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Wealth Management

A Different Playing Field

By Jeff Liguori

 

When markets slide, investors’ knee jerk reaction is to draw parallels to difficult markets in the past.

The most recognizable episode in recent history is the Great Financial Crisis (GFC) of 2008-09. The S&P 500 peaked in October 2007, followed by a crushing sell off that bottomed out in March ’09 — but not before losing 56% of its total value, a near total collapse of the financial system, and several high-profile bankruptcies.

A significant contributor to that grueling bear market was the decline in home prices. Real estate was a bubble that overinflated; the ‘pop’ led to a meltdown in our financial system due to intricate investment products linked to mortgages, over-leveraged home buyers, and inordinate risk assumed by some large investment banks. When that very large balloon deflated, there was no place to hide until the buyer of last resort — our federal government — stepped in with a bailout.

Jeff Liguori

Jeff Liguori

“This is not that housing market. When it cools – and it will – there should be enough demand to maintain stability.”

There are some eerie similarities in today’s investment landscape. Home prices have trended drastically higher as pent-up demand, fueled by excessive liquidity and a strong economy, has caused a buying frenzy in many markets. Speculation, specifically in crypto currency and “meme” stocks, prompted unsophisticated and inexperienced investors to buy assets about which little was known. The quick success of those speculators was widely publicized through social media, which caused a feedback loop that then further inflated the bubble as it drew more neophytes into the ‘game.’ We’ve seen this movie before, and it doesn’t end well.

Following the playbook of the GFC, should we expect a high-profile bankruptcy of a major financial institution, or a collapse in the housing market, or — heaven forbid — both and maybe more? We keep hearing that we’re in a bear market and a recession is all but guaranteed, so what now?

First, from a macro economic standpoint, today’s economy is quite different than what we experienced 13 years ago. Take real estate. Yes, home prices have skyrocketed and the market for buyers is possibly as tight as it has ever been. But the number of homes being bought with cash is at the highest level since 2005; transactions not subject to financing by the buyer represent almost one quarter of all transactions. For perspective, cash transactions at the peak of the market in 2007 were almost 40% lower than they are today. Mortgage debt is almost always the greatest liability for a consumer; that liability was significantly higher during the 2008-09 recession. And bank-lending standards today have made it more difficult for less creditworthy consumers to take on mortgages because of the Great Financial Crisis. This is not that housing market. When it cools – and it will – there should be enough demand to maintain stability.

The number of first-time home buyers, or housing formation, declined during the 2010s, mostly due to a combination of younger adults living with their parents, and a move toward urban centers where renting is more prevalent. But one of the consequences of the pandemic, that was impossible to predict, was the spark in housing demand. Major employers allowed workers to work remotely, which enabled growth in desirable suburban and rural real estate markets. We may be on the doorstep of housing formation trend that persists for a very long time, a long-term positive for the economy. Prices should normalize in the near term, but demand for housing remains intact.

The real crisis may be a lack of supply. But that is an article for another time.

Second, speculative bubbles are a natural consequence of a strong economy. We have all seen or heard of the Tik Tok millionaires, who seemingly made their fortune overnight, then spread the get-rich-quick gospel on social media, thus influencing more risky behavior — the very definition of a bubble. However, when equity markets decline substantially in a short time — the tech-heavy Nasdaq was down nearly 32% for the year in June – this risky behavior gets flushed out.

Look at this statistic, courtesy of Sundial Research: On June 16, 90% of the stocks that comprise the S&P 500 were down on the day. This occurred five times in the in the seven trading sessions leading up to June 16. There are zero historical precedents for that level of selling over a seven-day period, which is a sign of capitulation by inexperienced investors, necessary for a bottoming process in stock prices.

Many variables contribute to economic weakness, and with the Fed raising rates to battle inflation, it may lead to a recession. How quick is hard to predict. But this is not 2008. Consumer balance sheets are much healthier, with manageable levels of debt relative to income. Stocks have already discounted many of the negatives associated with tighter financial conditions and higher inflation.

