First of all, thank you for talking with us! How are you doing in the new age of social distancing?
I am adjusting. What I find challenging is that humans like being around other humans. Not being in the office, you do not have the same level of personal interaction. Otherwise, everything we have had to do we have been able to do virtually on Zoom or Microsoft teams. So far Microsoft teams has been free of “inappropriate” visits by third parties
How has this affected projects that you are currently developing?
The number one real effect is that a lot of projects need government approvals and many municipalities are not working or working very limited hours, so this has put a strain on the timelines and schedules we had previously drawn up. In some cases, for projects that we have under construction or where we are working through the tenant improvements, we have been able to manage with third-party inspectors. In recent days, we are seeing municipalities making a conscious effort towards accomplishing approval and review in the high tech world, just slower than us developers would like. For example, Doral has stated that they are doing plumbing inspections remotely; it will be interesting to see what a virtual plumbing inspection would look like. Moving forward, it will be interesting to see how they do this as well as other inspections virtually. We have also heard that the City and Counties are trying to do commission meetings online. Hopefully, this will help the process of governmental approvals in general as municipalities adopt new technologies and virtual tools to get the job done.
We all have lived through ups and downs of the real estate cycle. We would say this particular one is different. Can you comment?
This is either my third or fourth downturn in my career. This is unique since it does not really involve a banking crisis. It involves an “enemy” that is unfamiliar to us and as such, we are in uncharted water. We have been on calls with capital partners who will now pause and reassess, but almost always moving forward with prior commitments. Pricing is being reevaluated and repriced. We have gone back internally and looked at all projects and done a stress test and we have rerun the models for the best, worst and middle cases. We went back and looked at what the market did in the last three downturns to reflect downturns and adjusted values based on the market’s response in other downturns. In our case we are fortunate that we don’t have a lot of debt in our projects – overleveraging in the 1980s caused a lot of developers to go under.
We are all having problems figuring out how long this downturn will last. Can you comment?
We have different economists give us different advice. We have heard it can be a V shape decline and recovery cycle, but also potentially a U shape, or more gradual recovery. We hope for a V shape recovery but I believe a U shape may be more realistic. In either case, these economists believe that we will see a recovery start in the beginning of 2021. The one thing that is disturbing to all of us is predicting how long it will take the economy to come back with everyone out of work. We know the government is throwing a lot of money at the problem – we see the market is up today but don’t know when it will be down. The day we find a vaccine will be the day that we can smile again and be with our buddies.
Anything else you would like to talk about? When will the Clemson Tiger’s be on the field again?
If you listen to Dabo it will be an on-time season, but unfortunately, Dabo doesn’t make these rules. But Dabo is a great guy and if anyone could talk God into allowing football season it would be Dabo.
Any other advice for your compadres who will be reading this?
The way I have gotten through all adversities is to look at the world as a glass half full. It will come back – we don’t know when.
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