> This is exactly why we have bankruptcy!

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.

Which is also the point of financing and securities.

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.

----------

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.

I hope it ends up causing residential real estate prices to fall as a consequence. Maybe then millennials will be able to afford homes.

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.

> 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.

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.

> 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

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.

Except investments generally haven't tanked. NASDAQ is at an all time high... again. In general, if you held or bought more during the March crash, you'd be up now. Every investment I made then is up double digit percentages, some way more. The market is completely divorced from reality. I haven't seen gains like this since the 90's.

>How else can we think about an expense of hundreds of thousands of dollars?

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.

From a public policy perspective, encouraging home ownership was arguably a mistake, but that is a seperate issue.

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.

> How else can we think about an expense of hundreds of thousands of dollars?

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?

If homes were not treated primarily as investments, I don't think you'd be spending that much.

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).

That's the irresistible force (drop in salaries) meeting the immovable object (bank valuations of real estate). It's impossible to see how this is going to be squared up. On one hand, banks cannot possibly be allowed to re-value what real estate they have on their books, else they'll have to declare bankruptcy, on the other hand, wages have dropped spectacularly, and people need some sort of roof over their heads.

> banks cannot possibly be allowed to re-value what real estate they have on their books

Tell me more about this? Why can't banks re-value things that constantly change in value?

The next fragment, "else they'll have to declare bankruptcy", is pretty much the answer. And as we learned in 2008, they're also "too big to fail", so that won't be happening.

Everyone still wants to live in cities. Firms want to settle in cities. If shops close, it wont change much.

If the shops close, do people still want to live in cities? Isn't that part of the point of living in a city - that you have all these businesses easily within reach?

It's the jobs. People didn't migrate from rural to urban in the last several hundred years because they wanted the shops, they went where the highest concentration of jobs were. Moving to a rural area won't help people find jobs.

You mean the jobs that are likely to be at least somewhat less location-dependent coming out of this? (Not arguing for 100% remote or anything like this but still a fairly major shift. I certainly know plenty of people who have already moved out of cities to quite rural locations.)

I think this is another case of knowledge worker myopia. With the exception of Amazon, you can't really work retail remote. Those workers who can work remotely now can leave at any time, that's right, and there has been a bigger shift for them, but we can't pretend that the majority of workers are remote workers. The people who had to come to the city for work, people who worked in retail or in industry, those types jobs aren't moving back rural. You can't work a factory where one isn't and you can't open up retail locations in the middle of nowhere.

Certainly, I'm specifically talking about the highly-paid knowledge workers in cities. But if they move out to any large degree that cascades. You don't need the higher-end luncheon spots and other amenities those workers use at that point. There aren't generally factories or distribution centers in cities.

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.

You could see commercial real-estate be converted to residential.

How much does that cost, and is anyone going to pay that cost when residential rents are also falling? Commercial property is so different from living quarters that I wouldn't be surprised if "conversion" isn't actually possible, short of just razing it and building from scratch.

I've seen that conversion in Silicon Valley.

There is the Valco mall in Cupertino being demolished for mixed use residential, retail and office space. That mall was dying for a decade.

https://revitalizevallco.com/

Then there is Santana Row in San Jose. Used to be a strip mall as I recall. Now its high end shopping and residential.

https://en.wikipedia.org/wiki/Santana_Row

In practice unfortunately most attempts seem to get aborted as zoning requirements differ too much to be economical. For one the plumbing tends to come with per resident requirements for the units they wish to sell for health code reasons of wanting a shower, toliet, and bath.

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.

Won't somebody please think of the landlords and banks

I don't understand this attitude that someone who decides to invest their money into real estate instead of the stock market should be derided as a plague on society, as if it's not much more work to be a landlord than a stock market investor. When you are a landlord, you have to worry about tenants that don't pay (and threaten you with physical violence when you try to collect), tenants that damage your property, having to fix the property (some even do their own work to save money). You might not even be able to evict a problem tenant easily without some long dragged out court case, during which time you are collecting no rent. When tenants move out, you worry about how long it will take to find another tenant, as mortgage payments and taxes and repairs don't stop when there is no tenant. You have to worry about the local market situation changing, perhaps some new construction like a factory might make your property less desirable, perhaps young people just think that the area is played out, and so you will have to try to sell your property ahead of the change while looking for a new one. You have to constantly track possible changes in other neighborhoods as potential places to buy if needed. This information is not available online, you have to beat feet and constantly talk to other people and track down rumors, trying to get the big picture over all the little neighborhoods in your city. And if you are actually forced to sell and buy somewhere else, you have to spend months or years going all over the city to find another property (good real estate are just not on the market that often). Mistakes have a huge cost, and a poor choice could wipe you out as you are locked in to a property that doesn't bring income and have no buyers. You have to worry about tax laws and real estate laws changing, maybe forcing you to sell at a loss just to avoid a bigger loss later. Landlords are not people sitting on the porch, drinking iced tea and twirling their mustache while the money gets delivered in big bags. There's a lot of work and stress that goes into it, just like most other jobs.

