HiddenLevers War Room Webinar

1. Real Estate “Post” Covid
28 May 2020

2. WAR ROOM
Idea Generation
Macro Coaching
Scenario Updates
HiddenLevers runs on SCENARIOS like Instagram runs on PHOTOS
Fed Underwrites EconomyClimate DisastersUS HousingTrump Agenda

3. SCENARIO PROGRESS
Mitigating Factors
GOOD
S+P 500
2200
-17%
S+P 500
3150
+20%
S+P 500
2875
+10%
US Lockdowns Work
UGLY
Dysfunctional Opening
BASELINE
V-shape
GOOD
S+P 500
1760
-33%
S+P 500
3040
+16%
S+P 500
2300
-13%
UGLY
BAD
U-shape
L-shape
CORONAMERICA GLOBAL RECESSION
MAX
DRAW
DOWN

4. sources: HiddenLevers, Bureau of Labor Statistics
ECON PULSE CHECK
2.1M
NSDQ 4.3%
S+P -6.3%
YTD
YTD

5. sources: HiddenLevers,
REAL ESTATE: Sector Growth Since Financial Crisis

6. REAL ESTATE: Sector Downside in 2008 vs 2020
2008 RE Indices – Residential Leads Fall COVID Recession – Hotels Lead Fall
2008
• US Home Prices fell first
• 1Y later: Office/Retail fell
• 2Y later: Hotels fell
Home Prices
-27.4% over 5.5 years
Commercial RE
-36.3% over 3.5 years
2020
• Hotels fell first
• Retail close behind
• Office + Residential fell alongside market crash
• Retail = biggest loser
• Residential to outperform like 2008
Hotels
Residential
Office
Retail
Hotels
(HST)
Residential
(AVB)
Office (BXP)
Retail
(SPG)
sources: HiddenLevers
Host Hotels
(Marriott, etc.)
-50% MDD
Simon
(Malls)
-70% MDD
Boston Inc
(Offices)
-49% MDD
Avalon
(Apartments)
-47% MDD

7. sources: HiddenLevers, NA REIT I, Zillow Research, NA REIT II
REAL ESTATE: Huge Asset Class, Huge Performance
$50 Trillion
Total US Real Estate
$33 Trillion
Residential
$17 Trillion
Commercial
$1T Private$2T Public
• Real estate has performed well across economic cycles
• Multi-family outperformed S+P 500 by 250% since 2000
• Most RE owned directly, not via investment vehicles
Multi-Family
Land
S&P 500
Office
Retail
Industrial
Hotel
REIT ASSETS

8. Property Type Trend Metric What + Why
Single Family +9% Mortgage Applications
Pent-up demand or rising
underlying demand?
Industrial +20bp Occupancy
Record warehouse demand due to
online retail
Multi-Family -3.1% Rent Collections
High-income tenants seek single-
family while lower-income tenants
hit by employment crisis
Office -5% Permanent WFH shift
Gartner: 75% of CFOs plan to shift
over 5% employees to permanent
WFH
Retail -20% Retail foot traffic
Occupancy limits + consumer
behavior put a ceiling on recovery
Hospitality -54% Occupancy
Travel and hotel stays appear to be
last in line
sources: HiddenLevers, Zillow, GlobeStreet, National Multifamily Housing Council, Gartner, STR
REAL ESTATE: Sector is Not a Monolith
Need for Social Distance distinguishes upside/downside for real estate categories

9. sources: HiddenLevers, Bloomberg, CNBC
REAL ESTATE: US Housing Trends Accelerated by COVID-19
High SALT State Exodus
Low Mortgage Rates
Lack of Affordability
Luxury Glut
Shrinking Inventory
Property Taxes Rising

10. sources: HiddenLevers, Zillow, San Antonio Radio, Chicago Tribune
REAL ESTATE: US Housing Trends Accelerated by COVID-19
High SALT State Exodus
Low Mortgage Rates
Lack of Affordability
Luxury Glut
Shrinking Inventory
Property Taxes Rising

11. sources: HiddenLevers, SoftBank, Wired, Real Deal, Skift
REAL ESTATE: Sharing Economy Collapse – New Trend?
$47B
$31B
$2.9B
$18B
peer-to-peer tech
commercial real estate

12. sources: HiddenLevers, SoftBank, Wired, Real Deal, Skift
REAL ESTATE: Sharing Economy Collapse – New Trend?
$47B
$31B
$2.9B
$18B
peer-to-peer tech
commercial real estate

13. SCENARIO REPLACEMENT
US Housing
Real Estate “Post” Covid

14. Real Estate “Post” Covid GOOD
High SALT will
only get worse
New suburban
schnooks
No construction
during pandemic
Hot
Housing Market
Image: GoodFellas (1990)

15. Real Estate “Post” Covid BASELINE
Co-working
will fade
Less rent =
better P + L
WFH =
deflationary
WFH Entrenched

16. Real Estate “Post” Covid UGLY
Blame Amazon,
not COVID-19
Fed won’t
save retailers
Financials rising =
likely no new GFC
Commercial RE Crash

17. GOOD
S+P 500
2200
-28%
S+P 500
3300
+9%
S+P 500
2900
-4%
WFH Entrenched
UGLY
Commercial RE Crash
FED CMBS BACKSTOP SAVES
BANKS, BUT NOT RETAILERS
DEMAND UP FROM CITY
DWELLERS + SUPPLY
SHORTAGE WORSE FROM
NO CONSTRUCTION
WFH = GDP KILLER
OFFICE SPACE ONLY
THE BEGINING
Real Estate “Post” Covid MACRO RISK PARITY
case shiller
+7%
case shiller
+3%
case shiller
+1
BASELINE
commercial RE
-25%
commercial RE
FLAT
commercial RE
-12%
Hot
Housing Market

18. Single-Family will outperform multi-family, and
residential will outperform commercial
Fed backstopping mortgage-backed securities to
avert commercial RE version of GFC, but will let
malls + retailers go bankrupt
Property Tax = Catch-22 for High SALT states
Real Estate “Post” Covid WHAT TO SAY
Covid accelerates people leaving big
metropolises for medium-sized cities

19. US-CHINA TENSIONS JUNE WAR ROOM