Landmark Links July 16th – It’s a Sign?

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Must Read: Falling mortgage rates haven’t had a major impact on the housing market yet in 2019.  However, listing trends in more affordable price ranges indicate that inventory could get very tight later this year if/when buyers begin responding to lower rates.

Economy

Unsolved Mystery: The trade off between jobs and inflation – known as the Phillips Curve – has disappeared in this cycle, spurring to a rare bi-partisan call for lower interest rates.

Pushing on a String: Weak demand at recent long-term treasury auctions could be signaling a reversal in yields even as the Fed signals coming cuts.  Can an un-inversion of the yield curve be on its way?

On The Move: U.S. manufacturers are shifting production to countries outside of China as trade tensions between the world’s two biggest economies stretch into a second year. So far, the big winners have been other countries in Asia where production costs are low: Vietnam, India, Taiwan and Malaysia.  There is little evidence of any US manufacturers bringing production from China back to the US.  See Also: China’s economic growth has hit a 27-year low as the trade war takes its toll.

Commercial 

The Future is Here: Kroger has announced its 4th high-tech customer fulfillment center, focused on filling online grocery orders in conjunction with UK-based online grocer Ocado.  The 375,000 sf facility will cost $55mm to develop and is expected to open in 2021.

Just Right: Midsize industrial tenants—those who occupy 50,000-sq.-ft. to 300,000-sq.-ft. boxes, are driving industrial demand in key markets thanks largely to eCommerce and last mile distribution.

Residential

Saturated: Prices for US student housing has never been higher, rising to an average of nearly $92,000 per bed. This is largely due to the massive influx of REIT and cross-border investors who now make up 50% of the market – up from only 30% a few years ago.

No Place for Old Men: There are a lot of options for wealthy seniors when it comes to picking a place to retire.  However, those in the middle-income segment have very few choices.

Profiles

Arbitrage: Meet the nomad merchants traveling the back roads of America searching clearance aisles and dying retail chains for goods that can be resold for a higher price on Amazon.

Point and Click: The future of trucking may not be autonomous vehicles but rather remotely driven ones where driving becomes a desk job.

The Struggle is Real: Legacy consumer brands are struggling to maintain market share as upstarts leverage social media to make inroads with shoppers and the value of TV advertising plummets.

Chart of the Day

I think that this constitutes a trend, guys……

Source: Stanford

WTF

Glowing: Instagram influencers are flocking to a bright blue lake in Siberia to take pictures.  The only problem is that it isn’t a luxurious oasis.  It’s a man-made toxic waste site that the local power plant has been warning people to stay away from.  This is what happens when you mix millennials with Russians.

Sounds Like a Party: A man was arrested for driving a stolen vehicle filled with uranium, a rattlesnake and a bottle of Kentucky Deluxe whiskey because Oklahoma.

I Hear Ya: A loud fart gave away a suspect’s location and resulted in his arrest.  Let this serve as a lesson to all of you: NEVER eat at Taco Bell before committing a crime.

Hold My Beer: A man died of salmonella after eating a gecko as a stunt at a drunken party because Darwin (h/t Katie Ellis)

Additional Fiber: A woman found a small doorknob in her nachos because Taco Bell.  A test that was later run determined that the doorknob was indeed the healthiest ingredient in the nachos, leading the chain to consider adding it as an optional topping. (h/t Trevor Albrecht)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 16th – It’s a Sign?

Landmark Links July 12th – Over-Accessorized

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Must Read: Rents are rising across the country in the office sector but the cost of tenant improvements are rising much faster and landlords are increasing scope in an effort to out-amenitize their competition. For now, the result is declining landlord margins.  However, things could get much uglier when the next downturn hits and landlords have a difficult time extracting value from overbuilt TIs.  This is typical for a mature market cycle but it’s worse this time thanks to WeWork’s building specs upping the industry standard. Side note: this is why office is generally my least favorite commercial real estate product type.

