“The most reliable way to forecast the future is to try to understand the present.” – John Naisbitt


Investment Real Estate Outlook for the Rest of 2020 and Beyond 

On Sunday, I briefly answered a question sent in by P.J., who asked: “What do you think about real estate, given what seems like an inevitable recession and possibly worse?”

I explained that I am concerned – very concerned – for two reasons:


  1. The economy – the real economy, not Wall Street – is in serious trouble. We have huge unemployment and record levels of small businesses shutting down for good. That’s bad for a good swath of real estate: all the buildings that cater to smaller businesses.


  1. The extended shutdown has given tens of millions of American workers and thousands of companies the opportunity to experience business with an office-less office. We’ve learned that so much of what was being done in the office can be done just as well remotely. We’ve also learned how convenient it is to have everything we consume – food, clothing, toys, entertainment, etc. – delivered to our homes. This has already had a huge impact on the way we work and live. I’m expecting to see more employees working from home and less office space leased per dollar earned.


These two realities are definitely going to affect the real estate market. So today, I’m going to give you my off-the-cuff thoughts on what those effects will be.


The Real Estate I’m Worried About 

 High-End Shopping Centers 

Three of my book club friends have made their fortunes developing large-scale, luxury shopping centers and strip malls. They are partly retired now, so I suspect their current positions in these properties are limited. But I’m going to ask for their thoughts at our next meeting. If I owned a lot of that kind of real estate now, I’d be worried.


Class-A Office Buildings 

 During an extended recession, many businesses are forced to cut down on all non-vital expenses. Given this, and considering what I said about so many people working remotely, I would not like to own a lot of such buildings right now. I am not predicting a collapse of this kind of property. But if the economy stays sluggish and GDP stays low, we will likely see steeply dropping ROIs as tenants do not renew their leases.


Luxury Single-Family Homes

I have another friend that’s been doing quite well building and selling million-dollar homes for the last 10 years. This has been a side business for him, but it’s netted him a profit of about $500,000 per home. At breakfast recently, I asked him how he was doing. “I was between houses when this thing started,” he told me. “I’m not going to do anything until the economy starts moving again.”


High-End Residential Developments

From about 1990 to 2004, I was a regular investor in a friend’s residential real estate developments. He built and sold 100- to 400-unit developments at $400,00 to $600,000 a door. And even though those units are worth more than a million each now, I wouldn’t invest a dollar in a new project like that today.


Other Luxury Properties

I just spoke to a guy that wants to build a $32 million, super-duper sports complex here in Delray Beach. He sent me the brochure. It looks amazing. He’s going to ask me if I want to invest. I’m going to say no.


Middle-Level Commercial Properties

If Class-A commercial isn’t appealing, Class-B commercial is even less attractive today. My experience with that kind of income property is that it is much less resilient than residential properties during a recession. You can keep your houses and apartments rented during economic slumps by simply lowering the rent. You can’t do that with middle-level commercial properties. They can sit unoccupied for years.

The tenant in a commercial building that I own in Delray Beach has been asking me to sell him the building for more than five years. I was getting a great return on this investment, so I wasn’t interested. Yesterday, I signed it away.


Hotels (and Motels)

What have I forgotten? Oh, yes, hotels! That’s an easy one. If I were invested in hotels, I’d definitely be worried today… Hey, wait! I just remembered. I am invested in hotels – at least a half-dozen of them through my brother. So I am worried! But for him, not me. Since I’m a limited partner in these properties, my potential losses are limited to my original investments. But as the general partner, he’s on the hook. Big time. Right now, he’s jumping through hoops to keep the doors open. He’s doing a great job of that, but if occupancy drops by, say, 50% for the next several years, things could be bad.



 I don’t own REITs (I don’t think), because I own so much property directly. But if I had a significant position in REITs, I would want to check the sort of property they were holding and measure it against the concerns I’ve mentioned above.


The Real Estate I’m Not Worried About 


Working-Class Apartment Buildings

I’m not worried about the apartments I own in working-class and middle-class neighborhoods. The rent rolls would probably go down in an extended recession, but not hugely, because new construction would come to a halt. Since my total debt load on those properties is less than 5%, I’m confident I’ll be able to maintain them even at a rent reduction of 50% or more. Plus, the asset value should return when the economy returns.


