American Consequences - August 2020

Commercial real estate, from retail and theaters to high-quality office space, has a target on its back. As people and businesses look to have more work done at home, they will use commercial space a lot less. Why pay that exorbitant downtown rent for a big office building when your employees all now telecommute? This will mean higher vacancies, lower rents, and major changes in how people think about utilizing these spaces. Already Blackstone, one of the biggest players in the commercial real estate market, has shuttered one of its commercial mortgage backed security (“CMBS”) funds because of the significant weakening of the space. This is reminiscent of the canary in the coal mine collapse of the two Bear Stearns hedge funds in 2007 that were betting on CDOs and CDSs exposed to the housing market. The pandemic is truly transforming the world by accelerating the at-home revolution, and there are massive opportunities for those who can identify the companies that are going to be the winners of this revolution. Some are already household names, and others will be in the years to come as investors realize how essential they are to households. The very concept of loss aversion should have everyone reviewing their portfolios for losers in the at-home revolution. Meanwhile, those who don’t pay attention to this trend could end up missing out on a once-in-a-generation investing opportunity.

Some of these services weren’t accessible before the pandemic. Many health care plans and Medicare-compensated doctors were wary of telehealth visits before the pandemic. Once that changed, and doctors and patients jumped on board, many prefer it this way. Doctors can see more patients, and patients don’t have to deal with whitecoat hypertension for minor issues and regular check-ups. Who wants to wait in a doctor’s waiting room or a hospital, surrounded by other sick people? There’s one last incredibly important component to the at-home revolution... As people invest more into their homes, they focus more on protecting their homes. That includes everything from security systems to guns. This is a self-fulfilling circle. The more money people spend to improve their home to be able to work, play, supply, and protect their houses, the more time people are going to want to spend at home. Otherwise, why did they invest in it? Of course there are smaller offshoots of each of these big themes, from educating at home to hospice at home. Each of these trends is creating companies that are seeing huge gains in revenue and many in profit. Investors realize the value shift occurring and are pushing those stocks higher. Causalities of the Revolution While there are going to be many winners, it’s important to watch out as there are going to be losers, too.

American Consequences

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