Transcript From Zoom in at Noon with Roy Oppenheim – Impact On South Florida Real Estate From Pandemic
Roy: Good afternoon, everyone. This is Roy Oppenheim and I’m glad you’ve all been able to join us today. This is the beginning of something I never thought I would be doing again in my life. We’re calling this “Zoom In At Noon.” I’m gonna be dealing with the virus, the pandemic that has kind of thrust us all into a new environment, a new world.
Let me share with an odyssey with you that began probably 30 years ago when Ellen and I started this firm and Jeff joined us. Jeff Sherman joined us about 12 years ago. And at one point in time, we were just a real estate firm and doing a lot of conveyancing, most of you know that. And then the economic crisis of ’08 hit and we had to change the nature of our practice and defend hundreds, thousands of people who are in foreclosure, some of whom are with us today, and I greatly appreciate that loyalty.
The great irony was is that we helped so many people recover from the crisis, although there’s a question if we really all did fully recover from the crisis as an economy. But the economy clearly wasn’t flourishing like it was in ’06 and ’07, and we had thought that we would eventually slowly be able to tilt back to a traditional real estate practice. And then, of course, the coronavirus hit and changed our reality and our world. And we all know how to have to settle in for what is going to be probably an interesting 12 to 18 months of recovery. And so I’m gonna walk through with you how we got here, where we’re going, and what other possible scenarios as it relates to real estate as well as life in general.
Okay. So here we are, “Zoom In with Roy Oppenheim.” We’re going to actually be doing this every week at noon. We have six or seven different topics that are going to be covered and we’ll discuss what next week’s topic is also. I think we’re having a technical issue here, but just hang on. This is new to us too. Should I continue? I wanna thank, before we really continue, both Paula and Jeff. And Paula Vergara helped me with this PowerPoint and Jeff has always been there and is helping me with the technology today. I’m sure we’re gonna get it right in a second. And of course, there’s Ellen, my wife and partner, and Mia Singh who all been here trying to assist our clients as we need to go through this next phase in both our personal lives, the firm’s life, and in our clients’ lives.
I wanna go to what we call the coronavirus dashboard and I wanna share some statistics with everyone so we can kind of understand where we are. Actually, let’s go back one page fopr a second. Psychologically, you know, I think it’s clear that we’re gonna be entering a recession. A lot of the factors that last time became very apparent are apparent again in terms of all assets diminishing in value, whether we’re talking about oil, stocks, bonds and of course we’re gonna talk about real estate, but we also have crypto that is doing poorly, and gold hasn’t reacted the way we think it normally would.
But one of the things we have to be careful about psychologically is not to get pulled into watching too much news on television and getting psychologically somehow impacted by it. And of course, it does make sense to watch maybe a little bit of the news, but to watch it constantly and constantly watch CNN probably would drive anyone insane. And so the idea of limiting what you watch and what your children watch is probably a good idea.
Dashboard. Currently, as of probably this morning, there are 186,000 cases worldwide and a number of people that unfortunately passed away is about 7,500. If you do the math on the back of a napkin, you realize that it’s somewhere below 5%. Some people are saying that we’re looking at a 1% to 3% rate. Of course, in the United States in particular, there is an under-reporting. And so if we look at Italy for example, which may be reporting properly, we’re seeing a death rate that’s probably close to 10% to near close to about maybe, let me see how many we have, 2,100…a little under 10% but that may be skewed also. The good news is that some places like China or have already hit the peak. And so the question is how long will it take us to get through that process?
In terms of the United States side, we’re seeing that while the total number of cases is about 4,500, which in reality is probably much more because so many people haven’t been tested, we’re noticing that New York and, of course, the State of Washington are the worst. Florida, which we’re talking about in particular, is somewhat down the list. But I think because this was a wave, I think what we need to do is look at what’s going on in the State of Washington, what’s going on in New York, and ultimately what’s happening in Italy to get a sense of what’s gonna happen in our respective economies, local economies, as this virus waves its way through. And then once it peaks, then we will see how long it will take for there to be a recovery and what that recovery will, in fact, look like.
I wanna just briefly also look at, I can go to the next slide. What we’re looking at, day 42, I think that may be a day or two ago, but if we take a look at it, we can see very clearly that the virus is spreading much more quickly than anything we’ve ever seen in terms of SARS, swine flu, Ebola, or MERS. And the real issue is the fact that it’s growing at a rate that is not just linear but is algorithmic. And so you’re seeing a line that’s very steep and the idea is to prevent that line from continuing to grow at that pace. And that’s why we have all this social spacing and it’s because of social spacing that we’re having this massive impact on the economy.
I know there are a lot of people, particularly some doctors, maybe some are on the phone today or are on process and think that this is an overreaction. And obviously, I’m a lawyer. I’m not a doctor. I know that the CDC and the World Health Organization does not think it’s an overreaction and their position is that if it is an overreaction, that’s great because you’re better to overreact than underreact for obvious reasons. But their north star in terms of trying to prevent a crisis that has happened in world history would be the 1918-1919 Spanish flu that killed between 17 million and 50 million people with estimates of up to 100 million people worldwide, basically wiping about 1% of the population out.
