Landmark Links October 28th – Trick or Treat

trick-or-treat

Lead Story/Chart of the Day… Want to know the rental boom will end?  Possibly when homeownership rates stop falling.  Some thoughts from the St Louis Fed’s excellent FRED Blog:

For five hundred twenty-five thousand six hundred minutes each year, people have to live somewhere. And it looks like renting is becoming more popular.

The graph clearly shows the U.S. homeownership rate has steadily declined and that the rental vacancy rate has declined right along with it. So the two trends seem closely related, especially recently. But does a decline in homeownership mean homeowners are moving out of houses and into apartments? Not necessarily. So what is going on? At least two things. 1. The financial crisis: The recent economic downturn left many households wary of investing (or reinvesting) in a home. 2. Kids today: The younger generation seem less interested in living in the suburbs. In quite a few cities, St. Louis included, they seem to prefer to live where they work and spend leisure time. Urban commercial buildings are being converted to apartments to accommodate this increased flow of renters. The rental vacancy rate has still been declining, which means the pace of rental property construction hasn’t been fast enough to keep the rental vacancy rate steady. Be sure to check back with the FRED Blog in a few years to see where all this stabilizes.

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The homeownership rate has rebounded a bit after hitting a 51-year low so this definitely bears watching. 

Economy

Surprise? Lots of bond investors are buying longer duration bonds in search of yield as evidenced by a flattening yield curve.  However, some of the largest and most sophisticated investors are shortening the duration of their holdings in the expectation that 10-year rates are about to rise.

Burdened: US corporations are outspending their cash flow, leading to an massive amount of corporate debt issuance.  Low interest rates are keeping debt service affordable for the time being but this could become a major economic headwind if interest rates rise and labor costs increase and balance sheets are weak. 

Residential

Umpteenth Times the Charm? New data from First American suggests that it’s only a matter of time until Millennials take over the housing market….if a lack of inventory doesn’t kill affordability first. (h/t Doug Jorritsma)

House of Horrors: High-end fixer-uppers have become more of a thing recently.  As most of you probably already know, the Playboy mansion recently sold.  It was in less than great shape.  Today’s quote of the day comes from one of the interior decorators hired to fix the place up.  It’s less than surprising (h/t Tom Reimers):

“It’s in horrible disrepair and the whole place smells like a urinal,” interior designer Kenneth Bordewick told TRD.

Profiles

Good Vibes: The origin story of OC’s own Wahoos Fish Tacos is as American as it gets: a trio of surfer immigrant brothers who came to America as kids and built an iconic brand from scratch.

Leaving the Back Door Open: Credit card scammers are taking advantage of lax security of online shopping sites and fraudulent purchases have soared from around $2 billion in 2011 to $4 billion today.

 Imitation iPads:  Microsoft’s Surface tablet deal with the NFL has been one of the great marketing fails of all time.  Bill Belichick trashing the ill-fated device at a press conference is only the latest indignity.

 

WTF

Cruel: The best way ever to mess with kids that you don’t like on Halloween.

You Want Fries With That?  A man in Wyoming was arrested in a prostitution sting after he tried to pay a hooker with a McDonald’s Quarter Pounder and French fries.

Pit Stop: An Arizona man stopped at an In-N-Out drive through as he was getting chased by the police.  He was eventually caught but at least he has good taste.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 28th – Trick or Treat

Landmark Links October 4th – I Guarantee It

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Lead Story… When home owners take out a mortgages and can’t afford to put down 20% or more of the purchase price, the lender makes them get something called Private Mortgage Insurance or PMI which protects the lender in the event of borrower default in exchange for a monthly premium.  It’s a well established insurance product that has been widely used for years.  Traditionally, rental landlords have not had a comparable form of insurance to rely on should a tenant default.  Typically, a landlord requires that a prospective tenant make an annual income of greater than 40 times the monthly rent with a credit score of no lower than 700.  If a prospective tenant can’t meet that requirement, they must find a guarantor who earns 80 times the monthly rent in order to qualify.  As you can imagine, this is not easy in markets where rent is high and vacancy is tight, especially for someone who is recently entering the workforce and has neither a substantial credit or income history.  Enter a relatively new business plan – payment insurance for apartment hunters from a startup called TheGuarantors.  From the Wall Street Journal:

TheGuarantors, launched in New York in 2014, sells payment insurance to tenants, providing landlords with a guarantee they will be made whole if the tenant becomes delinquent.

The offering is a symptom of a pricey market in which rents have risen faster than incomes and landlords can be picky about the qualifications they demand. Rents have climbed about 20% nationwide over the past five years while incomes have only recently started to rise.

The insurance, similar to the private mortgage insurance many lenders require of borrowers who have small down payments, provides a new level of protection for developers putting up new buildings in pricey markets where the applicant pool might be thin.

It could be a boon to landlords in places like San Francisco and New York in particular because rent growth has far outstripped income gains in recent years. Cliff Finn,executive vice president of new development at Douglas Elliman in New York, said 10% to 30% of the tenants in buildings he is leasing are now insured through TheGuarantors.

The premiums work out to somewhere between 2 weeks and 1 month’s worth of pay a year depending on the degree of risk and the program allows for borrowers with as little income as 27 times monthly rent and as low as a 630 credit score.  The balance sheet capital that TheGuarantors uses is from Hanover Insurance Group, a $5 billion dollar insurance company based in Massachusetts.  Another company, called Insurent is the largest in the industry, having issued over 13,000 guarantors since 2008.  A few of thoughts on this:

  1. If widely adopted, this type of insurance is likely to result in higher rents since it increases demand by creating more eligible renters without increasing unit count.
  2. Even considering point 1 above and the increase cost of living for a renter through the insurance premium, I would tend to think it’s a net positive for the economy since it allows for more household creation at the margin.  In other words, the kid who is living in his or her mom’s basement is likely able to qualify for their own apartment sooner.  That being said, the slippery slope here is that landlords make their qualification criteria more difficult and start effectively forcing the product on those who don’t really need it.
  3. This could be highly lucrative for the insurer assuming that renters are underwritten correctly and they are selective about markets.  It’s also not clear if the insurer is able to sublet the unit in the event of default during the period that they are on the hook for the guarantee.  If they are, it would be much easier to mitigate risk, especially in a market with low vacancy.

Overall, this seems like a fascinating business plan and definitely something that we will be keeping a close eye on to see how it plays out through the economic cycle.

Economy

Dropping Like a Rock: Grocery prices are plunging at rates not seen since 2009.  Great news for consumers, not so much for stores and suppliers.

The Haunting: The ghost of the Lehman Brothers failure haunts troubled Deutsche Bank, however the some of the parallels are a bit misleading.

Commercial

Running on Full: Despite somewhat of a construction boom, America is running out of apartments as occupancy hits a near-record  96.5%.

