Landmark Links July 28th – Gone Fishing


Lead Story… Today, I want to get away from talking about real estate and spend a bit of time writing about something that I haven’t done a great job of lately – work / life balance.    To start with, I’ve always been a bit of a workaholic and have a tough time getting away from work even when I’m not in the office.  2017 has been particularly challenging.  Projects seem to be moving at a slower pace than ever and  I often compensate for this by feeling the need to reply to emails or return phone calls instantly.  While this is likely good from a customer service standpoint, it probably isn’t the best thing for my sanity, especially in a year where everything seems to move at a snails pace.  In addition to my day job, I write this blog a couple of times a week which means that I’m constantly prospecting for interesting and thought provoking stories online.  I can’t tell you how many times I get asked about the sources of some of the links in the blog or how I find the time to write regularly between having two young children and a demanding job.  As much as I’d like to think that it’s a result of my tremendous efficiency and skill as a writer, it really has a lot more to do with a largely unhealthy iPhone addiction.

That brings me to the point of today’s article.  Every now and then I come across an article that makes me reconsider on some aspect of life.  I recently came across a blog post from Venture Capitalist Mark Suster entitled I Only Have 7 Trips Left. On Managing Work / Life Balance, Love & Family that caused me to revisit the way that I look at family vacations.  Since founding Landmark, we’ve joked internally that the best part about this job is the ability take off and travel whenever we want but the worst part is that we never actually get to take a vacation from work.  This is part of our reality in a transaction-based business but I’ll admit that I probably take it to the extreme.  Fully getting away from work has always been an issue for me when I’m on vacation: I have a hard time unplugging and tend to work too much when I should be out relaxing with my family.

Every year since Mrs. Links and I have been together (minus those where we either got married or had a baby during the summer) we have done a 2+ week lake trip to the east coast.  My parents have a house on Lake Hopatcong in New Jersey that has been in my dad’s family for years.  Her grandmother has a house on Lake George.  It’s a great opportunity to bring our kids to a place that is very different than where we live and also spend time with relatives (my entire family and Mrs Links’ entire extended family all live on the east coast) who live 3,000 miles away and we don’t get to see as frequently as we would like.  There is nothing like a lake in the early weeks of August.  It’s a trip that is incredibly special to us since we get to watch our kids do the same things that we did when we were their age.  Natalie is turning three next week and Hayden just turned one.  This means that Natalie is now old enough to get excited about swimming, fishing, sailing, rowing, etc and I have the opportunity to experience these moments with her just like my dad did with me at the same age.  My dad, aka PopPop will be right there with us which makes it all the more special.

Here’s the thing that Mark Suster’s blog post got me thinking about: when you really take a step back and think about it there are a lot fewer of these annual trips left than one would like to think.  This makes it all the more important to enjoy them as a family while we can.  Best case scenario, we have 16 more summer lake trips before Natalie heads off to college.  That assumes that youth sports and other activities don’t get in the way at some point.  It also doesn’t take into account that age and health.  My parents are right around 70s and in excellent health.  My wife’s grandmother is in her early 90s and also in excellent health, but 90 is still 90.  My point is that there’s no way of knowing how many more times we will be able to take two weeks a year to relive our youth through our children’s eyes.  I have zero desire to become one of those cautionary tales about a parent looking back when they take their kids to college and thinking that I only wish I had spent more time with them when they are young.  Time goes by too quickly and you simply don’t get these days back.

That brings me to the work part of things.  The last couple of “vacations” that I took, work ended up taking up too much time.  When my parents came in to town for a couple of weeks right after Hayden was born, I was in the office pretty much every day.  Same thing at Christmas save for a few days.  We stayed at a friend’s beach house for a week after 4th of July this year and I was in front of my computer more than half of the time.  You get the idea.  So, I am taking Mark Suster’s advice to heart as I write this:

I love my wife and I love my children. I think some of our fondest memories will be the goofy time we spent during our travels as opposed to the planned itineraries. We’ll remember all of the games of Hearts. We’ll remember when Andy fell down the hill into the bushes (but was ok). We’ll remember throwing the football on the beach with Troy Aikman (the nicest pro football player you’ll ever meet who even with no cameras around and even once he found out we were Eagles fans was still so gracious to my boys). We’ll remember Daddy accidentally shoving an entire Serrano chili pepper into his mouth because it was dark outside and he thought it was a carrot. And we’ll remember how much time Mom spent meticulously planning with love so that our entire family could enjoy every moment.

If you’re caught on the hamster wheel, recognizing it and trying to take some actions is the first step. Having just gotten back from my first proper 2-week vacation (as opposed to extended family gathering) since 2009 I can tell you it was truly life fulfilling. I’m now ready to come back to work feeling really refreshed.

I haven’t been on an actual vacation for more than a few days since 2015.  Needless to say, I’m looking forward to the next couple of weeks as a chance to spend some quality time with my family and recharge my batteries.  This means no blogging until mid August.  I’m also going to try to unplug from the daily financial news cycle for the first time in forever.  My game plan is to go get a couple of books that I’ve been meaning to read and enjoy them in my downtime or when the kids go to bed rather than reading countless articles about economics and real estate markets.  I don’t think that this will be particularly easy for to do but I guess that’s part of the point.

So, why am I posting this rather than just checking out for a while? Two reasons:

  1. This is difficult for me to do.  I figure that writing it down where regular blog readers can seen it will help to make me a bit more accountable.  In addition, I’ve already told my co-workers that I’m going to unplug for a while starting the end of this week.  They seem to be skeptical that I can actually pull it off and I want to prove them wrong.
  2. I’m hoping that it helps someone.  I was planning on just looking at this trip as “business as usual” until I read Mark Suster’s post last week and it helped me to re-consider the bigger picture.  Perhaps that this article will do the same for someone else.

