Episode 13

How does Coronavirus affect Investment Real Estate?

(Transcription)

Wally Smith:
Well, the stock market is crashing, interest rates are at an all time low, and the news is consumed by the coronavirus. What effect may this have on your real estate investments? Stay tuned for The 1031 Show™, and we’ll share our analysis with you.

Wally Smith:
All right, this is the 1031 Show, folks, as you’re listening to. It’s all about 1031 Exchanges. We are not a show about doing fix and flips or buying real estate with no money down. It’s specifically for real estate investors and the financial planning for those real estate investors.

Let’s give a quick disclosure. If you’d like any more information about the show today, call us at 303-GET-1031. That’s 303-438-1031 or visit impact1031.com. You can also start by texting quiz to 303-438-1031. However you contact us, we’ll be happy to help you with alternative investment strategy session to see if the 1031 exchange is right for you. Right now this show I think is very important for real estate investors. With all that’s going on, things are moving very quickly. Companies are freezing up as far as their decision making. They don’t know what to do, and that affects the inventory that’s available for clients, so we’re going to get into that today. We’re going to talk about just in general what’s going on with this pandemic, the coronavirus, but very specifically, not reactionary doom and gloom stuff, we are looking at what effect does this have on real estate investors.

We have a special guest with us today, Rich Arnitz. Hello, Rich.

Rich Arnitz:
Hey, Wally. How are you?

Wally Smith:
I’m well. Rich joins us, and this is all new to all of us here doing remotes. We’re all cloistered at home. Rich is in his office down in Scottsdale, Arizona, and I have moved my studio back to my home as well, so bear with us as we are working through some new technology. So Rich, what’s it like down there? Is it getting hot down in Scottsdale yet?

Rich Arnitz:
Starting to get warm here, so we are just enjoying the final days that we can have our windows open and get some fresh air and enjoy this fresh air before we’re hunkered down in the summer months.

Wally Smith:
Well, a client of mine told me she never wanted to live in Phoenix because it was too cold, and I said, “What do you mean?” She says, “Well, air conditioners are on everywhere,” and she would have to take a jacket with her whenever she went out in the summertime in Phoenix, so it’s strange.

Rich Arnitz:
Yeah, well this is prime time right now, so we’re enjoying the weather even though we all have to be a social distancing right now. We’re enjoying our backyards with the nice weather.

Wally Smith:
Well, I guess let’s jump right into it. A month ago the topic was entirely different and now the topics are all about the coronavirus and how that’s affecting the overall commercial real estate business. You have any broad advice or observations down there?

Rich Arnitz:
We do. There is a lot of unknown out there and there’s a lot of fear out there. And I think one of the important things to take a look at with this coronavirus is what impact does that have to do with commercial real estate and specifically certain sectors. Certain sectors are impacted more so right now than other sectors, and I thought it would probably be important for your listeners to maybe if we can talk a little bit about which ones are impacted first and which ones are least impacted right now in that. And why is that the case?

Wally Smith:
Well, and Rich, part of my job as a good host is to be an interpreter. So, when we talk about sectors, a lot of people maybe familiar with that, but just some of the jargon. We’re not talking about sections of the country or geographic things. We’re talking about student housing versus a warehouse versus a multifamily, that sort of thing. What have you noticed? What are some of the big differences in how the sectors have been affected?

Rich Arnitz:
So, just to start talking about the ones that have been impacted, the first to be impacted by what’s going on currently right now in the environment. The three big ones that stick out are hotels, malls and shopping centers have been impacted currently right now at the highest level. So as you can imagine, probably when this news started coming out in late January, early February, people stopped traveling. The hotels were getting meetings canceled, getting events canceled. The small business traveler was not staying at those Double Trees or the Hiltons and they were canceling their trips as well. That had an impact on hotels and their function as well. Now that we actually are… There’s 21 States I think out there that have mandatory stay at home. The malls and the shopping centers are completely closed. You can drive by them, the parking lots are completely empty. That’s had a big impact on the malls and the shopping centers in the sense of just running your business, paying your rent, being able to generate some type of a revenue. If you look at the gaming and casino industry in Las Vegas as well, that’s had a dramatic impact with the social distancing that you have to do as well. So, those are the sectors currently right now first to get into being hit the hardest because of the coronavirus.