Residential

Reversal: Banks are starting to hold onto loans again and growing loan profitability is the reason why.  Data that was published by the Urban Institute last week showed that portfolio loans or loans that portfolio loans, or loans that banks make to keep on their books grew to 34%, the highest level since 2002.

Rise of the Machines: New technologies like self driving cars, ride sharing apps and drones could be a catalyst for suburban growth.

Profiles

The Prodigy: Theo Epstein became a hero in Boston after he put together the blueprint for the Red Sox to win two World Series championships after 86 years of frustration.  He’s now the general manager of the Cubs and has the team poised to end a 107 year World Series drought.  If they pull it off, he’ll become a legend.

Assholes: Emirates Air is going to start charging families for the privilege of sitting together on a plane.

Chart of the Day

Banks are actually holding loans on their books again.

WTF

Slow News Day: The Washington Post actually published an article last week posing the question of whether or not dog Halloween costumes are sexist.  I give up.

Cultured Idiots: Unwitting attendees at the NY Symphony Orchestra gave a rousing standing ovation for a North Korean propaganda song that is an ode to dictator Kim Jong Un because they didn’t know any better.

When Nature Calls: A woman from Memphis came home one day to find her front door open.  She walked inside to find that, not had her house been robbed, but the two burglars were having sex on her couch.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 4th – I Guarantee It

Landmark Links September 2nd – Clueless

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Lead Story… On Tuesday, I posted a piece about how construction unions actively undermined a measure that CA Governor Jerry Brown had presented to help solve California’s affordable housing crisis by making it easier to gain approval for residential projects that would provide a certain number of affordable units.  I have limited time to write today’s blog post but I want to revisit that story, which the WSJ reported on (they wrote about a similar proposal in NY as well that was nuked by the unions) because the utter absurdity of it is so mind boggling (highlights are mine):

For both measures, construction unions were key to the defeat, as they won over key allies with their argument that the government shouldn’t be aiding apartment development without also guaranteeing union-level wages. Unions, particularly in New York, have been facing a gradual erosion of their market share on residential developments, and now developers that a generation ago would have been union shops are able to fill jobs with nonunion workers, which can lower construction costs by an estimated 20%, according to New York-based Citizens Housing and Planning Council, a low-income housing group.

Robbie Hunter, president of the State Building and Construction Trades Council of California, said policies like the one pushed by Mr. Brown should allow construction workers to make a decent living “rather than drive those workers into the need of affordable housing itself.”

Allow me to clarify: the reason that the unions killed both deals was that NY and CA wouldn’t stipulate that all projects that fell under the proposals be built by union workers at a so called “prevailing wage” which is really just a fancy way of saying overpaying.  Notice in the passage highlighted above that the unions have lost market share in recent years.  I wonder why.  Could it possibly be that residential projects (especially in CA with it’s high impact fees) typically aren’t viable at “prevailing wage” standards?  Often, in residential developments, the only time that you see union labor being used are when a union pension fund provides the equity behind the project.  Otherwise we just don’t see it that often because numbers simply don’t work.  By the way, when a union pension fund provides the equity, they almost always have to take a substantially lower return in order to subsidize the above market “prevailing” wages paid for construction.

The real story here should be that unions are facing declining market share because they refuse to adapt.  Governor Brown’s proposal would have undoubtedly created more construction jobs in California, leading to more demand for labor and higher wages.  If construction labor unions were at all flexible in their compensation demands, many of those jobs could have gone to union  workers.  However, rather than trying to expand their ranks, which ironically would lead to more power, not less, construction unions have dug in their heels in an effort to preserve the unsustainable wage structure of existing members.  The rest of us pay the price since a proposal that would have provided a starting point for dealing with CA’s growing housing crisis is now toast.  Looks like the status quo of runaway housing cost wins again.

Economy

Looking Up: Federal income tax withholding data indicates that both wages and economic growth are on the rise.

(Skilled) Help Wanted: As skill requirements increase, more and more manufacturing jobs are going unfilled.

Commercial

Rise of the Machines: How CoStar is using spy planes to get an edge in tracking new development for rent projections.

Evolving: Some malls are starting to look a bit like theme parks as landlords try to cope with high vacancy from traditional tenants.

Residential

Closed for Business: Message to tech firms from Palo Alto’s anti-jobs mayor: go away.  See Also: Formerly middle class Palo Alto has gotten so expensive that not even techies can afford to live there anymore.  For example, someone is listing a 790sf studio for $1.3MM.  Turns out that the housing bubble of the aughts really didn’t mean much at all in Palo Alto:

Proof is in the Pudding: The next time someone tells you that adding units, including luxury ones to the housing stock doesn’t help affordability, direct them to these:

Exhibit A: Manhattan condo developers are offering discounts, concessions and perks in an effort to keep sales robust in the midst of a glut.

Exhibit B: How Brooklyn’s luxury apartment boom is turning into a rental glut.

Profiles

Hero: 40 years ago John Bogle of Vanguard was sick of Wall Street overcharging for shitty performance.  He did something about it and started the first index funds despite ridicule from his peers.  Today, index funds hold nearly $5 trillion in low fee assets while much higher fee investments languish. 

Hot Item: How the premium Yeti Cooler, also known as a “Redneck Rolex” became a prime target for thieves.

Get Off My Lawn: Baseball’s fan demographics keep getting older, raising the question: can a game with a 19th-century tempo survive in the age of instant gratification?

Chart of the Day

WTF

Funny, In a Sad Sort of Way: Rapper Tyga got his leased Ferrari repossessed while he was at the dealership shopping for a new Bentley.

In Soviet Russia… Vladimir Putin was arrested at a Florida grocery store on trespassing charges, because Florida. 

Seems Like a Reasonable Response: A Pennsylvania woman was arrested for biting her husband and stabbing him with scissors after she caught him drinking her beer.

Again, Seems Reasonable: Meet the father who destroyed his daughter’s car with heavy construction equipment after catching her in it with a boy.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 2nd – Clueless

Landmark Links August 26th – Transition

Bruce JennerLead Story… Two particularly troublesome issues in the US real estate market are the need for more affordable housing and figuring out what to do with vacant malls and other underutilized retail sites.  The Westminster Arcade in Providence Rhode Island, the oldest mall in the US offers an interesting solution: converting un-used portions of malls to micro apartments:

As more people turn to the internet to buy what they need, shopping malls across the country are closing their doors. But one historic mall has found a creative way to re-purpose its former retail space: America’s first shopping mall, the Westminster Arcade in Providence, Rhode Island, has now been turned into micro lofts, offering people the chance to truly live inside a piece of history.

The Westminster Arcade opened in 1892, introducing the English-style indoor shopping experience to the United States. But in recent years, like so many other retail locations across the U.S., the mall had fallen on hard times. Despite undergoing a renovation, the space ultimately closed its doors in 2008 due to economic reasons.

