Landmark Links September 21st – Too Big to Fail?

Sumo

Lead Story:

“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” – J. Paul Getty

The not-so-subtle implication in the quote above is that a lender can easily foreclose on a borrower who has borrowed a small balance and defaults without risking its own survival but faces a potentially existential crisis if a much larger borrower runs into the same problem.  During the last crash, a term was coined to describe this element of mutually assured financial destruction: too big to fail.

Regular Links readers know that I am not a fan of WeWork’s business model of signing long term leases and renting space to short-term tenants.  It’s the sort of business plan that generally looks great when the economy is booming and rental rates rise and terrible when the economy dips into recession and rental rates fall due to the nature of fixed leasing costs and variable revenues.  The catch here is that WeWork can’t turn a profit in 2018 (aka the best of times to lease office space) and even had to come up with a gross perversion of accounting standards called Community Adjusted EBITDA in order to justify how it could theoretically make money during the company’s first bond offering earlier this year.

So, what is WeWork’s endgame (aside from using massive sums of venture capital investment to subsidize beer for it’s hipster tenants)?  The answer is became a bit more clear to me after I read a recent Wall Street Journal article about how WeWork has become the largest occupier of Manhattan office space with a whopping 5.3 million square feet of office space and it’s a variation of the Getty quote at the beginning of this post.

If a relatively small tenant defaults on a lease with a large landlord, the building owner can either evict them or work with them to amend the lease.  Either way, the tenant default is little more than a minor inconvenience to the landlord.  Now imagine that a tenant has millions of square feet of office space with a large landlord in a given market.  A default from such a tenant could be catastrophic to the landlord as well as their lenders.  The landlord is highly likely to negotiate a lease modification because not doing so and risking millions of square feet of vacant office space would essentially seal their fate.  Meanwhile, WeWork can sit back with their billions in venture capital backing and negotiate from a position of strength since their corporate lease guarantees typically only run through the early years on their leases.

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If this is true, WeWork is making themselves too big for their landlords to allow them to fail.  If I’m correct, one of the benefits of massive, VC fueled growth is the ability to leverage size into a more advantageous position down the road.  It wouldn’t surprise me if this is key unspoken part of WeWork’s business plan since its been very clear to anyone paying attention that they can’t turn a profit otherwise.  It also helps to explain the massive growth in light of clear signs that organic tenant growth may be topping out in the co-working space. The Wall Street Journal article that I referenced earlier contained an interesting aside about the downfall of Regus PLC – a predecessor to WeWork during the 2001 tech crash:

WeWork and its peers are typically on the hook for fixed rents of 10 to 15 years, but their subtenants can bolt after only a fraction of that time, potentially leaving co-working companies stuck with empty space for long stretches.

That’s what happened in 2001 to Regus PLC, a Europe-based flex-space company now known as IWG, which grew rapidly during the dot-com boom before its rents and occupancy levels plummeted during the bust. Its U.S. arm ended up filing for bankruptcy protection in 2003.

Perhaps Regus’ real problem was not that it grew too rapidly but rather that it didn’t grow rapidly enough to force landlords into an existential crisis where they would have to come to the table to re-negotiate rents in a weakened negotiating position?  I suspect we are going to find out the answer when the next recession hits.

Economy

Out of Stock: Retailers are having a difficult time attracting seasonal holiday workers this year in a tight economy, meaning that they will likely have to offer perks like profit sharing and paid time off.

Still Going: US jobless claims have fallen to a 49-year low for the third straight week.

Commercial

This Was Inevitable: Amazon reportedly is planning to build several multi-story distribution facilities throughout the United StatesSee Also: Amazon wants to open up 3,000 cashier-less stores by 2021.

Size Matters: Och Ziff is in the process of raising a $2 billion real estate fund, its largest to date.  As previously stated with Blackstone, this is an interesting raise given the common critique that there is already too much money chasing too few deals.

