The power of imagination

The power of imagination

Courtesy of Grant's Almost Daily

From Reuters:

Starved of the travel experience during the coronavirus lockdown? One Taiwanese airport has the solution – a fake itinerary where you check in, go through passport control and security and even board the aircraft. You just never leave.

Around 7,000 people applied to take part, the winners chosen by random. More fake flight experiences will take place in coming weeks.

For those not lucky enough to win that lotto, might we suggest a stop at the local DMV.

We have ice cream at home

Bloomberg reported yesterday that Citigroup is reversing plans to reopen its offices in 13 states on account of rising coronavirus cases across much of the U.S. 

Citigroup management signaled their flexibility last week. “None of the jobs need to be back right away,” president Jane Fraser said at a Bloomberg conference. Employees “will largely decide for themselves whether they want to stay at home, how they feel about their commute, what’s going to happen with childcare.”  

As that anecdote suggests, the emergence of work-from-home promises to usher in major changes for both the residential and commercial property markets. A May 31 report from Green Street Advisors crystalized the problem: 

Even if most workers continue to work fulltime in the office, plausible projections for increased remote work should put a sizable dent in long-term [office] demand. That is highly unwelcome for a sector that was already facing challenging fundamentals and lofty valuations.

Green Street noted an internal Facebook, Inc. employee poll showing that 40% of respondents found their work-from-home setup to be appealing, and three-quarters of that group “might [or] will move to another place.” The pandemic-spurred migration to remote work is making an impact in one of the world’s most expensive markets. Listing service Zumper reports that rental rates for a one-bedroom apartment in San Francisco are down 12% from a year ago, while apartment vacancies jumped to 6.2% in June from 3.9% in March, according to data from RealPage. 

Needless to say, that potential migration is no good news for already strapped municipalities like New York City. George Sweeting, deputy director of the city Independent Budget Office, told Bloomberg last week that if 5% of the 162,000 NYC taxpayers making over $250,000 a year left the city, it would equate to $360 million in lost tax revenue.  Sweeting anticipates a $1.5 billion budget deficit this year, on its way to as much as $6 billion in 2022. 

E.J. McMahon, research director at the Empire Center for Public Policy, notes that, based on official estimates, New York state tax receipts won’t reach 2019’s level until 2024.  NYC mayor Bill de Blasio said Wednesday that the fiscal 2021 budget now stands at $87 billion, down from a projected $95 billion in January. De Blasio warned last week that the city is considering furloughs and layoffs of 22,000 employees to save $1 billion. 

With city coffers far from flush, the real estate industry may struggle to find much assistance.  A May 31 analysis from The Wall Street Journal found that property tax assessments will rise by $1.65 billion, or 5.7% from a year ago, as that annual appraisal was conducted in the pre-pandemic days of early January. A mayoral spokesperson told the Journal that, although the government is sympathetic to the plight of the real estate industry, “we must balance the very real needs of the city, which relies on property taxes to fund essential city services like hospitals and our first responders.” 

And so, the cash-strapped city will attempt to collect from cash-strapped landlords.  A survey by the Community Housing Improvement Program found that 39% of property owners will only be able to make partial property tax payments this year, while 6% report they won’t be able to pay anything at all.  That stress is working its way up the food chain, as delinquency rates on commercial mortgage backed securities rose to 10.32% in June according to Trepp, up 317 basis points from May and within a whisker of the 10.34% all-time high set in July 2012. 

For a way to potentially profit off this looming sea change, see the June 12 edition of Grant’s. 

RECAP JULY 2