The New York Times - USA (2020-10-25)

4 BUN THE NEW YORK TIMES, SUNDAY, OCTOBER 25, 2020

THE CORONAVIRUS CRISISand the Novem-
ber election have driven fears of a major
market crash to the highest levels in many
years.
At the same time, stocks are trading at
very high levels. That volatile combination
doesn’t mean that a crash will occur, but it
suggests that the risk of one is relatively
high. This is a time to be careful.
I base these conclusions largely on re-
search I’ve been doing for years, including
findings from the stock market confidence
indexes that I began to develop more than
three decades ago. These indexes are
drawn from surveys of a random sample of
high-income individual investors and insti-
tutional investors in the United States that
are now conducted monthly by the Interna-
tional Center for Finance at the Yale School
of Management.
Consider what my Crash Confidence In-
dex is telling us. That measurement of sen-
timent about the safety of the stock market
is based on this question:
“What do you think is the probability of a
catastrophic stock market crash in the U.S.,
like that of Oct. 28, 1929, or Oct. 19, 1987, in
the next six months, including the case that
a crash occurred in the other countries and
spreads to the U.S.?”
The index is a rolling six-month average
of the percentage of monthly respondents
who think that the probability of such a ma-
jor crash is less than 10 percent. In August,
the percentage of individual investors with
that level of confidence in the market hit a
record low, 13 percent. The most recent
reading in September, 15 percent, was still
extremely low.
Institutional investors — people who
make decisions for pension funds, mutual
funds, endowments and the like — were a
bit more confident, with a September read-
ing of 24 percent, but that was extremely

low, too. In short, an overwhelming major-

ity of investors said there was a greater

than 10 percent probability of an imminent

crash — really, a remarkable indicator that

people are quite worried.

Another of my stock market confidence

indexes, the Valuation Confidence Index, is

also near a record low in 2020. It is based on

this question: “Stock prices in the United

States, when compared with measures of

true fundamental value or sensible invest-

ment value, are: 1. Too low; 2. Too high; 3.

About right; 4. Do not know.”

This index tells us the proportion of in-

vestors who think the market is not too

highly priced. At the latest measure in Sep-

tember 2020, the reading for individual in-

vestors stood at 38 percent, far lower than

at the bottom of the stock market in March

2009, when it stood at 77 percent after the

financial crisis. For institutional investors,

it was 46 percent in September, compared

with 82 percent in March 2009.

Despite these signs of distress, the stock

market has been trading near a record high,

stretching the valuations of stocks to fairly

rich levels. That’s very different from the

situation in March 2009, when stock valua-

tions were quite low and the stock market

subsequently rose. It is a different situation

now, however: Not only is investor confi-

dence low, but actual stock valuations are

quite high.

Consider a separate measure of stock val-

uations that I helped create — the Cyclically

Adjusted Price Earnings (C.A.P.E.) ratio.

This is a measure that enables the compari-

son of stock market valuations from differ-

ent eras by averaging the earnings over 10

years, thus reducing some of the short-term

fluctuations of each market cycle. It now

stands at a level that was higher in only two

periods, both of which were followed by

stock market crashes: the 1920s, in the lead-

up to the Great Depression; and early 2000,

just before the bursting of the dot-com

bubble.

The low confidence readings and the high

stock prices won’t, on their own, cause a

market crash. Another dynamic would need

to be in effect.

It seems that when superficial similar-

ities to current events prod people’s memo-

ries, they shift their attention to old stories.

The question now is whether another re-

minder of crashes past could emerge to cre-

ate a psychological sense of the risk. A fur-

ther pickup in coronavirus cases, a chaotic

or violent election or any number of other

events could well shake people up. Con-

versely, an orderly election, and a sense of

political and economic stability, could have

a calming effect.

We may be at something of a crossroads.

The decision to invest in the stock market

is for some people a bit of an adventure. One

is goaded to do it partly by the fun of it and

partly by a competitive spirit in observing

others and wanting to keep up. The market

may be vulnerable to a change in mass psy-

chology, one that might dampen this sense

of adventure and bring on a crash.

It seems that investors should be advised

to remain cautious in their U.S. stock mar-

ket holdings. The potential rewards for be-

ing heavily committed to the market in the

coming years need to be carefully balanced

against the possible risks.

