Real Estate Espresso

On today's show we are taking a look at counter party risk. This is a term that every investor should be familiar with. It's an issue that we investors face on a daily basis. We are waiting for another transaction to close before a loan can be paid off. That's counter party risk. We're waiting for materials to arrive in order to complete a certificate of occupancy in order to switch from construction financing to permanent financing. That's counter party risk. Your cousin who you loaned $10k to lost their job and now you need that $10k for something else. That's counter party risk. Virtually everyone became familiar with counter party risk in the wake of the 2008 financial crisis, and again in the wake of the Greek Sovereign debt crisis that threatened to topple banks in continental Europe. Here we are again. Two weeks ago, crypto lending platform Celsius froze user accounts. The idea behind crypto is that if you are holding assets in your own wallet, then nobody can take them from you. But what happens if you are holding assets in a lending platform, or perhaps in the account at a crypto exchange? What happens if that crypto exchange goes bust? ---------------- Host: Victor Menasce email: podcast@victorjm.com

In another sign that things are upside down in our current economy, rents are continuing to rise for single family homes. There is an acute shortage of homes for rent in a lot of primary markets. You might be wondering what is behind that incredible metric. In fact, some tenants are in such an acute need for the rental property of their choice, that some tenants are offering above asking rent. What we're seeing are two separate economies. There are home owners who have cashed out, sitting on lots of cash. They can afford to negotiate with landlords and even offer above asking rent. Then there are the working tenants who are paying what they can afford based on their salary. The economic value proposition to these two tenants are vastly different. Really strong tenants are appearing in the market and they're paying top dollar. They easily qualify as tenants. They have 800 credit scores. They are spending 5% and sometimes less of their household income on rent. So when they offer above asking rent, they skew that market. --------------- Host: Victor Menasce email: podcast@victorjm.com

We real estate investors are entrepreneurs. Every time we purchase a new asset, it's like starting a new business. But if we've done it before, that new business is more like starting a new instance of a franchise than an outright new business. There are systems in place, designed to replicate and scale. Our commercial tenants are entrepreneurs. Some are starting new businesses. Well, thanks to Simon Black, he put a new report on barriers to business on my radar. This 144 page report was published in February of this year by the Institute for Justice. The authors of the report examined the difficulty in setting up a new business. To better understand the local regulatory barriers entrepreneurs encounter, this first-of-its-kind study analyzes the rules, regulations, and requirements to start a business in 20 cities across the country. This report identifies and quantifies the regulatory hurdles entrepreneurs experience, while pointing to specific reforms cities can pursue to make it cheaper, faster, and simpler to start a small business. The number of regulatory steps involved in opening a business is truly shocking. In Atlanta it takes 76 steps to open a restaurant and 68 steps to open a barber shop. Boston requires 92 steps to open a restaurant and 81 to open a barbershop. Phoenix requires 21 steps to open a home based tutoring business. Our businesses don't need government handouts with another layer of bureaucracy to qualify for the money. Our businesses need government to get out of the way and let commerce actually happen unimpeded by red tape. -------------- Host: Victor Menasce email: podcast@victorjm.com

We have seen a large decrease in the value of crypto-currencies. That's both bitcoin, etherium and the thousands of other coins out there that make up the eco-system. The question is, how has the crypto market influenced the labor market? We know that in 2020 and 2021, government stimulus has created an incentive for people to collect a pay check and not work. That is reflected in the large reduction in workforce participation, and the huge number of job openings, particularly in the retail service sector including hospitality, food and beverage. When those bartenders, waiters, line cooks were sitting at home watching netflix, they were also dabbling in bitcoin. Several restaurant owners I've spoken with have witnessed a sudden and recent return to work from people who all of a sudden decided that waiting tables was not such a bad idea after all. Is this a result of the combination of stimi-checks having dried up, and now crypto can no longer fund their lifestyle? --------------- Host: Victor Menasce email: podcast@victorjm.com

Dana Samuelson is a real expert when it comes to physical gold. On today's show we're talking about how physical gold can be an effective hedge against inflation. You can actually purchase physical gold from within the US at Dana's company American Gold Exchange. To connect visit amergold.com or email info@amergold.com. ------------------ Host: Victor Menasce email: podcast@victorjm.com

Robert Helms is the host of The Real Estate Guys Radio Show, and the organizer of the annual Investor Summit, now in its 20th year. On today's show we're talking about how to make sense of the current economic environment. ------------------ Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about bad behaviour in the world of construction. When you are building anything in the world of construction, whether it's a light renovation or a high rise building, you will experience the full spectrum of responses from suppliers and trades people. You would think that the best prices are found in the volume market and with those suppliers who serve the largest builders. I believe that to be true. But the best pricing is truly reserved for those few large builders. I recently compared the pricing at a commercial lumber supplier with the big box stores. It pays to shop around. We have received a wide range of quotes for all manner of products and services. We are experiencing all kinds of quotes that span the spectrum. Some of these are outliers that simply defy logic. It's easy to wonder whether these quotes are the new normal. Am I out of touch, or is the architect out of touch? It's frustrating to waste time talking to people that are not a fit for your project. But the best thing to do is to let go of any emotional baggage associated with those interactions and not allow the memory to influence future interactions with high quality suppliers that you ultimately want to work with. It is truly the wild west out there at the moment. You can expect to have to talk to more people than ever before in order to find subcontractors that you can work with. This will take more time. It will require you to dedicate more resources to shopping around than might ever have been your practice in the past.

