Landmark Links May 17th – Playing Both Sides

C-658VsXoAo3ovC

Lead Story: In the run-up to WeWork going public, the co-working giant has faced conflict of interest critiques over CEO Adam Neumann buying buildings and then leasing them back to WeWork.  Not content to deal with that (more than potential) conflict, WeWork has now decided to go all in and create a new investment vehicle called ARK that is raising a reported $2.8 billion to purchase buildings where WeWork is a tenant, including buying out Neuman’s existing ownership interests (apparently) at his investment basis, thereby placing themselves on both the landlord and tenant side of the real estate transaction.

Look, I’m nowhere near naive enough to think that conflict-of-interest-as-a-business-plan is something new – looking at you, Wall Street banks.  However it is rare to see this presented in such and audacious and transparent manner by a company that claims to hold such high ideals, and to be completely honest here, I sort of begrudgingly respect that.

Observing Neuman’s character arc in the WeWork drama has been fascinating.  He started off as a young tech founder-wunderkind who was able to create a unicorn in the stodgy commercial real estate space out of the rubble of the Great Recession.  Next he pivoted into a caricature of the eccentric Jack Dorseyesque billionaire Silicon Valley  stereotype – banning meat from company offices, not allowing employees to expense non-vegan meals, making an investment in an indoor wave pool company, crazy fasting regimes, etc.  Now he has fully embraced his destiny as the ultimate commercial real estate promoter, pulling out all of the stops to maintain a massive valuation while losing money hand over fist.  Read this direct quote from Bloomberg’s feature article this week and tell me that it doesn’t have echoes of another billionaire New York developer whose penchant for self promotion led to a career change:

The winner will be ARK, he says. “Day 1, they’ll have a huge appreciation. It’s going to be amazing.” I start to ask another question, and he cuts me off. “I’m a great real estate buyer, so if I bought for $100, it’s probably worth $300. I’ll still sell it for $100.”

For my slower readers, here’s a hint:

trump2

Likewise, my view of WeWork has evolved over the years:

  1. Shock – At the valuation that was achieved in such a short period of time for something that was little more than Regus with a better paint job.
  2. Cynicism – About the company pursing a too big to fail strategy of breakneck growth at all costs, allowing them to strong arm landlords in a downturn.
  3. Skepticism – About the massive conflicts of interest when Mr. Neuman began selling equity to purchase buildings in which WeWork is a tenant.
  4. Acceptance – Now that WeWork (I still refuse to call it The We Company) has gone full conflict-of-interest-as-a-business-plan in the run-up to an IPO, I’m just here for the chaos.

Any investor in this scheme has to be well aware of what they are getting themselves into at this point in the game.  Said investor had just better hope that they end up on whichever side of the table serves Neuman’s self-interest best when the proverbial shit hits the fan.  Meanwhile, the company just continues to hemorrhage cash.

As for the rest of us, it’s time to pull up a chair,

chair.gif

Make some popcorn,

popcorn

And enjoy the spectacle of arguably the most overvalued private company in the world attempting to maintain its outrageous valuation amid the scrutiny of a public market.

Economy

Charge Offs: Millennials are increasingly defaulting on credit card payments and falling over 90 days behind in what may be a warning that risky borrowers have too much access to credit at this stage of economic expansion.

Feeling the Squeeze: In a tight US job market, small businesses are struggling to attract and retain workers.

Risk Off: The yield on the 2-Year Treasury is now down to levels not seen since early 2018.

Commercial

Generational Change: Much ink has been spilled about Millennials destroying malls.  However, the generation that follows them – so-called Generation Z – seems to love shopping malls and may hold the key to saving them:

Around 95 percent of them visited a physical shopping center in a three-month period in 2018, as opposed to just 75 percent of millennials and 58 percent of Gen X, according to an International Council of Shopping Centers study. And they genuinely like it; three-quarters of them said going to a brick-and-mortar store was a better experience than online, ICSC found.

Supermarket Spike: A recent study in the DC region found that apartment rents near a new grocery store experienced rent spikes 5.1% higher than the submarket average.  This was even more exaggerated near urban cores where people were less likely to own cars.

