Podcasts

2020 State of The Industry Discussion with Dr. Peter Linneman

In this episode, CEO Terry Montesi speaks with Dr. Peter Linneman, economist and Principal of Linneman Associates. The discussion centers around Peter’s background in economics, and his thoughts on how the COVID-19 pandemic is impacting the overall economy and the consumer and retail economies. They also look at the state of various commercial real estate segments, including office and multifamily, and the investment opportunities around them, as well as what the upcoming election season might mean for the economy and real estate.

For more information about Linneman Associates, visit www.linnemanassociates.com

Transcript

Terry Montesi: This is Terry Montesi, CEO of Trademark Property Company. Welcome to Trademark’s podcast “Leaning In” where we’ll look at the future of retail and mixed-use and how we want to lean into it, even though many are leaning out. On today’s episode, I speak with Peter Linneman, principal of Linneman Associates and one of the top real estate economists in the U S. We discussed the impact of the Coronavirus on the U.S. economy, what this means for various mixed-use real estate sectors, and the trends he sees impacting 2020 and beyond, including the election. Thanks for listening. 

Peter, you know, we’ve chatted several times over the years, but for our new listeners, can you provide a little bit of background about yourself?  

Linneman: Sure, I’m a PhD economist from the University of Chicago. Most famous of my teachers that I was close with was Milton Friedman, you may have heard of. 

Montesi: I have heard of him.  

Linneman: I did a couple of years on the faculty after I finished at the University of Chicago. And then for about 33 years was on the Wharton School’s faculty, kind of the senior faculty member and head of the real estate program for a number of years. At the same time, I had Linneman Associates, which is a boutique advisory firm that specializes in economic, financial, strategic investment analysis. I guess also a bit of business psychotherapy sometimes, I think Terry. Also, I publish Linemann Letter, which a lot of people read. I have a book called Real Estate Finance and Investments with Bruce Kirsch. I think we’re in the fifth edition. We have a product called REFAI for young people trying to get ramped up in the real estate business. And on a number of boards, probably about 20 public company boards over the years. I’m on four public company boards today. And I have a fairly active educational charity life, the bulk of which focuses on orphans and extremely disadvantaged children in Kenya, where we support about 140 children all through their life and education. And, we’ve had about 90 graduates from that. So that’s a sum – I live in Philadelphia, about two blocks from Independence Hall. 

Montesi: Great, well thanks for filling everybody else in, Peter, on your esteemed career. As you know, talking over the years, I like to start macro. You’ve been an economist for a number of years, seen a number of cycles. So, I just want to ask a macro question regarding the pandemic’s impact on our economy, how far reaching you think it will be? How it will impact what would have been like the normal economic cycle and the recession, you think, that the, well, the recession that’s been caused by the pandemic and how it’ll be different from others? 

Linneman: Yeah. This is not a normal cyclical recession. This is caused by some combination of the governments of the world, governments of the United States and the world saying to its citizens, “You cannot do some things” to varying degrees at varying points in time. A good example of that is, you can’t have people in a restaurant at all where I live, or if you can in some places you can only have 25% capacity instead. That’s what I mean by the government saying. On the other end are even if the government allows me to do it, I’m not sure I want to do it as a citizen. Those are not what normally cause economic downturn. What normally causes economic downturns is we get ahead of ourselves; we have a really good time, we build more office buildings than we need, or we build more houses than we need, or more autos than we need, and it’s a lot of fun while we do it. And then reality sets in, then you say, well, there’s not enough demand to meet that supply. You’ve already built them. You have to shut down. You retrench. People are over leveraged, et cetera. This is not that at all. The economy was in very good shape, not perfect shape, but in a shape at the end of the first week of March. 

