Will Covid-19 expose the ghost firms?

That is the topic of my latest Bloomberg column, here is one excerpt:

Demand for in-restaurant dining is likely to fall as well, though estimates vary. Since the average small business carries less than a month’s worth of liquid reserves, and the wait for a vaccine is likely to be at least a year, many restaurants will simply be unable to survive the shrinking of the market.

I call these places ghost restaurants because they are still walking around, so to speak, visible to us and listed on Yelp, but not really alive and without much of a future.

In a few months’ time, a significant number of these ghost enterprises will be gone. My drive around Northern Virginia, rather than being rich with culinary choice, will soon become fairly desolate — and the overall economic landscape will indeed be much emptier.

What else in our current capital structure might qualify as “ghost”?

And this:

And while an all-but-certain death awaits some businesses, others can look forward to mere stagnation. If you are a 23-year-old entrepreneur, how easy will it be to build up the network of “soft ties” that will help you launch the next phase of your career?

As many marginal businesses are going under, it is quite possible that the public-health situation will improve. Civic spaces will repopulate as commercial ones depopulate, giving urban landscapes a confusing feel. And because there will be fewer businesses to choose from, it will be all the harder for those remaining to enforce social distancing.

Many Americans have been clamoring lately for more freedom, and those desires are understandable. But as they emerge from lockdown, they might well be disappointed to discover that, above all else, what people will be exercising is the freedom to go out of business.

If you start by using the word “ghost” (better than zombie, in this setting), don’t be surprised if the column turns out a bit gloomy!

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What about commercial real estate. If people work from home more and more , office buildings will get emptier and leases won’t be renewed.
What will happen to them ? Turned into residential housing ? Homeless shelters ?

Also, what happens to local property taxes if the malls close and the office building empty does that mean that residential taxes will have to go up to fund all of the services that the residents demand?

Depends on where you are, right? The commercial real estate will get hit, but more so downtown. Suburban office parks are safer and therefore probably a bit protected. Suburban office parks are more likely to employ people needing space and equipment, too, rather than the desk-and-phone set who congregate in dense skyscrapers.

So you'd expect positives in farther-from-the-city real estate (and you already see that in home rental markets) and negatives in the downtowns.

Basically it's a redistribution, not a loss. And since it comes with improved productivity, it's a win at a societal level, even though it will be disruptive in the short term. Probably this is a change we should have gone through anyway without COVID-19, it just took the pandemic to kick conservative executives out of their complacency, their desire for prestigious addresses, and their butts-in-seats = productivity managerial assumption.

It’s a redistribution if the proportion working from home ( full time or almost) does not change and the working at home trend was temporary replaced by working in the suburbs. , it may be a loss otherwise. I think there will be a significant increase, in the work from home, so that companies’ offices may downsize.

I'm not totally sure I understand your post. More WFH => big win for society on net.

Fast forward a year or so and posit an effective vaccine and a handful of treatments so this thing basically doesn't exist anymore. What's changed? Well, we all learned working from home leads to a big step up in productivity and a lot of forgone costs. We are accumulating a lot of evidence that even in the presence of a bizarre pandemic, with children trapped at home with working parents, WFH is still a lot better than what we were doing.

I figure it's a loss for downtown commercial real estate. It's neutral for suburban commercial real estate. It's probably a loss for downtown residential real estate . It's a big win for suburban and exurban real estate. But there are other parts of the economy than real estate.

For society as a whole, we've just increased productivity a lot and got rid of a bunch of wasteful spending. If your livelihood depended on that wasteful spending, say you were a downtown landlord, then you are hurt. Just like buggy whip makers were hurt by cars. But the net effect is a big positive.

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It sounds like you are specifically focused on the market for office space, in which case I agree, a big downturn seems likely. They've been exposed as buggy whip makers.

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There are a lot of ghost office buildings in the DC area. Before COVID, they were unoccupied of barely occupied. Tenants had left for newer office parks or downtown. Keeping real estate like that on life support is relatively cheap when owner cash flow is good. It will be interesting to see what happens to them when the economy opens up a bit.

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"And since it comes with improved productivity, it's a win at a societal level, even though it will be disruptive in the short term. Probably this is a change we should have gone through anyway without COVID-19, it just took the pandemic to kick conservative executives out of their complacency, their desire for prestigious addresses, and their butts-in-seats = productivity managerial assumption."

+1, this seems a logical outcome. It's certainly not guaranteed. However, millions of workers were already of the opinion that they had to come to the office too much for what they did. Why do you need to commute 30 minutes to bring your laptop into the office to do work that can be done anywhere. Sure you have some meetings, but how many meetings already have Skype running for the inevitable people that aren't there in person.

Was the correct mix 90% physcially present, 10% virtually present or the current 90% virtually present, 10% physically present?

Workers have a strong incentive (1 hour unpaid cost of commuting per day) to push for working remotely. In many cases, this will have been proven to be cheaper and just as effective.

It has yet to be determined how it will work on average and over the long term though.

Yeah, I agree that it's not totally clear to what extent this will occur. Working from home has certainly been a learning experience, and I don't think the firms are all acting like it's permanent and solving the harder problems like how to train new workers.

But some shift seems inevitable. The economics are just too attractive to the managers and the employees by and large want it.

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My wonder was all those new stadiums...Are cities on the hook for those loans?

Or tax increment financing? Do cities guarantee anything there?

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"Are cities on the hook for those loans?"