Ghosted: With food delivery booming, restaurants are increasingly turning to “ghost kitchens” – commissary-style facilities that only handle delivery app orders and are far less expensive than traditional restaurant space.

Residential

Dirty Laundry: How billions in dirty cash helped fuel Vancouver’s housing boom as British Columbia became the money-laundering capital of the world. (h/t Steve Sims)

Piling On: Home remodeling – which was already facing cost pressures thanks to a labor shortage – is about to get substantially more expensive thanks to increased tariffs on Chinese goods such as tile, counter tops, laminates and lighting.

Staying in the Nest: According to Zillow, more people age 23-37 are living with their parents in the U.S. than at any time this century.  The share of young adults living with their parents has increased steadily since 2001, more than doubling from 6.8 million (11.7%) to 14.3 million (21.9%).  It turns out that some stereotypes are accurate and the one about Millennials living at home is turning out to be on the mark.

Profiles

Sparking Piles of Junk: The popularity of Marie Kondo’s Tidying Up has created a flood of clothing donations that no one wants, most of which is ending up in landfills.

Challenge Accepted: As widely expected, Walmart has matched Amazon Prime’s free one-day shipping.  See Also: In an effort to become even more efficient, Amazon is rolling out machines that pack orders and replace employees.

Don’t Call it a Comeback: After languishing since late 2017, cryptocurrencies are soaring higher again.

Chart of the Day

WTF

Something Fishy: A heavily intoxicated man posing as an FBI agent dumped live catfish on a family’s driveway because Florida. (h/t Kai Cox)

Wicked Pissah: Boston accents were ranked the second sexiest in America in a survey where apparently every other accent tied for first.

Hero: A South African student was arrested after getting free KFC Chicken for a year by posing as a “KFC Quality Control Taste-Tester.”  If I were on the jury for this trial, there is no chance that I vote to convict.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 17th – Playing Both Sides

Landmark Links May 14th – Up to Their Eyeballs

burried

Must Read: Millennials tend to get married later and rent longer than previous generations, meaning that they often have less of a need to borrow (at least excluding student debt and credit cards).  However, housing affordability is reaching a tipping point and a handful of opportunistic boutique lenders are now extending credit  – with rates comparable to credit cards – to young people with irregular incomes that can be used to pay rent.  This trend got a big write up in the Wall Street Journal yesterday.  Although, it’s not yet large enough to cause a lot of concern, young people borrowing expensive debt to subsidize their rent is a trend worth watching and is worthy of concern if it gains momentum.

Economy

The Great Migration: New York, LA and Chicago keep losing workers to more affordable (and rapidly growing) Sun Belt cities.

Graying: The developed world is quickly aging, while lifespans increase.  This means that fewer workers will eventually be supporting more retired people.  Here’s a really cool intereactive chart from Axios that shows just how far birthrates have fallen.

Bouncing Along The Bottom: The spread between 3-month and 10-year Treasuries inverted this week for the first time since March.

Commercial

Rise of the Machines: More than 7,000 robots will work in construction by 2025 as rising construction costs and labor shortages lead to more investment in technology.

Convergence: Marriott is entering the growing home-sharing business by offering bookings at 2,000 high-end locations.  Meanwhile, Airbnb and RXR Realty are teaming up on hotel-like apartment rentals in Manhattan as the lines between short-term home rentals and hotels continue to blur.

Concentration: Manhattan represents a whopping 25% of the US co-working market.

Residential

Upside Down: Young real estate flippers inspired by HGTV realty shows are learning a valuable lesson – when a flipping business is funded with high-coupon debt and it takes longer than expected to sell, losses can pile up quickly.

Size Matters: Lenders are offering fewer mortgages for cheaper properties thanks to fixed costs that make it difficult to lend profitability at smaller sizes.  As a result, mortgage lenders have become highly incentivized to target larger loans, creating yet another headwind at the entry level.