On today's show we are talking about my forecast for the stock market this year. Why are we talking about the stock market on a real estate investment podcast? Many investors are investors first and real estate investors second. I happen to be one of those people who has lost faith in the inner workings of the stock market and am heavily weighted in real estate, but I'm not exclusive to real estate. I also hold hard assets like precious metals. I don't invest in the stock market because I understand it. I've been an officer of a publicly traded company. I've watched the CEO of my company go on Jim Cramer's TV show and lie to the investing public. I've seen how little control the investing public has. ---------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about the use of digital tokens for trading real estate. Over the past week I had numerous discussions with people making investments to create a digital token platform that would allow for the derivative trading of fractions of real estate or shares in exempt market offerings. I personally know of at least five companies that are making investments to develop the token technology to trade in real estate and in securities offerings. The theory goes something like this. Once real estate is carved up into tokens that can be as small as the mind can imagine, these fractional shares become liquid and tradable on a secondary market. The technology allows for the transacting of tokens in the blink of an eye. The underlying technology can be used for anything. You can certify the authenticity of a token by virtue of the distributed nature of the way the token is created. There are literally thousands of copies of the token distributed across computers all over the world. This construct makes tampering with a token practically impossible since you would need to tamper not only with the local copy in your possession, but with the thousands of copies in existence whose whereabouts you have no idea. What these tokens represent is a matter of definition. You could use them to trade baseball cards, concert tickets, works of art, a Rolex watch, literally any meaning you wish to attach to a token as a certificate of authenticity. As someone with a technology background, I believe the underlying technology has a lot of promise to lower the transaction cost and revolutionize many types of commerce that don't exist today. The problem I see with tokenizing securities is that securities are governed by a complex fabric of securities regulations with multiple jurisdictions each of which can be slightly different. The issue of compliance requires using the existing rules and regulations. The securities Act of 1933 generally doesn't allow for the trading of exempt securities, depending on the exemption. The requirement to comply with existing regulations means that the digital token system would need to parallel the paperwork required to comply with securities regulations. Until the SEC, and all of the state and provincial securities regulators recognize digital smart contracts that are possible using digital tokens, the benefits of digital tokens will be completely negated by the need to comply with existing regulations. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about a question that is on everyone's mind. Construction prices are rising. Interest rates are rising. Not only are rates rising, but it looks like lender liquidity is shrinking. Rents are rising, but who knows for how long? Salaries are rising for now, but could flatten or even decline if we experience an economic downturn. Will that apartment project be affordable when it's completed in two years from now? An economic recession seems all but certain. The question is, how do you underwrite a project in these market conditions when so many of the critical variables seem to be so uncertain? I just came back from the 20th annual Investor Summit on Sand and these questions and more were the topic of seemingly every conversation whether it was over breakfast, or dinner, or late at night. Almost all of the 282 attendees are trying to make sense out of it. We had Danielle DiMartino Booth, who worked at the Federal Reserve Bank of Dallas for nine years provide us with an insider perspective on the most recent announcement last week from Federal Reserve Chairman Jerome Powell. If you would like to see a replay of her talk, click the link ---> https://fb.watch/dHcuFbbHe6/ -------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about energy insecurity and why we can expect to see continued high energy prices well into 2023. ------------------ Host: Victor Menasce email: podcast@victorjm.com

David Morris is based in Birmingham, Alabama where he is part of the core team specializing in EQRP. They also have a construction manufacturing project that when completed will deliver high volume construction components into the home building industry. To learn more or to connect with David, email him directly at david@eqrp.co. ---------------- Host: Victor Menasce email: podcast@victorjm.com