Residential

Stand Off: The developer who bought the rundown Vallco Mall in Cupertino is planning on redeveloping the site into a large residential, office and retail development.  As you can imagine, NIMBYs in Silicon Valley are not happy about it and are threatening a lawsuit and voter referendum.  However, the project will effectively be the first major test case of SB 35, a state law passed last year that forces cities to green light residential and mixed-use projects that meet certain requirements.  Needless to say, this could get interesting.  Update: Cupertino approved the development after a complete circus of a hearing.

Onward and Upward: Mortgage rates are now at seven year highs and closing in on 5%.

Margin of Error: Zillow’s Zestimates can be highly addictive….and highly inaccurate.

Looming Debacle: This is what we are facing in November despite the fact that no credible economist on either the left or the right has studied rent control and concluded that it actually brought housing costs down in markets where it has been implemented.  Welcome to California:

It is almost assured that Proposition 10 will pass, and the state of California will become a free for all with different, complex and in many jurisdictions, nonsensical rent control policies. It will be up to individual cities and counties as to whether they want some, all or no rent control and how relaxed or draconian the various rent control provisions will be.

Profiles

Life Comes At You Fast: Speculators are now taking aim at high-flying cannabis stocks as crypto-mania continues to deflate.

Bold Move: Buying distressed Lehman debt 10 years ago was an incredibly bold move at the time but has resulted in huge profits to distressed funds But See: The side pocket zombie hedge fund stakes that have haunted investors for a decade.

Take it to the Bank: Inside the NFL’s incredibly profitable existential crisis.

Chart of the Day

This is fine.

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Source: Stocktwits

WTF

Don’t Mess With Texas: A great grandma, shot and killed a 580 lb 12-foot long alligator after it ate her miniature horse because Texas.  She now plans to make it into boots.  This woman is a national treasure.

JackPot: Giant bundles of marijuana have been floating up on beaches after hurricane Florence and swimmers are fighting over them because Florida.

Rekt: Watch the University of Colorado’s mascot shoot himself in the nuts with a t-shirt cannon, pass out and then get carted off of the field.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 21st – Too Big to Fail?

Landmark Links September 18th – Above the Law

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Must Read: The California Coastal Commission is unaccountable to taxpayers, corrupt and often capricious with the power it wields.  Making matters worse, commissioners hit with fines or judgements for breaking rules have those costs picked up by the same taxpayers who they don’t answer to.

Economy

Keep it Simple: Recessions happen when the economy runs out of cheap money or resources to support growth and there are some signs starting to pop up that indicate we could be getting close to that point.

No Slack: Job openings and quits are rising at a faster pace than job hires.

Legacy: The World’s post Lehman legacy is $250 trillion of debt, much of it on government balance sheets.  Some really cool charts from Bloomberg in this link.

Commercial

Risky Business: Investors are searching for better returns in secondary markets as yields continue to compress.

Size Matters: Blackstone expects to raise $18 billion for it’s new real estate fund, its largest one to date.  This is particularly interesting in light of the fact that the biggest gripe about the market seems to perpetually be “too much money chasing too few deals.”  The money continues to flow in.  The deals, not so much.

This Is Not Surprising: The Bay Area has the highest retail worker shortage in the nation mainly because no one can come close to affording to live there earning retail wages.

Residential

On Equal Ground: New evidence shows that, despite belief to the contrary, manufactured homes appreciate nearly as well as site-built homes.

Don’t Call it a Comeback: North Las Vegas was arguably the epicenter of the housing bust.  Now it’s booming again, raising concerns about affordability as well as the prospect of another boom.  See Also: Las Vegas is booming again, and bracing itself for the next slump.

Flipped Out: How the housing bubble changed reality TV home improvement shows.

Profiles

Marching Higher: Streaming TV services are beginning to raise their rates as they simply cannot make a profit at the bargain-basement prices offered today.

Gridlock: Ride share services like Uber once held the promise of reducing traffic in urban cores.  However, there is a growing body of evidence that they are actually making it worse.

