May 2020 Market Update Investor - Investor Letter #13

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May
2020
Monthly
Market
Update
REAL ESTATE
INVESTING FOR THE
WORKING
PROFESSIONAL
WHO IS NOT LOOKING FOR ANOTHER JOB
WITH
LANE KAWAOKA
SimplePassiveCashflow.com/investorletter

Lane Kawaoka, PE
Lane@SimplePassiveCashflow.com
For a free e-version text “ebook” to 587-317-6099
Email: Lane@SimplePassiveCashflow.com
Consult: SimplePassiveCashflow.com/contact
Freebie: eCourse trial - text “simple” to 314-665-1767
REAL ESTATE
INVESTING FOR THE
WORKING
PROFESSIONAL
WHO IS NOT LOOKING FOR ANOTHER JOB
WITH
LANE KAWAOKA

Lane Kawaoka, PE
Lane@SimplePassiveCashflow.com
FREE PODCAST ON
ITUNES/GOOGLE PLAY
OUR COMMUNITY

FREE INVESTOR DOWNLOAD TOOLKIT:
SIMPLEPASSIVECASHFLOW.COM/START
Not ‘Faux’ NewsData Reports & Commentary by Lane & Friends
Under Armour to
Furlough 6,600
Workers Beginning
April 12
Posted on April 6, 2020 by Taylor Williams in Company
News, Maryland, Southeast, Top Stories

https://www.cpexecutive.com/post/unemployment-claims-top-6-6-million
https://www.cpexecutive.com/post/us-braces-for-more-job-losses/

GDP fell at a 4.8% annual rate, the first quarterly drop since 2014 and the
worst quarterly drop since 2008.
Consumer spending plunged 7.6%, the most since 1980. It accounts for
~70% of GDP.
Services dropped the most on record, driven mostly by one industry:
healthcare. The pandemic required providers to pull back on profit drivers
like elective procedures and routine visits. 43,000 healthcare jobs. Medical
practices have temporarily furloughed staff, while 22% have laid people off
permanently, according to one survey.
Next quarter, economists are projecting at least a 30% annual decline.
“We are going to see economic data for the second quarter that is worse
than any data we have seen for the economy," Jerome Powell said
yesterday.

https://rebusinessonline.com/u-s-economy-loses-701000-jobs-in-march-due-to-efforts-to-contain-spread-of-coronavirus/

SOURCE: https://www.cbre.com/-/media/files/the-weekly-take/theweeklytake_market_050120.pdf
WEEK IN REVIEW
Ignore Q1 GDP; Difficult Q2 Will Give Way to Staged Recovery
• We appear to be past the peak of infections, but U.S. GDP is expected to contract severely in Q2
before giving way to stronger growth starting in Q3, supported by government stimulus and pent-up
demand.
• While New York faces job losses in April and May, office-using employment is down only 0.8% from its
peak, reflecting the local economy's strength heading into the crisis.
• First-quarter seasonality typically reduces Chicago's total employment by 2.0%. The drop in Q1 2020
was not far off at 2.5%. With stay-at-home restrictions through May 30, job losses likely will worsen.
• Los Angeles job losses have been heavily concentrated in retail and hospitality; a quick rebound is
anticipated as the local economy may reopen within weeks.
• Dallas/Fort Worth, Houston and Atlanta are hopeful markets to watch as their economies begin to
reopen in phases.
• Washington, D.C. has been less severely impacted than other markets and has a stable outlook,
underpinned by the government sector.
• Boston and Philadelphia are bolstered by a tenant base weighted to life sciences, which remains a
growth sector.
• The presence of fledgling venture-backed firms raises caution in tech-driven San Francisco.
• In Asia Pacific, loosening restrictions in Hong Kong, Shanghai and Beijing have precipitated economic
growth as retail activity picks up under a phased reopening.