Profiles

Preparing for Battle: Amazon provides shippers like UPS and FedEx with huge amounts of business.  However, it is collecting tons of data on the logistics industry in doing so which could eventually lead to the eCommerce giant becoming a competitor.

Scathing: Uber’s busted IPO caps an era of mediocrity and small thinking in Silicon Valley.  Side Note: I can’t wait for WeWork to go public in this environment.  See Also: Uber and Lyft face the hurdle of finding and keeping drivers as turnover continues to plague ride share companies.

How You Use It: Contrary to popular belief, money can buy happiness…..it just depends on how it is spent.

Chart of the Day

Overall, the Producer Price Index aw a small uptick last month that came in below projections.

However, construction services is seeing aggressive inflation, led by cost surges for warehouse and industrial buildings.

Source: The Daily Shot

WTF

How’d That Get There: A woman removed several syringes from her vagina while being arrested at a Burger King because Florida.

Does A Body Good: A couple from Kazakhstan died of bubonic plague after eating a raw marmot kidney that they had been told was a folk remedy for good health.  I’m truly shocked that this ended poorly.

Hey Ladies, He’s Shingle: An unvaccinated student who sued a health agency after he was banned from school during a chickenpox outbreak now has chickenpox because science.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 14th – Up to Their Eyeballs

Landmark Links May 10th – Rush for the Exits

maxresdefault (2)

Must Read: We’ve noted for a while that there is a strong trend of blue-collar workers leaving coastal California because they can either no longer afford to work here or need to commute for hours each way.  Now wealthy people are getting into the act as well.  The NY Times ran a feature story this week about how wealthy millennials who worked for companies like Uber and Lyft and will have substantial post-IPO gains are retiring early moving out of California to lower-tax states in droves to lower their capital gains exposure.

California is a large and diverse economy and state revenues will be massive this year thanks to a large number of unicorn IPOs.  That being said, its reliance on taxing high earners and capital gains for revenue is extremely volatile and likely unsustainable, especially once those high earners start moving elsewhere.  Eventually the piper has to be paid and the next downturn could be ugly.

Economy

Borrowing Binge  The Federal Reserve is sounding alarm bells on risky corporate debt which has now exceeded peak pre-crisis levels.

Help Wanted: In a tight labor market, employers like Uber, Lyft, Postmates and Instacart could run out of manpower as high turnover plagues the gig economy.

Warning Sign?  Treasury had a bond auction sale of $27 billion in 10-year notes earlier this week and demand was poor to say the least.

Commercial

Different Standards: Companies are valuing commercial real estate based on new criteria such as available skilled workforce in the market area and cubic feet (rather than square feet) for high-clear industrial buildings.  Slow-to-adopt appraisers and lenders are still exclusively using traditional metrics though. (h/t Steve Sims)

Under the Microscope: Now that WeWork is headed for an IPO, the fact that it is leasing buildings from it’s CEO (who sold shares to purchase said buildings in the first place) is getting the body cavity exam treatment. (h/t Stone James)

Size Matters: Over the past few years, big banks have been conserving capital for existing clients while small and mid-cap banks have been much more willing to lend on a transactional basis to grow portfolios.  A large part of this is due to regulatory inconsistencies that make it easier for smaller banks to lend on commercial real estate.

Residential

Cautionary Tale: Two years in, Portland’s stringent inclusionary housing policy has directly forced the city to fall even further behind in meeting its housing needs – both affordable and market rate by making projects un-affordable to build.

Slumping: Home price growth has continued to slow this spring despite mortgage rates falling substantially from their peak in 2018.

Market Maker: Silicon Valley tech companies are raising billions to implement “instant buying” platforms that function like stock exchanges for houses.

Profiles

This is Remarkable: One out of every 11,600 people in San Francisco is a billionaire.  To put this into context, New York has the second highest concentration of billionaires at one in every 81,000.

Faded Glory: Long considered the poster child for cutting edge retail experience, the Apple Store lost its luster by focusing more on branding and less on execution.

Frothy: A former creative director for Netflix came up with a business plan to put water in a can, call it “punk” and raise $1.6MM in seed funding.  In related news, its becoming increasingly obvious that I chose the wrong profession.

