This is exactly why we have bankruptcy! These businesses are failing and need to renegotiate their liabilities. This is expected and healthy if you want any retailers to have any hope of survival going forwards.
You're not wrong, and under normal circumstances this would be a blip on the radar. However, the hundreds if not thousands of locations each of these companies plan to shutter will have an unprecedented effect on the commercial real estate market. Within months we will have thousands of property owners suddenly unable to pay their mortgages because they no longer have tenants, meaning they will have to default on their loans. This will greatly affect banks and other lenders in the months and years following. It's a domino effect that will be felt for many, many years after we've wiped out SARS-CoV-2.
I invest money into the market. Sometimes the market does poorly and goes down. My job as an investor is to accept risk when others do not. It is my money that disappears in these circumstances.
The general idea is for the riskier among us to lose money. The investing class reaps benefits when the economy is good, but they lose money when the economy suffers.
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When downturns happen, investors become frightened. Which is fine: it means more opportunities for me to buy back into the market. But accepting this year's losses is part of the plan.
And to be fair, I and likely many other "regular Joes" benefited initially from the 2008/9 downturn; I was able to buy my first home, humble as it is, at less than half its usual market value. I'm still enjoying that benefit today, with a monthly house payment less than most people's car payment even on a used vehicle.
I think this time around it will be much different; this is approaching a true depression, not just a downturn. We are at 30 million jobs lost due to the pandemic, on top of the existing unemployment not related to it. We are on a dark road.
The real estate owners are no more resilient than a sheet of paper when it comes to the guillotine that could be coming for the economy. And, while I'm sure a lot of people aren't feeling any particular love for real-estate folks in general due to the current administration - letting them get liquidated and then trying to build up a replacement is harder and more damaging than just propping them up.
But I, personally, am seriously done with this slap-on-this-wrist for endangering the economy during clear weather BS. Engaging in unsafe business practices can cause massive loss of life - whether you're Wells Fargo inflating fake accounts and leveraging them as assets, the wolf of wall street or just committing some plain old accounting fraud we need to come down hard as a society and stop glorifying it as if these clowns are sticking it to the man.
It’s like this. Suppose a real estate speculator in your town buys a mall, leverages it with debt to afford it, and becomes rich. They buy the biggest house in town, drive a Bentley, in general live well for a decade.
Then the pandemic happens, and some of their tenants stop paying. They personally signed for the mall mortgage, and are now in default.
They need $10M to recapitalize their loan, avoid foreclosure, and ride out the rest of this. So they come to the city council and ask it to raise property taxes by an average of $100 a year per person in the town so the city can loan them the $10M.
They explain by doing this they will keep the mall open, be able to work things through with the tenants, saving jobs, the mall, the bank, the city, even goddamn America! The speculator then sits back smoking a cigar to await his bailout.
Then the (secretly libertarian$”) mayor points out if the city doesn’t step up, the bank will sell the mall to a new owner, who will work with the tenants to keep the mall open, and sell the speculators mansion, Bentley and jewelry to help recoup their losses. And the citizens of the town will all be $100/year ahead.
Then he slams his gavel down and screams, “and there is no smoking in public meetings you arrogant leach!”
Banks have no shortage of money, lawyers, and friends in high places. They do not need you or I also apologizing their actions. If anything we should be extremely suspicious of ant bailout and scrutinize it to ensure it’s well deserved, and will result in a better society overall.
In any case, my point was not to discuss how much CRE is owned by individuals and small businesses, but rather the dismissive attitude that sweeps individual and small business landlords into the same bucket as giant CRE corporations.
I'm glad you agree that there is no need to be punitive towards them. This is a reoccurring issue I often find on HN which I find surprising, the derision towards lines of business that people don't have much understanding of. There are no free lunches in the world that will not get optimized out quickly, and any business you believe are simple are likely to have hidden complexities that you did not consider.
I understand some people treat their home as savings but that's bad in every way for society and for the homeowner. I have a home and the only return I expect on it is to be able to continue living there. I'm certainly not going to depend on it for my retirement, as that would be really unwise.