Axel Monsaingeon is based in Montreal Canada and is developing on Main Street in a small resort town North of the city. He purchased a building that burned to the ground a few weeks below closing and is dealing with the complexity of remediating what is now considered an environmentally contaminated site. Today's show is a lesson in what can happen when the unexpected happens. To learn more or to connect with Axel, visit realestateeffect.ca ------------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about shifts in economic data that are coming fast and furious. The economic indicators are changing faster than at any time I can remember. In fact there are so many things happening right now that it was somewhat difficult to decide what to talk about today. We've just had a historic interest rate increase on Wednesday of this week. The words of Jerome Powell have been headline makers. They have been picked apart and analyzed. For me, the biggest tell in that story is that there were no questions in the question period regarding the housing market. Sometimes these economic indicators are changing daily. But we're not going to talk about the interest rate increase. Instead we're going to examine why The National Association of Realtors continues to assert that there is a shortage of nearly 6.8 million homes across the United States. In fact, this statistic has been quoted in the news for an entire year and is almost widely accepted as fact. In fact that first report came out on June 16, 2021. Since then, the association has continued the narrative that the nation needs another 6.8M units. However, these statistics fail to hang together when you look at the data on a local level. The key to this story is understanding demographics. ---------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are looking at the question of whether value add strategies can be effective in an environment of rising interest rates. This realization came from a discussion with Ken McElroy, legendary investor and principal at the MC Companies. We went through a thought experiment about a simple value add project that would be representative of a typical apartment turnaround project. ------------------------ Host: Victor Menasce email: podcast@victorjm.com

The housing market has taken a huge hit this year as mortgage interest rates have surged and homeowners scale back on purchases. The latest casualties in the property technology world are Redfin and Compass, which both announced layoffs today that combined amounted to about 920 people. In a letter to employees and published on the company website, the CEO Glenn Kelman wrote and I'm going to quote a portion of the letter. ------------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about about how to navigate construction debt in the current rising interest rate environment. But before we talk about rising interest rates, we need to talk about the kind of debt you may want to use for your projects. There are so many different types of debt. On today's show we're going to talk about the ones we like to use and which ones we use with extreme caution We believe that in a rising interest rate environment, all borrowers need to be careful. When people think of borrowing, the most common source is a bank. In our experience, banks tend to have very narrow lending criteria. They are generally offering the lowest rates, but often have terms that are not a fit for your projects. ------------- Host: Victor Menasce email: podcast@victorjm.com

We're going to look at a sale offer of a commercial office building and we're going to dissect the viability of this offer. The seller in this case is offering to sell a property that has an as-is appraisal for nine million dollars from a major brand name commercial brokerage house and appraisal firm. The seller purchased the building a couple of years ago for 5 million dollars. He is willing to seller finance the building with $750,000 in secured debt and another $2.25M in forgivable debt that would be unsecured. The offering prospectus has a plan to convert the building to residential, and the assertion is that the building would be worth $17M after the conversion is complete and leased up and stabilized. The building is currently 50% occupied. The question is whether this offer is a good deal? ------------------- Host: Victor Menasce email: podcast@victorjm.com

Isabel is based in Phoenix Arizona where she owns and operates a portfolio of residential assisted living homes. She also runs the RAL Academy which has trained thousands of owners and operators how to develop and run successful residential care homes across the nation. To learn more, and to connect with Isabel, visit RALAcademy.com. --------- Host: Victor Menasce email: podcast@victorjm.com

Noel Walton is based in Killeen Texas, home of the US Army's Fort Hood where he and his colleagues have formed "The Joint Chiefs of Real Estate" (JCORE). They are investing in multi-family assets and are bringing military discipline to the world of real estate investing. To connect or to learn more, visit jcoreinvestments.com ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about how this business looks easy from the outside. I had dinner with an investor last night and they kept marvelling at how easy we made these huge projects look from the outside. Well, I'm here to tell you that nothing could be further from the truth. Today's show is all about problems. Problems, problems, problems. They seem to be everywhere. Let's be clear. This is not whining or moaning and groaning. Although to some, it may sound like whining from a distance. Real Estate development projects are conceptually simple. But it's the thousands of details and regulations spanning everything from design, to construction, to capital to entitlements and tax. Each of these steps represents an opportunity for a problem. On today's show I'm going to just touch on a few. ------------ Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about how to navigate economic cycles. In a rising market, everyone looks like a genius. The rising tide lifts all boats and celebrations abound each passing month. Some of that is real wealth creation, and some is paper wealth creation that might take a very long time to realize. We are absolutely in a destructive environment for many on a global basis. At the same time as we are experiencing supply side shocks to the economy, our government and central bankers are trying to tame inflation by increasing interest rates to reduce demand. An interesting thing has happened during this economic cycle in real estate. We have not lowered our standards for underwriting in order to meet the more competitive market environment. We know that economic cycles happen. The cause might be unknown. The timing is unknown. The depth is unknown. But you know that there will be an up cycle and a down cycle. Anything you do in the world of real estate investing has to be designed to span economic cycles. When you buy a building and sign a loan agreement with a 25 year or a 35 year amortization, you know that there is going to be a recession during that period. There might be three recessions or maybe five recessions during that period. Nobody knows how many. But you had better design your project to survive those up and down cycles. ----------------- Host: Victor Menasce email: podcast@victorjm.com