Nashville lucked out. A deal yo build a new Soccer stadium was signed in February , despite the outcry against the public financing terms by the local talk radio stations. This came down to a Red vs Blue partisan deal, with the Democratic mayor being determined to bring a new sports franchise to the city despite the doubtful estimates on future revenue.

However, it was recent enough, that building hasn't actually started. So presumably the City isn't on the hook for an expensive, empty albatross. They will have to cover the bills for the existing football stadium.

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It has already exposed the ghost states.

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The crisis will expose zombie firms (except those that get bailed out), but as you’ve defined it, the “ghost” firms were fine except that they only had a month of reserves (which is probably optimal during non-100-year pandemic events).

We might note that food rots if kept too long.

Food is a trivial cost. The expense of leased equipment, insurance and a building that is currently empty on the other hand are not trivial costs.

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Not arguing a point, just throwing in some factoids... from McDonald's (realizing a McD's is NOT the same thing as a local family restaurant): estimated typical P&L (USA only): revenue $2.7 mm; food COGS $800K, paper COGS $100 (!); payroll incl taxes $700K; rent $400K; DDA and interest $120K; all other expenses $430 (major bits: ads $100K, utilities $80; insurance $55K), operating income pre-tax $150K

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The way I've been thinking about the economy is that it's kind of like it's under a funny tax where each attendee at an event is charged a Covid tax of $n for every other person at the event. So if there are 11 people at an event, and the Covid tax is $2, everyone has to spend $20 to go, and the total tax bill for the event is $200. I think this provides a pretty good picture of the firms that are likely to survive or go under.

More here: https://shotwell.ca/posts/covid-tax/

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Will there be ghost colleges too I wonder?

That was going to be my comment, except I was going to say: there already are.

Pine Manor College in Brookline MA just announced that they will be taken over by Boston College. (BC almost certainly doesn't care about Pine Manor's academic programs, instead it's after the extremely pricey 50 acres of Brookline land that Pine Manor sits on. I used to live in Brookline; the only way that we starving students could afford to live there was by 4 or 5 of us sharing a multi-room apartment and more importantly thanks to rent control, so even as I was teaching Econ 101 students the evils of rent control, well there I was.)

A couple days prior to that, Wells College (which I know nothing about) announced that if they can't open this fall with on-campus students and classes, they will not survive academic year 2019-20.

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Yes, but the extinction has long been in the pipeline. The virus has merely accelerated the deaths. The loss will be concentrated among tiny, tiny colleges. The numbers surprised me: there are many with under a thousand students. My rough guess, based on nothing more than good taste, is that 5000 is minimum efficient scale. That's probably an underestimate.

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As colleges croak, faculty positions will disappear: I assume that a LOT of faculty positions will disappear, perhaps even entire departments will disappear, prefatory to wholesale curriculum consolidation. Is the professional/academic Journal of Post-Secondary Training (aka the CHE) ready to run reports on academic unemployment rates over the next four years or so?

How many jettisoned post-secondary instructors will of necessity wind up in secondary or elementary education? (How's the [un]employment rate among public and private school teachers expected to trend over the next four years?)

Will private tutors replace primary and secondary schools in the US?

What might the chances be

"of necessity"? Secondary or elementary education pays far better than college instruction. If they cared about better jobs they'd have been doing that already.

I wrote about that in response to an Alex Tabbarok question here:
https://educationrealist.wordpress.com/2019/05/31/idiosyncratic-explanations-for-teacher-shortages/

https://educationrealist.wordpress.com/2019/05/31/idiosyncratic-explanations-for-teacher-shortages/

+1, great post.

I'll add a bit of low value anecdotal data. My father was paying a helper in construction $12.50 an hour in the early 1990's. I was home for the summer before my senior college year working (at almost that rate) to build up money for the next year. I was shocked to learn that the guy had a PhD and had been attempting to get hired at the local high school. He was already temping as a stand in at the school system for $50 per day during the school year.

Eventually the principal told him, off the record, that he would never be hired. His starting salary (by union rules) was substantially higher than a new higher with a BA and the school didn't think it was worth the extra money. The guy offered to start at a lower pay level, but the principal said that was strictly against the rules in place. They had to pay him $x and he wasn't worth $x, so they weren't going to hire him.

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But what is the essential part of the restaurant? Top culinary + the strategist. Time to stop looking at this mass pruning as a whole-sale destruction but an optimizing of server-staff, capital, and over-priced rental-estate. The best restaurants may re-establish a bit off the High Street, but they will be stronger for it. Sulk not, for the upcoming 90% economy is a more robust core going forward.

Liquidations of borderline firms can have contagion effects throughout the rest of the economy.

Employees lose jobs, landlords lose rent payments, banks lose mortgage payments, the landlords stop paying their mortgage etc....

Nonsense, you must know by now that Austrians don't believe there's such a thing as macroecon

That''s not a "macro-economy."

But yes, macro-economy is a bit of a construct, along the lines of pointing out that "humanity" doesn't get cancer, humans do.

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What happens when you combine GPS in everybody's phone with Hotelling's law? I guess the GPS makes it more possible for businesses to spread out a little more than they were in the past. This is one more reason for zoning to be loosened.

Self-driving cars will have a big impact when they finally arrive.

Having a prime location will matter less if the car just takes you there with no effort on your part, while you text on your phone and answer e-mails. Parking won't matter either, if the car just drives itself away.

We actually have "buses" that will do all that too. But we don't use them for the same reason we don't live in certain neighborhoods.

