The Real Estate Espresso Podcast

On today’s show we are talking about value engineering. This episode came from a conversation that we were having internally on one of our projects. The thought process comes down to evaluating multiple ways of accomplishing the same outcome before you know which optimizations make the most sense.  ----------------- Host: Victor Menasce email: podcast@victorjm.com

Monday was the opening day of the World Economic Forum in Davos Switzerland. This annual five day event hosts many of the world’s leaders and business elite.  The WEF has earned a bit of a reputation for being somewhat prescriptive with the idea that somehow these global elites have some special right to say what is good for you and I. But if you’re willing to put that and some of the political narratives aside, there are some interesting insights to be gleaned from the WEF.  The content on the WEF website is curated in a highly sanitized way. It’s very polished and packaged. Nevertheless, there may be some insights to be gained in understanding our global economy.  The global outlook for jobs varies widely between developed economies and developing economies. In South Africa, for example, the formal unemployment rate has climbed to 30%, five percentage points higher than it was pre-pandemic. One talk focused on the global outlook for jobs specifically related to the disruption from AI. There is an expectation of 23% churn in the global job market as a result of AI in the next four years. 44% of core skills are going to be affected as a result of AI even in those jobs that are not displaced by AI.  As real estate investors, we need to understand the impact of these shifts. -------------- Host: Victor Menasce email: podcast@victorjm.com

Every year the Consumer Electronics Show happens in Las Vegas in early January. I used to attend this show every year when I was in the tech industry. Today, I don’t attend in person, but I do follow some of the innovations that are showcased at CES.  This show is not real estate per se. But it provides a glimpse into what is happening in our world from a perspective that is not necessarily being reported in the mainstream media. Some of the sessions from CES are actually available in video format to view online from the comfort of your living room. Back when I was attending CES, none of the sessions were live streamed on the internet.  There are a few themes that are noteworthy from this year's show. Some technologies have extreme power, and with that extreme power comes extreme risk.  AI is one of those technologies. Almost all of the booths at CES this year had those two letters AI somewhere in their booth graphics.  For real estate investors, CES is a pilgrimage through the world of smart home automation and smart building systems. This is where you will get to see  For real estate investors, there are some cost saving technologies that can bring some real convenience. There are new smart locks with palm reading technology. Simply present the palm of your hand to the lock and if it matches, voila, the door is unlocked. Some of the new locks also include facial recognition technology.   Headlining some of the announcements is the notion that Home Depot is about to become a major player in smart home automation. They already have a catalog of over 150 smart home products. But they are now also coming out with their own line of smart home hub, and integrations with many of the major manufacturers, along with their own products. 

On today’s show we are taking a look at something that has been happening in the bond market during the holiday period while much of the western world has been distracted and not paying attention. Of course the mainstream media is fixated on the instability in the Middle East and rightly so. The situation in Israel, Gaza, Syria, Lebanon, Yemen, Saudi Arabia, and Iran is carries a very real risk of a larger and very serious regional conflict.  While all of this is happening, the yield curve which has been steeply inverted for much of the past two years is on the verge of becoming uninverted. When the yield curve is normal, long term rates are higher than short term rates. Intuitively, it makes sense that long term rates should be higher. The farther you look out into the future there is more uncertainty and therefore you should expect to pay a premium for that uncertainty.  Economic conditions and market conditions should be more predictable in the short term and subject to less fluctuations and therefore the interest rate you pay for money should be lower due to the lower uncertainty. That is the normal situation. Yield curve inversions are a little bit like atmospheric inversions. They can and do occur, but they are not very stable and don’t stay inverted for very long. When you have an interest rate inversion there are only two ways for the curve to uninvert. Either the long term rates rise above the short term rates, or the short term rates fall below the long term rates, or some combination of these two factors.