No one knows the future, but given the

general lack of investor confidence amid a

pandemic and political polarization, there is

a chance that a negative, self-fulfilling

prophecy will flourish. This highlights the

importance of being well diversified in asset

classes — including Treasury securities,

which are safe — and not overexposed to

U.S. equities now.

The Market Is High, but So Are Anxiety Levels

Stocks could well rise despite

increasing investor worries, but

this is a high-risk moment.

ECONOMIC VIEW ROBERT J. SHILLER

ROBERT J. SHILLERis Sterling professor of
economics at Yale.

BRYAN R. SMITH FOR THE NEW YORK TIMES

A lack of investor confidence, a

pandemic, political polarization

and elevated share prices

suggest that it’s a time to be

careful.

PAT AND GEORGE RITZINGERmoved five
years ago to a community that few would
initially consider a retirement mecca: a for-
mer shopping center site in Wayzata, Minn.
They had spent the previous 15 years living
in a townhouse development in the Minne-
apolis-St. Paul area, yet found the atmos-
phere chilly.
“The neighbors were unfriendly,” Mr.
Ritzinger, 85, said. “It was a struggle to or-
ganize social gatherings. Watching garage
doors open was the main excitement.”
In their current community, Folkestone,
they can walk to shopping and other ameni-
ties and engage in numerous activities. A
bonus: They are close to family.
There is little denying that a vast amount
of retail space is emptying during the co-
ronavirus pandemic — 25,000 stores may
close by the end of this year — all while the
over-65 population is increasing by about
10,000 a day. So even though arena-like
malls and strip shopping centers might
never see another Sears, J. C. Penney or
Lord & Taylor store, some are being trans-
formed into something more interesting:
comprehensive upscale retirement com-
plexes.
Born and raised in the Philadelphia sub-
urbs, the Ritzingers moved to the Twin Cit-
ies in 1974 for his job as a sales executive for
DuPont. After living unhappily in a 16-unit
townhouse complex in nearby Eden
Prairie, they decided to move; Mr. Ritzinger
created a spreadsheet to keep track of
places that had the features they desired.
Besides being close to shopping, dining
and recreation, the couple can hop on a
Folkestone bus that takes them around
town. And Mr. Ritzinger can keep up with
his woodworking hobby in the community’s
wood shop.
To accommodate residents during the un-
forgiving Minnesota winters, skyways con-
nect the three senior buildings in the ex-
panding development. “Wayzata is a de-
lightful place,” Ms. Ritzinger, 84, said. “We
can look out on a lake, and our sons and
grandsons are nearby.”
The senior-living section of Folkestone is
run by Presbyterian Homes & Services,
which owns 49 properties in Minnesota,
Iowa and Wisconsin. The home uses the
continuing-care communities model, in
which residents can move to assisted living
or skilled nursing care as their needs
change. Folkestone is part of the Prome-
nade development, which includes shop-
ping, beauty and wellness services.
Like hundreds of retail redevelopments
underway around the country, the
Ritzingers’ apartment sits on land that was
home to a shopping mall built in 1967. It was
demolished in 2012, and Folkestone opened
in 2013.
The factors driving retail-to-housing
transformation were set in motion years
ago but have been accelerated by the pan-
demic. The demise of malls and shopping
centers has also been amplified by the shift
to online retailing in recent years.
The crisis in mainstream retailing has be-
come an outsize challenge and opportunity
for municipalities, real estate owners, man-
agers and developers. More than 8,000

stores have closed so far in 2020, according

to Coresight Research, after 9,500 shut

down last year. Mall stalwarts like Bed Bath

& Beyond, GNC, Pier One Imports, Men’s

Wearhouse, and New York and Company

are in various states of bankruptcy and re-

organization. Department stores such as

Neiman Marcus and Lord & Taylor are on a

long list of retailers going through shut-

downs.

Ellen Dunham-Jones, a professor at the

Georgia Institute of Technology, has re-

searched the repurposing trend. Retail clos-

ings across the country have led to 400 pro-

posals for retrofits, with some 315 projects

completed or in progress. Notable exam-

ples include the Ridge House Apartments in

Wheat Ridge, Colo.; the PathStone Skyview

Park Apartments in Irondequoit, N.Y. (oc-

cupying an old Sears site); and Aljoya

Thornton Place, on the former parking lot of

the Northgate Mall in Seattle, which was

one of the nation’s first regional shopping

malls and is still in business.