Company-Occupied Office Buildings

I’m not at all worried about my investments in the dozen or two office buildings whose tenants are companies I own or control. These have always been my favorite properties because my partners and I can control the rents and mandate payments. Plus, most of these companies are in the digital-information business, which has not been badly affected by the Corona Crisis and will probably do okay going forward, even if we enter into a period of economic doldrums like we did after 2008.

That said, I just put a $14 million project on hold in Delray Beach because my partners and I want to see what happens with the economy and our local businesses before moving to the next step (construction).


Land Banking

And finally, I’m not worried about the properties I’ve bought over the years for “land banking” purposes. These are well-situated lots and acreages that provide no income but cost very little to maintain. Since they were always long-term plays – and by that I mean 20 to 50 years – I’m not sweating about them now.


What All This Amounts To

I believe that many parts of the real estate market are going to be hurting over the next few years – principally, the high end.

I believe there is a good possibility that the shift towards working at home will continue, and that will temporarily drive down income from office buildings and reduce the size of that market over the longer term.

I have the same long-term concerns for high-end and even middle-level retail real estate.

But even though my partners and I have had some rent deferrals and vacancies in our residential properties, I’m not worried about those investments because of the safety margins we operate with.

When it comes to investment real estate, I’ve always been very conservative. I invest primarily for income (not growth) in income-producing properties for which there will always be a demand. And I use leverage (mortgages) on a temporary and limited basis.

My formula is not optimal for increasing wealth in an up market. But it is good for reducing my exposure to a long down market.


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The Economics of Rental Real Estate 

Here are some facts about the investment real estate market that you might find interesting:

* Rent payments have remained steady, according to the National Multifamily Housing Council in a study of 11.5 million apartments.

* Home sales are expected to drop considerably during the remainder of 2020, and are not expected to pick up until the second quarter of 2021. This coincides with projections about the unemployment rate.

* Commercial real estate prices are projected to fall by 7%.

* Total returns from unleveraged core real estate are expected to fall to -5% this year, but are also expected to rise to 3.1% in 2021 and then to 6.7% in 2022.

* The industrial sector is expected to lead in rent growth between 2020 and 2022, averaging 2.2% per year.

 * Apartment growth is expected to fall by 2% in 2020, but see a positive trend (of 1%) through 2022.

 * Hotels are expected to be hit hardest, with the average occupancy rate falling to 40% this year.

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The Bridge Over the River Kwai by Pierre Boulle 

First published in French in 1952, then in English translation in 1954, this is a page-turner about British POWs building a bridge for their Japanese captors in Burma in 1942. (The author – who later wrote Planet of the Apes – was held in captivity by the Japanese during the war.)

From The Japanese Times: “Under harsh conditions and the haughty perfectionism of Colonel Nicholson, the men rally to the labor of construction, turning the bridge into a symbol of work ethic and national honor, ‘a masterpiece which was to prove the superiority of the West.’”

Notes from our book club discussion: A critical account of both English and Japanese cultural views and prejudices during WWII… Heroics and hubris.

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hospitality (noun) 

Hospitality (hos-pih-TAL-ih-tee) is the cordial and generous welcoming and treatment of guests. Interesting that it comes from the same Latin root as hospital (“hospitalis,” which means “of a guest”). As used by Max Beerbohm: “When hospitality becomes an art it loses its very soul.”

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June 22-June 26, 2020


a look back at this week’s essays…


Does Sex Hormones Determine Our Thoughts?

Let’s talk about hormones.

I have just come up with a theory. But before I present it, you should know this…

Click here to read more.



Why It’s Okay to Fall in Love With Your Investible Art*

Passion is a popular emotion these days. We are encouraged to be passionate about our careers, our hobbies, and even our ideas. Like most popular ideas, this one is mostly wrong. On the risk/reward scale, it ranges between dumb and dangerous. But there are some noteworthy exceptions.

One of them is art. Let’s talk about that.

Click here to read more.



The Unpleasant Truth About Asking for Favors

You have to be careful when you ask for favors. Because the person from whom you are requesting the service may not think of it the same way as you do. Such was the case with the favor my partner was about to ask in the memo I intercepted.