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Good point. But remember the parking issue never really goes away, it just moves in space. When the car drives itself away it has to either park somewhere OR just keep driving around empty until it is summoned. The latter increases congestion. The former, assuming we free up parking spaces in nice area, for re-use, means we build parking spaces somewhere far away, less nice... and now the SD car has to drive more miles to get back in the nice area where it is needed... more vehicle miles racked up. Again, I think your points are valid, but the SD car still takes up space somewhere, parked or moving.

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Ethnic restaurants may go back to being mostly a thing in ethnic neighborhoods/areas. Fried bat will remain something mostly unavailable in most places.

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I'm optimistic about the future. Although it's unfortunate for current businesses, opportunities arise for others to fill the needs. The Great Recession left a lot of destruction behind, too, but that just paved the way for the largest economic expansion this country ever saw. Bring on 2021!

As we continue to go up the exponential computer power curve... 2021 might suck, but 2022 will be bitchin' 4sure!

If youre referring to Moore's Law that ended about six years ago, depending on who you ask.

Moore's law was about transistor density on a chip. Our power-curve is more about installed base.

https://aiimpacts.org/global-computing-capacity/

Personally I have a lot more computing capacity in the house than I bother to turn on. I just set up a Raspberry Pi for Octoprint, but that's a pretty menial job for a quad-core UNIX-ish computer.

MIPS are cheap.

Yes, but with the end of Moore's Law computing isn't getting exponentially cheaper anymore, unless you are focusing on specific tasks where it can remain functionally true.

Increasing MIPS (Millions of Instructions Per Second) per dollar: Hans Moravec's graphs popularized and expanded by Ray Kurzweil. Memory is also exponentially increasing. Kurzweil updates his Law of Acceleration for his talks that are up on youtube, but I can't find a link to an image right now.

Scroll down for Moore's law up to 2018:
https://ourworldindata.org/technological-progress

The issue with the end of Moore's Law is that this becomes application specific or more so than it was.

I don't get that. From what I've read the original transistor doubling observation by Moore will be over very soon but that there are several ways to keep the exponentially increasing computer curve going to at least 2030.

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Oh, my god! Fewer restaurants on account more eating at home. How will the supply chains ever adapt, sending steak to Safeways instead of to Steakhouse? Is this even possible? :-)

I work with these sorts of processing plants and you'd be shocked by how much time, money and effort would go into make these changes. To change from commercial to retail packaging of steak as you outlined above, for an small/regional sized processing plant, is an investment in excess of 10 million. For a large plant that easy becomes a nine figure project.

This still doesn't make sense to me. I am with Dismalist. You read about farmers plowing under millions of dollars worth of crops, but why? Just because their packaging lines are for hundred pound bags of potatoes vs 5 pound bags? How can it be so difficult? I need a proper explanation and none is ever given, just that the supply chains are two totally different animals.

Equipment costs alone are 5-7 mm for that system. That’s before you need to rebuild your buildings, change material handling etc. A machine that packs 100# bags cannot also bag 5# bags

It would probably be completely impossible for humans to fill 5 lb. bags with potatoes instead of machines.

Inconcevable at the wages they’d want. Only slightly joking. I can’t really read WSJ or NYT or WaPo because of the Great Firewall, but reading the British and European newspapers, I’ve seen some amusing stories about Western Europeans relearning how to pick crops like asparagus.

Even if you did have humans doing the work, the wastage is probably going to be huge. Seems like most Brits can only do a tenth of what Romanians and Bulgarians can do. Sure, that will change if they keep it up, but not fast enough to save farmers this season. And how many companies can survive the hit they’re going to take?

Has me definitely thinking of ways to make myself more resilient/anti fragile. Think it probably has a lot of people thinking that way. I know, people will say that my overestimating the odds of something like this happening again, but economic downturns happen. Preparing for those will definitely get some mileage. Second, I really wonder if we’ll see acts of bioterrorism after this. Sort of doubt it, but might as well prepare.

I'm not a libertarian, which means I actually did some work as a kid, back in the day, so to speak.

What I learned harvesting row crops was that it wasn't that tough. True, You had to work, for hours on end, and you had to muscle down to the pointy end of work, but it wasn't something a naked ape couldn't do. It wasn't any harder than, say, high-school baseball practice. I believe your average British fop could handle it as well as a Romanian, given a few days and a little bone-deep hunger.

I have a feeling that you guys would believe all sorts of impossible things are possible, once your iPhones go dead and what you think you know about the world turns out to be very little.

I’m not saying it can’t be done. I think we differ as to time frame. You think picking is a skill that can be picked up in a season or a few days. I think it is skill that can’t be acquired that quickly. Reports I read say that Brits are only picking 30% to 40% of what skilled pickers can pick. Sure they’ll become more efficient. But farmers are still going to take a major hit.

Finally, it is a question of wages. A lot of westerners aren’t even willing to work that hard for the money. Hunger isn’t going to be a motivator, frankly. And even if it was, you can’t expect people to become competent in harvesting multiple type of crops in a season. In my own experience, teenagers picking potatoes never perform very well their first go round.

Who's still harvesting potatoes by hand? Get them in touch with these folks:

https://youtu.be/eTqP0GeSr5I

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Any interesting ideas to share on ways to improve self resilience/antifragility?

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Is being "resilient" or "antifragile" the high society term for prepping?

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"It would probably be completely impossible for humans to fill 5 lb. bags with potatoes instead of machines."