And then the combination, as you describe, COVID made these things happen. As a result, the economy has never fallen this far, this fast. The only other time in mostly recorded U.S. history it fell this far was during the Great Depression. And that took a year and a half to happen, two years to happen. This was, as you know, almost overnight. Nobody could come to your shopping centers, except to the grocery store, right? So, this is not a typical recession. And as a result, it is not a typical recovery. The recovery depends on first and foremost, what will the government allow us to do? And what will we allow ourselves to do? This is uncharted territory. If I would have had a conversation with you on March 1st, neither of us would have ever dreamed that shopping would have been shut down by government mandate across the country. And by the way, if I can’t predict that, I can’t predict when it’s going to be allowed. And the second is that nobody wants travel, or go into a store, or try on clothes, or whatever it may be, right? Even if you’re allowed to, do I really want to? This is a psychological governmental decision-making and ultimately medical and lifestyle adaption recovery. So, people said, “is it going to be a this or a this or that?” I’ll tell you what this recovery is going to be in my mind, a butterfly flying uphill. And if you think about a butterfly flying, it has a place it’s going, it’s going up the hill. It is going to go up the hill, but it’s going to go it by going up a little, down a little, sideways, backwards, stopping, and going a little to the left. That’s this recovery. And it’s because medical’s going to flare up and the government’s going to flare up and then they’re going to relax and then we’re going to relax then it’s going to, and so, I don’t know. 

I think well, at best late 2021 more likely well into 2022, before it looks something like an economy looked in, I don’t know, 2019. It’s got a good distance to go. And that’s because the psychology has so far to go, and the political decision making of the medical has so far to go.  

Montesi: And how do you see all this impacting the consumer economy and bricks and mortar retail going forward? 

Linneman: So, I have a bit of a different read than most people. As you know, most people just say online, online, online, brick is dead, online, online, online. And I think what the shutdown showed to me, was how viable brick can be. And you say, “Well how? Online went way up.” If online could completely disintermediate all brick retail, what would have happened during the downturn is brick would have shut and total retail sales would have been unchanged, right? Anybody who was going to go to Macy’s just went online. Anybody who was going to go to any kind of shopping just went online. Well, that isn’t what happened. Yes, online went up, but it only went up what amounts to 2 to 3% of total retail sales. 

Total retail sales are, you know, plunge. Total, not just brick, right brick and online. The total plunge.What that tells me is there’s a tremendous amount of retail that most effectively occurs in brick. And whether that’s experiential. Whether that’s I like to go with my friends and try my stuff on with them. Whether that’s I need to look at it and feel it. I don’t know, right. But to me, the shutdown proved that brick isn’t going to disappear. It cannot be just disintermediated by any stretch. Secondly, what it showed is they cannot sell groceries online, effectively, profitably, when I say effectively. And I think you and I already agreed on that Terry, but it’s too much handle, too much touch, too small a margin, doesn’t work. Online works best when it’s low touch, low handle, very low return, and big margins. Groceries don’t have a lot of return, but low, low, low margins, a lot of touch. So, I came away actually very heartened about the long-term competitiveness because we did this controlled experiment where we said, we’re going to disadvantage brick, every way possible, including shutting it down in some places, and you still couldn’t sell groceries competitively against brick. And you still couldn’t eliminate huge amounts of sales that would occur in brick. So, I come away heartened. Are there going to be centers that go out of business? Yup. But there’s going to be centers that go out of business, the one I like to use as a stereotype, if you will, there was a nail salon, a hairdresser, and a restaurant in a remnant of an old ramshackle shopping center. Well, they’re all three out business now, they’re all out of business.  

Montesi: And add dry cleaners.  

Linneman: And the dry cleaners, all out of business. Those are all out of business right, at this moment. They’re not coming back in business, but people are still going to need to dry clean new clothes, get their nails done, eat at a restaurant and get their hair done. 

And they’re going to go to a stronger center’s shops. They’re just going to go to a stronger center’s shop. You say, why weren’t they going there already? Because there was an extra five-minute drive, and they didn’t want to do the extra five-minute drive. And they had been going to that one, for 15 years. It’s gone. 

They’re now going to do the extra five-minute drive, and it’s going to make the stronger centers stronger. What people always forget is that when businesses go out of business, most of their customers end up consolidating in better situations. That’s what’s going to happen here. Now, it’s going to take a while because of, I don’t know when anybody’s going to go back to the restaurant, but when they do go back, they’re going to go back to the stronger, stronger centers.  

