Landmark Links April 18th – Buy Low

Trading Places

Lead Story….. Quick programming note: I won’t be posting on Friday as I’m heading out of town for a wedding.  In fact, I’m going to be the wedding officiant when my sister-in-law and future brother-in-law tie the knot.  It’s the first time I’ve ever officiated wedding and, needless to say, I’ve been busy getting ready.  I wasn’t going to post this week (there will not be a post on Friday) but then I came across this Business Insider article by Frank Chaparro summarizing an interview where Wall Street legend Howard Marks of Oaktree described the phone conversation with Michael Milken that changed his life.  It’s one of the best things I’ve read and I wanted to post it in it’s entirety (highlights are mine):

Howard Marks isn’t afraid of risky assets, so long as the price is right.

Marks’ investment firm, Oaktree, is considered one of the leading investors in distressed debt, essentially riskier debt.

He founded the firm in 1995, and since then the firm’s assets under management have increased from $5 billion to about $101 billion. And Marks is estimated to have a personal net worth of close to $1.97 billion, according to Forbes.

He counts Warren Buffett as a friend and a fan. “When I see memos from Howard Marks in my mail, they’re the first thing I open and read,” Buffett once said.

And in an interview with Julie Segel at Institutional Investor , Marks explained the phone call that changed his life.

He was asked by his boss to meet up with an investor out in California named Mike Milken. Milken, whom many consider the father of high-yield bonds, explained that investing in safe assets isn’t as smart as it appears, because they can only go down.

“If you buy AAA or AA bonds they only have direction. If you buy single B bonds, and they survive, all the surprise will be on the upside,” he said.

“[You] could issue high yield bonds, they called them junk in those days, if the promised yield was high enough. And that makes perfect sense,” he added.

It’s all about price, according to Marks, not what you invest in:

There’s not such thing as a good investment idea, until you’ve discussed price.

Investing well is not a matter of buying good things, it’s about buying things well. And people have to understand the difference. And if you don’t understand the difference you are in big trouble.

This interview hit home for me.  In recent months I’ve had several discussions with prospective clients where I’ve been asked about the viability of a new business plan.  My answer has always been the same: it depends on what price you are paying.  Howard Marks is a billionaire and one of the most successful investors in the world because he understands the difference between buying good things and buying things well.  We’d all do well to heed his advice in the last four sentences of the interview.


Black Box: Financial insiders are becoming increasingly worried about the spread of securities-based loans which allow wealthy investors to borrow against their securities portfolios at variable rates without selling positions.  The loans loans don’t show up on bank balance sheets and there is almost no regulatory oversight.

Worst of Both Worlds: Believe it or not, economic concentration is flat even as inequality rises, primarily because lower income people are fleeing high cost cities.  Like so many things these days, it all comes back to a lack of affordable housing.

Over It: CalPERS is sick and tired of paying high private equity fees.


Dead Space: American built way too many malls and it’s a major drag on the economy. See Also: Is American retail at a historic tipping point?  And: If you think online shopping is disruptive to retail, just wait until driver-less vehicles become mainstream.


Check Up: JBREC’s highly entertaining Housing Bubble Check-In finds only a small handful of potential bubble signs.

Same Direction: Young Americans aren’t moving like they used to.  See Also: Why current housing trends will help to keep interest rates suppressed.

Hitting the Road: Leaving coastal California is a no-brainier for some as housing costs continue to rise.  See Also: LA’s housing costs mark it harder for companies to keep workers here.


Underdog: The unlikely story of how Mark Davis outfoxed the most powerful man in Nevada, Sheldon Adelson, and brought the Raiders to Las Vegas.

How the Other Half Lives: Residents in the inland regions of California increasingly have less in common with their coastal brethren….and little say in governing at the state level.

Iceberg!  What happened after the Titanic sunk in pictures.

Surge Pricing: Japan has a major potato chip shortage thanks to a bad crop and bags are now going for as much as $12 a pop.

Stuck Up:  Why American Express is losing the credit card snob war to Chase.

Chart of the Day

I think that I spot a trend here….



Fake it ‘Till You Make It: A man was arrested for impersonating a police officer when he pulled over a real cop because, Florida.

Headline of the Year:  It’s only April but the headline of the year title has already been claimed.  Nothing is beating this: Amid Allegations of Unpaid Taxes, Neo-Nazism, and Sex Offender, Denver Furry Convention Canceled.

Stamina: The world’s oldest porn star is 82 years old and credits his longevity to eating raw eggs every day.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links April 18th – Buy Low

Landmark Links April 14th – Shakedown Street


Lead Story… Important disclaimer: Landmark was involved on the capital raise for a project that I’m going to write about today.  However, neither I, nor my partners as individuals, nor Landmark have an ongoing economic interest in said project.  I want to be fully transparent up front even if certain other people involved in today’s Lead Story are trying to mask their actual motives.

The Grateful Dead released the song Shakedown Street (and the album by the same name) in the late 1970s at a time when US cities in general and the Bay Area in particular were mired in a period of urban decay.  The lyrics refer to a run down urban center and fans have long speculated that they (and the album cover which I’ve posted above) were intended to depict the area outside of the band’s recording studio in a rough area of San Rafael.  Strictly from a real estate standpoint, the song is a relic of a bygone era as urban areas along the coasts have been booming for years, especially the Bay Area.  Also, the median home value in San Rafael is now over $960k per Zillow.

Today, urban decay along the coasts has been reduced to little more than a bad memory.  However, the shakedown artists have arguably gotten worse.  Back when the song was written, they may have been drug dealers, street hustlers, gangs, or even crooked cops.  The difference is that today’s more refined shakedown artists are professional extortionists who hold up projects for no reason other than to extort developers under the provisions of CEQA or the California Environmental Quality Act.

CEQA is one of those statutes that may have been well intending, but created a loophole for professional extortionists and greenmailers looking for quick payoffs.  CEQA was enacted to institute a statewide policy of environmental protection back in 1970.  Per Wikipedia’s abstract of the statute:

CEQA does not directly regulate land uses, but instead requires state and local agencies within California to follow a protocol of analysis and public disclosure of environmental impacts of proposed projects and, in a departure from NEPA, adopt all feasible measures to mitigate those impacts. CEQA makes environmental protection a mandatory part of every California state and local (public) agency’s decision making process.

The goals of environmental protection and mediation are worthy for sure.  The problem is that the law opened up a loophole for NIMBYs, extortionist attorneys and other special interests such as labor unions and competitors to challenge any project that they don’t like under the cover of environmentalism.  A study by law firm Holland and Knight in 2015 came to this depressing conclusion about abuse of the statute (emphasis mine):

The report’s authors say their findings debunk the common wisdom that CEQA litigation is advanced primarily by environmentalists, or even that it serves primarily environmental purposes. In fact, the opposite may be true.

Some of the discoveries supporting this conclusion may be surprising:

  • Among infrastructure projects, transit—not highways or roads—is most frequently challenged.
  • Renewable energy projects are the most often challenged utility/industrial projects.
  • And in the private sector, higher-density housing is most contested. Infill projects in general appear to attract challenges far more often than “greenfield” development, or sprawl.

Report co-author Jennifer Hernandez summarizes the takeaway in The Planning Report:

“CEQA litigation is not a battle between ‘business’ and ‘enviros’ … [It] is primarily the domain of Not In My Backyard (NIMBY) opponents and special interests such as competitors and labor unions seeking non-environmental outcomes.”

If CEQA is generally regarded as the province of environmentalism, then calls for CEQA reform are sometimes seen as threatening progressive goals. But Hernandez argues that moderate reforms aimed at transparency and consistency would advance sustainability and equity in the state by curbing abuse of the well-intentioned statute.

We are currently in the midst of a massive housing affordability crisis and CEQA challenges are driving up cost and reducing supply where it is desperately needed most: urban areas.  In addition, study after study has shown that density is GOOD not bad for the environment.  This makes it incredibly difficult to believe that CEQA challenges against urban infill projects have any sort of actual environmental objectives in mind when they are filed.

