JackChat December 2019

I do not believe that 2020 is the year that the market changes for the worse. That said, I believe we all remember that liquidity is in the marketplace until it isn’t. As we close out 2019 and look forward to a ‘new decade’ (the 20’s become my fifth, as I began my career in the 80’s), some of the things I am thinking about right now:

• There seems to me to be increasing uncertainty on the horizon. Uncertainty to me means that the risk of holding an asset in 2020, all things being equal, is higher than in the recent past. As I think about identifying and assessing risk, I am focused on mitigation of that risk rather than pricing it. For me it means reducing personal and professional debt on our balance sheets; and, focusing on more current cash flow.
• I am a fan of ‘Property as a Service’; WeWork drama aside (I have enjoyed reading about it), I like many of the shared office concepts. I believe that not only is the shared office flexible space concept here to stay, I think the change in the marketplace that investors alike will need to get comfortable with is leases with shorter duration and greater flexibility. Mitigation for me is basis. Ownership basis psf versus rent psf.
• I am no economist; just a guy who is fortunate enough to talk to a bunch of folks in the business. NO ONE I know thinks rates will rise. One of my friends at the Mortgage Bankers Association recently pointed out that If Personal Net Worth in this country is growing at all-time highs (creates supply of investment capital) and the World GDP is flat to nominally positive slope (drives demand for investment capital) then we have a supply/demand imbalance that only means one thing – cost of capital goes down. Interest rates stay low.
• I haven’t heard the term ‘denominator affect’ in a while. Another colleague pointed out that the denominator affect has been placing more capital in Alternative Investments simply because of allocation requirements of a rising stock market. Of course, this is good; however, it is also a two-edge sword. Should the stock market decline, allocation theses will cause Alt Capital to try to leave the CRE space. This will trickle down to our business. Remember, Liquidity is present in a marketplace until it is not. I am focused on downside and exit protections.
• I am focusing on quality before quantity; primary before secondary, and secondary before tertiary. I continue to like the core ‘four food groups’ – office, industrial, apartment, and retail – associated with certain markets, sub-markets, and sizes. That said, best idea wins for me; as, I continue to track innovating ideas, applications, twists on CRE brick and mortar as well as investing and operating ideas.
• Change is afoot.

I wanted to wish everyone a Merry Christmas and all my best for a happy, healthy and prosperous 2020.