Montesi: I think what a perfect follow up to that is, so, have you taken a look at where you think retail supply is going to go? You know, we’ve got this supposedly what is measured globally shopping center space per capita, and we’re at 23 square feet and you know, Canada’s at half, and then they’ve developed countries in Europe are at a fourth of that. Have you started thinking about, or if have y’all started studying, what’s likely to happen to our retail supply going forward?  

Linneman: So, it will shrink. It has been shrinking. I mean, yes, you open however many square feet you open. But for the last three, four, five years, unrelated to COVID, the total amount of shopping space was shrinking, not growing by the, it was shrinking, and it will continue. 

There were a lot of centers out there built the late fifties through the early seventies that were obsolete. Not all of them that were built then, but a lot of them that were just obsolete. They didn’t have enough land. They didn’t have enough tenants. They were doing $114 a foot, right? I mean, give me a break. 

Montesi: Or $250 even, if you’re a mall. 

Linneman: Even $250, right. Even $300, if it was a mall.  

They’re going to be gone. I always think Europe is a bad metric. Everybody uses that Europe number that you mentioned. Europe clearly has too little retail space because of regulation and high street retailers have always made it difficult. So, one of the things every European that comes here loves is the availability of our retail. 

So, it’s not like they have the right amount. Canada is odd because of its geography. Could be more in line. We’re probably what, 20, 15%, too much space, 20%, too much space. But in truth, if they’re doing a $100 to $200 a foot, it’s not really retail space, right. It’s storage space that actually sells some stuff occasionally. If you looked at the space selling what, 125 bucks a foot to 300 bucks a foot, it’s called retail, but it’s not retail. If you look at our realistically competitive retail, I don’t think we’re that over retail. What we have is a bunch of retail that isn’t competitive, but its lives so long to the detriment of the good retail. 

Montesi: That comment, “We’re not over retailed, we’re under demolished” would apply, right? 

Linneman: Yeah. Well, and I’ll tell you what the equivalent was in many ways, Terry. You know, you think about the warehouse space built in the 1950s and 60s, you know, that low, clear heights stuff. That was what they did in the 50s and 60s. Well, in the 90s and 2000s that stuffs now empty and a broker’s report might include that in the competitive stock. Nobody was going to lease that, right. 

It was industrial space only by name, but not by actual usage. The interesting thing now it’s used for growing marijuana. They’re totally different phenomena, but do you know what I mean? You can call some of this stuff, you can call a shopping center with the four tenants we named, you know, it’s 180,000 square foot and it has 8,000-foot tenant, none of them are doing that well. You can call it retail if you want, but it’s not retail. It’s not retail. 

Montesi: Another thing that I think is going to be potentially difficult for folks like CoStar to track going forward is what about all the retail that we now see that is being occupied on the ground floor by office or service office or medical tenants, whereas five, ten years ago on Bleecker street in New York or on main streets or in shopping centers and more conventional markets. And I walk down the street from, for me, a real estate company has taken what used to be a Hallmark store. 

So, think about three, five years from now a bunch of ground floor retail space now occupied by office users and medical users. Is that retail space anymore, to your point? 

Linneman: Yeah. And it’s already happened to some degree if you think about it. it’s already happened, especially in the medical space and clinics. 

And by the way, in some cases, even schools. I’m sure, you know, people who put in a school or some type of charter or something, and it’s still counted as retail, but it’s not. You could even argue, Terry, that health clubs. Is health club retail in the way you think of retail in doing the numbers versus Europe or something? 

I would argue that a health club, which takes a lot, is more akin an odd way, to healthcare than it is, or medical, right? It’s more akin to that than retail. Yeah, okay, you might buy a candy bar or a muffin while you’re there, but it’s not retail in any traditional sense.  

Montesi: So, one last question on retail, then we’ll move on to multifamily and office. 

So, if you’re an owner, or an investor in retail real estate, and you owned or invested in non-essential retail, non-grocery anchored retail, and looking what’s happened in the consumer economy and the institutional investor economy, what are some thoughts you have going forward for those sorts of folks? 