Economy

Reading the Tea Leaves: A key spread in the US Treasury yield curve – the 3m10s – is now suggesting that there is nearly a 33% chance of a recession hitting the United States within the next 12-months. Domestic recession fears thanks to the US-China trade war have led to markets predicting 90% chance of 50-bps of interest rate cuts by the end of the year, and a 51% chance of 75-bps of interest rate cuts.  See Also: Fed testimony this week all but confirmed that they will be cutting rates at the next meeting.

Bottom of the Barrel: It’s not just sovereign debt yields that are plunging, NEGATIVE YIELDING JUNK BONDS are now a thing in Europe.

Sale of the Century: Returns on so-called century bonds – or those with 100-year terms – have been incredible this year with interest rates plunging.  It still shocks me that the US Treasury isn’t extending maturities as long as possible when rates are this low.

Commercial

Momentum: The LA Times has now jumped on the cold storage growth play story, reporting that rising demand for online delivery, coupled with consumer preferences for fresh food will result in additional demand for 100 million square feet of temperature-controlled warehouse in the next five years.  To give you an idea of how substantial this is, consider that CBRE estimates that the entire cold storage market in the US today consists of only 214 million square feet!

Arms Race: After years of little-to-no investment, interest in commercial property tech platforms continues to soar.

Overcrowding: One of the fastest-growing trends in retail -the food hall – has expanded exponentially over the last three years. But retail experts say some property owners are trying to force them into spaces where they are unlikely to succeed like empty retail space with little activity nearby.

Residential

Supply and Demand: The massive discrepancy in housing costs between the coasts and the Sunbelt is all about a lack of new units, not wages.  The comparison is mind-blowing:

Little giant Raleigh is now building one house for every 278 members of its workforce. Atlanta trails, but is also doing well, posting a worker to new house ratio of 457. In Seattle, one house rises for every 843 workers. And Los Angeles, a pacesetter in everything from green energy to high-speed rail to avant-garde architecture, is the superstar in suppressing new housing. One single-family home is now being built for every 3,427 resident with a job, one-seventh as many as in Atlanta and one-twelfth the number per worker as in Raleigh.

Out in Front: Construction subcontractors in the multifamily sector are raising prices in advance, even if China tariffs have not yet made an impact on materials prices, leading to the delay or cancellation of some projects.

Profiles

Sign of the Times: Millennials are driving hundreds of miles to take selfies at a stretch of highway in Ridgecrest, CA that split during the two major earthquakes last week.

Natural Solution: A new scientific study found that by far the best and cheapest way to reduce carbon in the atmosphere is to plant billions of trees in areas that currently have none.

Untouchable: Despite playing in New York and having an iconic franchise, the Knicks’ epic front office incompetence makes them a no-go-zone for elite NBA free agents.

Chart of the Day

Builders are pivoting hard towards lower priced offerings.

WTF

Flavor Town: A woman was arrested for walking into an ice cream store and urinating in an ice cream machine because Florida.

It’s Lit: A woman was photographed setting her hair on fire on a NYC subway earlier this week.  Absolutely nothing that happens on a subway in NY would even remotely surprise me at this point.

Exotic Pet: A man caught illegally feeding a wild 10-foot alligator named “Hank,” resisted arrest claiming that the animal was “a good boy” who “loves bagels” because Florida.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 12th – Over-Accessorized

Landmark Links July 9th – Flippin’ Bold

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Must Read: The inside story of how Rich Barton returned to Zillow as CEO and is attempting a major pivot to turn the company into an online house-flipping machine.

Economy

Worse Than It Appears: Despite strong headline jobs data, wage growth has been weak and other economic indicators are soft.  The reason is that underemployment is still a huge issue and, as a result, the US is substantially further from full employment than most believe.

Bounce? If the US and China are able to reach a trade war truce, we could be in for a second half growth surprise in 2019.

The Slog: Our current expansion is now the longest in history but far from the most robust.  This stat is incredible:

The total real GDP growth of 24.5 percent since June 2009 pales in comparison to the 51.7 percent of the 1960s or the 42.4 percent of the 1990s. Even if this expansion lasted another year or two, it would not equal those earlier achievements.

