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The Real Estate Philosopher


Why This Will be a “Big V Recovery”

Apr 19, 2020

I am old enough to have been in a relatively senior position in the real estate world during the Global Financing Crisis (the “GFC”) and the pandemic today (the “COVID Pandemic”).  In my position – then as Managing Partner of Duval & Stachenfeld – and now as Chairman -- I have friends, clients, contacts, and relationships with many of the highest level players throughout every corner of the real estate world.  This extremely wide lens allows me a unique composite view into what everyone is doing, thinking, wondering about, planning, etc.

And there is a dramatic difference between then (the GFC) and now (the COVID Pandemic), and the difference is why I am a believer that this recovery is going to be A BIG V RECOVERY.

Here is my thinking…..

Last time around, I recall my initial reaction.  And, it’s still sort of an internal joke at my law firm that isn’t really that funny, but during the GFC I felt like curling up in the fetal position under my desk and just lying there shaking.  That’s how I felt.  I couldn’t sleep.  I was miserable.  I even had panic attacks.  Every day bad news and worse news pounded me, and it went on and on and on relentlessly.  And many of my clients felt that way too.  They, too, were sickened and miserable.  I recall asking various clients about what they were doing, and I remember – word for word – this is what I heard so many times:
           
“Bruce – we aren’t really doing anything right now.”
           
That lasted for a good nine months, and for some people even longer than that.  It was something most people had never experienced before.  It was awful.  My firm was struggling for survival desperately and made it through finally (barely).
           
This time around, it is completely different.  Every single client and key relationship – and I really mean every single one – is saying something like this:
           
“Bruce – we’re open for business!”
           
Not a single one is paralyzed with fear.  They are all doing two things: (i) figuring out how to protect the assets they already have from being hit too hard and (ii) figuring out how to create upside for future matters.  Every one of my clients is doing that.  And you guys – my clients and friends – are all getting this distribution, and you know I am telling the absolute truth here.
           
I am only in one industry, which is real estate, of course, but I will make a guess that it is the same for other industries.  Everyone is both protecting existing assets and, at the same time, figuring out how to create upside from the downside—no fetal positions from industry leaders. 
           
So what does this mean?
           
To me, it means that when this ends – and I pray it ends soon – there is going to be A BIG V Recovery.  Here is why I think this will happen:
           
First – last time we had a bubble that burst.  And when bubbles burst, we look around and realize it was all a phantom and not real – we thought we had something, but we didn’t.  This time it is the opposite – we had a really strong economy, and it got kicked in the ribs, but everything we “had” was real and not a phantom.
           
Second – we are a nation of Second Mice (see my article from a few weeks ago).  If you are an entrepreneur with a small business – let’s say it’s a restaurant – you are fighting for survival and pushing yourself to be creative to weather the storm.  We’ve seen incredible stories of restaurants retooling to offer family-style portions, frozen heat and serve options, and also market items like toilet paper.  We’re a nation of people who, like Tim Allen in Galaxy Quest, have as their implied motto:
                      
 Never give up – never surrender! 
         
Along these lines, to all you entrepreneurs and owners of businesses large and small, I assure you of this: if there was a demand for your product in January, there will almost certainly be a demand for it when quarantine lifts.  And you will be right there to capitalize on that demand.  And if there was not an underlying demand for your product, here is a chance to change your business model to create that demand. 
          
Third – the media has no choice but to write articles that generate people reading them.  And the only things that do that must be sensational articles.  I just noticed one saying, “Deep Global Recession in 2020 as Coronavirus Crisis Escalates”, from Fitch, no less – yikes!!!  But then I read the article, and the “deep global recession” means that global growth will fall 1.9%.  No, it’s not a typo – 1.9%.  Hmmmm.  It sounds like boring news made to sound (negatively) exciting by someone trying to get me (and you) to read the article.  So, whatever is going to happen, the odds are that the media is overstating it to the downside so that you will read their articles.  Don’t trust me on this?  The next bad economic headline of an article you see, read the full story, and focus on the actual facts in the story and see if the spin is different from the facts themselves.
           