But instead of being demolished, developers decided to give the mall a second life. The first floor is still being rented out as commercial space, but the top two floors have been turned into micro apartments. And the 38 units, which range in size from 225 to 300 square feet, are designed to accommodate the growing masses cramming into Rhode Island’s urban areas.

So far, residents are generally young professionals who don’t have much stuff, and so don’t mind living in such cramped quarters. Rent starts at $550 a month, and there’s already a waiting list of those eager to move into the “cozy” spaces.

This seems like an efficient way to kill two birds with one stone.  It’s relatively cost effective to build out the residential units since the structure is already there and just needs to be converted in order to transition to mixed use (I’m assuming that there are some issues with plumbing capacity so it may not work everywhere), meaning that rents can be on the low side for smaller units.  This is where the demand is anyway at a time when most new multi-family projects are expensive luxury product.  In addition, the upper-floor renters provide foot traffic to sustain the ground floor retail that now doesn’t need to rely on department stores.  To take it a step further, the department store spaces can be re-purposed for medical uses – which would fit perfectly if the apartment units were targeted towards seniors – or self storage which would be in high demand for residents of micro-units.  On the surface, it seems like a win-win.  Anyone out there have any thoughts as to why this wouldn’t work?

Economy

Still Holding Up: Despite some hiccups,  the underlying trend shows people are getting jobs, earning more money, and then spending some of those funds, meaning that the economy is still headed in the right direction.

Dirty Secret: There’s one part of central banking that central bankers often don’t like to talk about – their inflation targets are completely arbitrary.

The Old Fashion Way: How to get and stay rich in Europe – inherit money for 700 years.

Residential

Facepalm: The mayor of Palo Alto would prefer to see less job growth rather than more housing in order to “solve” his city’s housing crisis.  I guess when you buy a house for $490k in 1994 and it’s now worth $4mm, it’s difficult to see past the economic self interest in keeping housing scarce.

Rebuttal: I was going to write a rebuttal to the piece that I posted on Tuesday about the non-NIMBY argument for restrictive zoning but ran out of time.  Preston Cooper at Economics 21 did a better job than I would have anyway.  Long story short, it eventually results in the country looking like something moderately resembling The Hunger Games.

Imagine That: The 15% foreign buyer tax in Vancouver that we have posted about previously is already throwing ice water all over the already-cooling housing market there.  See Also: The white hot Seattle market is showing some early signs of cooling a bit. (h/t Scott Cameron)

Priorities: Apartment hunters are increasingly selecting units based on convenience for a very important family member: the dog.  As a self-professed crazy dog person I totally relate to this.

Profiles

Valuable Commodity: The fascinating story of how Instant Ramen Noodles overtook tobacco to become the black market currency of choice in America’s prisons (hint – the food there is really, really bad and getting worse).

Color Coordination: Great Britain decided that it was a good idea to give all of their Olympic athletes identical red suitcases which led to a hysterical epic FAIL upon their return to Heathrow after the closing ceremonies.

LOL: Looks like someone may have leaked the top secret recipe for KFC’s fried chicken.

Chart of the Day

Consider this your daily reminder that houses in CA are incredibly expensive

WTF

Friday Quiz: See if you can figure out whether or not some really arcane sports were ever actually in the Olympics.

Darwin Award Attempt: If you feel the need to jump from rooftop to rooftop to impress your date than you probably shouldn’t be dating.

Fight!  Watch a group of women beat the crap out of each other in a Chicago Walmart.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 26th – Transition

Landmark Links August 19th – Ramparts!!!

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Lead Story…  In the all-time classic 1980 comedy Caddyshack, obnoxious condo developer Al Czervik, played by Rodney Dangerfield opines that:

“…golf courses and cemeteries are the biggest wastes of prime real estate.”

He was onto something.  It’s been well documented in the years since the Great Recession that golf courses are, by and large a terrible investment that almost never make money – often losing a lot instead.  In fact over 800 courses have closed over the past decade as a result of no longer being financially viable.  So, imagine my surprise when I saw a feature article in Bloomberg earlier this week about how shuttered golf course clubhouses have developed the strange behavior of spontaneously catching on fire:

The dark clouds rolled in over Phoenix’s Ahwatukee Lakes Golf Course in 2013, when its owner declared that the costs of keeping it open had outstripped what he was collecting in green fees.

Wilson Gee, a California businessman, shuttered the golf course, erected barbed-wire fences, and began looking for a buyer, telling reporters the land would never be a working golf course again. Homeowners, complaining he was turning the course into an eyesore in order to win approval to redevelop it into single-family homes, sued to reopen it. Gee shanked his first attempt to sell it in 2014, when one homebuilder walked away from a deal, but last year found a buyer in a Denver-based developer.

Then one night in February, the dark clouds turned to smoke, and a fire caved in the clubhouse roof.

It’s a local story, defined by conditions peculiar to Ahwatukee, a community of about 80,000 separated from downtown Phoenix by a collection of 2,500-foot peaks known as South Mountain. But the dynamics that bred the deadlock between the struggling golf course’s owner and its aggrieved neighbors are mirrored in communities across the country.

More than 800 golf courses have closed nationwide in the last decade, as operators grapple with declining interest in the sport and a glut of competition. Many of those shuttered courses were built on land proscribed from redevelopment by local zoning codes seeking to preserve open space—or, as with Ahwatukee, by deed restrictions intended to protect homeowners who had paid a premium to live near a golf course.

That leaves some golf course owners with the real estate equivalent of an unplayable lie: They can’t make money running the course, and they can’t recoup their investment by selling it.

“If you open a restaurant in a strip mall and you fail, you close shop and move on,” said Jay Karen, chief executive officer of the National Golf Course Owners Association. But for golf course owners, it’s much harder to pull the plug on a failing business; as courses fall into disuse, they become suburban zombies—not quite dead, yet far from alive.

“Nobody’s tracking what’s happening to the land,” Karen said.

Therein lies the problem: developers went on a golf course building spree back in the 1990s and early 2000s.  Back then, Tiger Woods was bursting onto the scene and golf was seen as a potentially lucrative investment as millions of Baby Boomers approached retirement which would undoubtedly be filled with more time spent on the links than ever.  When master planned communities were built, developers sold course-fronting homes for large premiums.  Fast forward to 2016 and the golf industry is dying a slow death.  Millennials, by and large have neither the time nor the money to play the game, causing a dramatic decline in club revenues and Nike has dropped out of the golf business as a whole as has Dicks Sporting Goods. In fact, participation is down a whopping 20% since 2003.  More from Bloomberg:

In April, fire ripped through the clubhouse at a shuttered western Kentucky golf course that had been the center of a lawsuit, burning through the afternoon until the roof collapsed over smoldering beams. On New Year’s Day, a former volunteer firefighter lit a small fire outside the vacant clubhouse of a closed 9-hole course outside Orlando, then returned three days later to spark a larger blaze, with the help of a can of paint thinner he had found there. And in September 2015, a fire reduced the 10,000-square-foot clubhouse at an abandoned golf course in Bakersfield, Calif., to only a few charred beams.