Happy Juice: Coca Cola is eyeing the cannabis market and looking to introduce CBD infused drinks.

Chart of the Day

This is a lot closer than I would have thought.

Home Price Index for Traditional and Manufactured Homes

Year-over-Year Change in Home Price Index: Traditional versus Manufactured Homes

WTF

Beyond Parody: There is now a new “health” craze that involves people drinking their own urine.  I guess it turned out that Patches O’Houlihan was a visionary after all.

Gotta Hear Both Sides: An inmate (allegedly) brutally killed his cellmate, carved out his eyeballs and put them in a cup then walked into the prison’s cafeteria wearing one of his ears on a necklace because Florida.

Master of Disguise: An Arizona man faked Down syndrome and hired caregivers to bathe him and change his diapers, easily putting himself in the running for the creepiest person of 2018.

It’s Always Something: The new iPhones are being accused of being sexist.  Yes, iPhones.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 18th – Above the Law

Landmark Links September 14th – Breaking Out the Big Guns?

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Must Read: HUD secretary Ben Carson has begun to talk about using federal power to discourage cities from using zoning to keep out poor people by requiring  that cities that receive federal housing grants reduce their use of exclusionary zoning.  If actually implemented, this would be a game changer in terms of allowing for production of more housing.

Economy

Warning Signs: Bridgewater founder Ray Dalio’s seven bubble indicators are ‘flickering but not flashing.   For the record, they are:

1. Prices are high relative to traditional measures

2. Prices are discounting future rapid price appreciation from these high levels

3. There is broad bullish sentiment

4. Purchases are being financed with high leverage

5. Buyers have made exceptionally extended forward purchases, such as of inventories, to speculate or to protect against price appreciation

6. New buyers have entered the market

7. Stimulative monetary policy threatens to inflate the bubble even more.

Finally: Middle class income is back above where it was in 1999 at last according to the US Census.  But See:People who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see.”

All Clear: Outside of trade, it’s hard to find much in the way of weak economic indicatorsSee Also: The Small Business Optimism Index increased in August.

Commercial

Nowhere to Go But Up: Demand for same day delivery of goods in urban centers is slowly but surely leading to multi-story distribution warehouses in North America.

Big Money: Ultra high net worth families have become the new go-to lending source for real estate developers.

Still on the Upswing: A new office tower leased to Facebook is poised to set the record for highest price per square foot in San Francisco.

Residential

False Positive: The housing price-to-rent ratio is not all that reliable of a leading indicator.

Help Wanted: Labor and subcontractor costs are substantially outpacing inflation,contributing to higher home prices.  See Also: How Labor shortages have impacted housing costs.

Trillion With A “T”: Tappable home equity hit $6 trillion in the second quarter.  However, a recent report by Black Knight estimated that only $65 billion in equity was withdrawn through cash-out refinances or home equity lines of credit (HELOCs) this past second quarter, down more than 3 percent in the second quarter of last year. The $65 billion withdrawn represented just 1.13 percent of what was available to be tapped, a four-year low in overall equity use.  This is exactly what is to be expected in a rising interest rate environment with massive disincentives for people to move or refinance.

Profiles

Up In Smoke: California’s illegal cannabis industry is still thriving despite legalization mostly thanks to high taxes and regulatory red tape.  It’s starting to look like the space is faced with a somewhat dystopian future of legal operators ratting out the black market ones in order to gain a competitive advantage.  See Also: A lot of cannabis products are failing new, more stringent potency and purity tests that began on July 1st, leading to a shortage of legal weed.  Again, this plays right into the hands of the black market crowd….until they get busted.

#Truth: “LinkedIn is a spam garden full of misspelled, grunty requests from international software houses that are looking, primarily, to sell you services.

The Curse: For hedge fund stars, being right in 2008 has not proven to be a particularly good thing in the long run.

Chart of the Day

Real median personal income hasn’t moved much since the 1980s once rent is factored in.

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Source: Bloomberg

WTF

Its Always the Ones You Least Suspect: A novelist who wrote a book called “How to Murder Your Husband” was recently arrested and charged…..with murdering her husband.

