August 26, 2020 2020 issue 14

With a Spoonful of Sugar - - Back to School, Back to Work…

There is no bigger test than the push to reopen schools. Afterall, schools are a key part of the engine driving the American economy. When schools are closed,
the economic engine is constrained and everybody suffers. How the reopening of schools plays out will help determine the pattern of recovery. New medical and
therapeutic discoveries will also play a critical role over the next several quarters in putting this historically difficult episode behind us. The economic backdrop
collapsed at an unmatched scale; the path of the virus, and responses to it, will drive the recovery path. This spring and summer witnessed the deepest
economic contraction in at least six decades and some bounce back from the efforts to reopen economies once again. Continuing outbreaks of the stubborn
coronavirus mean the path back to pre-pandemic levels of output is likely be fraught with detours and disruptions. The speed and shape of the recovery will
depend on how many jobs are truly lost and how many businesses are reduced or go bust as a consequence of dramatically weaker levels of consumer and
business activity. To the extent that we see another rise in infections, the recovery path will be contorted and uneven. According to BankruptcyData.com, from
the start of the year through mid-August, a total of 45 companies, each with assets over $1 billion, had filed for Chapter 11 bankruptcy. Compare this to the
previous high of 38 companies in 2009, and the 18 that had filed in 2019. The other support comes from policymakers. The good news is that more help is
likely. Central banks are in a position to provide further stimulus, with coordination across the globe at levels never seen… Stay tuned in….

Foxconn, other Asian firms consider

China, US to hold trade talks
Mexico factories as China risks grow
Taiwan-based electronics manufacturers Foxconn and Pegatron are
among companies eyeing new factories in Mexico, people with direct
knowledge of the matter said, as the U.S.-China trade war and
coronavirus pandemic prompt firms to reexamine global supply chains.

Next Big Test for the Economy: Getting America Back to School
Movers in N.Y.C. Are So Busy They’re Turning People Away Schools are an overlooked cog in the American job machine. But the
With so many people fleeing the city, moving companies can barely keep risks of this school year are many.
up with the demand.

Most U.S. Cities Expect Next Fiscal Year to Get Worse Number of US Hospitalizations is But The Debt Will Remain"
Declining By 1 Percent Per Day
Business Travel Transformed The economic backdrop has collapsed at an
Spain is facing another surge in coronavirus infections unmatched scale; the path of the virus, and
not even two months after beating back the first wave responses to it, will drive the recovery path
Eurozone industry fears rebound
from virus crash will be shortlived Italy Closes Nightclubs As COVID-19 Revival Rocks Europe
Economic uptick may not spell recovery in Brazil The other people facing housing woes amid pandemic: Mom and
The Central Bank cut its benchmark rate to a record low of pop landlords: Many landlords understand tenants’ needs during
2% as economic indicators show signs of bottoming out this time. But if they can’t meet their own financial obligations, it
could have “a cascading effect
US : A 1.99% rate for 30-year fixed mortgage !
Homebuilders Have Never, Ever Been More Confident
ABRAHAM GULKOWITZ Moderna said its experimental coronavirus vaccine induced
Florida Tourism Numbers Plummetted In Second Quarter immune responses in people aged 56 years and older that were
abe@gulkowitz.com comparable to those seen in younger adults in a small study.
917-402-9039
Storms a’Brewin… Hurricane Laura, which is strengthening to a Category 4 storm as it
approaches the Gulf coast, is doing some damage on the already-battered energy sector…
 August 26, 2020 The PunchLine...

In This Issue

• With a Spoonful of Sugar - - Back to School, • Collapse and … (pg 6)