For John Rhoads, a homeowner in Sparks, Nev., a clubhouse fire at his local course, D’Andrea Golf Club, was both insult and injury. In 2012, its owner had asked members of the local homeowner association to pay an additional $28 a month for course upkeep, Rhoads said. The homeowners demurred, the course was shuttered, and the clubhouse became a magnet for vandals, who posted graffiti on its stucco walls and eventually burned it down. Now Rhoads worries that the owner is making an end run around the homeowner association to convert half of the course into new homes and a winery.

“This used to be one of the nicest golf courses in Reno-Sparks,” he said. Now? “Our property values are already down $25,000 a home.”

So what do you do with a shuttered golf course that has become blighted and attracts vandals and crime?  Developers would love to buy up courses and develop housing on them while dedicating a portion of the site for community agricultural use or park space as the sites are often prime develop-able parcels.  There’s just one problem: homeowners, especially those fronting the course want none of it being that they paid premiums for golf course frontage homes.  The last thing they want is a new neighbor in place of an old fairway.  This leads to an impasse between homeowners and course owners and almost no one is blinking.  Again from Bloomberg (emphasis is mine):

In the face of declining interest and competition driven by oversupply, course owners have gone searching for ways out. Some have donated golf course land to nature trusts and local parks, taking a tax break in return for preserving the open space. Others have inked deals with homebuilders—though those deals are often contingent on winning approval from homeowner associations or local governments.

“I’m hard-pressed to think of many cases where there isn’t a higher or better use than a golf course for the site,” said Jeff Woolson, managing director of the golf and resort group at CBRE Group. “The only clear exception would be Augusta, Ga.”—the hallowed, Bobby Jones-designed course that hosts the Masters tournament each year.

Whatever happens to the shuttered courses, two things are for certain:

  1. We aren’t going to see many golf courses get developed any time soon
  2. The biggest winners will be lawyers who handle the inevitable litigation between desperate course owners and irate homeowners

By the way, does that last quote from Jeff Woolson from CBRE sound a bit familiar?  While I can’t speak to cemeteries, it turns out that Rodney/Al was a visionary after all.

Economy

Rise of the Machines: How China’s factories are increasingly reliant on robots as their workforce shrinks.

Bursting Bubbles: Sorry, John Oliver but subprime auto loans, while likely predatory in some cases, are not the second coming of the U.S. mortgage crisis.

Commercial

They’re Baaaack: After a brief respite earlier this year, Apartment REITs are buying properties again which is a sign of health for the sector.

Residential

Blame Game: The City of Vancouver is blaming foreign buyers for the crazy run-up in it’s housing market and has even gone so far as to enact a 15% tax on foreign purchases in a effort to keep foreign buyers away.  However, a new report by Paul Ashworth of UK based research firm Capital Economics says that foreigners aren’t the primary issue and rather blames irresponsible lending.

Imagine That: Only 13% of households in San Francisco can afford to buy a median priced home.  Ironically, that’s actually substantially better than 9 years ago when only 8% could afford to purchase a house.

Profiles

People of Walmart: Walmart has a major crime problem and it’s driving police crazy.  This story has it all: shootings, stabbings, kidnappings and hostage situations.  However, my favorite episode is the one where police found a meth lab in a large drain pipe under a Walmart parking lot in upstate NY.

Hero: Meet the 102 year old woman who credits her longevity to drinking.

Pants on Fire: Ryan Lochte may be a great athlete but he is also a massive, massive douchebag.

Chart of the Day

WTF

Monkey Business: Video of the day twofer:

  1. Watch a monkey wearing a diaper get in a fight with a Walmart employee in a parking lot.
  2. Watch a baboon in a zoo goes berserk when a little girl taunts it and flings it’s poop at her face.

How to Avoid the Gulag: Shockingly, North Korea is the most efficient country at winning medals at the Rio Olympics.  Let that sink in.

Must Be the Pleats: Meet the Olympic pole vaulter who missed out on a medal because of his…..um pole.  He now claims it was a wardrobe malfunction.  Let me just go on the record to say that I would have handled this ENTIRELY differently had I been in his position.

Ohio = Florida of the Rust Belt: A man from Ohio was arrested for having sex with a red van on Tuesday on the side of a public road.  Sentences like this are what make The Smoking Gun the finest news site in the world: “The victim was parked at the time, cops say.”

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 19th – Ramparts!!!

Landmark Links August 5th – Suicide Pact

Niagra Falls

Lead Story… Vancouver is about to tank it’s residential real estate market after they instituted an astronomical 15% tax on real estate purchases by foreigners.  The worst part may be that existing contracts were not grandfathered in to the new law.  This led to a near-shutdown of the BC land registration system as realtors worked overtime to close before the tax took effect.  Going forward, many of the escrows that didn’t close are likely to fall out as the tax proceeds will exceed released deposits by a substantial amount in some cases.  The impact of such a tax will have massive and chaotic impact as it reverberates through the greater Vancouver market and could become a text book example of the old saying: “be careful what you ask for because you just might get it.” (h/t Darren Fancher) See Also: How Chinese billionaires fueled the epic Vancouver real estate boom.  As a point of reference for just how hot the Vancouver real estate market has been, this picture is worth more than 1,000 words:

Vancouver housing prices

Economy

Aging in Place: Americans over 65 (and increasingly over 75 as well) are staying in the work force well into their retirement years and it’s often about more than just cash flow.  Contra: Aging  US population is hurting both productivity and workforce growth as baby boomers retire.

Bass Ackwards: The best paid CEOs run some of the worst performing companies.

Commercial

Bad Optics: At it’s best, the EB-5 Visa Program, which allows qualified, wealthy foreigners to obtain a green card in exchange for investing $500k or more in a job creating enterprise is a win-win for both investors and developers.  However, the program hasn’t been without controversy and new allegations of developers defrauding foreign investors are not going to help.

Taking Matters Into Their Own Hands: Facebook pledged to build at least 1,500 apartment units for the general public (not including housing for FB employees) in Silicon Valley.  The social media giant is becoming an apartment developer in an attempt to generate support for it’s expansion plans, which call for an adding 6,500 new employees in an already dramatically under-supplied Bay Area market.

Let’s Make a Deal: As new apartments flood the downtown LA market, landlords are increasingly offering rent concessions that were nowhere to be found up to recently.

Residential

Chilled: The Manhattan luxury condo glut has led to an ice-cold land market on the formerly red-hot island.

Water, Water Everywhere…: It’s a seller’s housing market but almost no one is selling primarily because it’s hard to find a replacement house, leading to tight inventory.  See Also: Home ownership is now at a 5-decade low.

