The Real Estate Espresso Podcast

One of the goals of this show is to help you connect the dots on what is happening in the economy. Today’s show is not strictly about real estate. However, we have seen central banks in the US, Canada, Europe, and the UK all raising interest rates to combat inflation. On today’s show I’m going to share some data with you that hopefully will convince you that we are already in a global downturn which will cause central bankers to flip from restrictive monetary policy to stimulative monetary policy. There is no soft landing in this story. It’s a hard landing and there is no question in my mind that we are already there.  We are talking about how the result of globalization is a global economy.  ------------ Host: Victor Menasce email: podcast@victorjm.com

Last week Fitch downgraded the sovereign debt rating for the United States. And late Monday, Moody’s downgraded the ratings of several US banks. Moody’s took action on 27 banks, including downgrading the credit ratings of 10 and putting others under review or giving their ratings a negative outlook.  Many of the reasons for the actions will be familiar: Rising deposit costs and risks to commercial property and construction loans posed by the shift to remote work. ------------- Host: Victor Menasce email: podcast@victorjm.com

If you're currently an accredited investor, then you definitely want to pay attention because I believe that in a year from now you may not be accredited any longer. And if you are not an accredited investor, then I've got some good news for you, because there's actually a non-financial path that you can take to becoming accredited. Currently, the SEC is looking into increase in the accredited investor qualification threshold from its current $1 million net worth requirement to as high as $10 million as reported by Bloomberg. One of the byproducts of inflation is that what once seemed like a really big number is now not so large after all. When a number is hard coded in the legislation, it will eventually become meaningless. There was a time when $1M was a really huge number. Today, it’s just a big number.  So they’re going to contemplate resetting the threshold to qualify as an accredited investor.  At the same time, the SEC has already passed a rule that would allow non-accredited investors to qualify as an accredited investor. You might be able to qualify by taking an test for financial literacy. -------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about water. Water is one of those life sustaining commodities. Water is seemingly everywhere, and scarce at the same time. 3/4 of our planet’s surface is water. Our human bodies are about 65% water.  In many parts of the country if you don’t have municipal water supply at your property, it is often sufficient to drill a well and you will find water.  But in arid parts of the world, water can be in short supply.  Water in most commonwealth countries follows Riparian water rights which is based on British common law.  In the Western part of the United States, water follows the doctrine of prior appropriations.  All of this means that the ownership of the water is separate from the ownership of the land. Water is treated in a manner similar to mineral rights. Just like mineral rights can be separated from the land and sold. So too the water rights can be severed and sold. The office of public record for water right ownership is the county recorder’s office for the counties in which the water is diverted. Just like the county recorder maintains sequential order of priority for ownership, easements, and liens, water follows the same process.  When you buy a parcel of land, a certain amount of water is associated with the land, and this water right is recorded on title.  This is usually measured in annual usage measured in acre feet along with a peak flow rate measured in CFS.  In the Western part of the US, when you purchase land and rezone it for development, you often need to surrender your water rights to the municipality in exchange for getting access to the city water supply. If your property doesn’t have enough water rights to sustain the density you are seeking, you might be forced to buy additional water in order to qualify for the density you are seeking. 

On today’s show, we are looking at a human phenomenon called bias. We would like to think that the professional, economists and decision makers in government, or making objective decisions using hard data. However, we see the exact opposite and play in numerous facets of our economy. On today’s show I’m going to give you two distinct examples from vastly different areas of government. Both of these examples have had severe economic impact with nothing more than recent events to skew the decision making process. Biases are often clouding the human decision making process. The most common of these is something called confirmation bias, confirmation bias of the process, whereby a thesis is formed, and then the decision maker goes looking for data to support the thesis. You would think having supporting data would be a good thing. however, when the decision-maker ignores conflicting data or fails to look for conflicting data, the result is confirmation bias. If you look at the actual data in 2019, the annual consumer price rate of increase was higher than in the most recent report in 2023.  In the face of stronger economic data, the Fed was dropping interest rates in 2019, whereby today they're increasing interest rates. When you look objectively at the data, you could argue that we should be doing the opposite. ----------------- Host: Victor Menasce email: podcast@victorjm.com

Arielle Evan comes to us from Israel where she is CEO of Compera. The company is focused on managing affiliate relationships for property managers and tenants across multiple domains. By offering preferred services to tenants, the landlord provides a valuable service and this can also translate into a supplementary revenue stream. To learn more or to connect with Arielle, visit Compera.io or email Arielle@compera.io ------------------ Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about how to use cost segregation to take advantage of tax savings. Joseph dispels some myths around cost segregation that could result in major savings even for smaller properties. Another area of major savings is energy. There are grants and tax credits available under the inflation reduction act that can make energy improvements compelling for all types of properties. To learn more, you can connect with Joseph at ustagi.com ------------ Host: Victor Menasce email: podcast@victorjm.com

Today’s question comes from Steve in Salt Lake City I have noticed living in the greater Salt Lake area that the styling of new multi family buildings has become very cold and austere it’s almost like the same template is being used.    What factors do you use and what are your opinions on exterior building styling and it’s importance? ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about how the forecast bloodbath in hospitality is just getting started. Last month we saw two of San Francisco’s large hotels handing the keys back to the lender. The owner of the San Francisco Hilton and the Park 55 Hotel announced in June that it will immediately stop making payments toward a $725 million loan, slated to mature November 2023. These two hotels represent about 3,000 hotel rooms. The troubles in San Francisco have been widely covered in the mainstream news media. Locals and businesses have been leaving the city in droves. The troubles in SFO seem to be spreading North of the Golden Gate Bridge into Napa and Sonoma county.  Two recently opened Wine Country hotels face a potential $80 million foreclosure this month, according to public documents in Napa and Sonoma counties. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about industrial and what can happen when investors move en masse toward the same target. The folks at Marcus & Millichap issued a wave of mid year updates on the industrial sector for almost all of the major markets across the US.  The thesis is that with the growth of e-commerce and with supply chain constraints during the pandemic and with geopolitical risk, there would be need for more warehousing in North America. We humans have a tendency to project current market conditions into the future. This is called recency bias and is not necessarily indicative of long term trends or needs.  A lot has been built and it’s not clear that the demand is there to absorb all of this new supply. It’s likely that the vacancy is migrating to some of the older product in the market. Asking rents are up in all markets. Asking rents are up 19% in Dallas, 31.9% in Charlotte, 5.6% in NYC and 12.3% in Austin. These rent increases are impressive, but remember these are asking rents. They are not backed by leases. I’m sounding a tiny alarm bell that this sector is showing signs of being overheated and I’m expecting a softening in the coming year. Investing in industrial right now could have elevated risk.  ------------- Host: Victor Menasce email: podcast@victorjm.com