Coyote Blog

Real estate investment trusts (REIT's) have had their stock values pounded in the last six months, and is it any wonder?  Many have tenants who aren't even allowed to open, who are slowly (or quickly) going bankrupt and not paying their rent bills.  Industrial REITs are doing OK (particularly those that specialize in data centers and e-commerce warehouses), but will shopping malls ever come back under the Amazon/COVID 1-2 punch?  Will office real estate survive now that many companies are getting more comfortable with work at home?

I picked up a few REIT stocks at the bottom I thought had been pounded too far, and was lucky to have Warren Buffet jump into one of them after me ($STOR).  Which got me to looking at office REITs.  We have seen stories like the ones of REI giving up their entire headquarters for work at home.  Many people reading this may still be working at home.  Large companies may continue to pay their rent until their leases run out, but will anyone be renewing those leases in the future?

At first, my answer was that the commercial office real estate business was going to suck for many years, and I have not totally changed my mind on that (relatively obvious) conclusion.  But then I started to think about a few things that have happened to me in the last few weeks

• My banker, who was working at home, was unable to complete a couple of tasks I needed from him because Bank of America would not allow him to handle certain confidential information in his home or via his home computer
• I rented an extra office for a new HR director I have added to my own company -- not because she really wants an office or uses it much -- but because we had to have a secure locked location to store confidential employee files
• Working with my attorney on a deal has been inefficient because he does not have access to files and certain resources at the law firm

This raises a question -- is some amount of commercial real estate necessary just for security concerns (banking, financial data, employee data, HIPAA, legal correspondence)?  Perhaps in the near term.  But if we really get more comfortable with working remotely, then the ultimate solution is not to keep expensive office space for file cabinets and secure networks but to create document and data management models that secure data even when everyone is working remotely.  There are a lot of pieces to this, but some of them include

• Hardware/Software solutions to secure notoriously poorly secured home networks and computers
• More commitment to HRIS and on-boarding systems to move all employee paperwork off paper and into the cloud
• A return to some of the "paperless office" services that really did not catch on.  For example, services that receive all company mail and scan it and then distribute it digitally.
• For old dead tree documents, which I guarantee will still exist, more use of 3rd party / remote file management and storage solutions

I am quite convinced there are going to be some new businesses here -- and so far we have zoom and not much else.  If I was in technology, I would be thinking if I had the technology or the position to solve problems in this space.

One company that intrigues me is Iron Mountain ($IRM).  They have said nothing that I have seen in their marketing about post-COVID opportunities, but their business model (a combination of paper and digital document management and storage solutions) seems a good fit.  I think they are sitting in a very interesting spot to benefit from the post-COVID work environment, and I have bought a block for my portfolio (which is not that painful to hold on the come because it also pays an 8.5% dividend).

PS-  I am not an investment advisor and just have fun casually thinking out loud about investments and markets, from time to time.  The vast majority of my money is invested in my own business, which, through absolutely no foresight on my part, happens to be in one of the few retail segments and virtually the only hospitality segment to see record revenues this year (camping).  I am trying to think about long positions because, like someone who only recently gave up smoking, I am trying my absolute best to give up on shorting stocks -- it is just too painful in this nutty market *cough* Tesla *cough*.   With my skepticism I bring to most things, shorting is a natural fit for me but there is only so much pain I am willing to endure to fight an overly-active Fed and an overly-dormant SEC (this article plus my personal experience caused me to capitulate).  I do still have a few shorts on the books, including $tsla of course for tradition sake, but these now amount to what are essentially bar bets.