For some CEQA suits, the motivation is easy to decipher: labor unions typically challenge projects under CEQA that aren’t using union labor, competitors want to limit competition and NIMBY’s just don’t want anything built anywhere near their property.  However, today I want to focus on perhaps the most insidious CEQA challenger: the greenmail extortionist.  Here’s how the scheme works:  A supposed “activist” sets up a shell organization with a name that sounds environmentalist in nature and teams up with a law firm.  They then seek out projects with developers whom they believe to have deep pockets and then challenge those projects under CEQA grounds.  The CEQA suits are typically groundless and the extortionist usually loses if/when they go to trial.  However, going to trial costs a developer money and, perhaps more importantly time.  But going to trial isn’t the goal here – rather the objective is to get a payoff from the developer to make their legal problem go away and let them continue with their project.  Unfortunately, this is typically far less expensive for a developer than months or more of costly litigation so they frequently don’t go all of the way to trial.  Instead, they pay off the extortionist who then uses the funds to capitalize their shell organization to go after their next target and achieve an even larger payday.  The aim of a skilled CEQA greenmailer is to try to get paid a lucrative amount to go away but not so much that the developer opts to defend the lawsuit.

Developer and capital partner clients of ours have run into this problem before and I recently learned that one was facing a challenge on a project in Long Beach that had been written up in the Long Beach Business Journal under the foreboding title Developers Beware: Activists May Sue (Emphasis mine).

With more than 50 projects underway, approved or under review, the City of Long Beach is going gangbusters with regard to development. Housing, retail, restaurants, industrial – developers are building it all. With so much activity, it is natural to see pushback from residents and local organizations.

Long Beach resident Warren Blesofsky and his group – Long Beach Citizens for Fair Development – have been exceedingly vocal about city practices when it comes to development. The group has vocalized its opposition for about 40 development proposals, according to Blesofsky, and has taken legal action on three.

“We’re pursuing a strategy of appeals and litigation citywide to change the way the city does business with regards to development. We really feel that the city government in Long Beach is by and for developers,” Blesofsky said. “The loss of the environmental, cultural, historic and fiscal resources in Long Beach is generally for the benefit of a few people and not for the many residents of Long Beach.”

The first formal appeal and lawsuit made by Blesofsky was against the second phase of the Shoreline Gateway project at 777 E. Ocean Blvd., adjacent to phase one, now called The Current. According to Ryan Altoon, executive vice president of Anderson Pacific LLC, the developer of the project, the suit was settled out of court. The settlement included a confidentiality agreement, so neither Anderson Pacific nor Blesofsky can disclose the terms of the settlement.

Currently, Blesofsky and his legal representation, Jamie Hall of Beverly Hills-based Channel Law Group LLP, are negotiating settlement terms for appeals at 100 E. Ocean Blvd. and 3655 N. Norwalk Blvd.

Hall has been involved in several other development lawsuits in Long Beach, including one against The Current and three on behalf of Debora Dobias and the group Long Beach Transportation and Parking Solutions (TAPS).

“I want to make sure that people understand that when people bring these lawsuits, it’s not because they just want to be gadflies and they hate developers and they want no buildings,” Hall said. “They’re not absolute NIMBYs. It’s about the details. It’s about whether or not there is adequate mitigation.”

The TAPS lawsuits were against downtown proposals by Ensemble Investment LLC, Raintree-Evergreen LLC and Broadway Block LLC. These lawsuits were settled together in November of last year and resulted in parking studies to be conducted in the Alamitos Beach and downtown areas.

Blesofsky said his appeal at 100 E. Ocean Blvd., the former site of the historic Jergins Trust Building, focuses on taxpayer abuse issues. He claims the site was sold under value, while other offers were millions of dollars higher. Blesofsky also claims the current zoning is for high-density housing but that, in a case of spot zoning, the city approved the land sale to a developer proposing a luxury hotel.

Blesofsky and Hall said negotiations are proceeding with developer American Life Inc., but that they could not share any details.

Clearly, Blesofsky and his attorney have an agenda in going after projects.  But is this actually doing anything good for the city or the environment?  Or is it just lining the pockets of an “activist” and his attorney when the developers settle?  Now we get to the part about the project that Landmark worked on located on Norwalk Blvd (emphasis mine):

The Norwalk Boulevard property has been home to the El Dorado Park Community Church for the last 55 years. Developer Preface has proposed a 40-home gated community to complement the adjacent El Dorado Park Estates neighborhood.

“I look at that building as a beautiful, historic building. I see a town hall. I see a community meeting space,” Blesofsky said. “Those are all uses that are allowed under the current zoning, and that’s why I object to the zoning change for high-density, single-family, million-dollar houses.”

Blesofsky said the proposed zoning change to residential is another case of spot zoning by city staff to appease developers, despite the site being surrounded by residential neighborhoods. He said the zoning change is meant to allow developers to minimize lot sizes to maximize the number of homes on the land, which doesn’t provide the best quality of life for residents.

Project data, however, tells a different story. Current zoning allows for up to 42 homes with 7.2 units per acre and 6,000 square feet of gross land per home. The Preface project only consists of 40 homes with 6.9 units per acre and 6,316 square feet of gross land area per home – less units per acre and more square footage per lot, including an average of 7% more open space per lot.

Additionally, Blesofsky claimed the zoning change would allow for smaller setbacks on the properties, including rear, side yard and garage. However, the only change to setbacks according to the site plan is a two-foot increase to the rear setbacks from the property lines.

Read that last passage carefully.  At this point in the story it becomes apparent that Blesofsky is often just making things up when he goes after a developer.  The building is far significant from an architectural prospective, nor is it a historical structure.  From my recollection, it was built in stages beginning in the 1970s and was not designed by a notable architect.  His comments about zoning and setbacks, as highlighted above are just flat out wrong.  Kudos to Brandon Richardson, the author of the piece for astutely pointing this out.  The article continues (again, emphasis mine):

Blesofsky’s appeal to the housing development also claims inadequacies in the environmental impact report, most notably the section in which alternative projects are identified. He contends the report is lacking an alternative that includes a housing element.

Alternatives listed in the document include abandoning the project and allowing the current structures to remain and function as a church, daycare and associated parking lots or converting existing facilities to a private elementary school or special event venue.

Alternatives that were rejected for various reasons of feasibility and scope included moving the chapel structure to preserve it and converting the chapel itself into housing.

“We are extremely disappointed litigation related to the City’s Environmental Impact Report has been filed by Warren Blesofsky,” a Preface spokesperson said in an e-mail to the Business Journal. “Despite the obvious and overwhelming community support for this project, as well as the thousands of hours of collaborative efforts between the development team and city staff, one individual – who chose not to participate in the planning process and does not live anywhere near the property – is attempting to undermine the project. With apologies to our friends in the El Dorado neighborhood, we will continue to work with all stakeholders in the city and community to move the project forward while we try to reach a resolution with Warren Blesofsky.”

Current negotiations between Blesofsky and Preface are focusing on the historical importance of the church and ways to mitigate the impact of losing the structure. Aside from the architectural importance, Blesofsky said the church’s past as a drive-in church, where residents could listen to a sermon in their cars while parked on the property, marks a time in American history that should not be destroyed without consideration. He explained that this is uniquely American and part of the country’s cultural landscape.

Blesofsky and Hall admitted that under California Environmental Quality Act (CEQA) guidelines, the best they can hope to achieve is mitigation beyond the proposed photographs of the church.

“One thing that we are trying to work on with developers, rather than just having some video taken with no context, is to actually do a documentary about the history of this church,” Hall said. “The best way to preserve it is to do something like that and have it available for public view in perpetuity.”

So they are basically, admitting that they don’t have a leg to stand on even under a generous interpretation of CEQA.  Usually, when this sort of CEQA challenge is raised, local NIMBYs tend to jump on board and oppose the project.  However, that doesn’t appear to be happening here (again, emphasis mine):

Bari Harris, an El Dorado Park Estates resident and local realtor, said she thinks the church is an eyesore and hopes the project moves forward quickly, despite Blesofsky’s appeals.

“I think it’s a shame that they are challenging the project and are holding it up,” Harris said. “With the housing shortage that we have, I just think it’s such a shame that they are holding up 40 more homes that we could have for people.”