Back to Work… • Recovery Directions… (pg 7)
There is no bigger test than the push to reopen schools. Afterall, schools are
a key part of the engine driving the American economy. When schools are • Virus Economics … (pg 8)
closed, the economic engine is constrained and everybody suffers. How the
reopening of schools plays out will help determine the pattern of recovery.
• Upheaval – Stress Dynamics (pg 9)
New medical and therapeutic discoveries will also play a critical role over the • Dislocation, Dislocation… (pg 10)
next several quarters in putting this historically difficult episode behind us. The
economic backdrop collapsed at an unmatched scale; the path of the virus, • Twists and Turns… (pg 11)
and responses to it, will drive the recovery path. This spring and summer • U.S. Households (pg 12)
witnessed the deepest economic contraction in at least six decades and some
bounce back from the efforts to reopen economies once again. Continuing • The Likelihood of Unlikely Events (pg 13)
outbreaks of the stubborn coronavirus mean the path back to pre-pandemic
levels of output is likely be fraught with detours and disruptions. The speed • The DNA of Business… (pg 14)
and shape of the recovery will depend on how many jobs are truly lost and • Real Estate and Construction… (pg 15)
how many businesses are reduced or go bust as a consequence of
dramatically weaker levels of consumer and business activity. To the extent • Will Life Ever be the Same? (pg 16)
that we see another rise in infections, the recovery path will be contorted and
uneven. According to BankruptcyData.com, from the start of the year through
mid-August, a total of 45 companies, each with assets over $1 billion, had
filed for Chapter 11 bankruptcy. Compare this to the previous high of 38
companies in 2009, and the 18 that had filed in 2019. The other support
comes from policymakers. The good news is that more help is likely. Central
banks are in a position to provide further stimulus, with coordination across
the globe at levels never seen… Stay tuned in…. (pg 1)
• In This Issue (pg 2)
• Crash and Rebound… (pg 3)
• You Can’t Handle the Truth ! (pg 4)
• Engines of Growth (pg 5)

Contact information:

Abraham Gulkowitz
phone: 917-402-9039 email: abe@gulkowitz.com

Headlines and data appearing in The Punch Line came from widely available publications including
national and international newspapers, trade journals, economic and industrial bulletins and news websites.

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August 26, 2020 The PunchLine...

Crash and Rebound?

OECD members experienced the deepest
contraction in at least six decades in the
spring, according to fresh data, while
continuing outbreaks of the novel
coronavirus mean their path back to pre-
pandemic levels of output is likely be fraught.
Alphabet Soup Of Economic
Recovery Scenarios
Market observers have long used letters of the
alphabet like V and U to describe economic
recoveries. But the coronavirus downturn is so
different from past recessions that economists
are coming up with new shapes to describe the
potential recovery

⁎ Hope for Re-Opened Economy Propels Stocks

⁎ As lockdowns lift, 'second wave' concerns
remain
⁎ Therapeutic solutions advance…

The economic backdrop has collapsed at an

unmatched scale; the path of the virus, and
responses to it, will drive the recovery path

During the recent Great Recession,

unemployment stayed elevated - between 8%
and 10% for more than three years, from
February 2009 through August 2012, with a
painfully slow recovery thereafter.

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August 26, 2020 The PunchLine...

You Can’t Handle the Truth…

Let's Take the “Con” out of Economics
Global coronavirus cases still roaming… with
800,000 deaths
Europe’s economic recovery slowed in August while Japan
saw another drop in activity, an indication that the return to
pre-pandemic levels of global output is likely to be slow and
uneven. Switzerland to have Covid quarantine re-imposed…
Czech Republic, Jamaica and Iceland enter danger zone

"Second Wave" Spreads In Europe

"Overall Mortgage Delinquency

Rates Beginning to Climb"

Selloff in Emerging-Market Currencies

Shows No Sign of Respite
Currencies in Brazil, South Africa and Turkey have lost
much of their value, and may not recover so soon…

Big Ten cancels fall football

season in first major college hit
The NFIB Small Business Optimism Index in the United States fell to 98.8
in July of 2020 from 100.6 in the previous month, as coronavirus cases
US Homebuilder Sentiment continue to rise across the country. The outlook for general business
Highest in Over 21 Years conditions over the next six months deteriorated 14 points to 25, and the
percentage of owners thinking it's a good time to expand dropped 8 points to
5 percent.
Small businesses continue to indicate they have access to credit with only 2%
noting that credit was harder to get, down from 3% in June. The NFIB noted
"overall, access to capital is not a serious problem, likely due to the
popularity of the Paycheck Protection Program that most small employers
have accessed."