As investors we move from fear to greed and back again. Strong emotions that are exploited by the media. Perhaps the Fed can navigate through this, or some type of peaceful settlement occurs in Ukraine, relieving inflationary pressure, and the adjustment in all asset prices is just that — a necessary adjustment in a healthy economy. Perhaps we should instead be thinking of long-term opportunity. That scenario doesn’t seem to be the narrative today, which, as a contrarian, makes me think it is more likely than not.

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

Commercial Real Estate Special Coverage

Activity Report

 

Mitch Bolotin, left, and partner Kevin Morin

Mitch Bolotin, left, and partner Kevin Morin stand near the entrance to 11 Interstate Dr. in West Springfield, which recently welcomed a new tenant, Millipore Sigma, which absorbed 27,000 square feet in the office building.

Looking back, area commercial real-estate brokers, managers, and developers said 2021 was a busy year with activity across all sectors and especially the retail side and the white-hot industrial segment of the market. On the office side, there was less movement and more question marks due to COVID-19 and uncertainty about when and under what circumstances workers will return to the office. The expectation for 2022 is for more of all of the above.

Area commercial real-estate brokers, developers, and property managers spoke with one voice when they told BusinessWest that there can be activity in their sector — and sometimes lots of activity — even when the economy is not hitting on all cylinders.

And this fact of life certainly helps explain why most brokers said 2021, year two of the pandemic, was one of the busiest years they’ve seen recently.

Indeed, there were some business closures and companies moving on from their leases, said those we spoke with, and other businesses downsizing for one of many reasons — all of which created movement in the market.

But there were many other forces contributing to this movement, and most of them were positive, said Mitch Bolotin, a principal and vice president of Springfield-based Colebrook Realty Services.

Listing them, he noted everything from low interest rates to the continued growth of the state’s cannabis industry, which has been absorbing industrial and retail space in communities across the region; from the improved health of the manufacturing sector, which has also contributed to the white-hot market for industrial spaces (more on that later), to the continued growth of delivery and warehousing operations, which has created ever more demand for those spaces. There’s has also been a noticeable increase in the amount of entrepreneurial activity in the region, inspired in part by COVID-19, which has created interest in retail space and some of the restaurants that have fallen victim to the pandemic.

“There is going to be some creative reuse of office space, and retail space, in this region.”

“This past year was one of our busiest years, and there was a lot of activity on all ends of the marketplace,” Bolotin said. “We’ve had deals in the retail world, the industrial market has been very active, the office market has been active, and there have been some development deals. We’ve seen it all across the board.”

Evan Plotkin, president of Springfield-based NAI Plotkin, agreed, noting that some of the movement on the retail side and office side has been as a result of COVID and its ill effects, but there has been positive movement as well, especially on the industrial and multi-family residential sides of the ledger, where the laws of supply and demand have forced prices higher as competition for available properties escalates.

There has even been some movement in the office market, said those we spoke with, but overall, this is the category still clouded by question marks. Large question marks.

Indeed, while all those we spoke with expressed the opinion (and we’ll paraphrase) that many workers now toiling remotely will eventually return to the office because employers realize there is more and better collaboration and more productivity when a team is in one place, there was also something approaching general consensus that things won’t be like they were before the pandemic.

And this means that some office space — just how much comprises one of those question marks — must be repurposed.

“There is going to be some creative reuse of office space, and retail space, in this region,” said Ken Vincunas, president of Agawam-based Development Associates. “I don’t know want it’s going to be or who is going to do it, but the malls and some office buildings are going to turn into something that no one foresaw, something they weren’t designed for.”

Paul Stelzer, president of Holyoke-based Appleton Corp., which currently manages more than 2 million square feet of property in the region, agreed.

Citing a movement to convert large amounts of office space to lab facilities in Boston, Cambridge, and Worcester to feed a biotech sector ravenously hungry for space, he said this might be one possible course for Western Mass. … if it can attract workers for that sector.

“We need to look at how we can maybe take two floors of a building that might never be leased again and convert to some type of bio, some type of medical, some type of related spaces,” he said, “because when you talk about quality of life, we have an incredible quality of life here in Western Mass., and I think there’s some desire for people not to be going up and down a 30-story elevator every day or taking the subway to work.”