Wally Smith:
Well, and it’s hard to stay six feet away from a slot machine or a blackjack table, that sort of thing. All of this is really unnerving. It’s really dislocating for a lot of people. But I think the big question in the back of everybody’s mind is, is this now a new way of life for us or is this a temporary thing? And I think that’s really at the heart of what is disturbing to a lot of the commercial real estate companies and the ones putting deals together. Should we anticipate in annual quarantine or is this something that, “Well get this figured out and move on with life and we’ll be back to normal after a while.”

Rich Arnitz:
I think it’s too early to tell. I’m the type that I think that this is something that we’ll come up with. Some type of a virus, so this is like a flu that we will consistently have to deal with on this. But I do think that we’re doing a knee jerk reaction right now. I do think things will get back to normal and people want to get back to work. The economy wants to start revving back up and I think people will open it back up for business here pretty soon. So, with that there are certain aspects of real estate that you own, the hard asset itself and continues to appreciate and there are certain sectors that we want to stay focused in, especially at Rich Gate Financial as well for our clients or investors that we’ll be well positioned for the future.

Wally Smith:
Well, we again remind folks you’re listening to The 1031 Show™ and that is sponsored by Ridgegate Financial. You can reach us at 303-GET-1031. That’s 303-438-1031. You can also visit impact1031.com. Check out information we have on there. You can text the word quiz to us at 303-GET-1031 and that’s another good way to start. So, you can email us, you can go to the website, you can text us. Text the word “quiz”, we’ll send you back a link and that’ll you get some information. On the website, we do put podcasts of the show and we are doing as needed or as news warrants it, midweek updates. So, get your email on there. That way we can communicate with you as things happen.

I’ve been a financial planner for going on 18 years now and real estate people, Rich, are different than non real estate people. It’s not uncommon at all for somebody to have evolved into a position. It’s not always intentional. It may be that they bought their first house when they had a starter home and they just decided to keep it when they moved and as their family grew and they rented it out and 20 years later, 30 years later, they have three, four or five rental properties. That’s pretty common. And they will also generally have some money that they’ve collected in 401k accounts, retirement accounts otherwise. But what we find often is that real estate people have a significant concentration of their assets in their real estate. And so, we’re certainly watching the stock market have a tremendous overreaction.

And I call it an overreaction because if you think about it this way, think about a gasoline tank. A big storage tank that has thousands and thousands of gallons in it and people are driving past it and they’re on their summer breaks and whatever. The value of that gasoline is there. Now, if the demand stops and now nobody’s buying it, then the price is going to drop but the value is still there. So, unless something happens and that gasoline gets burnt up, knowing that the demand will come back at some point the value is still there. And so, there are people living in multifamily apartment buildings all around the country or single family homes. They need a place to live and that place provides value. So, how do you address that as far as whether you feel this is being an overreaction as far as the values actually dropping or it being a knee jerk?

Rich Arnitz:
I view it as a knee jerk reaction. I always look at real estate, it’s not recession proof, there’s really nothing out there that recession proof. But multifamily provides that value, people need a place to live. So, it’s recession resistant because if it’s important to note that when you drive by, we talked a little bit about shopping centers and you’re driving by shopping centers and the parking lot’s empty. You could drive by every single multifamily apartment complex, take a look at the apartment complex and the parking and the parking lot’s full, right? So, those spaces are full.

Wally Smith:
By order of the state, yeah.

Rich Arnitz:
That’s exactly it and so, what you’re finding right now is the average occupancy for multifamily across different sectors across the United States is in the high 90s. And so, that is an entry level for a lot of people that can’t afford to get into housing and that demand will always be there, and so that is a good asset to own it. It has a tendency to being recession resistant, meaning that you’re going to be paying your rent so that you have a place to sleep before you go out on and you may have to give up the vacation. You might have to give up your second car, you may not be able to get those new pair of blue jeans, but you’re going to be paying your rent so you have a roof over your head.

Wally Smith:
That’s a good point. Well, real estate is there. It provides shelter. It also provides a place for people to operate their businesses. We’re going to take a break. When we come back from the break, I’d like to dive into that chart you sent me last week talking about the different sectors and which ones have changed and the ups and downs. Which ones are hurt more, which ones are hurt less. So, you’re listening to The 1031 Show™ from Ridgegate Financial, Wally Smith and Rich Arnitz and we’ll be back in a moment.

