Landmark Links November 17th – Winner Winner Chicken Dinner

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Lead Story…. I’ve spent the last couple of weeks writing about how challenging it is to accomplish substantial, positive tax reform and also noting how the current proposal would have substantial negative effects on an already un-affordable housing market – especially in major west coast cities.

Today, I want to take a look at this issue from the prospective of another group: the commercial real estate industry. While those in the residential real estate industry are nearly universally unhappy with the reform proposal, their commercial real estate brethren are singing a far different tune.  For the past several months, there was more than a bit of concern in the commercial real estate world that several favorable tax provisions could get phased out or removed completely in a tax reform proposal.  These provisions include:

  1. The 1031 exchange which enables sellers of investment properties to defer capital gains taxes upon sale by investing the proceeds in certain types of properties.
  2. The ability to write off interest on debt secured by investment property.
  3. The preferential treatment for carried interest that is taxed as capital gains rather than ordinary income.

Those in the commercial real estate industry can breathe a sigh of relief – at least for now – as they appear to have dodged a proverbial bullet.  As it turns out, none of these provisions are under attack in the current iteration of either the House or Senate proposal – the only partial exception being that capital gains treatment would be confined to profits earned from assets held for three years or more as opposed to today’s 12 months.  In fact, there are some new proposals that would actually benefit owners of commercial real estate more than under today’s tax code.  Peter Grant of the Wall Street Journal addressed the impact of beneficial provisions within the tax reform proposal in an article this week.  From the WSJ (emphasis mine):

Owners of office buildings, malls, warehouses and other commercial property would benefit from lower taxes on their profits and would be able to avoid a 30% limit on deductions for interest expense that would be imposed on other businesses, based on two separate bills originating in the House and the Senate.

The Senate bill, unveiled last week, also would shorten the depreciation period for commercial property to 25 years from 39 years.

……..

Both bills would make investing in real estate businesses more attractive, regardless of how the businesses are structured. Many private real-estate businesses are taxed under the so-called pass-through provisions of the tax law. In other words, there is no tax on corporate income. Rather, income is passed through to the personal tax returns of the property owner. Currently the top rate on pass-through income generally is the personal rate maximum of 39.6%.

Under the House bill, the pass-through rate for real-estate income would drop to 35.2%, but the rate would go down to roughly 25% if it is passive income—generally the kind earned from people who aren’t involved in running the business—which rent often is. Under the Senate bill, the maximum pass through for real estate would drop to 32.7%, according to Mr. Rosenthal.

The House bill would tax dividends paid by real-estate investment trusts at a reduced 25% rate, according to Nareit, the industry trade association. Under the Senate bill, REIT dividends would be taxed effectively at a maximum 31.8% rate, Nareit said.

So, why the favoritism for commercial or residential?  There is some speculation that it is at least in part intended to roll back punitive tax reform provisions enacted in the 1980s that had a negative impact on the industry.  More from Peter Grant at the Wall Street Journal (emphasis mine):

At the same time, the preferential treatment of commercial property helps rectify what many in the industry considered a major affront delivered by the Tax Reform Act of 1986. That law outraged many in the industry partly by limiting the use of so-called passive losses, like those coming from investments in real estate by doctors and dentists.

These proposals come at an interesting time for the real estate industry.  Commercial real estate in the US is almost universally acknowledged to be late in the cycle.  The tax reform proposal could prove to be a shot in the arm which could extend that cycle further.  Residential has experienced massive increases in value in some markets but is still relatively subdued on a nationwide basis, especially when it comes to starts and sales of new units.  I think it’s fair to say that there is nothing in the proposed tax proposals that will incentivize more much-needed residential construction.   The legislative pendulum has been solidly on the side of incentivizing home ownership over commercial real estate investment since at least 1986.  The tax reform proposals are a potential signal that the pendulum may be swinging the other way whether they pass or not.  All of which brings up a potential conundrum for California – Federal tax policy incentives could be aligning to force a change to the ultimate sacred cow of California politics – Prop 13.  I’ll address that next week.

Economy

Pity Party: Credit Suisse expressed sympathy for Millennials in their latest Global Wealth Report:

“They faced the rigors of the financial crisis… and have also been widely hammered by high and rising house prices, rising student debt and increasing inequality. Millennials are not only likely to experience greater challenges in building their wealth over time, but also greater wealth inequality than previous generations.”

Proceed with Caution: US household debt has reached another new record and some delinquency rates are beginning to riseSee Also: Credit card delinquencies are on the rise.

Commercial

Hello, Fellow Kids: Mall developers are aggressively enticing online retailers with discounted rent and favorable lease terms in an effort to appeal to a younger crowd. However, tenants are proving to be rather picky about where they locate, favoring class A malls in close proximity to existing customers.  See Also: Brookfield’s $14.8 billion bid to buy the rest of GGP is fueling expectations that other operators of so-called class-A malls are becoming acquisition targets. And: The Brookfield GGP bid has mall short sellers feeling some pain for the first time in a while.

Discount Rack: PIMCO thinks that REITs are one of the few type of equities that are still undervalued.

Residential

Slim Pickens: I’ve written a bit about why west coast cities have more affordability issues than east coast cities recently.  Here’s another example: NYC has 388 condos currently for sale for less than $500k; Seattle has just 5.

Overwhelming: Pretty much everyone agrees that California has an affordability problem yet the people most engaged on the local level where approvals must be obtained are those that oppose new housing the strongest:

While a few groups don’t want to see more housing, 9 out of 10 adults believe housing affordability is a problem in their part of California, that includes 92 percent of African-Americans, 85 percent of Asians, 86 percent of Latinos, and 88 percent of whites. The Bay Area is bleeding the most where 93 percent say it’s a problem, 90 percent in Los Angeles, 88 percent in Orange/San Diego, 81 percent in the Inland Empire, 79 percent Central Valley.

We’re Number 1: Los Angeles-Long Beach-Glendale has unseated San Francisco-Redwood City-South San Francisco as the least affordable housing market in the US according to the latest NAHB-Wells Fargo Housing Opportunity Index.  Just 9.1% of the homes sold during the 3rd quarter in the region were affordable to families earning the area’s median income of $64,300.  The San Francisco region, which had held the top spot for 19 consecutive quarters fell to number 2.

Profiles

Shocking Headline of 2017: ‘Market manipulation 101’: ‘Wolf of Wall Street’-style ‘pump and dump’ scams plague cryptocurrency markets. “I never saw that coming” – No One

Oh, Hell NO: The fanny pack is apparently making a comeback.  Can cargo pants aren’t far behind?

Bold Vision: Bill Gate just purchased a 24,800-acre parcel of land on the Phoenix area’s western edge with the intent to apparently build a “smart city”.

