COVID-19: Where We Go From Here...Europe's Corporate Outlook...Why Diverse Investment Teams Drive Investment Performance

[Goldman Sachs]( [BRIEFINGS] August 19, 2020 Top of Mind: COVID-19—Where We Go From Here Roughly seven months into the COVID-19 pandemic, countries continue to grapple with managing the virus while restoring economic activity. Where the virus will go from here and what that means for the economy and markets is the focus of the latest podcast episode of Top of Mind at Goldman Sachs. Goldman Sachs Research Senior Strategist Allison Nathan spoke with Harvard T.H. Chan School of Public Health’s Dr. Marc Lipsitch, who believes the rising expectation for a resolution of the pandemic in 2021 is possible, but we likely won’t be sure until at least mid-year. “If you have susceptible people and virus and inadequate control measures, cases will go up,” said Dr. Lipsitch. “In many parts of the world, there's a lot of room for the virus to run still.” In thinking about the recovery path, Goldman Sachs Chief Economist and head of Research Jan Hatzius told Nathan that economic activity should be able to normalize further even if the virus remains an issue. “We are somewhat higher than the consensus because we do think that we can bring back economic activity to a significant degree.” Hatzius said, “There are some relatively low-cost measures that can have a significant economic impact and closing down of bars and bans on potential super-spreading events are certainly part of that, but face-mask mandates are also important.” Finally, Nathan asked Coalition for Epidemic Preparedness Innovations CEO Dr. Richard Hatchett if the rise in vaccine optimism is warranted. “Six months into the development efforts, I think we're still on target probably for the first half of 2021,” Dr. Hatchett said. But while he’s hopeful about the vaccine timeline, Hatchett cautioned that vaccines likely won’t be a magic bullet. “I think we will have a period of several years where we continue to learn about the disease, the vaccines, the immune response and what the uptake of [a] vaccine is going to be.” Listen to the podcast on [Apple Podcasts]( or [YouTube](. [Listen to podcast]( [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Top%20of%20Mind%3A%20COVID-19%E2%80%94Where%20We%20Go%20From%20Here%3F&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DxJtoiDhNh0I) The Daily Check-In With Goldman Sachs Europe’s corporate outlook appears to be improving for the second half of 2020, according to [Anthony Gutman]( global co-head of Goldman Sachs’ Investment Banking Services in a recent episode of [The Daily Check-In](. “In the last few weeks there’s been a very noticeable shift in CEO confidence and a sense that they are starting to think a lot more strategically,” he said. “I think most chief executives are spending some more time philosophically thinking about what is the optimal balance sheet for a corporate in a post-COVID world, and that ranges from what's the right dividend policy, what's the right leverage, how should I think about capital in a low- to negative-interest-rate world, to how should I think about government financial support.” Other episodes of [The Daily Check-In]( featured [Janki Gandhi]( of the firm’s Investment Banking Division, who shared her outlook for M&A activity within the beauty industry. From Goldman Sachs Research, [David Kostin]( chief US equity strategist, discussed his near-term forecasts on the heels of a better-than-expected earnings season, while [Abby Joseph Cohen]( senior investment strategist, explained how the pandemic has focused new attention on the global R&D landscape. Finally, [Stefan Bollinger]( co-head of Private Wealth Management in EMEA, weighed in on how clients are approaching the second half of the year given low interest rates and equities at record levels. For more Daily Check-In videos, [subscribe to our channel]( on YouTube. [Watch videos]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Daily%20Check-In%20With%20Goldman%20Sachs&body=https%3A%2F%2Fyoutu.be%2FUvNqTdhEnvk) Talks at GS With Dominque Ansel Above (L to R): Jennifer Davis of Goldman Sachs and Dominque Ansel Dominique Ansel built an international bakery business known for its inventiveness (exemplified by the now-legendary Cronut), but he credits his success more to a process than any one product. “I think it’s understanding different cultures and adapting based on where I am and what I do,” he said in a recent episode of Talks at GS. Ansel, whose new cookbook Everyone Can Bake has found a devoted audience during the shutdown, said adaption is how he has been able to grow his business around the world. “We started showing different ways of approaching, different ways of creating and changing with seasonality, changing all the time—introducing new pastries,” he said. “I think that’s what made us really different. It’s harder, of course, to change all the time and to show new things than to keep the same menu all year long. Most bakeries will keep the same menu all year, but I wanted to do something different.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%20With%20Dominque%20Ansel&body=https%3A%2F%2Fyoutu.be%2FQrFHjuTBGdc) Podcast: Why Diversity Drives Better Investment Performance This week, as the United States commemorated the 100th anniversary of the ratification of the 19th Amendment, Katie Koch, co-head of the Fundamental Equity business within Goldman Sachs Asset Management, sat down to talk about the economic enfranchisement of women in investing and the business case for diversity. “What we're trying to do every day is create an edge by having a unique perspective relative to the market," Koch explained in a recent podcast episode of Exchanges at Goldman Sachs. "And one of the ways to ensure when you're building a team and a process that you're able to cultivate that variant perspective is by bringing in people with different views and backgrounds," said Koch. She also described GSAM's efforts to get more women on company boards by voting against nominating committees that fail to include at least one women on their boards, while also working with those companies to find qualified female directors. Listen to the podcast on [Apple Podcasts]( or [YouTube](. For more from Katie Koch on this topic, see her [Daily Check-In interview](. [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Podcast%3A%20Why%20Diversity%20Drives%20Better%20Investment%20Performance&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fpodcasts%2Fepisodes%2F08-11-2020-katie-koch.html) Briefly…on Real Estate in the Post-COVID World