Linneman: I would be real happy if I have good grocers, first of all. Real happy if I have good grocers. Second is people ask this question of, well, the internet eliminates stuff. That’s not the interesting question. The internet can only sell profitably things that are fairly high margin, relatively low touch, don’t have to be handled a lot, and there’s low returns. You don’t get a lot sent back. I would be asking myself, tenant by tenant, how do they map out against that? Are they selling items that have high margin or low margin? If they have low margin, I’m more comfortable in terms of how protected they are. 

That’s like groceries, right? There’s no margin to go handling stuff and shipping stuff. It’s just low margin. So that’s how I would look at. The notion of credit, I thought for a long time, is an outdated concept in retail because the combination of consumer trends and leverage buyouts eliminates credit, just eliminates credit. 

And this notion of looking at today’s credit, how many times have you seen a good company and suddenly they’re subject to an LBO and their credit is no longer good? So, it can change too fast. Forever 21, what 12 years ago was the credit, the tenant of choice and competition, the fashion trends, made them highly challenged. 

So, I would look more and more at do I have a location that people will always want to be at? I just don’t know what they’re always going to be doing. With the exception of something like groceries, where I do know what they’ll be doing.  

Montesi: So, location, location, location. 

Linneman: Location, location, location. Yep.  

Montesi: Got it. 

Let’s move on to multifamily. We are actually getting into the multifamily business as we speak. We’re interviewing candidates right now. We asset manage multifamily. We’ve developed a number of projects and redeveloped a number of projects that have multifamily and then we’re moving into the multifamily business. 

So, let’s talk about how you see this cycle impacting multifamily and where you see multifamily going. Any thoughts you have about the multifamily business post-COVID, etc.?  

Linneman: So, I’ve always liked multifamily. I wrote a paper in about 1991 when multifamily was something institutional investors didn’t do, saying why they should. And the reason is because nobody has credit, but everybody together gives me credit. Everybody together, that is everybody, all the tenants, give me real diversification, no tenant alone to mess up my cash stream. And, unless it’s high rise, unless it’s high rise multifamily, the projects are very discreet. 

So, if you’re developing and COVID hits and you’re building garden apartments, you just kind of say, okay, that’s enough. Whereas if it’s high rise, you have to keep going, or office you have to keep going. It’s discreet. And so, what happens is multifamily family has the dimension that when times get bad, it gets hurt, but people still need housing. 

And as they come out of their parent’s home, they’ll go to rent. So, it’ll pick up demand fairly quick. Supply shuts down, supply just shuts down, and what you find is the returns rebound pretty quickly. NOI rebounds pretty quickly. Not perfectly, but pretty quickly. And within three to four years, it’s not only rebounded, you’re back on the long-term trend line. 

And it takes about five years until people really start building it again, because it takes capital markets a while to reestablish fate. So, I like multifamily. Doesn’t mean there won’t be down, of course there’ll be down. The other thing I like about multifamily is Freddie, Fannie, and HUD are there as major capital sources, and they aren’t nearly as squeamish and as skittish as other lenders are.  

So multifamily, yep, I can get money from a bank, I could get money from a light company, I could get money from CMBI. But I’m the only sector in multifamily where I can get Freddie, Fannie, and HUD. And yeah, you have to jump through some hoops, right? But you can get it. So, I think you could go out and get a Freddie or Fannie right now, 10-year, 12-year at about 2.5% interest. Wow. Wow. I mean, that gives a lot of spread on my return. It gives me a lot of coverage, even if incomes fall more.  

Suppose I buy it at a five cap, alright just suppose I buy at a five cap, and I put in 70% at 2.5%. My interest coverage is staggering. 

I’m probably up at one six, one seven, even if income falls another 10%. Think of it this way. I bought it at a five cap. If income falls 20%, I’m still at the port cap and my interest is 2.5. Now I’m disappointed, but I still cover, I know supply will stop, I know the economy will eventually recover. 