Chart of the Day

Declining Fortunes

WTF

Inspirational AF: An Alabama man who said he tripped and broke his hip while buying a watermelon at a Walmart store has won a $7.5 million verdict in his lawsuit against the retailer.  Looks like he’ll finally be able to afford that Roll Tide vanity plate for his pickup.

It’s Nice! Six Borat fan tourists were arrested for wearing mankinis in Kazakhstan because some people just don’t have a sense of humor.

Hamburglar: A rather large Maryland woman was arrested after a security video of her breaking in through a McDonalds drive through window and stealing a bunch of their disgusting food went viral.  Bonus points for butt crack and tramp stamp footage in the video.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links November 17th – Winner Winner Chicken Dinner

Landmark Links November 14th – Disincentives

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Lead Story….. This is the final post of a three part series that I’m writing about “the middle class,” tax reform and why it is so difficult to achieve in today’s environment.

Primum non nocere is a Latin phrase that means “first, do no harm.”  It is often incorrectly attributed to the Hippocratic Oath which many medical school students take before they become doctors.  Unfortunately politicians, in addition to doctors, are not required to take such an oath before taking office.  If they did, perhaps some of our laws would be more beneficial to society as a whole.  Take for example the latest tax reform proposal and the impact that it would have on high cost housing markets.  Virtually every high priced housing market in the US (certainly on the west coast) has a problem – too little inventory is driving prices up to the moon.  Not enough new, desirable product is being constructed to entice move-up buyers to sell their house and upgrade.  As a result, spending on renovations is through the roof (it’s a great time to be a Home Depot stockholder!) and resale inventory is at historically low levels.  Given the above, and it’s impact on an affordability crisis and growing homeless population, one would think any new tax proposal should have incentives to increase inventory of both rental and for-sale housing – or at the very least not contain provisions that would explicitly create incentives to drive resale inventory even lower.  Sadly, one would be wrong.

Merrill Lynch came out with a timely research note a couple of weeks back about the concept of tax cuts “paying for themselves.”  It’s important commentary because it focuses on the notion of incentives and how they determine the effectiveness (or lack of effectiveness) in tax policy achieving it’s stated objectives.  From Merrill Lynch (emphasis mine):

“President Clinton worked with Republicans and cut the capital-gains tax rate from 28% to 20% in 1997. Capital-gains tax cuts are among the most likely to generate greater revenues because taking a capital gain is optional. If the tax on the gain is 20%, you are more likely to realize the gain and pay taxes than if the tax rate is 90%. If you don’t take the gain, there are no tax revenues. The booming stock market in the late 1990s generated a wealth of potential gains, and more were realized at lower tax rates. While it is common to hear pundits in the financial media say something to the effect that “no respectable economist believes that tax cuts can pay for themselves,” the late-1990s experience is a case study in why “respectable” economists are so often wrong. Indeed, that was the last time that the U.S. government ran a fiscal surplus and the bounty of capital-gains revenues was a major factor behind the budget surpluses of the late 1990s.”

When taking a look at the current bill as proposed, ask yourself: what type of behavior does it encourage and what do it discourage?  When it comes to housing policy, the answer should be obvious.  The tax bill as proposed by House Republicans would be an absolute catastrophe for housing, especially in high priced markets where it would undoubtedly hurt the so-called “middle class” that politicians of all stripes profess to want to help (side note – this post is only addressing market rate for sale housing – but things do not look positive or subsidized affordable development either).

The provisions that would most impact housing affordability in high cost markets are:

  1. Property tax deductions will be capped at $10,000
  2. The $500k capital gains exemption currently available to those who sell a house that they have lived in for 2 of the last 5 years will now only be available to those who have lived in their house for 5 of the last 8 years.
  3. The mortgage interest deduction will be lowered from interest deductability on a home loan of up to $1 million to interest deductability on a home loan of up to $500k

Point one above would make owning a home less affordable in high cost (ie California) or high tax (ie New Jersey) markets.  However, since there is no grandfather clause for existing owners, it is unlikely to have a material impact on the housing shortage, IMO.  I wish that I could say the same for the other two provisions.

The supply problem that we face today is brought on by two factors that are limiting mobility: 1) There aren’t very many units being built; and 2) People don’t move as frequently as they used to.  As recently as the mid-2000s, Americans moved every 6 years on average.  Today, that average has increased to nearly 10 years.  When people move, they tend to make other large purchases which act to stimulate the economy, while opening up entry-level units for others.  Having good housing mobility is generally good for the economy – not just realtors and home builders – which is part of the reason that it’s been incentive in the tax code.  However, extending the capital gains exemption time-frame and reducing the mortgage deduction as noted in points 2 and 3 above would reduce, not increase mobility.

First, let’s look at the capital gains exemption.  The new provision of requiring people to live in their house for 5 of the last 8 years before being eligible explicitly incentivizes home owners not to move as frequently.  However, as stated above, mobility has been falling for the past decade.  This provision will simply give would-be movers a reason to hold on for a few more years in order to take advantage of the tax break rather than selling today.

Second, let’s look at the consequences of lowering the mortgage interest deduction.  It may be hard to believe for those who live in other parts of the country, but it’s nearly impossible to find a home that’s more than a studio for $500k in many high priced coastal regions.  The immediate impact is simply that this provision would negatively impact the affordability of a house in a high priced area and make renting more attractive on a dollar-for-dollar basis.  However, that’s not the aspect of this provision that I think will lead to reduced inventory.  The mortgage write off reduction comes with a grandfather clause that keeps the deduction at a $1MM cap for those who already own a home.  Homeowners who are grandfathered in will be able to keep the cap until they either sell and buy a new home or refinance their existing home.  It’s already expensive enough in many markets to sell a home and trade up.  Typically that move comes with a increased basis, higher mortgage payment and a new higher tax bill (especially with Prop 13).  This is yet another reason to do nothing and stay put.  Laura Kusisto, Christina Rexrode and Chris Kirkham addressed the likely fallout recently in the Wall Street Journal (emphasis mine):

Economists said the changes come at a sensitive time for the housing industry.

Single-family home prices rose on an annual basis in 92% of 177 U.S. metropolitan areas in the third quarter, according to a Thursday report from the NAR. That was the largest share of metros notching price gains in more than two years.

But the gains were driven by a shortage of homes for sale. At the end of the third quarter, there were 1.9 million homes on the market, 6.4% fewer than the same period last year. The average supply during the third quarter was 4.2 months, down from 4.6 months a year earlier. Economists say six months is typical of a balanced market.