The city was presented with a petition signed by between 40 and 50 residents in support of the development project, according to Harris. Additionally, residents and even congregation members of the church that recently vacated the premises submitted numerous letters of support into public record.

Despite community support, Blesofsky maintains that the process and proceedings are not acceptable and said more mitigation is needed on the Norwalk project and reform needs to be made to the development process at the city council level.

Hall said that each project he has worked on has resulted in better projects. He explained that these lawsuits are a direct result of elected officials’ tendency to violate CEQA guidelines by approving inadequate environmental reviews or bypassing them altogether, their poor treatment of developers and not listening to residents.

“I don’t earn my living doing this. I have my own business. In fact, I’ve lost money doing these appeals. It’s more just a matter of conscience to me,” Blesofsky explained. “I’m not anti-development, I’m pro-development. I think Long Beach does need more housing, and I believe in private property. I also believe in playing by the rules.”

Blesofsky said he is the owner of Linden River Capital LLC, in Long Beach. His company’s website states: “We are a real estate investment firm that specializes in the acquisition, management and sale of distressed properties and mortgage loans.”

Long Beach Citizens for Fair Development is in its infancy, with few core members, according to Blesofsky. He said he wished he did not have to resort to litigation, but claimed that the city does not take public comment to heart and instead focuses solely on staff reports. Because of this, he said the group has plans to continue taking action against development projects until changes are made to city procedures with regard to development approval.

“We want development weighted toward local developers and community development projects. I’d like to use the fiscal resources of the city for the highest good,” Blesofsky said. “If the city wants to give the citizens a real voice when it comes to development, then we won’t need to litigate anymore.”

To recap this mess:

  1. There doesn’t appear to be any environmental issue here whatsoever yet it is being challenged under CEQA.
  2. There is nothing historically significant about the former church building and local community members think it’s an eyesore.
  3. The challenge is based on zoning and setback assumptions that are simply untrue.
  4. The community as well as congregants of the former church are on the public record supporting the project.  There doesn’t appear to be much opposition here besides Mr. Blesofsky who apparently doesn’t even live in the impacted neighborhood.

Blesofsky might claim that he’s pro development and doesn’t make money on this sort of thing.  If you believe that, I have some ocean front property in Arizona that I’d like to sell you.  The system is being gamed big time and the sad part is that this is far from a one-off issue.   It happens all of the time.  In fact, it’s a dirty little secret that developers often have contingency line items in their budgets to settle CEQA lawsuits should one be filed.  Guess who pays for that?  Whoever ultimately buys or leases the project.

Something has to be done to prevent frivolous lawsuits that have become a hallmark of the California Environmental Quality Act.  CEQA may be a valuable protector of the state’s resources but it’s wide ranging-provisions that allow people without standing to file lawsuits against development at will, often against public interest are contributing to the affordability crisis.  Reform needs to happen but it’s a 3rd rail in Sacramento that almost no one in power is willing to touch due to the powerful legal and environmentalist lobbies.  Unfortunately, no one wins in this game of greenmail except of course for the CEQA extortionists and their attorneys and it doesn’t appear as if that is about to change any time soon.  Shakedowns are still alive and well in California.


Unpredictable: A guide to how markets responded to geopolitical crises in the past.  Spoiler: it’s nearly impossible to predict how markets will react to a geopolitical crisis.

Caveat Emptor: The $7 trillion dollar hazard beneath the M&A boom is potential future goodwill writedowns.

Unpaid Bills: Credit card charge-offs are on the rise as more American consumers struggle to pay their bills.  Loss and delinquency rates are still relatively low but this is an indicator of consumer strength worth watching.


Changing of the Guard: Last week was another brutal week for US retailers who are closing stores at a faster pace than ever before.  But See: The boom in online retailer fulfillment centers are providing a boost to local job markets.

Slim Pickins: It’s getting more challenging to find debt for multi-family construction projects as banks retrench thanks largely to new regulations, leaving more expensive debt funds to pick up the slack.


Staying Put: The latest Freddie Mac renter survey finds that apartment dwellers are largely optimistic about their financial position and don’t plan on moving, even if their rent increases.

Soaring: Seattle renters need a bigger raise than any other city in the US in order to maintain projected take-home pay next year.  See Also: How Amazon is eating Seattle and driving growth.  But See: Yes, Seattle real estate prices and rents are surging but it isn’t in danger of becoming the next San Francisco.


FAIL: This week’s United Airlines PR debacle prompted a hysterical Bloomberg article detailing  the worst corporate gaffes in history.

What a Difference a (Rainy) Winter Makes: Pictures of California before and after the winter deluge of 2016-2017 are incredible.

Ouch: How a Chinese dairy billionaire got over-leveraged and lost his fortune in 90 minutes.

Rise of the Machines: Terrible fast food restaurant Burger King has a new add that is specifically designed to hijack home voice activated speakers in an incredibly annoying way, opening the door for more advertisers to take advantage of virtual assistants like Siri and Alexa.  Perhaps if Burger King put an equal amount of effort into making food that isn’t utter crap, they wouldn’t need to rely on such lame gimmicks.

I’m Totally Getting This: Summer is just around the corner and a company called Forty Ounce Wines is now selling 40s of Rosé.   It’s perfect for people who can’t decide whether they want to party in the Hamptons or go to one of those stereotypical college parties that the PC Police bust white frat boys for throwing.

Chart of the Day

More house on less lot

 Median Square Footage Land

Source: Corelogic


Hyper Inflation is Bad: The Zimbabwean Government recently passed a law to compel the nation’s banks to accept livestock as collateral for cash loans to informal businesses.  This tells you pretty much everything that you need to know about the economy there. (h/t Steve Sims)

Hardening Problem: A husband filled his soon-to-be-ex-wife’s car with cement after she changed her last name for a supermarket promotion because, Russia.  Fortunately, it was caught on video.

Bucket List Trip: There is a shit museum in Italy.  I’m not making this up.  There is actually a museum in Italy devoted to shit (h/t Cyndi Deermount)

Hardcore Evidence: A condom-clogged drainage pipe tipped off Austin, Texas, police to a prostitution ring that was operating under the guise of a massage parlor.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links April 14th – Shakedown Street

Landmark Links April 11th – Flipping Out

Flip off

Lead Story… Circus magnate PT Barnum is often credited as the source of the infamous quote that “there is a sucker born every minute” despite the fact that there is no actual evidence that he ever uttered those words.  In fact the aphorism is more likely attributable to Joseph “Paper Collar Joe” Bessimer an infamous con-man.  If Paper Collar Joe were still around today he would probably find himself at home in the shady real estate “guru” industry.

During the housing bubble in the US, all sorts of scammers, charlatans, posers and hucksters made money by selling variations of the get-rich-quick in real estate dream to gullible marks.  Many of them vanished without a trace (other than maybe a bankruptcy filing here or there) when the market imploded 10 years ago.  Based on today’s lead story, some may have hopped the northern border to Canada.  I was short on time this weekend and wasn’t going to post a lead story, then I found this gem from MacLean’s re-capping something called The Real Estate Expo in Toronto.  I checked the date to see if it was dated April 1st, hoping that this was just an April Fools joke but was disappointed to see that it is indeed real.  From Meagan Campbell of Maclean’s (emphasis mine):

If real estate were a religion, Elijah Joseph would be a believer. He is 24-years-old, and he has devoted his future to erecting properties trimmed with 24-carat gold. “I’m looking to build a great big empire,” he says. “There is no doubt. I have a plan. I have a course of action, and right now, I’m kind of looking for a mentor.”

In mid-March, Joseph attended the Toronto Real Estate Wealth Expo, a jungle of real estate gurus and their 15,000 disciples who paid up to $500 per ticket, only to be told to invest in what is actually one of the worst buyer’s markets in Canada. While life coach Tony Robbins and singer Pitbull fired up the crowd into impulsive mode, a line-up of personalities preached that, despite record-high Toronto house prices, now is actually an ideal time to buy. The presenters all had personal stakes in the market, but attendees ignored the conflict of interest, and the event, disguised as a conference and concert, became a full-day sermon on buying real estate as the greatest good.