So that is the desire is not to have a repeat of that. And those areas in the United States that did better were those areas that quickly close the schools, that quickly stopped the theaters and shows that were going on. And in fact, if you compare like New York to Philadelphia to St. Louis, you would find that St. Louis came out much better than New York or Philadelphia because they were slow to react. And New York did not reduce some of the social get-togetherness, whether it was the subways or the schools as quickly as, for example, St. Louis. But maybe St. Louis learned from what was going on in New York.
And so in any event, what we’re seeing in New York where we have pictures, for example, right now of Grand Central…switch real quick. If this doesn’t work, don’t worry. Okay, we’ll keep going. Okay. Here, for example, is a picture of Grand Central Station, I think from today’s or yesterday’s New York Times. And what we’re seeing is that there’s just complete emptiness in the city and we’re expecting to see that in other parts of the market, parts of the country.
I wanna proceed now to what the two possible scenarios are for recovery. And these come from McKinsey. And the two situations is a delayed recovery or a prolonged contraction. And if we look at what a delayed recovery is, we’re seeing that there’ll be large scale quarantines, travel restrictions, social distancing, and a huge dropoff in consumer spending and business investment. We’re also gonna see huge reductions in demand. And of course, supply side disruption. Demand, of course, people not going out, people not going to the movies, people not going to shows and going to concerts and doing all the kinds of things we’re so accustomed to doing. What we’re seeing is really a change in how we’re going to relate to our fellow man and that we’re, unfortunately, you know, cocooning to a large extent. Many families have had their college kids come back, many people have had family members who were working in other cities come to live together and this was going to probably be the new normal, not just for a week or two, for a period of time.
Businesses, many have been able to go to work from home and literally go virtual. Other businesses such as ours are reducing the number of headcounts in the office on any one particular day. And so this is going to become more and more the norm. The real question will be is to what extent this new normal will remain the normal as opposed to reverting back to something that we were previously more accustomed to when the crisis is over? The crisis will end. We will get through this. The question is how and when and who will be more successful through the process and who will be less?
From our experience in the foreclosure crisis, those people that reacted quickly, those people who acknowledged that things were not gonna be normal were the people who got through the tunnel, got through the funnel, and came out very strong at the other end. Again, many people who are on the call today could attest to the fact that because they were able to react quickly and understood the circumstances that they were able to put their lives back together very well on the backside. And again, people were also able to re-order their priorities in life. And so those people did better than those people who were lamenting about something that they could no longer control. And so once you accept the fact that the situation is not something that is in, really, our fully controllable hands, the quicker and better we can get through this together.
In terms of economic impact, I wanna talk a little bit about what the Federal Reserve is gonna be trying to do. And the real question is gonna be in terms of whether or not it’s a delayed recovery or a prolonged contraction is whether or not the Federal Reserve and the other world banks will have enough tools in their toolkit to be able to deal with this crisis.
The biggest problem is that with interest rates already at 0%, the only place you can go is negative. And it’s really funny because when Ellen and I were visiting in Switzerland, we have a cousin there, and he was telling us how there was negative interest all over Europe. And we were trying to understand that. And he was explaining that that meant that when you put money in the bank, you put a dollar in the bank, you get 97 and 98 cents back because they were paying you to basically keep your money safe. If you wanted to, for example, lend the money out to a credit-worthy developer that was maybe insured in some way, you would get 99 cents back. And so the developer was actually getting paid to borrow your money as opposed to paying interest.
An idea that was inconceivable to us this past summer and now with interest rates close to zero, we’re going to be seeing that. Of course, the banks for years have been borrowing money from the Federal Reserve at 0% and so it’s really nothing new to them. It’s just new to the rest of us. And of course, one of the things that the government is probably gonna do is it’s going to bail out various industries. The first thing they’re gonna do is make sure the banking industry is stable because that impacts all of us. But they’ll probably be looking at bailing out industries such as the cruise lines, maybe the cruise lines, but certainly the airlines because the airlines don’t just drop and move people. They move tons and tons of cargo. Every time you’re on a plane, as much as half of that plane could be cargo that’s also being delivered around the country. So to see what’s gonna happen, we’re really gonna have to wait and see how bad this gets and if we’re able to actually flatten that curve that we’ve been talking about.
Okay, let’s go to “Financially: Great Recession or Great Depression.” Great. In 2008, while the government did a bailout, there were people like myself who felt that the bailout should go to the people and not the banks. One of the problems was it was this notion of what’s called moral hazard. People, legislators, and certain people in government felt that if we gave money to the homeowners that we would be encouraging frivolous borrowing. And many people blame the homeowners for the crisis because they shouldn’t have borrowed money that they couldn’t pay back. Of course, in reality, we now know that the banks shouldn’t have lent that money, and that the government shouldn’t have guaranteed that money, and that that money shouldn’t have gone off to Wall Street, had been secured as highly credible paper when, in fact, it was junk and it was toilet paper. I mean, so there was a lot of blame to go around.
