The Real Estate Espresso Podcast

Billy Brown is based in Nashville where he runs a commercial lending business. But his real passion is golf. On today's show we're talking about the Gold Sanctuary, located at the epicenter of numerous high end membership golf courses. You can connect with Billy at billybrown.me ------------------------ Host: Victor Menasce email: podcast@victorjm.com

Today's show is a live talk from the Secrets of Successful Syndication Conference in Dallas. Today is a case study that focuses on the troubles that investors are facing when transitioning from bridge financing to permanent financing.  ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about the driver for the value of real estate. Some people will tell you that location is the number one factor influencing the value of real estate. Size and features of the property might be another factor affecting the price of a new home. If we look back at the great financial crisis which started in 2008 and over a five year period decimated real estate, we can learn a number of lessons which would apply to today’s market conditions. Last year there was the crowd that was arguing that inflation was going to be transitory. That’s been replaced with a variation on that theme. The inflation round of inflation which was caused by the emergence from the pandemic should peak around mid 2022 and then decline back to the 2% we have experienced over the past 25 years. The central bank playbook of the past 25 years appears to be the definition of normal. Whenever there is a problem, the central bank will step in, print some cash, buy some bonds, and all will be good. We just need to wait a bit more and interest rates will drop, the central bank will become stimulative again and we will enjoy another hit of the drug that the economy has become addicted to. What if that thesis is incorrect? What if inflation was actually being held artificially low over the past 25 years by factors that no longer exist? We need to understand why inflation was being held so low. ------------------- Host: Victor Menasce email: podcast@victorjm.com

Today's question comes from Marc who asks: "I’m hearing from a few institutional investors that they’re not making any decisions for the next 90 days. Some of the investments they made in 2021 have run into difficulty and the investment committee is gun-shy about making any decisions about new projects in the current environment. Given this feedback, Would it be unethical for me to discuss the project with other investors at the present time? Should I wait another 90 days for things to stabilize before holding any any investor conversations? Somehow just losing 90 days doesn’t feel like a good plan. What are your thoughts?" ---------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re taking a look at the effect of rising interest rates on virtually all real estate projects. On today’s show we are going to do some math so that you can see the impact on the underwriting of projects. It will clearly show why so many projects are getting cancelled in the current rising interest rate environment. These numbers are coming directly out of our own underwriting tools and they are the result of what-if analysis that we have performed on several projects. The real estate projects we’re looking at have fundamentals that are actually quite good. But we're seeing these interest rate changes and inflation as a math problem. I’m seeing so many projects being cancelled at the moment as a result of the higher cost of capital. We are entering a dangerous period. That means that there will be bargains on the horizon if you’re playing offence, and there will be pain on the horizon if you’re playing defence. Notice that in this discussion, we have not even discussed whether market cap rates change. That’s because they’re irrelevant to the math when you’re debt coverage limited. We have performed so many of these analyses over the summer that we can almost do the math in our head. -------------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about what manufacturers look for when deciding where to locate manufacturing for their products This decision usually comes down to four main factors. The availability of skilled labor at an acceptable wage. A plentiful low cost energy supply. A favourable tax structure Access to major transportation routes by rail, ship, and highway. If you eliminate one or more of these four requirements that is enough to disqualify a location for manufacturing. The latest geopolitical energy crisis as a result of the war in the Ukraine has caused factories in Europe to close. Some will not reopen. Germany has been a manufacturing powerhouse in Western Europe, despite its relatively high labour cost. The labour force is highly skilled with a strong work ethic. Historically Germany has enjoyed relatively low energy rates that have averaged about half those compared with the rest of Western Europe. We are suffering a global inflationary phenomenon. The cause of this inflation was the global printing of money by central banks the world over. This period we are experiencing is more analogous to the post war 1945 when the US was moving from war financing to business financing. We all printed money while fighting the war on the pandemic. Now that the pandemic is over, it’s appropriate to tighten monetary policy Inflation is the direct result of too much money chasing too few products and commodities. When that happens the price of those commodities gets bid up and that causes the producer price index to rise, the consumer price index to rise, and just about every price index to rise. You couple the money printing with very low interest rates and easy credit, and you get asset price inflation in the stock market, in real estate and even the bond market. We have a global financial system where politically government don’t actually need to cooperate and often they don’t. But the monetary system does rely on central bank collaboration. If you look back over the period of the pandemic, central banks largely acted in unison. That might have been coincidence, but I believe that the European central bank and the Bank of England and the federal reserve and the bank of Japan were all in communication. Fast forward to today and we have a major divergence in central bank policy. The federal reserve is tightening monetary policy and raising interest rates while the European central bank is now in a massive stimulus. The ECB had been raising interest rates slowly but in collaboration with the Fed to fight inflation. --------------------- Host: Victor Menasce email: podcast@victorjm.com

This question comes from John who writes: "I listen to your show all of the time.  I have been studying macro economics hard for about 5 years.  I feel very well informed and knowledgeable regarding the macro economic picture most of the time,  Then I listen to you and I feel like a brand new apprentice.  You are one the smartest people I have listened to.  And I listen to a lot, including all rich dad advisors. My question is this.  I am a business owner in the United States teaching martial arts, with a primary focus on teaching children ages 5-10 years of age.  I have several full time and part time team members.  I am looking to expand my operation as we are very busy at our 1 location, to the point where we are busting at the seams. We have received top notch mentoring and they have provided us top notch systems. We have all of our systems down and are able to duplicate them with more locations and provide more opportunity.  My concern is the constant attention on recession.  I owned the business in 2008 and rode out the last major recession, but I was a business of 3 employees then.  Today we are 15.  I want to expand but have fears I am doing it at the height of the market, and that when I do pull the trigger the next recession will be close behind and then I won’t be able to pay my bills.  This is the only thing keeping me from pulling the trigger and providing more opportunity and more jobs.  Should I just go for it knowing that we know how to expand and duplicate our systems, or should I wait for a year and see what happens?  I would love to know your thoughts." --------------- Host: Victor Menasce email: podcast@victorjm.com

Chris is the founder and principal at Harvest Returns, a Fort Worth based venture capital firm that specializes in agricultural investments. The company is an early adopter of new agricultural technologies and they have grown the company to the point where they are investing in advanced production methods that can apply equally in the warehouse environment as in the field. To connect with Chris and to learn more, visit harvestreturns.com ------------------- Host: Victor Menasce email: podcast@victorjm.com

Inaky Strick is based in New Braunfels Texas. But before moving back to Texas, he specialized in selling investment properties in Belize at the amazing Mahogany Bay Village Resort. It was this experience that built both comfort and expertise in international investing. On today's show, we're talking about owning short term rentals in Tulum Mexico. To learn more or to connect with Inaky, connect with him on Instagram at Inaky_Strick. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about the art of negotiating minor zoning variances. Now let’s be clear, I’m not here to tell you that I’m the authority on successfully getting zoning variances. But I have a little experience on the topic and think it could be valuable to talk about some of the nuances. Let’s be clear, zoning is a legal land use doctrine and like many things that are legal in nature, compliance with the law generally takes precedence over common sense. ------------------ Host: Victor Menasce email: podcast@victorjm.com