There is the Valco mall in Cupertino being demolished for mixed use residential, retail and office space. That mall was dying for a decade.
Then there is Santana Row in San Jose. Used to be a strip mall as I recall. Now its high end shopping and residential.
Going more "dorm" style could work for low end if there wasn't a pandemic and even then it would carry plenty of risks that would scare people away from such an arrangement let alone the consumer desires.
It may even be a positive for some of those workers to the degree prices go down, albeit with fewer high-end restaurants and so forth and fewer co-workers.
Tell me more about this? Why can't banks re-value things that constantly change in value?
How else can we think about an expense of hundreds of thousands of dollars? It's ludicrous to spend that much on something assuming it'll just depreciate and fall apart on you, worthless. I understand that you're not paying rent in a home, so it's serving a purpose, but they aren't exactly equivalent in terms of upkeep and taxes.
At this point, given the instability in the market I have no idea what is the wise move to put money into for retirement. Investments have tanked and I don't know at what point they'll recover, interest rates are abysmal, and apparently our homes should be worth nothing. There's really no practical, accessible way to invest.
Rental properties are normally cash-flow positive, including payments on their mortgage. This means that buying a comparable unit that depriciates to $0 over a period of 30 years is still expected to be a net positive.
Cars depreciate. Rent, medical services, and groceries don't return any money when you're done using them. Houses should be thought of as consumption first and a store of value second. Sure by buying as soon as you can you are betting on appreciation in value. Houses aren't a good investment compared with even a bond mutual fund. There's a 6% transaction cost, closing costs, you have to pay mortgage interest, property tax, maintenance, insurance, utilities, and maybe even PMI. A single event like a hurricane or unfavorable neighborhood evolution can wipe you out (extreme concentration risk); a single bond issuer declaring bankruptcy is a risk that can be diversified away.
And note that this isn't about things depreciating and falling apart. It's more about various policies that affect house prices indirectly. The existing arrangement, when you distill it down, pretty much means that once somebody becomes a homeowner, they have an economic incentive to make home ownership for other people as hard as possible, because it props their investment (and if they own more than one, and rent some out, lets them raise the rent higher).
With all the instability of a once-in-a-century pandemic, the S&P is still up 1% today from where it was January 1. Specific large companies' stock like Amazon, Apple, and Tesla are up 50-300% since January.
The issue of saving for retirement is complex, thinking on a 10-40 year horizon as the world continues to change and evolve. But this is a bizarre time to be complaining about stocks as an investment.
I’m saying buying a home shouldn’t cost that much. See here’s the insidious thing about housing costing so much - when you were younger you surely didn’t want to spend so much on a house. You don’t want your kids to spend so much either. And if you didn’t spend so much you would never have cared so much if it drops in value.
But now that you have spent that much, you want it to cost the same, even though that perpetuates a system that punished you, your kids and your grandkids.
Do you really want to defend this? Does it boil down to yeah it sucks that houses cost so much but now that I have mine I want to slam the door on the younger generation?
You can buy insurance policies to protect your business against the latter. (Although with Covid a lot of insurers are refusing to pay out, and some are being taken to court.)
Where there's no insurance it's reasonable for government to act as an informal insurer of last resort, because it's hugely more expensive and damaging to allow businesses that are otherwise viable to go to the wall.
You don't just lose a viable business, but you create losses that ripple through the entire system causing upstream insolvencies. So you lose the productivity of all the businesses affected and the spending power of their employees. It takes a good long time to rebuild both.
The problem is in the grey area where it's hard to tell if businesses are genuinely viable and just need temporary reinforcement, or whether they're already zombies and need to be killed off.
Patronage and politics makes this even more complicated.
But the principle is still sound: in a national disaster insolvency is not a clear signal of failure, and allowing all business to crash regardless will do much more harm than good.
Nobody has wanted to acknowledge that so much of the US economy is a house of cards. COVID19 isn't forcing people to do so, but is making it much clearer.
Or am I being uncharitable, and you mean recently?
In the end, just keeping companies afloat through rare shocks might be the cheapest option.
Market economies create efficiency, not resiliency.