Interestingly enough, I worked for a while with a Line that was using humans instead of machines for just part of the packaging process. The humans were just putting cookies into a plastic tray, that was all. A machine loaded the trays onto a conveyor. The humans put the cookies in. The Filler machine put yogurt into a different part of the tray, put a wrapper on top, heat sealed it and sent it down to the next machine, which put them in cartons.

There were roughly 16 lines in the plant. Generally, there was 1 operator for every packaging line. This one line had 14 humans loading cookies, 1 person adding cookies to the bin for the other 14 and a supervisor. For a total of 16 people. Plus the "normal" line operator.

I counted one night while I was dealing with engineering issues. There were more people adding cookies to that single line than there were in the rest of the packaging area for the entire plant.

And the 14 humans were the bottleneck for capacity. They kept trying to get them to load as fast as possible to keep the filling machine from stopping and waiting.

It was ridiculously inefficient by high end American manufacturing processes.

The workers were all temps of course. And even at the fairly low wages they were making, the cookie addition was the most expensive portion of the line. It cost over 1 penny per cookies added to each tray. There were 6 trays to a carton and 4 cartons to a case. So a minimum of an extra $0.24 per case. This was a substantial portion of the wholesale price of a case.

I would imagine a (high end) $5 million machine would do it cheaper.

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There's still a lag time involved in each transactional link in the chain. If you combine that with the tendency towards just-in-time delivery it's easy to see where it may break down.

Let's say, for example, the grocery store is still running out it's inventory of five-pound bags of potatoes while the restaurant supplier is canceling their orders of hundred-pound bags. The potato farmer has a few days before harvest and has to stay on schedule to replant. If the five-pound potato packager (or whatever) doesn't want them and the hundred-pound packager is still working on the full silos then that crop has nowhere to go (again as an example, you can store some crops in open-air piles for a while, I don't know anything about potatoes).

It's the same principle that led to negative prices for some varieties of oil a few weeks ago. People still need it, but it's an issue of storage and production lags.

Or anything else, but I am happy to explain it all to you...

Do you people just follow me around or what?

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Reading the objections to what amounts to any possibility of substitution, I am reminded of the infamous rigidity of the Soviet economic system. Now here, we apparently have B-school propagators of so-called supply chains imitating the results of that system as best they can. With the help of prices that are illegal to change, they may well succeed.

I think the issue is not that it can't be done, but that it has costs. This seems obvious to me that the processing and shipping of food is an extremely complicated system, and "just change it" is kind of an infantile perspective.

Absolutely. Prices have to be allowed to change. Virtually all states have laws against that in emergencies, and the DoJ is going after price rises as warranting an investigation into collusion.

"Just change it" is a Stalinist perspective! And for many things it worked. We're supposed to have price changes, though. :-)

This isn't the only problem obviously. But yes you are right that legal restrictions on price changes are probably making this time more destructive than it otherwise would be.

It's the only problem, given what has happened. Does no one understand how the price system works? Any more? Has anyone ever?

Yes, I agree with your point that price changes could resolve this issue. The larger point is that systems that were otherwise operating quite well, will potentially have to be remade at great cost ( cost not only in money terms but in societal terms.)

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From my experience (FWIW), changing over plants is expensive to the point where if a GM believes it's a short term issue, it makes more sense to eat the loss rather than invest capital.

If the prices rose it might make sense on the margin to add a bunch of temp workers and train them to do manual labor, but even then most GMs will wait and see. I can't imagine GMs are looking around thinking it's a great time to invest capital at all, let alone for something that might not last.

Classic error, confusing the part with the whole.

I’m not making any sweeping declaration.

I’m just explaining the internal logic of firms at the margin

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"If the prices rose it might make sense on the margin to add a bunch of temp workers and train them to do manual labor,"

Space constraints often prevent that. Factories don't have unlimited space and humans take up a far greater amount of room to package than a high performance machine does. Furthermore, you can't magically move the existing packaging equipment out of the way. Just cutting the wires, moving the equipment to a warehouse, and reprogramming everything to run without the normal packaging equipment would be a 2-4 week job. Then you have a longer job putting it all back in place afterwards.

If this were truly going to last over a year it might be worth it, but how many factories are going to lose 1 months production right now, when this all might be over in the next 90 days?

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Maybe but isn't another response that we will see a new niche emerge where the existing infrastructure feeds the intermediate supplier who then packages for retail rather than serving to diners?

Just redividing up the production activities (division of labor) with the given market? Let's face it, just like with toilet paper, people are still consuming the same amount of food just changing the location. If restaurants stop being the form of some of the production ....

But it won't be that clean, we will see various forms of integration within the complete production process but that is pretty normal.

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Restaurant Depot has opened itself to everyone. The vegetable wholesalers have begun to run delivery routes to homes. The business who find the best niche will survive.

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I am willing to bet $10 that in 2 years time 90% of the places that had restaurants will have restaurants in them. Takers?

I agree. They very well might be new entities, but unless there is a large shift back to stay at home moms (or dads)... restaurants will pop back up as soon as the pandemic is over.

There will be restaurants, but I bet its a lot more bailed out chains and fewer independent owner owned restaurants.

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A corollary of restaurants having low reserves is that it takes less capital to start a restaurant.

