JackChat | March 2021

From the Desk of Jack Cohen

My last blog was just before the Presidential Election (I urged folks to vote.) It has been a CRAZY five months! Recently, I hosted my third roundtable of 2021; its where my really smart industry colleagues get me thinking.

With that said, this is what is on my mind:

  • As vaccine distribution gains critical mass, maybe we indeed are coming out of the Pandemic and its effect on our industry, economy, and way of life. There still is time to reflect and consider a reset button individually, professionally, familially and societally. I confess, with a little guilt, I have truly enjoyed 2020. I got a lot of time with adult children and their significant others who were working from MY home. (But I didn’t do as well as I would have liked keeping up with old friends!)

So, what other things did I notice:

  • The Covid mask – I posit that Covid created a convenient excuse for broken deals and businesses that otherwise would have faced unfortunate demises.
  • Urban, suburban, rural – Folks are talking about NYC, Chicago, San Francisco, etc. ‘vacancy’ downtown while wondering if this might be good for suburban real estate. Interesting to wonder but missing the bigger move. OUT MIGRATION from Illinois, California, New York! Poor infrastructure, higher taxes, the benefit of Technology – does this now cause our best years to be behind us for these cities? Their loss is Texas and Florida’s gain.
  • Is work from home a real thing? I know I had more work life balance and most of my colleagues claim they have been more productive; however, I posit that for the young professional with less than 10-12 years’ experience WFH has created lost years. They don’t know what they don’t know and what they can’t possibly know is the extemporaneous meeting, call, visit that didn’t happen because of lack of physical proximity.
  • I get that the cheapest perk an employer can offer these days is the option to work remotely. And, that competing for real talent is a real thing.

Speaking of competition:

  • There is way too much capital chasing too few investable opportunities.
  • Rates have been low most of the last fiscal year, (treasuries rising 50 bp since Feb 1) But, so too have spreads. And, they seem to continue to compress.
  • Discipline versus a race to the bottom is a thing.
  • A disconnect seems to exist between basic fundamentals and pricing inherent and relative risk. And, investors in illiquid positions seem to identify, assess, mitigate, and price risk differently (disconnectedly?) from how liquid investors seemingly are currently.
  • Debt seems to be a better relative value than equity for investors today. But then again both types of capital providers have way too much capital to deploy today.

And, what about Technology:

  • Where would WFH be without technology? Or, did the Pandemic kick start technology?
  • Does technology kill office leasing demand?
  • Will AI and tech finally be able to use large amounts of seemingly fragmented data?
  • Will tech finally be clear about the problem it is solving for?
  • Will professionals finally let go of their comfort and ease with Excel? Folks hate change and love Excel and its complete customization. Will these professionals finally feel empowered by tech to better do their jobs?

My hope is that we all will start:

  • Letting the market come to them rather than chasing a falling knife while trying to meet the market where it’s at.
  • Using bridge loans for something more than prepayment optionality and ‘extra innings’.
  • Seeing actual assets sell so we can see what the Pandemic did to valuations (due to flat or dropping rental income; combined with, increased real estate taxes, insurance costs, security and cleaning costs, creating NOI erosion).
  • Moving from being net modifiers to liquidators of loans forced to be codified for losses by regulators.
  • Redefining the at-work experience to optimize where professionals collaborate and communicate with team members.
  • Seeing office tenants make leasing decisions.

My hope is that we all will stop:

  • Being consistently inconsistent!
  • Mispricing risk.
  • Pricing equity risk to perfection.
  • Underwriting predictively and betting on a prospective future.
  • This interest rate environment that is so punitive for Life Insurance Companies.
  • Taking binary risk.
  • Seeing values and the financing markets skewed by the enormous wall of capital available.
  • The hyper polarization in our country.

My hope is that we all will continue:

  • To remember 2020!
  • To have sponsor resilience, economic resilience, where sponsors support their deals.
  • To consider adaptive reuse and ask the ‘highest and best use’ question about assets.
  • To avoid increased regulation.
  • To see delinquencies drop.
  • To see greater emphasis on affordable housing.
  • To see Life Insurance companies see themselves as asset managers rather than product sellers.
  • Seeing the creation of new businesses (2020 saw the most ever new businesses started ever).

Ours is a fantastic industry; I hope everyone is vaccinated soon (I just got my first shot) and, in the meantime, stays safe and virus free.