It always does. The world rarely comes to an end, even though we think it will. Demand will recover. Supply is shutdown. Even if it went from a five yield to a four yield because of a 20% income drop, I easily cover my interest. The income will rebound as the economy rebounds, and then I get two or three years where nothing gets built, and the economy is doing well we’re back on trend and Freddie and Fannie were there to refi me if I happen to have my loan mature in the intervening time. And if I locked up a HUD, you got a long time and a lot of coverage. So, I like that because both the demand dynamics relative to the supply dynamics, other than high rise, high rise is trickier of the supply dynamic. But I like the supply and demand, and I like the fact Freddie, Fannie, and HUD are there in addition to light companies, CMBI, banks.  

Montesi: Along those lines, you’ve been writing about the last several years about how home ownership has decreased because of less availability of assistance for the buyers for down payments from grandparents, etc. And as you look forward now, I’ve been reading that home ownership is starting to increase the millennials ages, etc. Give us the, you know, the next five years for multifamily and as it relates to home ownership and that the generational shifts. Give us a little feedback there.  

Linneman: Yeah. So, I think what you’ve got in the near term down payment is hard, right? The down payment is hard. Yet as, you know, right now, single family is doing quite well. 

Linneman: Quite well, hot, especially in the suburbs. I think what that’s about, and that has surprised me by the way, and I think what that’s about is twofold. I think one is that what I call accidental savings. Accidental savings are you had planned a vacation in April. You couldn’t do it. You save $4,000, $3,000. You didn’t even intend to save it, but you saved it and there’s nothing particularly you want to spend it on. So, I think “accidental savings” has given people several thousand dollars that they otherwise wouldn’t have scraped together given their lifestyle. So, I think a bunch of people suddenly found they had a lot more available money than they ever thought they would. 

And they’re using it to do a down payment. Namely, if I had said to people, “Well, forego your vacations, forego your baseball tickets, forego your concerts, and forego going to restaurants.” They’d have said, “No, I’m not going to do that.”  When I said you had to forego your trip, your concerts, your baseball game, and your restaurants, they suddenly had a stack of money. And they’re using that money to help on the down payment. It’s kind of an odd phenomena.  

Montesi: Yeah. And not to mention the stock market, you know, being back up, you know, props that up. 

Linneman:  And by the way, remember their parents and grandparents also had unexpected savings because their trips were canceled and so forth. 

So instead of grandma saying, “Well, I don’t have the money to give you because we’re going on the trip to Europe.” Their trip to Europe got canceled. So, they suddenly got $4,000 they can give to the kid. So, it’s been an odd phenomenon that way. And then the second phenomenon is if you were living in the city, and you had a three-year-old, you knew sometime over the next four years you were going to move out and probably get a home because of schools, and yard, and all of the normal things. 

What happened is, given all that just happened, not only do you have the people who would have normally moved out this year moving out, you have all the people who would have normally moved out next year and the year after moving out today. So, you’re sort of getting three years let’s say, of move outs happening in one year. 

And what it’s done is look like everybody’s leaving the city. Well, they’re not, because next year they’ve already left. Imagine a little world where there was 102 moving into the city, and a hundred moving out every year. Well, what you have now is still 102 moving in, but 300 moving out all this year. Next year. they’ve already moved out. 

So, I’d have 102 in, nobody leaving. I’ll actually see next year up a lot of the city, even though all it was the time shift. So, I think what you’re going to see is you’re going to get a bit of a spurt in ownership because of this involuntary savings phenomenon, help on the down payment. And you’re going to get “I’m moving to the suburbs” sooner then I otherwise would have. That’s going to cause the spurt in ownership to cause the drop in rental, particularly in cities, less so in the suburbs, particularly in the city. And the cities were a little overbuilt already, urban core was the softest part of the rental market already. And it gets even a bit softer. 

I think it takes about four years for that to find its new leg, right? 

Montesi: New equilibrium.  

Linneman: Yeah, because a lot of it is just time shift. It’s just time shifting.  

Montesi: Let’s move on to office. And you’ve got a lot of people talking about, uh, how office is going to have some people think pretty radical change, and hub and spoke, and working at home. 

And I know we did an online survey at our virtual company meeting a few weeks ago, and 56% of our folks said that they would like to have work at home part time be a part of their future. So, I know that it’s very real. And then you’ve got people saying, yeah, but it’s going to be offset by people wanting more space, so the density will go down. So where do you see the office business, both urban and suburban, go in the next few years as impacted by COVID?  