I hope that you enjoy the next couple of weeks of your summer and I’ll see you again mid-August.

The end.

P.S. This is where you can find me




Counter-Intuitive: Financial conditions are easing even as the Fed continues to increase rates.  This makes it more likely that the Fed will continue to stay on track with their planned hikes.

Clustering: The best $100k + tech jobs are increasingly concentrated in just 8 cities.

Decline: An alarming number of Americans are worse off than their parents were.


En Fuego: America’s hottest properties for investors may be data centers and cell towers as landlords anticipate more tenant demand thanks to e-commerce.

Help Wanted: Amazon’s warehouses may be highly automated by conventional standards but they still need human employees and finding them can be a challenge in an increasingly tight logistics labor market.  But See: The next leap for robots is picking out and boxing your online order.


How It’s Supposed to Work: A look at 1950s rental ads shows how yesterday’s luxury housing became today’s affordable housing.  Keep this in mind the next time some NIMBY starts shrieking about luxury development.

Incoming: Canadian home buyers are beginning to flock to America as their domestic market starts to rollover and the dollar continues to weaken.

Fixer Upper Nation: American’s are pouring record sums into home improvements as tight inventory continues to keep a lid on people moving. In other words, t’s a good time to be Home Depot.

Seems Reasonable: According to a recent survey by SunTrust Mortgage, 33% of Millennials were influenced more by dogs than marriage or children when purchasing their first home. The desire for more space and opportunity to build equity were the only two factors that topped having room for a dog.

New Game in Town: Expedia and Priceline are both making moves to move in on AirBnb’s turf.


Changing Tastes: Millennials don’t seem to like beer all that much, causing headaches for the brewing industry which is losing alcoholic beverage market share.

And So It Begins: Treasury Secretary Steve Mnuchin has questioned Amazon’s tax collection practices .

Played: The pedestrian buttons at crosswalks don’t actually do a damn thing.

Chart of the Day

From the Daily Shot

Turning to housing, home prices continue to rise at nearly 6% per year.


In fact, the FHFA measure shows national housing inflation at almost 7%. Note that a weaker dollar will provide further tailwinds for US property markets by making homes more affordable for foreigners.


Here is an updated chart comparing home prices and wages over the past couple of decades.


Home prices in some areas are rising rapidly. Here is Seattle’s housing market gaining 13% a year.


Gotta Hear Both Sides: A creepy one-armed clown with a machete was arrested in Maine.

Hide Yo Kids: ‘Stoned’ sheep go on ‘psychotic rampage‘ after eating cannabis plants dumped in Welsh village.

Clowning Around: The Clown Motel in Nevada, once described as the scariest motel in America can be yours for a mere $900k (h/t David Landes).

Brilliant Disguise: A Los Angeles man was arrested for smuggling three live king cobras hidden in Pringles canisters.

Millennial Link of the Day: Six tips to making Snapchat work on your cat.

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

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Landmark Links July 28th – Gone Fishing

Landmark Links July 25th – Full Speed Ahead

Full Speed Ahead

Lead Story… It’s not much of a challenge to trace the genesis of much of California’s affordability crisis back to Prop 13.  Whether you love or hate the iconic ballot measure that resulted from a 1970s tax revolt, there is little doubt that it created a disincentive for residents to move which pushes a higher burden on new construction for entry level housing.  At the same time, it acts to drive up impact fees since cities and counties have almost no ability to re-assess property taxes to cover funding needs, pushing all of the burden on to new development.

The tendency for California home owners to stay put is undoubtedly contributing to the current housing affordability crisis.  After all, why move if it will cause your tax basis to go up substantially – even in cases when you downsize? Better to stay put an renovate. The California Association of Realtors has proposed an initiative which aims for a spot on the November 2018 statewide ballot that would attempt to make moving a bit less painful.  From the LA Times (emphasis mine):

Under a ballot measure filed Thursday, California’s landmark Proposition 13 property tax breaks would be extended to young homeowners who sell their residence and buy a new one.
The proposal, which aims for a spot on the November 2018 statewide ballot, would allow homeowners of any age to carry a portion of their existing property tax rate across county lines when they purchase a new house. Homeowners often are reluctant to switch houses, given that Proposition 13’s cap on annual property taxes ends once they sell and move somewhere else.

A more limited version of this has actually existed for a while.  Homeowners older than 55 in some California counties can transfer their existing basis to a new home of equal or lesser value than their current home sells for.  The idea was to get rid of a negative financial impact to those who wished to downsize.  However, this proposal would go much, much further.  Again, from the LA Times (emphasis mine):

“A lot of people kind of feel locked into their properties,” said Alex Creel, a lobbyist for the California Assn. of Realtors, who filed the proposed initiative. “This will free up those folks.”
The new tax rate, Creel said, would be based on a “blended” value of the old and new properties, and could be considerably lower than the market rate property tax otherwise assessed once a new home is bought.
Creel filed three different versions of the proposal, all of which would create tax incentives for selling one house and buying another.


Unlike current law, the proposal would allow homeowners to take advantage of the tax break as many times as they want.

This would be a major win for current homeowners since they could maintain a low basis forever – especially because of that last sentence about being able to take advantage of the transfer an unlimited number of times.  It would mean that you carry your assessed basis from the first home you buy throughout your lifetime which seems insanely lucrative.  Someone who owns a $300k condo, wins the lottery and buys a $20MM beach front mansion would still carry the tax basis from the $400k condo, blended in with the basis of the new home. The statewide revenue impact would be devastating.