SOURCE: https://www.cpexecutive.com/post/frontline-workers-get-access-to-3m-hotel-guestrooms

https://www.wsj.com/articles/nearly-a-third-of-u-s-renters-didnt-p
ay-april-rent-11586340000

SOURCE: https://www.multihousingnews.com/post/majority-of-tenants-paid-april-rent-report
https://www.nmhc.org/news/press-release/2020/nmhc-rent-payment-tracker-finds-rent-payment-rate-at-93-percent-of-prior-month/
Rent Payment Rate at 93 Percent of Prior Month

SOURCE: https://www.multihousingnews.com/post/will-student-housing-be-impacted
“I think the reality is, it’s a fairly
likely scenario that some of
the preleasing will be
backloaded until parents and
students feel comfortable that
university’s fall semester will
open,” said Katz.

SOURCE: https://www.cpexecutive.com/post/how-coronavirus-is-impacting-office-leasing
“Tenants and landlords are all trying to
work together, understanding the
respective needs of one another. I’d even
go so far as to say lenders are doing the
same thing,” said Levering. “Everybody is
trying to play nicely in that sandbox.”

SOURCE: https://www.citylab.com/life/2020/04/coronavirus-safe-travel-airbnb-rental-business-host-bailout
Can Airbnb Survive
Coronavirus?
FEARGUS O'SULLIVAN
APRIL 3, 2020
Across the world, Airbnb bookings have tanked. Data analysts at AirDNA
say that bookings across Europe collapsed in March, dropping 80%
compared to the previous week in the week beginning March 9, and another
10% on top of that in the week of March 16. In the U.S., where virus
response lagged, the figures for falls in booking are uneven, but scarcely less
dramatic. By the middle of March, bookings in New York City, San
Francisco and Seattle had already dropped more than 50% compared to the
week beginning January 5, with drops of over 35% in Washington, D.C., and
Chicago.

SOURCE: http://www.greenstreetadvisors.com/

SOURCE: https://www.multihousingnews.com/post/best-value-in-downturn-may-be-workforce-housing
vulnerable industries
(hospitality and food), only about
3.3 million (18.6 percent) live
in multifamily rental
apartments. About 9.4 million
(52.7 percent) lived in
owner-occupied housing and
the remainder (28.7 percent)
lived in rental housing that is
not multifamily, such as
single-family homes,
townhomes, duplexes or
mobile homes.

CBRE (4/9/2020) Executive Summary
● COVID-19 and its impact on the U.S. economy will lead to increased multifamily vacancy and declining rents over at least the next two
months.
● CBRE Econometric Advisors (CBRE EA) expects the multifamily market to bottom out in Q3 and begin a recovery in Q4.
● Overall vacancy is expected to rise 2.7 percentage points to 6.3% by Q3 2020 from its recent-low 3.6% in Q3 2019 and to recover fully in
2021.
● Rents are projected to drop 6.7% from peak (Q3 2019) to trough (Q4 2020). Rent recovery should begin in Q1 2021 and be completed by Q2
2022.
● The Federal Reserve pledged to keep interest rates near zero until full employment returns and inﬂation exceeds 2%. (4/29/2020)
Vacancy Recovery to Start in Q4
BRE EA projects multifamily vacancy to rise 2.7 percentage points to 6.3% in Q3 2020 from the most recent low of 3.6% in Q3 2019. Vacancy should
begin to decrease in Q4 2020 and return to its former low levels by Q3 2021—a relatively rapid recovery phase.
Rents Projected to Fall through 2020 and Rebound in 2021
Rents are expected to decline through 2020, with lower rental rates for new leases and renewals. Average rent is projected to drop by 6.7% to $1,603 in
Q4 2020 from $1,717 in Q3 2019. A healthy rebound in rents is expected through 2021. Rents should reach their pre-coronavirus level by Q2 2022.
Changes in rents and vacancy do not fully capture the income downside for property revenues. Economic downturns lead to much higher revenue
losses from credit defaults (residents not paying rent). Additionally, this downturn has a new factor that could weigh on rent collections in that some
residents may not be able to pay back deferred rent payments.