“Fear will kill you. Fear will drown you,” said Daryl King, who is selling properties upwards of $8.8 million throughout the Greater Toronto Area and Ontario. “Just jump in!” chanted Inez Kurdrik, a downtown realtor. On the same panel, Brad Lamb, nicknamed “the condo king,” who has built eight high-rises in Toronto, declared, “Toronto has become one of the last safe havens in the world.”

In reality, a consensus is emerging that Toronto is a in fact a buyer’s hell. The average house price in the Greater Toronto Area sold for $916,000 last month, up more than 30 per cent from the year before.

The Expo strategically tours cities in need of buyers. Sponsored by real estate agencies, developers and banks, the event will visit Miami, a seller’s market in which housing prices rose 10 per cent last year, and Chicago, which was almost an equally strong seller’s market last year when the Expo was planned.

“This event is a blood-sucking event,” said Clark Lord, a musician and artist who bought tickets solely to see Tony Robbins. “They’re telling everyone [that they can] be a millionaire when we can’t even pay for food.” Lord’s friend, Ivan Rendalic, a lawyer, only went because Lord bought him a ticket. “All this is is a stimulus package,” says Rendalic. “They’re getting high on the hype. They’re refusing the logic. Once people hit a small barrier, they’re f**ked.”

The event itself was misleading. “Gold ticket seating” meant a foldable chair at the nosebleed-back, and while attendees like Joseph paid $250 for “VIP” passes, expecting they would get to meet Robbins, such access was reserved for people who paid $500 for “Ultimate VIP” passes. Robbins showed up an hour and a half late, at which point he fist-pumped around the room while telling people to search within their hearts—a bizarre hybrid of busker and Buddha. “Our hearts start beating before our brains start working,” he said, though his embryology lesson was incorrect. Robbins wasn’t the only presenter who needed fact-checking; at the Expo in 2009, a headliner was Donald Trump.

“This is the very hugest, the very hugest of all,” said Raymond Aaron, a personal finance guru, who was supposed to present on “automatic prosperity” but instead spent his stage time selling his two-day course.You’re gunna go buzzurk. I’m going to do something unbelievably special …. Another giant, giant bonus … This is the very, very, very, very hugest … It’s not $5,000. It’s $697! No HST!”

The most aggressive salesman was realtor Tim Payne, a presenter who was expected to spill secrets on flipping houses but spent nearly two hours advertising his $995 three-day course, charging an extra $6,000 for access to contacts. “I wanna kick your legs out and choke you until you’re wealthy,” he said. As the father of six boys, he boasted to the crowd, “I feed them money. They just crap out money.”

That burden of proof was enough to convince Joseph, who stood up and headed for a registration table to pay for the course. “I just know I want to be around mansions,” he said. “I look at them. I’m in love with them. I study them.” His future house: “Marble floor. 30-foot ceilings. Maybe a tennis court, maybe not a tennis court (I’m not really a tennis guy.) And a big, big, big hangar for a variety of cars.”

Joseph currently lives with roommates in an apartment in East York for $800 per month. He works going door-to-door selling solar panels on commission. He was formerly a college basketball player and lived in Windsor with his mother, a personal support worker, but he says, “I left my family to find wealth.”

Exiting the Expo, Joseph planned to convert others to join the real estate market. He is nicknamed “The Rev,” he says, because he talks to his friends with reverend-like pedagogy. “When I ingest this, I literally spew it all out to everyone I speak with,” he says. “Maybe I’ll get into motivational speaking of my own.”

This will absolutely end in tears for everyone involved save for the so-called “gurus” who are making absurd fees for selling useless platitudes as investment advice.  The fact that anyone would take investment advice from a huckster like Tony Robbins who once presided over a “fire walk” that caused injuries to over 30 people when he convinced them to walk over hot coals is beyond me.

Done correctly, real estate investment is a rather dull business and really isn’t glamorous.  The idea that there are still con men out there trying to sell lowly door-to-door salesmen living paycheck to paycheck on the dream of getting rich quick in real estate is frankly depressing and leads me to believe that the cycle is getting a bit long in the tooth – at least in Canada.  Hint to all of the aspiring house flip multi-millionaires out there: if something sounds too good to be true, it most likely is.

House flipping in today’s market is a capital intensive and relatively low return business.  The low hanging fruit was picked off several years ago when most were too frightened to buy and capital was scarce. Ask yourself: if returns are so lucrative, why is this person with all of the supposed secrets to success spending his time doing seminars rather than devoting his waking hours to making money flipping homes? The answer is self evident and it’s not a charitable endevour but rather a scam. Perhaps if Paper Collar Joe were still alive today he’d be a real estate “guru” and would be cashing in selling expensive, worthless seminars to suckers like the ones in Toronto recently.


Extreme Bias: An individual’s economic outlook is now tied closer to partisan identity than ever before and that is not a good thing.

Rise of the Machines: A new startup in Texas has developed an army of robots to mow lawns.

Everything Old is New Again: Upside down cars are the new upside down houses.  See Also: How Wall Street is making it more difficult to buy a car as bond defaults surge and sales slump.


Shuffle: JBREC is seeing strong apartment rent growth in secondary markets, even as primary markets, which have been soaring for years begin to drop.


Correlation vs Causality: Why lower house prices tend to lead to higher student loan default rates.

Dragging their Feet: TransUnion says that affordability, driven partially by rising interest rates is the primary reason that Millennials are delaying purchasing a home.


Seems Sustainable: Airlines are such a shitty business that they now make more money selling miles than seats.  See Also: Forcibly removing a passenger from an overbooked plane so that airline employees could have a place to sit is the latest example of why United Airlines is an absolute garbage company.

Stumbling Block: A dearth of infrastructure is the primary hurdle facing widespread adoption of electric cars.  But See: Tesla, which sold 76,230 vehicles in 2016 and is not profitable now has a larger market cap than GM – which sold 10 million vehicles in 2016.

Rising Sun: How China came to dominate the solar industry through a combination of massive economy of scale scale and government subsidies.

Chart of the Day

Property Tax By State



Gonna Give Me Nightmares: Scientists have biologically engineered a chicken with the head of a dinosaur, because apparently someone out there didn’t find this idea horrifying.

Eccentric: Richard Branson just started the world’s first dyslexic-only sperm bank because apparently this is something that the world needed.

Seems Reasonable: Italian man granted divorce after claiming wife ‘possessed by devil’

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links April 11th – Flipping Out

Landmark Links April 7th – Crank it Up


Lead Story… One of the hallmarks of the housing bubble was mortgage equity withdrawal.  The market was soaring and anyone with a pulse could get a mortgage with little to no money down and then watch their net worth grow (at least on paper).  As this happened, home owners felt wealthier and wanted a way to spend their newfound treasure.  Enter the home equity line of credit or HELOC.  The product had been around for years but was taken to new extremes by lenders who were all too eager to originate new business and borrowers who succumbed to the wealth effect even as wages remained largely stagnant.  It’s a self-perpetuating cycle up to a point: borrower extracts capital from home and spends it in the economy, economy grows which helps the housing market continue on it’s upward trajectory.  Some lenders even lent at loan to value ratios above 100%!  All was well so long as housing values continued to move higher.  However, they didn’t and we all know that this story ended in over-leveraged tears and bank bailouts.  Not surprisingly, mortgage equity withdrawal went massively negative during the ensuing crash, then rebounded but stayed in negative territory for quite some time as the HELOC spigot shut down completely and borrowers went through the painful deleveraging process.  It was one hell of a party and the hangover lasted from 2008 all of the way through early 2016.

Today, values are up and mortgage equity withdrawal via HELOC is making a comeback, especially among younger home owners.  CNBC’s Diana Olick reported on the trend earlier this week (emphasis mine):

Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years.

Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with “tappable” equity up to 39.5 million, according to Black Knight Financial Services. Those borrowers have at least 20 percent equity in their homes.

But the fact that mortgage rates were lower last year makes it less likely today’s borrowers would want to refinance this year. About 68 percent of tappable equity belongs to borrowers with mortgage rates below today’s levels. The vast majority of these borrowers, more than three-quarters, also have FICO credit scores well above average, which gives them more options for cashing out on their homes.

Enter the HELOC. Home equity lines of credit are second loans taken outside the primary mortgage, and millennials are leading the pack to cash in.