Linneman: We’re social beings. Millions of years of evolution, we’re social beings. We like the interaction. We work most efficiently, generally, with the interaction. If you are an author, if you are a university professor trying to solve complex formulas, etc., being alone is better for sure. You find, if you’re trying to work on your strategic plan presentation, you do it better at home than in the office. But if you’re working on what should we be doing in our strategic plan, you do it better in the office where you could walk down the hall. 

We’re social beings. So, offices, I think are essential. A second point I make is I think you can continue to maintain at a reasonable level a good firm remotely. I don’t think you could have ever built the great firm remotely. I have a great close friend who works at Bloomberg, and I say, I understand how you can probably keep Bloomberg going at a reasonably effective level for six months, even maybe a year remotely.  

I don’t know how you’d ever built Bloomberg remotely. And sooner or later companies are going to want to grow and create great companies and to do that they’re going to have to be together. And so right now, I think all of us say, but what’s the rush. I do think, and the numbers of people who write about this stuff that says everybody’s going to work from home, they’re loners. They’re university professors and authors. They’re, of course they would don’t want anybody around them, but normal people who are sociable need that vitality. I do think what you will see is a greater openness to a day a week or a day, every two weeks, but I still need space for you. I’m not going to rotate your space, in a COVID world. And I’m not going to rotate your space in a worry about pandemic world. I’m going to have more space. So, I think what’ll happen over the next few years is people will come back to the office. We’ll figure out how to live in those offices safer. We’ll use more space. The old butcher block table, you know hot seat pick a place, work at it, tomorrow you’ll pick a different place. That’s going to disappear. So, you’re going to need more space. You’re going to want more partitions in the space. More private space. But people are coming back to the office. The other variants, this actually happened to me Terry, I was on, we call it like a Zoom I don’t know if it was literally Zoom but it was one of those platforms.  

Montesi: Yeah. It’s like Kleenex. We use, we use that generically now.  

Linneman: Exactly. So, we’re on that call and the topic was, well, everybody just worked from home. And somebody says, well, “It’s much more efficient,” and then they froze. They froze for like three minutes. 

Montesi: Perfect.  

Linneman: You couldn’t have scripted it. And of course, for three minutes, you’re going, well, I don’t know if anybody hears me. Can anybody hear me? I don’t know if I’m frozen and nobody says –  

Montesi: We can’t hear you. We can’t hear you. 

Linneman: Exactly, exactly. And I, when it finally came back up, it was more or less my turn to speak. And I said, “I don’t think I have to say anything. It’s not nearly as efficient as you think it is. And witness what just happened.” Now I’m being glib on that one. We can do this, but by the way, we can do this call for years. We could have done, we did do this, right, by phone. 

So, it’s not like this is new. And I’m doing it from my office, this call, because I got other things I need to do.  

Montesi: Do you have any other observations regarding office investing ownership? I know a lot of institutions are cold on office right now. How would you advise them to change their strategy or approach or be more concerned, less concerned? 

Any observations there?  

Linneman: My general reaction is, I would be not so much concerned on the long-term. I generally don’t advise people to invest three years, but if you were looking to invest three years, I can’t tell you how the butterfly’s going to fly. And certainly, as it relates to the issues, we’re talking about in office. 

If you said you’re going to invest 10, 12 years, bet on the butterfly getting to the top of the hill, and I think you can buy it and invest at a pretty good basis right now. Better basis and for a long time. And I think you’re going to look back and say, huh, we used to say, you know, nobody would ever work in the office, you know? 

It’s like after 9/11, no one was ever going to fly again, remember? And kind of, well, they did. And yes, it took a few years. And I think this has a lot of those elements to it. That you’re going to look back 10, 15 years later and say, they said, no one. Well, no one is rarely true, right?  

Those kinds of statements are rarely true.  

Montesi: Thank you. So, I have two more questions. Where do you think are, do you think the, this pandemic and the recession that has followed will create a dislocation and therefore investment opportunities?  

Linneman: The biggest is probably going to be in hotels or hospitality. 

