Other Macro Investment Conclusions

By Author: Oconnor
Total Articles: 100
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In this article, we will look at factors that can have a critical impact on real estate properties regardless if there’s a pandemic or not.

As unique as Covid-19 is after we have overcome this pandemic, we will have a more thorough understanding of the importance of investing wisely, and more so, for a more protected future.

Other Assessment of the Matter

Overall, our view is that the most common forecasts are understated for several reasons. First, the pandemic is more widespread than prior market downturns. Second, a greater recovery period is expected to be required due to staggering unemployment – the need for companies in a “new economy” to understand how to operate their business. Finally, there are other factors that may be unique to Covid-19 that are outlined in the following section, that are not noted elsewhere.

Closely tied to “value sustainability” forecasts are new underwriting challenges. Several are noted as follows:

Financial pain must and will be allowed to occur this time as compared to the “Great Recession”. Prior bailouts did not fully “re-set” market ...
... values to true value/cost. Such government actions must be carefully targeted and driven by long-term benefits.
The most obvious choices here are re-building an improved (digital) manufacturing/industrial sector, along with material infrastructure upgrades. A 21st-century economy cannot function properly with a 19th-century infrastructure. This biases real estate value to suffering larger value re-sets as a result of Covid-19.

The concern must be expressed about the following as it relates to unprecedented Federal “bailouts”:
Many of these “loans” are unlikely to be repaid. Thus, they are simply “grants” which is very different from past “loans” (which were eventually repaid). This is a MAJOR capital creation (eventual inflation) risk. It will mandate that interest rates remain at nominal levels for a long time.
Nearly all such “bailout” funds are going to be allocated to payroll or operations, thereby adversely and severely impacting the “research and development” investment. Further, near-term, companies themselves will have more limited “R+D” funds as they recover. This has long-term, adverse impacts on the macro US economy, especially from an international viewpoint.
Will there be “forbearance” across the board? Yes. Will it be easy? No. In fact, it will be harder than in the past, as entire industries will have to be re-analyzed not to mention “re-structured”. Past market crashes have had a more limited impact on the economy at large.
More specifically, such crashes were heavily focused on real property issues. This pandemic has adversely impacted nearly every industry, in a material way. Again, this biases recovery to a longer period, and individual property value losses to a greater level.

The current pandemic has shed a glaring light on any number of systemic problems within all aspects of the US economy that will need to be re-underwritten and changed moving forward to reflect a “digital (21st century) economy” versus an “analog” (20th century) economy”.

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