3rd Quarter 2021
by Joe A. Hollingsworth, Jr.
I am one that thinks that the stock market is priced to “virtual perfection”. So, if everything works out as envisioned by investors, the stock market is “likely” to stay close to where it is for a year or so. But, a big part of me can see that we are setting the economy up for an obvious slowdown in stimulus that could create a 6,000 to 8,000 points decline in the DOW. So, what if that happens? How is it going to affect industrial real estate, contractors, subcontractors, etc.?
We believe that the underlying economy is amazingly strong; and generally, the fundamentals are in good shape (minus labor). Therefore, we have taken the investment stance that the demand for new space will continue at nearly the same rate through the end of the year. However, if the stock market selloff occurs, does it damage the underlying fundamentals? The answer is a resounding “No”. However, great damage can be done by the new administration to those fundamentals. Strains the new administration are causing or proposing are: 1) starving us for labor so they can finally get the $15.00 per hour by bidding up scarce labor prices; 2) executive actions that the court system has roughly already overturned 1/6 of all the actions and another six are in process of being overturned with another 1/6 of them being attacked by various groups; 3) giveaways – encouraging the Russia pipeline completion (Nord Stream 2) and starving out Keystone (our pipeline); 4) give Iran nuclear weapons over a period of time; 5) “act” like you are being tough on the biggest American threat (which is China); 6) a borderless nation and resulting in massive illegal immigration; 7) real estate 1031s elimination; 8) doubling the long-term capital gain tax rate; and, 9) ignoring obvious inflation that is ridiculous when compared to two years ago (take out the COVID year). All of the above factors and more can add up and greatly affect the economics of many potential expansions or new locations industrial in real estate. As difficult as the above factors are, they are not likely to “kill” the golden goose.
While the immediate future for our industry is strong, the many potential speed bumps are seemingly getting more numerous. Business hates variables. However, in spite of so many factors being present, the amount of investment capital has to go somewhere, and too much of it is sitting on the sidelines. This coupled with the fact that the federal reserve seemingly thinks that the continuous stimulus of some form will keep recessions (the natural selection of good companies over bad) from occurring. In fact, as unpopular as it is, recessions always make a stronger economy comeback and reteach us the lessons of healthy capitalism.
I know today’s industrial real estate gets a gold star; but, a year from now, we will be very happy to settle with a silver star and a stable economy.