To be clear, I’m a California homeowner and would benefit from this financially.  I still think that it’s a bad idea though.  The proposal may very well entice people to move but it will put even more pressure on impact fees in doing so.  As we’ve seen since the passage of Prop 13, when municipalities can’t raise property tax revenues they look to one of the few places left where they can without facing voter backlash – impact fees.  New construction is already shouldering a higher burden that is sustainable thanks to astronomical fees – it’s far more palatable for politicians to raise taxes and fees on new residents then it is on current constituents.  If this were to pass, expect that burden to worsen as revenue from property taxes inevitably shrinks.  In a sane world this thing would never get to a vote.  However, never underestimate the willingness of California homeowners to vote themselves into a new entitlement that will ultimately be financed on the backs of newcomers – and the CA Ballot Proposition system gives them the vehicle that they need to do just that.


Still Thriving: Bank profits are near pre-crisis levels despite all of the new rules and red tape.

Sliding: The dollar has been falling since January.  That’s good news for exporters and a mixed bag for consumers.

It’s a Start: The cost of higher education is now growing roughly in-line with overall inflation after out-pacing it for decades.  Perhaps trees don’t grow to the sky after all.


Conversion: In order to stave off decline, Australian malls are becoming more like village centers, offering medical facilities more restaurants and even amusement parks.


Bombshell: Breaking story from the New York times sure seems to imply that the government changed the terms of the Fannie & Freddie bailout in 2012 in order to make more money at the expense of shareholders.

Loosening: More than 70% of non-cash, first-time home buyers — and 54% of all buyers — made down payments of less than 20% over at least the past five years.  See Also: Millennials want to buy houses but not save for them.

Level Playing Field: Any proposed Fannie-Freddie reform in the coming months will hinge on keeping small lenders happy.

Rise of the Machines: Real estate appraiser could be the next job where robots displace humans.


The Heist: More than 20% ($750mm) of the Democratic Republic of Congo’s mining revenue is being lost due to corruption and mismanagement. Remember this when you hear about mysterious shell buyers purchasing high priced real estate in the US. (h/t Darren Fancher)

Trust Bust? Scott Galloway on how Amazon will be the world’s first trillion dollar company but will eventually be undone by a DA with larger political aspirations looking for an anti-trust fight.

Get Off My Lawn: Sure Millennials ruin everything but then again, that’s what every generation says about the ones that come after it.

Simpler Times: Why some pot growers in California are already longing for the more paranoid but profitable days before legalization.

Chart of the Day

From the Daily Shot

Yields on commercial properties are at pre-recession lows (suggesting that the market may be overvalued).

Source: Credit Suisse

Residential construction pay for skilled workers is rising faster than the national average.

Source: John Burns Real Estate Consulting

The reason for better pay in construction is labor shortages.

Source: John Burns Real Estate Consulting

The number of existing homes for sale in the US is at the lowest level since the mid-1990s.

This is why I believe that the next recession is unlikely to hit housing all that hard: we aren’t building much and there just aren’t many existing homes for sale.  This is one time when the raw numbers of available homes may turn out to be more relevant than the favored months-of-supply metric.

Source: Capital Economics


Seems Reasonable: Airport bosses in Russia sparked controversy after creating ‘women only’ car parking spaces since:

This is because women apparently need more space to get in and out, as well as extra space for loading and unloading…

The spaces are also marked with a giant pink high heel which is going over as you would expect.

Probably a Smart Bet: A company is betting that people with pay $30 to sit in a club and watch cat videos because, Millennials.

Jealous: China banned Justin Bieber from playing concerts there due to “poor behavior” since they are apparently smarter than we are.

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

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Landmark Links July 25th – Full Speed Ahead

Landmark Links July 21st – Where is Everyone?

major league

Lead Story… I was talking with a client earlier this week about how long projects seem to be taking in the development world lately.  Across the board, we have found things moving a lot slower than they were just a couple of short years ago.  Lenders and capital partners are generally less aggressive than they use to be which means that the process of getting a commitment – let alone closing, takes a substantially longer time.  There are plenty of culprits here: in addition to the aforementioned tepid capital market, stifling bank regulations, the construction labor shortage, city issues, etc are all playing a role in dragging things out.  Our discussion focused on trying to identify the primary cause of all of the delays.  While there is a confluence of factors, I’m becoming more convinced by the day that this is an issue that starts in the city planning department.

Several years ago, builders were buying a fairly large number of projects at Tentative Tract Map and taking it from there, assuming that the hard work had been done once a project had run the gauntlet of discretionary approvals.  However, this assumption was proven false once the builders began to process non-discretionary approvals needed for grading and building permits to get physical construction underway.  The problem was that many planning departments were (and still are) woefully understaffed.  Today’s staffing levels may have been fine during the recession but are nowhere near adequate for a healthy, functioning market.  As a result, projects have taken much longer than anticipated to start, hitting returns hard and causing both capital partners and builders to pull back from buying earlier in the process and insist on only buying “shovel ready” sites.  This puts a higher degree of scrutiny and stress on the process.  Developers who could count on selling a site with a Tentative Tract Map in 24 months now have to underwrite 36 months or more to account for taking the project through final engineering in order to maximize value and ensure a capital event.  This means that carry costs are substantially higher and IRRs are lower, leading to a general desire to delay closing as long as possible.  Add in the fact that banks now do much more detailed underwriting before even issuing a non-binding term sheet and a crippling labor shortage and you have a recipe for major return-killing delays.

So, what is the culprit behind understaffed planning departments?  Conor Sen addressed the issue in a Bloomberg View column earlier this week about how low unemployment and tight state and local budgets have led to a shortage of public servants.  The story primarily dealt with police officers and teachers but could just as easily be applied to planning departments (emphasis mine):

Tax revenue from ordinary economic activity is volatile as is, but the unusual nature of the nationwide housing downturn in the 2008 recession had a profound impact on local tax streams. The run-up in housing prices during the boom years led to higher appraised values and increased property tax revenue for municipalities to spend. The bust led to lower appraised values and budget deficits that had to be closed, in many cases via spending cuts and layoffs, as the private sector was going through the worst recession in 80 years. While home prices have recovered to varying degrees around the country, appraisals often occur with a multiyear lag, which has constrained local budgets during the economic recovery.