SOURCE: https://www.cnbc.com/2020/04/11/jpmorgan-chase-to-raise-mortgage-borrowing-standards-as-economic-outlook-darkens.html
● From Tuesday, customers applying for a new mortgage will need a credit score of at least 700, and will
be required to make a down payment equal to 20% of the home’s value.
● The change highlights how banks are quickly shifting gears to respond to the darkening U.S. economic
outlook and stress in the housing market,
● More apartment renters!
● Lower condo prices

Fannie Mae- and Freddie Mac-backed lenders are
requiring 6-18 months payments (PITI) in reserve at
closing prior to funding deals; what they are saying is
that it depends on debt service coverage ratios. This
can have a negative impact on whether a deal works or
not, as you may have to raise more money from
investors, lowering the returns to investors and you

From CBRE - Interest Rate - March 16, 2020

SOURCE: https://www.cpexecutive.com/post/top-15-fastest-growing-megacities-whats-changing

SOURCE: AAA

SOURCE: https://www.cpexecutive.com/post/grocery-stores-pick-up-while-most-retail-slows-down

What is impacted the
most?
https://www.nytimes.c
om/interactive/2020/0
4/11/business/econom
y/coronavirus-us-econ
omy-spending.html

SOURCE: https://rebusinessonline.com/roark-capital-invests-200m-in-the-cheesecake-factory-amid-pandemic-related-closures/

SOURCE: https://rebusinessonline.com/amli-buys-multifamily-development-site-on-south-broadway-in-denver
AMLI Residential focuses on the
development, construction and
management of luxury
apartment communities. The
ﬁrm currently owns and
manages more than 21,000
apartment homes in 16 cities,
including 13 properties in
Denver totaling more than 4,000
units once AMLI Broadway Park
and AMLI RiNO come on line.

SOURCE: https://www.cpexecutive.com/post/cmbs-late-payments-starting-to-mushroom

SOURCE: SimplePassiveCashflow.com/covid19

Check IRS.gov for the latest
information: No action needed by
most people at this time
IR-2020-61, March 30, 2020
https://www.irs.gov/newsroom/ec
onomic-impact-payments-what-yo
u-need-to-know

AAAA

https://www.
bloomberg.c
om/graphics/
2020-sba-pay
check-protec
tion-program
/?fbclid=IwA
R0F54mM2xl
BjkbiGbXrh1
QAReut8Ros
-FHOmWsjr
0Xh3oozXd
GJ_9DX0Hc

No more DRY POWDER

Key Provisions Of COVID-19 Stimulus Bill Enacted March 27, 2020
➢ Allows 5-year carryback of net operating losses [NOL] for non-REIT business for 2018, 2019 and 2020.
➢ Increases the limitation on deductible business interest from 30% to 50% of EBITDA for 2019 and 2020.
➢ Excludes from income the cancellation of debt related to new, emergency small business loans.
➢ Provides small businesses [tenants] with $367 billion in loan assistance.
➢ Provides payments to many individuals and families, extends unemployment insurance and other social
safety net programs.
➢ Lifts reductions in paper losses for three years.

Markets Likely To Experience A Long, Post-COVID-19 Recovery
➢ Florida: 127m – 130m visitors per year, over 19% of the population is 65 and older, the annual threat of
hurricanes and high cost of living. Could take 24 months or longer to recover [albeit below historical
levels].
➢ New York: Emerging as the epicenter of coronavirus, compounded by decades of bureaucracy, among
the highest state and local taxes in the U.S., nearly $70 billion in unfunded pension liabilities, New York
was the #1 “move out” state in 2019 and dependent on nearly 63 million tourists per year. Watch for deal
volume to decline, tenants to relocate out of NYC and visitation totals to drop significantly.
➢ Illinois: High corporate taxes [45% increase in January, 2020], high property taxes, a net migration rate,
a $137 billion unfunded pension liability with a $250 billion obligation that is growing, and that doesn’t
include $30 billion in unfunded pension liabilities for the City of Chicago. Watch for tenants to relocate
all or a portion of their business out of the state.
Source: CEL & Associates, Inc. and multiple external data sources.

