The Real Estate Espresso Podcast

On today’s show we’re talking about an issue that surfaced after closing on a parcel of land. What we have experienced can happen on virtually any property, anywhere. Today’s show is being shared to help you strengthen your due diligence. ---------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about a generic, nondescript townhouse selling for $191,000 above asking price in multiple offers. This is not a unique property, but yet the mismatch between demand and supply. How do we as developers make sense of market valuation as we plan for future market pricing upon completion of projects? Will seller's market conditions continue? For how long? What will be the impact of higher interest rates? Is this a bubble? --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about the risks of community opposition in a development project. Sometimes these stories are so outlandish that I have to share them with you. The project in question is located at 450 O’Farrell Street in San Francisco. The development team behind the derailed group housing project in San Francisco’s Tenderloin district is suing the San Francisco Board of Supervisors over its decision to vote down the project in October, according to a complaint filed in the U.S. District Court of Northern California last week. The San Francisco planning commission had previously approved plans to construct a 13-story group housing on top of the site of the pre-existing church. Once completed, the building would include 316 new apartments, a new church facility, and ground-level space for a Christian Science Reading room. The project was sponsored by the Fifth Church of Christ, Scientist. This project is located less than one block from the SF Hilton located near Union Square in SF. I’ve stayed at that hotel numerous times and walked past the Church frequently, distinguished for its Roman style columns. The lawsuit, is the latest development in the 450 O’Farrell saga. The approximately half-acre site's redevelopment into housing and a new church was first conceived by the church back in the 1980s, according to the suit. It began the formal application process for a residential development in 2013, and ultimately proposed the 13-story, 316-unit iteration of the project in 2020. The project underwent three revisions and was delayed half a dozen times before ultimately receiving Planning Commission approval in June 2021. The commission’s 4-2 vote to approve the project prompted outcry from Tenderloin community groups, which argued the project failed to address the neighborhood’s need for more family housing. The insanity is that the proposal is adding more housing which is needed. The opposition seems to be discriminatory in that group housing would discriminate against people based on income. In my opinion, this is clearly in violation of federal statutes. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about when to take your chips off the table. We have seen a significant run up in prices over the past two years. The upward pressure seemingly has no end in sight. Yet we know intuitively and as students of history that the party is likely to come to an end. Will there be better purchase prices in the future? It’s hard to say. There is a school of thought that says you should never sell income generating real estate. In an inflationary environment, the properties will continue to appreciate and that value increase goes to the benefit of the equity holder. Inflation always has the same effect. Inflation is the devaluation of the currency which wipes out the purchasing power of those on fixed income. It wipes out savings and it wipes out debt. So if your cash is tied up in hard assets like real estate, which is protecting your money from inflation, why would you ever sell? It turns out that there are a few reasons to sell selectively and we are going to look at those reasons on today’s show. -------------- Host: Victor Menasce email: podcast@victorjm.com

Many cities are looking hard at how to regulate vacant properties. On today's show we're looking at the issues related to this type of government initiative. ------------------- Host: Victor Menasce email: podcast@victorjm.com

Daniel Apke is based in Tampa Florida where he focuses on acquiring land on a large scale in multiple states. On today's show we're talking about the systems that David uses to conduct a high volume of acquisitions.  To connect with David and to learn more, visit landinvestingonline.com. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're coming from a live event at the Real Estate Guys Secrets of Successful Syndication conference in Dallas.  ------------ Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about open banking. If you’re in the banking industry and you’re part of their software development teams, you know all about open banking. But if you’re just a bank customer, you probably have not heard about this. Open banking is a set of protocols and application programming interfaces that allow for third party financial technology companies to interface to customer data in a controlled way. This allows for partnerships with the bank to offer a wider array of product offers. There are initiatives in the UK, Europe, Canada, and Australia. Strangely, the US seems to be lagging the rest of the developed world in these initiatives. On today’s show we’re going to look at what is happening in Canada, which appears to be near the forefront of these initiatives on a global basis. You can think of new entrants in payments, banking, lending. Could we see Apple Mortgages, where you can apply for a residential mortgage directly from your iPhone? I believe the answer is yes. What is open banking? Essentially, open banking refers to the opening of internal bank customer data and processes to other parties through digital channels. Some of the people I speak with foresee Apple Mortgages in the future. I’m not sure I want Apple to be my lender, but if they make it easy enough, maybe there will be a segment of the population who would be open to getting a home loan by interacting with their phone. While FinTechs have been around for years, they played at the fringes of the banking system. If given access to the banks’ data, processes and infrastructure would help them build products and services on top of what already exists. Technology giants are also likely players in a world of open banking.  I believe the banks could be among the biggest winners of open banking if they, too, seize the opportunities it creates. There are many potential applications of Open Banking. In one example, participants could use transaction data to assess the credit worthiness of businesses and consumers beyond solely relying on traditional credit bureau checks or financial statements. This would have the benefit of providing good quality information to a potential creditor without the negative credit rating impact of a credit inquiry to a rating agency. Of course, any discussion of opening up banking records brings questions of privacy and security. The standards for access to records along with making the systems secure is of paramount importance. Ensuring that the third parties who gain access to your financial records maintain security that is equal or better to the bank’s systems becomes paramount. ----------------- Host: Victor Menasce email: podcast@victorjm.com