“We have affordability issues as it is. If you make it more difficult for people to put money toward the house, or take away the economic benefits of them owning a house, it really, really could be a major problem,” said Rick Sharga, executive vice president of Ten-X, an online marketplace for real estate.

Mr. Howard of the NAHB said the tax overhaul could cause a housing recession because of a potential drop in home values. States with high housing costs, including California, where more than a third of homes are valued above $500,000, would be particularly hard hit, he said.

“Republicans have always claimed that they don’t want to pick winners and losers in the economy,” he said. “They are clearly picking large corporations over small businesses, and they are clearly picking wealthy Americans over the middle class.”

To be sure, the $500,000 cap on the mortgage interest deduction would apply only to loans made after Nov. 2, which protects existing homeowners. But experts said that is likely to exacerbate the current stagnation in the housing market.

Homeowners in high-cost cities like New York, Boston, Los Angeles, San Francisco and parts of Miami are less likely to trade up to larger, more expensive homes if they know that means losing the protection on the mortgage interest deduction, which in turn makes it difficult for younger buyers to enter the market.

“In those expensive markets that already have an inventory crunch it’s probably going to make the situation worse,” said Ralph McLaughlin, chief economist at Trulia. He said this is likely to drive up prices.

I tend to think that the initial response, should this be signed into law may be a relatively small decline in prices.  However, I would also guess that the intermediate to long term consequences are less inventory, lower affordability and ultimately higher housing costs.  To be 100% clear, we do indeed over-incentivize home ownership in many ways under the current tax code.  In fact, I would propose that if we were starting the tax code from scratch there are elements of the new proposal that make more sense than what is currently in place.  However, politicians have to deal with conditions in the real world, not an idealized version.  As such, making these sort of sweeping tax reforms at a time when we are already facing an unprecedented housing affordability crisis is just bad policy.  And, damn I wish that I owned stock in Home Depot right now.

Economy

Push and Pull: The US unemployment rate fell to 4.1% in October, marking a new cycle low.  Inflation has been tame though which has kept the Fed from being too aggressive in hiking rates and leading to speculation about the reliability of the Phillips Curve (the relationship between unemployment and inflation).  However, look for more aggressive rate hikes if unemployment falls much below 4%.

Area of Concern: Overnight index swaps suggest the economy will be weak enough a year from now to warrant rate cuts.

Playing Catch Up: Wage growth is subdued in the US due to deceleration at the top end masking acceleration at the bottom end of the scale.

Commercial

Office Space: The personal computer was supposed to kill the office and liberate us from hellish commutes to the city. But the average American commute has only increased since then.  Could virtual reality reverse this trend?

Breaking Up is Hard to Do: The bat-shit crazy and incredibly expensive Harry and Linda Maclowe divorce proceedings are a reminder that there ain’t no divorce like a billionaire developer divorce.

Residential

Out on Their Own: New data shows that the trend of Millennials leaving their parents basements to buy homes of their own shows no sign of abating.

Dragged Down: Job growth is continuing to slow in the most expensive residential markets in the US.  Turns out it’s hard to work where you can’t afford to live.  Who knew?

Profiles

Oops: $300 million in cryptocurrency was accidentally lost forever thanks to a bug.  Fear not though, this is a stable asset class that will prove to be a tremendous store of value in the long run.

Race to the Bottom: Researchers at the Cleveland Fed think that peer-to-peer loans have deteriorated to the point that they are starting to resemble subprime loans during the mortgage crisis.

Where in the World? Jet-set debt collectors join a lucrative game – hunting the super rich who owe millions.

All the Cool Kids: The retail worker of the future will be cool, charismatic and better paid as successful retailers emphasize in-store experience.

Chart of the Day

How Many Hours Americans Need to Work to Pay Their Mortgage

Source: Visual Capitalist

WTF

Hot Boxed: A Kansas City man facing federal gun and drug charges ended a police interview by ripping massive farts. I have no clue whether he’s innocent or guilty but this epic:

According to the Kansas City Star newspaper, a detective’s report said Mr Sykes “leaned to one side of his chair and released a loud fart” when asked for his address by police while being interviewed in September.

“Mr Sykes continued to be flatulent and I ended the interview,” the detective wrote after recovering.

Night Out on the Town: A group of naked people rampaged through Missouri town, breaking into buildings, barking and showering in soda water because, drugs.

Gotta Hear Both Sides: An Oklahoma man who taped adult magazines to his body for protection was arrested for trying to stab an ex-neighbor. (h/t Ty Reed)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links November 14th – Disincentives

Landmark Links November 10th – Disconnected

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Lead Story…. This is Part II of a three part series that I’m writing about “the middle class,” tax reform and why it is so difficult to achieve in today’s environment.

My post on Tuesday of this week focused on how it’s essentially become impossible to craft policy to benefit the middle class on a nationwide basis due to massive regional inequality.  I concluded that post by saying that there were steps that could have been (and still can be) taken to mitigate the high housing cost and high barrier to entry issues that plague so many of our vibrant large cities.  If you read that and assumed that my solution was something along the lines of “build baby build” you would be correct…..but only partially.  To be clear, we do need a lot more housing units in our urban cores, – especially on the west coast –  and it will be impossible to craft a long term solution to the housing affordability crisis without a substantial ramp up in construction of additional units.  However, there is another element essential to maintaining a vibrant middle class in a dynamic, global city that often gets overlooked: infrastructure.  When discussing how regional inequality distorts the middle class, a common argument is that people do not need to live in San Francisco, Beverly Hills Beach or Manhattan.  This is correct and is also the reason that I think it’s better to gauge middle class by county rather than city or zip code.  However, moving further away from the urban core while still having the ability to utilize it is far easier said than done in some regions – unless, of course you don’t have an issue with 3 hour commutes.

When confronted about their opposition to development, a common retort from NIMBY’s is to point out that Manhattan is incredibly dense and still incredibly expensive.  While this argument has merit, it also misses a larger point: New York City does not have a middle class crisis – at least not in the same way that coastal cities in California do and the reason is infrastructure.  Justin Krause made this case very effectively in a post on Medium entitled How To Save San Francisco (emphasis mine):

New York City has faced similar problems — economic booms, affordability crises, and bodies of water. And while nobody would say New York has solved all of its problems, it has done better in a key area: diversity. In fact, it may be getting more diverse.

Teachers, fire-fighters, artists, and people in different income brackets can find housing in New York. They may not be in Soho, but they are accessible to the urban core. This is the key difference between San Francisco and New York: New York has a broader range of housing that is integrated.

It’s not just about affordability, it’s about integration.

Take a look at the maps below. Both New York and San Francisco have expensive cores, with one bedroom units fetching rents of $3k+. But both also have less expensive areas, mostly across bodies of water. In New York, you can find a one bedroom in Bushwick for $1k per month. In the Bay Area, you can find similar deals in parts of the East Bay and pockets of the Peninsula.

