COVID-19 Economic Impact David Sussman, Valcor Worldwide

Jason Hartman is joined by David Sussman, Founder, and CEO of Valcor Worldwide, to talk about the impact of Covid-19 on the economy. David shares that the media can only focus on one or two stop stories, making it difficult for them to look into the state of the economy. The two also discuss what’s happening with small and medium-sized businesses and real estate. They also look into financing for small businesses as well as merchant cash advances.

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Jason Hartman 0:29
It’s my pleasure to welcome David Sussman to the show. He is the founder and CEO of Val core worldwide and has some fantastic insights into what is going on with small to medium sized businesses, commercial real estate, and the impact of COVID-19 on a much deeper level than you hear about from the talking heads in the media. So, David, welcome. It’s good to have you. Thanks, Jason. It’s a pleasure to be here. Appreciate it. Where are you located? We have offices in Vancouver and in Southern California. Okay, good stuff. And where are you? Actually, right now? I’m in California. Okay, good. Good. Vancouver, Vancouver. Talk about a bubble. Wow. That was, you know, you know, what’s interesting about this whole thing is that before the crisis hit, there was really a crisis looming anyway. I mean, we were overdue for a recession. A lot of people getting very political right now. And, you know, that’s sort of interesting. The arguments, I think, in a way really, this is, given the Trump administration good cover and explanation for the recession, that was probably going to happen anyway. I don’t have a spine theory. What do you think?

David Sussman 1:33
Yeah, I mean, when we combine politics in the economy, you can’t help to do that. Because obviously, policy comes out of whatever administration is in is in at the time, I just had a long discussion. And it’s actually an episode that we’re going to be putting up on falcor worldwide with Steven Moore, who is the economic adviser to this White House, he’s a recovery expert, as well for for this White House. And they are suitably concerned about what we’re seeing right now. You know, the fact is, is that mainstream media can really only focus on one or two balls at the same time, right now, they’re focused on COVID-19 as they should be, and election 2020. So a lot of the news is not being reported as specifically regarding what is happening in the economy. And I believe that there is a tsunami that’s heading our way. And it’s going to hurt a lot of people.

Jason Hartman 2:23
So tell us about the tsunami, because this has been a very uneven recession, you know, we see people that are doing great, the people in the knowledge workforce that can work remotely, they’re doing fine. In fact, a lot of them are doing better. But then we see a whole nother segment of the economy, sadly, that is very hard hit by this. But it’s really the knock on effects. You know, we were talking before we started about commercial real estate, and obviously, so many segments of commercial real estate are suffering greatly. But then you have the defaults coming and the mortgage backed securities, and the economy is is definitely very interconnected. But what are your thoughts about the tsunami? You mentioned?

David Sussman 3:06
Yeah, it’s a good question. And, you know, 2008, we had a liquidity crisis, right? I mean, you talk about mortgage backed securities, that was what precipitated the collapse, starting in 2007, you had the subprimes. And we know the stories. And thanks it, you know, for the last 12 years have been looking in the rearview mirror to try to prevent that from happening again. So they weren’t doing the crazy 125% loans and being a lot more selective with who they were lending money to. But with the appreciation and dramatic appreciation in real estate, individual real estate to residential as well as commercial real estate in the past few years, a lot of people have been projecting that we’re seeing a bubble occurring. And we just, you know, the thing is, Jason, and you know, this better than most, the economy is a living, breathing entity is think of lungs that we use to breathe, you have to expand and contract. And you have to have a recession every seven to 10 years to basically just kind of shake the economy off, get rid of some of the excess and keep things normal. Well, technically, we haven’t had a recession since 2007 2008. It’s 12 years, we were in a recession this year, because of COVID, not because of economic policy. But what the banks have now done is because of this, and because of the concern that they’re seeing because of the massive numbers of commercial real estate defaults that we’re seeing, and it isn’t just offices, downtown, big cities, it’s strip malls in the suburbs and office parks, we’re seeing in retail and hospitality, restaurants, the independent Restaurant Association of America, just a couple of months ago predicted that they’re going to be seeing 80% of independent restaurants close their doors because of COVID. And that was only three to four months into this now we’re heading into six months. Oh, yeah. So what’s going to happen? What’s the as you correctly stated, the domino effect of all Have those offices that don’t need 50% of their employees to come to the city every day. Sushi bars and restaurants and clubs and, and dry cleaners and all of those supporting cast of characters in those neighborhoods are also not going to have traffic. So how far down does this go before you haven’t complete what Zell? A Sam Zell says, you know, the institutional investor, a Detroit ification of downtown’s across the country.

