We want to briefly revisit the tsunami of change washing over our culture and economy. We believe it has significant implications for commercial real estate and its investors.
Whether it’s AI or Trump’s re-industrialization of America, things are changing fast, and you best take notice.
Long before the advent of AI, workers and work were changing here and not necessarily for the better.
In 1936, President Franklin Roosevelt, faced with high unemployment which his “New Deal” policies exacerbated, hatched an insidious scheme to game the numbers.
Using abolition of “child labor” as a front, he signed legislation taking millions of people out of the work force by eliminating entry level jobs for teens. Sixteen was the new minimum. Until then you could hang around street corners smoking whatever cigarettes you could bum.
The decline in the proverbial protestant work ethic had begun with many waiting until 18 to ever encounter a real day’s work.
To a certain extent this was mitigated by the discipline instilled by military service courtesy of the wartime draft of 1940.
Once the war was over, the nation faced a huge potential problem: ex-G.I.s flooding an economy not yet re-engineered for peace. Hence, the GI Bill: keep them in school and out of the work force.
Government seldom does things for altruistic reasons. This was not done out of respect or compassion for returning servicemen and women, but to keep them from flooding the job market and increasing unemployment.
Roosevelt had no desire to see a repeat of Hooverville’s (depression era homeless encampments) on his watch.
This altered the character of the university system fundamentally. Heretofore, it existed exclusively for intellectual purposes. Now it got in the business of training people for business and commercial life.
A plethora of credentials were now on offer for: advertising, marketing, communications, management, etc. The increasing peculiarity and irrelevance of these degrees only grew worse with time.
Slowly but surely, American business began its shift from client facing activities that did stuff and made stuff to a professional class of time servers who did little other than posture, preen, and fake it.
This was hugely exacerbated by the Fed’s zero interest rate policy which encouraged businesses to binge on debt, expanding their work forces far beyond what was rational and necessary.
The “professional class” exploded while the hardest working people who actually face the public, doing stuff and making stuff were hollowed out.
This is changing and changing fast now. The professional class of managers is being culled at a rapid rate. After taking Twitter private, Musk fired one-third the work force without a demonstrable effect on business. The average Twitter Account Manager salary was $122,500. What were they all doing? Not much.
AI will likely turbo charge this, making even more managers redundant. The day of the credentialed, high paid, latte swiller is drawing to a close. People who ‘make stuff’ may begin making more, while people who just talk about stuff may make less.
However, this will take time, much time. There are currently 400,000 open factory and warehouse jobs available and not enough workers with the requisite skills to fill them.
The changes necessary to fill this gap will be far reaching. The implications for commercial real estate may be enormous. It would be wise to consider diversifying into those property types that have the potential to benefit most.
The capital intensive nature of property investment has always made diversification for all but the biggest institutional investors difficult. This is where DSTs really shine. Their fractional ownership nature enables retail investors to diversify their portfolios both functionally and geographically.
Using DSTs as a tool to prepare and possibly even prosper from the of remaking of American business may be prudent based on your needs. Where CRE is concerned, consider investing in the future, not the past.