Click here to read more.




quick quiz


  1. How much do you remember about this week’s “Words to the Wise”? Use each of these words in a sentence:


*  strident (6/22/20)

*  prescind (6/24/20)

*  lethological (6/26/20)


  1. Fill in the blanks in this week’s quotations:


* “Testosterone is a rare ­­­­_____.” – Germaine Greer (6/22/20)


* “They say you cannot argue _____. Of course you can. It is one of the most rewarding conversations two people can have.” – Michael Masterson (6/24/20)


* “Gratitude is merely the secret hope of further ­­­­­_____.” – François de la Rochefoucauld (6/26/20)


  1. Are these statements True or False?


*  People that have COVID-19 but are asymptomatic are significantly more likely to transmit it than people that have symptoms. (6/22/20)


*  The name for the CoBrA avant-garde art movement was derived from the last names of its most important artists. (6/24/20)


*  Paul McCartney was recorded munching on celery on the taping of the Beach Boys’ song “Vegetables.” (6/26/20)




recommended links from this week’s blog


* A report on Motor City from my colleague Tom Dyson – to read it, click here.


* “A study on infectivity of asymptomatic SARS-CoV-2 carriers” – to read it, click here.


* (“Father Absence: The Biggest Issue Facing Black America”) Here.


* “COVID-19 Never Grows Exponentially” – Watch it here.


* The skill level required to do this is beyond belief… (“Carving a Bird in a Cage on the tip of a Pencil”) Here.


* This video says more to me about what is wrong and idiotic about racism than a dozen essays I’ve read…here.






Your Question:


What do you think about real estate, given what seems like an inevitable recession and possibly worse?

– P.J.


My Answer:


Good question. I am certainly concerned about the real estate investment market going forward, and I have given it some thought – but not nearly enough to give you a good answer. Here’s what I have so far…


The Corona Crisis has impacted the future of the real estate investment market in two important ways:


* The economy has crashed in a serious way. Forget Wall Street. We have huge unemployment and record levels of small businesses shutting down for good. That’s bad for a good swath of real estate.


* The extended shutdown has given tens of millions of American workers and thousands of companies the opportunity to experience business with an office-less office. This could prove deadly for many large and high-end commercial real estate investments.


I’ll keep working on this, and I will answer your question at length tomorrow. Look for it.


Have a question for me? Submit it on our Contact Us page.



 For a look back at the stock market, click here.


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 “Gratitude is merely the secret hope of further favors.” – François de la Rochefoucauld


The Unpleasant Truth About Asking for Favors

I recently intercepted a memo from a partner of mine. It appeared to be a nothing-much memo regarding a not-all-that-important request for a favor from a business associate – but I intervened because I thought it could ultimately be damaging.

Mutual back scratching, as I’ve often said, is a big part of good business. All the successful business relationships I know of – at least the ones that last – involve a lot of back and forth. I do such and such for John, and sometime in the future he will reciprocate. If he doesn’t, I cross him off my list. Unless I’ve done him a foolishly big favor in the first place, losing my good will costs him more than he gained from my initial service.

It’s All About Give and Take

Smart businesspeople (those who think long-term) don’t demand an immediate quid pro quo. They are happy to let the credits add up by helping out where they can. But unless they are saint-like, they do keep a running tab in their heads. And when the time comes to ask for service in return, they expect it.

That’s the way it should be. And when businesspeople act that way, they prosper. Just as important, the products and services they offer tend to improve because of the exchange of information and technology. And this benefits their customers.

But not every businessperson is that smart. Many fall short when it comes to cooperation in general and favors in particular. If you randomly selected a dozen business owners and lined them up against a wall, you’d find a considerable range of enlightenment as far as cooperation is concerned.

And that’s why you have to be careful when you ask for favors. Because the person from whom you are requesting the service may not think of it the same way as you do. Such was the case with the favor my partner was about to ask in the memo I intercepted.

The favor was for the other company to do some printing and mailing for her – things she would have been happy to do for them. What I think she failed to understand was the reaction her request was likely to cause. I happen to know the people who run that business. I’ve worked with them for years. And though they are good people, they have a tendency (in my view) to overvalue their work and undervalue that of others.

There was another factor, too, that she failed to take into consideration. My partner’s view of the favor she was asking was somewhat distorted. Because she runs a smaller business, it would have been fairly easy for her to personally manage the printing of a job for them. But since their operation is larger, a similar task would have involved several people… and required checks and double-checks… with no organized way to account for the work done.