Jason Hartman 5:25
Yeah, Sam Zell owns a lot of office properties and his equity office fund. You know, I mean, what what are the just drill down on it anymore? You can you know, these are certainly issues we’ve been talking about for months. I agree with you completely. Office and retail are the hard hit warehouse doing okay. I think

David Sussman 5:46
yes. Well, how warehouses are actually increasing and industrials, increasing as well,

Jason Hartman 5:50
every year? Yeah, absolutely. And, and industrial with jobs coming back on shore, I think certainly, in spite of trade war issues, you know, certainly this is going to lead to more offshoring of jobs. You know, it’s really kind of the Trump agenda that’s gonna play out just by nature of what’s happened. And in the fact that the trust with China has been breached in so many. So significantly. You know, it’s interesting, too, I’ve heard a lot and read a lot about this sort of hub and spoke model that the airlines always talk about, and how large companies are planning to do that with Office, and open small suburban office meetings, sort of meeting places, and get rid of their big trophy offices, or really cut the size of them dramatically in the cities. And, you know, the interesting thing nobody talks about is, this is making business a lot more efficient, this whole crisis, you know, everybody has finally adopted, real Telecom, zoom, you know, etc, etc. That’s just forced the adoption of that. And so, in a lot of ways, businesses really becoming a lot more streamlined and a lot more efficient. You know, people that used to expect to meet, you don’t expect that or even wanted any more. And that’s kind of convenient. Frankly, you could just get a lot more done. There are some some definite good things coming out of it. Right.

David Sussman 7:15
Yeah. They say that the trajectory that was supposed to have taken a decade for us to do what we’re doing right now is compressed, compressed into a few months, right, and people adapt or they die. And what we’re using right now, as far as technology is probably going to be obsolete in a year right now, you know, they saying right now, there’s probably six or seven zoom killers, right? So this is going to be even more efficient. It’s going to be I mean, I don’t know how it’s going to the technology is only going to improve. And they say that in times of strife and stress, then you get million dollar corporations that have been formed in people’s garages right now. So I’m an eternal optimist, half glass, full person. But we’ve got some serious storms to navigate over the next couple of years to get through to that.

Jason Hartman 7:58
Yeah, well tell us about those storms.

David Sussman 8:00
It comes back to this. And it comes back to the really at the very beginning what you’re talking about. There’s been a decoupling of the economy. Right now, what we’re seeing happening on Wall Street doesn’t represent what is happening on Main Street, and small business, they SMBs which is our bread and butter. This is who we help, right small businesses, there’s 32 million small businesses in the in the country. 32,000,067% of employees that are employed in the country rely upon small businesses. So small businesses are the lifeblood. And while you are absolutely correct that some of the large corporations are doing better the Amazons the Walmarts of the world right now, we’re all ordering online, right? Nobody wants to go to the stores if they don’t have to. And that’s great if they have distribution centers and logistical supply chains are going to benefit from that. But what happens to the retailers? What happens to the restaurants what happens to commercial real estate developers and owners that have mortgages to pay? I just saw that there was a federal moratorium on foreclosures and kicking people out. Okay, what if you own that property, and you’ve got a mortgage to pay? How far up that chain do we go. So the banks are going to end up with a significant number of defaults, they’re gonna have to either extend and pretend they’re gonna have to lower interest rates or reduce the principal. We’re seeing commercial real estate and residential real estate in the cities right now dropping 10 2030 in New York, the talking 50% and maybe even more, what if you bought property in the last couple of years and you’re at at 90%? And you’re now at 50%? As far as the equity in there, you’re upside down? No question. And

Jason Hartman 9:37
speaking of acceleration, you know, when we talked about the acceleration of technology, really this creative destruction that’s happening much faster than it would it would have happened anyway, it would just would have taken another decade like you said, but it’s also happening to the the business unfriendly states and cities you know, people were already leaving New York people weren’t Already fleeing California, you know, I just saw an article today and Yahoo News said New York and California the land of the flee, FL he loved this people are fleeing. And I and then they said Texas, the land of the free. So you know that that trends been occurring already. And, you know, I just think of these municipalities, and and the loss of tax revenue is going to be staggering. Yeah. I mean, the kind of municipal default problems coming up. And remember, a lot of individual investors who thought they were being very conservative, conservative, they own those bonds. Yeah. And those bonds are going to default. There was already a pension crisis with these public pensions and in private pensions, too, of course. And now, I mean, that’s Jason, California,

David Sussman 10:48
New York don’t want to talk about the pension crisis. they’ve they’ve got the fuzzy math, they’re in surpluses. Were they were?