---

Wally Smith:
Well, thanks folks. You’re back with The 1031 Show™. I’m Wally Smith with Ridgegate financial. Our guest today on the show is Rich Arnitz, Also from Ridgegate Financial down in our Scottsdale, Arizona office. Hey, Rich.

Rich Arnitz:
Hey Wally, how are you?

Wally Smith:
Pretty good. You know the old Chinese proverb, ironically, may you live in interesting times. I guess it’s ironic that would be a Chinese proverb or so it’s said. You know there are a lot of sectors. We talked about market segments. There’s also a lot of ways to own things. You can own things directly, going out and buying a Starbucks or owning a single family home or a duplex or something like that, but you can also own them as fractionalized ownership and we talk a lot on the show about doing a 1031 Exchange into a Delaware statutory trust property. That’s a specific kind of investment, but then you can also have pooled investments that would be like real estate investment trusts. Each one of those is being impacted a little bit differently, isn’t it?

Rich Arnitz:
It is. And we’re still seeing people that are doing a 1031 Exchange into DSTs and I think that that’s something that we definitely want to talk a little bit about as well. But if you look at the REIT market itself, the REIT market, the public REIT market trades a little bit like the stock markets, the underlying value is there with the hard assets but the price of the stock is trading up and down with the volatility of the market itself as well.

So there’s really two things to look at. You look at the actual price of the stock that it trades at and then you look at the book value or the breakup value with the hard assets. And those are trading and at much higher. So there’s some value to capitalize there as well. And so there’s pros and cons to both.

Wally Smith:
So, on this show we never talk about specific products. We are never making product recommendations. We ask everybody not to take action on anything based just on what they’ve heard on the show. You always want to go work with your financial professional or your CPA or sometimes we’ll talk about estate planning and that sort of thing. It’s very important.

But you always want to work with a professional. Having said that, we don’t talk about specific product, but we have been watching tremendous volatility in some of these things. And again we don’t mention symbols, but in some of the REITs, and when I say ‘REIT’ it’s R-E-I-T, real estate investment trust. Many are familiar with that. Some people are not. And so we try to interpret on the show here. But the volatility, I mean you talk about book value, there are many of them that are selling at half or a third of what their book value is for the underlying investments. Isn’t that an opportunity for people to buy bargains?

Rich Arnitz:
It’s a great opportunity. I think it allows you to actually get into a pool of commercial real estate within each REIT is a specialized. So they have a direct focus. Some of the REITs out there focusing on healthcare. Some of them focuses on net lease retail. Some focus in on shopping center and malls, power centers and lifestyle centers.

So you have a variety of different asset classes that you can focus in on. But it creates an opportunity. It was interesting the other day. They were talking about the market had… This last week traded at an all time low and it created a huge opportunity where they had somebody on the news the other day that was a hedge fund manager and his hedge fund made over a billion dollars over the last three trading days because there was opportunities to gain out there.

And so I do think that when people have a fear, there’s really three things I’ve always been told, especially during these times. It’s important to note is one is they always say, don’t talk to strangers, don’t touch your face, and don’t touch your portfolio. The natural fear for individuals is to go out there and to sell everything and lock in your losses. And I think one of the important things is when people do that, there’s opportunities for other people that own hard assets and real estate to go look at the value and people can do that either in REITS, people can do that in DSTs or direct ownership of real estate as well.

Wally Smith:
Well, I think we know that the value itself is not being destroyed. It is the perception, the public pricing of that value. So what’s happening is a tremendous amount of transfer from one group of people to another. At Ridgegate Financial, part of our process and working through with anybody, we call it a Retirement Flight Plan™, but it is to really get down first and foremost, what is the client’s Purpose? What are they trying to achieve? After we’ve figured that out, then we talk about the planning.

Planning: income, investments, taxation, health and legacy. Those five aspects of planning really then have to serve the purpose. But after you know the purpose, after you figure out the planning, that’ll really tell you where the Portfolio needs to be invested and we think that’s a very important part. A big part of every portfolio should be liquidity.

Now liquidity does two things. It keeps you from having to sell positions in a crisis environment right now where things are artificially down, but it also creates opportunity so that’s the people who, you mentioned hedge fund being able to make a billion dollars. I mean that’s real money even by Congress’ standards, a billion dollars. And they did that in three days by bottom fishing, spotting opportunity and doing exactly what we’re talking about. You don’t have to be a billion dollar hedge fund to do that. You can do that individually if you have liquidity so that you can take advantage of the opportunity.