Filling A Niche: Vending machines selling crack pipes have been popping up on street corners because Long Island.

Gone with the Wind: A woman who was arrested for possession of cocaine claimed that it blew into her purse on a windy day because Florida. (h/t ‎Elizabeth Poston)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 14th – Breaking Out the Big Guns?

Landmark Links September 11th – Its All Relative

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Must Read: One third of people making $100k think that they are underpaid, according to new research.  Going to go out on a limb here and assume that this is largely because $100k is not very much money to live off of in most markets where $100k salaries are common.

Economy

Help Wanted: The US manufacturing sector is firing on all cylinders but a lack of skilled workers is keeping a lid on the sector.  See Also: The number of government workers as a percentage of the population continues to fall.

Minsky Moment: The US economy in the wake of the Great Recession is a textbook example of why instability is stabilizing and vice versa.

Much Ado About Nothing? Despite some flashy headlines about pulling forward of demand and yield cure distortion, pension demand for bonds is unlikely to evaporate after a Sept. 15 tax-break deadline.

Commercial

Ghost Town: New York is one of the most affluent and dense cities in the world.  However, nearly half of its storefront retail is vacant.  The reason?  To many units and landlords looking for sky-high rents.

Help Wanted: All of the new distribution buildings coming to market will require a lot workers to staff them, which is a problem in a tight employment market.  Everything about this points to further automation.

Residential

Imagine That: A glut of rentals in some of the hottest US housing markets is leading to lower rents.  It’s almost as if housing is not immune to the laws of supply and demand as NIMBYs would have you believe.

Organized: A new study found that those who participate in planning and zoning board meetings are older, wealthier and much more NIMBYish than the average resident.  Consider this a reminder that opposition is almost always easier to mobilize than support.

Correction: Framing lumber prices have come down off of their recent record highs but are still up year-over-year.

Profiles

Supplemental Income: Teachers are moonlighting as Instagram influencers, sometimes making double or triple their salary by promoting classroom resources and other products.

In the Crosshairs: Amazon is taking aim at the $88 billion online advertising market where it is emerging as a competitor to incumbents Google and Facebook.

Creative Destruction: Yes, self driving cars will destroy a lot of jobs.  However, they will create a lot of jobs as well.

Chart of the Day

The divergence in trends between prime-age and total labor force participation continues to widen.

Source: The Daily Shot

WTF

Weenie Roast: An extremely intoxicated man accidentally set fire to his house while trying to bake cookies and answered the door naked when police showed up because Florida.

Boom Boom Room: A drunk woman flashing her boobs and giving lap dances on a plane flying to Ibiza sparked a brawl because England.  Also, because Easyjet.

Crack Up: PETA is lobbying the Maine Department of Transportation to put up a roadside memorial to lobsters who died when a truck carrying the delicious crustaceans crashed and rolled over.  Thankfully, the Maine DOT said no.  Imagine leading a boring enough life where you chose to take this as your cause.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 11th – Its All Relative

Landmark Links September 7th – Shrinkage

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Lead Story…  If you read real estate industry headlines these days, you would be mistaken for thinking that property prices in California are doing anything other than rising.  It seems as though every day (with the possible exceptions of malls and class A apartments), there is a story of some sort about a new high being set in a product type or region in either rents or sale prices.  This has been particularly true on the residential side of late where even talks of a slowdown are more about a decelerating rate of appreciation that an outright decline.  However, there is something interesting going on behind the scenes that flies below the radar of most people who are not a part of the real estate industry: despite the increase in residential asset prices and rents, the residual value of residential land is often not increasing and in many cases is actually falling.

How is this even possible? To start, one must first recognize that land is priced as a derivative – an asset having a value derived from something else.  Financial derivatives can get quite complex but the one used to price land is simple:

Land Value = Revenue (from sale of structure to be built) – Cost of Improving Land – Permits and Impact Fees – Construction Cost of Structure – Builder Profit.