Fourth – we read – thank you media – that there are all these job losses and businesses shut down.  And that is true.  But Walmart and Amazon alone just hired 250,000 people, and maybe more than that.  So are grocery stores and second-mouse type businesses.  In a few months (or whenever we restart the economy), many businesses will rehire most of their people, and I doubt Amazon and Walmart will want to fire the 250,000 people they just hired.  Not to mention, how many jobs have been “created “because” of COVID 19, and dealing with it; I suspect that those jobs won’t just disappear that quickly either.  Is a labor shortage coming up?  We had one only 90 days ago.  Maybe…..
          
Fifth – it’s awful – super awful – to have a zillion people fired and out of work.  But – and this is a big but – I predict that a large percentage of these people will get rehired once the businesses in question get going again.  I would think there is pent up demand to fly places – to stay at hotels when you get where you flew – to eat out in restaurants – to get a haircut (I surely need one) – to get your nails done – and even to take your kids to Disneyland. These things will happen once people feel like their health is not at risk, and people will get back working.

Sixth – the awful thing about the speed of communication in the world nowadays is how fast things can go down because everyone knows everything instantly.  But there are two sides to that, and the other side is that this same speed of communication makes it easy for things to go up with equal speed.  This means that the concepts of “fear” and “greed,” which inexorably rule market behavior, happen faster.  As soon as they figuratively ring the bell at the bottom, there will be a frenzy of activity as people rush to get in on the ground floor.  We have already seen signs of this in the stock markets, which go up and down with extraordinary volatility.

Seventh – I note the dry powder concept.  Last time (in the GFC), there was no money around.  This time there is a ton of money around that has been waiting for five or more years for a buying opportunity.  Well, that money is already starting to go to work and is going to be put into the game very quickly.  Everyone who looks for “opportunities” knows that they don’t last – you have to act quickly.  And this is not anecdotal – I am in the heart of this – if there is anything in the world I know, it is “where the money is” in the real estate world.  And there is a ton of it available – many tons.

Eighth – and finally – we have the irrepressible spirit of America.  Don’t worry; I am not running for Mayor unless, well, do you want me to….?  Just kidding.  But the great thing about our country, which is what I would call “A Loving Capitalism,” where somehow we all want to make a buck but at the same time are the most generous and giving people the world has ever seen.  And the great thing about us is “The Gale of Creative Destruction,” which is how the famous economist Joseph Schumpeter described us about 100 years ago.  The theme being that new industrial creation replaces the old one, and one way or another, we thrive and grow, and even as things crash down, green shoots start to grow as for a forest after a fire.  Along these lines, and as I mentioned – less articulately no doubt – in my last article about us being a nation of Second Mice.  And PS, I note that Warren Buffett seems to agree.  He recently said that his long-term prediction for the US economy hasn’t changed.  
           
So am I right?  Anyone can make a prediction.  And I am sticking my neck out to say it will be: A BIG V RECOVERY.
           
Finally, I end with this statement.  I am by no means diminishing the dangers and severity of this virus.  It is scary, it has caused millions to be out of work, and it kills people!  We have to take every possible precaution to protect ourselves and especially our vulnerable relatives and friends.  No two ways about it.  And sooner or later – and I hope sooner -- this will be over.   
           
On a personal level, I can’t wait to see my friends again and no worries if hugs and handshakes turn into elbow taps or whatever.  It will be great to get back.

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As the Chairman of Duval & Stachenfeld – a law firm in mid-town NYC known as The Pure Play in Real Estate Law – I am inviting you to join The Real Estate Philosopher™. This will consist of my thoughts and also thoughts of friends and colleagues.

It will not be published in any traditional media – it will go only to friends of our firm. The purpose here is very simple – to put forth thoughts in the real estate world that are different, provocative, and challenging of accepted wisdom. Hopefully, nothing said here will be mainstream thinking.

You may be wondering how I am qualified to write on these topics since I am “just” a lawyer. However, I have an unusual place in the real estate world. As the Chairman of The Pure Play in Real Estate Law (one of the largest real estate law practices in NYC), I interact with an incredible number of real estate players. This ranges from small real estate shops with nothing but a gleam in their eyes, to some of the largest real estate institutions in the world, and everything in between. This gives me a unique and global perspective and allows me to act as an amateur philosopher in the real estate world. This has always been my hobby and it is what I love doing.

Regards,

Bruce Stachenfeld
a.k.a The Real Estate Philosopher™

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