Commercial

Falling Behind: Despite a big investment in the Jet.com acquisition and the purchase of several web-based consumer brands, Walmart is still losing money on its eCommerce business.  In addition, its network of ecommerce distribution centers pales in comparison to rival Amazon’s and catching up would require a massive amount of new infrastructure investment.  This has resulted in tension between the online and brick and mortar divisions of Walmart.

This Will End in Tears: WeWork is reportedly preparing to raise between $3 billion and $4 billion in new debt financing before its expected IPO because why wouldn’t an overleveraged, money losing private company go further into debt before going public?

Careful What You Wish For: San Francisco’s ban of chain stores in North Beach, Chinatown and Hayes Valley has resulted in a lot of vacant store fronts and lost employment opportunities.

Residential

Pulling Back: Price appreciation has slowed across every major housing market in the US, in what JBREC is coining the Great Price deceleration.

Through the Roof: Demand for rental apartments has reached a five-year high this spring, spurred by new household formation and lagging home sales.  In other words, as long as household formation remains, people need to live somewhere.

Out of Jail? Wall Street is gearing up for the Trump administration’s plan to reform Fannie Mae and Freddie Mac and the possibility that the mortgage giants will be looking to recapitalize with massive public offerings, which could end up being the largest in history.

Profiles

Anything for an Edge: Alternative data firms are tracking private aircraft and hedge funds are buying their data in an effort to get ahead of business deals before they happen.

Over Their Skis: Sandwich chain Subway grew far beyond the demand for bad sandwiches and now franchisees are paying the price as the company attempts to right-size, often by playing a game of gotcha over trivial rule infractions with their store owners.

Up Market: How luxury weed is becoming a new status symbol.

Chart of the Day

Both residential and commercial construction spending in the US look terrible right now.

Source: The Daily Shot

WTF

Thirsty: An Instagram model is selling her used bathwater for $30 and it has already sold out mainly because guys are idiots.

Sauced: A man was arrested for pelting his girlfriend with McDonald’s sweet and sour packets because Florida.

Gateway Drug: A study from BYU found that watching porn at work makes people behave unethically.  It also found that it can cause you to grow hair on your palms and lead to blindness.

Hamburglar: A man broke into a Wendy’s, grilled a burger and stole cash out of the register because Florida.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 9th – Flippin’ Bold

Landmark Links July 2nd – Boom

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Quick Programming Note: This will be the only post for the week of July 4th since I have better things to do than write a blog on the 4th and you have better things to do than read one on the day after our nation’s birthday.  Enjoy the holiday with your family and friends and we’ll see you next week!

Must Read: In a landmark victory for property rights, the Supreme Court ruled in a 5-4 vote that developers and landowners may go directly to federal court and seek compensation for a “taking” of their property.  Previously, land owners could not sue in federal court until they had sought and been denied compensation from local officials or a state agency.  The decision is likely to have its greatest impact in California where strict regulations for development in cities and along the coast, has led to property owners repeatedly claiming that these regulations and other zoning rules have the effect of “taking” their property.

Economy

Windfall: The White House is considering an executive order to index capital gains tax to inflation.  It goes without saying that this would face a legal challenge and would also be a huge positive for the real estate industry if it holds up.

Inverse: In a major sign of deflation, some German mortgage bonds are now trading at NEGATIVE YIELDS.

Incentivized Behavior: Its not at all difficult to see the impact of the capping of SALT deductions on US migration patterns.  However, high-tax states are apparently in denial and continue to propose increases which will only make matters worse for them.

Commercial

Rise of the Machines: 5G networks are going to enable even more technology adoption in warehouses by reducing latency, improving computing and offering a digital infrastructure to support mass adoption of the Internet of Things (IoT) at a level that 4G networks could not handle.  But See: The roll-out of 5G networks will be challenging at best thanks to the massive amount of infrastructure required.

