2020, 2.0 : The Year Of Adjustment

I’m all for turning the page on the year 2020. I am hoping that it was not merely a symbolic shift at midnight December 31 into 2021.

The demons unleashed in 2020 do not seem to be going away quietly, however, and as I write this in mid-January, I am concerned about the “2.0” version in the months ahead. The combination of the political turmoil and the pandemic has accelerated certain trends, compressing Change that might have taken years to unfold into a 12-month timeframe.

Some of the consequences and implications, some of the reactions and adjustments, may be temporary reflex motions. But I suspect that what we are now calling the New Normal may be the way forward. And it wasn’t like there was this one Event, this one thing like an earthquake or hurricane and we are now in recovery: no, the forces are still raging at us with political unrest at an all-time high after the assault on the Capitol building Jan. 6 coinciding with 3,000 Americans dying of the COVID-19 virus every day.

The economy and our society are under tremendous pressure. Both of these have been geared towards people in close proximity, and obviously any business model that requires dense numbers has suffered. Capacity restrictions pose enormous financial difficulty for airplanes, restaurants and bars, theaters, resorts and hotels, fitness centers, churches and schools, and most retail stores.

One of the critical objectives in sustaining a business is generating gross revenue. A healthy top line (gross sales receipts) assures that all the costs required to bring the product to the consumer get paid. This creates the multiplier effect: the staff salaries, the raw material suppliers, the lease payments to landlords, property and sales taxes, buying new equipment, all of these are paid out of gross revenue and then the cost components also spend those dollars thus generating the economic ripple of prosperity.

Like all Natural Laws however, this works in reverse too: when businesses shutter because they aren’t able to meet their costs, the economy shrinks. But people are resilient and the basic human needs of shelter, food, and yes even entertainment, are being delivered in new ways. For example: grocery store sales are up 12% as these chains add more ready-to-eat and ready-to heat items. Delivery companies like Door Dash and Grub Hub are thriving. Movies are coming straight from Hollywood to streaming services, Netflix and HBO are killing it. Office meetings are now virtual: one share of Zoom stock is $357 this morning! Restaurants are utilizing “ghost kitchens” which are industrial locations that are designed for delivery-only, that offer flexibility and savings — the customer still gets to eat the branded entrée but without leaving home. The trip to the fitness center has been replaced with a Peloton bike (backorders take ten weeks to fill ) or the Lululemon Mirror. Outdoor pursuits like golf and camping are booming.

Some industries can adapt quicker than others. Anything in tech for instance can change overnight, whereas a movie theater is purposely built to do only one thing. (By the way, Charles Darwin never claimed it was survival of the fittest: he said it was those life forms that were the most adaptable that would survive and thrive).

In this Year Of Adjustment, people still need shelter. How they go about securing it is rapidly changing. Up until the virus hit, the large urban areas had everything going for them, from the momentum of high-paying jobs to the animated energy of city life in high density neighborhoods. Some of the most sought-after development opportunities were apartment projects next to a mass transit station, where the packed commuters would go to ultra-large office campuses with open office layouts.

Back then (in the “old days” of 2019), social distancing was something only the Unabomber did. Now those same people are trying to get out of the dense metro areas, relocating to the mountains of North Idaho. It is incredibly easy for these out of state buyers to search online for their target properties. Most buyers are well-informed about the local market having done their homework long before arriving here to tour the possibilities. In fact, they don’t even have to get here to make a successful acquisition: I sold properties this past year without the buyer setting foot in Idaho. I used great (but accurate!) interior photos, a matterport walk-through tour, FaceTiming from my phone, and drone aerial photography of the location and the neighborhood. These buyers have since come to see what they bought and I am pleased to report 100% satisfaction. If they had waited to schedule the rubber-tire tour in person, those properties would have been sold long before they arrived here.

All the purchase documents, the closing papers, even the notary, can be done digitally: literally, my phone to their phone. The residential markets are on a tear, driven by ultra-low interest rates and the sociological effects of the pandemic. Underlying these two powerful forces is the fact that the US has simply not built enough homes to keep up with population growth since the housing market bust of 2008.

Meanwhile, the commercial markets are struggling, either trying to “pretend & extend” which is a hopeful strategy to simply wait out the current conditions, or embarking on re-purposing projects that no longer work. Many shopping centers will be razed to make way for housing. This trend began several years ago as online buying began to take hold, but pandemic online purchases have surged, really demonstrating there are too many irrelevant retail stores. The dinosaurs weren’t “re-purposed”—they went extinct: a lot of properties just won’t make it. An underperforming hotel, or an office building can be more easily converted into apartments than say, a bowling alley.

Across the country, rents from office buildings and shopping centers, and other commercial properties are down by almost 20% resulting in a massive devaluation for landlords and their investors. A significant proportion of each state’s budget is dependent upon sales and property taxes, assessments that pay for many of the services in each of the States.

We are not through any of this yet. Maybe we always were in a state of change and it took the huge shocks to the system for us to wake up and see it clearly. There is a lot of pain and hardship and worry right now, but there is optimism too. Let’s avoid the thinking that is “2.0” of this past year, and bring our best selves to developing solutions. This is my prayer for 2021.

Raphael Barta is an associate broker with an active practice in residential, vacant land, and commercial/investment properties. raphaelb@sandpoint.com