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August 26, 2020 The PunchLine...

Engines of Growth…
Recovery uneven as COVID-19
shifts spending; disrupts sectors
The S&P 500 is in record territory… That doesn’t
seem so momentous — until you consider what
happened in between: The blue-chip index shed a
third of its value in the early stages of the pandemic
and then roared back, soaring more than 50 percent
from its low in late March.

The shipping giant A.P. Moller-Maersk raised profit

expectations. The world’s biggest container company not
only reinstated full-year financial guidance, but pegged it
above pre-pandemic levels, a sign that international trade
may not be as bad as feared (provided there isn’t a
second wave of the virus, the company noted).

Surveys of purchasing managers at businesses in Europe and Japan suggest that the
rebound may be smaller than hoped for, with disrupted international trade flows and
weak demand for services that require close physical proximity holding back the
recovery.
Data firm IHS Markit said
its eurozone composite
purchasing managers
index—a measure of
manufacturing and service-
sector activity—fell to 51.6
from 54.9 in July,
indicating that activity
increased at a slower pace
than in the previous month.
A level below 50.0 points
to a decline in activity
from the previous month,
while a reading above that
Rising Coronavirus Infections Trigger threshold points to an
Renewed Travel Restrictions Across Europe increase.

UK Economy Suffers Record Collapse As GDP

Plummets To 2003 Levels

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August 26, 2020 The PunchLine...

Collapse and then ??

Latest: 121

STIMULUS AND THEN….

U.S. Deficit Totaled $2.8 Trillion From
October Through July, Treasury Says
Budget gap more than tripled in first 10
months of fiscal year as government
spending to combat the coronavirus
outpaced federal tax collection

RETAIL SALES: Americans increased their retail purchases by 1.2%

in July, with solid gains in appliances and clothing helping restore sales
to their level before the viral pandemic erupted in March. Sales at
retail stores and restaurants have now risen for three straight months,
after plunges in March and April, when the pandemic shuttered
businesses and paralyzed the economy. Still, much of the spending
was fueled by government aid that had put more money in people’s
pockets but has since expired. With Americans’ income now likely
shrinking, economists expect a drop in spending and a potential
weakening of growth.

The WEI is a composite of 10 weekly economic indicators: Redbook same-

store sales, Rasmussen Consumer Index, new claims for unemployment
insurance, continued claims for unemployment insurance, adjusted
income/employment tax withholdings (from Booth Financial Consulting),
railroad traffic originated (from the Association of American Railroads), the
2020-08-22: -5.71 American Staffing Association Staffing Index, steel production, wholesale
2020-08-15: -5.17 sales of gasoline, diesel, and jet fuel, and weekly average US electricity load
2020-08-08: -6.07 (with remaining data supplied by Haver Analytics). All series are
2020-08-01: -6.76 represented as year-over-year percentage changes. These series are
2020-07-25: -7.20 combined into a single index of weekly economic activity…

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August 26, 2020 The PunchLine...

Recovery Directions

Grocery & beverage store sales improved

0.2% (11.1% y/y) following a 1.5% June
decline. In another nondiscretionary
category, health & personal care products
sales strengthened 3.6% in July (3.2% y/y)
after two months of strong increase. And
eating out remained in vogue as restaurant
and drinking establishment sales rose 5.0%
last month (18.9% y/y) after strengthening
in each of the two prior months.

