Michael asked how tariffs will hit real estate. The honest answer is that nobody knows. Here is what 26 years of shocks taught me to do when nobody knows. Part 4 of a four-part series.
Michael asked how tariffs will hit real estate.
Three articles later, here is the most honest answer I have. It is the one nobody wants to lead with, which is exactly why I am leading with it.
I do not know.
Neither does anyone else.
We are in unprecedented territory. Two countries with one of the largest trading relationships on the planet are not speaking, and the last few exchanges were memes and a renamed lake. There is no playbook for this because nobody has run this play. It is unfettered, unmitigated, undocumented.
So if somebody tells you they know exactly how this ends, hit the BS button. Hard.
That includes me. I have been at this for 26 years and I do not know how this ends.
But I know something else, and I know it the expensive way.
Twenty Six Years Of Shocks
I have been doing this since before most of the people arguing online had a mortgage.
In that time I have watched a global financial crisis. Banks going under, real ones, with real names on the door. Mortgage-backed securities that turned out to be neither mortgage-backed nor secure.
I have watched rates sit at zero, the fancy name is ZIRP, and I have watched them go from a quarter point to five percent in about sixteen months. Then I have watched people who built their whole model on the first number try to survive the second one.
I have watched oil fall below $30 a barrel. Twice. Down to about $26 in early 2016, and then on one afternoon in April 2020 the front-month contract closed at negative $37. Sellers paying buyers to take it away. Canadian heavy crude went into the single digits that month.
I have watched a pandemic empty every office tower in the country in a week.
Every single one of them felt unprecedented while it was happening.
Every single one had smart people on television explaining why this time was different.
And every single one had the same three kinds of people in it.
The ones who froze. Waited for clarity. Clarity never comes. It only ever shows up after the opportunity has already left the room.
The ones who ran. Sold good assets in the fog because the fog felt permanent. It never is.
And the ones who stayed the course, kept the long view, and took action inside the window while everybody else was busy arguing about the fog.
In 26 years I have never once seen the third group come out of a shock worse off than the first two.
Not once.
Not because they were smarter. Because they were present.
Two Questions People Keep Mixing Up
Here is what I finally understood after watching that pattern repeat for two and a half decades.
There are two different questions and people keep answering the wrong one.
The first question is: how does this end?
Nobody can answer that. Not the Prime Minister, not the President, not the economist on your feed, not me. Anybody who answers it confidently is guessing with a straight face.
The second question is: what do I do while it is unresolved?
Everybody can answer that one. The answer has not changed in 26 years. It did not change in 2008. It did not change in 2020. It is not going to change this fall.
Nobody knows how this ends. Everybody knows what to do in the meantime.
The people who freeze are the people who refuse to answer the second question until somebody answers the first. And that day never comes.
Noise, Not Policy
I was watching a very opinionated, very prolific content creator this week. You would know him. He has spent a lot of years sitting in a chair on a certain television show with a den full of dragons in it.
I do not agree with him on everything. Nobody does, which I suspect is the point.
But he said two things I have not been able to shake.
The first: he looks at the renamed lake, the memes, the name calling on both sides, and calls it what an investor should call it. Noise. Not policy. It changes nothing about where capital actually needs to go.
The second made me laugh, because I wrote nearly the same words in April. He does not want to invest where the puck is. He wants to invest where the puck is going.
The puck is on our stick. It was in April. It still is.
And his read on where it is going: there is no long-term outcome where these two economies are not linked. Out of pure economic necessity. Whoever is in charge on either side of the fence.
He is not the only one.
A former banker who now teaches business said this week that elbows up is an emotional response. Not a policy. Not a negotiating strategy. And one of the country’s most experienced trade lawyers said the thing every other country on earth has already figured out: get to an agreement, and move past it.
Three very different chairs. An investor, a banker, a lawyer. Same conclusion.
I agree with them more than I would like to admit on a week like this.
Here is why.
We Both Have What We Each Need
Back in April I read an RBC report cover to cover and wrote a whole post about it. The headline was $1.8 trillion. That is what Canada needs to attract over the next decade to lead the G7 in growth, and the report laid out exactly where it goes. Oil and gas. Electricity. Agriculture and food. Mining and critical minerals. Defence.
Every one of those sectors sits on top of the Five Fs. Food. Fuel. Fertilizer. Forestry. Freshwater. Not the things the world wants. The things it cannot run without. And we sit on some of the largest reserves of all five.
Now look south.
Earlier this year the Americans passed the largest industrial reshoring package in their history. Hundreds of billions in incentives to rebuild energy, manufacturing and critical minerals on their own continent. They have the capital. They have the market. They have 340 million customers and a government writing cheques to build.
And what are they building with? What are they short of?
Exactly the five things we have in the ground.
Read that again. They have the capital and the appetite. We have the resources and the roadmap. Neither one of us has the other half.