Rich Arnitz:
That’s correct. I think it’s really two conversations a lot of people are having and we’re having those with our clients here at Ridgegate Financial. We’re talking to them a little bit about their portfolio, but then we’re also talking to them about opportunities where people are looking for opportunities because they are in a liquidity, having enough cash on the sidelines where this might be a time to jump into the market, either a DST direct ownership or a REIT as well.

Wally Smith:
That’s right.

Rich Arnitz:
They’re looking for income. And a lot of people are looking for income, they alternative income. And I know that we’re going to talk a little bit about that as well because a lot of people are looking for income that’s not tied to the market because the volatility is really what upsets a lot of individuals.

Wally Smith:
Well, and we see it every, it seems like every decade now. There is a one of these severe once in a lifetime market crashes that come around every 10 years. The primary audience for our show has been those who have accumulated highly appreciated assets. I mean in 2008, they were buying condos for $10,000 a piece. They were almost being given away. You can put a condo on a credit card back then. They were going for so cheap and now they may be worth 100, $125,000 in a low rent area and it’s time to cash in.

But they don’t want to get killed on the capital gains. They don’t want to get killed on the depreciation recapture and they’d really like the benefit of the wealth that they created to go to their heirs instead of going to the government in taxes.

So historically, that has been one of the tremendous advantages for wealth creation of the 1031 Exchange. The question for a lot of folks has been, if I do a 1031 Exchange, I’m exchanging one property for another. How do I find that property? The deadlines, the 45 day window, the 180 day closing window. All of those things have been extremely confusing and limiting and complicated, but with the Delaware Statutory Trust that we talk about, that provides–I think we’re going to get into it after our next break–what we call insurance. It’s a 1031 Exchange Insurance.

You have the certainty of close. You know that that can happen. I had a fellow call me, gosh, a couple of weeks ago, because he…

…and again, as a review, when you do a 1031 Exchange, you have 45 days from the closing of your sale to identify the property into which you’re going to exchange your assets.

You work through a qualified intermediary that has to be defined ahead of time. Who is the company that’s going to take the money? You don’t take it. A qualified intermediary does, and then within 45 days you have to identify to the qualified intermediary where that money’s going to go. And you can identify several properties, but then from 180 days after the close, you have to have succeeded and closed on the new property.

…So with all of this going on with Corona and all of the problems, I had a client call a week. Actually kind of struck up a little friendship communicating with each other. He was an ex-air force guy, really enjoyable. We had a lot in common, who kind of walked in the same steps with flying and that sort of thing. I’m not military, but I’m a pilot. But anyway, he’s right up against his shot clock if you will.

He had to close and everything was going along well, but then the person he was going to buy the property from is in Florida. He’s 84 years old. He’s scared to travel back to Colorado to close the deal. So my friends in limbo. Well there may be some relief for that, but those are the kinds of things that we want to coach people through. What’s going on? How to effectuate this in a normal time, much less than the times that we’re dealing with right now. Rich, before we take a break. We’ve got about two minutes to the next break. If I’m going to sell a property to somebody, that person has to be able to buy my property. Are they going to be able to get a loan to buy my property?

Rich Arnitz:
That’s some of the things that people are coming to Ridgegate with right now where they can’t close on the individual property themselves. There is a clause with a lot of lenders because as you can imagine, the capital markets are up in turmoil right now and a lot of people don’t want to keep these assets on the books. They want to go ahead and turn around and sell them into the market. And you can’t do that with the capital markets right now. So a lot of lenders have a clause in their loan docs called a MAC–material adverse conditions–and a lot of lenders are pulling their loan offers to buyers.

I’m buying commercial real estate currently right now on the individuals because the rates change so quickly. And so there are a lot of individuals that are doing a direct ownership of real estate date that are having problems getting their transaction closed in that timely fashion so that they can defer their taxes.

And that is one of the challenges that individual owners are facing currently right now. And that’s one of the benefits that you could go away with in the sense where DSTs already have the loan in place, locked in, have that insurance of close so that individuals that are trying to look into doing a 1031 Exchange don’t have that as a problem or an issue.

Wally Smith:
Excellent point. Let’s take our break. We’ll come back and I want to do my translator job and go through that again right when you get back from the break. Folks, you’re listening to The 1031 Show™.