But in New York, if you live in Bushwick, you are still in New York. If you live in the East Bay or even in Daly City, you aren’t in San Francisco.

The next maps show places you can reach using public transportation within 45 minutes. If you live in Bushwick, you can access a large swathe of Manhattan and Brooklyn. In the Bay Area, you’re unlikely to have easy access to San Francisco at all if you’re not in San Francisco proper.

This is not to say that NYC doesn’t have any problems of it’s own.  I’ve been there a couple of times in the last few months and that’s far from the case.  New York is currently massively overbuilt in the high-end condo space, it’s mass transit is governed by an alphabet soup of competing city and state agencies that are often at odds with each other and much of it’s prime retail space has become a ghost town thanks to landlords pushing rents to levels that are completely unsustainable.  Still, NYC is able to maintain a large, economically diverse population while San Francisco, Los Angeles and other west coast cities increasingly are not and the reason is that NYC’s infrastructure is far better and the region is far more integrated.  Krause explains why this is the case (emphasis mine):

It’s true that the San Francisco Bay is bigger than the East River. And Brooklyn is denser, with more rental units, than many Bay Area cities. And, crucially, that “San Francisco” isn’t the only urban core in the Bay Area (Oakland and San Jose are also urban cores).

But the simple fact is that in New York you have the option of moving to a less expensive “fringe,” still accessible to your friends, work, and community. In San Francisco, you have the option of moving to a different city — a different community, entirely. And that’s not an option at all.

Options don’t exist because the Bay Area is not integrated. BART, the entity that should connect us, doesn’t. It doesn’t go to San Jose or North Bay. It’s very expensive and doesn’t offer a monthly pass. It barely runs at night. We’re talking about building bullet trains and hyper-loops to Los Angeles, but there is no easy way to get from Oakland to Palo Alto. Or most of San Francisco to San Jose. Or North Bay to anywhere. Even commuting from Oakland to most of San Francisco is difficult and expensive. In fact, according to SPUR, no new transportation capacity has been added across the Bay since BART’s transbay tube opened in 1972.

Transit has gotten so bad that tech companies are contracting private bus fleets. This is the opposite of openness and integration.

It seems absurd, but this is the choice that we’ve made. Expanding and improving regional transportation to better integrate the Bay Area isn’t rocket science— it simply requires cash, commitment, and political will.

The Bay Area has cash. It’s the second two pieces that are missing. But it’s not necessarily intentional; it’s a function how we’re governed.

In New York, Los Angeles, and Chicago, communities are tied together under central leadership. Powerful mayors can address systematic issues broadly and holistically. And citizens have someone they can hold accountable.

In the Bay Area, we have a collection of fiefdoms. Villages are parading as cities, addressing problems myopically. For example, Brisbane (a city of 5,000 people between San Francisco and SFO) is currently blocking a large housing development for local reasons. It’s NIMBY-ism on a broad scale – a regional tragedy of the commons.

Decentralized decision-making and local governance are important, but a complete lack of high level vision and executive authority is hurting all Bay Area cities (including Brisbane). All Bay Area cities are struggling with housing and affordability. All Bay Area cities are worried about fraying community, rising inequality, and how to manage change.

We’re facing regional problems, but we don’t have regional leadership or an effective regional plan for fixing them. San Francisco, Oakland, and San Jose can only do so much on their own. We need a commitment and a strategy that encompasses the entire neighborhood.

The article quoted about is about the Bay Area but could just as easily be about greater Los Angeles.  Every small city in these regions declines to deal with the housing crisis and claims that providing more units is the job of it’s neighbors.  Also, the region isn’t well connected because mass transit is mostly expensive crap.  It’s relatively easy and cheap to commute in NYC even if you are coming to Manhattan or Brooklyn from a far-flung neighborhood or even a neighboring state.  In the Bay Area or LA, a middle class commuter may have to drive for hours in order to reach a price point that they can afford.  This is one of the primary reasons that regional inequality has gotten so bad along the west coast.  People and business want to be here but no one can afford to move here except for high earners, leading to an ever-upward skew in median incomes, home prices and rents.

Perhaps the most unfortunate part about this state of affairs is that the problem could be addressed if leadership was merely competent.  California is spending billions of dollars on a bullet train that will initially take (very few) riders from nowhere (Bakersfield) to nowhere (Fresno).  Our leaders are pushing this because it’s a large, sexy, legacy type of project if it can ever be completed, linking LA and San Francisco.  However, our regional infrastructure is absolute garbage.  Improving light rail, commuter rail and subways may not be sexy or legacy-defining for politicians but it is actually substantially more environmentally friendly than a largely un-needed bullet train and would make our cities far more efficient. It would also allow for development in more far-flung suburbs where land is cheaper and blue collar workers could actually afford to rent or buy which would help to alleviate many of the issues that have exacerbated cost of living pressures and pushed regional inequality to record levels.  Functional infrastructure would not bring the cost of living in San Francisco and LA in line with rust belt cities like Cleveland – we’re way past the point of no return on that one – but it would go a long way towards reversing the cost of living spiral that we now find ourselves in.  A spiral that could be exaggerated further under the new tax reform proposal.

Economy

How Low Can You Go?  The yield curve is now at it’s flattest level in a decade and doesn’t look poised to reverse course anytime soon with the Fed widely expected to raise short term rates again in December.  The reason for the flattening is being hotly debated between those who think that the long end of the curve is overvalued and those who think that the Fed is running out of room to raise rates further.

The Slog: Jeremy Grantham of GMO is famous for correctly predicting the last two crashes.  However, this time around he thinks that asset valuations are rich but that they may take decades of subpar returns to slowly come back to the long term average rather than crash.

Commercial

Only the Beginning? The retail apocalypse could just be getting started as high yield debt maturities from retailers begin to pile up:

Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.

The Squeeze: Rising labor inputs, rents, and a recent uptick in commodity prices are going to force restaurants to start passing more costs on to customers or face  deterioration in their already slim margins.

Residential

Sea Change Coming? Home ownership has risen to its highest levels since 2014, driven largely by Millennials and causing analysts and investors to wonder whether the rental market’s good times are ending.  See Also: Where people spend the most and lease on rent in America.

NIMBY Consequences: This is so incredibly sad and is a direct result of NIMBYs preventing necessary housing from getting built:

“I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing,” said Seattle City Councilman Mike O’Brien. “There’s nowhere for these folks to move to. Every time we open up a new place, it fills up.”

Profiles

Dud: Eight months after Snapchat went public the company is a train wreck with Facebook poaching it’s most popular features for it’s larger user base and declining growth prospects.

