Peter Linneman on unemployment, the economy and asset classes to watch now


Linneman Associates Principal Peter Linneman on Walker’s Webcast

The United States’ economic recovery from the coronavirus pandemic is well underway. In early June, the Wall Street Journal reported that, thanks to consumers with billions of dollars in additional savings and businesses eager to hire, along with supporting government policies, this recovery will be unlike anything seen in recent history.

That doesn’t mean, however, that the rebound is without its challenges. The WSJ also reported that labor supply and shortages are blocking expected economic rehabilitation. So what can we expect for the months to come? What do the second quarter 2021 numbers tell us about what lies ahead, how long will these labor shortages last, and which asset classes are smart investments to move forward?

Peter Linneman is the Director of Linneman Associates, the CEO and Founder of American Land Fund and KL Realty, and previously served as the Albert Sussman Professor of Real Estate, Finance and Public Policy at the Wharton School of the University of Pennsylvania. On this week’s Walker’s webcast, Linneman sat down with Willy Walker to answer these questions and more.

What will the recovery look like?

Linneman said that while it’s clear that life is getting back to normal if you look at barometers like the number of people returning to sports stadiums, he thinks wildcards like the emerging variants of the coronavirus and the possibility of new ones could. hamper economic recovery.

As for the labor shortage, Linneman said it was largely influenced by the government increasing unemployment benefits during the pandemic and that the shortage will ease once those benefits expire in September.

“This well-intentioned policy is holding back a surge in job growth of 3 to 4 million jobs,” Linneman said. “When we get to the other side of September 6, when the benefits expire, those jobs are going to come. It may mean that we have to shoot a bit in July and August, but there will be tremendous speed in September, October and November. ”

The dynamics of work

Linneman said he is confident people will return to the office because that is where they are most productive. He said all the analysis he has seen has shown that while people are doing work, it takes them 20-25% longer to complete it.

While companies can absorb this gap in the short term, they won’t be able to do so forever, Linneman said, and people will lose their compensation as a result. He said employees would end up taking on the hassle of entering the office in exchange for not losing that compensation.

Additionally, he said people who have left big cities like New York to work permanently from home elsewhere will return soon. Linneman referred to Morgan Stanley CEO James Gorman, who said if people feel safe at restaurants, at ball games and at a party, they should come to work where the facility is even safer. .

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Willy Walker, CEO of Walker & Dunlop, on Walker’s Webcast

Reflections on the second quarter of 2021

Walker referred to Linneman’s famous Linneman Letter, a quarterly publication in which Linneman analyzes the ever-changing economic and geopolitical environment and its connection to commercial real estate.

In the most recent letter, Linneman pointed out that it is difficult to look at the numbers year over year due to the distortion of the year, but overall things like GDP, the unemployment rate and after-tax profits are lagging behind what they were before the pandemic.

“GDP is roughly where it was in 2019, but it is expected to be 4% higher,” Linneman said. “We’ve made some progress, but we still have a long way to go until we’re really, really healthy.”

Despite this, he said he remained positive on the economic outlook. He said that while fears of Covid-19, fueled by new tensions, could slow the economy, nothing else will be able to stop its growth, and we can expect the Roaring Twenties to return.

“We have huge sums of money, we have very low corporate and household debt service by any kind of historical standard, most of the excesses have been eliminated and we are going to see a rate of debt. ‘High employment within a year,’ Linneman said.

Assets to watch out for

Linneman said he was confident that since there was a lot of money chasing many assets, the value of the assets would continue to rise, especially since he believed the Federal Reserve would continue. to keep interest rates low because she thinks that’s the best way. to stimulate the economy.

As for what assets to invest in, Linneman said multi-family homes are willing to take advantage of rates that remain low as asset values ​​rise, more so than offices or retail businesses.

“You can get a great multi-family loan right now, but the same can’t be said for offices or retail,” Linneman said.

In addition to multi-family, Linneman said he’s bullish on the hospitality market as people prepare to travel again, and he’s even feeling positive about brick and mortar retail, because people are eager to get out of the house and shop again. He added that he expects the industry to continue to grow due to what he calls the ‘3X’ factor, referring to the fact that when consumers buy something online it takes around three times the area of ​​warehouse space compared to if they bought from a store.

“A lot of people haven’t understood this 3X phenomenon,” Linneman said. “This gives the industrialist a good track record and good fundamentals for growth.”

Regarding the office, while Linneman said he believes people will return to workspaces soon, he said it still isn’t a good bet at this time.

“Do I think it might come back?” Yes, ”Linneman said. “But there is a chance I could be wrong.”

On July 14, Walker will welcome Greg Carvel, a professional hockey coach who helped coach two different NHL teams to the Stanley Cup Finals and led the UMass hockey team to the NCAA Championship this year. . register here for the event.

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow press staff were not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, contact [email protected]


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