“The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent,” said Ben Graboske, executive vice president at Black Knight. He expects to see more HELOCs instead.

And more millennials are using HELOCs than Gen-Xers or baby boomers, according to a survey by TD Bank. In fact, more than a third of millennials said they are considering applying for a HELOC in the next 18 months, which is more than twice the rate as Gen-Xers and nine times that of baby boomers.

At first glance, the idea of home owners being more likely to take on floating rate debt like HELOCs while interest rares are increasing seems crazy but it isn’t .  As stated above, borrowers generally aren’t going to refinance their existing mortgage and take cash out if today’s rates are higher than the loan that they already have.  So, if a home owner wants access to cash in his or her home, it either means taking out a 2nd mortgage or a HELOC.  The beauty of a HELOC is that the money is available but as a revolving line of credit that can be drawn on as needed as opposed to a traditional 2nd mortgage where the money comes out up front and can’t be re-drawn.  Here’s where it gets interesting from Diana Olick (again, emphasis mine):

Home remodeling was the No. 1 reason for taking out a HELOC last year, according to TD Bank, with debt consolidation coming in second. The home remodeling industry has seen a huge boost in the last year, as home prices rise and the supply of homes for sale shrinks. Homeowners are finding it harder to find and afford a suitable move-up home, so they’re increasingly choosing to stay and remodel.

Millennials are entering the housing market more slowly than previous generations, and those who have in the past few years tended to buy cheaper fixer-uppers. In just a few years, however, they’ve gained enough equity from rising prices to be able to pull cash out and remodel. They are, however, still very conservative. Borrowers doing cash-out refinances last year still had close to 35 percent equity left in their home, the lowest on record, with an average credit score of 750, according to Black Knight. Borrowers are still using HELOCs at barely one-third the rate they did in 2005.

So, while HELOC issuance is up, the money is being spent on renovations to add value, not vacations, cars, etc.  The fact that HELOC use is still 1/3 of what it was at the peak of the bubble and that borrower equity is high are positive signs as well.  This story makes a lot of sense in light of the tight supply and rising values that characterize today’s housing market for the following reasons:

  1. Older home owners are not moving as frequently as they used to, due at least partially to balance sheet issues.  These home owners are sitting on a massive portion of the move-up home stock.
  2. New home construction is still historically low, especially for this far along in the cycle, further suppressing available move-up inventory.
  3. Investors bought up a substantial number of starter homes in the wake of the crash and foreclosure crisis, reducing supply in that market segment.
  4. First time buyers who bought starter homes during the recovery are now sitting on large gains since they own an asset that has benefited from both a normalizing market and unusual scarcity.  In previous cycles, they would sell and roll those profits into a move up home.  However, they largely aren’t doing that since there are so few move up homes available and bidding can be fierce.  What good is it to take a profit on your current house only to overpay for your next house and carry a higher tax basis?
  5. The answer is to take out a HELOC, tap into equity and renovate the house that they already own.  When this is done in scale, entire neighborhoods can change.  What was once an entry level neighborhood, now becomes a move up neighborhood because the character of the housing stock changes.  As an aside, I’m seeing anecdotal evidence of this where I live that is full of houses built in the 1950s.  My neighborhood is like a construction site but the housing stock has been upgraded substantially in the past 5 years and values have risen accordingly.
  6. If you want more evidence that this is happening in a large scale, take a look at the stock of Home Depot versus the XHB Builder Index.  There is little doubt that we have been in a remodeling boom and not a housing boom despite the increase in housing prices.

Rising HELOC issuance and mortgage equity withdrawal for renovations are symptoms of a market where supply is constrained and also a cause due to the way that the money is being spent.  The lack of move up supply is having a cascading effect on supply and resulting in removal of more traditional entry-level homes through large scale renovations in entire neighborhoods.  This trend likely has some room to run given how high borrower equity currently is even if home price appreciation slows.  That being said, if equity begins to fall substantially, it will be a red flag.  A market that is reliant on ever-rising home values to prop up home equity withdrawal is not sustainable, as anyone who lived through the housing crash is all too aware.


Re-Allocation: The new face of American household debt = less mortgage and more student debt.

Click to enlarge

Large Scale: Income inequality is often discussed as the difference between individuals (ie CEO pay versus average worker pay).  However, it turns out that it’s a big issue between companies as well.  (h/t David Fierroz)

Rise of the Machines: The number of robots sold in the US will jump nearly 300 percent in the next nine years, putting more manufacturing jobs at risk.  See Also: Meet Sally, the robot chef who makes perfect salads.

Overkill: DC is one of the first cities in the US to require that child care workers have a college degree meaning that you now need a degree for a job that pays under $13/hour.  And then we wonder why college debt is soaring….  See Also: Even sex workers earn more if they get a college degree.


Big Short Redux: Hedge funds and investment banks are taking short positions against retail REITs and the bonds used to finance the properties that they own.  Big box and mall retail is a dead man walking at this point.  The concern is whether the contagion will spread to other commercial real estate sectors.  This is a story that bears watching in the coming months as it could have a large impact on the capital markets.  See Also: The CMBS delinquency rate is now at a 16-month high.

Crystal Ball: Driver-less and Electric cars are going to impact commercial real estate in ways that we can only begin to imagine.


Trouble Ahead?  Economist Tom Lawler believes that the US Census is substantially overstating population growth figures which would mean that we are also overestimating future housing demand.

Timber! The  Softwood Lumber Agreement which governs the lumber trade between the US and Canada expired back in 2015.  The lack of a viable new agreement and concerns over NAFTA’s future are creating pricing pressure and making homes more expensive to build.


Full Circle: The dating show boom that has swept world television screens for years may be coming to an end.  Guess what reality TV is going to focus on next?  Divorce.

Two Buck Chuck: How Trader Joe’s wine became cheaper than bottled water.

Gouged: A price analysis of your favorite food.  It turns out that pizza is a rip off.

Chart of the Day

The 1-month US Treasury is now 45 basis points higher than the 10-Year German Bund which seems insane.


Ground Breaking Research: New study finds that posing with a cat in a profile picture makes single men more popular on Tinder.

Obviously: A man wearing a shirt that read Drunk Lives Matter was recently arrested for Drunk Driving.  Hindsight is 20/20 but one way or another, he was doomed from the moment he purchased that shirt.

Mensa Material: Meet the Florida man who blamed his arrest for driving under a suspended license on faulty legal advice from Wikipedia.

Bigfoot Made Me Do It: An Idaho woman recently told police that she hit a deer with her car because she was distracted by a Sasquatch in her rear view mirror.  Also, drugs are bad.

What’s In Your Wallet? There is now a dating service that matches users up based on their credit scores.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links April 7th – Crank it Up

Landmark Links April 4th – Nothing in Between


Lead Story…. Visit any older city in the US and you will probably find lots of smaller apartment buildings dotting the landscape in core residential neighborhoods.  Almost without exception, these buildings are older.  Smaller apartment buildings were once a key feature of development in cities but are rarely built anymore for a variety of reasons. This lack of small building development is something that urbanists often lament because the buildings typically add character while providing relatively high density – something that neither sprawling apartment developments, towers or single family homes tend to do.  They also tend to have cheaper rents than larger projects.  Bloomberg’s  Patrick Clark took a look at why this so called “missing middle” isn’t being built anymore (emphasis mine):

According to new research from Enterprise Community Partners, an affordable housing nonprofit, and the University of Southern California, apartment buildings with between two and nine units offer the lowest prices available to U.S. renters.

The chart above uses data from the U.S. Census Bureau’s 2013 American Housing Survey to show average monthly rents based on the number of apartments in a building. The paper categorizes buildings with between two and 49 apartments as “small and medium multifamily housing”—a grouping that makes up 54 percent of the U.S. rental stock.

As noted, America isn’t building as much of this kind of housing as it used to. Small- and medium-size apartment complexes account for a quarter of existing units built in the 1970s and 1980s, according to the report. Since 1990, though, the category has accounted for just 15 percent of new housing stock.

There are a few reasons for that shift, according to Andrew Jakabovics, vice president for policy development at Enterprise Community Partners and one of the authors of the paper. Another author is Raphael Bostic, who was just named president of the Federal Reserve Bank of Atlanta.