This time around, it’s different in the sense that the whole country’s in the same boat. You could be wealthy, you could be poor, you could be a banker, you could be a borrower. And there is really no blame game here. So the bailout will likely be swifter, but the crisis will be more complicated. And this time it’s not gonna be just about money, but it’s also gonna be about our health. By the way, if anyone has any questions, you can just raise your hand. And I think this is probably a good time to see if anyone wants to chime in because the whole purpose of this is supposed to be interactive and for you all to chime in and, frankly, disagree with things that I’m saying and challenge some of the concepts because that’s how we can create the truth and figure out together how we’re gonna get through this.
The other problem with this situation of whether it’s gonna be a recession or depression is really, can the healthcare system fully be able to handle the crisis and the stress? And in Italy, of course, they are trying, but it’s not going great. And in fact, Alan Friedman I think is on, is here, and he is in Italy. He’s a reporter, he’s written several books, and he’s an old friend of mine from high school and a family friend. And if Alan’s here, I think Alan could talk about what’s going on in Italy. I don’t know if Alan is on. He said he was. Jeff, can you find him?
Jeff: Alan, can you raise your hand?
Roy: Alan, if you’re there, raise your hand. If not, we’ll keep going. But I’ve been talking to Alan about what is going on in Italy. And the bottom line is that the entire country has shut down and they are trying to prevent basically a Spanish flu scenario from happening again. And so that’s where they are. And we’ll talk a little bit more about Italy later. Let’s proceed.
Okay. Next page. Okay. Okay. So some general thoughts from the last crisis and I think they are applicable here and they could give you all some guidance, whether you’re a small business, whether you are a homeowner, whether you’re head of household or just starting out in your life. And one is that cash is gonna be king. We don’t know if certain assets are gonna seize up. We don’t know if you can rely on your stock portfolio, it may go up, may go down. But for the time being, it’s probably gonna be down. And so you really don’t wanna touch that money. If you can avoid it, avoid it.
A lot of people are gonna look at bankruptcy. There is something new in bankruptcies now, which is called a sub-chapter 5. I blogged about it already, but more importantly, it provides small businesses an opportunity to reorganize and caps out at, I think, $2.7 million worth of debt, which is still a small business. But in the past, people would have to go through a chapter 11, which is more expensive. And most small businesses were not successful when they were going through sub-chapter 5.
Loss mitigation, banks are developing their policies as we speak to defer payments for people who are being laid off, whether it’s your mortgage payment or a credit card. And I think banks learned from last time that they are better to work with the homeowner and the consumer than if they do not. And I think we’re also gonna find that kind of mentality also with landlords because the reality is…And the reality is that landlords are gonna also have to deal with the fact that certain tenants are not using all their space. Those tenants are going to find that they have too much space because so many people can commute from home and it’s going to change the way buildings are used.
And in fact, I have in the past given a lecture on the impact on the economy of driverless cars and how that was gonna transform the entire economy in a kind of a slow-motion way. And we’ve also given a lecture on how climate change was going to change the real estate market. The great irony was that those changes that we were talking about were glacial changes that were occurring but because we were almost like a frog in water that was slowly boiling, we didn’t recognize the changes.
This is completely different. In fact, Paula has said to me this morning, this is more like a microwave change, a microwave change that Vladimir Lenin, in fact, of all people, once said that sometimes change comes in two ways. Change sometimes comes where you have a week’s worth of change that can occur over 10 years, which is a kind of change that we would maybe talk about from climate change and kind of change that we would talk about from driverless cars and that it would happen gradually, but it would change. And then sometimes, you have 10 years of change that can occur in a week. And while I wouldn’t say it’s occurring in a week, it’s occurring in a very quick period of time where we are transforming our society and in some ways, we will get back to a normal but the question is what that normal will look like.
And so landlords, again, and credit card companies, as well as banks, are going to have to do something because frankly, the courts are not at full par, are open but only for critical emergencies. At least Dade County and most of the other courthouses are not gonna be at full tilt. And so banks are gonna have to figure out how to work with their homeowners and their creditors in such a way that they will not need necessarily constant judicial intervention. To the extent there is judicial intervention, again, our firm is going to be here to assist. But even if not, we will be able to help negotiate with landlords and with creditors in order to make sure that we all get through this together.
Let’s talk about what industries are going to take the hit. Obviously, transportation, travel, recreational, commercial. When we talk about travel, we talk about travel agencies to the extent there are any, we are talking about airlines, we’re talking about Uber drivers, we’re talking about Lyft drivers, we’re talking about hotels. And on the commercial side, we’re gonna see a reduction in the number of containers, number of trains, number of airplanes, number of ships that are gonna be moved because there’s going to be less demand. Apparel is a good example. Well, you know, it’s a retail item. People are gonna be purchasing less apparel. They’re going out less, they’re not going to need as much apparel. They will not need as much clothing. In terms of brick and mortar retail, it’s gonna be tough. It’s gonna be tough for restaurants, it’s going to be tough for clubs, it’s gonna be tough for bars because people are being instructed and in some cases mandated that they cannot go out.
Palm Beach has a 9 p.m. curfew. New York has closed all its…as far as restaurants, Dade County too now I think. Dade County has, and all across the country, we’re seeing that. And so many of these strip mall kinds of retail operations are going to have issues. And then, of course, you’re gonna have malls. To what extent are people going to want to go to a mall is a real question. And some of these malls are anchored by restaurants. Some of these malls are anchored by movie theaters. And so all these types of facilities are going to be dark and, therefore, the retail operators within there are going to have issues too.
