Consumer Thoughts on the New Normal with Malcolm Davies | StreetBeats Ep. 49

00:00:03    Welcome back to StreetBeats for August 11. This is our ongoing series of weekly videos intended to keep you up to speed as to what's going on out there in the commercial real estate world. Our weekly segment covers capital markets, debt markets, what's going on in the world of commercial real estate, finance and trends. Looking at the last week, looking at this week and looking forward, as always, I have Malcolm Davies back with me, principal and managing director at George Smith Partners. So Malcolm, just to jump right into the data, what are some of the things that you're seeing last week that you felt were significant  

00:00:40    Look mean? I mean, there's the macro. We talk about that a lot. So look, looking at the, the potential Amazon and Simon Venture to do fulfillment centers and malls, I think that's gonna be a huge deal. Um, we'll see how that, you know, obviously plays out. The stimulus not coming through for everybody, I think has been a, a surprise. There is some, you know, dynamics being discussed about, you know, how that affects the eviction moratorium or not. It, it was part of the, the executive order that Trump signed, I believe. So, um, couple things we're, we're paying attention to, you know, look, at the end of the day, multi is still on fire. It's that asset class that we're still doing lots of deals with 80% construction loans. We're doing low price bridge financing. The permanent market is still there. Uh, industrial is still relatively strong. Office is a little bit, you know, here and there depending on long-term leases. But what we are paying attention to is obviously coming to the latter part of this year, how hotels are doing, how retail is doing. And frankly, I think you and I were talking about this earlier, there's some surprising numbers. Maybe, maybe chat about those numbers that you, you, you  

00:01:45    Researched. Yeah, no, happy to get into the SST r numbers of the week because there's a lot of interesting stuff there. I, I did wanna just talk briefly for a second because the, the Simon Amazon news I think is really interesting because if you start to see Amazon go into make vacant mall boxes in, you know, in suburban locations, that's the, that's the next level of potential game changer for seeing the realization of same day delivery, right? I mean, this is the thing that Amazon has been talking about for years, and if they're able to do that, you know, you know, at scale around the country, then we're gonna see our delivery times drop and we're gonna see the next level of, you know, of Amazon kind of just taking the next step in terms of just penetrating our daily lives. So, um, very interesting data point there.  

00:02:33    Something that we're, that we're paying attention to and we're really interesting. We're even starting to see the, the beginning of some deal flow that looks like that, you know, converting vacant mall spaces into, you know, Amazon distribution centers. There's a deal, there's a group in in Houston right now that's, that's talking about just that. So really interesting on, on that front to see that news coming out, you know, but in terms of the s str r data, so, you know, again, positive week over week data, you know, we saw 48.9% occupancy for the week ending August 2nd. Uh, that was about, uh, 0.9% over the previous week. So we're seeing another step up. Uh, we also saw rev par also jump a little over a dollar week over week. Um, you know, but it's an interesting end of July data coming out. And then, and then comparing that back to the beginning of the pandemic, and what I'm talking about is, is that in, we saw RevPAR drop by 80% year over year in April, right?  

00:03:32    We, we, we started to plunge off the cliff in March. We saw, uh, you know, RevPAR drop by 50% in March, hit a low of 80% since April. We've now seen a 10% increase month over month, and we're basically now back to where we were in March. So really interesting going forward now, because now we're kind of climbing back out worth the beginning of the pandemic phase in terms of what we look like in terms of overall occupancy and RevPAR. And now the question is, where do we go from here? Are we gonna continue to see this trend? Are we gonna see a flatten out or so forth? So, you know, we, we've come a long way in a relatively short time. I think the fi the last final point on this in terms of thinking about the hotel space is that another interesting data point was n now seeing that we've seen four out of the top 25 markets r penetrate into what we're calling gross operating profit range, right?  

00:04:25    We knew that we were in occupancy ranges where the, the hotels were off operating at a loss. Now you're seeing Tampa, St. Pete, San Francisco, Phoenix, and Dallas hit into positive gross operating profit range. So again, this is just signs that like, we're starting to see the beginnings of the recovery of the hotel space overall. Um, and now thinking about air travel, which we talked about a minute ago before we jumped on, was that, you know, look at t s a traffic throughput counts, you know, week over week and, and year over year, up until just a few days ago, we'd, we'd been seeing TSA traffic throughput increase, but it looked like about 25% of the same period last year, just in these last few days, essentially from August 8th to 10th, we're now seeing that jump up again, and now it looks like 30%. I  

00:05:19    Think the part we're also paying attention to is just saying what effect will kids going back to school mean to travel and hospitality? And I bet you we, we look at each other a month from now, business travel is starting to creep, and I, in that regard, I think a lot of other folks are starting to get to be a little bit more, this is part of the normal life, right? You wear a mask, you fly on an airplane, you get to places, you have business meetings, you're appropriately, you're safe, but you're continuing to build, uh, build that, you know, that connection point.  