Paying Up: As institutional investors have “discovered” the student housing sector, prices have pushed upwards to record levelsBut See: CMBS loan defaults are starting to rise in the student housing sector.

Residential

Deficit: A new report from the Harvard Joint Center for Housing Studies shows that housing supply is falling far short of what is needed in the US, putting pressure on affordability.  See Also: Purchasing a median-priced home in the U.S. is a financial stretch for Americans in the majority of markets despite slowing growth in real estate prices, falling mortgage rates and rising wages.

Glut: Miami underwent a condo development boom but now there are no longer enough wealthy foreign buyers moving there to purchase them.  However, developers are hoping that Americans fleeing high-tax states will give the market a boost. (h/t Steve Sims)

Upswing: American suburbs are swelling again as rising urban housing costs have led to an exodus of young people from cities – and its often more than the ‘burbs can handle, putting strains on services.

Profiles

I Can’t Even: Wherein the Financial Times un-ironically asks if Bitcoin has joined the ranks of classic safe haven assets.

Time To Raise Interest Rates: A sneaker exchange website has raised $160MM in VC capital and is now valued at $1 billion.  I can’t believe that I just typed that.

This is Art: This Buzzfeed article about millennials and Charmin’s giant roll of toilet paper known as the Forever Roll deserves a Pulitzer.

Chart of the Day

Amazon is now its own biggest shipper.

Source: Axios

WTF

Score One For Darwin: Selfies are now five times more deadly than shark attacks because millennials.

Who Could Have Known? A man learned the hard way that mixing toxic pufferfish liver and cocaine is a horrible idea because Florida. (h/t Stone James)

I’ve Been Waiting for Someone to Do This: Arby’s is trolling vegans and Impossible Burger fans by making ‘carrots’ that are made entirely of meat.

Frivolous: A man is suing fast food chain Hardees for only giving him two hash rounds with his breakfast order, claiming that his civil rights had been violated.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 2nd – Boom

Landmark Links June 28th – Out Cold

Dont-Worry-Hes-Good-Funny-Passed-Out-Man-Image

Must Read Mortgage rates have plunged, yet the residential housing market continues to slow.

Economy

Desperate Search for Yield: Two years ago, Austria issued a 100-year bond with a 2.1% yield.  Today, that same bond is trading at only 1.2%.

Broken Correlation: In our increasingly bizarre labor market, unemployment is at generational lows yet wage gains are soft and measures of life satisfaction and happiness are down.

Flipped: Delinquencies on consumer loans are now well above those on real estate loans as the former slowly rises and the later continues to plunge.

Commercial

Culling the Herd: Retail stores have been facing waves of closure thanks to overbuilding and the rise of ecommerce.  However, what remains after the carnage should be a solid investmentSee Also: Embracing the value of evolved retail centers.

Hiding in Plain Sight: The next tech hub may not be Austin or Denver but rather greater Phoenix, which has positioned itself as the alternative to California for tech companies and entrepreneurs.

Innuendo: Vornado Realty Trust announced that it is going to name a new development “Penn15,” much to the delight of teenage boys everywhere. (h/t Rob Rader)

Residential

Time is a Flat Circle: After having vanished since 2007, , “AAA rated” HELOC mortgage bonds are back!

Sums it Up Perfectly: This quote from State Assemblymember Phil Ting of San Francisco in a Curbed article about why California can’t pass more housing legislation perfectly explains the crisis:

“If you’re a city council, the people who vote for you oppose the housing you’re creating, and you’re creating housing for the people who have yet to move in. And when they do move in, they fight the next project.”

Squeezed: As housing prices keep rising, a new study found that Americans higher and higher up the income spectrum are feeling the pinch.

Profiles

Hustle: The incredible and inspirational story of how a Frito Lay janitor with a 4th grade education invented Flamin’ Hot Cheetos and became one of the most well-respected executives in the food industry.

Til Debt Do Us Part: Couples are taking out loans to pay for their weddings.

Fighting Back: Restaurants are pushing back against high delivery company fees as more competition in the space begins to push prices down.