Simply because not only do they have – they really suffer from the combination of the government won’t let me. Think of international travel, right? And I don’t want to, I don’t feel comfortable. They are probably the ground zero of that. And as you know, they have enough they’ve got to cover. They are high-fixed costs, very small marginal costs business. 

And so, they’ve got the problem of, not just they can’t cover their interests, they can’t cover their operating costs at low occupancy. And so not only do I need a lender to forebear, I need somebody to carry the operating losses. And I think that that’s going to be the biggest dislocation because the operating losses. I mean, even if I had no debt on my hotel, I probably am not, I can’t cover my butt right? Where is on the part you can cover, you can cover. 

Montesi: Well, one thing you didn’t mention, Peter, that I’ve been thinking about too, is that I have had dozens of conversations with other folks in business, uh, that have said, you know, one thing this has taught me that we probably won’t have to travel as much in the future. But we won’t do as many phone calls, we’ll do video calls that will eliminate the need to travel all as often to clients’ offices or retailer’s office or wherever it might be. And that’s another thing that I think will long-term will probably nibble into the hotel demand side.  

Linneman: Well nibble, but I don’t think that’s big. And the reason I don’t think that’s big is we like to travel. 

That’s not to say every trip we make we like, but we do like to travel. Would you rather look at my high school graduation picture on Zoom or would you rather interact with me? And the truth is, the interaction is much more viable with how you really build a relationship. So yes, but not as much as people think is my guess. 

So that’ll be the biggest dislocation. Retail will have dislocation, but it’s not good properties, right? It’s unlikely to be good retail. So, the dislocation in retail is going to be, “Thank God the nail salon is finally gone. The restaurant’s finally gone now. Now what do we do with this dirt?” It will be more that type of dislocation in retail.  

Montesi: Yeah. And it’s the weak properties occupied by the weak tenants that get weaker and the good ones will rise to the top, I think.  

Linneman: Yeah, I totally agree.  

Montesi: Last question. I can’t pass this up. Help us to understand your view on the difference in our economy the next four years under Biden/Harris versus Trump/Pence administration. 

Linneman: Well, if anybody thinks that a Biden/Harris is elected and then suddenly all of the social tensions are gone and all the COVID problems are gone and all that, they just haven’t been watching the movie. The social tensions are out there for a long time. The dividedness of politics has been out there for a long time, and this disease isn’t going to go away on November, whatever it is, fifth, if they win. It’s not going to say “oops.” I do think what will happen is that from an economy point of view, there’ll be higher taxes. There’ll be higher capital gains taxes if Biden/Harris wins. Especially if the Democrats take the Senate, as well as the House. There’ll be higher, probably a higher estate tax. It won’t be Bernie Sanders, but they’ll be higher. That will slow economic growth. I mean, one thing we do know – by the way you may say it’s good or bad for other reasons, but we do know higher taxes do reduce economic activity. 

So, the question is, do they achieve enough other good things to offset that? So, you’ll get higher taxes and I suspect you’ll see a lot more regulatory activity. The Obama administration was an incredibly active regulatory administration, the most in history. And I don’t know if it goes back to that, but it will be more regulatory. 

Just take something as simple as Opportunity Zones. Well, if you have Opportunity Zones, you may find that you now have to fill out 40 pages every quarter to a report. Nobody’s ever going to read those 40 pages, but you’re going to, you may well have to fill them out. Just take that as a trivial example. There’ll be a lot more about green. There’ll be more green subsidies and such.  

I think those would be the areas where you’ll see the biggest economic impact. On the immigration it’s harder. The Republicans forever had always been the party of immigration and the Democrats have historically been the party against immigration. And with Trump that got put a bit on its head, except at the same time, the Democrats kind of tiptoed into being pro-immigration only because it was anti-Trump. So, I’m not sure what really happens on immigration. Personally, I’d like to see anybody who’s honest, and is willing to work as is, you know, capable. I’ve always believed let’s let them in, but that’s my personal view.  

Montesi: Well, I appreciate your time as always Peter. Thanks for your observations.  

Linneman: Terrific.  

Montesi: We appreciate the relationship, and you stay well and stay COVID free.  

Linneman: You too. You too. Talk to you later.  

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