There are numerous articles out there in the mainstream media ranging from the Wall Street Journal to Fortune Magazine stating that we are now in a completely different market compared with the past two years. The articles then go on to assert that we cannot rely on historic data for comparable sales because the market conditions have changed. On today's show we are asking the question about whether we truly are in a new housing economy? What methods can we use to determine property value? If you ask any appraiser, they will assert that the traditional method of valuing property looks at a trio of methods. Comparable sales Replacement cost Multiples of net income Professional appraisers look at all three of these metrics and then decide which of the three should take precedence in the specific circumstances for a subject property. --------------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about leverage and the impact of rising interest rates on apartment owners. Leverage in any transaction can be your friend and it can also bankrupt you.if you are over leveraged. Many investors have been betting on inflation continuing to rise uniformly across the economy. When prices rise, then eventually wages will rise too in order to keep pace with inflation. Operating expenses will increase, but on average rent growth will outpace the rise in operating expenses. But what about interest rates? What if interest rates rise so fast that the result is negative cash flow? Investors have bid up the prices of apartments over the past couple of years to levels that make no sense to me. We have read the reports of cap rates approaching 3.5% in many cities across the US including Austin, Denver, Nashville, to name just a few. When interest rates are pushing 4.5-5%, then the bank is earning higher yield than you are as an investor. That is very reminiscent of the 2007-2008 timeframe. It's as if investors failed to learn the lesson from the 2008 financial crisis. ------------------ Host: Victor Menasce email: podcast@victorjm.com

On today's show we are discussing a question that I get very frequently. So I'm not going to attribute the question to any single listener. The question is whether: A three story 30 unit apartment building with below market rent is a good purchase to reposition and increase rents up to market as a value creation play? The theory is that the property has been mismanaged and that by making improvements to the property you can increase rents and therefore increase the value of the property. The fact that the property has below market rents means that the building is very likely an older building. This means that the building is definitely going to be positioned as a C class building and it will be virtually impossible to position the building as anything but C class. ---------------- Host: Victor Menasce email: podcast@victorjm.com

Emma Powell is based in Salt Lake City Utah where she runs a multi-family investment club that had its roots in the syndication business. Yo connect with Emma visit http://highrise.group. You will definitely want to hear this fascinating perspective on another way to participate in the world of large scale apartment investing. ------------------- Host: Victor Menasce email: podcast@victorjm.com

Loe Hornbuckle is based in Dallas Texas where he leads the Sage Oak group of Assisted Living and Memory Care homes. Loe is a business partner of mine in the assisted living business and on today's show we're talking about the lessons learned between generations of new service offerings being introduced into the marketplace. The Sage Oak is hosting the grand opening of its newest campus in the North Dallas suburb of Denton Texas this weekend. To connect with Loe, visit goodhorncapital.com, or thesageoakcompanies.com.

Today's question comes from Atisha in Philadelphia. I was blind-sided with the news that my recently bought two-family home is legally a SINGLE FAMILY dwelling. I closed on the home in November of last year. It appraised for $300,000. I live in one unit and rent out the other on a short-term basis on Airbnb. I now have to obtain a Limited Lodging License in order to continue renting on Airbnb. I went through the process in order to do so and was blind-sided at the L&I office with the news that the property I bought is not actually a multi-family home, but a single family home. The seller applied for RM1 classification but never obtained any permits to do the work of flipping the home from single-family to multi-family. All of the work that the seller did to the property was done ILLEGALLY, without any approval or permits. I went through the process of purchasing this home; having extensive credit checks done on me, paying for home inspections, paying for appraisals and expecting the utmost due diligence from my lenders, the appraiser they hired, my title company and realtor. Now, I am here today with the information that there was fraud somewhere along the line and I now cannot LEGALLY rent out my home for the purpose it was purchased. I am kindly asking for your advice on what steps I need to take moving forward. I am in need of an attorney who will be able to fight on my behalf. Atisha, I'm sorry to hear about your troubles. First of all, I'm not a lawyer and I don't want to be in the role of providing legal advice. I can make an introduction to two lawyers in the Philadelphia are who I would trust to help you with issues of this sort. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about why interest rates will continue to rise until more people lose their jobs. It sounds strange to say this, but the Fed wants to see people lose their jobs. On today's show I'm going to describe why that is. On yesterday's show we reviewed a new book written by Ben Bernanke, former chairman of the Federal Reserve. It was only after reading that book that I fully understood the comments being made by current Fed chairman Jerome Powell. There are two mandates at the Federal Reserve. 1) Help the economy achieve full employment 2) Maintain stability in financial markets including price stability. The second mandate really means managing inflation. It's no secret that we are experiencing a global inflation phenomenon. This is not limited to the US. But the theory is that when inflation becomes entrenched, then the expectation of inflation becomes much more difficult to overcome. The result is a wage and price spiral. We are now seeing employees demanding cost of living adjustments to cope with inflation. These adjustments were not happening on a large scale in 2021, but we are seeing both individual and collective agreements where employees are seeing wage gains in excess of 10%. The theory goes back to the inflationary period of the 1970's and 1980's. In those days the expectation of inflation became entrenched in society and a wage and price spiral took hold. Prices increased and employees demanded higher pay in order to keep up. Higher wages would translate into higher expenses which drove higher prices in an endless cycle. Unemployment is currently running at 3.6%. This is the lowest unemployment since the 1950's. Unemployment below 4% is considered to be full employment. So the economists at the Fed know that until unemployment jumps to maybe 5-6% we will continue to see an upward spiral on both wage and price growth. The current chair of the Federal Reserve must be very guarded in their language. Their words have the power to influence the market in both the short term and the long term. But a past Federal Reserve Chairman is not bound by the same constraints. In my view, after reading Ben Bernanke's book, I believe I understand the relationships that are at the core of the economic models they are using the to explain how our economy functions. The Fed's dual mandate is to deliver full employment, and to manage price stability. They must have both, not just one and not the other. If they have to sacrifice one of those two metrics temporarily in order to get both, I'm convinced that they will allow unemployment to rise in order to stop inflation. -------------------- Host: Victor Menasce email: podcast@victorjm.com