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August 26, 2020
Virus Economics…
The Consumer Price Index for All Urban Consumers (CPI-
U) increased 0.6 percent in July on a seasonally adjusted
basis, the same increase as in June, the U.S. Bureau of Labor
Statistics reported. Over the last 12 months, the all items
index increased 1.0 percent… The gasoline index continued
to rise in July after increasing sharply in June and accounted
for about one quarter of the monthly increase in the
seasonally adjusted all items index. ... The index for all
items less food and energy rose 0.6 percent in July, its
largest increase since January 1991
US Industrial Production
Increased 3.0 Percent in July; Still 8.4% Below Pre-Crisis Level
Another strong gain in auto output to nearly pre-Covid levels
Total US industrial production rose 3.0 percent in July after increasing
5.7 percent in June; even so, the index in July was 8.4 percent below
its pre-pandemic February level. Manufacturing output continued to
improve in July, rising 3.4 percent. Most major industries posted
increases, though they were much smaller in magnitude than the
advances recorded in June. The largest gain in July - 28.3 percent -
was registered by motor vehicles and parts; factory production
elsewhere advanced 1.6 percent.
China’s rail shipments to Europe set records as
demand surges for Chinese goods amid coronavirus
The volume of China’s belt and road railway cargo to
Europe has set records for five consecutive months as
Covid-19 has limited transport by air and sea while causing
an increase in the demand for Chinese-made medical
supplies abroad, according to the China State Railway
Group. The latest figures from the state-owned railway
builder, also known as China Railway, showed that a total of
1,232 trains were arranged from different Chinese cities to
European destinations in July.
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The PunchLine...
Italy cases on the rise
Coronavirus cases are on the rise in Italy. Officials say there
were more than 900 new daily cases reported for the first time
since May. Nine deaths were reported. The health ministry says
most of the new infections are among Italians returning from
summertime travel and because there is also increased testing.
Stay at home in Madrid
In Spain, Madrid has recommended people in the most affected
areas of the city to stay at home. Thousands of new cases have
been reported in the past few days. People are being urged to
avoid unnecessary trips and meetings, and those in the worst-
hit areas are being told to stay at home. Spain eased its
lockdown at the end of June
Australian Dollar Rebounds on Iron Ore and Gold Rush
The Australian dollar is the strongest it has been since early
2019, as rallies in iron ore and gold help to offset economic
shocks caused by the coronavirus pandemic.
European Central Bank officials signaled that they could roll out new
monetary stimulus in the fall to shore up economic growth, as the
region wrestles with rising unemployment and a possible wave of
corporate bankruptcies. While ECB officials signaled relief that the
19-nation currency union had avoided an even deeper downturn, they
warned of possible turbulence ahead as governments start to wind
down policies aimed at supporting businesses and workers through
the coronavirus pandemic, according to the minutes, published
Thursday. Infections are surging again across much of Europe, and
governments are racing to prevent a full-fledged second wave of the
pandemic.
German Zombie Firms
Concern is growing in Germany that a rule introduced as a
part of the country’s emergency response to coronavirus is
fuelling the creation of thousands of so-called zombie firms
that could end up sapping the economy for years to come.
Under a government waiver introduced in March, German
companies adversely affected by the pandemic do not have to
file for insolvency. The rule was supposed to be phased out at
the end of September, but justice minister Christine
Lambrecht wants to extend it until next March. The idea has
proven controversial, however, with many saying it would be
better to let weak companies go to the wall than keep them on
artificial life-support.
August 26, 2020 The PunchLine...

Upheaval - - Stress Dynamics

Capacity constraints have driven up rates for international
shipments this year whether by sea, air or land, further
complicating matters for supply-chain managers dealing with the
effects of Covid-19 on their businesses. The cost of moving goods
by ship has climbed 12% in 2020 to the highest since February
2015, according to the Drewry World Container Index. Ocean-
liner rates have benefited from the industry being more
disciplined with idle capacity, coupled with support from general
rate increases and peak-season

World trade volume increased

7.6% month-on-month (growth
was -1.1% in May, unchanged
from initial estimate) and
growth was -12.5% in 2020Q2
(-2.7% in 2020Q1).

To measure policy-related economic uncertainty, they construct an index

from three types of underlying components.
► News Coverage about Policy-related Economic Uncertainty
► Tax Code Expiration Data
The second component of our index draws on reports by the Congressional Budget Office
(CBO) that compile lists of temporary federal tax code provisions. Temporary tax measures
are a source of uncertainty for businesses and households because Congress often extends
them at the last minute, undermining stability in and certainty about the tax code.

► Economic Forecaster Disagreement

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 August 26, 2020 The PunchLine...