Above (L to R): Nora Creedon of Goldman Sachs and Jamie LeFrak of LeFrak The pandemic is accelerating underlying trends in the real estate market, such as a decline in office space in major cities like New York and a move to the suburbs, according to Jamie LeFrak, Vice Chairman of LeFrak, a multi-generational real estate investment firm with one of the largest privately held portfolios in the US. Speaking at a recent Goldman Sachs Asset Management (GSAM) Forum event, LeFrak shared his thoughts on real estate in a post-COVID landscape with GSAM portfolio manager Nora Creedon. Nora Creedon: One of the big surprises from the pandemic has been the desire for people to continue to work from home—and employers’ willingness to allow it given high productivity levels. As a result, the shutdown has created a work-from-home revolution which has big implications for the future of work. What are your thoughts on how remote working might affect the office business? Jamie LeFrak: While many are predicting the “death" of office space, I don’t see this as a forever secular change. Once the pandemic is under control, people will want to be near each other again, and those face-to-face interactions will be important, especially in certain sectors such as finance. We’re all going to need to interact more efficiently and frequently. New York City, however, as a place to do those things is in trouble and will continue to be. Nora Creedon: Can you expand on that? Given the fact that you have major portfolio holdings in New York and New Jersey, what is your assessment for commercial office space in New York? Jamie LeFrak: In New York City, the need for commercial office space has been steadily declining since 2007 and the operating side of the office business—faced with ongoing margin erosion amid higher real estate taxes and higher costs of tenant acquisitions—has been especially difficult. The pandemic has only accelerated the number of people leaving big cities which has, in effect, made it easier for employers to move their workers to lower-cost cities. Nora Creedon: But what about the requirements to maintain social distancing? Is it possible that companies will want to invest in more office space as a result? Jamie LeFrak: I don’t expect that companies will be making significant capital investments to reconfigure their offices. Just a year ago, for example, we were talking how the Green New Deal obligations in New York office buildings would require the air to circulate in a way it didn’t before. But to date, we haven’t seen the large-scale investments materialize. My sense is that the discussions to de-densify office space is a fad, like the styles of office that come and go. Nora Creedon: So in a market like New York, if office demand slowly erodes, one of the obvious impacts will be on the residential market. What do you think will happen there? Jamie LeFrak: The problem with New York is that the population has been in decline and COVID has only accelerated that trend. New York City had been losing about 30,000 people each year over the previous two years. That’s a trend that we haven’t seen since the 1970s, when the city lost about 800,000 people, creating dire consequences. We’re undergoing the same circumstances today and we’re likely to see higher real estate and city and state income taxes, as a result. There’s a larger trend whereby most states' fiscal resources are being directed to pension payments and the like, so there’s a lack of reinvestment in the municipalities which will continue to inhibit growth and depress interest rates. New York City residential rents, for their part, are down about 15% on average since the start of COVID, with higher pre-existing rents experiencing a steeper drop. Meanwhile, landlords are having collection issues since tenants cannot be evicted, even when they can pay. While tenants in higher-end properties are continuing to make payments, tenants in cheaper properties aren’t as consistent because they can’t be evicted any longer. So landlords are in this strange situation where they can have high-end properties where they're collecting say, 97% of rent but the rents have dropped by about 30%. Or, they may have cheaper properties with rents of $1,500 a month that haven’t changed, but are only collecting about 85% of those rents. Nora Creedon: How are those trends affecting residential sales? Jamie LeFrak: We haven’t yet found a floor for sales of residential properties. We expect, for example, sale prices to drop by about half in high-end properties from current levels. In fact, we haven’t been bullish on New York since 2007 primarily because of the shrinking population. All real estate relies on people to use it. Many millennials, who are now in their 30s and 40s, have been fleeing the city for the suburbs, so COVID is accelerating trends that were already in place. Longer-term, many cities will stay resilient but there will be a demographic shift to an even younger population. In many ways, the virus has continued to exacerbate income inequalities—those who can afford to leave, have already left the city. Nora Creedon: So where are people going if they’re leaving New York and where are you looking to invest in places outside of the tri-state area? Jamie LeFrak: We started building major projects in south Florida in 2012 and in other sunshine states where there’s been strong population growth before COVID. As soon as the virus is under control, we believe those states will be among the first places people will go. Those states’ fiscal positions are also stronger, which invites the opportunity for growth. We’ve also been happy with our investments in Seattle, which has been very attractive for businesses and we continue to have substantial real estate holdings in Los Angeles. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20Real%20Estate%20in%20the%20Post-COVID%20World&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Business Insider - August 15 [Wall Street banks like Goldman Sachs have been building out their own in-house media organizations to help control their image. Now they're kicking production into overdrive.]( Barron's - August 14 [Goldman Sachs Wants to Manage Your Money. It’s Not as Crazy as It Sounds]( Bloomberg - August 13 [Goldman’s Currie Sees Gold as ‘Great Debasement Hedge’]( (5:45) CNBC - August 12 [Latin America saw record decline in real GDP from virus impact: Goldman Sachs]( (2:39) Bloomberg - August 11 [Goldman Sachs Says Stick With U.S. Risk Assets]( (4:48) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. 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