I met G Edward Griffin about six years ago. He's a documentary film maker who wrote the book “The Creature From Jeckyll Island “ This book is a historical account of the formation of the federal reserve back in 1913 and the clandestine manner in which the Fed was conceived. As real estate investors we hear reports about the Fed and how it influences so much of our investment environment. There is no shortage of people opinionated about the Fed. But how many truly understand the Fed and how it operates. So when Ben Bernanke, chairman of the Federal Reserve during the financial crisis of 2008 and it aftermath wrote a book about the Fed and his personal perspective on the way in which the Fed plays a disproportionate role in influencing our economy, I just had to read it. I also decided that I would share it with you. I'm not here to say that I endorse or promote everything that he has to say. But he has a perspective on the Fed that few others do and I feel strongly that something so vital to the underpinning of our financial system is worth understanding. The book starts with a historic perspective from inception and how the role of the Fed has evolved over the years, through the Great Depression, two world wars, the entrenched inflation of the 1970's and 1980's, the financial crisis of 2008 and now most recently the pandemic and an unprecedented period of financial liquidity. Fast forward to the pandemic, and it's clear that the Fed didn't have the tools to help the economy directly from the disruption of the pandemic and the lockdowns associated with it. The tools employed by the Fed are new. Lowering interest rates would not put food on the table for those people who were forced to stay home for months during the period of social isolation. Ben Bernanke was not at the helm during this momentous time. But he still has relationships with many of the people who continue to be directly involved in the decision making. He understands what rules needed to change in order to attempt bringing stability to the financial system. He is very quick to point out where the Fed has made mistakes in the past and made economic matters worse instead of better. His perspective is current to today's dilemma of how to fight the inflation that has surfaced as a result of overshooting the stimulus initiated to fight the pandemic. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are looking at the question of whether globalization is dead. The conflict in the Ukraine has made it clear that some global supply relationships may be severed for years to come. The rise of China's power and influence globally has given some reason to pause and question whether western countries should be manufacturing in China. There is no question in my mind that globalization is changing, but the question is how? If we look at the forces that affect globalization, they are best encapsulated in the concepts of the ground-breaking book “The World is Flat” by Tom Friedman. This book was originally published in 2005 before the advent of Facebook, or AirBnb, or Twitter or a host of things that we now take for granted. The trends he identified in that book have played out in a way that you would have think he scripted the outcome. When we speak about globalization, we need to define it a bit better. Are we talking about finance, manufacturing, travel, real estate, agriculture, transportation, construction. Historically, to act globally, you needed to be a country. Then as the industrial revolution progressed, you needed to be a company. Today, for the first time in history, it is possible for individuals to operate globally. This a world where an entrepreneur like Elon Musk can subvert attempts by the Russian military to knock out the Internet in the Ukraine. Shortly after a tweet, there are hundreds of Starlink terminals in the Ukraine. Now there are more than 10,000 Starlink terminals and another 5,000 are on the way. More than 150,000 users from Ukraine are on Starlink on a daily basis. ---------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about getting ahead of demand. We have seen many businesses anticipate continuing growth and no changes to market conditions. It happens in virtually every Industry. Even the most analytical companies in the world can get it wrong. We saw several retail giants experience adverse conditions in the past quarter. Walmart, Target and Amazon were the most visible of these announcements. Amazon surprised Wall Street with its first quarterly loss since 2015. That happens when expenses exceed revenues. So how did Amazon get it wrong? Did they hire too many people? Did they make too many financial commitments? The company has been expanding quickly making investments in expanding their fleet of aircraft with their growing captive airline called Prime Air. They have been growing their network of distribution warehouses and fulfilment centres all over the world. Some of these facilities are company owned, but in fact many are leased from developers who built these giant buildings to Amazon specifications. It seems that Amazon's construction of fulfillment warehouses has gotten ahead of current demand. Amazon spooked investors last month after reporting slowing growth and a weak profit outlook that it attributed to overbuilding during the pandemic when homebound shoppers stormed online. At the end of 2021, Amazon leased 370 million square feet of industrial space in its home market, twice as much as it had two years earlier. ---------------- Host: Victor Menasce email: podcast@victorjm.com