In terms of personal services, we have gyms, athletic clubs, childcare, child enrichment, laundry, dry cleaning. A lot of these places are all gonna slow down. Gyms, of course, are going to close for a while. They will probably reopen because people will wanna get together, but some people will not come back. They’re gonna get used to using a Peloton bike. They’re gonna be used to using online apps to do their exercises. Of course, people will want that socialization eventually. And so I think to some extent, some of these places will come back, but they’re gonna have to survive the interim. Next.
Jeff: There’s a huge hit for the event planning industry who plans the events for huge conventions and corporate events.
Roy: Right. Exactly. So that’s the question. There’s a huge hit for event planning, conventions, all the contractors that are involved with that, same thing with the cruise lines. Of course, the laundry services, the catering services, and that, of course, goes for huge events. We saw Austin, Texas took a huge, huge hit without the South Southwest Conference. Many retailers and restaurants and bars basically count on that for their profits for the year or just to cover their overhead. And so we’re seeing that that’s a massive issue. Is there a question with that or no?
Jeff: No.
Roy: Okay, great.
Jeff: Back to the slide.
Roy: Okay, great. Am I…we’re just seeing the slide right? Okay. Next. We can go to the next one. Okay. Okay. So we’re gonna talk about different segments of that…So I can go closer. It doesn’t matter for the mic.
Roy: Okay. So let’s begin by talking about the housing market and we’ll talk about it from a realtor perspective. Let’s talk about also from a buyer perspective, seller’s perspective, and a lender’s perspective. Open house as well. My feeling is that most people aren’t gonna be thrilled about having people come through their homes right now. I think most people who would be coming into an open house aren’t going to be thrilled about going into a house. So I think we’re gonna see a lot more online videos, 3D videos, drone videos of homes and people are gonna really get close to pulling the trigger just by seeing it online. Will they actually sign a contract? On occasion, that’s happened. But I think in reality that probably won’t happen, but I think we’re gonna have a lot less showings. And that’s, of course, gonna have some impact on the market, but I do expect that prices will drop because there will be less activity.
What’s also interesting is that 10% of the entire housing stock now is owned by institutional owners. That is a major increase, probably a 2%, 3%, 4%, 100% increase from ’08, when large companies, I won’t mention any names here specifically, have been buying up tracks of land or buying individual homes from foreclosures and then rent those homes out as they also professionally manage those homes. And because they’re buying those homes with cheaper money than a homeowner, some of that gets passed on, or at least it becomes a very viable opportunity for homeowners, or not for homeowners, but for families who only have to come up with maybe a first, last, and security deposit as opposed to a 10% or 20% deposit.
We have seen a raise in…Alan’s not there? I mean he doesn’t raise his hand. If Alan is there, he and I were just talking last night and we’re seeing a 7% to 8% drop in prices in just a matter of days in Italy. We’re not sure if that’s gonna be temporary or how long-term that’s gonna be, but it’s probably gonna be for a period of time until Italy gets back to normal, which could take probably as much as a year if not longer. Sellers may find that homeowners are willing to purchase because they can borrow money so cheap. But that’s gonna be offset, of course, by lower housing prices. And it’s also gonna be offset by the fact that some banks are gonna make sure that people’s jobs are secure and that they don’t end up with financing a house that they’d subsequently have to foreclose upon. And so the real question is going to be is, will banks continue to lend? And the answer is we sure hope so.
Should sellers hold off on listing? Okay. Huge…Okay, next question by Tammy. Tammy Finley. Tammy works for Western Title and her question, should homeowners hold off on listing? You know, they could try and see what happens and if it doesn’t work then they’ll know. But there’s no harm in trying. It certainly won’t hurt to list your house. The only question is to what extent will you have buyers and to what extent are they gonna be prepared to pull the trigger? I think once people settle in on a new normal and what and what daily life is gonna become, people…humans like routines. And so once a new routine is established, whatever that routine might be, I think at that point in time, there will be a stabilization of the housing market. Thank you for that question.
Moving on. Foreclosures. Invariably, when there’s a recession or, God forbid, even a depression as we saw last time…and last time, you know, it was called the Great Recession. Here in Florida, there’s no question that it was a depression. We saw in terms of people’s mental state, there was mental depression and, of course, the economy was depressed. Will the situation reach that level again? I don’t wanna say yes or no but my sense is that based on how the stock market is performing, there’s an indication that it might, but the fact that the government is responding quicker and trying to keep the economy going and that we’re in an election year would suggest that maybe the government will have some tools. The problem is, is this problem larger than any one government? Because it isn’t just an American problem. It’s a worldwide problem. And again, it’s something that no one country can handle on their own. So in terms of foreclosures, you’re gonna have downward pressure.
On prices, you’re gonna have people who are laid off, you have entire airlines that are gonna go out of business. Most of the airlines have cut their schedules by 50% or 75%, which that means half or 75%. The pilots and stewardesses and mechanics are all gonna be furloughed. And so while there may be some government programs to help them, many of them will not be able to pay their mortgages for an extended period of time and they will end up in foreclosure. Now, there will be probably moratoriums on foreclosure. They’ll probably be moratoriums on evictions. And we’ve learned from last time that those were the safety nets that we needed to keep the economy from completely collapsing and more importantly, destroying the social fabric.