Zoning rules have developed to favor single-family construction, making it harder to win approval for larger projects. There are regulatory costs to building multifamily housing, and developers that go through all the trouble to win approvals want to build more than just a few apartments.

In general, there are economies of scale in operating larger complexes. If two units are vacant in an 8-unit building, the landlord is missing out on a quarter of her potential income. In a 100-apartment high-rise, a couple of vacancies are less of a big thing. Those operating efficiencies also make lenders look more favorably on larger apartments, Jakabovics said. It’s a virtuous circle for ever-bigger residential developments, though not so much for smaller ones.

Seeing why builders have abandoned the small apartment complex is easier than figuring out how to rekindle interest in the concept. Rewriting zoning codes to favor the missing middle would be a good start, Jakabovics said.

The flip side is that if builders don’t develop more small- and medium-sized buildings, an important source of unsubsidized, affordable housing may dry up. Rental units tend to get cheaper as they age. The trend in recent decades toward single-family homes and high-rise apartment buildings means that there are fewer smaller apartment buildings to age into affordability.

“We need to build stuff today that’s affordable today,” Jakabovics. “We also need to future-proof ourselves by building stuff today that will be affordable 10 or 20 years from now.”

I would suggest another reason that smaller apartments aren’t being built today: they are extremely difficult to finance.

There are few investments in the world of real estate that represent a more efficient way to commit capital than large multi-family developments.  Financing is relatively cheap and readily available thanks largely to GSE’s, occupancy is high across most of the US and rents are easy to comp out.  Also, leases tend to be short-term in nature, eliminating the possibility of a long-term lease with below-market rents in an inflationary environment – a common issue in office and industrial projects.  Combine the above with the fact that there is a massive pool of potential buyers made up largely of REITs and Pension funds that like to invest in stabilized apartment buildings and it’s no wonder that large, class-A apartments have become a darling of developers and merchant builders.

For-sale residential may not enjoy as deep a financing market as large-scale class-A apartments, but it does have dedicated investors that both understand and invest in the space.  In addition, public builders are playing an ever-larger role in the for-sale home builder market, decreasing the need for outside capital.  The exit for builders in the for-sale residential space is home buyers who are typically using mortgages from a GSE – one of the largest and, despite some relatively recent challenges, most efficient debt capital markets in the world.

Small-scale apartments don’t fit neatly into an investment box the way that large-scale apartments and for-sale residential developments do.  There is debt capital available but it often requires a personal guarantee. Equity capital can be difficult to come by, in part because there aren’t a ton of deep-pocket REITS and pension funds waiting to purchase them once stabilized and opportunistic development equity doesn’t tend to like to hold long term due to mismatches in return profile.   Public builders also tend to shun the space.  This means that the typical buyer of a stabilized property is someone looking for a 1031 exchange or a high net worth individual buying for cash flow.  Where there are plenty of those, they have nowhere near the depth and programmatic capital of REITs and large pension funds.  Of course there are family offices and small funds that will finance small apartment construction but they are often looking for a yield premium over larger apartment projects to compensate for the reduced scale and less liquid exit.  Ironically, this yield premium is difficult to achieve due to economies of scale – there is only so low that you can push land values and still have a willing seller.  Why would a developer build a smaller project with a less liquid exit, more financing difficulty and inferior returns?  They wouldn’t, which is why they mostly don’t.

Although the landscape currently looks bleak for new construction of small apartment buildings, there is reason for some optimism.  Before the housing crash and Great Recession, single family housing rentals were a highly fragmented space dominated by local mom and pop investors.  Large institutions stayed away because it was difficult to achieve any economy of scale and management was a headache.  Then the market tanked.  Almost overnight large investors began buying up thousands of homes as the market continued to languish under the weight of foreclosures.  Investors saw an opportunity to buy assets at below replacement value and make a solid yield in a low-rate environment which drew them to an asset that they had no interest in just a few short years earlier.  Will small apartment development eventually attract that same type of attention that single family rentals did? I don’t know but I certainly hope that they do.  Markets change incredibly quickly and besides, how many people out there can say that they foresaw large investors becoming single family home landlords 10 years ago?  At some point, the need for small buildings is going to make it lucrative enough to work as an investment on a consistent basis.  However, a large investor or builder is going to need to solve the financing puzzle in order for that to happen.


Mind the Gap: The gap between sentiment – what people say about the economy – and actual economic data is at an all time record.

So Much for a Sure Thing: After the election, many investors thought that a soaring dollar and falling Yuan were a sure bet.  They weren’t.

Warning Signs: The subprime auto lending market is a mess and loose underwriting standards have resulted in climbing losses.


This Was Inevitable: Start ups are going live with an eBay-style bidding system for renters to bid on new apartments.

Up In Smoke: Legalized Marijuana is reshaping the commercial real estate market in profound ways.


Missing the Mark: Ivy Zelman calls out the Census bureau for inaccurate housing construction data that understates the strength of the market.  She also makes a compelling case of how this could result in a labor and lot shortage that will have at negative impact on the market. (h/t Tom Reimers)

Positive Impact: Yet another study finds that increasing housing density is undoubtedly good for the environment since it means less automobile usage.  Now if only faux environmentalist NIMBYs would stop opposing new development….

Graying: Americans are moving to cities with warmer climates mostly for demographic reasons.


Too Much of a Good Thing: California’s snow-pack is one of the biggest on record and ended the severe drought in most areas of the state.  However, it now poses a serious flooding risk.  See Also: Winter precipitation has led to an epic bloom of long-dormant wildflowers across California. And: Mammoth Mountain has enough snow to stay open until July 4th due to it’s record winter.

Below the Radar: Encrypted messaging apps have been widely adopted in the world of finance, creating all kinds of headaches for compliance departments on Wall Street.

Confessing My Unpopular View: Golf is a boring garbage sport.

Chart of the Day

Someone is wrong here:

zelman chart starts


Gotta Hear Both Sides: A man who is a dead ringer for Santa Claus was arrested for selling cocaine to a detective 6 different times, because Florida.

I Know That This Makes Me Immature: But I could watch this video of an angry chimp throwing poop and hitting an old woman in the face at a Michigan zoo all day.

Reality Bites: OJ Simpson will likely get out of jail this year and ratings-crazy TV executives just might give him his own reality show.

What a Way to Go: A college student recently died as a result of choking while competing in a pancake eating competition.  I’m somewhat surprised that this doesn’t happen more often.

There’s Someone out There for Everyone: A Chinese engineer married a “female” robot that he built after he couldn’t find a girlfriend.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links April 4th – Nothing in Between

Landmark Links March 31st – Illogical

car crash.jpg

Lead Story… Economic mobility has long been a cornerstone of the dynamic American Economy.  A big part of economic mobility is the freedom to move, allowing workers to move to more productive regions where better employment is available.  However, people are moving less, while economic and demographic conditions indicate that they should be moving more and it could be putting our economic dynamism at risk.

When it comes to housing, conventional wisdom is that, all things being equal, the decision on whether to buy or rent is one of stability versus mobility.  If a family owns their home, they build equity as they pay down their mortgage and hopefully benefit from appreciation as well.  The home-owning family also benefits by fixing their cost of living at least when it comes to principal and interest payments – taxes, insurance and maintenance are all variable to some extent.  Home ownership is inherently stable.  You don’t have to worry about rent increasing so much that it becomes un-affordable or having your landlord decide that they no longer want to rent the property for one reason or another.  However, this stability comes at a price.  Buying and selling a home has a high transaction cost and living in a home that you own can come with significant maintenance costs.  Buying a home also typically requires a substantial down payment that eats into savings.

Renting is the opposite.  A renter does not pay for maintenance, nor are the transaction costs of renting particularly high.  If something breaks, it’s the landlord’s responsibility to fix.  Renting should allow for far more mobility than owning.  The downside of renting exposure to annual rent increases that can be significant in a tight market or a landlord deciding to sell or take a property off of the market.  Renting is not necessarily “better” than owning or vice versa.  It all comes down to individual circumstances.  The home ownership percentage in the US has been peaked at 69.2% in 2004 and has been falling ever since.  It is now down to 63.7%, indicating that the renting population is growing in percentage terms while the owning population is falling.

