The Return of Business Travel with Malcolm Davies | StreetBeats Ep. 58

00:00:03    Welcome back to StreetBeats for September 15th. This is our weekly series covering all things capital markets where we discuss the debt markets, finance, and what we're seeing in the commercial real estate sector as well as ongoing trends. I'm Anna-Marie Allander Lieb, the Director of Investments here at CrowdStreet. Um, and today I'm joined by Malcolm Davies, the principal and managing director at George Smith Partners. Malcolm, welcome back today. Um, how, how are things going?  

00:00:29    I mean, look, we're both in markets where fires are impacting us, so, you know, we've been, I feel like it's been a, a bit of a surreal time period, you know, it's been, uh, somewhat okay in la, not great. Um, my sister lives up in Palo Alto and it's apocalyptic, at least that was there last week. How's it for you?  

00:00:45    Definitely, I mean, PortAllander is still covered in smoke. Uh, we've been indoors probably now since, uh, late last week. Um, I think we're gonna get some relief tomorrow. Um, I think our quality's supposed to improve, so looking forward to that. But yeah, no, definitely you can, you can feel the, the impact both, you know, obviously, uh, physically here, but also in some of the numbers we, we saw this week when we looked at, uh, the s str R data, um, obviously occupancy this week, um, increased, um, as well as kind of average daily rate and revenue. Uh, rev par, um, so occupancy was up to 49.4%, um, 80 r crap back up over ADR would cret back up over a hundred. Um, and you know, a lot of that was attributed to, especially if we looked at the data from Saturday of, of this past week, um, or on September 5th, that that came up at 69%. And a lot of that was attributed to, you know, people being, um, you know, having to evacuate and relocate into else kind of driving up that, that occupancy.  

00:01:41    I think it's important to note too, I'm, I'm really paying attention to September, um, for the TSA counts as well as as the t r occupancy. Yeah. You know, I have the theory in my head that they, they were gonna fall off a bit. Um, and so I've been pleasant, pleasantly surprised in the last week about the TSA traffic counts. They're actually up mm-hmm. <affirmative> significantly over like the last week of August, which I think is something you wouldn't have seen. All the kids are back in school, even if they're doing remote learning, I don't think everyone's traveling around. Right. So those travelers have to be, in essence, midweek, have to be business travelers. And, um, you know, for, we spoke about this earlier, but I've made the decision to embark upon what my, you know, my career is, which is outgoing, seeing deals, meeting clients, um, understanding the real estate in person.  

00:02:26    It's very difficult to do, um, frankly, from Zooms in some sense, to, to touch and feel and kick the tires. So we were, um, I went out on Friday to Salt Lake City, met a developer who's doing a adaptive reuse of a hotel into a, um, into a studio micro-unit, uh, project. And, um, you know, never had met them before, was referred to them, got a chance to meet them in person, spent three hours, you know, obviously touring the asset with mask and like, um, we, we got a chance to really see eye to eye on the vision and being able to capitalize it. And, um, you know, I flew back on Friday thinking this is a great project for us to work on. They thought so too. And on Monday morning they signed our engagement agreement, um, and we are doing a kickoff call for that project this afternoon.  

00:03:09    I am a hundred percent sure that we would not be hired if I did not get on the airplane to go out there. So to my, you know, hotel clients, to the airline industry, um, to everyone that's dependent on the ability for us to do business together in person. I think there's something to be said for that. Um, now is it gonna just go race off the, you know, everyone go crazy and travel, but for folks like me, um, you know, who are, you know, try to be safe, but I, I felt pretty comfortable flying in an airline, you know, as long as I was wearing a mask and everybody else was wearing a mask, um, you know, it, it, it was, it just felt good to be back.  

00:03:44    Yeah, no, for sure. And I think, you know, that's definitely something we're looking for in, in what we've been waiting to see, especially in the SD r d data, is that return of, of the business travel, which, you know, definitely has been slower than what we thought, but it's, it's nice to see it coming back. And to your point, I mean, I think once other people also realize, you know, if, if you can get a deal done in person that you wouldn't before, I think it's gonna come back quicker or similarly, you know, businesses where you have to either underwrite a deal team or a property, you know, it's, it's just not the same remotely, um, as it is kind of spending, whether it's a day with a person or, or touring a property. So, you know, I think people as they comfortable are gonna get, get back on the road.  

00:04:24    And, and I think Zoom is great for lots of things. I mean, like, this is incredible, so we're gonna continue using this. But, you know, for that, that that first, you know, getting to know people and the, like, it's just one of those things where, um, you know, it's good to see that folks are going back and I think, who was it that said it best? So it was a company the first time that you lose a deal. Yeah. Because your competitor was willing to get on an airplane to fly somewhere will be the moment you stop using potentially Zoom for those first meetings, you'll, you will send your team out. And so we'll see. But, um, you know, we gotta pay attention to, you know, the health risks and the like out there. And I certainly recognize that. Um, you know, and I'm hopeful based upon what I'm seeing, and that we'll have some positive outlooks over the next couple months, and hopefully the case counts continue to drop. It seems like it's been a positive, um, outlook.  

