The Economy and Real Estate: The Shift

The Micro View  

Shift happens. We remember all too well the last economic shift, which led us into the Great Recession of 2008. That shift was caused by a series of related economic disasters (mainly mortgage-backed securities) that hit the American and European financial systems, causing a burst in the housing bubble so ferocious that you could swear you heard a sonic boom from the shock waves. And while economists have been predicting a recession in 2020, none could quite articulate the “why,” other than, “it’s time.” Perhaps Mother Nature heard their cries and said, “Hold my beer.”

Governor Sisolak surprised the city last week by announcing the early shift into Phase One of the Roadmap to Recovery. The unexpected move by the governor left business owners scrambling to make a quick decision. While we said goodbye to our beloved Ricardo’s Mexican Restaurant (a forty-year Las Vegas staple) last week, we also heard from the owners of Weiss Deli, who said that reopening under Phase One guidelines was worse than not opening at all. Owner Michael Weiss stated that he’d be hard-pressed to get a waitress to give up unemployment for waiting on three tables and added that he’d suffer the added costs of sanitization and occupancy control. As a result, he made the difficult decision to remain open for take-out only. News 3 reported last week that two companies and three individuals, including a doctor, have filed a lawsuit against Governor Sisolak and several key state officials for the stay-at-home directive issued in March.

Family-owned Ricardo’s Restaurant is likely among many of local businesses to shutter in the aftermath of the COVID-19 pandemic.

The complaint, filed Thursday, alleges the plaintiffs have all suffered significantly due to the state’s closure of non-essential businesses, among other emergency orders issued. Orion Star, a photography business based in Las Vegas, claimed that they could have safely operated their business within the CDC’s guidelines. Our court systems will inevitably be wrought with cases like this for years to come.

…what is the reality and likelihood of those left without jobs getting rehired in the near future?

Other businesses eagerly opened under the restrictions and there was a new vibration we haven’t felt in the city in months. Although the rollout is limited, let’s face it – Saturday brought about the ability to get a haircut and have a meal out with the family. It was just the emotional and psychological shot in the arm most of us needed. While faced with the “new normal” of mandatory dining reservations, masks, 50% dining capacity, waiting in your car for service, and curtains between hair-cutting stations, we relish the freedom of moving about. The majority of businesses are still shuttered, with the expectation of moving into Phase Two near the end of May. Most of our larger resort owners are implementing plans of staggered reopenings as far out as the fourth quarter, while Stations Casinos has announced the intended sale of its two newly remodeled properties, The Palms and Palace Station.

The Palms Resort

While the number of unemployment claims was down last week overall, we have to ponder – how many sectors have left to apply? Though the shutdowns came fast and furious, the bulk of the layoffs came in tranches through our major employers. With that being said, what is the reality and likelihood of those left without jobs getting rehired in the near future? The answer lies somewhere tangled in a web of stimulus obligations, new government guidelines, business restructures, the hastening of artificial intelligence (AI), the return of confidence in tourism, and the reinvention of a town that was built on uninhibited fun and excitement. The COVID-19 pandemic has edged out an era wherein economists could neatly graph out recovery and has left us with a lot of questions.

Businesses have had to take new measures for reopening in the new normal.

CNBC recently reported that more than 18 million workers described themselves as being on temporary layoff, with expectations of returning to work within six months. Bloomberg quickly debunked those hopes, referring to it as the “silver lining.” Major cities across the globe are in the process of taking out up to 40% of all lower-income jobs with AI, such as Pittsburgh International Airport. It became the first U.S. airport to deploy autonomous robots that use ultraviolet (UV) light technology to sanitize surfaces and prevent the future spread of the novel coronavirus.

Autonomous robots have been deployed in Pittsburgh Airport to sanitize the premises using UV lights.

Just last month, Anaheim, CA-based inside unveiled technology powered by LiDAR from Quanergy to monitor and analyze crowd density in high-trafficked buildings, including airports. While these technologies were a thing of the future pre-coronavirus, they have suddenly become the now. It’s an organic and necessary progression of technology that will be quickly consuming jobs that were once performed by a face with a name.

Retail and office are facing three years of recovery, with the harsh reality that a lot of businesses won’t be coming back.

Mortgage forbearance continues to surge nationally, but has slowed down week-over-week. Nearly 4.1 million homeowners are not making their monthly mortgage payments, and ironically, a recent poll indicates that a majority of those in forbearance did, in fact, receive a stimulus check. Perhaps, as reported weeks earlier, the money meant to tide over out-of-work Americans came too little too late. While a low to the middle-income family of four could possibly receive $3,800 in a one-time payment, it appears that there were other debt obligations, or perhaps just essentials, such as food, that claimed the funds first. “What remains an open question at this point is to what degree forbearance requests will look like at the beginning of May — when the next round of mortgage payments become due, and with nearly 30 million Americans newly unemployed in the last month,” said Ben Graboske, president of Black Knight Data & Analytics in a recent report by CNBC.

The local property market remains on pause while the new coronavirus economy continues to be a gigantic experiment in shaping how we live and work. While we see rents in the city decline, we experienced a bump in Q1 multifamily sales. Most reports indicate an 18-month recovery in this sector, with a possibility of it happening sooner, assuming a surge in need from distressed property owners. Retail and office are facing three years of recovery, with the harsh reality that a lot of businesses won’t be coming back. The office has to completely reinvent itself, from HVAC systems to easily cleanable furniture to safer common kitchens and bathrooms. How much office space demand there will be in the new normal is still a big question mark, along with the additional square footage required per employee. While many are reporting office space is a thing of the past and that Zoom is the future, others are taking a more visionary “let’s wait and see” approach to the outcome of how we conduct our future business operations.

Take for example the events of 9/11 and the fear of people never going back into a tall building. Fast forward years later, and lo and behold the glimmering New York City skyline with its new additions, including the Freedom Tower. We can also look as far back as the Roaring Twenties – a period of consumer growth and utter exuberance – which came on the heels of the Spanish Flu and the 65 million deaths of that global pandemic. Perhaps it’s too early to see exactly where the chips will fall, but we can gleam hope on the horizon as the fear factor disappears, the lockdowns end, and we become a safer and stronger city, nation, and globe.

Our residential market sits at approximately three months of inventory today. ShowingTime is reporting that the showing of listings is down over 40% from this time last year. Last week’s recorded sales dropped an estimated 33% week-over-week, down to 431 from 646. All other numbers are status quo amid coronavirus conditions. New listings were up only slightly, while the number of those contracted is practically a mirror image week-over-week. The disparity between negotiated contracts and actual closings could be affected by employment. Those furloughed buyers banking on getting their job back are staying in their transactions. Lenders have adjusted guidelines for these extenuating circumstances and all a borrower needs is one paycheck since rehire to regain qualification. We may begin to see a larger number of canceled transactions in the near future from this type of fallout and the reality that not all jobs are immediately coming back. All in all, homebuying confidence remains a strong element even during these trying times. A home is the foundation of life – the foundation of a family – and the stability of owning versus renting will typically win with low-interest rates and affordable housing.

I would be remiss not to point out that while we jokingly reported a Nike Swoosh-shaped recovery in the commercial real estate market a few weeks back, which has been officially proclaimed by CBRE nationally just last week. But remember, you heard it here first. Stay tuned as we continue to move through these economic and mindset shifts and feel our way through this new world. We can only hope and pray to have half as much fun as they did in the days of the flappers when we come out the other side of this. Shift happens. Stay safe and be well. We are #vegasstronger.

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One response to “The Economy and Real Estate: The Shift

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