In fact, it’s not just the growing population of renters that suggests that mobility should be on the rise.  There are several other factors as well:

  • People are putting off household formation longer.  Historically, single people are more likely to move than those who are married and/or have kids.
  • We are now several years into an economic expansion which typically increases mobility.  In contrast, a bad economy usually means less mobility.
  • The unemployment rate is low and falling indicating a tighter labor market.  In the past, this has meant that workers are more open to leaving their job for a better opportunity, a decision that often entails moving.

Given the above, it stands to reason that domestic migration (the rate at which people move) should increase in times when the home ownership rate drops and decrease in times when the home ownership rate rises.  However, as with so many things in our current housing cycle, this has proven not to be the case.  In fact, domestic migration is down substantially.  It’s been falling since the 1980s and has continued it’s downward trajectory in the current recovery.  The Economist addressed this puzzling trend in a recent story entitled Millennials May Move Less Because Fewer of Them Own Homes (emphasis mine).

MILLENNIALS—the generation which roughly includes those born between 1980 and 1996—have a reputation for being footloose. But analysis by the Pew Research Centre released in February suggests American millennials are moving less than previous generations did when they were younger. In 2016 20% of those aged 25-35 changed addresses, compared with 26% of the generation above in 2000 and 27% of late baby-boomers in 1990. Frequent moving in search of opportunity has long been an ingredient in American exceptionalism. Economists such as Tyler Cowen, author of “The Complacent Class”, worry that its decline will dampen the nation’s dynamism.

Since the 1980s, Americans of all ages have become more rooted. Between 1980 and 1981, 17% of Americans moved house, according to William Frey, a demographer at the Brookings Institution, a think-tank. Between 2015 and 2016 only 11% did. Migration between states, which is often driven by professional choices, has fallen by half since 1990. Young people, who normally move around most, seem especially stuck.

This is strange. More millennials lack the anchors that have previously rooted people in place: they are marrying later, having children later and buying homes at lower rates than previous generations did. In 1990 just under half of 18-to-34-year-olds had never married; that share increased to two-thirds in the period between 2009 and 2013. Less than half of 25-to-35-year-olds had children in 2016, compared with more than half for the previous generation and baby-boomers at a similar age. In 1982 41% of those under 35 owned homes. Today that share has fallen to 35%.

Yet despite the loosening of such ties, both short- and long-distance migration have decreased among 25-to-34-year olds since 1995. Short-distance moves within counties often happen when people simply move house—for example, to accommodate an increasing number of children. The fact that American youngsters are waiting longer before they start families may partly explain the drop in short-distance moves.

People tend to move longer distances, across counties and states, in search of better jobs. The recent recession saw longer-distance migration among young people fall. It has since recovered a bit. One factor that might explain what is going on is the relationship millennials have to home ownership. Aspirations to buy, rather than rent have traditionally pushed a significant share of young Americans to move. According to analysis by the Pew Research Centre, in 2000 14% of Generation Xers (born roughly between 1965 and 1980) surveyed by the Census Bureau said their primary motive for moving was to buy a house. In 2016 only 6% of millennials said the same. That might be partly because childless bachelors and bachelorettes are decreasingly likely to covet grassy yards and white picket fences.

Or perhaps such things are simply out of reach. Median earnings for full-time workers aged 18-34 fell by 9% between 2000 and 2013. In 2014, for the first time, more 18-to-34-year-olds lived with their parents than in any other arrangement, maybe because they could not afford to do otherwise. Conversely, it may be the case that people who already own houses—or equity in a house—are more inclined to move than those who do not.

Mr Frey wonders “whether [millennials] are ushering new young adult tastes and lifestyles that may be mimicked by generations that follow them; or is this a one-time downturn because of their difficult generation-specific economic circumstances?” If it continues, the decline in migration among millennials could spell trouble. Americans become less likely to move as they get older. If they’re staying put now, millennials probably won’t shift for better opportunities later on either.

The Economist piece makes some good points but ignores the elephant in the room: housing supply in cities with strong economies.  Let’s use an example: say that a young person in Columbus Ohio who is renting a 1-bedroom apartment wants to move to Los Angeles for a better job opportunity.  An average one bedroom apartment in Columbus costs $750 per month.  That same one bedroom in LA averages $2,014 per month.  This is a major impediment to moving because, not only did your rent just go up by $1,264 per month but that’s in after-tax dollars.  Also, rent is not the only expense that is higher than LA than in Columbus.  Pretty much every major cost of living item is substantially higher. has an excellent tool to measure cost of living.   According to Bankrate, to replace a $50,000 a year salary in Columbus our hypothetical mover would need to make $77,514 per year.  That means that our hypothetical young employee would need to make a whopping 55% higher salary just to break even taking the new job!  The median income in Los Angeles is around $55,900, compared with just $44,000 in Columbus.  The problem is obvious: while median income in LA is 27% higher than median income in Columbus it doesn’t come close to covering the increase in cost.

LA and other coastal cities are so expensive primarily because not enough housing units are being built to accommodate the people moving there.  This is not a recent phenomenon but it has been getting worse in recent years.  The resulting high price acts as a barrier to entry to those who would otherwise move to one of these cities for better economic opportunity.  In addition, it’s also incredibly difficult to save up to buy a home in a city like LA when you are paying a seemingly ever-increasing amount for rent each month, again resulting in less people moving.  When you combine the high cost of living in coastal cities with other negative factors like student debt loads, it’s not hard to see why young people don’t move.  It’s not that renting makes someone statistically less likely to more than owning does but rather that they don’t have a choice in today’s expensive and supply constrained coastal cities.


No Other Way: It’s virtually impossible to deliver meaningful tax relief to people in lower income brackets without addressing the payroll tax.

Moot Point: Curbs on coal may be eased but companies are sticking with their plans to invest in power from natural gas, wind and solar for economic reasons.

Boom Town: Nevada is undergoing a lithium rush as miners seek out the light metal that is the key to powering the new battery-based economy.


Buying Spree: China is now the world’s largest source of outbound hotel investment.


Giant Sucking Sound: Between tight credit and a lack of construction, the sluggish housing market has taken a $300 billion toll on the economy since the recovery began.

Like Clockwork: Interest rates are going up, so of course we are starting to see articles like this one from the Wall Street Journal explaining why buyers should use adjustable rate mortgages and interest only loans again. SMH.

Unintended Consequences: A new report from Trulia found that markets where the housing recovery has been the most substantial also have the biggest inventory shortages.  The reason is that people are less inclined to sell their current home if they know it will be hard to find a new one.  This also plays in nicely with today’s lead story.


Taken to the Cleaners: How Las Vegas made possibly the worst taxpayer giveaway stadium deal of all time with the Raiders.  Also, Raiders fans travel well.  Home game day Southwest flights from Oakland and LA to Vegas are going to be lit AF in a few years once citizens of the Black Hole start piling in on Sundays.

Up in Smoke: Canada is set to legalize marijuana nationwide in 2018.  See Also: States where medical pot is legal see decrease in painkiller abuse.

Never Saw it Coming: How Instagram gave designers a direct (and relatively inexpensive) connection with consumers and killed the retail store in the process.

This Ends in Tears: Chinese crowd funding via smartphone is now a thing and sounds sketchy as hell.

Below the Surface: The Wall Street Journal took a fascinating look at the high speed trading and algorithms behind your Amazon purchase.  See Also: Why Amazon is making a big move in the seller receivables financing business.

Chart of the Day

Great set of charts from Bloomberg on our housing inventory problem:


There’s Someone Out there For Everyone: A 32-year old man Texas was arrested for having sex with a fence.  There are other things that he was doing to the fence that I’m not going to write here but are covered in great detail by my favorite website, The Smoking Gun.  Drugs are bad.

Pigcasso: Morons are paying up to $2,000 for paintings by a pig.

See No Evil: A Canadian man with the last name is Grabher wants to use it on his license plate but the government thinks it’s too offensive.