The financial accounting of when tax revenue is earned and can be spent is one thing, but the governing philosophies of politicians during this economic cycle are another. Elected officials who came into office in the aftermath of the great recession were mostly focused on shoring up budgets. In part this was because the electoral wave in 2010 following the recession was dominated by austerity-focused Republicans, but it affected Democrats as well. Big city mayors, who tend to be Democrats, had to balance their budgets, and it’s hard to get people to agree to tax hikes to fund services when unemployment is high. Rainy day funds needed to be built up, and in some cases, pension costs needed to be addressed.

Look, it’s easy to bag on government employees and not all of the criticism is unfounded – there is quite a bit of waste in the sector, especially when it comes to guaranteed pensions.  However, it is absolutely necessary to have properly staffed government services.  Fire, police and teachers come to mind.  A competent and functioning planning department falls into that category as well, especially in the midst of a housing crisis brought about by too few units being built.  The results of under-staffing are the now-common developer/builder tales of projects stalling out for months at the plan check phase.  Sen makes a great point about this being an incredibly difficult situation to remedy (emphasis mine):

In the same way that over-hiring during the boom years came back to bite governments, under-hiring now is going to increasingly lead to pain when governments are inevitably forced to catch up. Government payrolls didn’t hit bottom until January 2014, nearly five years after the technical end of the recession. They are back to their level from December 2007, when the recession began. By comparison, over that same time frame, private sector payrolls have increased by 8 million workers.

While it would be nice to think that government has gotten dramatically more efficient over the past decade, the combination of tight budgets and recession-scarred governing mentalities means that public sector employment is short of where it needs to be to return to pre-recession levels of service.

Reality is that there are certain tasks that the private sector can’t accomplish without well-functioning government agencies.  Your local planning department is one of these roles.  In an ideal world, the development process in California would be a lot simpler than it is.  However, we need to deal with the way the world is, not the way that we think it ought to be.  It seems a bit ironic for someone with largely libertarian political leanings like me to be writing this but we need more government hiring in planning departments to get things moving again.  Until that happens, the delays will continue.


Catching Up: Low income earners are seeing weekly pay gain faster than other groups.

Standing By: The Federal reserve has indicated that they may pause their planned rate hikes if inflation continues to come in weak.


Tidal Wave Investors are piling in to alternative investments in general and commercial real estate in particular in a desperate search for yield.

Exodus: As companies re-locate to big cities, suburban towns are left scrambling.

Make it a Double: Retail developers are lobbying cities to allow walking around with open beverage containers to generate buzz in retail spots.  (h/t Stone James)


Fire Hose: Foreign buyers are buying US homes at a record rate, boosting prices in supply-constrained coastal markets, as the dollar plunges.

Severe Impediment: Increased Student debt is responsible for as much as 35 percent of the decline in young American home ownership from 2007 to 2015 according to a new study done by the NY Fed.

Headed In the Wrong Direction: Venice Beach is one of the most desirable places to live in the US, yet it’s housing supply has been shrinking.


Can’t Beat ‘Em, Join ‘Em: Sears announced that they are going to start selling Alexa-enabled Kenmore appliances on Amazon, sending shares soaring.  See Also: Amazon can now crush a company (in this case home meal kit company Blue Apron) just by filing a trademark. And: How Amazon has become a problem for re-flationary monetary policy in Japan.

Dinosaurs? How technology could lead to banks facing Kodak-style obsolescence over the next 15 years.

Rise of the Machines: Walmart is increasingly replacing retail employees with robots. In addition, they area working on facial recognition software to detect customer dissatisfaction and adjust staffing accordingly.  How this will play out in practice will be fascinating since apparently, Walmart management is unaware of this website that sheds some light on what Walmart shoppers actually look like.

Zero Point Zero: In an extremely rare circumstance, a private equity fund that made highly leveraged plays on oil and gas back in 2013 is now worth essentially nothing.  The Orange County Employees Retirement System was an investor and has now marked their position to zero.

Chart of the Day

Courtesy of the WSJ Daily Shot

Mortgage debt service ratio is way down by the non-mortgage consumer ratio is way up:

The share of Americans who rent is at it’s highest level in decades:

Source: @MatthewPhillips, @FactTank

The ratio of home prices to incomes in Canada is insane:

Source: Capital Economics

Here’s who is buying US real estate:

Source: Wall Street Journal


Seems Reasonable: A man who was upset with AT&T trucks parked outside of his house took matters into his own hands and shot their tires out because, Florida.

Not the Sharpest Tool in the Shed: A man who “identified himself as a drug dealer” called police early Sunday to report the theft of cash and a small bag of cocaine from his vehicle because, Florida.

Can’t Catch a Break: In the latest round of terrible PR, rats fell from the ceiling at a Dallas-area Chipotle.  For those keeping score at home, they have now had issues with E coli and norovirus, as well as rats falling from the ceiling – in addition, I’m fairly certain that they put laxatives in their burritos.  Other than that, things are great.

When You Gotta Go: A bear wandered into a house in Wyoming, took two poops in the living room while several people were at home and then ran away.  I guess he just wanted some privacy.

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

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Landmark Links July 21st – Where is Everyone?