Profiles

Crash Proof: How driverless cars could threaten insurers’ earnings.

Lurking in the Shadows: Auction house Sothebys is becoming a player in the shadow banking space.

Podcast of the Day: Malcolm Gladwell’s latest Revisionist History podcast is about the true story behind uncontrolled acceleration accusations leveled against Toyota in 2009 that led to a 10 million car recall and $1 billion fine.  The real story is fascinating – Toyota was a scapegoat – and should be a must-listen for anyone who gets behind the wheel.

Chart of the Day

WTF

Roaming Charges: Japanese Olympic gymnast Kohei Uchimura, the defending gold medalist in the men’s all-around competition got hit with a $5,000 phone bill (which his carrier later agreed to reduce substantially) due to the fact that he: 1) Apparently has a Pokemon Go addiction and 2) Didn’t bother to disable the roaming feature on his cell phone while in Brazil. To make matters worse, he had a 0% chance of actually capturing a Pokemon as the game has not yet been released in Brazil.  That’s a painful hit to the wallet but this also feels like a great endorsement opportunity.

Getting Kids Involved in the Political Process: Mayor Anthony Silva of Stockton, CA was recently arrested and charged with providing alcohol to minors at a youth camp that he runs because, well, Stockton.

You Gonna Smoke That? A man from Orlando Florida was recently arrested when police mistook his Krispy Kreme doughnut for meth.  There’s a great cops and doughnuts joke in there somewhere (h/t Chris Gomez-Ortigoza).

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links August 5th – Suicide Pact

Landmark Links July 8th – The Plunge

fatcrash

First things first: Hayden Charlotte Deermount was born at 11:14am on July 5th weighing 7lbs and 13 oz. Baby Hayden and Mrs Links are both doing great! This is also Hayden’s fist blog post in a way since I wrote almost the entire thing with her sleeping on my lap….

Lead Story… Commercial real estate investors are rushing for the exits in British property funds as post-Brexit uncertainty about the future of London as a global financial center is on the rise. Withdrawals have been halted in several funds and the Pound is now at a 31 year low (and this could just be the beginning for the embattled currency). The situation could get worse before it gets better. The biggest beneficiary will likely be the US commercial real estate market which could see even further cap rate compression (yes, seriously). See Also: RBS and Lloyds have the most exposure to UK commercial real estate and could have issues if it continues to tank. 

Economy

Much Ado About Nothing? Pro Brexit politicians are dropping like flies adding to uncertainty.  Tyler Cowan of Marginal Revolution lays out 7 possible Brexit scenarios. The spoiler here is that there is a very strong argument that Brexit will not ever actually happen. See Also: Brexit fears have set a scenario in motion the could bring the yield on the benchmark 10-year US treasury note plunging to 1%.

Sea Change: Great infographic from the US Census Bureau shows just how much the “typical” 30-year old has changed from 1975 to 2015.  The difference is stark to say the least.

Commercial

Imagine That: Plateauing rents in the luxury apartment space have some developers putting new developments on hold as they acknowledge that trees can’t grow to the sky. Imagine that: housing cost inflation slows when you add more units.  Shocking. See Also: LA rents were flat from May to June according to Apartment List.

Residential

Not From The Onion: A Seattle house deemed “too dangerous to enter” sold for $427,000 after an insane bidding war with 41 offers after it listed for $200k. Perhaps the craziest part of this is that $427k for a tear down in a good neighborhood in coastal California sounds like a steal. Consider it today’s reminder that affordability is relative in local markets.

Not A Lot Remaining: Lot supply is still incredibly tight in the western US and at its lowest level since 1997.

Refi Boom: Plunging interest rates sent refinances soaring to an 18-month high even though mortgage rate spreads over the 10-year treasury are still high.

Profiles

LOL: Snapchat’s army of loyal teenage users aren’t happy that their parents are starting to use the app.

Out of Touch: Microsoft’s attempts at intern outreach are a perfect example of what happens when your grandparents try to be “hip.”
Chart of the Day


WTF

Brawl-Mart: 30 person brawl in an upstate NY Walmart that included baseball bats and a 17 year old throwing a can of food at a 52 year olds head resulted in several arrests. Nothing about this story is remotely shocking or even newsworthy except that it didn’t happen on Black Friday.

Can You Move that Plane So I Can Get a Better Shot? Idiots are increasingly putting pilots and firefighters at risk by flying drones over wildfires in an effort to get “cool” Instagram photos.  One drone almost collided with a plane late last month in Utah leading to the grounding of all firefighting planes during a blaze.

Ok Then: The brother of deceased former Colombian drug lord Pablo Escobar is asking Nexflix for a portion of the profits from the next season of Narcos, a show based on Escobar’s life. Doubt it will work but I suppose that the logic here is that If you don’t ask, you don’t get.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 8th – The Plunge

Landmark Links June 21st – Worth the Investment?

bluto3

Welcome to summer!  Fortunately, we avoided the apocalypse that a crackpot astrologer (redundant) predicted last night when the full moon coincided with the summer solstice.  I know you’re all as relieved as I am.  Now, on to the news:

Lead Story… I recently read two studies that came out in the last week or so that appear contradictory, at least on the surface.  First off, the National Association of Realtors and SALT published a survey that strongly suggests that student debt is holding back the housing market:

Seventy-one percent of non-homeowners with debts from student loans said the burden of those monthly payments was keeping them from buying a home. More than half said it would likely continue do so for more than five years, according to a new study by the National Association of Realtors and SALT, a consumer literacy program provided by nonprofit American Student Assistance.

Second, John Burns Real Estate Consulting posted a story on their blog about rising college graduation rates are contributing to income inequality:

Rising college graduation rates, particularly for women, have significantly contributed to a greater share of high-income households. Among married couples, 23% now both graduated from college—a percentage that has steadily risen for decades. When both spouses went to college and work, household incomes at the top rise!

Consumer spending data provides strong support to the JBREC hypothesis of college education contributing to income inequality:

So which one is it?  Is college debt holding graduates back and not allowing them to take place in the “American Dream” of owning their own home or is the rising percentage of couples where both have a college education (and probably a bunch of student debt) leading to out-sized earnings for a percentage of the population?  I would contend that it’s both.  First off, we need to distinguish between cost and return.  Yes, college is expensive – arguably too expensive seeing as it’s cost has far outrun inflation for a long period of time.  However, if we are making the case, as the Realtor study is that college debt is holding back the housing market then we have to ask a simple question: what, is the alternative?  That’s where the problem lies.  Sure there are tech founders that didn’t graduate college only to become billionaires but they are extreme outliers, pure originals that can’t be replicated.  If they weren’t outliers, by definition they would never be able to earn that type of out-sized return.  Unfortunately, not everyone is able to change the world, even if they all got a trophy in youth soccer.  If a student isn’t independently wealthy enough to not take on debt (a proposition similar to winning the lottery – pure luck), the alternative is not to go to college.  Statistically speaking, that is a horrible bet.  This piece of Study.com sums it up perfectly:

Considering the high cost of a college education, potential students may question whether the expected earnings after graduation outweigh the possible debt incurred from student loans. In 2002, the Census Bureau looked at lifetime earnings of employees with bachelor’s degrees and those without for 1999: non-degree holders could expect to earn 75% less than bachelor’s degree holders, who could expect to earn $2.7 million over their lifetimes. However, since 1999, bachelor’s degree holders can now expect to make 84% more than high school graduates.