For this issue, BusnessWest talked at length with area brokers and property managers about the current scene and what they project for the future, both short- and long-term.

 

Moving Story

As he talked about the commercial real-estate market and the year that was, Bolotin said there was considerable movement across the region — and in all sectors.

And he pointed to properties Colebrook handled in 2021 — and is still handling in many cases — as evidence. The portfolio includes:

• The leasing of 27,000 square feet at 11 Interstate Dr. in West Springfield to Millipore Sigma. The company, a life-sciences R&D firm and subsidiary of Merck, was in a small office in Wilbraham and expanded into the space;

• The sale of the industrial property at 2024 Westover Road in Chicopee, one of many such properties that saw considerable interest, went fast, and sold for a good price;

• The successful leasing of the property at 95 Elm St. in West Springfield, formerly home to United Bank. The large office complex is home to a broad mix of tenants, including Tandem Bagel;

• The sale of 100 Water St. in Holyoke, a large former mill complex, to GFI, one of the many cannabis companies that now call Holyoke home;

• The sale of 5 South Maple St. in Hadley, once a PeoplesBank branch, a sign of continued movement in the retail market;

• The sale of the former Troy Industries property on Capital Drive in West Springfield; and

• The sale of the 68,368-square-foot, fully leased warehouse space at 87-147 Avocado St. in Springfield to Woodrow Studios LLC, a deal that closed roughly a month ago. “That’s an example of an industrial investment property that had a strong amount of activity,” Bolotin said.

Collectively, these transactions speak to those many forces mentioned earlier — everything from the cannabis sector to tremendous growth of warehousing, distribution, and delivery businesses to growth within the manufacturing sector — that made 2021 one of the busiest years the company has seen recently.

“And 2022 is shaping up to be more of the same,” he told BusinessWest. “There’s a lot of demand, a lot of positive activity; we see the market being resilient, and, overall, there is a good deal of optimism.”

Plotkin agreed, citing his company’s portfolio of activity in 2021 as more evidence of what has been happening, even with some sectors struggling to fully recover from the pandemic and its many side effects.

Paul Stelzer

Paul Stelzer

“We need to look at how we can maybe take two floors of a building that might never be leased again and convert to some type of bio, some type of medical, some type of related spaces, because when you talk about quality of life, we have an incredible quality of life here in Western Mass., and I think there’s some desire for people not to be going up and down a 30-story elevator every day or taking the subway to work.”

On the industrial side, the company handled the sale of a large property in South Deerfield being leased by Yankee Candle, and Plotkin said it continues to receive calls from companies actively seeking warehouse or light manufacturing space with highway access in Springfield and surrounding towns.

On the retail side, it handled a number of transactions, from the former Hafey Funeral Home in Springfield to the former Manchester Hardware store in Easthampton to the Golf Acres recreational facility in Westfield. It is also negotiating the sale of a large shopping center in Pittsfield. There has been less activity on the office side, but the company did handle the sale of 480 Hampden St. in Holyoke to Girls Inc., among other deals, and has handled several leases and a few sales for companies reorganizing or downsizing space.

Overall, the two sectors seeing perhaps the most activity are retail and industrial, said those we spoke with, with cannabis impacting both in a positive way, although there are other factors as well.

Pat Goggins, president of Goggins Realty in Northampton, said the cannabis sector has certainly helped that city’s downtown, one that has seen several stores close due to the retirement of long-time owners, but also complications from COVID. But there have been other types of entrepreneurial activity, including some new restaurants and clothing stores.

Overall, he said it was certainly a much more “nervous time” in Northampton a year or so ago as vacancies started piling up in and around the downtown in a way that hadn’t been seen in decades, and there was uncertainty concerning when and under what circumstances those vacancies would be filled. Now, with many of those storefronts leased or under contract, including the Silverscape Designs property, there is far more stability.

“We’re making some nice progress in the level of activity that we’re seeing downtown, and it’s something that more closely mimics what we had been accustomed to,” he said, adding that, while there are still some vacant storefronts to be addressed, the overall tone is much more positive than it was a year or 18 months ago.