Fabian Fraser is a big city guy who moved to a small city and discovered opportunity for multi-family investment in unexpected places. On today's show we're taking a look at how affordability has pushed people to smaller communities where the vacancy rate has been very low and rent growth has been well above market averages. To connect with Fabian, email him at fabian@yadagroup.ca -------------------- Host: Victor Menasce email: podcast@victorjm.com

Sandhya Seshadry is based in Dallas Texas where she specializes in repositioning multi-family apartment complexes. She too made the transition from the world of micro-chip design into the world of real estate investing. To connect or to learn more, visit multifamily4you.com ------------------- Host: Victor Menasce email: podcast@victorjm.com

It seems like we can't go more than a few days without talking about inflation or interest rates. On today's show we're taking another look at how interest rate policy can be effective at fighting inflation, and where higher interest rates will make no difference at all. We keep hearing from the Federal Reserve board of governors that they will continue to increase interest rates until inflation is brought under control. It's as if there is a scientific relationship between higher interest rates and lower inflation. On today's show we're going to look deeper at this question and see if we agree with that notion. In my mind, Interest rates affect capital expenditures, and they affect the cost of financing operating capital. If interest rates go up, my costs go up as a business owner. It means that I may have less money to spend on my business for things like staff and labour. It means the cost of borrowing go up. The biggest costs for borrowing are on buildings, equipment and inventory. In the broader economy, interest rates can also affect consumer spending on discretionary items. That's partly why an increase in interest rates will cause a reduction in GDP and risks pushing the economy into recession. The increase in fuel prices is a global phenomenon, that has more to do with global supply and demand, geopolitical factors involving Russia, and less to do with loose monetary policy by the Fed. Cheap money would theoretically help the oil industry increase production, but we have had cheap money and money printing for more than a decade and frankly that has not benefited the energy industry very much at all. So raising interest rates won't cause the price of oil or natural gas to go down. Some items in the economy can be considered highly inelastic with price. For example, if your distance to work is 20 miles, you are going to drive 20 miles to work, even if the price of gas goes up by 50%. This may reduce your spending elsewhere in your monthly budget. But if the Federal Reserve raises interest rates, you are not going to drive a shorter distance to work, and you are not likely to change. To that extent, the change in interest rates won't affect the price of energy. Since there is a direct connection between economic output and energy consumption, an increase in energy prices will always cause prices to increase across the board in virtually every sector of the economy. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're examining why the stock market has fallen so quickly. If you go back to 2008 and 2009, when the market conditions changed in real estate, why did prices seem to drop quickly? It turns out that when you make a decision to purchase any investment, most investors have a due diligence process that they follow. In our case, our due diligence checklist consists of two checklists. The first checklist is designed to kill the deal quickly. If the deal isn't dead after the first checklist, then the second checklist kicks in. There are a total of more than 50 items on the two checklists. For complex deals, there are additional checklists that need to be adhered to. Making a buying decision requires a lot of work. It's a slow process that takes weeks, and sometimes it takes months in order to get to the point where all of the criteria are met. By contrast, when we make a decision to sell, there are only two questions to be answered: How much will we get for the sale? When will we get our money? Both these questions are relatively easy to answer compared with all of the effort associated with a purchase. The net result is that a purchase happens very slowly, but a sale can happen very quickly by comparison. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are going to take a fresh look a money. It used to be the case that a nickel was a nickel was a nickel. It was made of nickel. It was worth 5 cents and you could buy bubble-gum with it or take a short bus ride. But today we are taking a dive into the various new types of currency that are in existence or being proposed. These are new types of currency are all different. First of all, the biggest question underlying any currency is trust. Currency ceases to be effective as a means of exchange or as a temporary store of value of the confidence is not there. There are numerous checks and balances that governments have put in place to instill that confidence. We can debate whether that confidence is deserved, but that might be a topic for another day. We have cash dollars Dollars in a bank account Dollars in a payment account like Paypal or Venmo Money market funds held by a major bank Digital currency Crypto currency Stable coins Programmable coins If you are holding a $100 bill, you can go fill your gas tank with that $100 bill. We don't need to spend much time on cash currency. But what about all these others? How are they different from each other? -------------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are taking a look at what is happening with construction materials and how this might affect construction projects that you have in your current plans for this year. In the past two months we have seen lumber prices fall from their peak in March of $1,450 per 1,000 board feet to a new