Today's show is a live talk held in Ottawa in mid November. We're talking about how to invest in a high interest rate environment. -------------- Host: Victor Menasce email: podcast@victorjm.com

Pasquale (Pat) Zingarella is based in Clinton Connecticut where he is a principal at Invest Clearly. The company specializes in providing verified reviews of real estate sponsors from verified investors. To connect and to learn more visit https://goinvestclearly.com/ --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about anti-development movements that are becoming increasingly organized in communities across North America. The objection of these groups seems centred around the additional noise, traffic, and congestion that can result from additional people moving into an area.  Some have become so militant that they use all legal means available to object to development applications and even building permits. That’s right, in some jurisdictions it is possible to object to a project that is fully compliant with zoning at the time of building permit.  We were made aware of one such case this past week where community groups are monitoring the submittal of building applications and then launching an appeal of the building permit on the last day that an appeal is legally permissible under the statute. This is a tactic that is designed to inflict maximum pain on a property owner who has spent 100% of the funds required to invest in the pre-construction phase. The goal of the appeal is not necessarily to cause the project to be disqualified on the merits of the actual development proposal. The goal is to use the legal process to frustrate the developer and inflict financial pain on the developer with the hopes that they will voluntarily abandon the project as a result of the delays.  The hypocrisy of these objections should be clear. The very people who enjoy living currently in a community, send their kids to school, shop at the grocery store, exercise at the local gym and ride their bike in the park are only able to do so as a result of many developers taking considerable financial risk to bring these amenities to the community. 

You might have read headlines in the past couple of days that the Federal Reserve is planning to wind down its bank term funding program when it expires on March 11, literally two months away. Michael Barr is the Fed’s vice chairman for bank supervision and he signalled that the program would not be extended.  The purpose of the bank term funding program was to provide emergency liquidity to banks that needed cash by pledging collateral with the Fed at face value for up to a year. This program was implemented in the wake of the failure of silicon valley bank as a way for banks that were experiencing liquidity issues to access cash without having to sell assets that are in the “held to maturity” category. The Fed would hold these as collateral on the balance sheet at their face value.  So why is the use of this project growing rapidly at a time when the program is about to expire? ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about the recently introduced piece of legislation in the US Congress dated December 5. There is a corresponding bill that was introduced in the Senate by Democratic members of both the house and the senate.  The Congressional Bill is called the “End Hedge Fund Control of American Homes Act”.  The second bill is a Senate Bill called the American Neighborhoods Protection act.  The Senate version of the bill would limit ownership to 75 single family homes. Those owners who continue to hold these properties shall be subject to an annual tax of $10,000 per unit for each year that they hold the property. The taxes collected by the IRS shall go into a newly established fund that is designed to help create and subsidize affordable housing.  Single family homes in some markets are experiencing a large number of transactions being purchased by large corporate buyers. But still they represent a tiny fraction of the transactions in the market.  The stories being reported widely across the internet of large corporate buys purchasing a dominant share of homes in the market is simply false. Are big Wall Street investors really buying 44% of homes this year? The answer is no — not even close. ----------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about how to size your business into the future.  Some people think that profitability in a business is something that happens. Profit is what is left over after you subtract expenses from your income. Yes, that is the math for calculating what your profit will be.  But that doesn’t mean you don’t have control over your revenue or your expenses.  What should you do when you are experiencing a downturn in business?  There are three ways to grow your business.  You can acquire more customers You can raise your prices You can sell additional products to your existing customers But then there is another tactic. Some businesses lower their prices in the hopes of stimulating more sales.  There is one more way to grow, and that is by growing inorganically. That could involve the purchase of another company, a production, a division, even a customer list. Growth through acquisition is a legitimate way to add top line revenue, and even bottom line contribution. It represents an opportunity for operational savings. You might be able to rationalize and reduce core admin functions like HR. Finance, maybe some marketing overhead and so on.  It often seems counterintuitive. In moments of stress, the natural instinct is to tap the brakes. But you know that if your car starts to skid, applying the brakes will cause you to spin out. Sometimes the proper corrective action is to hit the gas in order to get the car moving along the right trajectory.  So it is with a business. --------------- Host: Victor Menasce