Dislocation, Dislocation, Dislocation…

Companies Rethink the Office, Betting
Work Will Be Partly Remote Longer-Term

A warning issued by credit rating agency Moody's on Global dividends suffered the sharpest quarterly fall
Friday warned of significant risk to some Germany in a decade, with more than $100bn wiped off their
banks as a result of their role as financiers of value in the three months to June, as companies
commercial real estate. Moody's estimates the total
ditched payouts in response to the coronavirus
volume of commercial real estate lending at about
€1.6trillion. pandemic.
Of the figure, 27 percent - €432billion - comes from German
investors. Moody's highlights banks such as PBB and Aareal
Bank as being vulnerable. Speaking today, Moody's analyst
Christina Holthaus warned falling prices for commercial
properties such as hotels, offices or shopping centres as footfall
dwindles in the midst of the pandemic are likely to take their
toll. She said: "A drop in commercial property prices in the
most vulnerable sub-sectors will affect collateral and loan-to-
value ratios in the banks' portfolios. "Depending on the length
of the crisis, we expect payment deferrals, defaults and declining
collateral values to result in deteriorating asset quality,
increasing non-performing loans and provisioning needs, as well
as reduced earnings."

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August 26, 2020 The PunchLine...

Twists and Turns

In spite of certain key markets increasing or remaining
stable, Swiss watch exports overall continued to fall
significantly in July. However, the downturn was only
half of that seen in June. Swiss watch exports over the
month amounted to 1.6 billion francs, a fall of 17.0%
compared with July 2019.

Existing home sales rose last month to

highest level since December 2006.
The National Association of Realtors
(NAR) reported that sales of existing homes
jumped 24.7% (8.7% y/y) during July to
5.860 million units (AR) after rising 20.2%
to 4.700 million in June, revised from 4.720
million. It was the highest level of sales
since December 2006. Existing home sales
data are compiled when sales close. The
total includes single-family houses plus
condos and co-ops. Sales of existing
single-family homes jumped 23.9% (9.8%
y/y) to 5.280 million units following a
19.3% June gain. Sales of condos and co-
ops strengthened 31.8% (0.0% y/y) to
580,000 units, rebounding 70.6% during the
last two months to the highest level since
February.

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August 26, 2020 The PunchLine...

U.S. Households – Brave New World

New single-family home sales increased
13.9% m/m in July, up 58% from their
April low and well above expectations.
US New Homes Sales
U.S. Housing Starts Surge Unexpectedly Highest since 2006
in July; Building Permits Strengthen

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August 26, 2020
Brace for Glitches
The Likelihood of Unlikely Events
Preparing for a form of recovery
Pick your scenarios
Govt agencies, business firms and multilateral
institutions are increasingly planning for ranges of
scenarios rather than specific growth forecasts
Pandemic is causing the biggest disruption
in decades to economies across the world
The World Health Organization warned that, despite strong
hopes for a vaccine, there might never be a "silver bullet" for
COVID-19, and the road to normality would be long.
Raging wildfires across California
There May Not be Any Winners in the US-China "Tech War"
The alleged rise of China to impending global tech
dominance is greatly overstated. Yet US efforts to combat
China may put US companies on the from lines..
Uncertainty is weighing on the U.S. economic outlook,
Richmond Federal Reserve Bank President Thomas Barkin
warned, keeping households from spending, businesses from
investing and even banks from extending credit.
China Rare Earths Firm Shenghe Hit
By 'Once-in-a-Century' Flooding
The Biden economic plan is best understood as
Obamanomics pulled left by Bernie Sanders. He’d raise
taxes by $3 trillion by his count—about $4 trillion by
independent calculations. His spending plans run to at
least $7.4 trillion, conservatively estimated. His labor
proposals are the most pro-union since the 1935 Wagner
Act. Regulations on health care, energy, transportation,
technology and finance will multiply, often with a priority
of reducing racial inequities rather than increasing
opportunity.
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The PunchLine...
COVID-19 cases in U.S. nursing homes jumped nearly 80%
earlier this summer, driven by rampant spread across the
South and much of the West, according to an industry
report
US Labor market indicators suggest that the early
temporary job losses of the pandemic are increasingly
becoming permanent, putting the long-term health of the
economy in further doubt.
Germany Reports Biggest COVID-19 Tally In 3
Months As Outbreak Spreads "All Over The Country"
Thousands flood Belarus capital as election protests grow
Crisis is fraught with a geopolitical risk significantly bigger than
the attention the crisis is currently getting in European capitals
and inside the Beltway. Reminiscent of the violent protests in
2014 in Kiev, it is a moment when a relatively localized moment
of dissent could plunge Europe into crisis.
Turkey Outlook Revised to Negative at Fitch Turkish Gross FX Reserves
as Reserves Drop
The ratings company affirmed Turkey’s Hit New 14-1/2-Year Low
credit score at BB-, three levels below
investment grade. That’s on par with
Brazil, Jordan and Armenia.
The European Union has been dragged into the dispute
between Greece and Turkey over Ankara's decision to send
military vessels to the disputed east Mediterranean region to
accompany the research vessels Oruc Reis, where it will
undertake the surveys close to Megisti. And now the bloc has
sent a warning to Turkey after it warned its Yavuz energy
drill ship would extend operations in disputed Mediterranean
waters off Cyprus until mid-September.
August 26, 2020 The PunchLine...