Charts of the Day

A tale of two housing markets.

WTF

All in the Family: A Nebraska woman who was charged with incest told a police officer that she wanted to have sex with her father because of a competition with her half sister to see who could do it first.

Exonerated: A Texas teacher was fired but won’t face charges for filming a porno in her classroom after school and posting it online.

Deodorized: You can now buy ‘scented flatulence pills’ which make farts smell like roses or chocolate.  As someone who takes pride in my ability to clear a room, I find this deeply offensive.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 28th – Out Cold

Landmark Links June 25th – Increasingly Risky

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Must Read: As discussed here previously, pension funds are allocating more capital to alternative investments – the category under which real estate falls – in an effort to generate higher returns for their beneficiaries.  However, core and core plus returns have fallen in this long recovery, leading pension funds to allocate a growing amount of capital to riskier value-add real estate investments, just as they did in the later phases of the prior economic cycle.

Economy

Crystal Ball: In the latest reminder that interest rates are impossible to predict, the 10-Year Treasury bill dropped below a 2% yield last week, a move that absolutely no one was predicting back in October 2018 when it was at 3.25%.  See Also: While US yields may be low, they are still substantially higher than most of the rest of the world.  The value of negative yielding debt has now hit a record of $12.5 trillion.

Over The Hill: Driven by the massive Baby Boomer generation aging and living longer combined with dropping birth rates, the median age in the US is now over 38.

Together Forever: Add divorce to the list of things that millennials “ruined.”  The divorce rate is at a 40-year low, unless or 55 and older.

Commercial

Ramping Up: Amazon is expanding its domestic air-cargo operation, adding smaller jets to its rented fleet to link its distribution centers and extend the reach of its next-day delivery service.

Here We Go Again: Like flies to shit, non-traded REITs are starting to seek out opportunity zone properties.

Another One Bites the Dust: In the latest example of under-performing retail being re-purposed for other uses, Lennar is buying the Santa Anita Plaza in Arcadia to turn it into a gated residential community and 11,000 sf of retail space.

Residential

Off to a Slow Start: Fannie and Freddie rolled out a program about a year ago to provide mortgages on manufactured homes as a way to focus more on affordable housing.  However, the effort has been hampered by a narrow focus and complex regulations.

Danger Zone: Three quarters of Californian voters believe that the state should restrain home building in areas at high risk of wildfires according to a UC Berkeley Institute of Governmental Studies Poll.  This sounds like an impressive number until you take a step back and realize that nearly 75% of California voters likely oppose building any housing anywhere (at least if its near where they live).  See Also: Southern California cities are rejecting the state’s push for more housing.

Overwhelmed: Flippers are completely overrunning the entry level marketSee Also: Investors are buying more of the the US housing market than ever before.

Profiles

Power Hog: A new study found that Bitcoin requires an amount of electricity that leaves it with a carbon footprint roughly the size of Las Vegas or a small country like Sri Lanka.

Cruise Control: Walmart is making a big investment in autonomous trucking aimed at adding efficiency in the “middle mile” or segment where goods are delivered from a big-box warehouse to a last-mile distribution facility.  See Also: Amazon pays incredibly low rates for trucking – to the point that some truckers refuse to work with them.

Stampede: Despite a couple of recent weak high-profile IPOs, venture capitalists have been largely vindicated when it comes to criticism of over-valued Silicon Valley unicorns.

Podcast Links 

Podcasts are pretty much all that I listen to in the car these days so I figured figured that I’d start posting some that are a particularly good listen.

John Burns on why the new housing market has run out of steam without ever really picking up in the first place.

Malcolm Gladwell on how arbitrary time constraints lead to highly arbitrary results.

Charts of the Day

The charts below lay out a great bull thesis for the lower-end apartment market:

We simply aren’t building enough units to support the nation’s household formation.

Source: The Daily Shot

That being said, first time buyers as a percentage of the population are still very low.

Source: The Daily Shot

This is exactly what an entry level market taken over by investors looks like.