So right now, I think the social fabric is strong. I think people understand that this is a new normal. You know, there’ll probably be new babies that are born and they’ll be “coronababies,” I think as they’ll be called. But, you know, life will go on and our forefathers, whether it’s our parents or grandparents, have gone through things much, much worse and this will be, you know, our defining moment for our generation, unfortunately. And hopefully there won’t be anything worse. But certainly, it’s not something that we expected or bargained for. But no one expected the World Wars either. No one expected 9/11. So we’ve all had to deal with crises and we’ll all come through it together.
We do expect the foreclosure defense practices will again become a new cottage industry in the economy. And I think the foreclosure mills will, of course, erupt over time. And of course, if people feel that they need a consult with us, we are doing Zoom consultations now so you don’t even have to come into the office anymore. Next slide please.
Let’s talk about hotels. Bookings are off as much as 80%. A friend of mine the other day and I were just looking, it was like I think over the weekend, how much it would cost to stay at a four or five-star hotel on Central Park South and we were seeing prices on hotel tonight for about $100 when those rooms could go for as much as $550, $650, $750 a night. I mean, they’re basically giving it away because at this point, they may not even be open. Most hotels have huge mortgages. They’re not owned by big hotel companies like Marriott. Marriott and other big names are really just franchisors or licensors and they’re licensing their names. And so it is the owners of those properties that will have to renegotiate their mortgages with their banks. And then the question is, will the banks want to renegotiate the debt or not? And so that’s a good…you can keep…you wanna keep the picture up?
In Florida, for example, the host hotel industry, of course, is very dependent on the airline and cruise industry. The airline, cruise, and of course, the pilots all have these contracts with the hotels. And then you, of course, have the entire cruise line industry where they too, people coming and going on cruises are staying in hotels and that’s a huge part of the market. Of course, you have the whole business market that doesn’t exist right now. Airbnb, we think those prices will suffer too. Many of those folks have taken out mortgages to pay for their ownership and then they had a nice business of renting out their Airbnbs. So I think we’re gonna see a lot of folks who were in the Airbnb market also suffer because they won’t be able to pay their mortgage and their bookings are gonna drop precipitously. Okay. We have a whole bunch of questions here, I think. Can’t seem to…yeah.
Jeff: Have you seen a decline in transactions and escrows in the past few weeks?
Roy: I’m going to answer that, but let’s see, can’t seem to get unmuted. Alan is…he’s up. What’d you say? Okay. We’re seeing that and I just wanna show you this headline here. Can we switch here now? Anyway, from one of the local…from the “Daily Business Review,” “Coronavirus, brutal for real estate as lenders hit breaks on financing.” So I mean, what we’re seeing is some people are panicking and don’t wanna proceed. Other people are trying to interpret force majeure to try and delay their closings. Other folks are going full steam ahead. Larger transactions are, of course, being delayed where they are in negotiation, some of those negotiations have been put on hold. So obviously, we are seeing a major impact on the real estate market. Next. Okay, let’s talk about that. Can you get me back on or not? Yes.
Jeff: Just a moment. You’re on.
Roy: Okay. Okay. In terms of offices, with so many people, as I’ve mentioned, working from home, there is a lot of unused space that’s going on in major office buildings. All you have to do is drive around the parking lots, including my own parking lot, and they are empty. If you look at New York, the city is now a ghost town. We do expect that there will be rampant defaults and that landlords will have to decide whether or not they want to renegotiate for existing space or if they wanna keep their spaces empty. One of the things we’ll have to talk about is will some buildings just end up being excess capacity and be repurposed over time?
We had talked about how parking garages, for example, in the context of driverless cars, would one day have to be repositioned because there would be less cars in parking lots. I think now we have to talk about whether or not some of these spaces will be repositioned to either…God forbid, for hospitals or maybe for housing, public housing if, in fact, people end up defaulting on their leases and can’t be replaced. Of course, the value of the properties will have to be reassessed. Appraisals will be reassessed and then lenders will have to decide if they wanna be basically in the business of re-purposing and repositioning these buildings or if they want the existing owners to do it and do a workout. Some of these places may also become schools. But it’s gonna be very interesting to see if there is, in fact, a re-pegging of the office market to different valuations. Can I proceed? Is there an issue?
Okay. Let’s just go back one, just one. Yes, I work from home. How’d you know? Hopefully, you all saw that little picture of the dog, Carla is up there. Just a little humor. Warehousing and storage. With the overall economic activity entering a recession or maybe a depression, large industrial warehouses will be less in demand except for warehouses that are used in conjunction with online retail. So while demand is going to drop in general and therefore, there will be less need for cargo to be delivered to warehouses. The exception will be those items that people are purchasing through online retail as well as through big-box retailers such as like the Walmarts and Targets of the world who will need to maintain warehouses, and maybe even bigger warehouses.
Mini storage, I think, will do particularly well. As we’re seeing college kids who had to frantically come home, many did not ship their stuff home but put their stuff into storage. And so those kinds of dislocation issues that we’re gonna see in a market that is very fragile is an area that mini storages have become important because they help people during times of dislocation.