Chart of the Day

It is truly incredible just how much of an outlier the bubble years were for cash-out refinances.  Its even more dramatic when you consider that Americans have more home equity now than they did then but are drawing only a small fraction of it.

WTF

Joy Ride: A man who had alcohol and cocaine in his system and a drivers license license that had been suspended since the Carter administration was arrested for drunk driving after he crashed a riding mower into a police car because Florida.

Ivana Man: A woman was arrested after trespassing at the CIA headquarters three days in a row asking for ‘Agent Penis.’

Packing Heat: A woman pulled an alligator out of her yoga pants during a traffic stop because Florida. (h/t Almost Every Regular Reader of This Blog)

At Least He’s Being Honest: A man was arrested after refusing to remove a bumper sticker that read “I eat ass” from his car because Florida.  (h/t William Bussey)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 10th – Rush for the Exits

Landmark Links May 7th – Writing on the Wall

please-urniate-with-precision

Must Read: Chronically under-supplied Southern California is on the verge of getting hit with a tidal wave of 2.76 million potential buyers and renters in the next 10 years as Millennials begin to turn 33 (the median age of a first time home-buyer in the west).  That’s the equivalent of 276k adults a year needing a home and represents an increase of 11.4% – 12.2% over the previous 10 years depending on the county, according to Zillow.  Meanwhile, the region continues to rack up an ever-larger housing deficit.  To say that we are unprepared for this future demand is an understatement, with the likely result being even worse affordability and more outflow of working class residents who can no longer afford to live here.

Economy

Limited Options: Interest rates have remained low in the midst of a long economic expansion.  As a result, the Federal Reserve will have less in their arsenal to fight the next recession when it inevitably comes.

Slowdown: In news that will likely delight NIMBYs, California’s 2018 population growth was the slowest in recorded history.

Productive Endeavour: Productivity growth has been growing with increasing speed over the past two years.

Commercial

Evolve or Die: With big box retailers and department stores continuing to close, regional mall owners are focusing on adaptive reuse and smaller, more nimble tenants.

New Paradigm: The rising demand for delivery is forcing grocers and restaurants to re-evaluate their space needs.

Size Matters: In the latest round of Opportunity Zone guidance, Treasury allowed for the sale of assets within an Opportunity Zone without triggering capital gains tax.  This will be a major competitive advantage for larger, diversified funds versus smaller, single-asset ones.

Residential

Until You Qualify: Priced out of gateway markets, millennials are pouring into smaller cities and buying homes.

Matter of Scale: Concentrated poverty is a substantially larger issue than gentrification, yet it receives less attention.

Profiles

The Gamble: Amazon is a dominate force in retail thanks in large part to it’s ubiquitous Prime subscription service.  However, the success of Prime was far from a sure thing when it first launched in early 2005 when Amazon was worth a mere $18 billion.  This oral history of Amazon Prime from Recode is fascinating.

Dark Money: Silicon Valley’s dirty secret is that it is awash in Saudi and Chinese cash, turning it into a geopolitical minefield for venture capitalists and startups.

Funny Money: Facebook is building a cryptocurrency-based payments system and is recruiting financial firms and merchants to help launch their payments platform.

Chart of the Day

This level of concentration is remarkable.

998d11722

Source: The Atlantic

WTF

Heat of the Moment: A drunk man and woman were arrested having sex outside of a police station in broad daylight because Florida.

Expensive Crap: You can now purchase a resin-coated turd from 1997 Kentucky Derby winner Silver Charm for $200 as a conversation piece for your coffee table.

Brilliant Disguise: A drug suspect tried to elude deputies setting up a perimeter around his house for a bust by bicycling away disguised in a woman’s blond wig because Florida.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 7th – Writing on the Wall

Landmark Links May 3rd – Moderation

moderation

Must Read: ULI’s Center for Capital Markets and Real Estate sees market fundamentals remaining positive throughout 2019 but moderating over the following three years.

Economy

Luck of the Draw: Graduating college during a recession can have negative economic and socioeconomic impacts that last for decades.

