Tariffs, Trade Wars, Tax Policy, and Real Estate
Risk-Resistant Strategies for Beating the "Amazon Effect" on Real Estate
descriptions may well represent solid potential gains for an insightful, Amazon- effect-averse investor. “Jeff Bezos is the 800-pound gorilla in the world, and you will find in the future that he will demonstrate increased intelligence and influence over how real estate is being used,” Koo said. •
Koo brings an interesting approach to the topic of online retail behemoth Amazon thanks to his multifaceted concept of risk management. “My preferred types of real estate, usually commercial, are properties insensitive to what I like to call the ‘Amazon Effect,’” he explained. Koo’s Amazon Effect manifests when retailers fail to reinvent themselves sufficiently or quickly enough to effectively react to risk manage the overwhelming industry shift that has emerged in the wake of Amazon’s
environment continues to support more spending and eating out more often, this category may also include entertainment venues. “For example, Dave & Buster’s or any type of video-gaming emporium or lifestyle offerings, such as a gym or health-related business,” andmixed-use locations offering a variety of walkable dining, shopping, and entertainment options, Koo said. For a residential investor, this information may be useful as well. Investment properties in proximity to developments matching these
As the November elections approach, Koo, like many other U.S. citizens on both sides of the political aisle, views the outcome as a potential referendum on controversial international policies that have been implemented since the current presidential administration took office. In April of this year during an earlier interview with Think Realty Magazine , Koo predicted that certain taxes and tariffs placed on international goods could have a direct effect on regional U.S. economies and, by extension, on their real estate markets. At that time, one of his analysts, James Zhang, had recently noticed a pattern of proposed, potentially retaliatory tariffs emerging in Chinese policy that appeared to directly correspond to areas of the U.S. led by congressional leaders who endorsed current U.S. trade policies, including areas heavily reliant on soybeans, beef, and chemicals. “It appears that the Chinese were quite surgical in their process of identifying regions where retaliatory policies could hurt specific U.S. districts and regions,” Koo said at the time. Now, with the elections looming, Koo said he expects current U.S. trade practices focusing on the formation of bilateral trade agreements, those made via one-on-one relationships with other countries, to continue. As a result, he said, investors considering investing in areas of the country that might be particularly affected by international response to U.S. trade policy must continue to monitor these bilateral agreements closely. “I think [bilateral agreements are] an inefficient way of doing business,” Koo observed. However, for real estate investors, an awareness of the increasingly localized and regional sides of international policy resulting from these bilateral agreements could represent an edge when it comes to predicting market movements in their
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com.
tendency to sell nearly everything and deliver it in two days or fewer in the majority of cases, essentially for free. “Since more and more people are buying from Amazon all the time, this shift in consumer preference happens at the expense of many retailers,” Koo explained. “The retailer is still one of the largest consumers of commercial properties, so any investment relying on a retailer to support a commercial property’s success is at risk if that retailer is sensitive to the Amazon Effect. I look for wide, diverse consumer bases focused primarily on lifestyle, entertainment, or destination locations.” Using Koo’s strategy involves investing in properties that support lifestyle, such as exercise, entertainment, and food consumption. Since the current economic
Koo (above left) works closely with a large team of analysts, including James Zhang (above right) to identify emerging trends in real estate and other sectors and respond
specific areas of the country. “For different regions of the country, there will be winners and losers,” he said. “I think that the coastal big cities will be largely unaffected, but inland areas of the country, especially those reliant on those trades that are being affected directly by the negotiations, will be very vulnerable to changes in trade agreements. A glimpse
at what those changes might look like will likely emerge in the wake of the November elections,” Koo said. Individual investors could have an advantage over the institutional funds during this period of uncertainty since they have the ability to respond to changes and implement strategies faster, albeit on a smaller scale, than institutional funds.
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