low of $667 per 1,000 board feet. Prices had dropped in April and then jumped back up to approximately $1,000 per 1,000 board feet in anticipation of the increased construction activity of the spring and summer. The drop in prices is coming from a number of factors on the demand side of the equation. New home sales are down across both the US and Canada. But the decline in housing starts is only 0.2%. That is not enough to cause a substantial impact on lumber prices. The major sell off in shares of national home builders like DR Horton and Lennar reflect an expectation that the combination of rising interest rates and rising construction costs will reduce demand for new homes. Some builders have stockpiled materials in order to secure supply and as spot prices fall they will want to consume their own more expensive inventory and buy new inventory when the low priced material works it's way through the supply chain. I've had several discussions with contractors who have experienced massive scheduling problems as a result of material shortages of all kinds. The common lament is that they get booked for a job only to arrive onsite and experience material shortages. The sub trades are then left with no work instead of having too much work. Large scale projects are generally optimized to maximize the efficiency of the scarce resource which is human labor. But when the scarce resource is material and changes from one week to the next, it can cause delays all over the construction project. Scheduling of trades in this environment has become much more difficult and it's common for a construction site to sit idle for weeks at a time. If the foundation is done and you have the wood and the framing crew, you should be good to go. You might be tempted to think that you should be able to make forward progress on structural framing, but that is not the case. Let's imagine for a moment that the scarce resource is roof trusses. If you are going to wait 12 weeks to get roof trusses, you have to wait to start framing your structure until you can take delivery of the roofing structure. You can't leave a partially framed structure exposed to the weather for months. It will suffer damage from wind and rain and will not meet the specifications when you are done. You then face the more expensive demolition and rework. Even if housing starts don't drop at all, supply chain constraints elsewhere in the process are slowing the entire construction process, making it much less efficient than in the past. That inefficiency translates into a fall in demand for materials because houses and apartments are taking longer to build. My prediction is that we will continue to see lumber prices fall over the summer months. Some general contractors are fully booked for 2022, and are accepting large scale projects for 2023. But then others are recognizing the inefficiencies inherent in the current situation and are willing to accept new projects on very short notice as gap fillers. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about resilience in our daily lives. This past weekend my home city of Ottawa Canada has a line of summer thunderstorms come through the region. It was a few degrees warmer than usual and a bit on the humid side. By mid afternoon the sky had darkened . Then all the cell phones started chiming a severe storm alert in unison. Then suddenly this wall of wind hit thrashing the trees in all directions. Frankly, I'm surprised that the trees were left standing at all. Naturally we lost power. After the storm subsided we drove around the city looking for a restaurant that had electricity. There were vast areas of the city with no electricity and a few intersections that did have power. Let's be clear. What happened is an inconvenience. We might be days without power. We have no internet connection at home and the local cell tower has exhausted its battery backup. We will probably lose the content of our freezer in this extended power outage. We rarely even think about food insecurity let alone plan for that risk. But this year 2022 is a year like no other. We are emerging from two years of global pandemic and that feels awesome. But at the same time we have a devastating war raging in Europe. Crops that needed fertilizer this year didn't get it. Agricultural problems can't be solved with money. If you and I were stranded on a desert island and if I have a case of bananas and you have $1M in cash, I'm rich and you are hungry irrespective of how much cash you have. Food and fuel security are at the foundation of our western society. They are so foundational that they are taken for granted. We talk about affordability when it comes to housing. The basic rule of thumb is that housing should not exceed 30% of household income. We don't even calculate the percentage of food as a fraction of household income. But there are parts of the world like the Philippines where for major portions of the population food makes up 70% of household income. A 10-20% increase in food price here in North America is an inconvenience and for some households it's a problem. Nobody wants to pay $2 for a head of lettuce, or $5 for Broccoli. But if food makes up a large percentage of your household expenses, you don't have much tolerance for inflation before your very survival is threatened. We are already seeing social unrest in Peru, and Sri Lanka. The unrest was enough to force the resignation of the prime minister. The food shortages that are forecast for later this year will be like watching a train wreck in slow motion. I feel like I need to emphasize that I'm not a pessimist. If you have been following this show for a while you will know that I predicted the pandemic before it was mainstream news. I predicted the surge in inflation before the official reports. I predicted the fall in lumber prices before they happened. And I predicted the fall in the stock market. But with any of these predictions, it's hard to know the precise timing. You can be prepared, or you can be surprised.