Dove Trap?  The Federal Reserve appears to be prepared to hold rates steady for the foreseeable future.  However, we should not assume that they will remain dovish towards the end of this year should growth accelerateSee Also: Growth is better than expected but the economy is not yet booming.

Help Wanted: There are a lot of job openings in the US for blue collar fields such as truck drivers, electricians, plumbers and mechanics.  The share of women employed in those fields is now at its highest level in at least 25 years.

Commercial

Feel the Burn: WeWork is burning through cash at a pace that would make Uber blush – $2.3 billion in 2018 alone, to be exact.  Analysts at Sanford C. Bernstein & Co estimate that it would need $19.7 billion through 2026.  With the private markets becoming skeptical, the co-working company has to go public to raise such a massive amount of capital because why go bankrupt when you can go public instead?

Battle Plan: Marriott, the world’s largest hotel company is taking the fight to Airbnb’s own turf and expanding further into the home-sharing businessSee Also: Not to be outdone, Airbnb has announced that they are going collaborate on New York City hotel concept with RXR Realty.

Cheapest Space in Town: A San Francisco man has started putting coins in parking meters and then re-leasing the spaces for $2.25 per hour partially in protest of expensive co-working space in the city.  My first thought was to wonder where people working in these spaces would use the bathroom…..and then I remembered that this was San Francisco.

Residential

Flattening Out: US house price gains are slowing.

Misalignment of Interest: Some fix and flip lenders are offering zero down-payment loans to flippers with a minimum credit score of 680 for up to $1MM, mostly because people have incredibly short memories.

Profiles 

Delusional: Parents are going into debt to fund their kids’ extracurricular activities because they have been convinced that it will help to get them into college.

Digital Memory: The dead could outnumber the living on Facebook within 50 years, raising questions as to who has the right to all of the data.

Direct to Consumer: Instagram is allowing influencers to sell things to users directly via their posts.

Chart of the Day

Source: AEI Center on Housing Markets and Finance

WTF

Hard Pass: Some scientists believe that humans will someday eat maggot sausages as a meat alternative.  PETA responded to this news by launching a new campaign entitled “Maggots are Friends, Not Food.”

Packing Heat: A woman who attempted to steal a club sandwich, sausage breakfast sandwich, can of Pringles and two Lunchables by sticking them down her yoga pants was arrested because Florida.

Cleanse the Earth With Fire: The Crocs with fanny packs attached to them that no one asked for and no one that you know will wear are here.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 3rd – Moderation

Landmark Links April 30th – Risk On

daily_picdump_3078_640_high_03wtmk

Must Read: In a continuation of the trend of cash-hemorrhaging billion dollar companies going private – not to mention a great bit of news for short sellers, the We Companies (formerly WeWork) has filed confidentially for IPO.  Lyft shares rallied on the news as it offered proof that there is even more dumb money in the market.

Economy

Reverse Course: In positive economic news, the spread between the 3-month and 10-year treasury is no longer inverted and has continued to widen since late March.

Boom: Real GDP increased at a 3.2% annual rate in Q1, beating expectations.  Rumors of the economic expansion’s death appear to have been greatly exaggerated.

Long in the Tooth: An aging labor force may have lowered job mobility, firm creation, and economic growth according to the Minneapolis Fed.

Commercial

Reduced Time Frame: Amazon Prime is going to go move to free one day shipping, upping the ante for other retailers and possibly creating even more demand for last-mile distribution assets.  See Also: Why Walmart could easily match Amazon’s one-day delivery.

Metamorphosis: Dark department stores in failing malls are increasingly getting bulldozed in order to make way for new multi-family projects.

Residential

Tidal Wave: Compass has a $1.2 billion dollar war chest and is using it for everything from wooing high-profile agents to buyer bridge loans to staging dollars and technology in an effort to disrupt the residential real estate sales business.

Waiting Game: Thanks to a lack of new home construction, young people are finding it difficult to buy until old people decide to sell.  That is acting as a tailwind for prices now but could lead to a substantial uptick in existing home inventory years down the road when baby boomers get into their 80s and 90s.