Landmark Links June 18th – Fake Out


Lead Story… Since the end of the Great Recession, California’s cities have failed to produce anything close to the number of housing units needed to accommodate the state’s growing population.  The responses from cities has run the gamut from inaction at best and open hostility to new development at worst.  We are now dealing with the fallout: a crushing housing affordability crisis in which a state with some of the highest wages in the nation also has the highest poverty rate.  This has finally got the attention of politicians in Sacramento who have offered up a slew of legislative measures to address the crisis.  Today, I want to focus on SB 35, authored by Senator Scott Wiener of San Francisco since it is the bill that has gotten substantial press of late since passing through the state Senate last month.  At a high level, SB 35 – also called the Housing Accountability and Affordability Act (per the OC Register):

Creates a streamlined approval process for multi-family developments that are in “infill” areas and jurisdictions falling behind on providing housing for all income levels.

Since 1967, California cities and counties have been required to develop plans every 8 years for construction of new residential units in their communities under the Regional Housing Needs Assessment (RHNA).  Under the RHNA, cities and counties are required to account for units at all income levels under a jurisdictions housing element. The problem is that there is no enforcement mechanism for cities who choose to ignore their own plans.  In other words, it’s little more than urban planning Kabuki theater where cities put on a big show to pretend to care about housing and then quickly give in to NIMBY constituents when it’s over.  If you want more background on why the RHNA is a farce, Liam Dillon of the LA Times  wrote a terrific piece about it late last month.  So, how does SB 35 aim to fix things? Here is the press release from back in January (emphasis mine):

Today, Senator Scott Wiener released a detailed description of Senate Bill 35 – the Housing Accountability and Affordability Act – which he first introduced in December. SB 35 will create a streamlined approval process for housing when cities are not meeting the housing creation goals required by the Regional Housing Needs Assessment (RHNA), which will expedite the construction of affordable housing. SB 35 also creates a more robust reporting requirement for housing production by requiring all cities report their annual housing production to the California Department of Housing and Community Development (HCD).

Before I jump to my analysis of a couple of major issues, I want to be clear on one thing: this bill is a step in the right direction.  The RHNA is generally a good idea but needs an enforcement mechanism, otherwise it’s existence is pointless.  This should have been done years ago before we got to today’s miserable state of affairs but this is at least a start.  Here’s more from the above-quoted press release (emphasis mine):

Under SB 35, if cities aren’t on track to meet those goals, then approval of projects will be streamlined if they meet a set of objective criteria, including affordability, density, zoning, historic, and environmental standards, and if they pay prevailing wage for construction labor. Currently, RHNA goals are reassessed and updated every 8 years. Under SB 35, cities will submit their progress on housing production to HCD every 2 years. If the city is not on track to meet its RHNA goals at one of these progress checks, streamlining will be in effect for the entire next two-year cycle. A city is “on track” if it is 1/4 of the way to its goal by year 2 of the 8-year cycle, 1/2 of the way to its goal by year 4, and so on. The streamlining applies only to the income levels that aren’t being built for – so if a city is building sufficient market-rate units but not enough low-income units, the project must add low-income units to qualify for streamlined approval.

Despite the clear good intentions, there are two big issues in that highlighted passage that will make it very difficult for this bill to do much of anything to mitigate the housing affordability crisis:

  1. Existing Zoning – The streamlined process only applies to projects that already comply with existing zoning.  This seems to makes sense until you consider just how much California cities have been down-zoned since the 1960s.  Want an illustration?  This graph is from a dissertation by UCLA Ph.D. student Greg Morrow and looks at potential residential capacity in Los Angeles:

         LA’s population was 2.5 million in 1960 and city zoning allowed for enough housing          for 10 million residents.  The population has grown to 4 million today but the city            only has capacity for 4.3 million people – nearly at capacity.  If this strikes you as ass-backwards, that’s because it is.  This is why streamlining only for conforming zoning doesn’t mean much.  The playing field has already been tilted so far that there simply isn’t much capacity left.  The only way to truly address this issue is through amending restrictive zoning which will still require the same brutal discretionary process that has us in this predicament to begin with whether this bill passes or not.

    2. Cost – The streamlined approval process only applies to projects that pay prevailing           wage for construction labor.  This is the equivalent of digging a hole next to your               house with a shovel in an effort to get up on your roof.  Much to the chagrin of                     certain powerful interests in Sacramento, increasing construction costs by 25% or              more does not make it easier to build affordable housing.  Governor Brown tried to           do something similar to SB 35 last year but scrapped the plan after union interests             insisted on inserting prevailing wage language because it would drive up costs to much to be economically viable.  Here at Landmark, we look at multi-family construction projects in California cities all of the time.  These days, they are barely clearing a 6% return on cost at stabilization.  Affordable projects are typically substantially lower and rely on the sale of tax credits and cheap bond financing to be viable.  That’s a 6% yield to take on construction and market risk.  Hardly a developer making a killing.  The counter argument to this is usually that land is overvalued and needs to fall.  However, apartment projects aren’t single family homes in Irvine where the land makes up nearly 50% of the home sale price. Land is typically around 15% of the cost of an average apartment project while construction costs are well over 50%.  If you increase construction costs substantially, it’s actually quite easy to get to the point where the project doesn’t work, even at a land cost of zero.  Any way that you look at it, increasing construction cost substantially is not a wise way to incentivize affordable housing development.  If the project can support the increased cost that’s great but a substantial number can not.

I really hope that I’m wrong and that bills like SB 35 lead to more development in areas of California where it is most needed.  However, the provisions in the bill that I mentioned above leave me with a very skeptical outlook.  In order to fix this problem, the state of California is going to need to take an honest look at the factors that are causing it in the first place and then take action that may piss off powerful political constituents.  We are no where near that point yet but, as a wise man once said, “the journey of a thousand miles begins with one step.”