---

Wally Smith:
Folks, welcome back. This is Wally Smith with Ridgegate Financial and Rich Arnitz, also with Ridgegate Financial down in our Scottsdale office. Hey, Rich.

Rich Arnitz:
Hey, Wally. How are you?

Wally Smith:
Pretty good sir. We are fielding a lot of calls, some panicked calls, some are folks wondering whether they should step aside and wait for everything to sort itself out. A lot of that I think really ties in with whether they’re going to be able to get their transaction. Now, before we took the break, we were talking about exactly that. For real estate transactions to be executed successfully, there’s usually a debt component in that. There’s usually a bank, a lender somewhere providing some of the money.

Now, not always. There’s some all cash deals. Somebody will sell and it’s buying it with cash and they receiving the cash. But in, I think most transactions there is an element of debt. So what we were talking about before was MAC–M-A-C–materially adverse conditions and the effect that that can have. That’s a clause that lenders will put in a lending agreement that basically says, hey, if everything hits the fan, there are materially adverse conditions that are happening with regards to this loan or the environment or overall-

With regards to this loan or the environment or overall, certainly coronavirus is a materially adverse condition. So for folks who are worried about being able to sell a property, enter into a 1031 agreement and be able to close, putting a specifying a Delaware Statutory Trust as one of their properties, it’s insurance because you’ve got certainty of close.

Rich Arnitz:
You have no closing risks. That’s correct. The transaction is completed. It’s already gone through a thorough due diligence, underwriting and the loans are already locked in. Where if you think about it, if I’m looking at a closing of a property myself, I have to go through and do the thorough underwriting. I have to go out and get a financing. I have to work with all these third party vendors. In a Delaware Statutory Trust, you have a team of professionals that have already done that for you. So you’re not doing the underwriting, you’re looking at it as an investment itself. So there’s no closing risks, there’s no competition.

Wally Smith:
And so it’s packaged that both the debt and the equity are already packaged. And the specific amount that you’re going to put in, if you sell a single family home for $454,000.23, you know that you can put that exact amount into a DST, you don’t have to worry about matching it up is, those are the rules. You have to go equal or up, both in value and also in the debt on a property. We can accomplish that to the penny with a DSG portfolio. We can perfectly match the equity and the debt in the deal.

Rich Arnitz:
Correct. And one of the benefits I think too of getting into a DST with an individual property allows you to diversify. And it allows you to diversify within the different portfolio. So you’re upgrading on the property itself to a commercial grade property, you’re getting out of the day to day management of it. You’re having it professionally managed and you’re also have assurance of close, but you’re also getting a diversified portfolio of commercial real estate in multiple different sectors that you could not probably afford to own on your own, but now you can afford within a trust itself.

Wally Smith:
And folks, if you’d like help, if you’d like a strategy session, go to impact1031.com or call us at 303-GET-1031. That’s 303-438-1031. Or finally text the word “quiz” to 303-438-1031 and we will reach out to you that way on a link and link you into our quiz. We’re happy to talk through your personal situation with you. So Rich, that’s such a powerful tool being able to say that I’ve got a duplex or a fourplex, and especially right now let’s say somebody has a fourplex and three of those units are rented to people who are waiters, or in some other industry, and they are now looking to the landlord and feeling that, well, do I have to pay my rent? Well, landlord has to pay his mortgage payment, so where it stops, where this whole trickle down effect stops.

I have a good friend, they’ve got a couple of apartment buildings and what they’ve decided to do is to basically abate the rent for one month, the month of April for their tenants to help them out. And they’re well-heeled. They’re able to do that. Not all of the landlords are either willing or able to do that. But being able to push away from that active management, those active decisions and get property then that’s not just you owning a fourplex, but being able to be in various sectors. Can you talk a little bit about that, Rich? What are the sectors that have been hit hard? What are the ones that have been… Are there any that seem to be–nothing’s bulletproof–but which are the ones that are tending to fare better now?

Rich Arnitz:
Yeah. So I think there’s really two… There’s a variety of different sectors here that have been impacted the least, I suppose, the best way to put it with this coronavirus, with the sensitivity. And the sectors that we take a look at over here at Ridgegate are really–there’s a four or five that we actually would work with you on doing an allocation. Multifamily is one of them. It’s not recession proof, it’s recession resistant. A self-storage is another one, as people in the sense of a downsize, a self-storage has always been a strong sector out there in commercial real estate and a consistent AI (Alternative Investment). Industrials: if you really think about it, if you look at these large industrial complexes who’s expanding, who’s growing, and it’s Amazon’s distribution centers currently right now.