Markets Likely To Experience A Long, Post-COVID-19 Recovery
➢ California: Locking down 40 million people for many weeks is economically devastating, high gasoline
taxes, unfunded pension liabilities [conservatively $333 billion statewide], ranked #48 of all U.S. states in
overall economic freedom, loss of many foreign visitors, and the impact of the reduction in port activity
will be challenging. Watch for the “blame game” to occur that will cause many businesses and residents
to examine moving elsewhere.
➢ Nevada: Around 56 million tourists annually [nearly 50 million visited Las Vegas...6m – 7m were
conventioneers], gaming- and entertainment-dependent with dramatic boom/bust cycles. Watch for some
small- to mid-size hotels and restaurants to go out of business, and the negative economic multipliers of
the “shutdown” could take years to recover. Casinos will experience a sharp decline in visitors.
➢ Airline Hub Cities: Dallas, Atlanta, Chicago, New York City, Denver, Orlando, Washington, DC,
Los Angeles, Seattle, Charlotte, Houston and Seattle are among the top airports for passenger traffic.
It will take 18 – 24 months to “get back to normal,” assuming no repeat pandemic occurrence in 2021.
➢ Oil-Dependent Markets: The dramatic fluctuation in the crude oil/energy sector [prices, rig counts, oil
drilling operations]; shifting energy policy and emergence of alternative energy sources will create multi-
year challenges for markets such as Houston and other energy-dependent region

Real Estate Sectors Likely To Experience Enhanced Building Operation Regulations*
➢ Lodging Facilities
➢ Apartment Communities
➢ Retail Centers
➢ Gaming Facilities
➢ Healthcare
➢ Office Buildings
➢ Conference Facilities
➢ Entertainment Centers
➢ Outdoor Assembly Venues
* Integrated security systems, onsite cameras, thermal imaging, required “wearable” technology, sensors, screening
systems, minimal cleaning standards, employee health certifications, written backup/emergency plans, and
adherence to a converged security platform.

Impacts Of COVID-19 On Development
➢ Incorporating hands-free amenities [e.g., motion activated doors, restroom faucets, tissue dispensers,
parking garage gates/doors, etc.] in building designs.
➢ Identifying new sources for building supplies and fixtures. China now accounts for 30% of all U.S. building
products.
➢ Utilization of new building materials, technologies and robotics to perform formerly human tasks.
➢ Inclusion of pandemics in force majeure clauses in construction contracts.
➢ Upgrades to HVAC systems regarding air quality and circulation.
➢ Regular onsite health inspections during construction and before Certificate of Occupancy.

Why Real Estate Will Remain
A Preferred Investment Class, Post COVID-19
➢ A low interest rate environment increases returns.
➢ Americans need to live [apartments], shop [grocery-anchored retail] and produce/distribute goods
[warehouse/distribution facilities].
➢ Continued strong demographics [population growth and household formation].
➢ Favorable tax treatment [1031, Carried Interest, Capital Gains, Opportunity Zones, etc.].
➢ Capital in non-performing real estate asset classes will shift monies into multifamily, last mile and
healthcare.
➢ Attractive investment option for flight capital.
➢ Aging population [healthcare asset investing].
➢ Inflation protection.
➢ Asset appreciation plus cash flow.
Source: CEL & Associates, Inc.

Demand Shocks
a) Inflationary Demand Shocks that increase demand and push prices higher (like most wars).
b) Deflationary Demand Shocks that decrease demand and push prices lower (like the Coronavirus).
Supply Shocks
a) Inflationary Supply Shocks that decrease supply and push prices higher (like the Oil shocks of the 1970s).
b) Deflationary Supply Shocks that increase supply and push prices lower (like Globalization).
“Deflation Followed By Inflation?” -Richard Duncan

Wow - http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB828
● Forcing landlords to reduce rents by 25% even if a tenant cannot demonstrate a hardship or need.
● Allowing judges and the court system to set rents and change the rental agreements already in
place.
● Assuming every tenant is facing a hardship related to COVID-19 and must be compensated for this
hardship.
● Protecting nuisance tenants as it does not require tenants to answer an unlawful detainer complaint
● Mandating that rental property owners demonstrate an economic hardship to collect the contracted
rent.