Accretive: The surprisingly compelling case for Apple to buy Netflix in order to compete with Amazon in the original content and streaming video space.13102550_1187025494654529_535629253_n

Chart of the Day

Retail Distress

Retail Lender Concentration

WTF

There Goes the Neighborhood: A Nebraska man was arrested for hiring hookers and strippers to strip on his neighbors porch at least 75 times since 2013 while he watched from his house across the street.  Where I come from, this is typically referred to as being a good neighbor. (h/t Scott Barnard)

….Or Are You Just Happy to See Me? Police in Germany found a python in a drunken man’s pants after he was arrested for getting in a fight.  The pickup lines pretty much write themselves.  (h/t Steve Sims)

Resourceful: A Duncan Donuts worker in Denver was busted selling meth and heroin in addition to donuts while on the job.  Sounds like a great way to make some extra cash.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links November 10th – Disconnected

Landmark Links November 7th – Missing the Middle

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Lead Story…. This is Part I of a three part series that I’m writing about tax reform and why it is so difficult to achieve in today’s environment.

There is a new tax reform proposal making it’s way around Washington which means that the silly season for misinformed statements about what constitutes “the middle class” is upon us.  This debate has been going on for years and, over the next few weeks you are about to hear how every aspect of the tax reform proposal or today’s current tax structure either helps or screws the middle class. An unsolicited word of advice for all of you: ignore the rhetoric that is being spewed on this issue.  Why?  First off, it’s almost all politically charged nonsense primarily because there really is no middle class – at least not in the sense that the politicians would have you believe.

What makes me say that?  Primarily about regional inequality.  There was once a national middle class but, in today’s world, the concept doesn’t work very well on a national level.  Let’s look at things on a historical basis first.  I’ll use California and Ohio as examples.  I’m also going to use housing as the first example.  As early as the 1950s median home prices in California were only 15% greater than those in Ohio.  Even as late as the 1970s the median California home was only 31% more expensive than the median Ohio home.  However, today, those numbers are far different.  Per Zillow, current median home value in Ohio is $128,700 and current median home value in California is $509,600, a whopping 296% premium.  Keep in mind that these numbers are state averages and become much more dramatic if you were to look at a region like San Francisco or LA where median prices are nearly double the statewide average versus, say Cleveland.

What about median household income?  I was only able to get data that went back to 1989 but in this case I was able to get a bit more state specific by comparing San Francisco County, CA to Cuyahoga County (Cleveland), Ohio thanks to The St. Louis Fed’s excellent FRED economic research tool.  In 1989 median household income was around $28,262 in Cuyahoga County and $30,166 in San Francisco County, a difference of around 7%.  By 2015 households in San Francisco were making a median $90,527 while Cuyahoga residents were making only $45,506 or a difference of 99%.  My broader point here is that it was far easier to craft tax policy that centered around helping the middle class in the 1950s through the early 1990s because regional differences were relatively minor.  Any Federal tax reform impacted your average San Franciscan and average Clevelander roughly the same.  That isn’t close to the case today.

Heather Long of the Washington Post took one of the more honest and straight forward looks at the middle class question in an article entitled Is $100,000 middle class in America? (emphasis mine):

The majority of Americans — 62 percent — identify as “middle class,” according to a Gallup poll conducted in June. It’s the highest percentage of people feeling that way since 2003. But a lot of Americans are like Osegueda: They feel middle class, but they aren’t sure what it means.

Just who exactly is middle class is in the national spotlight again as President Trump and Republicans in Congress craft tax cuts for individuals and corporations that they say will primarily benefit the middle. Vice President Pence called the plan, which is still being fleshed out, a “middle class miracle” this week. But amid this discussion, the middle class has been defined in different ways. Gary Cohn, Trump’s top economic adviser, recently discussed how a “typical family” making $100,000 a year would benefit. Trump has espoused the value of the plan to truckers, who make around $41,000 a year.

So what is the middle class? In America, an income of $59,000 a year (before tax) is smack dab in the middle, according to the U.S. Census. But it’s not that simple.

There is no exact definition of middle class, and a deep look at the data shows a wide variety of individuals could be part of it, depending on where they live and how big their family is. The middle class in San Francisco, where Osegueda lives, is not the same as it is in Peoria, Ill.

The WAPO article contains a tool where you can put in your annual household income and county of residence and it will spit out the range of what could be considered middle class for that region. The results are quite striking: middle class in the lowest income counties ranges from $18,138 – $66,250 in household income.  However, in the highest income counties it ranges from $43,402 – $127,633 and goes up substantially more than that in regions like San Francisco and New York.  With spreads that large, it’s no wonder that politicians are so comfortable making claims about what helps or hurts the middle class – pretty much every argument is technically correct depending on what regional demographic they are referring to.  In other words, it’s a magnet for bullshit.

The United States has always has some degree of regional inequality but it has reached extreme levels in recent years.  It’s nearly impossible to craft effective Federal tax policy  that doesn’t advantage someone in Cleveland over someone in San Francisco or vice versa.  What’s worse is that a lot of this was avoidable.  Sure, dynamic economic engines like San Francisco, NY and LA were always going to draw more people in today’s dynamic global economy at the expense of old rust belt cities like Cleveland but there are certain aspects that could be handled much better to avoid the point that we have arrived at today.  That will be the topic of part II of this series.

Economy

Beyond Repair? The historical relationship between unemployment and inflation, known as the Phillips Curve, has broken down in recent years.

Timely Reminder: “When volatility is low, risk is actually rising because people are more emboldened to take on higher leverage and to move to riskier assets.” – Richard Bookstaber

Clear Ahead? Macro data is still showing relatively low risk of an imminent recession.

Commercial

This Will Not End Well: The restaurant boom, largely heralded as a savior for the beleaguered retail sector has fizzled out:

Customers continue to spend a large share of their food budget in restaurants, but they’re spreading the money across a larger number of establishments, so profits are split into smaller individual pieces. Yet the industry — particularly chain restaurants — continues to expand, a strategy that both masks the problem and makes it likely that more places will falter.

See Also: Food delivery apps have led to the rise of virtual restaurants with much more sustainable cost structures than legacy competitors, a potential source of demand for light industrial and another hit to retail.

Residential

Uh Oh: The GOP tax plan could hit the country’s most expensive housing markets hard thanks to a lower mortgage deduction cap and the elimination of state and local tax deductions.

Shrinkage: New Seattle apartments have shrunk almost 30% in size over the last 15 years.

It Was the Best of Times, It Was the Worst of Times: Generally speaking, it’s a great time to be a multi-family or single family landlord in coastal California.  Not so much if you’re a tenant.