Professor Dunham-Jones writes about

Folkestone in “Case Studies in Retrofitting

Suburbia,” her coming book with Prof. June

Williamson of City University of New York.

She noted that the complex, in addition to

occupying a former retail site, took a more

progressive turn in its design.

Seniors are increasingly demanding

more activities and environmentally sensi-

tive and walkable communities, rather than

sequestered, gated or golf course develop-

ments that require driving everywhere,

Professor Dunham-Jones found.

“Baby boomers don’t want to be isolated,”

she added. “They want to be connected to

the community.”

While it takes years to plan, finance and

approve retail redevelopments, “communi-

ties are cognizant of the need for rebuilding

initiatives for their vulnerable populations,”

said Emily Roberts, an assistant professor

in the College of Education and Human

Services at Oklahoma State University.

She is a consultant on a plan for Cross-

roads Mall in Oklahoma City, a site that its

owners have been struggling to redevelop.

A rebranding in 2017 failed, and now the

community is working to turn the 800,000-

square-foot site into a facility modeled after

a Dutch community that is customized for

people with dementia.

“Our goal is to create a mixed-use city

center model in which residents can remain

engaged and active throughout their day,”

Professor Roberts said. “Malls give us the

space we need to rethink dementia care, re-

purposing the cavernous interiors while

creating outdoor spaces, which are con-

nected to the adjacent housing.”

What can you expect when considering a

shopping center redevelopment? Continu-

ing-care communities can be pricey. As a

rule, you will pay more for independent liv-

ing developments than for conventional re-

tirement or assisted-living communities,

and even more for stepped-up levels of care

from assisted living to memory care. In ad-

dition to monthly charges, you can pay an

upfront fee from $100,000 to $1 million to get

into continuing-care communities — a com-

mon economic model used to cover the total

cost of care.

In the Promenade-Folkestone complex,

the Ritzingers rent month to month and had

a choice of 40 floor plans. They pay $4,360 a

month for a two-bedroom apartment with a

sunroom overlooking Lake Minnetonka,

and paid an entrance deposit of $217,000,

which reduces their rent and is refundable

when they vacate that apartment.

Monthly rents at Folkestone range from

$2,210 for a one-bedroom apartment to

$6,810 for a two-bedroom with a library and

a sunroom. Required deposits range from

$95,000 to $328,000. (The cost escalates

with the larger units and level of care.) The

fees cover all utilities, maintenance and

taxes.

Of course, there are countless variations

for senior living. You could even live in luxu-

rious independent-living villas within sen-

ior communities, or in mega-complexes like

the Villages, north of Orlando, Fla., al-

though most in-home care services are à la

carte.

Services and facilities are much more ex-

pensive in large urban areas, which

prompts a broader question: Will this new

wave of retail-to-residence transformation

produce enough affordable senior housing

for the future?

More than half of middle-income Ameri-

can seniors — some eight million — are not

going to be able to afford basic assisted-

living residences, according to a National

Opinion Research Center survey. Although

people may relish being able to walk to

amenities and shopping, the important

question is, Will they be able to afford the

upscale lifestyle of a repurposed setting?

Changes afoot in the new redevelopments

may address that issue, although only

partly.

Strategic locations will make a differ-

ence, Professor Dunham-Jones is finding.

“By locating senior housing in walking

distance of shops, libraries, gyms and recre-

ation centers, the housing no longer needs

to provide those amenities internally and

may reduce costs accordingly,” she said.

For the Victory Center, on the former

Park Forest Plaza shopping center in Illi-

nois, “the municipality owned the land and

played an important role in ensuring afford-

ability,” she said.

The only thing that’s undeniable is the

demographic wave that shows the expand-

ing need for senior housing: The 75-and-

over population alone will grow by five mil-

lion in the next five years, according to Mar-

cus and Millichap, a commercial real estate

firm.

RETIRING JOHN F. WASIK

Abandoned Retail Sites Become Senior Housing

The brick-and-mortar past is

now part of the future for the

growing over-65 population.

George and Pat Ritzinger’s

home, the Folkestone senior

community in Wayzata, Minn.,

is on the site of a shopping

center that was razed in 2012.

TIM GRUBER FOR THE NEW YORK TIMES

The pandemic has

accelerated the

repurposing of malls and

shopping centers into

retirement complexes.

.