There is no question that interest rates are going to rise. If you have refinanced since the beginning of the year, you have already experienced this. The bank of Canada has raised interest rates already by 0.25% in the past month and the US federal reserve announced a 0.25% increase on Wednesday. This is the first rate increase since 2018. The question is, what is the real economic situation and more importantly, what are the geopolitical factors that will affect our business in the coming months and years. The biggest wild card is China. Days before the invasion of the Ukraine, China was seen as partners with Russia in a friendship that knows no limits. Philosophically, Russia and China see the west as an ideological adversary. Last week I spoke with a business owner who sources 100% of his product manufacturing in China. In his words, “There was no other option.” Our world is fully interconnected and that economic interdependence is supposed to bring global peace. For the past 50 years the world has seen a period of relative peace. Wars between major powers have been limited to proxy wars. Each of these wars has resulted in failure for the super power that has attempted to subject the country to their will. The US failed after 20 years in Vietnam. Russia failed after 10 years in Afghanistan. The US failed in Afghanistan. The US has largely failed in Iraq. The question is, what would happen if your primary supply chain was to be severed for the next 10-20 years. What would you do? If your business relies upon construction materials, what would you do? 90% of the hardware for doors in North America is manufactured in China. Most of the sinks, toilets, plumbing fixtures, electrical outlets and switches all come from China. We have learned that in a matter of days, the world order which we have relied upon and taken for granted for decades has been upended. The question is whether the central government in Beijing would risk their own economy by having an economic confrontation with the west. It seems too far fetched to consider. This next period is going to test policy makers and economists. The traditional theory is that an orderly economy will go through natural cycles of expansion and contraction. This is the result of the lag between reactions to changes in supply and demand. When the variables are simple, expansion of supply, versus short term demand, the economists levers of interest rates and liquidity are an effective tool for accelerating or cooling the economy. It takes an artificial disruption to create an economic contraction at the same time as a cash surplus creates inflationary pressure. We have just gone through four cycles of artificial economic disruption as a result of the pandemic. China has implemented another series of strict lockdowns in order to stem the spread of the more virulent 0micron variant. This will disrupt the supply of manufactured goods from China yet again, putting more price pressure on manufactured goods and increasing lead times. We are now going through another round of economic disruption as a result of the invasion of the Ukraine. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about the world reserve currency. The USD became the world reserve currency in the wake of the Second World War with the international treaty signed in the mountains of New Hampshire called the Bretton Woods accord. This three week conference had 730 delegates from the 44 allied nations in 1944. It established the rules for international movement of money. At the time, the US had by far the largest gold reserves of any other nation, and it made sense that the US dollar was the most trusted of all the currencies in the world. By 1971, the US was printing more money than they had gold to back the currency. Richard Nixon went on national TV to announce that he was temporarily suspending the gold backing of the USD to protect the economic stability of the world financial system. The response to this move was the OPEC oil embargo where the OPEC member nations decided that they didn’t want to be paid in Monopoly money and they were accustomed to being paid in gold. Eventually, Henry Kissinger struck a deal with Saudi Arabia that if OPEC agreed to trade exclusively in USD, then the US would forever protect the political, military and personal safety of the Saudi Royal Family. That agreement meant that the USD position as the world reserve currency would be secured for at least another 50 years. It meant that if Italy buys oil from Nigeria, that transaction would be in USD, even if the US was not party to the transaction. In order for a currency to be accepted as a reserve currency, it has to be globally accepted by almost all of the world’s major players. Fast forward to the year 2022. Russia has invaded the Ukraine. Russia is now the subject of economic sanctions and the nation has been cut off from the world financial system. But clearly Russia will continue to ship oil, natural gas and wheat and other commodities around the world to whom ever will buy it. But now, it’s pretty clear that those transactions will probably not be denominated in USD. Which countries are going to be the most likely purchasers of Russian oil? Yes, that oil will probably sell at a discount to the rest of the market. But someone will eventually buy that oil. We can expect China, India, Pakistan, and a number of African countries will be buyers. Hang on a second. When you put Russia, India, China, Pakistan together, trading in oil, outside the USD, you have nearly half the world population now buying oil using something other than USD. At that point, the USD will have lost its standing as the world reserve currency. ----------------- Host: Victor Menasce email: podcast@victorjm.com