Plotkin agreed, noting that, overall, while retailers are seeing increasingly higher volumes of online sales, most of them still need a bricks-and-mortar presence, and this is contributing to ongoing movement in that segment of the market.

Ken Vincunas says the market for industrial properties is white hot

Ken Vincunas says the market for industrial properties is white hot, with immense competition for available properties pushing prices higher.

“They may shop for something online, but they want to go to the store to try it on,” he explained. “And that’s why I believe retail will remain strong.”

But it is the industrial market that is seeing the most activity, said Bolotin and others — and it would see considerably more if there was inventory.

At present, there isn’t much, said Vincunas, noting that what exists generally goes quickly and at high prices, which makes this category much like the residential real-estate market (see story on page 6).

“The industrial market has very little inventory, and for the few things that come up, there are a lot of takers, and the pricing has increased significantly, because people have products that people want, they’re making money, and they need that new building,” he said. “There’s been a lot of demand, things don’t stay on the market for long, and prices are way up.”

“There’s a lot of demand, a lot of positive activity; we see the market being resilient, and, overall, there is a good deal of optimism.”

As just one example, he cited the former home of Work Opportunity Center in Agawam, an 18,000-square-foot industrial space, which was under contract just a few weeks after it went on the market. Many other properties have moved in similarly quick fashion, and at prices — and here’s another parallel to the residential housing market — that have prompted buyers to also become sellers.

“We’re actually selling properties, which we hardly ever do, because the pricing is so high that you have to take some chips off the table and reposition the properties you want versus the ones that are in your past,” Vincunas said, noting that the company is in the process of selling a multi-tenant property in Chicopee.

“The price seemed right, and we thought it maybe it was time to change that in for something else,” he explained, adding that many property owners are thinking along similar lines to take advantage of the white-hot market.

 

Space Exploration

As noted earlier, it’s the region’s office market that has perhaps struggled the most, and it’s the one confronting an uncertain future.

Vincunas, whose company manages several office facilities, including the Greenfield Corporate Center, said the past 23 months have been a struggle on many levels, especially as companies find new ways to do business, with many employees working remotely.

Like others we spoke with, he believes employers will eventually bring workers back the office, for reasons involving productivity, communication, efficiency, and other factors, and when that day comes, the market will see a surge in activity.

Pat Goggins

Pat Goggins

“We’re making some nice progress in the level of activity that we’re seeing downtown, and it’s something that more closely mimics what we had been accustomed to.”

In the meantime, this will remain a tenants’ market, with many of the companies looking to downsize or just reduce their monthly rent expenditure finding landlords willing to make attractive deals, another trend that is expected to continue into 2022 and perhaps beyond.

As for the longer term, those we spoke with said that some (again, how much remains to be seen) of the traditional office space in the region will need to be repurposed, and it is incumbent upon those who own and manage it to start looking at viable options.

Stelzer noted that biomed is simply one of many possible alternatives.

“We have to do a really good job moving forward of cataloging what we have available, what we can pivot, what’s available for us, what the economic-development agencies can push,” he said, “because the days of the 200-person call center or 300-person call center are probably gone.

“So we have to turn around and figure out where people have to congregate, and lab space is one of them,” he went on. “There’s also an incredible demand for social services and mental-health space, which is partly driven by COVID and partly driven by the large amount of funding available for it; you may see some of these nonprofits that would typically be in a class B space or in space that doesn’t work as nicely for them taking the plunge and coming downtown or coming to a class A building; they can afford to do it, and demand for their workers is high.”

Stelzer said he’s already seeing such movement at one of the properties managed by Appleton, the Technology Park at Springfield Technical Community College. One of its major tenants, Liberty Mutual, has moved out of most of its space in the park (47,000 square feet) — part of a larger movement to have employees work remotely — and new tenants that have moved in include Mental Health Associates and Clinical & Support Options.

Since almost the very beginning of the pandemic, Plotkin has noted that, in this region, where the office market has traditionally had a comparatively high vacancy rate, the additional stress from COVID will force some property owners to think outside the box and find new uses for their square footage.

For the building he co-owns, 1350 Main St. in Springfield, and others, he has proposed housing or perhaps a hybrid concept, what he calls a “remote-work hub,” a facility in which people would live and work.