00:05:48    Yeah. You know, other interesting things to look at out there right now, again, just some anecdotal data points out there, but in terms of office space, you know, <affirmative>, you know, a trend that we're starting to see is, you know, we've heard now heard of multiple venture capital firms that are drastically reducing their footprint. You know, again, maybe to this point of as venture capitalists start to actually start moving around the country again, they're realizing that maybe keeping an office, you know, in the form that they kept it before doesn't really, pencil doesn't really make sense as much as it used to, you know? So it, it also like, so I think these things kind of blend together that you're starting to think about the resurgence of travel and then starting to pivot that towards use of office space.  

00:06:31    One thing I'm noticing is that consumers and people like us are getting more and more comfortable with life as it is. Doesn't mean it's not, you know, there isn't risk in our lives. There's risk in our lives every day, but that's a good thing for our economy, that people are willing to get on airplanes, they're willing to travel to hotels, they're willing to have commerce occur. Uh, and that bodes well for us as we've gotten through this period of time.  

00:06:53    Yeah, I mean, I think when we start looking ahead, I mean, to me, just a, a stimulus package that's real that gets done is, is obviously paramount. I mean, you know, sure, it's great that we are gonna get $300 a week back into some people's pockets, but when you look at that, that's 45 billion. It can come out of the Department of HomeAllander Securities budget. I mean, we're talking four or five weeks, so it's just a bandaid. Um, it, it was, it's ne it's never gonna be anything meaningful. So, you know, we, we have to hope that Congress can finally come together, um, put something on the, on the table that everyone can get behind, help us get to the end of the year, you know, which we didn't have a really chance for to talk about right now, you know, previously in the segment was, you know, now that we're at 10.1% unemployment rate, you know, that was a helpful, I mean, now, now we're at this point, we're, we are, we are at a point where we're at about 10% unemployment.  

00:07:42    To me, it, it's, the tipping point is can we get into single digits? You know, the, the, the bowls of earlier this year, we're calling for a high single digit unemployment rate coming into the end of the year. So I feel like right now we're sitting on the precipice of that. Are we gonna actually punch through and see nine to 8% unemployment coming in the end of the year? If we can get there, things look pretty good coming into next year. Like we, we start to see like we have opportunity still gonna be tough sledding going ahead. Absolutely. But you, you start to feel optimism over some sort of re real, real recovery in 21, you know, and then things looking good in in 22.  

00:08:22    Look, there are some things we've gotta pay attention to though. You know, look, the, the regulators have been very, very, um, as I like to say, very cautious and very strong with their, with their, with their lending, um, partners. So their regulators are gonna certainly have to start to think about things that it relates to forbearance and, and interest deferrals and the likes. So we're paying attention to that. Um, the large banks, the two big to fail banks, um, have tremendous reserves. So I think our financial banking sectors are extremely strong, which will help us all get through to the other side. We're  

00:08:53    Gonna keep our fingers crossed another week or two that something gets done in terms of a package. We can, you know, start to look forward to some more positivity in the month, weeks ahead and months ahead. Um, but I think that's a, that's a wrap for today. So Malcolm, thanks for joining, giving us some good data points from the field. Always appreciate it. Uh, thanks to the viewers for turning tuning in this week. Uh, look forward to returning next week, and actually next week I'm on the road. Mm-hmm. <affirmative>, I'm gonna be at a dude ranch in northern Idaho, uh, with my family. So our Director of Investments, Annamaria Lieb, she will be, um, hosting this segment. And so Malcolm, you get, you get to look forward to Oh, I'm excited and have a blast. I'm ex I'm jealous. <laugh>. That's awesome. Yeah, no, look, looking forward to getting outside, enjoying, enjoying some sun and some trail rides. Um, but everyone, thanks again for tuning in today, and I think until then and until two weeks from now until I see you again, stay safe.