Unemployment, Real Estate, Stimulus, and the Eye of the Storm
The Micro View
What day is it? Who am I? How long have I been wearing these sweatpants? These are likely the questions on most people’s minds today. In one short, yet seemingly long week since our last article, the severity of the pandemic may just be sinking in for some. The memes are becoming just a bit less comical. Homeschooling posts are more of a call for help than the exuberance and fun they once displayed. Anxiety rears its ugly head between the prayers and #vegasstronger posts. The city continues to suffer more layoffs and the coronavirus numbers continue to climb. Let’s take a look at the latest news and what we can possibly deduce from it.
In a no-revenue environment, to preserve liquidity and stretch out one’s ability to remain solvent, reducing those operating expenses as much as possible is the only decision, which is why every gaming operator has taken that approach for the time being
While a record 3.28 million Americans file for unemployment, the full scope of the damage is yet to be understood locally. Hundreds of thousands of tourism industry workers sit home, either furloughed or laid off, and waiting for the other shoe to drop. MGM Resorts alone currently employs roughly 80,000 Las Vegans over their impressive list of properties, including the Bellagio (which, in a very recent play, was sold to private equity behemoth Blackstone Group, who leased it back to MGM Resorts International), City Center (50% joint venture with Dubai World), Excalibur, Luxor, Mandalay Bay, MGM Grand Garden Arena, The Mirage, New York, Park MGM, and T-Mobile Arena (42.5% ownership stake.)
In a compassionate display, acting CEO and President Bill Hornbuckle addressed his employees through a video message last Thursday, reminding them that, “Each and every day YOU, our MGM employees, welcomed thousands of guests through our doors, doors that were never built to be closed.” But closed they are. According to an article in the Las Vegas Review-Journal on Friday, MGM feels they are going to be able to weather the storm and the impacts of the pandemic. In the statement, MGM said its balance sheet has approximately $3.9 billion, including the money drawn from its credit facility. “With the continued execution of the MGM 2020 plan, as well as the implementation of aggressive cost savings initiatives, we believe the company will be able to manage its expenses while navigating this unprecedented event,” the company said in the filing. Gaming industry analyst Carlo Santarelli of New York-based Deutsche Bank said MGM is employing a solid strategy. “In a no-revenue environment, to preserve liquidity and stretch out one’s ability to remain solvent, reducing those operating expenses as much as possible is the only decision, which is why every gaming operator has taken that approach for the time being,” he said.
Time will tell if these lifelines, coupled with stimulus incentives, will be enough for those most severely affected to hold onto their homes.
Other companies have similar, but varied strategies. The more human element question in all of this is – how long will it take after the doors re-open for people to feel “safe” enough to walk through them again, after a health scare of epic proportions? How long before they will fill our casinos, restaurants, night clubs, pools and showrooms and generate the revenue and lifestyle Las Vegas have become accustomed to?
The residential real estate market continues to remain “on hold.” As reported in previous articles, this is by no means a re-run of 2008. Most mortgage holders are rapidly implementing payment forbearance and deferment plans for homeowners affected by the pandemic. Time will tell if these lifelines, coupled with stimulus incentives, will be enough for those most severely affected to hold onto their homes. We do expect a bump in resale inventory in the coming months, however, to what extent it will affect the market and property values, no one knows yet. Builder pullback will see their immediate inventory (and resale competition) subside. We are still technically experiencing a housing shortage. Those that are forced to dispose of their homes due to financial hardships are much less likely to strategically default on them, which was a wildly popular exit strategy a mere ten years ago. Unlike back then, most people today are sitting on equity.
Although they may not be able to afford the monthly debt obligation, they likely have built up enough in their home, which will garner proceeds to support them in moving on. Again, this all lies in the timing and success of eradicating the virus and implementing the stimulus package, or the lack thereof.
While some tenants will inevitably suffer temporary financial hardship, industrial has always been the “favorite child” of savvy real estate investors for the sheer fundamentals of the asset class.
The Las Vegas industrial market, an incredibly well-poised pre-coronavirus, maybe the one benefactor of the pandemic. This market sector gained its footing in 2015 and, despite a massive amount of new construction, demand has consistently outpaced supply. The result has been historically low vacancy rates, hovering around 3.5%. While the traditional epicenter of the distribution hub was focused around the Strip to support multiple daily deliveries, growing pressure supported expansion to the north and the south.
Thanks to social distancing and sheltering in place, the demand put on e-commerce shopping sites has increased warehouse needs and may have just pushed consumers into the tailwind of online shopping a bit faster than may have otherwise occurred organically. While some tenants will inevitably suffer temporary financial hardship, industrial has always been the “favorite child” of savvy real estate investors for the sheer fundamentals of the asset class.
It’s estimated that 45% of Las Vegans are renters, and unless handled swiftly, with rent due in just a few short days, abuse and confusion will continue unabated.
Perhaps those on the shakiest ground at the time would be out-of-work renters living paycheck-to-paycheck. While Governor Sisolak promises to put safeguards in place, tenants continue to get bullied by landlords demanding that rent get paid on time. Right now, what is most critical is to keep people where they are – sheltering in place. Massive movement in the city at this time could be devastating and wildly increase the spread of the virus. Although a stay in an eviction is a nice gesture, it’s hardly comforting to know that the second the injunction is lifted, tenants will be served with eviction papers, and likely still not have gainful employment. It’s estimated that 45% of Las Vegans are renters, and unless handled swiftly, with rent due in just a few short days, abuse and confusion will continue unabated.
Can you say stim-yuh-luhs?!? Yes! The stimulus package has finally been approved and now the burden of comprehension and fulfillment from the corporate to the individual level begins. While this is probably not a magic pill that will fix our economy overnight, it’s a fundamental step in the right direction. Action plans will inevitably be rolling out through banks and government officials, however, it is urged not to wait. Be proactive, get educated, and take advantage of any lifeline available to keep businesses afloat and people in their homes. The incentives range from SBA signature loans to tax-exempt IRA withdrawals to self-employed CARES funding, and so much more. On a grander scale, this gives our city a fighting chance to breathe until the day we can open up for business again.
While the coronavirus pandemic is ravaging the global economy, we’re already seeing evidence of how it will forever change the way we live and do business. Courts will be wrought with cases of contract rescission due to claims of force majeure. The business and liability insurance industry is spinning to cover themselves and, undoubtedly, course-correcting future policies. Virtual notaries, although approved in most states years ago in spite of neither existing nor being embraced by the industry in many regions, are now used on a daily basis. And perhaps, just perhaps, people have developed a newfound love for washing their hands and respecting others’ space.
All expectations point to a rough couple of weeks ahead of us. Confirmed cases will continue to rise while our city infrastructure is continually put under tremendous pressure. The walls in our homes may start to feel like they’re caving in on us and hope may dwindle. Hang in there! Stay the course! We will get to the other side of this like we always do.
We are in it together and will always be #vegasstronger.
At this moment unemployment and the real estate stimulus are creating the eye of the storm. One thing about being with Las Vegas EXP is that you are not shut down because we are already set up work in the midst of the eye of the storm. We have the best tools because it’s really operating virtual and mobile so it doesn’t shut us down.PAM JUNGE