Landmark Links November 11th – Surprise?


Lead Story… First off, I have to admit that I found today’s post rather difficult to write.  Although I try not to discuss politics on this blog I was a Political Science major in a former life (insert useless liberal arts major joke here) and still find our electoral process fascinating especially when the outcome runs counter to conventional wisdom.  As such, I’ve been a bit distracted this week to say the least.

Over the past 6 years or so the US bond market has responded in a remarkably consistent manner to domestic and geopolitical financial turmoil.  Every time an even has taken place that has the potential to move interest rates – especially at the long end of the yield curve, they have behaved in the same way: tby moving down – even in instances where conventional wisdom was that they would rise.  From the S&P downgrade of US debt to the European bailout to the debt ceiling debacle, to the Fed raising short term rates, to Brexit and everything in between there has been an decidedly downward market response when it comes to interest rates and by extension the cost of capital used to finance real estate.  However, that could be changing as I write this post.

Going into Tuesday’s election, online betting markets were giving Donald Trump a 15% – 20% chance of winning as were most so-called experts parsing the entrails of opinion polls.   We all know how that turned out. Conventional wisdom seemed to be that a (highly unlikely) Trump win would lead to uncertainty and volatility in the markets which would once again beget a flight to safety trade. The prevailing view was that much of that “flight to safety” capital would once again pour into into the US Treasury market, driving yields substantially lower.  However, that is not how things have played out.  At least not so far.

As I write this, longer term bonds have sold off substantially, leading to higher interest rates and swap spreads have widened.  It seems to me that markets are anticipating that Trump will spend a lot on infrastructure and tax cuts and finance both with debt.  All of which is being viewed as inflationary.  Combine this with the fact that we are already seeing wage growth tick up of late and you have a recipe for rising inflation.  Again, I have no clue whether this trend will hold (If I had the ability to accurately forecast interest rates, I’d be on a yacht somewhere rather than writing this blog) and it could reverse at any point due to either economic, policy or geopolitical circumstances.  The important thing to me is that the market reacted differently to potential instability and turbulence than it has at any point in the past 6 years and that response, in and of itself is an important signal that change could be afoot.

At the moment, the movement in rates is still relatively small and short term rates have barely budged.  However, this is a development that has to be monitored closely as interest rates are such a key factor in the cost of real estate capital and by extension valuation.  The so-called “flight to safety” trade into US Treasuries may have hit an inflection point this week.  If that is indeed the case, we need to hope that long-awaited robust real economic growth will accompany any further increase in borrowing costs but only time will tell.  When it comes to the cost of capital moving forward, things just got interesting.


Downward Trajectory: Weekly unemployment claims headed lower again.


Up in Smoke: Industrial and retail real estate markets stand to gain from marijuana legalization.  However, a lack of access to the banking system due to illegality at the federal level remains a serious headwind.  See Also: Forget Clinton and Trump.  Weed was the real winner of the 2016 election.

Turf War: Santa Clara and San Jose are now suing each other over big commercial developments.  Thanks CEQA.


Scapegoat: There’s a provocative new theory out there crediting California’s restrictive zoning in coastal cities for Trump’s electoral college win.  Regardless of your political persuasion, the logic here sort of makes sense:

“Switching gears, I have a new explanation for Trump’s win that does not involve Weiner or talking about Deplorables or emails.   California’s zoning codes caused the win.  If California had Texas style housing regulations, then 80 million people would live in California and the state would have 100 electoral votes.  The state would still vote Democrat (because of the composition of these new voters) and Clinton would have won.  Why would so many people move here? It is heaven.   With Hong Kong style density and water markets, the state could accommodate such growth.” – Matthew Kahn

Electoral Roundup: The NAHB put together an excellent summary of the election’s impact on the home building industry.


Risky Business: Equity crowd funding has become a thing in the UK but the results from unsophisticated individual investors putting money into very early stage startups has been abysmal to say the least.

Cord Cutting: The no-subscription streaming TV service space is about to get very competitive as several large tech companies look to compete with Dish Network’s SlingTV.

Black Box: Several big banks passed on selling shares of Uber to high net worth clients due to the ride-share giant’s unwillingness to discloses financials and other key pieces of data.

Chart of the Day

Renter incomes are rising but have a long way to go.

Renters' Incomes Haven't Kept Pace With Housing Costs


The Signs Were There: Rapper Montana Millz, whose songs include “Sell Drugz” was arrested last week…….for selling drugs.