The value of land is derived from the five factors noted above and tends to be substantially more volatile than the variables themselves since increases in revenue or cost flow straight through to the underlying land value.  If revenues rise and costs fall, the value of land goes up substantially.  On the other side, if costs rise and revenues fall, the residual value of land quickly vanishes and can even go negative.

I put together a quick chart summarizing the residual value of a lot that a $1MM home will be constructed on in order to illustrate this increased volatility.  In the example below, 10% revenue inflation yields an increase in land value of 28.6%.  By the same token, an increase in cost (and builder margin) of 10% results in a decrease in land value of 18.6%.

 Base Case  10% Revenue Increase 10% Cost Inflation
Revenue From Home Sale $1,000,000 $1,100,000 $1,000,000
Land Improvement (100,000) (100,000) (110,000)
Permits and Impact Fees (100,000) (100,000) (110,000)
Construction Cost (300,000) (300,000) (330,000)
Builder Profit 15% (150,000) (150,000) (165,000)
Residual Land Value $350,000 $450,000 $285,000
% Increase (Decrease) From Base 28.6% (18.6%)

The residential housing market stabilized in California around 2012 – 2013.  Since that time, home values and finished lot values have continued to outpace inflation, often by a substantial margin.  So why has the value of unimproved residential land failed to keep pace?  There are two primary reasons:

  1. Construction and development costs have also soared during the above-referenced time period as economic growth and protectionist trade measures have pushed the cost of raw materials higher and a crippling construction worker shortage has pushed the cost of labor up as well (and caused timing delays).
  2. Cities – which are restricted in how they can raise revenue due to Prop 13 have taken the opportunity provided by rising home values to push already-astronomical impact fees even higher.

The end result is that increases in costs and fees have offset the revenue increases that merchant builders of both homes and apartment projects have realized, leaving underlying land values to tread water or worse.  We’ve heard this critique in recent months from builders, developers, capital partners and brokers operating in California.  Perhaps an even larger looming issue is that there are signs that merchant builders are losing their ability to pass cost increases on to buyers as affordability of both ownership and rentals has become strained.  If costs continue to go up, this will inevitably lead to fully approved projects being shelved, meaning that values of existing units will likely remain high despite rising interest rates, simply because household formation will continue to outpace new supply.

All of this calls into question the very rationale of investing in land in the first place.  Traditionally, land development is the most lucrative but also the most risky corner of real estate development.  In other words, its possible make massive returns if the market moved in your favor but lose your ass if it moved against you due to the derivative nature of the asset.  However, in this cycle, the best case scenario appears to be that rising values of completed home and apartments keep a developer at break-even land residual as costs rise just as fast.  In addition, municipalities view impact fees in a market where home and apartment values are on the rise as a honey pot and continue to increase them aggressively.  The downside is that municipalities are not about to cut their fees once revenues top out (or God forbid fall) and cost inflation shows no sign of abating.  So under the best current outcome, a developer keeps their head above water and in the worst one they get wiped out.  Hell of a business.  Perhaps only in the perverse world of real estate development in California is it possible to be 100% correct about the direction of the market and still lose money.  And then we wonder why we have an affordability crisis.

Economy

Help Wanted: Construction employment opportunities with a starting salary of $75k and benefits and no college education needed are going unfilled.

Precarious Position: The fracking revolution has made the US energy independent but most operators operate at a deficit thanks to the relatively short lifespan of wells.  That deficit has been filled by cheap debt up until now but rising interest rates could mean that there is an economic disaster lurking underground.

Bubbleicious?  Companies have been binging on corporate debt at incredibly low borrowing costs throughout the current economic cycle.  However, rates are now rising and this high leverage could pose danger to the economy if growth slows.

Commercial

Survival of the Fittest: Competition from the likes of Amazon has forced existing retailers to re-examine their business plans and innovate.  The best of the group are flourishing, while the weakest competitors are dying off.