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I completely agree. Imagine strip mall A. Two family-owned restaurants, maybe. They flounder today. They stop paying rent. What is the strip mall owner going to do? Toss them out? And RENT TO WHOM? Most likely an arrangement is made, rent is cut by 50% for X months, to renegotiate in the future. Bank gonna foreclose on the cooking fixtures and equipment? Sure, but to WHOM will they sell that stuff? And yes I know the average small FIRM may not have more than $X of cash on hand, but for many small firms the FAMILY will backstop the firm. (For a small LLC, set up to flow through a personal 1040 anyway, why EVER hold much cash?) So let's say the family lets the restaurant fold. What are THEY gonna do? When it was open, they could guarantee jobs for everyone in the family! Where ELSE are the kids gonna work? (And remember, if they are family members, you can even pay them below minimum wage, thanks to some shoving some cash around the kitchen table at the end of the day.)

I don't want to sound like a Pollyanna: note that I am not saying everything will be rosy for these places, but all parties involved have strong incentives to keep them going.

Put it this way, BEFORE Covid a huge chunk of restaurants were either losing some bucks or making so little so as to not cover the cost of capital. But people kept opening them!

I recall a B-school 101 aphorism: "Never assume competitors will leave the game just because it is irrational to stay in." Irrational as in DCF terms.

Now, as to the endless numbers of boutiques selling housewares and stuff... they do mystify me....

The big problem is the big landlords who own a massive number of properties and are more than glad to have city blocks stand empty for decades while they wait for the rents they want. Small landlords might be flexible, but their mortgage holders won't be. They'll be out of business and forced to sell out for pennies on the dollar to the big guys. I suppose localities could seriously raise taxes on empty properties, but we'll see if they do.

I wonder if that's what's been happening in my neighborhood. Even for a newcomer to town nine years ago it was clear that there was going to be significant high-density business, retail, and residential development in this whole section of town.

When the local real estate market started skyrocketing in price about five years ago, sure enough this area skyrocketed more and the rate of construction of new buildings accelerated, with plans for even more.

But shortly after that, restaurants in the neighborhood started closing and have remained vacant. It's been more than three years for some of them now. The only place that hasn't stayed vacant had a nail salon or hair salon next to it, that expanded to occupy the empty space.

It superficially appears to be a neighborhood in decline. And maybe the economic downturn will truly make it one. But the medium term and long term outlook is still positive, unless the whole metro area becomes unpopular. So I'd been hypothesizing that commercial landlords raised rents, driving out the marginal restaurants.

But it's been some years now -- though not decades. Leveling of housing prices and rents has caused some of the construction projects to pause. But some of the new apartments and condos have opened, so the local population has increased. It seems like a high opportunity cost to leave those restaurant spaces vacant.

I've seen it happen in areas that are just holding their own too. There was a small hole-in-the-wall bar that my friends and I used to enjoy hanging out at-- well made drinks and the sort of ambiance that allows good conversation not meat-market frenzy. It was not in the most happening area, and in fact was within walking distance of some sleezy parts of West Baltimore. The landlord raised the rent, the owner, getting on in years, said "Screw it" and closed the place-- and five years later it's still sitting vacant. That should be a clear price signal that the rent is too damn high, yet the landlord just lets it sit vacant rather than price it to lease.

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Watch the over-leveraged small businesses, those with fancy office and expensive equipment: dentists, doctors, etc.

Can they survive two or three months missed revenues?

A lot will depend on the lenders and landlords.

Id bet on a dentist finding their business again over a non chain restaurant restarting after closure.

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Possibly? I mean doctors and dentists tend not to be in the same personal wealth-business position as “Brooklyn water Pizza” of Daytona Beach, Florida.

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As the saying goes about swimming naked, sometimes firms that appear to be outwardly successful, are in fact leveraged to the hilt, and cannot survive the slightest disruption.

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I'm not sure if the point of this post. Yes, obviously lots of small businesses are going to die. We've known that all along.

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Let's not forget: restaurants are always closing.
And, let's not also forget that a landlord will have a restaurant space suitable for the next person.
Finally, some of the really good ethnic restaurants are family enterprises. There might be more resilience in that operation than one owned by a sole proprietor.

Finally, some operations are probably off the book a little and may have more reserves or income than their tax records show.

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https://www.businessinsider.com/can-you-get-the-coronavirus-twice-antibody-test-2020-5

One indication of how long its immunity might last is to look at other coronaviruses. Those who have contracted SARS-1 have been found to have immunity for about two to three years, and the same time frame has been seen in other coronaviruses that can cause the common cold. Yet early signs have shown that this virus tends to mutate slowly.

----
Good news. The other common cold virus RSV might not have the immunity so I had trouble distinguishing the difference.

Now this pro indicates the corona has longer immunity, though it has not been proven yet for this corona. He still advises social distancing.

I am a bit more optimistic from this and a few other reports, thogugh this doc says we may need to get corona twice before our adaptive immunity responds correctly. And, to remind us, there re patients who contracted twice, with symptoms, so now we need to wait to see if they get it a third time.

Consider the triadic response model. The number of immune to infected neighborhoods is now about 40/1 if this holds. So your triadic response team can cover a larger area with small risk of leaks to adjacent neighborhoods.

We get a more reasonable result. Using frequent testing, the team can operate as a smaller group out of the local hospital This is a better test and track, a workable version. The flu system works like this.

Add in a anti-body immune booster after positive tests. We may not need the vaccine.

What about beaches and movies and colleseums?
This, in the model, are deviations from the hidden stable model. It comes out as kinetic energy in physics, and comes out as leaky emissions in triadic response. The model does not do kinetic energy, that motion is left to the modelers and is different for each type of these analysis. Physicists convert the leaks to flat earth and have particles flying.