Hope on the way?
https://www.statnews.com/feature/coronavirus/drugs-va
ccines-tracker/

Most people are upset about
more debt. Investors are
cheering in their homes!
https://finance.yahoo.com/news/f
ederal-reserve-announces-23-tril
lion-in-funding-for-households-lo
cal-governments-123445078.htm
l

To counteract all the Media's fear-mongering with the Yellow hat from Edward De Bono here are a few of the
positives from this Covid19 experience:
1) Appreciation for stay at home spouses
2) People getting outside and walking around and physical fitness (it looks like Halloween - without the costumes
- every day outside on my street)
3) Virtual learning being accepted... less freaking meetings
4) People questioning the news and media
5) Appreciation for teachers who watch our kids
6) Time with our smaller family units
7) Virtual wine tastings and Zoom cocktail parties

Trends
1. Online shopping more effective through Amazon, Visa
2. Remote-based environments through outsourced IT solutions. Contactless transactions for
merchants and financial service providers.
3. Provide Telemedicine for Medical and Veterinary Clinics

1) Growth
Working on something to get better
Completed Tradeline Course -
SimplePassiveCashflow.com/tradelines
Starting on Turnkey Remote Rental Course

2) Contribution
Leaving the world a little better than you found it
From CBRE - Interest Rate - March 16, 2020
Old version of course now free access for remainder
of month - SimplePassiveCashflow.com/ecourse
Coupon Code “KOKUA”

3) Significance
Empowering your uniqueness
My stocks did not go down 30% in value
I did not go unemployed 😁

4) Uncertainty
Amazing things happen outside your comfort zone
Staying at home and watching these headlines
Is my tenants going to pay rent?

5) Certainty
Let’s get our bases covered first
Locked in our lenders for our Huntsville project!

6) Love/Connection
People is what makes all the difference
Virtual Cocktail parties

1. Tradelines
2. SimplePassiveCashflow.com/covid19
New Podcasts & Articles
Latest additions to the Simple Passive Cashflow Library

Distractions, Barriers, Noise
What I need help on!
Resistance:
There are no excuses from getting anything done
There is time

DoodadsBurning your cash on fun things or time savings

Join our Book Club - SimplePassiveCashflow.com/LaneHack
Lessons Learned#LaneHack
Pay consultants to navigate PPP or EIDL grants and
loans
We are reading...

Passive Investor Accelerator & Mastermind - SimplePassiveCashflow.com/Journey
-Mostly Accredited high paid professionals to connect with personally and build your own network (currently 50+ members)
-27 modules in a closed membership site
-Bi-weekly Zoom Video calls (25+ on-demand recordings a year plus all library of past calls)
-We are more than deal vetting/investing we share the best practices for Tax, Legal, Infinite Banking, and Legacy creation
-Now with a membership coordinator to help facilitate what you are doing and connect you with the right people in the group
(if you are shy)
The Easter EggUpcoming…

Happy Things… For Fun
“The Cashflow is the Simple Part...
What You Do After is the Tough Part”

Legal Notice and
Disclaimer
This presentation does not constitute the
rendering of legal advice or services. The
information being presented is intended for
informational use only and is not a substitute
for legal advice. State, national and international
laws vary, as do individual circumstances; so
always consult a qualified attorney on all legal
matters.

Too Much Good Stuff!
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Investor Fallacy: Return of Equity – SimplePassiveCashflow.com/roe
How to Calculate Investment Returns – SimplePassiveCashflow.com/returns
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Quitting your job – SimplePassiveCashflow.com/quit

Legal Notice and Disclaimer
This presentation does not constitute the rendering of legal advice or services. The information
being presented is intended for informational use only and is not a substitute for legal advice.
State, national and international laws vary, as do individual circumstances; so always consult a
qualified attorney on all legal matters.

May 2020 Market Update Investor - Investor Letter #13

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May 2020 Market Update Investor - Investor Letter #13