Landmark Links June 9th – Stuck in between

rock hard place

Lead Story: Home prices are rising but rents are going up even quicker, putting downward pressure on home ownership. High rents, combined with elevated levels of student and other debt make it difficult to save for a down payment.  Couple that with demographic changes and some demographers believe that the home ownership rate could continue to head south.  Great news for multi-family landlords, not such great news for renters who want to become owners.

Economy     

More confident: Last months’ employment report was quite strong so it stands to reason that fear of job loss, a stat kept by the NY Federal Reserve Bank hit an all-time low in May.  However, that same survey also found that workers are less confident in their wages rising over the next 12 months and respondents’ plans for future spending growth were muted as well.  On the positive side, the prime working age population (ages 25-54) is growing again after bottoming out in 2012.  This should provide economic tailwinds over the next few years.  The negatives?  Shady car title lending is on the rise again and collection agencies are dusting off their robo-signing playbook to go after student debtors.

Commercial Real Estate  

Like, totally:  A long list of investors and financial pundits have declared the American shopping mall dead since the Great Recession hit as online retail platforms continue to grow and retail chains like Radio Shack and Wet Seal declared bankruptcy.  Meanwhile, other stores like Aeropostale are reducing their store count and perpetual laggards like Sears and JC Penney always seem a quarter or two away from being put out of their misery.  However, there is some hope for the sectors as market leaders Simon Property Group, Taubman Centers and General Growth Properties are once again investing in new projects and rehabilitating existing ones.  The business plan?  Get away from cookie cutter retail model and attempt to create entertainment centers that have a sense of place and fit in with the character of the communities that they are in.  It’s a risky and expensive bet to be sure but one that, if successful, could help re-define the retail sector.

Viva Capitalism! UK property developer London & Regional is planning to invest over $500MM to develop a luxury resort in Cuba on the heels of normalizing relations between the communist country and the US.  The property will even include a golf course (the sport was banned for years in Cuba).

Residential

Race to the Moon: As noted above, it is increasingly hard to save up to buy a home when prices are rising but rents are rising faster.  In some cities, apartment rents have risen beyond nosebleed levels.  Last week Curbed ran a great piece comparing what you can rent at different price points in ridiculously expensive markets such as NY vs SF and SF vs. LA.  The conclusion?  While NY and LA are extreme, SF brings is at an entirely different level of craziness.

They may all be better than Hong Kong where 180 sf so-called “Mosquito Apartments” are selling for over $500k in some areas though.

Bloomberg ran a study that concluded that the average Millennial wage earner is now effectively priced out of major coastal California markets. Based on the above referenced study, the average Millennial living in San Jose needs to make an additional $80,162 per year in order to afford the average home mortgage there.  As stated above, rents aren’t much cheaper.

During the last cycle, rents stayed fairly stable as cheap mortgages and non-existent credit standards pushed more people into housing, causing a building boom, sending prices parabolic and making buying far more expensive than renting. This time is different, as rents are keeping pace and then some, making both owning and renting in desirable markets increasingly expensive.

Profiles

Long form Read: The Secret History of SEAL Team 6 is every bit as fascinating as one would imagine.

The Tortoise and the Hare of Hamburgers: Shake Shack is a Wall Street darling with aggressive growth projections and a $2.9 billion market cap.  In-N-Out has become an incredible, multi-generational success story and profit machine by doing exactly the opposite of what Wall Street would like them to do.

Chart of the Day

Will demographics lead to a decline in the already-following home ownership rate?

Source: The Wall Street Journal

WTF

In Preparation for PCBC: The greatest business plan in the history of humanity is now a reality.  You can now have a bus full of vitamin fluid IV packs show up the morning after a party to get rid of hangovers. I would love to say that Landmark will be sponsoring one of these in the near future but need to do some research on the liability associated with a marketing event that involves guests being poked with needles.

Meet the Coolest High School Principal on Earth: He offered strip club trips in exchange for good grades.  For some reason, people got pissed.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 9th – Stuck in between

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