“There would be a living space, something like a dormitory, but done in an upscale way, with a lot of amenities,” he explained. “And then you have a work hub. The idea is to have a living space and then a floor where you can lease an office, so you’re not working at your kitchen table.”

Whether the remote-work hub is the answer remains to be seen, he went on, adding that, from his view, it’s clear that something — and something imaginative — needs to happen within the office market, especially in downtown Springfield.

“We have to look at the half-million square feet of vacant office space that we have and examine how we repurpose and reposition that,” he went on. “We also need to look at what kind of help we need from MassDevelopment and the state to incentivize business owners — people like me — to take a building like 1350 Main St. and convert half of it to co-living space.”

 

Bottom Line

Looking ahead to the rest of 2022, those we spoke with said that COVID makes it difficult to project exactly what will happen. Stelzer equated the landscape in the sector to “shifting sands,” and said that, until the ground stabilizes, more uncertainty will prevail.

Overall, the experts are predicting more of the same for the foreseeable future, meaning this will continue to be a tenants’ market in the office realm, and the laws of supply demand will create more movement in the industrial and retail segments of the market.

And it means more hard thinking — and some action — when it comes to deciding what can and will happen within the office market.

In other words, it’s shaping up to be another busy year.

 

George O’Brien can be reached at [email protected]

Commercial Real Estate Sections Special Coverage

Hitting ‘Pause’

 

 

Evan Plotkin calls it the “trickle-up effect.”

He was referring specifically to the pressures placed on the owners of multi-family dwellings and apartment complexes — and also to those landlords’ vendors — when, as a result of job losses forced by COVID-19, tenants cannot pay their rent, yet they’re protected from eviction by state and/or federal legislation.

“Multi-family property-management companies and landlords may be impacted disproportionately to the extent that there are forgiveness rules being discussed that would loosen rent-payment obligations and allow residential tenants to defer rent payments,” he said. “Clearly, unless there are provisions for the property owners to be made whole on the deferral or forgiveness of rent, it could create a variety of economic hardships to those property owners.”

But the trickle-up effect applies to virtually all types of commercial real estate and fallout from COVID-19, said Plotkin, president of Springfield-based NAI Plotkin, who tragically lost his mother to the virus earlier this month. He and other property managers who spoke with BusinessWest noted that the pandemic has forced the closure of all kinds of businesses and severely impacted the cash flow of almost all others. And this has obviously made it difficult for some to the pay the rent.

Some tenants have requested deferrals or other forms of help, but others didn’t exactly ask. They essentially just took them.

“I have some tenants, large, strong companies, that have sent letters saying they have stopped all payments to all vendors, landlords, etc. — period, without any time frame,” said Ken Vincunas, president of Development Associates, which has co-developed and now manages a number of office and retail properties in Western Mass. and Connecticut. “There was no explanation, really, just ‘we’re strong and we’ll be back, but … we’re not paying you.’”

Vincunas, who was in the process of writing e-mails to those at the top levels of those companies saying that such tactics were “un-American, like hoarding, and not the right thing to do,” said many other large companies have been far more diplomatic, with actual requests for 50% of rent payments, with offers to pay it back over the next six to 12 months.

Meanwhile, others we spoke with said they are working with tenants while also introducing, or reacquainting, them with the phrase force majeure (more on that later).

Ken Vincunas

Ken Vincunas

“There was no explanation, really, just ‘we’re strong and we’ll be back, but … we’re not paying you.”

But issues with collecting rent comprise just one of the many COVID-19-related challenges now facing commercial real-estate brokers and managers. Others include trying to do business differently, with many people working remotely; a dramatic slowing of activity within the market as companies pause to assess the damage and debate whether to move forward with planned deals; and emerging concerns that, as time goes by and companies see the advantages to having people work at home, companies may adjust their needs for space downward in the years to come, creating more problems for building owners.

“Businesses are getting a test run right now with working from home,” said Plotkin. “And if that works for them, there’s a strong possibility they might want to continue that, which would create havoc in the office-leasing market — and the office-investment market.