Okay, we can proceed. Retail. So without cruises and other tourists, most brick and mortar retail stores, especially in stores in the mall, such as retailers, will not make it in the malls. And if they do, it’s gonna be probably specialty malls that are primarily outdoors. Again, without movie theaters and restaurants, we won’t have the anchors to provide the kind of traffic that is needed. Again, the exception will be for the big-box retailers such as Walmart and Costco, Home Depot, which already are big e-commerce participants and they also provide necessities that people will still go out to get. But again, people will try and have as much delivered as possible.
So I think that the delivery industry, UPS, FedEx, and of course, other companies that compete with them, including Amazon who’s gonna have their own delivery systems, will continue to flourish in this economy. In fact, Amazon today announced that they are employing 100,000 new people. So while the cruise line industry is firing tons of people or furloughing tons of people, we’re seeing folks like Amazon who are going to increase 100,000. You don’t wanna show me? Okay. Okay, let’s move on.
Okay, let’s talk about banking. The banks are gonna continue to try and close as many transactions that are in the pipeline as possible. One of the things that the banks are gonna have to come to grips with is whether or not they’re going to go truly online with remote online notarization, which Florida recently passed up until now. The banks have decided that they would prefer not to fully embrace remote online notarization, which means that basically as long as you have a secure internet connection and you’re going through a third party, you could actually sign all your documents online with a notary present through an interactive portal.
One of the problems is the banks will require still, and they do today and this is the issue, a wet note. They don’t want an electronic note even though there is enough law in place to allow them to close on electronic note. So what may happen is what’s called a hybrid closing where, in fact, the individual signs a note which doesn’t need to be notarized. They send the note back to the title company or the bank and then only after that is the mortgage and other documents executed through remote online notarization.
The other thing that we hope is that banks will not seize up like they did last time. Maybe one of the problems with the crisis last time is that people who had money in money markets were unable to get their cash and that created a real panic. I think this time, if the banks remain sufficiently liquid and don’t create that kind of a panic, then people will know that they still have access to their money. There is, of course, also the psychological impact of zero or negative interest both on the banks and on the economy generally. And banks, of course, don’t make as much money when there’s negative interest as they do when they can charge full interest.
Jeff: We got Alan.
Roy: I’d like to bring Alan Friedman on now who is, again, an old friend of both the family and I have known since I’ve been a little kid, we went to high school together, and Alan has been in Europe for many years. Alan lives in Italy now and he’s gonna talk to us a little bit about what’s going on in Italy and specifically the impact of the pandemic on the Italian real estate market. Alan, how are you?
Alan: Good morning, or good afternoon, to everyone in Florida.
Roy: Okay, thank you. We don’t you on video, but we do have you on audio and it’s good enough. This is all new to us. Thank you.
Alan: I’m in Switzerland right now. I came out of Italy last week, drove through the danger region. My wife drove at 110 miles an hour and we’re here in Switzerland where the virus is spreading as well. So all of Europe is the epicenter.
Roy: So tell us what’s going on in Italy in terms of the real estate market and if you wanna break it down into categories, that would be great.
Alan: Well, in Italy there are two types, three types of real estate you can talk about. There’s the luxury high-end villa [inaudible 00:42:25], which wealthy Americans know when they buy a house in the South of France or in Provence or in Tuscany, that’s one market. And then, of course, there’s the normal national market divided into commercial and residential. If we take the national market, and this is a country that has $2 trillion GDP, the Italians are quite well off in terms of property. The values of commercial real estate will certainly, in places like Milan, the frozen or go down 5% or 10% right now simply because we’re in the middle of a crisis and all of the economy is paralyzed.
But if that sequence ends as expected sometime in late April or early May, then I think the damage may not be that substantial, but I don’t think there’ll be any buyers. It won’t be a buyer’s market for a long time because I think the economy will suffer, as in America, the wealth effect. When stock market prices crash in America from a Dow Jones of 28,000 down to 20,000, that means rich people feel poorer and middle-class people feel poor. And that means they’re not likely to buy real estate or big consumer durables for a while.
In Italy, the national market in normal housing is already weak at 0% or 2% growth in the last five years. So it’ll probably go down 5% or 10% or 15% and then come back over a slow period. I think in America, in Florida, you might wanna compare Florida even to two different types of markets. You’re the expert, Roy, but there’s the people who buy Florida homes, are they called the snowbirds, who come to Florida and have vacation homes, and then there’s the normal Floridians.
Roy: So in Italy, what is happening to the average family who is stuck at home and can’t pay their mortgage or their rent right now? There’s some sort of moratorium, I’ve heard?
Alan: Well, actually, the government has introduced some very strong and large measurements just like Trump who this morning announced $850 billion of measures in America to help small businesses and to help people who can’t have sick leave and all that. In Italy, the government has provided 25 billion euros, which in this economy is a lot and is equivalent to 1.5% of GDP, and everybody will get a 12 to 18-month moratorium on mortgage payments. So only interest, no capital has to be repaid for the next 12 to 18 months for 100% of Italian homeowners. That’s the big deal.
