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Sunday Digest
Edition IV

My morning coffee is working as planned…stimulating my thought process as I review the past week and collect my thoughts to share with you.  The looming question remains: Do we open our economy to stem the economic disaster and risk further spread of illness, or do we remain in lockdown to limit the transmission of disease? While more data is needed, the likely answer is: BOTH. This week saw divisiveness and dysfunction continue, but there is far more cooperation and collaboration at all levels of government, business, health care, social services, and people-helping-people than meets the eye. The media makes you dig a bit, but as you parse through the headlines, you discover so much that is being done to overcome the challenges we face. I am optimistic and enthusiastic about our future as the United States government and so many of our fellow Americans are proving to be tremendously resilient. I hope you are seeing the same things.

We could be running out of paper, but not toilet paper!

  1. In my opinion, trickle-down economics as espoused by certain economists is not the answer. Stimulating large corporations and wealthy business owners by providing them with lower taxes, de-regulation, and incentives (such as the trillions of dollars of new stimulus) based upon the theory that the benefits from greater profits will work their way down to the middle and lower classes is great in theory, but in practice is very difficult to realize.
  2. There is nothing wrong with lower taxes and government stimulus. After all, America was founded on the basis of “no taxes without representation.” Today, we have great representation by our public servants, and tax revenues are generally used for the right purposes, such as protection of our security, our health, and building and maintaining our infrastructure. Taxes provide the revenue to enable our great social democratic society to function, prosper, and grow.  
  3. Surely the tax systems currently in place at state, local, and federal levels need adjustments from time to time to meet the needs and challenges that constantly arise. The most effective adjustment is real estate tax stimulus which has a proven history of creating job growth and revenue. We’re getting back to what has always worked with the recent $170 Billion real estate tax incentives included in the stimulus bill. More will be needed, and I expect will come. I could be wrong though.
  4. The bottom line here is: tax revenue in America is failing to cover the costs of keeping the machines of our government running. No business, family, or individual could survive very long by spending more than they earn.
  5. Ok, enough about taxes. How does our country manage to survive continued shortfalls in revenue? Simple. We print money…lots of it. So much in fact that the risk of running out of paper to print money is greater than the risk of running out of toilet paper. And because of the confidence that our citizens and all countries of the world have in our durable, capable, resilient, and democratic freedoms, our money is considered and respected worldwide as being “good as gold.”
  6. Last week, our congress and the President signed into law another $480 billion dollars to be distributed to those in need during these most critical times. There are some details that need to be examined closely in this latest combined effort to move us forward through recovery and beyond. Perhaps there are more real estate tax incentives buried in this latest stimulus package. More on this later.

  7. The good news? Interest rates at nearly zero mean the government won’t have to pay much to buyers of all that new money. So, while the net deficit is growing by leaps and bounds, it will not be further burdened by huge interest costs. The Fed is doing a great job and we applaud Mr. Powell for his prowess.
  8. The shaming of certain large beneficiaries of the last batch of printed money by the mid-sized and small businesses, who are struggling to maintain their existence, is a great example of how divisiveness and dysfunction are being overcome by the sheer will of the American people to ensure that all share equally in the journey to recovery. Bravo to Shake Shack, Sweetgreen, and the others who are doing the right thing. Ultimately, their customers will remember, and their firms will thrive again.
  9. As for real estate, it has been challenging. While tenants are protected and actually encouraged by government leaders to neglect their responsibility to pay rent, there’s still no mortgage relief for landlords.  This dynamic will ultimately lead to an even greater need for government assistance and bailouts of banks, insurance companies, pension funds, and other providers of capital to property owners. If no relief is forthcoming soon, the great failure of the Savings and Loan Industry, which gave rise to the Resolution Trust Company and the 1991-1995 recession, will be a blip compared to the coming disaster. April was horrible, May could be the first nail in the coffin. I am not being an alarmist here. This is reality.
  10. On the other hand, there’s definitely more nose twitching. Real estate lenders are in disarray as they scramble to determine the extent of their exposure. This scramble is due in large part to the challenge that lenders face when attempting to discern the value of their real estate collateral. Valuation is not science, it is art. At any point in time, a snapshot of a property may show 100% occupancy and sufficient revenue to pay expenses and debt, and perhaps a snapshot taken a few months later will show a vacant property with no revenue. Does this mean that the value of the property diminished in just a few months? Of course not. 100% vacancy by tenants that were paying far less than market rate rents may actually increase the value of a property. Real estate lenders who are unable to discern value create the opportunities for smart sponsors and their investors to purchase their loans at a discount to actual value, or to purchase the properties they take back from borrowers at below market pricing. For us, there’s nothing better except gifts from Old Saint Nick.

What is most uplifting for me and our team here at Christina is the fact that there are many sincere and honest individuals and businesses who have continued to pay rent to the extent reasonably possible. For those who demonstrate the need for assistance, we are responsive and supportive. For those who are simply taking advantage of the situation (courts are closed, and evictions are not possible or popular), they will pay a price as the tide rises. Just as those who didn’t need to avail themselves of the last batch of printed money were shamed into returning it, tenants who can pay but haven’t (or won’t) will feel the heat. 

Survive, thrive, stay healthy and let us embrace change and prepare for what the future will bring.  

Warmest regards,

LT Signature

Lawrence N. Taylor


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