The DNA of Business

Reconfiguring Industries to Define Growth
Pandemic Speeds E-Commerce Shift
Apparel companies, from elite fashion houses to mass-
market chains, are saddled with an inventory glut
following months long closures during the pandemic. Now,
they are trying to get rid of the excess without angering
waste-conscious consumers—or harming their brands.
Justice Department’s Antitrust Chief Plans Shake Up
The Justice Department’s top antitrust official is shaking up internal
operations, aiming to better coordinate enforcement in the financial
sector and ensure that companies stick to commitments they make in
legal settlements designed to protect competition.
American Airlines is dropping service to
15 cities. This is likely only the beginning
American Airlines to cut 19,000 jobs…
Carrier says furloughs will begin on October 1 unless
Congress extends industry bailout

Milwaukee, Charlotte Businesses

Discount retailer Stein Mart has filed for bankruptcy
and plans to close most of its nearly 300 stores.
Sur La Table sells for nearly $90M in bankruptcy
Marquee Brands and CSC Generation will assume control of the kitchenware
retailer and preserve a large chunk of its stores
Can Neiman Marcus finally leave its
baggage behind after bankruptcy?
Neiman Marcus to close in Fort Lauderdale and
Palm Beach
Amazon to turn former Lord & Taylor flagship
into Manhattan tech hub
The deal is part of an initiative that includes investing more
than $1.4 billion on its new offices and adding 3,500 jobs.
Lament Loss of Conventions
Owners of restaurants, bars, hotels and events companies in
Charlotte, N.C., and Milwaukee are lamenting the loss of business
that would have come with the political conventions.
'A scary number' of retail companies are facing
bankruptcy amid the coronavirus pandemic
CBL plans to file for bankruptcy by October after deal with lender
The mall REIT came to an agreement with bondholders that would cut some
$900 million in debt as it looks to restructure in the COVID-19 era.
Modell's brand sold to owner of Dressbarn, Pier 1 IP
The sporting goods retailer's trademarks and other assets sold for $3.6
million after it filed for bankruptcy and moved to liquidate its stores.

