As I work thru my trading slump, I have been thinking about the longer term future of retail and commercial RE, both significant parts of the US economy. Because Americans are malleable and adapt well to change, we have see a remarkable shift in consumer and workplace behavior due to COVID-19.
Companies have learned they can maintain productivity whilst ceding office space to the Vacancy Gods and increase profits. Amidst the retailers benefitting from this shift, AMZN, W, OSTK, ETSY — FCF has surged. Companies like WSM with significant mall square footage just reported good numbers and said online sales now make up 75% of their revenues. What we are seeing here is significant. Companies were forced to produce online and have done so with great results.
How could retail REITs survive? What sort of environment are we heading into for commercial RE, when companies can perform just as well remotely?
The grim scenario creates a barbell trade for online operators vs physical and then extends into banks who have exposure to CMBS. There is massive potential downside to CMBS — only held up now because of the Fed.
Eventually, the vacancies will mean something and those fucking bonds will have to be properly marked to market. Until then, up we go because the clown show continues.If you enjoy the content at iBankCoin, please follow us on Twitter