Hoarders: Americans are holding a record amount of cash in checking accounts as the shadow cast by the Great Recession continues.

Can You Spare a Dollar: Americans are finding it hard to get a raise despite a tight employment market.  It seems as though companies have forgotten how to compensate workers fairly and workers have forgotten what they deserve.  Yet again the shadow cast by the Great Recession remains.

Wrong Impression: Markets rallied last week after the Fed gave what was widely perceived as a dovish testimony last week.  However, Bloomberg’s Tim Duy argues that dovishness was not the Fed’s intent at all.


Big Short Redux: Will the death of the shopping mall be the next big short for hedgies?


Barbarian at the Gates: Amid all of the hoopla around the Whole Foods acquisition, Amazon has quietly revealed a possible expansion into the residential real estate sales business as a potential new target of it’s disruptive business plan.

A Picture Worth 1,000 Words: Thanks to our friends at McKinley Capital Partners for this amazing chart that summarizes why California is so expensive and Houston is not.

Side Effect: Why a subdued housing recovery has resulted in lower volatility in the stock market.


So It Begins: Amazon anti-trust concerns are starting to emerge in Washington and on Wall Street.

Vomit Comet: Self driving taxis have two major problems: 1) people are slobs; 2) many people are drunks and tend to puke in moving vehicles after a night of boozing.  Both make it incredibly expensive to maintain a fleet when it comes to cleaning.

Can’t Make This Up: Nevada is in a weed state of emergency as newly-opened dispensaries run out of product.

Chart of the Day

Consumer credit update, courtesy of the always insightful WSJ Daily Shot:

Credit card debt, as a percentage of disposable income, has been far below the peak levels, barely rising over the last few years.

On the other hand, auto loans and student debt levels, as a percentage of disposable income, are at record highs.

With persistently low interest rates and a post-recession decline in mortgage balances, total interest obligations as a percentage of disposable income remain benign.

Source: Wall Street Journal


Goals: An unidentified person ripped one on an American Airlines flight, forcing an evacuation.  Update: the airline is now denying it.  However, if my teenage years taught me anything it’s that he who denied it, supplied it.

There’s a Metaphor In There: A truck carrying 7,500 lbs of slime eels overturned in Oregon and shut down a highway.  The pictures are epic.

Withdrawal Symptoms: A man who was stuck in an ATM machine escaped by slipping “please help” notes through the slot.

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

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Landmark Links June 18th – Fake Out

Landmark Links June 14 – Serious Modification Required


Lead Story… In today’s economy, disruption seems to happen at an ever quickening pace.  However, as noted here previously, the real estate industry has been highly resistant to change.  Whether talking about Realtors and their 6% commissions or the construction industry’s lack of technological innovation, real estate has proven to be among the more difficult industries to disrupt.  However, changes appear to be happening, albeit somewhat quietly on the commercial brokerage front.  The Financial Times ran an article a couple of weeks ago about the changing role of intermediaries in the London commercial property markets that could have just as easily been about the US.  From the Financial Times (emphasis mine):

Since at least the mid-1800s, London-based commercial estate agents have sat at the centre of most UK property and land deals.

But many of the largest agents are now having to adapt their business models for fear they could fall victim to a technology-enabled removal of the middleman, a trend that has already reshaped consumer industries such as retail.

On the one hand, there are shared workspace groups such as New York-based WeWork, which last week unveiled plans for its largest location globally, with a deal to lease 280,000 square feet on London’s South Bank. Using apps to market flexible offices, they have cut agents out of smaller leasing deals. On the other hand, multibillion-pound landlords are bringing functions in-house for which they once relied on agents.

The resulting pincer movement has prompted the largest UK and US agents to shift focus to long-term advisory income as they anticipate a reduction in one-off deal fees.

The question that needs to be answered here revolves around the value that agents or intermediaries provide.  Typically, that value has been to act as a gatekeeper or matchmaker of sorts to manage relationships between landlords and tenants or to make introductions between buyers and sellers of property.  However, technology is breaking down walls and re-casting the traditional gatekeeper/matchmaker role as little more than an additional tax to be paid by market participants.  This trend is even more troublesome for  the middleman or matchmaker in an environment where ever-lower investment yields mean that investors and developers are looking to reduce costs wherever possible.  For a long time, the broker’s edge was market information which clients came to rely on them for.  However, comps are now largely available online and market data can be obtained through multiple subscription services, meaning that much of the information that clients typically relied on brokers for can now be had at a substantially lower cost.  The result is that days of the broker as a matchmaker and data provider where large one-time fees are generated for making introductions are coming to an end.  Those that are successful going forward will be the ones able to synthesize the now widely-available data into a coherent investment thesis rather than simply regurgitate it to win listings. This may be unpopular with a good portion of my readership but those that don’t provide some level of transactional and market sophistication (be that entitlement, market, finance, development, etc) are going to have a very difficult time surviving in the coming years. More from the FT (emphasis mine):

Agents need to think about what they do that adds value. Armies of grads creating brochures doesn’t really add value Andrew Miles, Realla
“Two years ago, [the serviced office group] Regus were paying us to deal with them. Now, we are seeing business-to-business deals without intermediation.”

Chris Lewis, head of office agency and consulting at DeVono Cresa, says: “Five to 10 years ago, if a company had a requirement for 150 people for two years, they would speak to their real estate adviser. Now they can go to The Office Group, WeWork, Regus or an intermediary broker.”

Such deals would previously have earned agents a fee of about 10 per cent of one year’s rent, he says. In a parallel shift, services such as Appear Here, a digital market for pop-up shops, are taking over some small retail leasing deals.

When it comes to bigger transactions, the threat comes from large landlords — the likes of Blackstone and British Land — which are now handling functions once carried out by external agents, says Simon Prichard, senior partner at Gerald Eve, a London agency.