Rekt: A man wearing baggy pants attempted to flee the scene of a robbery and ended up hanging by his feet from a spiked fence until the police arrested him.  Someone took a picture and posted it to Facebook where it went viral.  You really need to see the picture for this one.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links March 31st – Illogical

Landmark Links March 28th – The Heist

Point Break

Lead Story…. Back in 2004, Sears was purchased by ESL Investments, the hedge fund founded and managed by billionaire Eddie Lampert.  The once mighty Sears brand had already begun it’s long decline and Lampert, who already owned struggling big-box retailer KMart was viewed by many in the financial media as a savior.  Back then, Lampert had been favorably compared to Warren Buffet for his long term value approach to investing – a comparison that has aged horribly.  The rationale for  investing in the Kmart/Sears turnaround was this: an investor was getting in on the ground floor with a great value manager and, even if the turnaround failed, there was still upside in the real estate holdings of the company which some believed were more valuable than the operating business.  Anyone who follows financial media or, for that matter has been in a Sears store recently knows that this bet has gone horribly wrong.

When Warren Buffett buys a company, he is largely buying it for the management and takes a relatively hands off approach.  Lampert instead opted to run Sears as the CEO, and he ran it right into the ground. Put aside, for a moment the pure absurdity of a hedge fund manager becoming the CEO of a discount retailer.    My biggest issue with the Sears debacle isn’t that it’s going to fail spectacularly although at this point that’s basically a given.  Rather, it’s the incredible misalignment of interest between Lampert and his investors that has only gotten worse as the good ship Sears continues it’s long, slow descent towards the surface.  It would stand to reason that Lampert would be losing his ass as the company fell apart.  Indeed, his net worth has shrunk from $3.1 billion in 2012 to a meager $2.2 billion today (insert world’s smallest violin here).  However, on the way down, Lampert has managed to take steps to shore up his own position, peeling away much of Sears’ most valuable real estate holdings, and positioning himself as the company’s senior creditor, all at the expense of other shareholders.  Nathan Bomey of USA Today detailed how he pulled this off (emphasis mine):

Here’s how Lampert has retained assets even as Sears has shriveled:

  • Lands’ End: Sears spun off retailer Lands’ End in 2014, but Lampert’s hedge fund owns 59% of the company. That stake was worth nearly $360 million as of Wednesday morning.
  • Real estate: Sears sold 235 store properties and its interest in another 31 properties to a newly formed real estate investment trust (REIT) called Seritage Growth Properties for $2.7 billion in 2015. The deal gave Seritage control of some of Sears’ best properties in a sale-leaseback transaction. Lampert’s ESL owns 43.5% of the limited partnership units of Seritage and 7.9% of the REIT’s voting power. The move was similar to transactions favored by investors in legacy retailers whose real estate is considered more valuable than their actual business. The problem is that “then you end up signing leases” and saddling the company with lease liabilities, said Neil Stern, senior partner at retail consulting firm McMillanDoolittle. Sears agreed to pay Seritage $134 million in annual base rent for the first year, with 2% annually increases beginning in the second year.
  • Real estate collateral: Entities affiliated with Lampert’s hedge fund extended $500 million in credit to Sears in January, secured by at least 46 Sears properties and possibly more. That means that in the event of bankruptcy, the lender may be awarded the property rights, giving Lampert control of those store sites.
  • Additional secured financing: ESL lenders provided Sears up to $500 million through a secured letter of credit facility in December, from which Sears has already drawn $200 million. ESL lenders also hold $336 million in secured debt issued to Sears in April through a separate facility and term loan, as well as $300 million in a second lien term loan issued in September. Secured lenders are paid first in bankruptcy.
  • Sears Canada: Sears partially spun off its Canadian division in 2012, but Lampert’s ESL owns about 45% of the company. That stake was worth nearly $80 million as of Wednesday morning.
  • Sears Hometown and Outlet Stores: Sears spun off the franchise in 2012, but ESL retains 57% ownership of the company. That stake was worth about $45 million as of Wednesday morning. Also, Sears Hometown and Outlet Stores still acquires “a significant amount of its merchandise” from its former parent company “at cost,” according to a filing.  Sears Holdings also provides certain logistics, warehousing, human resources, information technology and transportation costs to Sears Hometown and Outlet Stores, which is invoiced weekly and also pays its former parent royalties on sales of certain brands.
  • Paid-off financing: Affiliates of ESL and another Sears investor, Fairholme, made a $400 million short-term loan to Sears in 2014 that has already been paid back in full.

Corporate filings reveal that Lampert, who disclosed in a corporate filing that he owns all of ESL and makes all of its investment decisions, has made moves to protect his position.

“Financially he’s moved a lot of levers that have kept this company going longer than some of us thought it could,” Stern said. But with “some of those levers you’re setting the furniture on fire to keep the house alive.”

The initial playbook for Lampert may very well have been to turn the retailer around.  However, when it became apparent that the turnaround wasn’t going to happen, his strategy clearly pivoted to carving off the real estate into insulated entities and becoming the struggling company’s primary secured creditor. Great news for Lampert, who has managed to limit his exposure in a failing venture, bad news for anyone stuck investing with him.  IMO, there are two major takeaways here:

  1. Stick to your Knitting: Just because someone is  great at something doesn’t mean that they are great at everything.  Lampert was once called the best investor of his generation and had made $1 billion in a single year before purchasing Sears.  He is clearly a great hedge fund manager (or at least he was before he got distracted by this debacle).  However, the hubris resulting from that success led him to believe that he could be successful running a large retailer whose fortunes had been in decline for years.  Clearly that didn’t work out.  Same thing applies for developers – if you are a successful industrial developer, it’s probably dangerous to assume that you will also be successful at entitling residential land or building homes.  It doesn’t always work that way.  Develop a specialty or niche and strive to be the best at it rather than chasing every business opportunity that comes along.
  2. Assume Nothing: Just because you invest in the same opportunity as a billionaire, don’t assume that you are making the same deal that the billionaire made.  Lampert’s investors are finding this out the hard way and will be left holding the bag.  Same goes for real estate development and investment.  Whether you are a sponsor or investor, make sure that your deal structure aligns interests properly before you commit.  It’s a lot less painful to deal with upfront than it is when things go sideways down the road.

Sears is a mess and will continue to close stores, hurting the economy and leaving people unemployed along the way.  Lampert will make out just fine.  Investors who thought that they were buying into the next great turnaround story with limited downside won’t be.  Caveat Emptor.


Feeling the Squeeze: Rising interest rates are eating into retailers bottom lines as consumers remain addicted to 0% financing.

Deep Hole: A visual history of how we ended up with over $1 trillion in student debt from the 1200s at Oxford to today.

End of an Era: The days of large scale, low-skilled immigration might already be over and it has more to do with demographics than politics.  See Also: The prime beneficiaries of international immigration are large, coastal urban areas.


Sea Change: Renters now make up a majority in nearly half of US cities.  See Also: California has a slew of affordable housing bills on the table but most deal with the symptom (subsidizing affordability) rather than the disease (not enough units being built).

Choke Point: The latest existing home sales report proves that it’s difficult to achieve much in the way of sale volume when there isn’t much for sale.

Reverse Flow: Outer suburbs are once again growing faster than cities.  See Also: trees don’t grow to the sky – why rents in mega-cities can’t go up forever.


Secret Weapon: How the humble peanut butter and jelly sandwich – staple of the elementary school lunch box – became the go to pregame snack for NBA teams.

On the Prowl: Silicon Valley cougar bars, where 40-somethings go to try to land a rich tech nerd- are now a thing.

This Will Become a Movie: Meet the finance bro / penny stock scammer who double crossed the FBI while acting as an informant.

Chart of the Day

Going down


You Live Where? Check out this comprehensive map of places around the world with lewd names.  Examples: there are several countries with a town named Shit and an island off the coast of Australia called Bumbang Island.  (h/t Cyndi Deermount – seriously, my mom  sent me this so now you know where I get it from)

Serious Dough: Border Patrol agents found $50k in cash hidden inside tortilla dough when a 54-year old Mexican man attempted to cross the border.  The man was arrested and the money and tortillas were confiscated.  (h/t Michel Faris).

Out of Place: A student from the University of Maine was recently arrested for bringing 5 baby alligators in a taxi.  How much do you want to bet this stated during a spring break trip to Florida?

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links March 28th – The Heist