Between my partner’s honest misunderstanding of what she was asking and the tendency of those she asked to overvalue their contribution, trouble was brewing. They would have done what she asked, but my partner would have incurred a big “You owe me.” A debt she wouldn’t recognize. Which would have made matters worse.

My advice to her? “Take care of the printing yourself, even if it costs a little more. If you are going to ask for a favor from these folks, make it a good one – because in their eyes, any favor will be a big one.”

It’s too bad it sometimes has to be that way, but that’s life. You can’t expect everyone to see things the way you do, especially when it comes to valuing personal efforts.

My own policy is to help others as much as possible. Mostly what people want from me is knowledge or access. How to do something or an introduction to someone. When I’m asked, I generally give. But I almost never ask for favors in return. And I don’t keep a close count. I simply notice when someone is always asking, when the relationship has become a one-way street.

When that happens, I don’t drop them. I sometimes – rarely – refuse their request and explain why: that I think they are abusing our relationship. But most of the time, I take a softer approach and gradually become less and less responsive till the relationship dies out. I do that, I think, because I realize that people that are myopic in that way will never be able to admit the truth to themselves. They will, instead, consider my telling them the truth to be an insult they will not forgive.

There’s no advantage to causing hard feelings in those that you don’t plan to have anything else to do with.

The way I look at it, finding out the character of a person is worth something. And I’ll pay that price in advance. But I won’t overpay.

A greedy, self-centered person believes he can live a better life by taking advantage of others. What he fails to realize is that the people he dupes have memories. And influence. Eventually, his world gets smaller. He has very few friends. Fewer business colleagues he can count on. Little credit. And the high-pressure climate of the bad feelings he’s stirred up. He may have a considerable store of material things, but he doesn’t have the faintest idea how to enjoy them.

So do favors. Keep a rough count. And always keep in mind that the size of the favor is a matter of perception.


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How Dumb Can Our Experts Be?

A friend tells me that I have to wear a face mask now. Florida, like so many states, has made it mandatory.

The reason?

The coronavirus is spreading! According to The Washington Post:

“Public health officials are increasingly concerned about coronavirus spreading, especially in the South and West. The head of the Centers for Disease Control says antibody tests show that infections are likely 10 times higher than what’s been reported.”

Gee whiz! How surprising!

From CDC Director Robert Redfield:

“Our best estimate right now is that for every case that’s reported, there actually are 10 other infections. Using that methodology pushes the tally of US cases to at least 23 million. Redfield said the larger estimate is based on blood samples collected from across the country that look for the presence of antibodies to the virus. For every confirmed case of COVID-19, 10 more people had antibodies.”

And how can we possibly explain that?

“Redfield and another top CDC official said that young people are driving the surge in cases in the South and West,” The Washington Post said on Thursday. “They attributed that to the broader testing of people under 50. ‘In the past, I just don’t think we diagnosed these infections,’ Redfield said.”


Now get this:

According to the venerable Post, Redfield also estimated that “92 to 95 percent of the US population is still susceptible to the virus.”

Holy Moly!

Okay, we didn’t out this CDC mouthpiece (and The Washington Post) for screwing up the first bit of arithmetic – forgetting that 10 + 1 = 11, not, 10. But this new calculation is right out of Alice in Wonderland.

Let’s review his math. 100% minus 10% is 90%. How the hell did he end up with 92% to 95%?

I can think of only one explanation: He’s subtracting 23 million from 328 million, which gives you 305 million. 305 million divided by 328 million (the population of the US today) gives you 92.9%.

Are you laughing yet? Are you curled over laughing? Or are you shrieking with fear that the CDC’s top guy is such an imbecile?

What I’ve just told you is just the beginning of the idiocy. There are at least three more howlers that are coming your way,

Maybe next week, when I stop laughing, I will explain to those that don’t understand all the ways this report – and all the other reports you’ve been hearing from The Washington Post and The New York Times and the rest of the mainstream media – is logically and arithmetically impaired.

In the meantime, wear that face mask (except for protesting, of course). Otherwise your state governor and the state Gestapo will come and get you.

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lethological (adjective) 

Lethological (leh-thuh-LAH-juh-kuhl) refers to the inability to remember the exact word you want. Example: “It’s on the tip of my tongue… um… um… Oh, no! I’m having another lethological moment!”

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