“Everything flows from the occupancy of your building,” he went on. “If your building becomes less occupied, it’s worth less, the market value goes down, and it triggers all kinds of things that are not necessarily good for the office-business market; that’s a clear fear that we have.”

Jack Dill, a principal with Springfield-based Colebrook Realty Services, which manages a number of properties across the region, agreed, but offered the hope that these ongoing experiments will lead some to conclude, as he has, that having people working in one place promotes collaboration.

“Work is a social enterprise — it’s about relationships, and it’s about trust,” he told BusinessWest. “It’s about the free flow of information, and that’s a lot harder when people are disbursed.”

Vacancy Signs

As he talked with BusinessWest in mid-April, Vincunas noted that he had recently sent in his application for relief from the SBA-administered Paycheck Protection Program.

The application was made to essentially cover the costs of keeping the staff at Development Associates’ small office in Greenfield — located at the Greenfield Corporate Center, which the company manages — on the payroll.

And that’s just one of a long list of COVID-19-related hardships that the company is coping with. Indeed, Vincunas noted that one staff member, concerned about the health risks associated with coming to work, abruptly retired several weeks back, prompting some shuffling of duties and leaving the company generally short-handed.

“She didn’t want to leave the house,” he noted. “And that really set us back. She retired, and that was that, leaving us to pick up the slack.”

The story is generally the same with other property managers and brokers, who are, like businesses in virtually every other sector, coping with new realities when it comes to where and how work is being conducted.

Evan Plotkin

Evan Plotkin

“Businesses are getting a test run right now with working from home. And if that works for them, there’s a strong possibility they might want to continue that, which would create havoc in the office-leasing market — and the office-investment market.”

As for business itself … on the brokerage side, things have slowed considerably, as might be expected given the vast amounts of disruption, fear, and general uncertainty caused by the pandemic.

But some deals have been completed. Vincunas said he signed on a new tenant at the beginning of the crisis, and some smaller build-out efforts — being undertaken “slowly and carefully to ensure social distancing” — are in progress.

Dill said the ‘deal flow,’ as he called it, is still moving, and his company closed on a few leases early in April. Properties are still being shown, he went on, albeit carefully, and while observing certain protocols, such as frequent use of hand sanitizer and sanitizing frequently touched surfaces.

But, like others we spoke with, he noted that, as the crisis has continued, the pace of business has slowed, and many who were in the exploratory stages of a potential move have backed off, waiting for the skies to clear.

“We’ve had some say, ‘interesting, attractive property, we’re interested, but things are so unsure, let’s let this settle down and we’ll re-engage at the other end of this.’”

Vincunas agreed. “At the beginning of this, I lost three hot deals that were going ahead, and none of them have come through,” he said, noting that one involved a building in Agawam he was going to buy and lease to an interested tenant. That interest is now gone.

“I had two other tenants who were going to lease space in a building we own already, and both of them said, ‘we have to slow down, things are changing … we don’t know,’” he went on. “Everyone has this uncertainty, and they’re thinking, ‘let’s not do anything for a while.’”

As for existing tenants, while some are experiencing something approaching business as usual — Vincunas has a kidney-dialysis venture and an ambulance company in his portfolio of tenants, and they certainly fall into that category — many have been forced to close their doors because they’re not essential, and most others are hurting to some degree.

Therefore, property owners are working with these tenants, offering some deferrals on at least a portion of their rent, Plotkin explained, noting that there is what amounts to a ‘base rent’ amount in each lease, as well as an additional amount to cover operating expenses, including security, cleaning, utilities, and others.

“The base-rent amount can be deferred, not abated, for a period of time,” he explained. “But the amount for operating expenses can’t, because we still have to keep the lights on, and we still have to pay the bills.”

Extraordinary Times

This brings us back to ‘force majeure,’ a common clause in contracts that essentially frees both parties from liability and obligation when an extraordinary event or circumstance — such as a war, riot, hurricane, or flood — prevents one or both parties from fulfilling their obligations under the contract.

A pandemic certainly fits that description because some businesses have been forced to close by state decree, and almost all others have been negatively impacted in some way. It’s the force majeure clause that no doubt prompted those letters that Vincunas described earlier.