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Source: John Burns Real Estate Consulting

WTF

Extra Protein: A large, dead rat fell out of the ceiling and onto a woman’s plate at a Buffalo Wild Wings in Los Angeles.

Jury Doodie: A man on trial for burglary defecated in the courtroom, threw his poop at the judge and was still acquitted because Florida.

Comedy of Errors: The manager of the Mets cursed out a reporter and a pitcher challenged that same reporter to a fight after the team’s latest loss which is about the most on-brand thing to happen in team history.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 25th – Increasingly Risky

Landmark Links June 21st – Take Aim

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Must Read: Google is attempting to aim a bazooka at the Bay Area’s housing crisis by committing $1 billion to develop 20,000 homes, much of it on company owned land.  I’ve always thought that it would be interesting to see what would happen if a developer/land owner had unlimited capital and was determined to use it regardless of NIMBY road blocks.  I guess that we are about to find out.

Economy

Long Grind: US expansions have been getting longer but slower since the 1950s.

Last In, First Out: Workers at the bottom are the last to gain from a recovery and the first to lose in a recession, yet another reason why long periods of expansion are a good thing.

Falling Like a Rock: Bond yields all over Europe are now in negative territory after some extremely dovish testimony about further stimulus by ECB president Mario Draghi.

Commercial

Slow Patch Ahead? Slowing economic growth, trade wars and a pipeline that is delivering new supply to the market may force investors to adjust return expectations for industrial properties, but it doesn’t appear to be putting much of a dent in buyer demand.

Shocking, If True: In news that absolutely no one could have ever seen coming, WeWork’s $34 billion (and quickly growing) long term lease obligations are drawing heavy scrutiny as the co-working giant pursues an IPO.  Landlords are also growing concerned and are asking the company for longer term guarantees and letters of credit as additional collateral before entering into a lease.

Sharing is Caring: An AirBNB backed developer has announced that it is building projects in Austin and Miami that are designed specifically for home sharing.  The buildings will have hotel licenses and are a way to get around city regulations against short term rentals.

Big Draw: Expensive boutique fitness studios are booming and breathing life into retail projects.

Residential

Signs of Improvement: US housing starts dropped in May but upward revisions for March and April suggest that the market may be a bit stronger than previously thought.

Its All Relative: American homes are a lot bigger than they used to be but new research finds that owners are still only happy with their house if its among the biggest in their neighborhood.

Zero Down: An increasing number of home buyers are reliant upon government down-payment assistance.

Failing Upward: Nothing unities economists on the left and right like the fact that rent control doesn’t work.  However, states and cities keep on trying it and getting the same results again, and again, and again under the misguided belief that things will work out different this time around.

Profiles

Catch 22: CalPERS has a critical choice to make – it can either use its investment capital make money for its beneficiaries or to make social statements but probably cannot accomplish both.

Annnnd, Its Gone: Inside the short, unhappy and highly dysfunctional life of the Alliance of American Football.

New Paradigm? Facebook’s new cryptocurrency called Libra could do for crypto what AOL did for internet adoption by exposing it to a whole new audience.  But See: Why Facebook’s Libra makes no sense and serves a purpose that is already better accomplished by other mediums of exchange.

Chart of the Day

Single Family Starts are soft but being offset by a bounce in multi-family starts

Source: The Daily Shot

Something has to give

Source: Pantheon Macro

WTF

Squirrelly: Police captured a methed-up “attack squirrel” that was being used as “protection” during a raid on a drug house because Alabama.  In related news, I’ve started a Change.org petition to have the meth squirrel replace the black bear as the official animal of Alabama and would appreciate it if you signed on and joined this worthy cause.

Rock Bottom? Former MLB All Star (and convicted scam artist) Lenny Dykstra was found dumpster diving behind a Jersey Mike’s sub shop last weekend because apparently rock bottom is even more difficult to find than advertised.

Kinky: Police arrested a man who stole 75 pool floats from neighborhood homes to have sex with because Florida. (h/t Stone James)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 21st – Take Aim