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No patients contacted it twice.
Patients testing positive after reinfections are not infectious
https://www.bloom berg.com/news/articles/2020-05-19/covid-patients-testing-positive-after-recovery-aren-t-infectious

Also significant levels of antibodies in SARS patients 9-17 years after recovery.
https://www.tandfonline.com/doi/full/10.1080/22221751.2020.1761267

Should say: “ patients testing positive after recovery”

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Objection noted, but in fact there are counter examples where it takes two infections to acquire immunity. This fits in with the nature of corona.
The second infections were not antibody, they were pcr traces of live virus. And there are cases of older people getting the active virus twice, though a low number, which is good.

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We have a "Ghost Trail" in my town of Salisbury MA.
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The Ghost Trail in Salisbury is named in honor of the spectral “Ghost Trains” that once traveled between Amesbury and Salisbury, then on through Newburyport to Boston.

Carriages covered in white muslin, loaded on 30-foot platform cars in Salisbury Mills, 1885. — Photo courtesy Salisbury Point Railroad Historical Society
The Ghost Trail in Salisbury is named in honor of the spectral “Ghost Trains” that once traveled between Amesbury and Salisbury, then on through Newburyport to Boston.

Jerry Klima, a director of the Coastal Trails Coalition and a Salisbury selectman, recently told the story to the Amesbury Municipal Council.

During the late 1800s, Salisbury Point and Salisbury Mills (both became part of Amesbury in 1886) and Amesbury became the carriage-making capital of the country. Over time, carriage making gave way to the production of bodies for early Essex, Hudson and Franklin automobiles.

To protect the wooden carriages and early automobile bodies from the cinders and soot of the old steam locomotives, factory workers covered them with white muslin cloth.

At the time, the land (now either forested or developed) had been cleared for agriculture, so these trains could be seen from quite a distance, the sound being left behind. The white-shrouded forms gliding along the rails and across the marshes at twilight appeared to spectators as floating ghosts.

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No patients contacted it twice.
Patients testing positive after reinfections are not infectious
https://www.bloom berg.com/news/articles/2020-05-19/covid-patients-testing-positive-after-recovery-aren-t-infectious

Also significant levels of antibodies in SARS patients 9-17 years after recovery.
https://www.tandfonline.com/doi/full/10.1080/22221751.2020.1761267

I hope that one's right, but fwiw, 5 recovered sailors tested positive after again developing "flu-like symptoms."

https://www.npr.org/sections/coronavirus-live-updates/2020/05/16/857379338/5-uss-roosevelt-sailors-test-positive-for-covid-19-again

That was the counter example that worried me, as well as a few in China.

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There were similar cases in South Korea. They found it was either a test error or they weren’t infectious.
Virus’ fragments can linger and be picked up by the PCR test. In stools for a long time but they’re not live virus
https://www.livescience.com/amp/coronavirus-reinfections-were-false-positives.html

The docs know the problem. The few reports of second infections were well studied before reporting.

And, no virus, except may small pox, last forever, The docs only see corona resistance for two, maybe three years. Polio worked because the virus mostly died out once the immunity period was extended to many years.
Here:

https://www.immune.org.nz/vaccines/efficiency-effectiveness
Duration of immunity provided by vaccines
The duration of immunity varies with different diseases and different vaccines. Lifelong immunity is not always provided by either natural infection (getting the disease) or vaccination. The recommended timing of vaccine doses aims to achieve the best immune protection to cover the period in life when vulnerability to the disease is highest.

Many vaccines used today are relatively new and data concerning the length of time that they give protection is continually being updated
For many diseases immunity wanes following natural infection
The duration of immunity provided by vaccines varies depending on a range of factors, particularly the vaccine itself
Live vaccines generally induce longer lived immunity than sub unit vaccines
Sub unit vaccines frequently require primary courses and boosters
Polysaccharide vaccines do not generate long-lived memory cells
If the interval between doses is too short the duration of immunity can be affected. – Hence minimum intervals are required
In the very young and very old the duration of immunity can be limited
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The antibodies generally have a finite, but long, lifetime. In the original article posted you can read this. You can also find from the article that corona is a tough nut to crack because of its stability and it can survive in a different state after the surface proteins are identified for attack.

So, with caveats, I would say you are mostly correct for two years, which was the point of the original article.

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sorry, already posted above. Hard to deal with the blog interface on a cell phone.

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I wonder if this all unwinds to a real-estate redistribution. In major cities, there is _SO MUCH_ money and power in the developers and investors that bought property long ago (or not-so-long ago, with ugly amounts of leverage).

If the traffic permanently shifts, that property devalues A LOT.

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On the telly last night I saw an interesting tale from the 18th century. One of the noblemen of the time wanted a tutor to teach his boys science. So he hired Joseph Priestley and equipped him with a lab so that he could continue to pursue his researches.

So there you are: a one man university combining research and teaching, except with a far more distinguished teacher than most (all?) of us have ever had.

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What to add...?

If this is about Tyler losing his favourite ethnic restaurants, may I suggest that the ones focusing on the food and not the decor can switch to takeout only more easily. Your hole-in-the-wall ethnic eatery will probably get through this, though it won't be a fun experience near term.

The restaurants that wealthy (non-ethnic?) people go to to make business deals, propose marriage, and be treated like gentry are the ones least likely to re-open.

What do you mean "non-ethnic"? Everyone has an ethnicity.

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Isn't Fairfax County just a globo/big box/national chain-hell already, like everywhere else, so who cares?