Wally Smith:
Oh, those are fantastic.

Rich Arnitz:
Or out there hiring.

Wally Smith:
Yeah, those are fantastic. That last mile, they call it in the commercial real estate. Amazon, Walmart, all of these, they’ve got to be able to have repositories of all the goods. It’s a miracle how they accomplish that inventory control anyway. But those are fantastic.

Rich Arnitz:
Yeah. And so the industrial ones are very, very strong and there’s a couple sectors that we’re taking a look at as well for some of our clients, they’re the centers and cell towers. If you really look at those, what are we using now? We’re using cell towers right now to communicate [with] Zoom and doing these types of events going through right now. So those two are one of the fastest growing currently right now as a lot of people are doing their work on a daily basis staying at home in the sense of the data centers and the cell towers as well.

Wally Smith:
So talk a little bit about how that works. Somebody has a, and again, I’m always, you’re doing a great job of explaining things, but I always want to take it all the way down and translate it to somebody who’s just starting. Maybe they have a couple of condos or a couple of properties and they’ve just finally, this last couple of weeks they’ve said, I’ve had it, I’m done, I’m getting out of it. There’s got to be a simpler way in retirement to get mailbox income instead. And that’s what we want to help them do. But, boy, it can be a little bit of a stretch to think, how do I take the value in the wealth that I’ve created in this apartment building and turn that into a cell tower and a data center and how do I collect the rent on that? Explain that a little bit, Rich.

Rich Arnitz:
Yeah. So the nice thing about it is we work with institutional sponsors, advisors that have been in the commercial real estate and they all are sector specific experts. So, we have product out there that we have firms that we work with that only focus in on multifamily, commercial grade multifamily throughout the United States. We focus in on sponsors and advisors that work solely with storage, industrial. And those are part of the products that we give you an allocation in when you’re doing your 1031, you’ll get your fractional ownership. But for a cell tower, let’s just talk a little bit about that because that’s important. That’s almost like you’re owning the cell tower and you own the land underneath it and you get monthly rents from the people that are renting the cell tower: AT&T, Sprint. All those phone service providers are renting the space on top of the tower from you.

So, for example, when you’re driving down the street and you’re talking to one of your friends or one of your associates, and then all of a sudden your call drops, that’s very, very frustrating.

Wally Smith:
Yes.

Rich Arnitz:
The reason why sometimes where you’re driving down the street and you can be driving for 15 miles and your call doesn’t drop it’s because the phone signal goes from tower to tower to tower, and those are the towers that are owned in a portfolio and the real estate underneath it. And the tower itself is owned by these investors. The technology is owned by AT&T, Sprint, those types of carriers are responsible for that, but they write a check to rent so that their customers in those areas can get service for their phones.

Wally Smith:
Okay. So, back old school: kind of like a billboard would be a metaphor I would look at. You’re driving down the highway and there’s all these billboards down the side of the road, and now a lot of them are owned by a couple of big companies that have aggregated those, but it used to be that you could have a property and put up a billboard and then you could just rent that out and sell the signage, sell the display ad to somebody different every month or however often they wanted to change that up. You own the property, they’re paying you to rent that space. In that case it was to show their big picture ad for “Willie’s Cheeseburgers” or something. But in this case, they’re renting the access, renting to be able to hang their equipment on the top of the cell tower and run it.

And I know one question that’s come up, we’ve talked to several people about this is, “Oh, what about 5G? Isn’t 5G going to change everything?” Well, we don’t really care what technology the antenna is that the company’s running. That’s up to them. The Delaware Statutory Trust…in this case they own the cell tower and they’re renting it out for whatever antenna any one of the telephone companies would want to hang up there.

Rich Arnitz:
Yeah, that’s a great point. So from a technology standpoint, that’s not put on the…the burden is not put on the owners of the cell tower, the land itself, that is the burden put on by the tenant that’s paying the rent. So AT&T and Sprint and all those types of phone carriers are responsible if they want to go 4G or 5G on doing the upgrade of the technology.

Wally Smith:
Very good. You know, Rich, let’s take one more break and when we come back I want to talk a little bit more about those sectors that have been hardest hit when we think they… What it will take for them to come back? But also some of the sectors that are doing really, really well right now. And then I want to talk through a little bit of the process. How you work with us and how we get started. You’re listening to The 1031 Show™. We’ll be back in a minute.