Dill said Colebrook is working with clients on a case-by-case basis, and is working with tenants experiencing hardships. Like the others we spoke with, he referenced the trickle-up effect, or the ripple effect, that tenants not being able pay some or all of their rent will generate.

“When you go to the next circle out … if landlords have tenants who can’t operate and therefore don’t have the cash flow to pay rent and other changes, that immediately impacts landlords and their ability to meet their obligations, including debt service,” he explained.

While coping with the present, those we spoke with are also looking to the future, and they project that the pandemic will change the landscape in perhaps profound ways.

For starters, Vincunas believes that the current trend toward more purchases being made online, with items — from groceries to books to sporting goods — being delivered to the home will continue, and it will drive need for additional warehouse space.

“So many things are drop-shipped,” he explained. “The warehouse and logistics business is due for a big infusion of activity, just by the nature of a growing reluctance among people to leave the house.”

Conversely, this trend will negatively impact the retail side of the business, a trend that’s already playing out on Main Streets and in malls across the country.

But it’s the office sector that has those looking down the road most concerned. Indeed, those we spoke with said it’s possible, and perhaps likely, that companies will learn from this pandemic that there are advantages to having some people working at home and fewer people at the office. And, eventually, this will lead to downsizing and less overall demand for office space.

“The office market, and retail, are the two sectors of real estate that will be most impacted by this,” said Plotkin. “In the case of office, we were seeing some pretty good momentum right before COVID-19 — Springfield usually lags behind, but nationally, the office segment was doing very well. That has come to a complete standstill.

“And the fear amongst my colleagues is that people are starting to realize that this home-work model works for them, and will this replace the need for office space?” he went on. “It remains to be seen how this is going to play out, but that’s a real fear out there; as leases renew, those tenants might be evaluating whether they need the amount of space they occupied. They may do a home/office model that would reduce the amount of space they need.”

Those we spoke with are certainly hoping that, while businesses get this ‘test run,’ as Plotkin described it, they decide there are advantages to having co-workers in one place.

“That collaborative model is important for innovation,” said Plotkin. “Having people together in close proximity offers the sharing of ideas and collaboration in ways you can’t get with a Zoom meeting.”

Dill agreed. He said companies, and his is one of them, are experimenting with having workers dispersed and working from home, and some of the results are trickling in.

“It’s working pretty well,” he said. “But it’s not the same as having your people together, where they can meet casually, sit down in the same room, and solve a problem.”

Time and Place

Just what will come of the ongoing ‘test run’ of remote working remains to be seen.

What’s clear now, though, is that this pandemic is having a significant impact on the commercial real-estate market locally, and across the country.

The ‘trickle-up’ effect, as well as the trickle-down effect, are real, and as the crisis continues, the toll it is taking on this important sector continues to mount.

George O’Brien can be reached at [email protected]

Banking and Financial Services

Volatility Is the Order of the Day

By Jean Deliso

Jean Deliso

Jean Deliso

The market has acted like a roller coaster in recent months, up one day, down another — but where will it end up?

Most investors tend to get unsettled and concerned by such market conditions, and if you are in that group, now is the time to speak to your financial professional to ensure that your investment allocation is consistent with your financial goals. Those investors with a near-term retirement timeline generally should be more focused on preservation of capital. Those with multiple years or even decades before retirement can take a longer perspective as they have more time to wait out market volatility.

All investors should remember to be calm. The worst mistake in this market, or any market, is to try to time the ups and downs. Granted, this volatility can be unnerving, but it’s the price we pay for the potentially greater returns from investing in equities.

In the past 20 years (2000 to 2020), there have been at least two major bear markets with short-term losses in value around 50%, yet it’s also true that, from Dec. 31, 2002 to Dec. 31, 2018, the S&P 500 stock index tripled in value.*

Zacks Investment Management, one of the portfolio managers I work with, produced a white paper listing four reasons to expect more volatility in 2020. I think it’s worthwhile to share some of these highlights:

Reason 1: We cannot ignore history. Over the past 38 years, the S&P 500 has had corrections; they are frequent, and they are the norm.