DC area in general is a globo-hell like that.

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I suspect it will just slay dinosaurs, not zombies. Chicxulub caused extinctions (a "disruptor"), but did absolutely nothing for overall fitness.

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I am a retired bicycle rider. It is great to ride the city streets without traffic. You cannot however justify the infrastructure with such small numbers of cars and trucks. The roads will return to gravel and bikes will convert to mountain bikes .

City streets aren't going back to gravel (unless maybe population craters in a mortality event that makes the Black Death look like a mild disruption). Some rural areas may see that.

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All the unemployed workers could find jobs working at some of those cooking shows ... god knows how many hours I have spent on those because I have nothing else to do now.

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Well, lets see. The dine-in aspect is that of being in the same air as other people. So pretty much any sporting event or live entertainment (theater, concerts), movie theaters (but Drive-In movies are doing just fine now).

I suspect there will actually be fewer ghosts than anticipated but some significant changes in delivery. For instances, dine-in will occur in places that can offer private rooms that can serve the couple that is going out as well as having rooms that can support say a party of 10 (Much past that you're already getting a private room in most places).

I think that will also occur for sporting events, entertainment events and even gyms. All that points to a complete reorganization of real estate space. Staying with restaurants, existing ones will not have the same capacity and some will not even have a good layout to support that type of restructuring the floor plan. (And lets not forget what to do about the air -- as in filter and sanitize and compartmentalize so table A is not breathing the air from any of the other tables).

Then there is the whole traffic management need. Entry and exit will need to implement a different flow.

Same types of problems will be present in both general office settings and other social type activities (going to movies, shopping malls, live spectator events...)

I think one implication is that while work from home will increase I suspect what many companies will end up doing is "downsizing" in the sense of no more main campuses (someone has already written on this an suggested that working in an office will be come a status symbol) but perhaps distributed offices/more satellite offices with large teams broken up (serves a business continuity role as well).

Likewise, all the spectator type events will partition the space to isolate those in attendance. I suspect this means live events become very special events for most and largely consumed by the elite.

All that points to an increased demand for square feet perhaps.

That is not happening unless we don't get a vaccine, don't get some longish term immunity after exposure and infection and the virus doesn't just go away on it's own or mutate to a yet milder form.

So while some businesses will certainly die off I'm not sure any more than would die from any other industry disruption event that forces a change in the way the product/service is packaged and consumed does. Those that can and do adapt will. Those that cannot will be left behind.

Perhaps more than the ghost businesses the other question might be about any additional stratification in society which may show up most visibly in live performance events. Restaurants may or may not fit here.

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Quoting my 60 year old father in law when asking if they were still coming to the beach house this Memorial Day given COVID: “no one gives a shit about that anymore”. Georgia is back in business and most restaurants have opened back up. Tyler should leave his liberal DC suburb and visit America because we haven’t shut down. There is going to be big relocation from coast to south as sit down restaurants find they can only operate down here and people get sick of cooking and wearing masks. I mean, chicks can’t even wear makeup anymore on the coasts because the masks mess it all up. How are people supposed to date in NYC? Game over libs.

They said that back in 1919. That's when NYC went out of business and Manhattan turned into a ghost island.

I imagine Manhattan already resembles the ruins from that Will Smith movie. Joe Rogan is moving to Texas so I’m sure LA is not far behind. It is hilarious how much better the south is handling things than the coasts and MI.

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Pubs and Restaurants are -- with restrictions -- starting to open up again in Australia. If the link works it's to a short video on it:

https://www.facebook.com/watch/?v=881714892240012

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https://hotair.com/archives/ed-morrissey/2020/05/19/south-korea-retested-covid-19-positives-actually-great-news/
Scientists from the Korean Centers for Disease Control and Prevention studied 285 Covid-19 survivors who had tested positive for the coronavirus after their illness had apparently resolved, as indicated by a previous negative test result. The so-called re-positive patients weren’t found to have spread any lingering infection, and virus samples collected from them couldn’t be grown in culture, indicating the patients were shedding non-infectious or dead virus particles.
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Posted earlier, and yes this is better news. NAd no, it doeas not matter if the immunity eventually wears, all we need is about one or two years of immunity.

No, this does not indicate that all patients become immune with one does of the virus, the patients tested obviously had another case of the virus and so got two doses. But definitely the best study so far.

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COVID is revealing a lot of ghost firms killed by private equity. Anyone who knows accounting knows how easy it is to make a dead company look as if it is still alive. A little face powder, a dab of amortization, that's all it takes, especially if you are a deft hand.

I don't expect serious changes. The Fed will bail out the banks who will bail out the private equity firms. No one will bail out the workers or small suppliers, so watch for further economic collapse in the increasingly irrelevant United States.

Personally, I don't think restaurants are going away. A lot of them are getting by selling take out. The net is lower, but the nut is lower. I expect a lot of empty store fronts for a while, but interesting small businesses have getting squeezed out by rising rents for over a decade now. People tried to blame the rising minimum wage in Seattle, but the rents were rising faster. Being able to make it on take out alone, especially as delivery service is brought in house (see Canlis) or made cooperative, makes restaurants less dependent on good locations. Of course, then those oddball locations will get popular and rents will rise, but that's the cycle of real estate.

> The net is lower, but the nut is lower.

This is key. I have a friend that owns two boutique restaurants in large west-coast city. They have no staff anymore: Someone to take orders and handle payments, and 1-2 cooks. The rest have been laid off.