I don’t think it’s derision, just the attitude that people in power ought to defend themselves.

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.

I was referring to landlords, which many of mine have been just small time business owners who scrimp and save to make a living. One lived in the garage of the house he was renting out in order to make ends meet. Technically they have the power since they own the properties, but laws are very tenant friendly, and often landlords get left with the short end of the stick if there is a dispute.

This is not a useful anecdata-driven analysis of the commercial real estate market. Yes, landlords like the ones you know do exist. They do not own substantive commercial real estate, and certainly not the stuff the Neiman Marcus or GNC have been renting.

You are right about Neiman Marcus, as they occupy huge spaces in shopping malls. However, GNC stores are very small, and many are in strip malls, which can cost only a few million to purchase, not out of the range of small business owners with some collateral. At a cursory search, I can't find any numbers on the percentage of CRE owned by institutions and corporations, do you have any data you can share?

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.

"small business owners who scrimp and save to make a living", to me, is not really aligned with "a few million to purchase". Perhaps it is for you.

It seems like you are assuming that the few millions used in the purchase are 1. liquid, and 2. all from the owner. Many owners take out a loan to purchase property, so they are paying monthly mortgage. Also, the millions are locked up in the property and is inaccessible, so they have to live off of the rental income from the property. A $3M property with a 5% CAP, which is not bad for the US, nets the owner $150k a year, hardly Rich Uncle Pennybags' level of income. Subtract mortgage and any taxes/insurance/repairs not covered by the tenant, and also self purchased health insurance, and you are basically living a middle class lifestyle. If things go awry, such as a few bad tenants or unfavorable changes in local rental market, and you're in a situation similar to being "house poor", where you have a high value asset, but not a lot of cash for day-to-day expenses.

150k a year is nearly 3x the median household income. I'm sorry, but I don't regard this as someone who "scrimps and saves to make a living". Yes, they are not part of the 0.01%, but that level of income puts them in the top 15% or so, and talking about such landlords as if they are representative of an average person is misleading. They are not wealthy mega corporations, that is true. But they are people in vastly more fortunate positions that the vast majority of the population, and although there's no reason to be punitive towards them, I don't find their situation incredibly demanding of sympathy.

You are correct. Such earnings are above the median. Note that typical incomes are heavily based on salaries, and will not have the expenses of a business owner (such as the ones I listed earlier), and thus the $150k income of the business owner does not equate to $150k of a wage earner. Since business expenses can vary widely, it's hard to put an estimate on what the equivalent wage is, but consider it more like a $75k salary -- definitely above average, but still clipping coupons and waiting for sales and applying for financial aid when the kids go to college.

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 think you missed my point, that eventually the pain will trickle down to the rest of us at the bottom. I should have continued the domino metaphor to this conclusion to avoid misunderstanding, I'm sorry.

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.

There is a lot less pain tricking down if the lenders and real estate owners take the brunt of it.

I think you vastly underestimate how over-leveraged everyone is.

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.

You are right, sadly Schadenfreude (gloat?) would mean a non-trivial relief to the pain of many people

My point was someone has to bear the losses. Forcing the owners to bear those losses means the rest of us don’t, which is a while lot less pain in general.

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!”

There's a difference between strategic failure caused by poor management and interruption of a viable business by an external event - force majeure.

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.

One could make an argument based on what we've seen during COVID19 so far that very large sections of the US economy are not genuinely viable. They've been fabricated out of the whole cloth that we call debt, they have almost zero resilience in the face of negative economic factors, and they participate in widening income and wealth inequality by not actually being the locus of viable family-supporting jobs.

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.

It’s going to have severe consequences somewhere down the line as I don’t believe anything nearing the magnitude and density of the coming bankruptcies has ever occurred. That being said I agree it’s meant to be this way, and I will always prioritize RESPONSIBLE business trying to restructure and preserve jobs over landholders who basically do very little work while extractIng as much rent out of their tennants as they possibly can without them leaving.

Ever? 1929, maybe? Crash of 1879?

Or am I being uncharitable, and you mean recently?

There was a lot more regional and even local independence in the economy when these happened. Vastly more people still worked in agriculture, and economies produced far more of what they needed within much more limited areas. 1929 was bad, but the economy then had more of a "node" structure. Today, it is more of a "web", and tugging hard anywhere stands a good chance of pulling the whole thing apart.

The problem with external shocks is that during the "readjustment", people still have to eat. The people who worked in the shops, the people who own the buildings etc.

In the end, just keeping companies afloat through rare shocks might be the cheapest option.

Market economies create efficiency, not resiliency.