“To justify their fees, property managers need to show they’re doing something. They’ve taken away from agents what agents used to do,” he says. For example, he says, in-house leasing teams handle marketing campaigns, attend meetings with lawyers and agree terms with tenants, although agents are able to provide the all-important contacts.

Commercial property sales have not yet moved online, but digital offerings in the residential market are forcing established agents there to change their models, offering a clue to how the commercial market may change.

So, what are brokers doing to avoid the fate of becoming functionally obsolete?  They are moving into market segments that require a higher degree of sophistication or moving towards recurring sources and away from transactions that generate large, one time fees.  The big boys are already making the shift:

Agencies have been quietly shifting into areas such as property management, which entail long-term contracts rather than one-off fees. Over the past two years Savills, the London-listed agency, has acquired Collier & Madge, managers of commercial properties; Chainbow, which manages residential blocks; and Smith & Gore, which specialises in rural estate management.

CBRE, meanwhile, said in its annual results that it “continued to shift toward more recurring revenue in 2016”, increasing such fees to 42 per cent from 37 per cent of its total.

Nabarro, a law firm, says agents are “seeking to move up the food chain by providing complex financial advice, which has traditionally been the territory of investment banks”. CBRE and JLL, for example, have corporate finance teams.

This is something that is a regular discussion point around the Landmark office.  In our view, the primary value add that we (or any other financial intermediary) bring to the table is the ability to understand and structure complex real estate development projects.  Our value proposition is straight forward: identifying capital sources is something that can be replaced by technology to some extent but sophisticated advisory, analysis, detailed capital market knowledge and advice really can’t be.  Marrying real-time information about what specific capital providers are looking for with underwriting sophistication provides somewhat of a barrier to entry against commoditization via technology.

Despite the above, its not all doom and gloom for traditional commercial real estate brokerage. The end of the FT article hit on a point that is perhaps the best argument for the continuation of the old business model, IMO: CYA (translation: cover your ass):

Mr Lewis, however, says agents’ role in brokering deals will survive — if only because companies’ property directors will always want to share responsibility and take expert advice.

“For corporates and for landlords, if anyone ever says ‘we want to look at this deal and see how you got to this point’, it’s good to be able to point at a third party who has given you advice and support rather than take it all on yourself.”

In an increasingly litigious time, no one wants to have to answer to investors or a board without having another party to deflect blame to if things go sour.  Perhaps the future of the traditional brokerage model is that of the professional scapegoat.


Strung Out: Goldman Sachs thinks that the opioid crisis has gotten so bad that it is affecting the economy by lowering the participation rate.

On the Other Hand: It’s more than a bit of a stretch to assume that young men are actually giving up work to play video games all of the time.

Trouble Abroad: Prices are cooling in China, which should worry anyone watching the recovery in the U.S.

Dragging Out: Why the robot takeover of the economy is proceeding more slowly than expected.


The Secret’s Out: Two new exchange traded funds have been launched specifically to bet on the decline of the American mall.  Just my opinion but the bearish sentiment here is getting a bit crowded.

Good News for Office: Working from home was supposed to be the “next big thing” in employment but the permanent telecommuter is going extinct. thanks to more team based work environments and employees taking advantage of employers who offered the perk.

Company Town: Facebook is building it’s own mixed-use village of 1,500 homes in Menlo Park to house it’s workers and combat the California housing crisis.


This is What Happens When You Don’t Build: California is home to 12% of the population of the United States yet accounts for a whopping 40% of available home equity.  Trust me, it’s not all due to the great climate.

From the Way-Back Machine: 10 year ago this week, S&P announced the first major downgrade of subprime mortgage-backed bonds.


What VC Bubble? A dog walking/pet sitting company has raised $105MM in venture capital over the past year. That’s $105MM to walk dogs and pick up shit.  Given that this is a revolutionary business plan with incredibly high barriers to entry, I’m sure that the returns will be amazing.  Now, if you don’t mind I’m going to go have a beer and ponder my life choices.

Get Rich Slow: This short article on the fractal nature of compound interest is much, much more interesting than you would think.

Damn: Amazon Prime is on pace to become more popular than cable TV.  Just another reason that Bezos is on pace to become the richest person on earth.

Ouch: Morgan Stanley came out this week and downgraded Snapchat, a company that they helped to bring public a short time ago after the stock has tanked post IPO.  This almost never happens.  Moral of the story: sell to Facebook if you have a technology that Zuckerberg can easily copy.  See Also: Snapchat spurned Mark Zuckerberg’s buyout offer back in 2013 so he destroyed them by transforming Instagram.

Chart of the Day



Gimme Cookie: Police found 314 grams of cocaine in a Cookie Monster doll because, Florida (h/t Henry Baskerville)

Missing Something? Health inspectors found a breast implant inside a bar utensil holder at a Texas strip club.

Knockout: A golf ball diver punched a gator to escape an attack because, Florida.

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

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Landmark Links June 14 – Serious Modification Required

Landmark Links July 11th – Sitting This One Out


Lead Story….  Landmark Links is back this week after a much needed break.  I spent the week before last at the Pacific Coast Builders Conference (PCBC) in San Diego and wanted to share a few observations.  PCBC is the premier residential home building and development conference on the west coast.  Attendance appeared to be good and the mood was generally upbeat.  That being said, I couldn’t help but notice a bit of a disconnect between developers/builders and capital providers.  In general the developers and builders were more upbeat and bullish while capital seemed to be a bit more cautious.