As the above numbers, and the JBREC study show, college is becoming more and more of a necessity to get ahead in the modern world.  If you want to join the middle or especially upper-middle class, a high school degree is not going to get you there (unless of course you happen to be the aforementioned tech genius/ future billionaire).  Yes, the debt is a necessary evil with an important caveat: not all colleges or all majors within a college are created equally and that’s where I believe that studies like the NAR one are in error: they overly generalize a very complex issue.

The seventy one percent referenced in the NAR study is an eye-popping number but there are a few issues with the way that the study was conducted: 1) There is a no segmentation (at least none was provided in what they published).  For example, the results aren’t sorted based on whether the respondent attended a 4-year college, a 2-year junior college or a for-profit college let alone what their course of study was.  2) There is no differentiation made between those that received a college degree and those that took out loans but did not complete a degree.  It’s easy to see where this is problematic.  I highly doubt that student debt is as large of an issue for an engineering grad from a top school as it is for a someone who dropped out of a for-profit college before receiving a degree.  Alas, we don’t know from this study since the data wasn’t provided.

Yes, the rate of increase in the cost of a college degree in recent decades has been massive.  However, if looked at strictly from an economic standpoint, the yield on investment is still quite good, IF you graduate AND and chose a major that will get you somewhere other than flipping burgers or spending your time at political rallies asking for debt forgiveness (yes, I know that was a cheap shot).  The primary reason is that the baseline for comparison: a high school degree provides little if any earning power even when debt is taken into account.  Like it or not, many jobs that previously required only a high school degree now require college.  So when will college cost begin to moderate?  IMO, it’s when the return on investment no longer justifies the outlay.  You can already see this happening in for-profit schools which have proven over time to be a poor investment for students which is why their stock performance has been utter crap.  As a further illustration, here are the 25 colleges with the best Return on Investment and the 25 colleges with the worst ROI.

The NAR study is factually correct: every dollar of additional debt that you take on be it student or otherwise will indeed make it more difficult to qualify for a mortgage. However, if one graduates with a worthwhile degree, that debt should still be a good investment over time and make the borrower more likely to be able to purchase a house than the alternative of not taking 0n debt by not attending college at all.  It’s a shame that the NAR data didn’t include a further breakdown because it would have made for a far more interesting story than the shocking 71% number.  It’s almost as if they had an agenda here….

Economy

What Gives?  Gregory Mankiw of New York Times on five possible reasons for our sluggish economy.

Cream of the Crap: The US economy is doing great….compared with pretty much everywhere else.  See Also: Swiss government debt now has a negative yield all the way out to 33 years, which makes even Japan look good in comparison.

The Fed Who Cried Wolf: The Federal Reserve has spent the last few months saber-rattling about imminent interest rate hikes only to backtrack at their monthly meetings.  The act is getting old and they are now at risk of losing investor faith in their policy rate path.

Demographics Are Destiny: This animated demographics chart from Calculated Risk is almost mesmerizing to look at.

Commercial

Refi Madness: America’s malls have been on the ropes for quite some time and would have plenty of issues even if they were not leveraged at all.  Unfortunately for their owners, they have billions in debt coming due.

Storm Clouds: PIMCO sees a potential downturn in the next 12-months for U.S. commercial real estate as tightened regulations, a wall of debt maturities and property sales by publicly traded landlords take their toll.

Residential

It’s Complicated : Morgan Housel of the Motley Fool is one of the best financial writers in the world.  He has also long been a critic of the concept of a home as an investment.  Recently he and his wife bought their first home after they started having kids.  I think this assessment of the complicated nature of the home buying process and it’s impact on transaction fees is spot on:

I consider myself reasonably astute in personal finance, because it’s so much of what I write about for a living. But I can’t count how many times I had to stop, realize something confused me, and spend an hour of research to understand what I was about to sign. After going through our loan documents I sent at lest 10 emails to the bank with various forms of, “What’s this?” What is this?” “WHAT IS THIS?”

Even with a realtor, home buyers need to be amateur lawyers to fully understand what they’re doing. I can’t imagine what it’s like for people for whom finance is already a daunting topic. And that’s most people.

This probably explains why transaction fees are still high. When you combine emotion with legalese, the path of least resistance is to just sign your name without considering what you’re doing. I had a few moments of, “They wouldn’t be offering me this if it wasn’t in my best interest” only to stop, want to slap myself, and keep researching.

For a Price: Multi-family landlord’s are offering free rent as a concession in San Francisco as a flood of units finally hit the market but you can’t get it unless you can afford a luxury apartment (h/t Jeff Condon).  See Also: San Francisco’s housing mania may finally have reached it’s limit.  And: Luxury housing demand appears to be on the wane.

Profiles

Hero: Meet the hacker who is fighting ISIS by spamming their Twitter accounts with porn.

Worker’s Paradise: Venezuela’s descent into failed state status where citizens fight in the streets for food is even worse when you consider that, based on it’s vast natural resources it should be one of the wealthiest countries in the world.

Bird Hunting: After Microsoft purchased Linkedin, the next question in Silicon Valley is who will buy perpetually-struggling Twitter.

Chart of the Day

A couple of fascinating graphics from JBREC.  It amazes me that still only 23% of the married population consists of couples who both have degrees.

share of married couples with college degree

percent of adults with bachelor's degree

WTF

What a Gas: Activists are planning a “Fart-In” at Hillary Clinton’s DNC acceptance speech this summer in Philadelphia (h/t Steve Sims).

All the Rage: England’s newest fitness craze known as Tantrum Club involves screaming obscenities and popping balloons with bad words written on them while stomping on bubble wrap.  This is right up there with the Shake Weight when it comes to dumb workout fads.

Keeping up with the Floridians: An obese naked man was videotaped relieving himself outside of a Georgia Waffle House in broad daylight.  When asked for comment, a spokesperson for Florida replied “see, it’s not only us.”

Boom: A group of arsonists set off fireworks in a Walmart in Phoenix leading to the building needing to be evacuated.  Fortunately, someone had the good sense to videotape it.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 21st – Worth the Investment?