Profiles

Welcome to the Futures: The CME announced plans to launch Bitcoin futures last week after dismissing the idea just a month earlier, likely meaning that ETFs are not far behind.  See Also: One bitcoin transaction now uses as much energy as your house in a week.

Arbitrage: Meet the 28-year old who founded a company that is making millions buying clearance items from Walmart and re-selling them on Amazon.  Somehow I don’t think I’d want this publicized if I were doing it in any sort of scale.

Me IRL: New research has shown that people like dogs more than they like other humans.

No Kidding: Southern California ranked as the nation’s most stressful region for commuters in a recent study.

Chart of the Day

I can’t believe they went there.  Dumbest.  Chart.  Ever.

WTF

Giddy Up: A woman was arrested for DUI after riding a horse on a busy road because, Florida (h/t Beth Salamon)

The Fun Police: A court ruled that kids will no longer be able to swim with crocodiles anymore at a German zoo.  Children are way too sheltered these days, IMO.

No Justice, No Peace: A man who shot himself in the junk by accident while robbing a hot dog stand was denied bond.

What’s In A Name? P-Diddy changed his name for the 15th time.  He will now go by Brother Love.  Reminder: when you’re poor it’s called crazy.  When you’re rich it’s called eccentric.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links November 7th – Missing the Middle

Landmark Links November 3rd – Missing the Boat

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Lead Story….  The topic of affordable and entry level housing have probably consumed more pages than just about any other topic since I started writing Landmark Links a couple of years ago.  The challenge that we face is daunting.  In a normally functioning housing market, yesterday’s executive housing stock becomes today’s entry-level housing.  This relationship makes sense – newer homes should be more expensive than existing homes, all else being equal.  However, all else is not equal and the exact opposite dynamic is taking place in many markets – yesterday’s starter homes in desirable locations are becoming today’s executive housing stock as mobility slows and renovation expenditures soar.  Back in 2007, American homeowners moved every 6 years on average.  Now they move every 10 years.  This is a trend that shows no signs of reversing any time soon especially with interest rates on the rise.  Couple this with the massive number of entry level homes that were bought up by investors to use as rentals over the past few years and it’s no wonder that we have an entry level housing crisis.

The lack of existing entry level homes pushes this large potential source of home buying demand towards the only other option that perspective home buyers have – new construction.  Problem here is that the labor market is tight, commodities prices are rising and impact fees in regions with the worst shortages are generally high.  In other words, it’s really, really difficult to build entry level affordable housing.  This chart courtesy of The Wall Street Journal’s excellent Daily Shot email newsletter tells a rather disturbing story.

The “over $500k” market is showing some momentum but the “under $200k” market has essentially collapsed since the mid-aughts and that is where the vast majority of production starts and sales typically come from.  Keep in mind that these numbers are for the entire United States.  I was unable to find the data set for new homes in California when I wrote this but the median existing home value here is double and I would imagine that the ratio reflected in the chart above is substantially worse.

The bottom line is that it’s going to be incredibly difficult to build new starter homes going forward in this sort of environment.  However, this is not for a lack of trying.  Generally speaking, any new communities that are priced at the FHA limit or below (at least in California) sells much quicker (in some cases twice as fast) as product priced above it.  When I speak with builder clients, the vast majority would prefer to only build less expensive entry level homes since that’s where the demand is and quicker sales mean better returns.  However, it’s incredibly difficult to make the numbers work in an environment where discretionary approvals can drag out for years and costs continue to rise while revenues are often constrained by government mandated FHA limits.  Short of a recession, the only way that the trend will reverse is through easing of immigration restrictions to help with the construction cost inflation issue and weakening the discretionary approval authority that local communities wield over new development.  Unfortunately, neither of these is likely to be politically palatable for the foreseeable future.  The end result, of course is this – rent is now eating up record share of US disposable income:

Economy

Disconnect: Many of the usual economic gauges are proving to be untrustworthy in this cycle, casting doubt about how the economy is actually doing.

Nothing Left Over: The US savings rate is at it’s lowest point since 2007 and getting it higher again could be a painful process.

The Bubble that Wasn’t: Why Treasuries are not a bubble despite predictions of doom and gloom in the years after the Great Recession.

Commercial

Saturated: There are far too many chain and fast food restaurants in the US today and Wall Street’s insatiable appetite for growth has a lot to do with it.

Everyone is a Competitor: Private equity firm Pitchbook estimates that Amazon competes head-to-head with at least 129 major corporations, a number that will only grow as new business lines are added.  There is a precedent for this and it doesn’t end well.

Residential

Hunker Down: A combination of a lack of new home construction and baby boomers staying healthier lAter in life has US homeowners’ mobility rate at a 30-year low and renovations at an all-time high.

Vultures Descend: Distressed investors are already buying damaged Houston homes for 40 cents on the dollar.

Bubble Watch – Negative: Calculated Risk’s Bill McBride says that we aren’t in a housing bubble due mostly to a lack of speculative mania…..but that housing is likely overvalued.

Strange Bedfellows: The unexpected but logical nexus between urban infill developers and environmentalists.

Profiles

No End In Site: PetroChina is the largest single stock collapse in history, having shed $800 billion in value since coming public in 2007.  Given oil’s current price and China’s policy of pushing for adoption of electric car technology, things could still get worse from here. 

This Ends in Tears: Rampant celebrity endorsement of Initial Coin Offerings have to be the most blatant bubble warning in history, especially when they involve a couple of young former con artists from Miami. See Also: Bitcoin mania has students flocking to crypto currency classes at Stanford and other top computer science schools.

The Highs are Too Damn Taxed: California will start taxing legalized pot as much as 45% which could be high enough to keep the black market in business.  When surveyed, 9 out of 10 economists agreed that this consumption tax is a blunt tool.

Chart of the Day

Source: The Daily Shot

WTF

Gotta Hear Both Sides: Police in Vermont arrested a man wearing a clown costume who was intoxicated and in possession of cocaine when he decided to pass out in the bedroom of a stranger’s house.

Make it Rain: Strippers are going on strike in New York to protest bottle girls stealing their tips. (h/t Elizabeth Poston)

Idiot Proof: Salzburg, Austria has taken to covering lampposts in airbags in order to prevent ‘smartphone zombies’ from getting hurt when they bump into them.

