The debt-driven U.S. economy was heading for a crash before the coronavirus even hit. And in some metro areas, including New York, the excess concentration of economic activity during the past decade had sent the cost of commercial and residential real estate to unaffordable and unsustainable highs. Moreover, the wealthiest generations in U.S. history are now over age 62, with later-born generations much poorer – and facing large costs from the past as well. And now a once in a century pandemic has accelerated an economic and social crisis that was always in the cards. None of this, obviously, is good.
With regard to commercial real estate, however, a market adjustment that some might see as a calamity is actually part of the solution. Lower housing prices would allow later-born generations to pay less for housing, offsetting some of their other disadvantages. Lower residential rents might cause apartments to go through bankruptcy, foreclosure and workout, eventually causing existing asset holders to take losses on mortgage-backed securities. But the lower building prices would allow future landlords to charge less and still make money, in turn allowing tenants to live better on their lower incomes. Lower commercial rents could also cause the value of commercial mortgage-backed securities to fall. But they would also make it easier to open a business, even if it doesn’t produce a high level of revenue per square foot right off the bat. A market adjustment on the price and property value side, and private sector creativity, could forestall damage on the occupancy side, allowing buildings – and the communities they are located in — to be re-occupied and maintained, and the economy to re-boot.
And yet there is the possibility that things will turn out much worse for many parts of the country, including New York City. I would divide the real threats into three categories: federal, state and local.