00:05:08    Definitely. Um, and then we kinda flip to what we saw, you know, um, on the, from the National Multifamily Housing Council in terms of their, their red tracker. Looking at, um, the initial numbers coming in for, for September, it's definitely dropped down further than what we've seen. Um, so we were at 76.4% of, of apartment households that made, um, a full or partial payment. Um, and this was about 4.8% below, uh, what we saw, um, of September last year. Um, and, you know, just under 4% of what we saw in August. So, you know, we're definitely seeing that, you know, the, the, those rate rent payments aren't coming in at, at the rate they were. Um, which may kind of show some cracks in the multi-family industry. You know, some of that though also may have to do with where Labor Day fell on, on September 4th this year. It was earlier than usual. Cool. Um, we saw kind of a similar trend around July 4th, um, in, in July. So, uh, definitely it'll be something we'll be tracking next week.  

00:06:08    Yeah. Look, I think, um, you know, I, I've always been paying attention to the, to the fact that we don't have student loan debt being paid right now that's helping multi-family rent collections, uh, the fact that we've had stimulus, right? So, you know, being provided stimulus to, you know, a lot of people are paying their rent, um, with that stimulus payment. And, and I know that for a fact, um, the question's gonna be, you know, can Congress come up with a new, uh, new stimulus bill to kind of get us to the last moment? I mean, yourself and my, and myself and Ian have talked about this, which is I always thought there needed to be one more. And, um, we haven't gotten that one more. Um, and so we'll see. I'm hopeful for it. Um, you know, it's been a pretty crazy time period politically as we can say. Um, but they need to get together and, and provide this for the American public one more time. And I think if we do that we'll get ourselves to 21 where I see the, the future.  

00:06:58    Definitely. Um, and then I know initially you were talking about, uh, Malcolm you were saying kind of the, the residential side, how, how hot things are.  

00:07:05    Yeah, I mean, it's in, it's insane. I can just tell from my own neighborhood, I, you know, I, I mean, I've never seen more homes sold for above ask in my neighborhood than I ever, you know, I mean, multiple bids on the house, and I, you know, I don't know what what attributes that, but, um, you know, I think 40 res residential mortgages are up 40%. Of course, that's a lot of refinances of course, coming because rates are so low. But I think people are recognizing like, Hey, if I'm in a pandemic, I wanna make sure I'm in a place where I want to be. Uh, you know, and maybe these are folks that are wanting to move to locations, then, you know, we've seen a lot of this, uh, exodus out of cities and the like, and I don't know what that effect has been, but I've never seen a more str uh, a stronger residential market.  

00:07:47    And even places like Coachella ValFormigle here, you know, in, in southern California going out to the desert, I mean, every home is being sold and, you know, you don't normally see that in this time of the year. So, um, you know, it's good to see. But again, I think one thing that we've always talked about, there's a lot of liquidity in the market. We have a lot of financing and debt op opportunities for our clients. The issues are, which are the deals that the lenders feel comfortable and safe enough to do and know that they'll get their money back. So there's a lot of great equity investments, which I know CrowdStreet is involved in all the time, but the question is, how do we get our lenders to do the deals, um, that's accretive to the equity investors, right? And so in some sense, lenders are getting a little more, uh, uh, uh, I guess, um, you know, open in doing deals.  

00:08:36    Um, frankly, you know, spec office, we've got two deals, an app right now on spec office, which is really interesting. Lowrise, you know, um, suburban, not, you know, urban Highrise, but I think that's incredibly interesting considering that if I said that we'd be an app on two spec office deals just two months ago, I would've said, said we were, we were crazy. Yeah. So, you know, of course Multi's been fine, industrial's been fine. You know, office again has been, you know, hit and miss. We know where hospitality is, but, um, and in retail is the one sector. I mean, look, century 21, uh, you know, my wife will be upset about that when I know that she likes to go shopping there when we go to New York. But, um, you know, the reality is that's, that's, that's tough. They're closing all their stores. So, you know, retail is one area I think is gonna be a challenge for, for the foreseeable future.  

00:09:22    Yeah, no, I, I definitely agree with that. And then kind of on our end, I know one kind of trend that I know we were looking at earlier in the year was, or earlier that this summer was, you know, what's gonna happen with student housing? Um, and I think, you know, we're, we're starting to see, um, on our end some student housing deals come in, and those larger operators, kind of what what we're hearing from them is that the large state schools, you know, the, the market there is doing well. Um, it's, it's kind of the more smaller private universities where, you know, it's being hit harder. But again, um, for example, the University of Arkansas, they're expecting, um, you know, in terms of enrollment, they got 4,000 more this year than what they did previously, and they attributed some of that to in increasing in grad students.  

00:10:04    Um, but yeah, the, the larger state schools, you know, things, things are looking well there. Um, so I don't foresee student housing going the way of hospitality or retail. Um, you know, I think it's, it's gonna make it through if it's, you know, the, the larger schools. Well, Malcolm, as always, you know, appreciate the, the time today, um, and sort of yours out there. Thanks. Thanks for tuning in. Um, you know, look forward to speaking next week. You'll have Ian Formigle back, um, joined by by Malcolm. Um, hope everybody stays safe, um, and wish you all the best.