For fifteen years the answer from Ottawa on every major project was the same three words. No business case.
The business case was never missing. It was sitting on both sides of the border the whole time, waiting for the two of them to stop arguing long enough to read it.
This is not a couple that needs to figure out if they are compatible. This is a couple that is compatible in a way that almost nobody else on earth is, and is currently too angry to notice.
Back To Basics
So here is my actual answer to Michael’s question. Three parts. Every one of them is something you can do this week, and every one of them is something I have gone back to myself these past few weeks.
1. Back to the basics. People need a place to live. That has not changed and it is not going to. Tariff or no tariff, lake or no lake, somebody in your market needs a clean, safe, well-run home this month. As rental housing providers, that is the entire job. Provide wonderful places for people to live. Do not sell a good building on a good street because of a headline. Fog is not a reason. Fog is weather.
2. Back to the research. What actually drives a market. When the noise gets loud, I go back to the top of the funnel and work down. Global macro. GDP growth. Population growth. Affordability. Then the region, then the city, then the street. That is what every video on my YouTube channel has been about lately, and it is not a coincidence. Nothing on that list is a meme. Run the next five years, not the next 90 days. If you are building, price the exposed lines at plus twenty and see if the deal survives. If you are holding, pull your rent roll by employer, not by rent, and find out who your tenants actually work for.
3. Take action inside the window. This is the one that separates the third group from the other two. The second phone number from Part 3. The lender you never activated. The deal you can still close in October while everyone else is refreshing the news.
Here is mine, since I asked you for yours. I am reworking most of my own business relationships and service contracts right now. Management agreements. Insurance policies. Supplier terms. Every recurring relationship in the operation gets read again, line by line, and asked one question: does this still serve the next five years, or was it just serving the last five? Not glamorous. That is the point. It is also, if you noticed, exactly the thing I asked you to do back in Part 1. The business relationship that needs reworking rather than winning. I am doing the homework too.
Every shock I have been through, the best deals of the cycle went to the people who could still say yes in the fog.
Not because the fog cleared for them. Because they had decided the fog was not the point.
Too Good A Couple
Part 1 ended with both parties right, both parties wrong, and the kids paying. Nothing in three articles has changed my mind about that.
But I want to end this series somewhere other than the fight, because the fight was never the point either.
These two are too good a couple.
I mean that exactly the way it sounds. I have watched a lot of relationships in 26 years, business and otherwise, and I know the difference between a couple that is done and a couple that is having a terrible month. This is a terrible month. It is not done.
The reason I know is the same reason it weighed on me that first weekend. You do not lose sleep over a transaction. You lose sleep over people who belong together and cannot see it right now.
You know the song. Everybody knows the song. The one about the piña coladas.
A guy is bored in his relationship, so he reads the personal ads and answers one. Somebody who likes piña coladas, getting caught in the rain, all of it. He sets up the meeting at a bar. She walks in.
It is his own partner.
They had both gone looking for somebody new and found the person they already had. Turns out they wanted the same things all along. They had just never said them out loud to each other.
That is where we are. One side is out renaming lakes. The other side is out signing deals in Asia. Both of them have a personal ad running.
And when they finally sit down across the table, I think they are going to find out what that couple found out. The Five Fs on one side. The capital and the market on the other. The same things they were both out looking for, sitting in the chair they left.
So back to basics applies to them too. Not just to us. Remind yourselves what this relationship actually is. Remind yourselves why you picked each other in the first place, and why it has worked for generations.
Because the kids are not a metaphor.
Two million Canadian jobs sit behind the export line. Close to 400 million of us live in this house, on both sides of the fence. And every single one of us is better off if the two of them can figure this out.
So here is what I truly believe, and I believe it from the bottom of my heart.
If both sides lean into the work right now, lean into the discomfort instead of the memes, we come out of this stronger than we went in. Better than before. More united, not less. I have seen it happen to couples. I have seen it happen to business partners. I have seen it happen to this country before.
But it does not happen from across the yard.
It happens in a room. Door closed. Phones away. Two people who remember why they picked each other in the first place, doing the slow, unglamorous work of the relationship.
We need to get talking again. We need to get to the table, get something done, and move forward together.
And here is the one piece of evidence for that I did not have to invent. A former Canadian negotiator reminded the Globe and Mail this week what happened the last time these two had a fight this ugly. Heated calls. A pile of insults. And they were back at the table by the end of that August, with a deal in September.
There is precedent for the two sides coming back.
The longer this goes, the more real people get hurt.
Bad months end.
Let’s end this one.
I believe in you. And I believe in us.
Michael, that is the answer I owed you.
Thoughts? Lots of them. Finally.
The Rough Patch: A Four-Part Series
Part 1: The Fight
Part 2: Four Questions
Part 3: Other Friends
Part 4: Nobody Knows. Do The Work Anyway. (you are here)
In your corner,
Russell Westcott
#Inspire #Encourage #Love
