Remember when you would play Monopoly and someone would land on your property and you would shout out "RENT!"
I think that shout will become the single most pernicious force when we get through this next month's bills.
Right now, commercially, many companies are not paying rent. Its been a less-than-fatal situation because many landlords take three months' security deposits. So if you haven't paid, they are simply going through that deposit. But there won't be anything left in July and it's not clear whether companies will be able to make it, especially restaurants with, at most, half of the revenue coming in but a full staff to pay.
Rent, though, is the biggest bogey for small business. It's why a Shopify (SHOP) or a Facebook (FB) Shops or an Etsy (ETSY) or even an eBay (EBAY) have been such glorious stocks and why someone would actually bid for Grubhub (GRUB) from across the pond.
I think, though, that many people who have never owned a small business, especially a restaurant, can survive with unchanged rent - and I have yet to hear of a single concession in my contacts in the industry. The repercussions are huge from food and liquor distributors to cooks and bartenders and waiters. We don't have places or jobs to put these people and unless rent is reduced the boarded up places will shock you and there are only so many Starbucks (SBUX) walk-in stores that are needed.
It seems that most of the rich and most of the policy makers are oblivious to this rent problem because it hasn't hit yet. For example, how can DoorDash possibly be valued at $15 billion if thousands of their customers are going to go out of business and a new outfit, Just Eat Takeaway (TKAYF) , has a ton of capital to compete. DoorDash claims a huge number of restaurants but remember most customers are, GrubHub's CEO Matt Maloney once said, are "promiscuous." What's really incredible about that $15 billion valuation is that it got there at a time when a new player came in instead of Grubhub disappearing within the Uber fold. It's the kind of ridiculous valuation that seems to come from the investors themselves bidding it up only to find out that the public market has no appetite for it unless it trades lower.
So what happens with rent? We see that Simon Properties (SPG) is suing Gap (GPS) . Why not? Gap's got plenty of cash. But the fact that Simon walked away from Taubman because it claims that Taubman is doing especially poorly, which means it can't collect rent. I know that both Chipotle (CMG) and Starbucks are playing hard ball because they both bring in customers and can pay on time but only if the landlords bend. Yet, with retail doing so badly, how many can make that claim?
I think that the biggest false tell I have seen during this period is the opening of Wynn (WYNN) and MGM (MGM) . It looks crowded and seems safe. But the amount of money I know Wynn had to throw in to make it safe was humongous.
Again, restaurants can't adjust like that. Wynn analyzed air conditioning with the best advisers. We can't hire them to tell us what air conditioning will do. Most bars are trying to put up dividers to keep customers safe. The best dividers are $1000 each.
That's too much for most.
The consequences of real estate defaults will ripple through the economy like a financial covid. There are mortgage bonds that will default. There will be landlords without cash to add to the economy. There will be empty stores to beat the band.
And most important, there will be evictions. Some will be stopped by government. But most will go through. Then what next?
I know I haven't figured it out. Can you?
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