cvernon, Author at Marquette Associates

April 2nd Update: A Quarter That Will Go Down in History

With March officially in the books, the following is a brief summary of what has transpired in the capital markets since our update early last week. As expected, the coronavirus has exploded across the U.S. and continued its spread across Europe as well. At the time of writing, the number of cases is approaching 1 million worldwide and has exceeded 200,000 here in the United States. Stocks finished their worst quarter ever on Tuesday and volatility continues to haunt the markets. While the worst may still not yet be behind us, we hope that the growing number of shelter in place edicts and more consistent social distancing may help to stem the coronavirus outbreak across the world. Please note that all return data in the following discussion utilizes the quarter end date of March 31st, 2020.

Read > April 2nd Update: A Quarter That Will Go Down in History

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

What Does the Coronavirus Pandemic Mean for Future Real Estate Returns?

This week’s chart examines forward-looking returns for private real estate based on historical spreads to the 10-Year Treasury Yield and the NCREIF-ODCE Index (proxy for core private real estate). Real estate valuations (spread-to-Treasuries) are currently above 300 bps as a result of COVID-19. Spreads of this magnitude have only been seen four times, each of which has been followed by strong 3- and 5-year returns. For example, during the Global Financial Crisis, real estate spreads-to-Treasuries surpassed 300 bps in the fourth quarter of 2009 which were followed by 12.2% and 12.4% returns for the NCREIF-ODCE Index in the subsequent 3 and 5-year periods, respectively.

Though the impacts from COVID-19 have not yet been fully felt in the private real estate market, it is clear that challenges lie ahead, particularly in the sectors that have been hit the hardest. For example, assets with short lease durations and heavier operating business components, such as hospitality (daily), and co-working office (monthly), as well as assets that rely on foot traffic, such as entertainment, food & beverage, and destination retail will be more affected by the pandemic. Further complicating matters, the lack of transaction volume, comparable sales, leases, and loan originations have made it nearly impossible for appraisers to adjust valuations at this point in time.

Beyond the aforementioned troubled sectors, the impacts from COVID-19 will ultimately vary by property type, geography, and risk profile. The following table highlights the potential near-term and long-term impacts of each property sector:

While global growth is being impacted in the near-term, we still expect a recovery to take hold once the disruption fades; we still maintain the view that the recovery is delayed, not derailed. However, the true impact of this on real estate returns will not be known for a while. Although longer-term forward-looking returns appear promising at this point, there is a relatively high degree of uncertainty because the ultimate impact on the aforementioned sectors (which should be the biggest headwind for real estate) will remain unknown until the coronavirus outbreak is contained and the economy begins to function at a normal level again.

Print PDF > What Does the Coronavirus Pandemic Mean for Future Real Estate Returns?

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act

In the early hours of March 25th, the Senate and the Trump administration reached a deal on the $2 trillion stimulus package aimed at cushioning the fall for U.S. businesses and consumers in the wake of the coronavirus pandemic. The bill was approved by the Senate late on March 25th, passed through the House on March 27th, and was signed by Trump the afternoon of March 27th. The size of the package is over 9% of the U.S. GDP and is greater than the three major relief packages passed during the 2008 crisis combined.

This legislative update summarizes the key elements of the CARES Act and concludes with an assessment of the expected impact of this stimulus package.

Read > The Coronavirus Aid, Relief, and Economic Security (CARES) Act

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Initial Weekly Jobless Claims Surge Due to COVID-19

This special second edition Chart of the Week shows weekly initial jobless claims going back to 2007. Last week’s number came in at an unprecedented 3.3 million people, a near 12x increase from the previous week and 5x the previous largest jump in unemployment. Perhaps more alarming is that this number might not tell the whole story of the unemployment picture.

Ten states saw more than 100,000 people file for unemployment this week; however, due to low staffing and budgets, many claims could not be properly processed and included in the data. Granted, the number is likely higher as multiple states — Illinois included — have issued a stay-at-home order for non-essential employees due to COVID-19. The restaurant, airline, retail, and hotel industries have been hit especially hard with many Americans depending on a stimulus package to tide them over until the virus can be effectively tamed. Many small businesses have been forced to let employees go as they have been unable to generate cash flow.

On a more positive note, Amazon, CVS, and Walmart have been looking to hire thousands of employees as they receive increased demand from customers looking to purchase more goods as a result of being at home. If the virus is contained, the hope is that jobs will pick back up and companies will re-hire relatively quickly, though the question on when that might happen is one that is yet to be answered.

Print PDF > Initial Weekly Jobless Claims Surge Due to COVID-19

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

No Reservations

This week’s chart examines the demand for restaurant reservations, both in the U.S. and across the globe, measured by reservation booking activity on OpenTable, a service that allows users to book restaurant reservations online or through its app. Overall reservation booking activity started to slow noticeably at the beginning of March and then cratered as state after state closed schools, urged citizens to work from home, and then eventually closed all restaurants and bars for dine-in service. This is a compelling “real-time” indication of the scope and scale of the economic slowdown caused by the coronavirus.

While restaurants are only one small piece of the economy, they are an excellent gauge of discretionary consumer spending and provide employment to over 14 million restaurant workers across the United States. Although OpenTable’s largest market is here in the U.S., their data also indicates a similarly severe slowdown in global activity. The longer quarantines across the country (and around the globe) last, the more painful the effects on the restaurant industry, and the broader U.S. economy, will be.

Print PDF > No Reservations

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Market Volatility Moves in Both Directions

The last week in the markets has seen a huge increase in market volatility. This week’s chart examines the largest daily moves (the ten worst and ten best) in the S&P 500 index since 1950, in an effort to provide some historical context to the recent volatility. As the chart shows, the recent market moves are not unprecedented, but they are historic. Over a course of just six trading days, the S&P 500 had three of its worst — and one of its best — days in the last 70 years. Beyond just the magnitude of the market moves, this week’s chart attempts to highlight a few important reminders for investors.

First, market volatility tends to move in both directions. We have color-coded the market moves by event, and it is worth noting that in the wake of the 1987 stock market crash, the Global Financial Crisis, and the recent volatility around the coronavirus, U.S. equity markets have seen some of the worst — and best — days ever. While all this volatility clearly creates opportunities for rebalancing, the market volatility can create a significant amount of short-term timing risk. This is one reason why clients should consider gradual rebalancing over a period of days or weeks to limit the risk of short-term market volatility.

Print PDF > Market Volatility Moves in Both Directions

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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