Landmark Links June 14th – Underexposed

underexposed

Lead Story…. REITs are the best performing asset class in the market over the past 15 years, yet, according a Goldman Sachs, 40% of large-cap core mutual funds still don’t own any and the ones that do often have a very small percentage of their funds allocated to real estate.  I don’t think its a stretch to say that this goes a long way towards explaining why most fund managers under-perform the market.  Not only have REITs outperformed the rest of the market, it actually hasn’t even been that close.  From the WSJ:

Since 2000, REITs have returned an average of 12% a year, according to J.P. Morgan Asset Management. That crushed the No. 2 finisher, high-yield bonds, which returned 7.9%. Large-cap U.S. stocks returned 4.1%.
Despite the performance, nearly 40% of large-cap core mutual funds, which largely invest in S&P 500 stocks, don’t own any REITs, according to Goldman Sachs. Overall, funds with no REIT exposure have a total of $528 billion in assets, Goldman says.

Funds that do own REITs hold about 2% of their assets in the stocks, less than two-thirds of the sector’s weight in the market, Goldman says. Turning REITs into its own sector will make it clear which managers are avoiding real estate. Of course index funds have always had a full weighting in REITs.

This is going to become increasingly important because, as we mentioned earlier this month, real estate is about to get it’s own sector in the S&P 500 which will make it even more obvious who is underexposed.  If tech, finance, manufacturing, emerging market, utility or natural resource stocks were hot you can bet that fund managers would be piling in as quick as possible.  So why are REITs the proverbial red-headed stepchild despite outperforming?  According to the WSJ:

REITs aren’t like other stocks because they are essentially conduits to take rent and pass it on to investors. Analyzing a REIT is different than trying to figure out a company that produces products or delivers services.

For stock pickers, REITs are frustrating because they tend to rise and fall based on what’s happening in the economy, making it hard for a fund to stand out. The stocks perform well when the economy is humming along at a modest pace, just like now when rents are rising and occupancy is high. But when the economy tanks, they can get hit hard. In 2007 and 2008, REITs lost 15.7% and 37.7%, respectively.

And when the economy runs too fast and interest rates rise, they lag. Many managers see REITs as bonds masquerading as stocks. There is truth to that. REITs tend to lag behind the market when interest rates are rising, just like bonds. REITs also are compared with stodgy utilities, which also throw off lots of dividends but do little else.

Ultimately, many fund managers didn’t buy REITs because they didn’t have the time or staff to figure out the industry.

Shorter version of that: REITs are boring and hard to understand so fund managers don’t bother spending the time to figure them out.  Also, I don’t by the “not good when the economy tanks” rationalization because the ’07-’08 train-wreck is included the 15-year period of out performance.  Also, you could say the same thing about tech stocks after 2001 or emerging markets over several time periods but clearly the funds have not stayed away from those sectors.  As an aside, the performance data for listed REITs should be enough to kill off the seedy and perpetually under-performing non-traded REIT industry.  However, one should never underestimate the determination of a broker stands to earn a commission exceeding 10% by selling to a less-than-sophisticated mark.  Ironically, the sector split happening this summer is going to force fund many managers to allocate more to REITs at a time when out-performance is unlikely to continue.  Again, from the WSJ:

Sadly for investors who now have to take the sector more seriously, the big gains recorded by REITs over the past 15 years aren’t likely to continue. REITs have been the best-performing asset class in five of the last six years, a record that’s unlikely to repeat itself even though valuations are in line with history.

Trees don’t grow to the sky, after all.  Either way, I’d expect that it’s going to be a busy few months for Green Street Advisors.

Economy

Loud and Clear: The still-flattening yield curve is telling the Fed everything it needs to know about the economy.  Whether or not the Fed listens is another matter.  See Also: Economists surveyed by the WSJ have sharply lowered their growth estimates for next year.

In the Rear View Mirror: Remember the US manufacturing renaissance after the Great Recession ended?  Recent jobs data suggest that it could be coming to an end.

Ticking Time Bomb: Bill Gross likens negative interest rates to a “supernova that will exlpode.”  But See: Denmark has had negative interest rates longer than any other country and hasn’t exploded yet.

Commercial

Extended Stay: Despite concern about new supply in the capital markets, hotels are still on pace for another great year.

Residential

Party Like it’s 2005: Some prospective buyers in Seattle are camping out overnight to put a deposit on a downtown condo.

Head Above Water: According to CoreLogic, 268,000 US homeowners regained equity in their homes in the 1st quarter of 2016.

Lonely at the Top: Calculated Risk on Merrill Lynch’s report showing some signs of slowing at the high end of the market.  See Also: Rent hikes are slowing but mostly at the high end where almost all of the new construction has been happening.

Profiles

Taking Stock – Silicon Valley is sick of dealing with Wall Street and looking to create it’s own stock exchange.

Hipster Darwinism: Fertility experts are telling men to ditch the skinny jeans if they want to have kids.  Also because they look ridiculous.

Stacked: As if online lenders didn’t have enough problems….new reports show that their quick underwriting often doesn’t pick up loan stacking – the act of multiple lenders making loans to the same borrowers, often within a short period of time, meaning that borrowers are far riskier than advertised.  This is not going to help win back investor confidence

Chart of the Day

WTF

Leave the Driving to Us: An allegedly possessed woman went apeshit on a bus in Argentina and fortunately someone video taped it.

Pet of the Week: Can someone out there please help find Pinky the cat a new home?  He’d make a great pet.  He’s also a Warriors fan and Draymond Green is his favorite player

Frivolous: A woman is suing a spin instructor in LA for bullying because she hurt herself in class.  When the world ends, there will be nothing left to inhabit the earth but insects and lawyers.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 14th – Underexposed

Landmark Links May 6th -Exodus?

Rush to the Exit

Lead Story… We’ve been talking a lot about the Bay Area market over the past few weeks and there are a few signs that some of the most egregiously expensive ones like San Francisco are nearing a breaking point where even well-paid employees can’t afford to live there anymore and may begin to leave.  A survey by the Bay Area Council published earlier this week found that 34% of Bay Area residents are considering leaving due to high housing costs and traffic.  I know that I’m starting to sound a bit like a broken record but….

“We can whine about this, or we can win by solving our traffic and housing problems,” Carl Guardino, president of the Silicon Valley Leadership Group, told The Mercury News. “The last time the Bay Area had seemingly solved its traffic problems was the worldwide recession of 2008. A recession is not how we want to solve our traffic and housing problems.”