No End in Sight: Median rents in 70% of Bay Area neighborhoods were affordable to families making the equivalent of $100k today.  In 2018 only 28% of neighborhoods were affordable to those same families.  There are some really cool visuals in this story.  Not to sound like a broken record, but there is no way this is sustainable.

Profiles

Fall of a Titan: How Kleiner Perkins went from the class of Silicon Valley’s VC investors to an also ran.

Boondoggle: California’s high speed rail authority has been overly reliant on a network of high-cost consultants who have consistently underestimated the difficulty of the task that they took on and have bled the budget dry, resulting in a project that is now 13 years behind schedule and $44 billion in the hole.  It’s not even that satisfying to say ‘told you so’ since an 8th grade civics student could have seen this coming from the beginning.

Under the Radar: High profile consumer tech companies get all of the headlines but shares of business-software firms are having much stronger initial public offerings of late.

Chart of the Day 

Household formation remains high, yet we still aren’t building much. Wonder where all of those people are going to go?

Source: The Daily Shot

WTF

Rule 34: ‘Avengers’ porn searches went up 2,912 percent in anticipation of the release of ‘Endgame’ mainly because people are perverted weirdos. (h/t Trevor Albrecht) .

Smoking Gun: A woman who called 9-1-1 to ask “how do I kill my boyfriend?” was immediately arrested because subtlety was not her strength.

Explosive If True: A restaurant in Texas was temporarily shut down after employees allegedly put Miralax on a pizza.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links April 30th – Risk On

Landmark Links April 26th -Tilting the Scale

fat kid

Must Read: Investment in real estate tech companies is up 607% year over year – from 1.6B in Q1 2018 to $9.9B in Q1 2019.  However, that number gets substantially lower – albeit still impressive – if the $6B that WeWork raised from Softbank is excluded.

Economy

Big Tent: Everybody seems to identify as middle class these days, partially because regional inequality has made the concept extremely difficult to define.

Don’t Call It a Comeback: Mid-size metros are growing faster than large ones.

One Size Doesn’t Fit All: Why you should be wary of over-arching economic theories that claim to explain everything.

Commercial

Turnover: Bank branch closures are increasing thanks to online banking but the suites that they leave vacate are perfect for healthcare facilities and co-working.

Positive Development: The latest round of Opportunity Zone guidance looks good for developers and investors with positive movement on the timeline to invest cash, as well as a one-year grace period to sell assets and reinvest the proceeds, and loosening provisions for investments that include raw land.  At the moment, it looks as thought the government is going to bend over backwards to make this work if they have to.

Residential

Cost of Admission: Here’s what you need to earn to afford a home in the biggest US cities.  As you probably guessed, San Francisco and the Silicon Valley are in an entirely different league than pretty much everywhere else.

Surprise, Surprise: A recent study found that luxury housing construction does not increase nearby rents in gentrifying neighborhoods.  See Also: SB50, which would allow denser development near transit stops throughout California just crossed a major hurdle.

Profiles

On A Roll: James Holzhauer is on pace to set an all time winning record on Jeopardy and he’s doing it a lot quicker than the current record holder, Ken Jennings.  In the process, his aggressive style of play is likely wreaking havoc on the game show’s budget.

If You Can’t Beat ‘Em: Kohls is going to start accepting Amazon returns in all of its stores.

Split Decision: Consumers (and investors) love Uber Eats but restaurants do not.

Chart of the Day

Existing home sales came in weak for March

However, mortgage applications were strong, possibly foreshadowing a turnaround in next month’s report

Source: The Daily Shot

WTF

Gotta Hear Both Sides: A woman shot and killed her husband after she found out that he subscribed to a porn channel on their Satellite TV service because Arkansas.

Who Could Have Guessed: The company that raised millions of dollars to build a $16,000 machine that folds laundry for you has gone bankrupt because HBO’s Silicon Valley is apparently a documentary.

Sign of the Times: Plastic surgeons have developed a way to transform belly fat into a six-pack because people are lazy AF.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links April 26th -Tilting the Scale