Show notes
Today we get insights from Russell Gray, one of the hosts of The Real Estate Guys Radio Show, he is a financial strategist with a background in financial services dating back to 1986.
You can read this entire interview here: https://montecarlorei.com/why-this-downturn-could-be-worse-than-2008-russell-gray-explains/
I would love to hear your thoughts on what you’re seeing is happening right now in commercial real estate.
On one side of the commercial real estate ledger, you had retail spaces under tremendous distress because their retail customers, the demographic they served, companies like JC Penney, whose business models were being completely disrupted, these anchor tenants like Sears and Kmart, were just getting wiped out by people ordering online. On the flip side of that, on the industrial side, you saw warehouse and distribution and logistics, just going through the roof. And so there’s always going to be winners and losers in this current environment. You’ve a lot of people changing the way they behave. Companies are finding out that they can have a remote workforce and actually get things done. They may decide, hey, we don’t need all this fancy office space, people would prefer to live at home, or work at home. So maybe we’re going to cut back. I think that if you’re in the office space, you need to really look at the nature of the work that the companies are doing. And does it require physical proximity and collaboration? Or is it something that could be moved to a more diverse workforce, people working at home? You could be vulnerable.
Why do you think this will be worse than 2008?
COVID-19 hit and now the Fed balance sheet is over 7 trillion. It has nearly doubled just in the four months that we’ve had COVID-19. So on the one hand, you’ve the powers that be the Federal Reserve and the Treasury way in front of the crisis as opposed to 2008 where they were way behind. That’s the good news. The bad news is, this is so much bigger because it isn’t just a small percentage of subprime borrowers that are having a hard time making payments. You have major corporations like Hertz, companies that have been in business for 100 years that are declaring bankruptcy. And the quote in the article that I just read, in fact, I featured it in today’s newsletter is, “No business is structured for zero revenue”.
So what we have is a health crisis that turned into an economic crisis, which means that we shut the economy down. It's like having a giant heart attack. And if you can imagine currency, money stopped, like blood stops flowing because the heart stops beating, the economic heartbeat stops beating, the blood stops flowing, then, individual cells, people, and organizations, or organs, they all start to die. And if you don't get the heart started quickly and get the blood flowing quickly, then you get permanent damage. And it remains to be seen if that's going to happen. But when those payments stop being made, then the debt goes bad. And now we're right back where we were at 2008, but much, much bigger. And the problem is everything we did wrong leading into 2008 with the margin and the rehypothecation occasion of the debt in Wall Street, the derivatives are worse today, global debt is worse today than it was in 2008. And the cessation of payments and the defaults and the bad debt out there is much bigger. So just based on that alone, it says that this is probably going to be worse.
Russell Gray
https://realestateguysradio.com/
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