I think it goes without saying that relying on massive global recessions to correct your cost of living and traffic issues is far from a viable long term solution.  For years now, service workers, educators, policemen, firemen, etc have been priced out of these and similar markets.  It should not come as a surprise that Bay Area school districts are facing a teacher retention crisis along with their housing crisis.  Teachers haven’t been able to purchase homes in the area for years.  Now they can’t afford to rent either.  Their salaries aren’t adequate to justify a long commute.  Cities have been aggressively increasing teacher pay but they can’t keep up with cost of living increases:

For a teacher earning $73,000 — the average teacher salary in the nine-county Bay Area — a rent payment of $1,800 would eat up 30 percent of monthly income. And just finding a rental at that price would be very difficult in this economy. The average monthly price for studio apartments in the Bay Area is $2,137, according to RealFacts, and two-bedroom, two-bath apartments are going for $2,850 — and for much more in hot markets.

“Every year we have a problem. It’s always a challenge to make sure that the schools are staffed,” said Jody London, an Oakland Unified school board trustee. “But with the rapidly rising housing market, the fact is it’s crazy right now. And it’s getting harder for teachers to stay in Oakland.”

And that’s in Oakland, which, while expensive isn’t close to Silicon Valley or San Francisco.  So how do you fix things?  Beyond building more housing  (which many younger residents are now in favor of much to the dismay of aging hippy NIMBYs), one idea is dramatically build out infrastructure to the outlying suburbs in order to fix the commuting issue and add more units where it is more affordable.    The BART is already being extended but this would require something far larger (and more efficient for that matter) in order to work.  From the Bay Area Council survey mentioned above:

Rather than building more housing in the Bay Area, 60 percent of residents say it should be built outside the region, with 84 percent saying they support stronger transportation networks between the Bay Area, Sacramento and other areas in the Central Valley to take pressure off regional housing supply.

“This is an understandable reaction to decades of failing to keep pace even minimally with the Bay Area’s housing needs and the transportation to support it,” said Jim Wunderman, President and CEO of the Bay Area Council. “There’s now an entrenched misperception that our region doesn’t have the capacity to add the housing we need. What’s unfortunate is that pushing housing outside the region still doesn’t solve the problem of supply and affordability in the Bay Area. It simply means that fewer working families and workers in lower-income jobs can afford to live here. It hurts the diversity of our region and our economy. It also means workers are commuting longer and longer distances in their cars, which pushes up damaging carbon emissions.”

The issue is that it would cost a fortune, take forever to build and would likely lead to environmentalist/NIMBY lawsuits.  Think of this as a Marshall Plan to fix area housing…assuming that it can actually get done which is, IMHO a stretch.  What I can assure you won’t work is what the City of San Jose is currently doing.  Silicon Valley’s largest city (and the nations 10th largest) has a goal of building 35,000 new units between 2014 and 2023 with 60% of that total being affordable.  Sounds like a great objective until you get into the details.  Rather than incentivizing developers to build more units,  the city is charging them an increased impact fee of $17/sf on all housing built by those evil “for-profit” developers which will then go into subsidized housing, which is apparently what San Jose means when they say “affordable” since it gets incredibly difficult to build market rate housing that’s anything close to affordable when you start layering on fees. Naturally, developers are mostly staying away and the city built only 426 units of affordable housing last year, around 20% of it’s lofty goal of 2,100/year.

Back to my broken record: the only way to fix the affordability crisis is to build more units to satisfy the demand in the region.  That won’t happen so long as cities continue to hike fees to the moon and make the entitlement process increasingly difficult.

Economy

Leading Indicator: The Wall Street Journal has seemingly cracked the code to the health the tech sector: sales of ping pong tables from a store in San Jose.  Lets just say that the tables have turned.  I bet you can find a great ping pong table on Craigslist though.

How Low Can You Go: Earlier this year, the dollar was on a tear as the Federal Reserve indicated that they would raise rates at least 4 times in 2016.  That likely isn’t happening as a sluggish economy plus mounting financial disasters abroad have made the Fed increasingly dovish, sending the greenback into a tailspin and leaving it at a 15-month low.  Interest rates and mortgage rates have both stayed low now that sluggish growth appears here to stay for the foreseeable future.  If dollar depreciation continues, one must wonder if a resurgence by foreign investors is in the cards.

Commercial

Market Update: Our friends at JCR Capital see market fundamentals disconnecting from tepid investor appetite, creating opportunity.  As always, their quarterly market commentary is a must read.  It goes hand in hand with our comments about the land market versus the home sale market that we made previously.  In a related story, fundraising for private equity real estate funds is slowing.

Don’t Call it a Comeback: After starting the year off extremely poorly, CMBS loans for multi-family assets are making a comeback, albeit with tougher underwriting standards.

The Commercial Real Estate Market in Once Sentence: FOOP (Fear of over paying) is the new FOMO (fear of missing out).

Residential

Shots Fired: Bill Pulte, the founder and largest shareholder of Pulte Homes had some very pointed criticism of his hand-picked CEO Richard Dugas before the company’s annual shareholder meeting this week. Basically, Pulte accused Dugas, a former protege of being incompetent when it came to monetizing existing land positions, leading to poor company performance and demanded his resignation.  Analysts don’t anticipate Dugas leaving anytime soon.  In recent years, the company has focused on profitability over growth and was mostly sidelined from buying land positions in 2012-2013 when others were active.  Much of this stems from the Centex merger in 2009 according to the Wall Street Journal.  That transaction saddled the new company with a ton of land inventory that they had to write down effectively sidelining them from buying lots at a better basis when the market bottomed out.  They are still sitting on some of those lots today even while out buying more.

Sluggish: The previously-hot million-million-dollar-plus home sale market is slumping. See Also: Some of America’s fastest moving housing markets are slowing down.

Profiles

Hero: The next time that someone asks me why I like dogs more than people, I’m going to send them this:

A four-year-old white Labrador called Dayko has been hailed as a hero after rescuing seven people from the aftermath of the Ecuador earthquake – before dying from exhaustion.

RIP Dayko….and now I need a Kleenex.

Chart of the Day

I’m finding myself wishing that I was seeing more of this….

WTF

Finger Lickin’ Good: A woman in Florida (naturally) reported to local police that a chicken sandwich that she ordered “contained semen.”  Consider this a friendly reminder that fast food is disgusting.  Also, if you absolutely must eat at a KFC, don’t ask for extra mayonnaise.

Mistaken Identity: Villagers in Indonesia were disappointed to learn that an “angel” that fell from the skies is actually a sex toy.  The quote from this article is to good not to post:

The tale begins in Bangaii, days after an auspicious solar eclipse appeared over the region. A 21-year-old fisherman was walking the beach when he spotted a beautiful, lonely angel on the sand. Naturally, he took her appearance as a sign from heaven and he gently bundled her up and took her home.

There, he attired her in a blouse and skirt, which his parents changed daily as a sign of respect. Intrigued by reports (or maybe just really bored), local police visited the house to see the angel for themselves.

There, they made the less-than-holy discovery.

“It was a sex toy,” police chief Heru Pramukarno told a local newspaper.

What was unclear was whether that ruined or made the fisherman’s day.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 6th -Exodus?