His takehome is the about the same pre- versus post-pandemic. And if he didn't have the space which he was no longer using, it'd be better still.

My parents went and ordered BBQ a few weeks back (all takeout) and the owner said they had 300 orders for dinner by 3 PM--it was a mess logistically. But they were killing it. (Our local ACE hardware store has reduced hours: 9-6. But during that time they are doing the same business as they were when opened from 6 AM to 9 AM. But lots, lots less overhead in terms of employees.)

But what is potentially dying here is the sit down experience and not the desire for food cooked by someone else. Giving up the sit-down experience will eventually push down prices. It has to.

My wife and I ordered pizza and salad from a fancy place nearby. As calibration, the G&T's are $16 there. The experience normally is awesome overall. But the takehome experience sucked. With a salad and shared slice of cheesecake, "service fee" and tip, the bill came to $75. No alcohol. The pizza, which is made from fancy cheese and woodfired, was almost indistinguishable from chain takeout once we got it home. Salad was fine. Dessert was good. But the conclusion was "This isn't worth anywhere near $75"

And our local steakhouses are selling their cuts. Normally, they sell an 8oz filet for $63 when you buy it in the restaurant. But they will sell it to you uncooked for $40. But not a good deal when Costco sells top notch filet for $20/pound.

> makes restaurants less dependent on good locations.

Our appetite for food prepared by others at an insanely cheap price will do exactly this. People will order more than ever, and it will be prepared in locations with very low overhead and NOT attached to expensive floor space.

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This column is indeed a bummer, but this statement resonates for me with pre-pandemic Austin:

"But as they emerge from lockdown, they might well be disappointed to discover that, above all else, what people will be exercising is the freedom to go out of business."

Prior to the pandemic "gentrification" was the culprit. But keeping a popular food business open is very difficult and at a certain point I suspect it stops being rewarding, both in terms of revenue and personal goals. It's exhausting.

I'm very sad that Threadgills went out of business. But the owner made it clear that his reasons for closing went beyond the pandemic, or even rent.

On a happier note, I know some entrepreneurs who still glean real joy out of their restaurants and their patrons are still ordering food like crazy.

There will be varying degrees of resiliency. Pizza, burgers, and wings, which are popular and probably a high % takeout before will be just fine. The Thai spot that never filled the dinning room and barely squeaked by might not do as well.

I agree generally, but think very small family-owned spots might squeak through. Landlords in downmarket locations may have few better rental options, and the staff tends to be mostly family members you can pay nothing for a while. We'll see, but I am more worried about the mid-market $100 for family-of-4 dinner tab, than the low-market $50 for f-of-4 spot.

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“Fairly desolate”

Happening to Virginia with or without covid. Population was already aging faster and growing slower than the US average before the dystopian nightmare of the Northam regime. As his campaign to hike power prices into the stratosphere take effect, businesses will flee and Virginia will become a net population loser. No future in Virginia and young people are leaving in droves.

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Very good column. I live in Japan, and nightly we see owners of small eateries and bars lamenting the paucity and lateness of government support, saying they will soon go out of business. I think they are mostly going out of business no matter what. They will have fewer customers in cramped places with high Tokyo rents with constant reminders of disease in the form of plexiglass, gloves, masks, and hand sanitizer. There may not be an “other side,” and even if there is a miraculous vaccine that works for all age groups, is 99 percent effective for 99 percent of the mutations, and nearly everyone gets it (in other words, not like any other vaccine in history), that is far in the future.

The government should put itself in the role of Italian doctors, and triage businesses. Some business categories should just die. Give the owners support to wind down. Some business categories will massively contract or have to reinvent themselves in a way that will require a lot of capital: Get the weaker guys to wind down.

It’s sad, but small service businesses and businesses with a lot of close customer contact will not survive. Veterinarians will need to concentrate on the services that are not elective or optional and do them in a conveyor belt manner. Happy talking owners about their pets while examining the pet in person is something people will pay to avoid, not pay to experience.

Eating out I think will die off. What you will have instead are:

For people who learned how to cook: Purchases of boxes of veggies, boxes of portion-sized frozen or fresh meat (no air space in packaging), meal kits or week’s worth of stuff with meal ideas.

For people who cannot cook or don’t have a kitchen: Take out with prepayment, delivery take out (but not as gross as Uber Eats), and delivered convenience store fare.

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But if the Fed keeps (would keep) NGDP on track, people are going to be spending money on something. Maybe there will be more firms catering the increased number of people working and studying from their residences.

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"I call these places ghost restaurants"

Too late Tyler. Even before Covid-19, "ghost restaurants" was a phrase that had already gained popularity, but with a meaning totally different than the one Tyler is trying to attach.

Ghost restaurants are places that have a name and a website and a phone number or URL that you can use to order a meal to be delivered to your door.

But they don't have an actual physical location. Or they do, but it's typically a large-sized food truck or portable kitchen that cooks the food and hands it to the delivery guy to take to your home. If they're successful, I imagine some might buy or rent space in a building. But only a kitchen; if they had a dine-in area they'd be a real restaurant and not a ghost restaurant.

They were growing in popularity even before the virus hit, and I imagine are probably doing fairly well now, to the extent that people are ordering meals to be delivered.

Tyler's concept may be solid but he's made a bad choice in nomenclature. I think I'd even sent him an article about ghost restaurants in Portland some six months ago or so.

Google "ghost restaurant" to see what I mean.

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Why does everyone assume we will be shut down until a vaccine? I thought the goal was to flatten the curve?

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