Residential

In the Right Direction: Residential construction loans are increasing in volume – but still nowhere near the prior peak.

Boomtown: Las Vegas has dethroned Seattle as the nation’s hottest housing market after the latter had held the title for nearly two years.

Profiles

Hard to Pick a Side: It’s difficult for me to figure out who to root for when a legal battle pits billionaire tech VC and likely James Bond villain Vinod Khosla against the capricious and completely unaccountable bureaucrats at the California Coastal Commission. 

Bubble: Goldman thinks that most crypotcurrencies won’t stop going down until they hit zero.

Covered: As veterinary bills add up more pet owners are opting for insurance to cover their four-legged family members.

Chart of the Day

This is remarkable considering growing affordability issues.  According to Genworth, the US had the “most first-time homebuyers for a second quarter since 1999. First-time homebuyers accounted for 36% of single-family home sales in Q2, the highest share for a second quarter since 2000.”

WTF

Grab and Go: A couple was arrested for building a drive-through window at their mobile home to sell drugs because Florida.

Idiots: Dominoes Pizza was forced to cancel a promotion offering fans free pizza for life if they got the brand’s logo tattooed in a prominent place on their body after too many people agreed to the stunt.  If you needed proof that the people around you are getting both dumber and fatter by the day, look no further.

Innocent Until Proven Guilty: A crackhead fell through the ceiling of a Mexican restaurant in California because drugs.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 7th – Shrinkage

Landmark Links August 31st – Scare Tactics Part 2

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Must Read: Back in November when tax reform was being hotly debated, the NAR propaganda…I mean economics department came out with a dire forecast of a 10% plunge in home values nationwide.  I wrote a rebuttal in early December that laid out all of the reasons that this would not happen – most obviously because it would mean less supply in the market, not more.  Jim Tankersley wrote a piece for the New York Times this past week outlining what has actually happened so far.  I’ll give you one guess who was correct….. When it comes to pricing, interest rates are overrated and supply is underrated as a variable.

Economy

Help Wanted: A strong job market and extremely high demand for H-2B visas mean that there aren’t enough people working in landscaping this summer.

Piling Up: Tech inventory stockpiles are building and have now hit pre-crisis levels.

Upward Pressure: American companies are now raising prices at a brisk pace even though wages have not kept up.

Under the Radar: The yield curve gets all of the attention but the flattening that we should really be worried about according to Blackrock is the spread between low risk and high risk assets. (h/t Doug Jorritsma)

Commercial

Conflict of Interest: Sears is on the ropes but it’s distress is fueling the redevelopment of some of its sites by Seritage, a REIT formed to provide capital to the struggling retailer secured by Sears real property that is headed by none other than Eddie Lampert himself.  In other words, heads I win, tails you lose.

Shocking: Moody’s Investors Service dropped its ratings of WeWork Cos. inaugural bond deal from earlier this year, saying that it didn’t have enough information to continue grading the company’s creditworthiness.  I guess they couldn’t figure out the whole “Community Adjusted EBITDA” thing either.

The Takeover: How co-founder Paul Allen’s Vulcan turned the South Lake Union neighborhood of Seattle into a tech hub that swallowed the city.

Residential 

Two Birds, One Stone: KTGY Architecture + Planning is developing a concept that would re-develop empty big box stores into mixed-use spaces focused on transition housing and social servicesRelated: California’s massive deficit of rental units is mainly responsible for an increase in the homeless population that increased 13.7% between 2016-2017.

Profiles

High Times: Booze makers have somehow outmaneuvered big tobacco to take pole position in the emerging cannabis market.

The Takeover: How mattress stores conquered America.

Opportunity Knocks: How the great financial crisis created the opportunity for BlackRock to become a $6.3 trillion giant.

Chart of the Day

It’s difficult to see how home sales pick up much when new construction volumes are low and people are staying put this long.

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WTF

Monkey Business: A restaurant had to cancel and event called “Monkey Mondays” after a pet monkey bit an 8-year old kid because Florida.

