The Real Estate Espresso Podcast

On today’s show we’re talking about the shift that is taking place in the world of banking. The landscape in banking varies widely in the US. There are a handful of big banks and still a whole lot of smaller banks. Banking in the US has undergone a tremendous amount of consolidation. Before the financial crisis in 2008, there were over 10,000 banks. Over the past decade, that number dwindled to about 6,000. As of today, the FDIC lists 4,982 banks in total. Many of these are small community banks with only a handful of physical branches. Some were forced into consolidation after the banking regulator determined that the weaker banks were too thinly capitalized in their stress tests. There is a difference between banks. Many depositors choose their bank based on convenience to the closest physical branch. Some depositors choose their bank based on incentives like a free toaster to open an account. Others choose the bank based on the fees charged on each account. We like to use smaller community banks for borrowing against local real estate projects. The executive team and loan committee understand the local market better than the large national banks. These smaller banks have a bit more latitude in their lending criteria. When you deal with a large national bank like Wells Fargo or Chase you are just a number and their policies are often dictated by market conditions in other cities that don’t actually apply in your city. But I’m also here to tell you thank banking is about to undergo another major transformation. Some banks choose to grow organically. Others choose to grow through acquisition. TD, which is a Canadian bank is increasingly a major player in the US market. Most American clients don’t even know that TD stands for Toronto Dominion Bank. TD announced in their latest investor disclosures that they plan to hire 2,000 software developers this year. That’s on top of the 350 software developers that were hired in 2021. When you consider the full cost of investment in that large a software development team, you are looking at more than $500M dollars per year. TD is consciously making a decision to add $500M in operating expense to annual budget. Said differently, they’re choosing to remove $500M in profit from the bottom line return to shareholders on an annual basis. That’s a massive investment. What will they be doing with all these software developers? Listen to find out.

On today’s show we’re talking about how demand patterns will change in the wake of the pandemic. How will our world be different post-pandemic. Will people want to dine out the way they did before? I just spent a month in Mexico at a resort with incredibly beautiful restaurants. I have to say, I really enjoyed eating out in restaurants after nearly two years of not experiencing restaurants. Like anything, there will be a transition. But transitions always come in waves. Transitions are started by the innovators. These are the folks who are blazing a trail before anyone else is even aware that an option exists. These are next followed by the early adopters. These folks love to try things that are new. The next major group are the early majority, followed by the late majority, and then finally the laggards. This adoption curve applies to virtually anything. It applied historically to the radio, then television, video tape recorders, digital cameras, cell phones. It applied to travel by steam ship, air travel and it will apply to space travel. The adoption curve applied to buying groceries online. It applies to electric cars. The adoption curve applies to working from home. The adoption curve applied to using credit cards for purchases. Today that same curve will apply to changes in the way people travel. The way people choose to live. When you look at the adoption curve, it looks like a letter S. Adoption is slow at first and then accelerates through the middle, and then finally takes a long long time to reach the remaining holdouts in the population. I still know a few people who don’t own a cell phone. But not many. The question is whether you are dealing with a fad or a trend? A fad will achieve market prominence and then fade. Are electric cars a fad or a trend? Are Cruise ships a fad or a trend? How are these trends or fads related? Is your real estate capable of providing rapid charging for electric vehicles? Do your buildings have secure e-commerce delivery lockers? Homes in the old days used to have a locker for milk delivery next to the front door. Fascinating that the same concept is being reincarnated a few decades later. ------------ Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re taking a deep look at the book “Rocket Fuel” by Gino Wickman and Mark Winters. In addition to being book of the month, this is a book that we use deeply within the operation of our business. We hold regular weekly and quarterly meetings. The conduct of those meetings is framed through the teachings of this book, along with two other books. Not only that, we have undertaken a book study within the leadership team of our assisted living business. The various construction managers, regional executive directors for each site, and the CEO of our operations company are all participating in the book study. The way we conduct the book study is by reviewing one chapter each week together on a 30-45 minute zoom call. Each of the members of the team shares what they internalized from that chapter and how the teachings of that chapter apply to our business. If you haven’t undertaken a book study, this is another way to consume content that involves internalizing the book’s contents in a meaningful way. So let’s dig into the book Rocket Fuel. The title might seem a little obscure. The idea behind the title is that rocket fuel is made up of two vastly different elements, hydrogen and oxygen. By themselves, hydrogen and oxygen don’t have huge energy potential. But in combination, the results are extraordinary. So what does this obscure analogy have to do with business? In companies that have visionary leadership, many of them fail because they lack the leadership to execute. At the other end of the spectrum, companies that focus on execution alone and lack vision also underperform. Those companies that achieve escape velocity are those that have a visionary leader, and an integrator. These are different skills and the magical pairing of these two attributes in two top leaders are the key to enable breakthrough performance. --------------- Host: Victor Menasce email: podcast@victorjm.com

The day was Black Monday, October 19, 1987. I remember it well. I was 24 years old and I was responsible for the management of the investment holding company that my mother had left behind when she died. I was only 18 years old at the time of my mother’s death. I knew very little about investing back in those days. I studied a lot and fortunately during those five years from 1982 through to 1987, the market conditions were very forgiving and it was had to make mistakes. But October 19 and the days that followed were very scary for a young 24 year old fund manager. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about how the rising price of energy could impact real estate investors. I love George's wisdom and perspective.  ---------------- Host: Victor Menasce email: podcast@victorjm.com

Ryan Barone is based in NY where he is specialized in developing software to help landlords and tenants with the application process. He is the CEO of RentRedi.com. Today's conversation is filled with insights on the tenant application process.  ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are looking at two real estate portfolio failures where the principals naively thought they were getting good legal advice. Sadly, I see these situations very frequently.  ---------------- Host: Victor Menasce email: podcast@victorjm.com

Today is another AMA episode (Ask Me Anything). Keeler writes: Hello, what are your thoughts are with 3D printed concrete houses? I have dreamt about starting a company and mass-producing rentals and for-sale homes ever since being in the trades. Building custom homes, schools, apartments over the last 5 years I've seen how slow buildings take to be built, especially when there are better and faster options. I believe that they are going to take the market by storm. At least in the warmer climates, they are quicker turnaround, durable, slick, different, and cheaper to make than the wood-framed houses with fewer people involved. Do you think the average purchasing public, renters, investors, or developers might turn their nose at such an idea as a concrete house built in a couple of weeks? Any considerations that you may be a roadblock? -------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re answering a second part to the short term rental question from the students at Virginia Commonwealth University and their Professor Joe Ridpath. It is true that short term rentals are attracting attention from amateur investors. The promise of a higher average rent compared with the traditional unfurnished lease makes for a stronger business case. But as with anything in the economy, you need look at the business case through the lens of supply and demand. ------------------ Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re going to pick apart the Wall Street narrative. In the world of stock investing, there are two schools of thought. There is a portion of the market that buys a stock on the basis of fundamentals. Fundamentals means, is the valuation for the company cheap or expensive based on its ability to generate earnings. What are the earnings multiples? In essence, what is the cap rate? ------------------ Host: Victor Menasce email: podcast@victorjm.com