They also have put off a tax filing date by several months and they are allowing government funds to pay for even small shopkeepers and pizza parlors, restaurant and tour guides who are not normally covered so that they get full assistance and income over the next few months. It’s the beginning, Roy, of what economists call helicopter money. Back in the 1960s, Milton Friedman invented the term helicopter money, literally imagining distributing dollars from the sky. Well, just a few minutes ago, Steve Mnuchin, the treasury secretary, announced that he would be sending a check to all Americans in the next 2 weeks, probably of about $1,000. That’s helicopter money.
And the Italians are doing the same thing. They’re distributing a kind of guaranteed income to people because they’re stuck at home. Everybody is in quarantine, we’re in lockdown. You can’t go outside unless you have a permit. You can only go to the supermarket or to a pharmacy. That’s it. And it’s going to be like that for another month or two. And America, if it wants to save itself, needs to copy Italy and hunker down and stay at home probably until the end of May.
Roy: No, we got that and I really thank you for giving us a sense of what is coming because I think once people understand that there is an end to this and that there will be a peak and once we come off the peak, things will start to slowly get better is the quicker…
Alan: Can I tell you what the biggest risk is for the economy?
Roy: Sure. Yes. Go ahead.
Alan: The biggest risk is that we have a contraction of like minus 5% or minus 8% of GDP in a single quarter. In the following quarters, you know, you come back but very slowly, It’s not a V-shaped curve where you go down sharply and bounce back sharply, notwithstanding the stimulus, depends how much Trump throws at it.
Roy: No, I understand. I have to cut you off because we have a schedule here.
Alan: Thank you for having me.
Roy: Listen, you’ve been invaluable and we would love to have you participate again and tell us how Italy’s doing. Okay. So thank you very much.
Alan: Thank you so much.
Roy: Take care.
Alan: Bye-bye.
Roy: And again, that was Alan Friedman, he used to be with “The Financial Times” and he’s an on-air commentator on Italian TV and an old, old friend. I just wanted to give everyone a sense of where we are. I wanna continue now to talk about the silver lining here because it’s not all gloom and doom. It’s not fantastic, but we have to look at the bright side. And as human beings, I think we are internally optimistic people. We’ve existed for thousands of years and as a civilization we’ve gone through worse.
So the first thing that I think is fascinating, and again, what’s so interesting, I had been talking about climate change in a way that we needed to do things to try and improve our life in some sort of measured way. And here we have a picture, I guess from some satellite showing how improved the air quality is just over China in terms of their reduction in fuels and activity and how it is that the earth has quickly cleared up in that area of the world. And I think we’ve seen similar pictures also in Italy. Any questions or not? Let’s play this video, if we can, for a minute.
This picture is really interesting because we’re seeing Italians who are staying at home, they’re quarantined, they’re all putting out their flags to say that they’re safe, they’re okay, they’re gonna get through this. And now, I wanna just play this little video and hopefully, it’ll come out. And let’s proceed. So what we’re seeing, and many of you have already seen this, is the Italians playing music from their windows, from their apartments, and creating their own concerts. Anyway, everyone gets the idea, but we’re gonna get through this is what the bottom line is.
Let’s talk about some other positives if we can. If there’s anyone who wants to raise their hand, we’re gonna have about 10 minutes for Q&A and I wanna make sure that we address everything. Well, let’s go over some other positives here because I think it is very relevant. And this is a great list that’s been…it starts with number three, that’s interesting. What’d you say?
Jeff: We did one and two before.
Roy: We did one and two before. I did one and two before, but I’ll repeat one and two. You’re going to live with your kids as an extended family, that’s one. Well, it’s two. Okay. Okay. You get to live with your kids as an extended family. Well, that wasn’t planned but, you know, we’re getting to know our family again, we’re getting to know our spouses again, and there’s some real benefit to that. And again, as I said, we’ll probably have a whole new “coronababy” cycle that will occur through this.
People are reading books that they always wanted to read. Some people are writing, they hadn’t had a chance to write and now they’re writing. You get to clean out closets. I think that’s a great one. You get to truly know your spouse, we said that. Get the catch up on a lot of Netflix. There’s nothing wrong with that. Trying new recipes. Believe it or not, except for toilet paper and a few items at some grocery stores, at least in Florida, most items are still there. And so you can try your new recipe.
People are videoing, chatting more with friends, I don’t know if you noticed, but the internet is slower because so many people are, in fact, using their Wi-Fi at home. Playing board games. It’s nice that people are starting to do stuff that they did in their youth and it makes them bring some comfort back to them. A lot of people are making art, they’re painting, and a lot of people are getting handy and fixing things. And Home Depot, in fact, has been quite busy with people doing stay-at-home projects. And so we’re going to learn about the new normal. We’re gonna learn to accept it.
And what we’re seeing now are that certain types of venues that one would normally experience as a collective group will still occur, but they will occur online. And so people are putting on concerts that ordinarily would have been performed in great venues and now they will be performed online and people are going to enjoy that. The people are getting together virtually to have dinner or have a glass of wine or a bottle of beer together and they’re doing it virtually. These are all new experiences and new ways that we’re all going to collectively get through this.