Goals AF: An dog survived a bear attack due to the fact that it was extremely obese because, Florida.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links November 3rd – Missing the Boat

Landmark Links October 31st – Get Pumped

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Lead Story… For the most part, I try to stick to data and facts and avoid anecdotal evidence when observing the real estate market.  However, sometimes a piece of anecdotal evidence comes up that is so compelling that I can’t ignore it.  Sometime last week, I was laying in bed doing the same thing that I do every morning when my alarm goes off at 5:15 and I’m trying to avoid getting out of bed to go to the gym: perusing Instagram for immature, degenerate memes.  As I was doing so, the following advertisement made it’s way into my feed:

Rea Estate Expo

Needless to say, I had to take a screen shot and share it.  Apparently, Tony Robbins and Sylvester Stallone are speaking a something called a Real Estate Wealth Expo and marks, I mean attendees are ponying up $250 each to hear them (side note – tickets are $2,495 for something billed as the “Ultimate VIP Experience”).  First, a little background for those of you unfamiliar with these two men.  Tony Robbins is a motivational speaker best known for infomercials and public speaking appearances.  He’s also very tall.  Robbins must be good at motivating people since Ray Dalio and Mark Benioff apparently have him on retainer and it appears as if he has made a lot of money over the course of his career.  I’m assuming that he is also quite persuasive, as he was also able to convince dozens of poor souls at one of his events last year to walk across hot coals.  It ended poorly to say the least.  Nothing in Mr. Robbins’ bio mentions real estate.  Sylvester Stallone is an American actor and filmmaker best known for his lead roles in both the Rocky and Rambo franchises.  Both were great and I believe that Rocky is the greatest motivational series of all time (hey, I’m a child of the 80s).  Just like Mr. Robbins, I’m assuming that he is quite wealthy.  Also like Mr. Robbins, there is nothing in Mr. Stallone’ s bio mentions real estate.

It’s safe to say that neither of these guys made their substantial fortunes in real estate – sure they may use cash generated elsewhere (ie motivational speaker fees) to buy properties but it doesn’t appear to be any substantial part of their wealth generation – yet they are being passed off as experts to the gullible masses.  (Side Note: if you Google Robbins and Real Estate, the first page is filled with links to his Wealth Expo and other speaking engagements.  If you perform the same search for Stallone, all that comes up are newspaper listings for his former residences – nearly all of which include terrible movie puns – including one in which he lost a lot of money on a home in La Quinta).  What’s worse, is that people are apparently buying in.  Let me be extremely clear on something – if you attend an event like this expecting to hear some secret formula about how to get rich investing in real estate, you are a moron.  That’s not just me being a keyboard warrior either.  If you want to come by Landmark’s office at 1201 Dove Street Suite 500 in Newport Beach, I’ll say it to your face if you’d like.  The only people making big money off of this sort of thing are the celebrity endorsers like Robbins and Stallone (I later saw that Pitbull is also speaking at the event) who are selling the snake oil, not the people in attendance paying for it.

So, what does this say about today’s real estate market?  In my opinion, nothing good.  If a substantial number people really believe that there is a fortune to be made in real estate and that will gain an advantage via a secret motivational formula from celebrities, that’s certainly an indication of overheated sentiment.  To be clear, it’s existence alone does not mean that the market is in a bubble or even overheated but it is a warning sign. You know when you never see stuff like this?  2009-2012 when values were still falling and people were afraid that they would never recover.  Ironically, that was the time when there were incredible values to be had if one could work up the courage to act and put financing together to capitalize on the carnage and distress. However, you probably didn’t hear from the celebrity hucksters back then since fear of being in outweighed fear of missing out which made it a great time to be an investor but not a great time to sell motivational seminar tickets.

Just like any other asset class, making money in real estate is not glamorous.  It takes a lot of hard work, relationship building and analysis.  If you’re serious about it, you would be far better off taking a real estate class at a local college than paying for a lame motivational speech.  You won’t get the rah rah or the opportunity to grab celebrity autographs but you will learn something.  Remember, acting on emotion is a poor way to manage your finances.  Ultimately, the people who walked on hot coals at that Tony Robbins event last year only lost a few days to the hospital and a bit of their dignity.  However, basing your investment outlook on the advice of celebrities in a hot real estate market could have a much more negative long term impact on your net worth and financial well being.

Economy

Crystal Ball: The workforce of 2026 is likely to consist of robot cashiers, well-paid math nerds and a whole lot of healthcare workers.  See Also: Meet the robot that will handle your divorce proceeding free of charge.

The Missing Piece? A fairly robust global economy is finally spurring factories to ramp up spending which could lead to rising wages and inflation.

Commercial

Disruption Coming? How ride hailing services that lead to less cars in garages could spell trouble for the white-hot self storage market.

Making a Move: Amazon’s potential move into the pharmacy business has healthcare companies nervous.

Residential

Til Death Do Us Part: Lennar and Cal Atlantic are merging to become the largest home builder in the US.

Breaking Point: Rising rents have resulted in nearly 20% of renters in the US struggling to may their monthly payments.

Location is Everything: America isn’t in a housing bubble nationwide but some cities are in danger of overheating.

Double Edged Sword: AirBnb typically leads to higher rents and less supply.  However, it also helps existing home owners make extra income to pay their bills by renting out a room.

Profiles

Wish That I Had Thought of This: A Carnegie Mellon University professor has discovered a way to allow AI to manage traffic lights, leading to a more efficient system that is already working in Pittsburgh and Atlanta.  (h/t Steve Sims)

Oversubscribed: There could be quite a bit of pain on the way for overpriced technology startups thanks to too much money chasing too few deals.

Difference of Opinion: Americans overwhelmingly love weed…..except for politicians.

Chart of the Day

Home prices have risen since 2012, but slower than before the 2008 crisis

WTF

Forever Alone: Someone has invented a headless robotic cat pillow with a wagging tail for lonely cat people who don’t have a cat to hold on their laps.

When Life Hands You Lemons: A 38-year old Wisconsin man got locked in a convenience store’s beer cooler.  Rather than bang on the door, he stayed all night and got wasted.  (h/t Tom Farrell)

Fake it Till You Make It: Selfie-obsessed Millennials are renting grounded private planes for $240 an hour to make their lives look more glamorous.  Consider this a reminder that no one has a lower credit score than the guy flashing hundred dollar bills on Instagram.

It’s Lit: A new U.S. study links marijuana use to more intercourse.  First off, the Stanford University School of Medicine really spent money to fund this. Second, how come no one ever asks me to be part of one of these studies?

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 31st – Get Pumped

Landmark Links October 27th – Strings Attached 

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Lead Story…. When Amazon purchased Whole Foods, many including yours truly assumed that the eCommerce behemoth would be able to do as it liked with existing Whole Foods stores, making a relatively clean transition into the brick and mortar retail space.  However, Amazon is finding it quite a bit more difficult to innovate in this new environment largely governed by pre-existing binding legal agreements than in the freewheeling world of online commerce.