Jason Hartman 10:56
Right. Yeah. Keep on dreaming. Right. Yeah. So that you’re right. I mean, that the problem is huge. But is it all just going to be people papered over by federal bailouts and money printing what this

David Sussman 11:10
is, this is one of the questions that I have to Stephen Moore, and whatever your politics are, whatever whoever, you know, your your viewers are, and what their politics are, you can’t separate politics from the economy, because you can’t again, whoever is making the rules, those are the policies that people have to play by, though. So again, Stephen Moore, he works for the Trump administration. He’s an economic an analyst and an advisor. And he’s obviously right thinker. And the like, we talked about this, we talked about the fact that you’ve got these, let’s call them blue cities, and blue states. These are the ones that are in the most trouble right now. These are the ones that had some of the biggest Fallout situations because of COVID. And they are still relatively locked down. Look, you take a look at the numbers of COVID tests that are coming back positive in the state of New York and California, they have dev dropped off the precipice, okay. The numbers have come down, yet the economy is still locked down. I mean, you can I guess you can go into a hairstylist, if you’re the speaker,

Jason Hartman 12:10
if you’re Nancy Pelosi, you can, you’re allowed,

David Sussman 12:12
they keep it but like my ex, and I’m very good friends with her mother of my kids. She has a small retail store. They’re done. I mean, I’m sorry. And it’s heartbreaking. It’s it’s truly heartbreaking when this hits home. You know, you’ve gotten business owners that invested their lifeblood into starting a small retail store, clothing stores, restaurants, whatever it is, they are dying, especially in these bluer states. And so that tax revenue, as you correctly stated doesn’t go to the local municipal state coffers. What happens now, here’s the problem. We are barreling towards $27 trillion in national debt. And that does not include the Federal Reserve’s balance sheets. And this is before we add another two or 3 trillion in stimulus, when Trump came in, we were at 20 trillion that had doubled in eight years, which took 250 years to build up to 10 trillion. You talk about papering over it, what’s going to happen to the value of our dollar deflation, inflation, there’s a reason gold is going through the roof right now. So this is all very concerning. Yeah,

Jason Hartman 13:23
it’s got to be inflationary, ultimately. But you know, technology covers up inflation pretty well. And so does consolidation. Sadly, you know, when you talk about the the restaurants and the retailers going out of business, it’s just more and more consolidation. It all goes, Hey, Amazon, and in a few big players, and, and that’s why we really need some real antitrust enforcement, because you just can’t have a society this way, where you’ve got one person worth $200 billion, you know, half the country struggling, it’s just that’s just not the kind of world I want to live in, honestly, and I’m not a socialist. I’m a libertarian, okay. You know, it’s just, you know, we really have a corporate socialism, where the big guys have just, you know, they’ve just taken over the whole game, you know, it’s, it’s the things they own the world. Yes. And it’s, it’s just, it’s just not balanced, because they have the rent seeking and the laws that are all in their favor. And, you know, they’ve got the lobbyists. So that’s the way they own

David Sussman 14:27
the information. And they own the distribution of information as well, which is even more concerning to me

Jason Hartman 14:32
in the political time or in any time in a time of a pandemic. You know, nobody knows and nobody can evaluate what they never see or hear. Yeah, and you know, we just, we just don’t you know, you can’t hear the dogs that don’t bark. We don’t know what media what stories we’re not seeing. And that’s, that’s a very dangerous thing if you ask me. So we’ll see how it all turns out, what kind of businesses do you work with, you know, to help them restructure their debts, and so Do you have any particular verticals? Or is it just generally a size range, the SMB small to medium market,