---

Wally Smith:
We’re back. This is Wally Smith and Rich Arnitz with Ridgegate Financial and you’re listening to The 1031 Show™. I’m covering a lot of stuff. It’s a stressful, stressful time for people. They’re wondering whether they’re losing their life’s work, whether they’re just getting ready to retire, and whether they’re going to be able to or not. A lot of that has to do with how their assets are allocated. Whether they have a plan or whether they had a plan. I like to say everybody has a financial plan, or only about, or a quarter of the people out there, their plan is actually written down somewhere, for everybody else their plan is, well, I have some income and investment assets and as life happens I’ll deal with it. Right now life is happening and some folks are dealing with it really well, some folks are not dealing with it so well. Regardless, you can give us a call at 303-438-1031. That’s 303-GET-1031. We will be happy to talk to you through this.

And help you either with the opportunistic side if you have liquidity, or from a defensive side if you don’t, you need to take some steps. Just don’t be frozen. Don’t be paralyzed. Rich, before the break we were talking about those sectors. There are some doing really well, there are some that we like, like cell towers and data centers, distribution facilities for Amazon, I think we talked at the beginning of the show about those that are getting hit really hard. Hospitality is probably…and retail are getting hit really hard. Hospitality and retail shopping are probably the hardest hit of all. Any others you want to address or talk about specifically?

Rich Arnitz:
Yeah, so hospitality is number one, hotels. So hospitalities, the gaming, the malls, the shopping centers, so the lifestyle centers and the big strip malls, the power centers as they call them. So if you drive in and you see the Home Depots and things of that nature, those have got hit a little bit. We do like healthcare. Healthcare has always just been one of those recession resistant a little bit as you look at the necessities of it. So healthcare, multifamily storage, industrial, those have always been strong anchors of of the society here with recession resistant so those are usually the last ones to get hit as well.

It’s interesting, student housing has been a strong sector, but that’s one that is kind of on the bubble a little bit because if you really think about it right now, those are longterm leases for the full school year, but a lot of people are really unsure. A lot of people are doing classes online now, so a lot of people may not be falling back and that might change a little bit next year. So it’s going to be interesting to see how that student housing sector is impacted when the kids go back to school and how their studies go.

Wally Smith:
Well I think as with anything the creme de la creme will always be there and if you have student housing, I believe, at the top universities and colleges in the country, the parents who send their kids there, they can afford it and they will sign that personal guarantee or parental guarantee, which is what’s so critical to the student housing. But I definitely agree we want to be very cautious looking at any of that sector right now and I would really be scrutinizing any of that.

You mentioned some of the big boxes. I will say some of the retail that is doing really well is where they have a strong grocery store anchor. Right now with 21 states having stay at home orders, it’s not really military rule yet, but they’ll stop you on the street and say, “Where are you going?” Out in California, I actually heard somebody said they were frisked on the way into the grocery store and I don’t know why that would be, but it’s getting kind of extreme. And again, all news is local, right?

Rich Arnitz:
Yeah.

Wally Smith:
So anyway, as far as which sectors are doing well, the grocery stores have done well so if you happen to have a grocery store anchor or dominant in a facility. Some of the retail, specialty retail has been doing okay. Those that have been able to adapt.

Rich Arnitz:
Yeah.

Wally Smith:
… and they have a drive through window [which] is a gold mine for a lot of these restaurants now.

Rich Arnitz:
Yep. So if you really look at the net lease space, the Walgreens, the Walmarts as well, you have the Home Depots, you have the grocery store anchor centers like you mentioned, the places that you get your necessities. So you go from the Costco and you can go get your water and your toiletry items, your paper good items that are the hot items I guess right now people are trying to hoard up on I guess and then you go to the grocery store and get your items there as well. So those have always done extremely well and those are necessity-based. So those are recession resistant as well.

Wally Smith:
Well, again, you’re listening to Ridgegate Financial’s show, The 1031 Show™. You can reach us by texting the word “quiz” to (303) GET-1031, visiting our website impact1031.com or you can give us a call. What will happen if you contact us is we’ll talk about your particular situation, we’ll talk about your liquidity, where you are in life, what you’re trying to have happen. And folks, we have entered this crisis as a country in so much stronger of a position than we did the last crisis that we entered. I cannot imagine if this had hit us four years ago. And this isn’t making a political statement, but there are so many more people working, there is so much more wealth that was started that was in people’s pockets going into this, this absolutely hard times.