Crabby: A billboard placed in Baltimore by the vegan killjoys at PETA telling people not to eat the Chesapeake’s iconic and delicious blue claw crabs because they had feelings and unique personalities is going over just as well as you would expect with the locals (h/t Darren Fancher).  On a brighter note, it did lead to the epic trolling of PETA on Twitter by Jimmy’s Seafood Restaurant.

Je Suis Butchers: A vegan festival in the French town of Calais has been cancelled over fears of local butchers, many of whom have been harassed and vandalized by militant vegans, seeking revenge (h/t Steve Sims).  Reminder: a vegetarian is someone who eats a plant-based diet.  A vegan is someone who tells you that you need to eat a plant-based diet (and apparently tries to destroy your livelihood if you don’t comply).

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 31st – Scare Tactics Part 2

Landmark Links August 28th – The Heist

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Must Read: WeWork is offering tenant leasing brokers worldwide a 100 percent commission on the first year of rent paid by any tenant who switches to WeWork from a top competitor.  Reminder – per their own numbers provided for their bond offering earlier this year, WeWork can only be profitable if their customer acquisition cost is close to zero.  This is headed in the wrong direction and also raises major questions about organic growth at a time that they are trying to grow rapidly.

Economy

Narrowing: Will an ever-narrowing yield curve force the Fed to rethink policy?  Perhaps, but there are few signs that it will thus far.  See Also: The Fed may be about to make a mistake by overshooting on interest rates.

All About the Kids: Better job prospects near home and a growing reluctance to disrupt children’s routines prompt more people to stay put.

Commercial 

Another Bite: Mortgage bond investors have been dipping their toes back into the retail sector after having stayed away for a while.  But See: Sears is closing another 46 stores as the march to inevitable bankruptcy continues, unabated.

Winners and Losers: While many retailer’s continue to struggle, Walmart and Target are in the middle of a renaissanceSee Also: Necessity is the mother of invention – the most innovative retail concepts ever are being tested now.

Residential

Full Time Gig: Airbnb’s biggest growth driver is in units that are full time rentals rather than housing shares.  See Also: Airbnb is increasingly becoming a smart property company.

Downsizing: Back when tax reform passed, we predicted that rising interest rates and declining tax incentives (with grandfather clauses) would shut down the refinance market and lead to a mortgage industry slowdown forcing lenders to choose between downsizing and looser underwriting.  At least one major lender has chosen to downsize as Wells Fargo lays off more than 600 in its mortgage department citing declining refinance volume.

Stalling Out: A combination of high affordable housing requirements and the inability for developers to continue to pass skyrocketing construction costs on to buyers means that approved projects are increasingly sitting in limbo in San Francisco. (h/t Jeff Condon)

Profiles

Insider Trading: How a hacker network from Russia (of course) turned stolen press releases from publicly traded companies into $100MM.

The Search For Yield: Institutional lenders used to shun risky personal loans, now they are competing for them.

Timing Is Everything: A company that makes bitcoin mining hardware is about to go public at a time when bitcoin mining isn’t profitable.  Nice timing guys.

Chart of the Day

Starter home affordability has hit a decade low.

WTF

What a Relief: A Congressional candidate says that her abduction by aliens when she was younger does not define her because Florida.  I think she should aim higher and run for governor of the Sunshine State.

Kids These Days: The latest craze among high school kids is lighting themselves on fire and then uploading the video to YouTube in an attempt to gain viral fame.  As you can imagine, it hasn’t gone well.  Let me use this opportunity to remind you that there are those among us who think that lowering the voting age is a good idea.  Personally, I’d like to raise it.

Yum: The latest probiotic drink dreamed up by scientists is made from bacteria found in baby poop (h/t Steve Sims).  As someone who has been a professional diaper changer for the past 4+ years, I would rather just continue to suffer from whatever ailment this is supposed to cure.

Why Though?  There is a company making lacy bras and matching underwear for men now and apparently people are…..checks notes…..actually buying them?

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 28th – The Heist