But the impact is, is that real estate will change. It’ll change the way we sell real estate. How real estate is used will change and there’s probably an excess of some real estate and that excess will get repositioned. And those people who are savvy, those people who stay slightly ahead of the curve will continue to remain ahead of the curve. And so obviously, our firm is here to assist those types of folks who are either in front of the curve or behind the curve. Questions, Jeff?
This is a good one. There’s a coronavirus contract addendum floating around. Have you seen? Yeah, I actually have seen it. It’s for the residential contract and there’ll be lots of other addendums. And I think that it is helpful because it’s basically saying that if any party in the closing process is unable to fulfill their obligation, whether it’s the survey or whether it’s a title agent, whether it’s a title underwriter, whether it’s the bank, anyone who is critical to that process because the process is only as strong as its weakest link. And to the extent that weakest link is broken, the idea is that no one be responsible for that particular liability because that liability is a function of the virus of the emergency that certain states are in like Florida and New York and other states.
And so to that extent while we’re under an emergency, those kinds of issues would be deemed force majeure. How you determine whether a particular issue falls into that category could, of course, be evidentiary. But if it takes that to keep the process going and people are acceptable with that, then I think that that kind of an addendum would be very effective. I thought they did it may be a bit too broad, allowing easy exit for anyone. As I said, I tend to suggest that it may need to be tighter because it otherwise just creates the opportunity for the buyer to get out of the closing for almost any reason up and to the day of closing. And that is not fair to the seller who packs up everything, moves all their stuff into storage or into a new home and then finds out that the new person is not moving in.
And so maybe we’re gonna have to change the closing experience where you close and then the seller has X number of days to get out of a house before the buyer moves in because the buyer has the right to keep pulling the plug. No seller in their right mind is going to buy another house. No seller is going to move into another house until they know that the buyer has, in fact, closed. And so maybe you close in escrow during that short period of time. And so I think the nature of our closings, the way we’ve positioned each party is going to have to be reassessed dynamically to assess how we can align people’s interests so that we can keep commerce going.
We got two or three minutes. If anyone has any other questions, I would love to entertain them. I know there’s some people on the phone that I usually like to have discussions with. I won’t single them out, but if they’re still there, I would certainly ask them to raise their hand. And if not, we can keep going and finish up. That was the last one? That’s good. Next Tuesday at high noon we will again have another “Zoom In” and this time we’re going to be talking about loss mitigation strategies and how to deal with the pandemic as it relates to whether or not you are a bank or whether you’re a homeowner or whether you’re a landlord and basically dive deeper into the different options that were used during the last economic crisis, you know, 12 years ago. I think there’s maybe one more question.
Jeff: Ken has a question. Do you wanna talk?
Roy: Yeah, sure. Got one more question. We’re gonna put him on live.
Jeff: Ken, are you there?
Roy? Ken?
Jeff: Morris?
Roy: Hang on. We’ve got a question from Ken Morris.
Ken: Hello.
Roy: Hey, Ken?
Ken: Hey.
Roy: Yeah, please speak louder, please.
Ken: Yeah, I just wanna know on the commercial side, [inaudible 00:56:15] them, what’s gonna happen on these big contracts that have specific due diligence timelines, how are we going to slow the curve down if everybody is forced to be in quarantine?
Roy: I think that’s a great question. So let me repeat the question. In commercial contracts that have specific due diligence timelines, how are we gonna slow that process down when certain people may be in quarantine or certain businesses may be offline? And the answer is that during that due diligence period, the contract is gonna have to be renegotiated and the timeline is going to have to change. If you’re outside the due diligence period, that’s where it gets really tricky because at that point the question is, is this a force majeure kind of situation? And to the extent that one party says it’s not, you’re gonna end up in a dispute, which will be in no one’s interest because litigating those disputes will be very difficult over the next year or two.
Now, people are gonna have to resolve their disputes either through mediation or negotiation because the courts are gonna be overwhelmed. The courts are gonna first deal with criminal folks, you know, deal with domestic abuse and domestic battery. They’re gonna deal with other kinds of true emergencies and these kinds of disputes will not be urgencies. And they will not be the types of matters that will be first on the docket for the court system. And so I think people are gonna have to, once again, figure out self-help. They’re gonna have to figure out mediation or arbitration. And I think what it’s gonna do, it’s gonna increase alternative dispute resolution systems because people cannot rely on the government this time, the judicial system, to resolve their issues. And they’re gonna have to figure out ways to utilize the services of folks that can help them navigate through those waters. That’s the best answer I got. It’s probably not what you wanna hear, but it’s the truth.
Jeff: Steven has a question.
Roy: Steven. Steven. Go ahead, Steven. Steven? You wanna write it, Steve? All righty. Well, that is going to be it for today. I wanna thank everyone. I know this presentation was a little rocky. We’re using some new technology, but as we get through it, we’ll figure out how to make it even better. But, you know, the first time out, I’m glad we got through it and I thank you all so much for participating. Again, the more participation from you all, the more interactive and the more engaging this will be not just for myself, but for all of you, and we will be able to provide the services that we did last time we were deeply in the trenches. And again, Roy Oppenheim from the trenches on behalf of Oppenheim Law and everyone here, I wanna thank you for your participation and look forward to seeing you next Tuesday at noon. All the best. Stay healthy.