One of my favorite parts of the conference was the annual Capital Markets Survey put together by Steve LaTerra and Jeff Myers of Meyers Research, LLC.  In conducting the survey, they questioned multiple capital providers about their market outlook, targeted investment areas, deal structure, etc.  They present the findings in one of the PCBC Land and Capital sessions.  The presentation slide that I found most interesting was the question to investors about where we are in the cycle:


Source: Meyers Research, LLC

Clearly, a growing portion of capital providers believe that we are topping out.  In fact, it’s nearly equal to the percentage that believe we are still “on the rise.”  Here’s why I find this so interesting: typically in the so-called late innings of a real estate cycle, cash would be pouring in to ever-riskier sectors (mainly development, entitlement and higher risk construction plays) and development – measured in starts – would be booming.  This is usually the time when contrarian investors typically begin to either sell or take short positions against companies that they believe are over-exposed when the cycle inevitably turns (think investors who went short mortgage bonds in 2005 and 2006 or builders who sold their companies or just stopped buying new land).  Commercial real estate and multi-family have been on a tear and capital has been plentiful during the run-up.  However, residential for-sale development has not participated up to this point.  Investment terms are getting more difficult: co-invest amounts are higher, preferred returns are higher and investment horizons have been reduced.  The reality is that in this strange, long duration cycle, there really is no contrarian position to be taken at the moment.

IMO, there are two factors at play here:

  1. Residential land development and home building is getting lumped in with commercial.
  2. We are in different points of the cycle across different parts of the residential spectrum.

First off, it has not been a secret that commercial real estate (excluding retail) has been booming for several years.  Capital has been aggressive as rents have risen, vacancy has declined and cap rates have compressed.  It makes sense that investors in that space would start to feel as if it is late in the cycle.  However, residential land development and home building has not enjoyed anything close to the same availability of capital.  I’ve previously written about why the “too much money chasing too few deals” phenomenon that has been a feature of the commercial real estate capital markets for years hasn’t translated to residential.  Since commercial the commercial market is much larger, it makes sense that commercial cycle outlook would cast a shadow over residential.

If you live in a production market like California’s Inland Empire, you’d be forgiven for wondering how a cycle can be coming to an end if it’s just beginning.  Areas like the Inland Empire (and Sacramento, for that matter) have seen little development during this cycle relative to the past, especially at the entry level.  Development has just recently started to ramp up and sales are booming again.  However, if you are in an high end market, especially along the coasts, home prices have been rising for years but there is still a substantial deficit in the number of units being produced versus demand.

It’s entirely possible that we could be in the late innings of the cycle at the high end but have a ways to go in entry level markets.  What will be interesting is watching how capital responds.  If investors continue to pull back in the belief that we are in the late stages and don’t invest in land development, the supply deficit could continue to grow, exacerbating the home affordability problem further.  Either way, a very large portion of the for sale residential development spectrum has effectively sat out this cycle.  Investors have remained incredibly disciplined in not chasing returns.  The question is will they be able to maintain this disciple if the market continues to tighten while they are sitting on the sidelines.


No Problem? A lack of worry about the economy is worrisome unto itself according to Greg Ip of the Wall Street Journal:

If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.

In other words, it would look a lot like the present.

See Also: Four problems looming over the historic US expansion.

Whipsaw: The yield curve had been flattening since early this year but reversed course last week amid a worldwide government debt selloff.  See Also: Jeff Gundlach sees more pain for bond bulls as hedge funds make exit.

Pile Up: The car recession really is a thing, excluding SUVs and trucks.

Uneven: Arizona, Connecticut, Mississippi, Nevada and Wyoming still haven’t regained their levels of gross domestic product from before the financial crisis.

Contrarian Opinion: How Amazon’s growth could spur a capex boom rather than widely anticipated disinflation.

Time to Get Busy: The US fertility rate just hit a historic low which has some demographers concerned.


Into the Abyss: The 1031 exchange could be on the chopping block and Congress’s lack of progress on tax reform could mean that there won’t be any offsetting provisions to help soften the blow.

On the Bright Side: How the retail apocalypse can lead to a suburban renaissance.


Opening the Floodgates? Credit rating agencies are dropping tax liens and civil judgements from some consumers’ profiles if information isn’t complete.  At the same time, Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan.  In other words, mortgage lending conditions are easing as the market continues to get more expensive.

Disconnect: Federal housing policy focused on boosting demand (tax breaks, access to credit, 30-year mortgage, etc) but largely ignoring supply issues has no chance of solving the new housing crisis.


Rise of the Machines: Why two thirds of jobs in Las Vegas could be automated by 2035.

Pokemon No: A year after Pokemon go took the country by storm (for a few weeks anyway), popular so-called augmented reality games are still rare.

Chart of the Day

And here you thought that the US was expensive….

Source: The Economist


All that Glitters: A naked Arizona man who was covered in gold pain was found wandering through a Walmart parking lot and arrested.  Shockingly, drugs were involved.  (h/t Darren Fancher)

Why Did the Chicken Cross the Road?  Probably to get away from this guy, who had to register as a sex offender after pleading guilty to sexually assaulting a live chicken in Oregon.  Trust me, if you look at the mug shot, this will all make sense.

Meanwhile, In Florida: A Jacksonville man sat on a loaded gun on the drivers side of his car and shot himself in the junk.

Video of the Day: Chaos in Moscow as people flee flying porta potties during a massive storm.  In Soviet Russia, porta potty poop on you.

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

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Landmark Links July 11th – Sitting This One Out

Landmark Links July 4th – Happy Birthday America!


No regular blog today because, lets face it, you (should) have far better things to do on the 4th of July than read this blog.  So, get out, have fun and be safe – and be sure to check out a bunch of weirdos devour a disgusting amount of hot dogs in a few short minutes.   However, if you absolutely must spend time on the internet, enjoy this compilation of Ultimate Firework Fails.

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

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Landmark Links July 4th – Happy Birthday America!