And we encourage everybody, if you have… We have a favorite little Vietnamese restaurant that we patronize here and we’re trying to go in there twice a week instead of once every other week. Rich, I’m sure you have some favorite places that you go down there in Scottsdale. It’s our job to keep those places going if we want them to survive, shop local, shop with a local business when you can do that, patronize them and be generous. Tip well, these people are trying to make ends meet. We’re Americans, we rise to the challenge.

I read a beautiful report, I’d be happy to send it out to anybody who wants to see it. It was from a money management company, a very large one it’s called Dimensional Funds, and they had a piece that they showed from each deep recession, the fast recession, how long it took and where we were a year later, three years later, five years later. This is a new challenge for us as a country, this virus, and it’s actually, I think, going to have some tremendous upsides. It’s going to show people that they can break from the rat race a little bit, it’s bringing families together. Families spending a whole lot more time together now that they’re stuck in or that they have this stay at home order. In a lot of cases that’s good and in some cases it’s a little more stressful.

There are all these consequences, but I can tell you we’re Americans and we work hard and we know how to persevere, how to get through things. And I have every confidence based on history and based on knowing the character of our people that we’ll get through this just fine, but we’ve got to be able to look out for each other and take care of each other. If you come in to see us or call us, just like we’re doing now, we can do a Zoom meeting. It’s very easy, we send you an email, you click on the button and then we’re talking or looking at each other on the phone. We can have a virtual meeting and we can talk through your particular situation. We go through a very specific process of looking at the real estate that you own and we’ll also look at other assets as well.

But with regards to this show, The 1031 Show™, we’re talking about how to transition your commercial real estate, your investment property into something that’s going to be more passive, less active, where you don’t have personal debt, you’re not on the hook personally for debt when you put money into a DST, and that’s really the process that we go through. Rich, I didn’t get to do much of a formal introduction, we just jumped right into it, but could you share a little bit with us about your … what, 30 years in the industry? Man, you’ve seen it all, you’ve worked in the REIT space, you’ve worked in individual space. I’m not asking you to blow your own horn so much, but tell us a little bit about the expertise that you bring to us.

Rich Arnitz:
Yeah, well I’m excited to be part of Ridgegate Financial. I’ve been in the real estate side of the market and the investment side of the market for a little over 30 years. I don’t want to date myself here, but I have been on the broker dealer side of the business working with clients and investments for the first half of my career and then I’ve been on the distributor side in the sense of putting these deals together. So really understanding from a due diligence standpoint how to package these programs for investors and clients as well in all aspects of commercial real estate over the last 20 years. And so I’m very, very excited to bring what I’ve learned over the last 30 years in a few recessions, dips in the markets to Ridgegate Financial and to the clients as well.

Wally Smith:
Well, I appreciate that. And the old phrase that it’s hard to follow a general up the hill who hasn’t been to war before. We’ve seen a few recessions, a few pull backs, they’re always triggered by something. This one happens to be a … I don’t know. I hear a lot of talk on the radio about the political aspects of this and the medical aspects of it. There’s no doubt that this is a medical problem, medical emergency.

Rich Arnitz:
Right.

Wally Smith:
The degree to which it is being fanned and how long it’ll go on, I hope it’s not too related to the election cycles and to the political aspirations of folks, but regardless it is. It is what it is. We have it, we’re dealing with it and that’s what we’re here to help folks do. I’m a financial planner. I’ve been doing this for 18 years. Rich, 30 years in the real estate industry. Folks, give us a call at (303) GET-1031 and we’ll be glad to talk through your particular situation, through the exact assets that you own, offer some ideas about how to transfer that wealth multi-generationally to your family. How do you get more income from it currently? Those are all the things that happen when you finally step back and take a look at the overall portfolio knowing that there is an exit for that. Rich, thanks for being on the show today and for our midweek update, we’ll hook up again in a couple of days.

Rich Arnitz:
Sounds great, Wally. Thank you.

Wally Smith:
You bet. And folks check back on the website impact1031.com and you can catch us on the weekends on our radio show. Until next week, Wally Smith and Rich Arnitz for Ridgegate Financial. Thank you.