Reason 2: Low volatility generally gives way to high volatility. From October 2019 to January 2020, the S&P index experienced an unusually low level of volatility. From a historical perspective, such periods of low volatility tend to give way to periods of high volatility. We saw examples of this type of market behavior prior to January 2018 and October 2018.

Reason 3: Stock buybacks are on the decline. Stock buybacks are a corporation’s main tool for reducing outstanding supply of shares, and thereby boosting shareholder value. Stock buybacks were down in 2019, with more declines expected in 2020. Fewer buybacks could mean a tougher road for corporations exceeding their earnings per their share targets. This could make investors jittery.

“The bottom line is that volatility can be a good thing for equity markets, sometimes unsettling but it is normal and to be expected.”

Reason 4: It’s not a straightforward election year. This does not necessarily refer to a political outcome, but more concerning is alleged foreign interference, and potential contested results, civil unrest, and other extraneous factors that might lead to a period of political instability.

 The bottom line is that volatility can be a good thing for equity markets. Though sometimes unsettling, it is normal and to be expected. I tend to agree with Zacks that the S&P 500 index is due for a correction this year on par with the historical averages after several years of increases. We could experience a correction in the 10% to 15% range.

Let’s remember that dollar-cost averaging can be a great tool in managing short-term volatility as well. While no one can predict the future, and the past is no guarantee of future results, historical performance has shown that market downturns can offer attractive investment opportunities, and dollar-cost averaging can help in this regard.

Remember, though, that dollar-cost averaging does not ensure a profit and does not protect against loss in declining markets. It involves continuous investing during a period of fluctuating price levels. To maintain such a strategy, investors should consider their ability to continue investing through differing market conditions.

This article would not be complete without mentioning continuing concerns about COVID-19. As a society, we don’t know enough about it yet to understand how pervasive it will become and how long it will impact the markets. It’s too early to assess the ultimate impact of the virus. Headlines continue to focus on the spread of the virus and those who become ill; however, one should keep in mind that most people who have contracted the virus have gone on to make a full recovery.

Weaker global growth does not often mean recession in the U.S., and the consumer remains a strong factor against a U.S. recession. Lower rates may further boost the housing market, and both manufacturing and wholesaling inventories are at high levels in the U.S., which could mitigate supply-chain disruptions from Asia. More accommodative monetary policy could serve to calm the financial markets and minimize the economic and psychological impacts.

From a financial perspective, it’s important to maintain a diversified portfolio for times like this, and in panicked environments, it’s imperative to keep a level head rather than simply react. Those investors with longer time horizons should try and remain calm and patient when volatility takes hold.

A well-designed financial allocation consistent with your risk tolerance and investment goals is the key. Investors tend to make short-term decisions with long-term assets, but it is important to keep a long-range approach with your money and stick to your investing goals.

For the shorter-term investors, now is a good time to connect and review your plans with your financial professional. Double-check to make sure that your goals and objectives are still in line with your investments. Also, it is important not to stay passive on the sidelines, as investors we need to be engaged in the process and be a full participant in the process.

Jean M. Deliso, CFP is a financial advisor offering investment advisory services through Eagle Strategies LLC, a registered investment adviser, and is a registered representative of and offers securities products and services through NYLIFE Securities LLC, member FINRA/SIPC, a licensed insurance agency. Eagle Strategies and NYLIFE Securities are New York Life companies. Deliso Financial & Insurance Services is not owned or operated by NYLIFE Securities LLC or its affiliates. Neither Deliso Financial & Insurance Services nor Eagle Strategies LLC or its subsidiaries and affiliates provide tax, legal, or accounting advice. Please consult your own tax, legal or accounting professional regarding your particular situation.

*Source: Standard & Poor’s 500 index, 12/31/18. Average annual returns are based on the S&P 500 Index from 12/31/02 to 12/31/18. Large-capitalization stock performance is measured by the S&P 500 index, an unmanaged index considered to be representative of the U.S. stock market. Prices of common stocks will fluctuate with market conditions and may involve loss of principal when sold. Results assume reinvestment of all distributions, including dividends, earnings, and expenses, and are not indicative of any past or future returns of any investment. It is not possible to invest directly into an index. Past performance is no guarantee of future results.

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