The price of a college California infernos consume

Companies across America are awarding top executives
multimillion-dollar “retention” bonuses shortly before
declaring bankruptcy, angering creditors who claim the
payments are rewards for failure. The practice has become
commonplace among distressed companies pushed over the
edge by the coronavirus pandemic.
Lockdown home improvement
boom boosts US DIY chains
Lumber prices soar to all-time
high on renovation demand
US commercial insurance rates continue
acceleration with 10.8% Q2 increase
Covid-19 was among the factors continuing to
stress the US commercial insurance market in Q2
2020, as the average premium price increase for all-
sized accounts entered double-digits territory and
all lines of business – even workers compensation
– saw rises, according to the Council of Insurance
Agents & Brokers.
degree could crash
Copper Trades Around
25-Month High
Copper traded above $2.9 per
pound, remaining close to its
highest level since June 2018, as
supply concerns mounted.
Corn Climbs to 6-Week
High on US-China Talks
Corn prices rose further to pass
$4 a bushel in August, its
highest since July 10th, on
expectations of increased
Chinese purchases of
agricultural products after the
US and China reaffirmed their
trade comittments…
more than 1m acres
Russia produced more crude oil than Saudi Arabia in June,
beating it to the second place of the largest oil producers in
the world, behind the number-one producer, the United
States, data from the Joint Organisations Data Initiative
(JODI) showed. In June, Russia’s crude oil production was
8.788 million bpd, according to the data released by the JODI
database, which collects self-reported figures from 114
countries. To compare, production in Saudi Arabia in the same
month was just below 7.5 million bpd. June was the month in which
Saudi Arabia voluntarily slashed its oil production by an additional
1 million bpd for just one month, on top of the 2.5 million bpd it
was supposed to cut as per the OPEC+ deal in force since May.
► While Russia and Saudi Arabia are cutting production as
part of the OPEC+ agreement, the United States
remained the top crude oil producer in the world in
June, despite the slump in crude oil production since May
in response to the low oil prices. The JODI database
showed that U.S. crude oil production averaged 10.879
million bpd in June, up from 10 million bpd in May,
which saw the lowest U.S. monthly production since late
2017.

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 August 26, 2020 The PunchLine...

Real Estate and Construction Outlook

Covid-19 Pounds NYC Real Estate
The number of those moving outside of New
York City is up 50 percent — including a nearly
Worse Than 9/11, Financial Crash
232 percent increase to Dutchess County and 116
percent increase to Ulster County in the Hudson Bankruptcies, abatements cost mall landlords
Valley. hundreds of millions of dollars in Q2
A quarter defined by temporary store closures
took its toll on REITs as major tenants filed for
bankruptcy or sought breaks on rent.
Loan Trouble Ahead
Storefronts and hotels shut by stay-at-home
orders are a nightmare for workers, business
Retail suppliers are still under strain — and it could hurt everyone
Stores are open, but vendors face longer payment terms and financial
owners and their landlords. But so far, it’s only a
uncertainty, which could hit retail shelves just as the holidays ramp up.
very bad dream for bankers. Commercial real-
estate loans that fund malls, warehouses, offices
and other business properties are a significant
piece of banks’ portfolios Real estate investors are taking owners to court.
Mezzanine lenders like hedge funds and private equity
firms are suing commercial property landlords and
Uptick In Stressed Loans
developers to foreclose on assets and recoup losses on
Commercial Properties’ Ability to Repay
Mortgages Was Overstated, Study Finds
delinquent debts.
Many borrowers are struggling because of
the coronavirus. The study showed that even Virus Shutdown Stings New Jersey Mall’s Bondholders
during normal economic times, mortgaged
properties’ net income often falls short of the
amount underwritten by lenders. In July, there were a record 13,117 vacant apartments across Manhattan,
Thousands of commercial-mortgage borrowers
have been struggling to meet payments on their according to a report by Douglas Elliman and Miller Samuel Real Estate
loans in the midst of the coronavirus pandemic. Appraisers & Consultants. A year ago, that number was a 5,912. Also,
But there might be another reason so many are
falling behind: aggressive lending practices that new lease signings fell by about 23%, resulting in a drop in rental prices
overstated borrowers’ ability to repay. A study of
$650 billion of commercial mortgages originated Lodging Sector Comeback
from 2013 to 2019 found that even during normal
economic times, the mortgaged properties’ net
income often falls short of the amount
underwritten by lenders. The underwritten amount
should be a conservative estimate of how much a
property earns. Instead, the actual net income
trails underwritten net income by 5% or more in
28% of the loans, according to the study of nearly
40,000 loans by two finance academics at the
University of Texas at Austin.

Retail landlords are now writing the pandemic

into new leases, Esther Fung reports. EastBanc, a
Washington, D.C., landlord, will cut rent by 50% if
the government orders shops to close to
customers again, while a Detroit developer is
already offering to waive base rents in return for
7% of a tenant’s gross sales. “This is an effect of
the pandemic that is going to last,” said Steve
Plenge, managing principal of Pacific Retail.

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August 26, 2020 The PunchLine...

Will Life Ever Be the Same?

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