When an anchor tenant signs a lease at a retail center, it’s common practice that its  attorney’s will insert language that governs certain things that the landlord can and can’t do.  These provisions include exclusive rights to sell certain goods and services, disallowing certain uses and outright bans of competitors.  These clauses typically make sense from the prospective of both parties. The landlord benefits from having a strong anchor that draws foot traffic which allows them to lease to other smaller tenants that aren’t primary draws on their own.  As such, it’s in their best interest to put the anchor tenant in the best possible position to succeed.  The anchor tenant doesn’t want a competitor coming in next door, nor do they want certain uses that could lead to lower foot traffic or offend potential customers.  For an extreme example, an anchor that caters to families wouldn’t want a strip club becoming a tenant in the same center.

One of Amazon’s primary objectives in buying Whole Foods was to gain the ability to sell certain Amazon items in Whole Foods’ 473 stores.  Amazon also planned on installing lockers in Whole Foods stores for customers to pick up items that they purchased online.  The problem, as Amazon is now finding out is that each of those stores is subject to a lease agreement, and that agreement likely puts restrictions on certain activities that may conflict with Amazon initiatives.  Jeffrey Dastin of Reuters wrote an article earlier this week that detailed just how much of an issue this could become (emphasis mine):

A Reuters examination of real estate agreements and interviews with 20 retail landlords, lawyers and brokers show that the strings attached to operating in malls like City Center present an emerging and little-scrutinized challenge to Amazon’s quest to re-shape Whole Foods.

Across the United States, large retailers including Target, Bed Bath & Beyond Inc and Best Buy Co Inc have legal rights in many lease agreements that allow them to limit what Amazon can do with nearby Whole Foods stores, and where it can open new ones.

Documents reviewed by Reuters show bans on Amazon lockers and delivery operations near a Target store in Illinois and also in Florida, where a new Whole Foods is set to open. Lockers for retrieving online orders are a way for Amazon to spur sales through the grocery chain.

In Manhattan and other locations, the leases of Whole Foods’ big box neighbors bar it from selling a range of goods that Amazon has in its massive online inventory, from electronics to toys and linens.

Even Whole Foods stores that do not share space with major rivals can face constraints imposed by local governments. A city council resolution in White Plains, New York, restricted the hours when Whole Foods can use a loading dock prior to the grocer locating in the mall.

According to Reuters, Target has been particularly aggressive in their lease negotiations, leading to outright prohibitions on lockers and online fulfillment in the same centers where they are an anchor.  However they are far from the only anchor tenant that does this and I think that it’s fair to say that traditional brick and mortar retailers are going to use every advantage that they have to avoid getting steamrolled by the Amazon juggernaut.

My main takeaway is that overlooking this was a major legal/DD screw up.  How did the restrictive lease provisions get by the Amazon legal and due diligence team during the Whole Foods acquisition?  These lease provisions represent a massive road block to so much of Amazon’s Whole Foods strategy and yet they are only coming to light now based on a Reuters investigative report.  Also of note is that this is not a short term problem.  Anchor tenant leases typically run 10-20 years with renewal options so the tenants in question likely aren’t going anywhere for years to come.  Amazon is apparently trying to negotiate with Target and others to revise agreements but Reuters sources seemed to indicate that the talks had gone nowhere.  Sure, Amazon’s latest filings show that they are planning on opening +/- 80 new Whole Foods stores but those will also be subject to existing leases or city ordinances as mentioned in the quote above.  Seems like an awfully large due diligence blunder.  I can’t imagine that Jeff Bezos is pleased.

Economy

Uplifting Story of the Day: Americans are retiring later, dying sooner and are sicker in between.  Otherwise, everything is wonderful, thanks for asking!

Moment of Truth: The bond market has finally broken through key levels.  With rates rising, is this finally the long-awaited moment in the sun for bears? But See: Beware of extreme bond market predictions. 

Commercial

Rare Event: General Growth Properties is doing the unthinkable – building a new mall in Connecticut in 2017.

Lifeline: In regions with growing logistics industries, eCommerce can be positive for job growth, not negative.  See Also: Foreign investors love US industrial and logistics assets.

Residential

The Definition of Insanity: Is trying the same thing over and over again and getting the same result.  California could expand rent control dramatically under a proposed 2018 initiative, despite the fact that it almost never works as intended.  Yet another example of California continuing to do the same things that don’t work to solve the housing affordability crisis rather than doing the one thing that would: building more houses.

Paved Paradise: Entry level and middle class workers in supply constrained and expensive mountain west resort towns have taken to living in motor homes in parking lots. (h/t Mac O’Donnel) I’ve said this before and will reiterate – it’s impossible for an economy to function properly long-term if lower paid service employees can’t afford housing in reasonably close proximity.

Profiles

Rhymes With Critical Loners: A surge in disaster contracts from hurricanes has put FEMA under pressure to bypass the usual competitive bidding process, resulting in stories like this:

On Sept. 5, Gibbco LLC got a $74 million award to build mobile homes for Hurricane Harvey victims. Gibbco’s only public presence is a GoDaddy website, which lists neither a phone number, an email address, nor information about who runs the company. According to a contract database run by the U.S. Department of the Treasury, Gibbco has five employees and annual revenue of $200,000; the address listed as its headquarters belongs to a house in a residential neighborhood in Longwood, Fla.

A phone call to a number associated with the company was answered by a man who refused to provide his name or answer questions, saying only, “We don’t give information away unless it’s approved by the government.” He referred questions to FEMA, which declined to answer them.

See Also: A two-person company based in Montana that was awarded a lucrative contract to restore power to hurricane-ravaged Puerto Rico, sparking both intrigue and controversy, is now feuding on Twitter with the mayor of San Juan.

FAIL: Snap dramatically overestimated demand for it’s goofy Spectacles and is now stuck with hundreds of thousands that no one wants.

Full Access: Amazon Key is a new service that allows couriers to unlock your front door in order to make drop offs by using a combination of Amazon’s new Cloud Cam and a compatible smart lock.  Digital security has been incredibly successful in protecting online information and I’m 100% certain that it will be just as effective in protecting our homes as well.

Chart of the Day

An increase in output does not always mean an increase in employment.

Source: Medium

WTF

I Hear She’s Single: A woman burned down her ex boyfriend’s house and stabbed a police officer all over a dispute about a teddy bear because, Florida.

Honest Mistake: A man was awarded $37,500 by a judge after cops mistook glazed doughnut crumbs for meth which resulted in a jail time because, Florida.

Gotta Hear Both Sides: A wasted Australian tourist doesn’t remember attacking an elderly bike rider participating in the annual Key West Zombie Bike Ride because (once again), Florida.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 27th – Strings Attached