Didn’t They Make a Movie About This? A large snake slithered out of the overhead compartment on an Aeromexico flight, briefly causing a panic.  Samuel L. Jackson was unavailable for comment.

Protest Vote: A candidate for Treasurer in the California City of Oceanside was so unpopular that she lost to her opponent by 6% despite the fact that he died over a month ago.  I love this type of local political story because it frequently results in awesome quotes like this from Oceanside City Councilman Jerry Kern:

“Even though Gary passed away, he is still better qualified than she is.”

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

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Landmark Links November 11th – Surprise?

Landmark Links July 1st – East Coast Edition


Happy 4th of July!  First off, Jason Pierre-Paul of my beloved Giants and his disturbingly-mangled hand has a public service announcement for you: don’t light fireworks off in your hands as doing so can leave you disfigured and also cost you tens of millions of dollars in the NFL free agent market.  To paraphrase Apu from the Simpsons: “Celebrate the independence of your nation by blowing up a small part of it….just make sure that it doesn’t include your hand.”

Lead Story… The Panama Canal will be opening up a new lane for larger ships in the coming weeks.  One of the economic winners will be owners of industrial buildings in a quaint area of South Carolina 200 miles from the sea where a construction boom is underway to accommodate goods coming into the Port of Charleston, which is currently undergoing dredging that will make it the deepest harbor on the east coast.  Consider it the new Inland Empire of the South.  From the Wall Street Journal:

In the past few years, the rolling hills and farmland surrounding Greenville and Spartanburg have given way to massive warehouses and industrial parks. Restaurants in Greenville, S.C.’s formerly neglected downtown cater to corporate managers and engineers from Germany and Japan. Trucks clog the two main interstates, carrying engine parts and finished goods to and from the region’s growing number of manufacturing plants.

More development is on the way: over six million square feet of warehouse space is under construction in the Greenville-Spartanburg region, a scale typically seen in major cities like Philadelphia and St. Louis, according to CBRE Inc., a real-estate brokerage.

The construction frenzy is being fueled by developments at the Panama Canal, nearly 2,000 miles away. The new, wider ship channel will allow bigger ships to pass through, lowering the cost of bringing Asian-made goods directly to the East Coast.

Industrial boom

Sound familiar?  It should if you’eve ever spent time in the former cow pastures west of I-15 in San Bernardino and Riverside Counties that now have millions of square feet of class-A warehouses that serve as a massive distribution hub for the ports of LA and Long Beach.  Some are arguing that the canal widening will allow Asian exporters to hedge against the labor issues that have boiled over in LA and Long Beach in recent years, grinding commerce to a halt even at the expense of a few extra shipping days to get to market.  The counter argument is that days to market will still rule and there isn’t likely to be much of any drop off in LA and Long Beach.  Either way, the net volume of traffic going to east coast ports is likely going up to some extent and that is what industrial developers are anticipating.  This could potentially be a massive economic stimulus for an area that was formerly a textile hub and lately had best been know for automotive manufacturing. More from the Journal:

The expanded Panama Canal “is going to drive industry and create even more businesses there,” said Joel Sutherland, director of the Supply Chain Management Institute at the University of San Diego. “Having a regular flow of containers…will attract major manufacturing, then their suppliers, then their suppliers’ suppliers, and ultimately more people.”

From the Port of Charleston—which is dredging its harbor to be the deepest on the East Coast—container cargo makes the quick trip by rail to a freight hub in Greer, S.C., known as the Upstate’s “inland port.”

Trucks pick up those containers of component parts and retail goods bound for nearby factories and distribution centers. And from there, truckers can reach Atlanta or Charlotte, N.C., in two or three hours, and most of the rest of the Eastern U.S. within a day’s drive.

“The Panama Canal is not even completed, the port dredging has not been completed, but we’re already attracting major distribution and manufacturing companies,” said Trey Pennington, an industrial real-estate broker with CBRE in Greenville. “The Panama Canal will fundamentally change the market dynamics of South Carolina in the coming years.”

It’s also a given that more economic growth and well-paying jobs will lead to more residential and retail development which leads to… guessed it – NIMBYs who, as always are coming out of the woodwork to protest anything new being built:

In downtown Greenville, higher-end residential and retail development—a Brooks Brothers clothing shop opened on Main Street in 2013—is forcing out some longtime residents. Across Greenville and Spartanburg counties, residents say traffic congestion has never been worse.