David Sussman 15:06
it’s mostly relegated to SMB small to medium sized businesses, we typically top out about 100 million gross revenues. Most I would say our sweet spot is probably between two and 3 million to 20. They are the small businesses. Again, the bread and butters franchise is restaurants, you know, people that own multiple different properties, you know, investors, and manufacturing, it crosses multiple different categories of business, the categories of lending, that we’re able to provide an access for our clients as well also cover multiple categories as well. So it’s typically a business that is in trouble. That is a legitimate business, not a fly by night organizations were not there to help them in a business that has been operating, they are in trouble due to circumstances beyond their control right now. COVID that, listen, even in good times, businesses get in trouble, they expand too quickly. They don’t adapt to new technologies, whatever the reason may be internal politics were very much like if you’re familiar with the Prophet, Marcus lemonis term, right, we go into these businesses and help turn them around. And that’s what our licensees do. And we’re training folks right now, who also want to do this around the country to help businesses locally to

Jason Hartman 16:16
David, what kind of financing is available to small businesses nowadays, because this is such a key cornerstone of America, and its economy. And, you know, coming out of the Great Recession 1012 years ago, you know, the banks were just so tight, you just can’t get much in a way of financing for a small business yet, you know, Goldman Goldman sucks, gets all the money, you know, and, and, and they get a bailout and they pay, they pay themselves $630,000 average bonuses, it’s just pathetic. The way the whole thing works. It really is. But um, you know what? I mean, can small businesses get any financing? I mean, maybe not in this environment. But what about even, you know, last year, for example?

David Sussman 17:01
Yeah, it’s a very good question, a question that I get literally every day, because we’ve got a lot of different clients that come across that we have to qualify ourselves to determine if we can help them right now, I’m not gonna lie, it is very, very tough. You know, the old adage, if you don’t need the money, they’ll give it to you. Yeah. And so a lot of business owners right now are facing situations where we’ve got a few deals right now that are in the hopper that we’re expecting to close. But they do need to see the banks do need to see assets, when we’re talking about categorized lending for small business loans, they do need to attach some form of assets. Now, the good news is that in most places around the country right now, the commercial real estate default hasn’t really hit the apex yet, and that hasn’t flowed down to residential. In fact, in some cities around the country, while New York or San Francisco, you’re seeing rents drop the suburbs, the prices are going through the roof because everybody’s moving out. I know. So a lot of people will have equity and they can attach to that as well. But we don’t just do you know, situations where it’s commercial real estate loans. In some cases, we have to take a look at hard money as an option for short term. I don’t believe in that we don’t touch anything to do with, you know, those cash loans that they’re doing, you know, merchant cash advances, things like that, folks, stay away from those they sink their hooks into you and they will kill your business. But we are doing

Jason Hartman 18:19
that’s factoring right? No, no, no,

David Sussman 18:21
a factoring is for accounts receivable financing. Okay, so merchant cash advances are essentially you don’t even really need any assets. You just have to show that you have, let’s say, you’ve got $100,000 in your tax return for the last year, they’ll lend a certain amount of that, but they will immediately have you sign a summary judgment if you miss a minute, and they own your business. Oh, okay. This led to suicides. I mean, this this is this is a really bad so you hear these commercials? Yeah. Yeah, factoring accounts receivable financing is always good. You can get 80% of what is owed to you over the next couple, three months. We’re doing private equity funds and other types of money as well. loan to values have decreased. So where we may have gotten 75 to 80%, LTV, we’re now down between 50 and 60%. So the banks are definitely more restrictive. They want to know what you had for breakfast in 2007, September 10. And they will do their due diligence and if you have a blemish, they will almost never give you the money right now. So it is definitely tougher. It’s something else give out your website. valcourt closing thought Hang in there. We are looking at a forest five hurricane that is going to be coming most likely after the election, batten down the hatches, we will get through this. America is a strong country. And we will rebound but you got to hold on to your hat.

Jason Hartman 19:41
You mentioned election. I just got to ask you any predictions?

David Sussman 19:44
Well, this has been reported elsewhere this week. But I’ve been saying it for a while. I think Donald Trump wins on November the third. And on December the third Biden wins with Malin votes and it’s going to be a really long battle.

Jason Hartman 19:56
Oh yeah. Long court battle after that. Yeah, well, no Very interesting. David Sussman, thank you for joining us. Thank you for having me, Jason. Greatly appreciate it.

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