID-19 recession, and low interest rates place the US in a strong position to initiate relief efforts and get the economy back on track.
The more critical issues are long-term. COVID-19 debt will remain on government balance sheets for years and, possibly, decades to come—especially as the Baby Boomers continue to age, further changing the demographics of the country and stressing entitlements programs. Policy changes to deal with the debt could include raising the retirement age, increasing taxes, and heavy government spending cuts.
While the government continues to hash out the details of future stimulus packages, small business owners should be proactive and take steps now.
At the start of this post, we mentioned that it might be more appropriate to look at the illustration of the COVID-19 microbe as less of a sun and more of a naval mine–for good reason. The only way to consider the mind-boggling numbers—from infections to the number of unemployed to the stimulus dollars—is that this is a war. As in other wars, when national debts have historically skyrocketed, it will take time to recover.
At Morris Southeast Group, we are holding firm to the belief that we are all in this—and will get through it—together. And if history is any guide, the eventual aftermath of this shock event will see renewed success for our economy and small business owners.
We are here for you and the small businesses in our communities. We hope you join us in shopping these businesses if they are open during quarantine and as restrictions slowly ease.
If you have any commercial real estate concerns or questions, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
As commercial property owners and their tenants continue to seek new ways of coping in a COVID-19-weary world, they are looking at ways to recoup some of the losses incurred as a result of preventative shutdown and isolation measures. One area getting a lot of attention is Business Interruption/Income Insurance (BI).
Designed as a means of covering physical damage or physical loss, BI is typically an add-on to commercial property insurance policies. While that certainly seems pretty black and white, there are gray areas—and COVID-19 is shining a spotlight on the gray. The question for policyholders, carriers, courts, and governments involves determining how and if a pandemic meets that standard.
Generally speaking, there are three key areas when it comes to BI:
It almost goes without saying that policyholders and insurers are currently at odds—or will be for years to come—as a result of COVID-19 and the terms of BI coverage. In the vast majority of cases, the resolution of any disputes is based on the wording in individual policies and previous court decisions.
Despite the intricacies of policy language and what may be some lengthy legal battles over claim disputes, it’s imperative for policyholders to be proactive—because that’s what insurers are also doing.
While this is sure to be a litigious process for some time and rates may certainly rise, there are also efforts happening behind the scenes to help ease the burden on policyholders and carriers. More than likely, the federal government will negotiate and pass additional stimulus packages while working with the insurance industry to create a solution to assist businesses. At the state level, bills have been introduced to address COVID-19 and BI coverage.
A legislator in Massachusetts, for example, introduced a bill that would “require insurance companies in the state to provide business interruption insurance to policy holders whose businesses have been negatively impacted by COVID-19.” Similar measures have been proposed in New Jersey and Ohio.
The insurance industry is fighting these efforts, however, for simple, fundamental reasons that go way beyond safeguarding their profit margins. Most policies have an exclusion for viruses; any legislation that alters the terms may violate the Contract Clause in Article I of the U.S. Constitution; and there simply won’t be enough money to pay out all such claims. Some form of federal assistance will be necessary, whether it flows through the insurance industry or not.
We know this is a lot digest, and we certainly understand how your anxiety may be shooting off in different directions. But as we’ve said from the start of this emergency, the team at Morris Southeast Group believes that commercial real estate investors and tenants will get through this crisis.
And we are here to answer any questions you may have. Call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
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Morris Southeast Group | 13798 NW 4th Street, Suite 310, Sunrise, FL 33325
Phone: (954) 474-1776 | kenmorris@morrissegroup.com