The Upstate’s main roads are lined with razed fields where warehouse structures rise in various states of construction. Conservationists say the region’s natural landscape in the foothills of the Blue Ridge Mountains—which draws outdoor enthusiasts and an especially large number of professional and amateur cyclists—is under threat as housing and industrial construction push further out from the cities and transportation corridors.

“The Upstate needs to balance this development with protecting valuable green spaces and water quality,” said Andrea Cooper, director of Upstate Forever, an environmental advocacy group.

In a strange way, I’m relieved to see that the “If You Build It They Will Whine (and most likely sue you)” crowd doesn’t confine itself to coastal California.  If the Panama Canal expansion ends up resulting in a 10% – 20% increase in goods going through Charleston as some predict, the Upstate could be in for a prolonged economic boom that will likely keep the anti-growth NIMBY crowd busy for the foreseeable future.  If that scenario does play out, look for the region to become a prime growth corridor with all of the positives (and yes, some negatives) that go with economic expansion.  South Carolina may be getting it’s own version of the 909 so be on the lookout for the flat brimmed hats, barbed wire tattoos and lifted pickup trucks.


Stick a Fork in It: The futures markets are now saying that the Fed won’t raise interest rates until 2018 post-Brexit.  See Also: Government bonds from developed economies have been this year’s jackpot investment.

News Flash: It’s really, really expensive to raise a child in the US.  Per the US department of agriculture, the average cost to raise a child born in 2013 from birth to 18-years old is $245,340, ranging from $176,550 for low-income families to $407,820 for high-income families.   This only covers a kid to age 18 so it DOESN’T include college.  It’s truly a wonder that young people are delaying household formation coming out of the Great Recession…..


Scarcity: 1031 exchange buyers are having a difficult time finding enough deals to trade into, leading them into unfamiliar markets and product types and helping to bid up already-high commercial real estate prices.


Unintended Consequences: There has been no group of people more wrong over the past 7 years than the “interest rates have nowhere to go but up” crowd.  The Brexit is just the latest example of why this line of thinking has been incorrect. There is also a credible argument that Brexit could set off a chain of events that would result in mortgage rates in the 2s.  I’m not saying that it will happen or even that it’s likely but the possibility shouldn’t be ignored based on the deflationary forces that we are seeing in the world economy.

Not in the Ballpark: US housing supply continues to lag far behind demand just as it has been doing since 2009.

Unsustainable: Inflation-adjusted rents rose 64% from 1960-2014 while real household incomes increased only 18%, resulting in the share of cost-burdened renters nationwide exploding from 24% in 1960 to 49% in 2014.  If you want to know why so many people struggle to save for a down payment, this is a good place to start:


Hero: Meet the world’s first robot lawyer, a free online chatbot who has managed to overturn 160,000 parking tickets in London and New York, saving users nearly $3.9MM in fines since it was launched 21 months ago.  The 19 year old British coder who invented this should win a Nobel Prize.

Predictable: There is one industry that is about to make a fortune on the Brexit regardless of what happens with regards to markets and the economy: lawyers.

Stressed: The Federal Reserve’s annual bank stress tests have spawned a multibillion-dollar industry where banks hire consultants to manage other consultants  in order to help them pass, fueling a never-ending feedback loop of red tape and bureaucracy.

Chart of the Day.

Supply and Demand for Housing

Supply = Blue, Demand = Gold

Difference Between Housing Supply and Demand


Breast in the World: Just in time for July 4th, the Journal of Female Health Sciences recently released a new study that found the US rules the world in a very important category: American women have the world’s largest boobs.  The study excluded surgical enhancements, which of course naturally meant that only two women in Orange County – which qualifies as a very different type of Silicon Valley – were eligible to participate.  Yes, this is blatant click-bait but I’m going to milk it for all it’s worth as I feel it’s my duty to augment your base of knowledge by keeping you abreast of important news.

Video of the Day: In a development that will likely alter the path of human history, some genius figured out that beer pong is more fun and challenging if the cups are placed on top of a Roomba vacuum cleaner which is then placed on top of the beer pong table.  Bring a Roomba to your 4th of July BBQ and you will be the most popular person there.  Guaranteed.

Vegan News Roundup: Vegans are now forcing their bat-shit-crazy religion on their dogs (which, by the way are carnivores) because vegans are mostly insane.  Side note: this definitely qualifies as animal abuse.

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

Visit us at

Landmark Links July 1st – East Coast Edition