Brandon Schwab is based in Chicago where he specializes in boutique assisted living. We too are developers of boutique assisted living and it was good to compare notes. It seems that parts of the US are significantly under-served with this class of product. To learn more or to connect with Brandon, visit BrandonSchwab.com and you can set up a time to speak with him directly. ------------------- Host: Victor Menasce email: podcast@victorjm.com

Tom Dunkel is based in Wayne Pennsylvania where he specializes in self storage turnarounds along the East coast of the US. This is an asset class that requires strong systems and his background in corporate mergers and acquisitions has proven to be a distinct advantage. To connect with Tom or to learn more, visit belrosestoragegroup.com. There is a free e-book on how to conduct due diligence available on the website as well. ------------ Host: Victor Menasce email: podcas@victorjm.com

On today's show we are taking a look at how to fight inflation and the various efforts underway in Washington and other capitals around the world. Yesterday the national association of realtors published statistics for home sales in the month of April. Sales in April slid 2.4% from March to a seasonally adjusted annual rate of 5.61 million in April. It showed the third month of decline in a row for volume of home sales. Year-over-year, sales dropped 5.9% (5.96 million in April 2021). Federal Reserve chairman Jerome Powell has said earlier this week at the Wall Street Journal Future of Everything conference that the Fed was committed to fighting inflation through monetary policy. He pointed to the housing market as evidence that interest rate policy was starting to work by cooling off demand for housing and with the hope and expectation that this will eventually result in reducing price inflation in the housing market. He is correct that the cost of housing is very sensitive to interest rates and that raising interest rates will exert downward pressure on the housing market. But where else in the economy will interest rates cool off inflation? Elizabeth Warren has put a proposal for price controls forward as a way to fight inflation. This approach has failed every time it's been attempted in history. Justin Trudeau's father Pierre Trudeau attempted price controls when he was Prime Minister of Canada back in the 1970's. They didn't work. They didn't work in Argentina, or for Richard Nixon. But this time will be different. After all, we have the internet and electric cars and we are so much more sophisticated now so those lessons from history don't apply to our modern way of life. You see governments have control over very specific geographical areas. No single government has global control over markets. So if government attempts to control the market for wheat or oil or cars or housing, then business will adapt and shift supply to those locations where they can maximize their return on investment. What happens in markets where governments introduce rent controls? Investors shift focus to areas where they can generate a profit. If government makes it unattractive to build or buy rental property in NY or California, then developers will shift their focus to Texas or Florida where they can be free from the chains of rent controls. In the short term, these controls seem like a good idea. But if you legislate businesses to lose money, then you pull supply of that product out of the market. Eventually, an underground economy will form in response to the acute shortage of supply and push prices up anyway. Some buildings that can't make a profit will be converted to condo, which has the exact opposite effect. You see the government can regulate the price that a landlord can charge. They can't regulate the supply of apartments. Therein lies the problem. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are looking at what is looming as a water crisis in parts of the United States. It should not be a surprise to anyone that building a city in a desert is a bad idea. We all need water to live and water shortages will forever alter the usefulness and value of real estate. Many cities and towns in Arizona rely on groundwater for their primary drinking water. Some private wells compete with municipal water companies for the same resource. In a rural area North of Scottsdale Arizona, residents in the area are being told that they will run out of water this December. Some developers have built new homes in the area and the municipal water district has refused new connections to the water supply. Some area residents have wells that are over 700 feet deep. Those wells are now dry. The Community of Rio Verde is facing an existential threat. Part of the problem is that the city's infrastructure is 60 years old. It has leaks that result in the loss of about 33 million gallons of water annually. It will cost $130M in repairs just to stop the leaks. The city is looking for $130M in grant money because the city has exhausted their borrowing capacity. Recent projections from water conservation engineers are suggesting that the Phoenix area will be uninhabitable by 2060. The thing to remember, is that if water levels continue on their current trajectory, problems will arise long before 2060. We are already seeing water being cut off in the Community of Rio Verde Arizona in this year 2022. This will become increasingly common which will result ultimately in shrinking population. We have seen what shrinking population does to a city. You only need to look at Detroit to understand the impact. As you look at investment opportunities, pay very close attention to the sustainability of city services.

Earlier this week we looked at the difference between an owner occupant versus an institutional owner. We asked if is it true that homes cost the same to operated regardless whether the owner is an individual or a corporate investor? We concluded that the costs were the same. On today's show we're asking whether institutions are driving the market and pushing people out of home ownership? Is the large scale purchase of homes by investors reducing home ownership rates across much of the country? Is the middle class shrinking and are we indeed becoming a nation of renters instead of a nation of homeowners? Is the American dream, or the Canadian dream alive and well, or is it dying? We're going to look at some numbers from several states in the US to see what is happening in terms of home ownership. The Federal Reserve Bank of St. Louis publishes some very useful statistics. There are regional differences in home ownership to be sure. On today's show we're going to look at those places where home ownership is the highest, and those places where it is lowest. --------------- Host: Victor Menasce email: podcast@victorjm.com

A number of people exited the workforce during the pandemic. That reduction in workforce participation is largely credited with the worker shortage. Some people chose to retire altogether. We have seen a big reduction in the participation in the workforce. People concluded that they were tired of their old jobs, they liked the at-home environment, and they would retire early. The theory is that people in retirement spend less than at the peak of their career with kids and college and two cars, and sports. There are a number of different calculations out there for how much money you need to retire. They're all a variation of the net present value calculation. But NPV calculations are complicated. Most people don't know how to perform that calculation. To make it easier, some financial planners use simplified math. There is the 4% rule which is often quoted. That says that if you're going to spend $x a year in retirement and you plan to retire at age 55, you should plan on spending no more than 4% of your retirement savings per year. But that's a highly simplified calculation. There are a number of variables which can erode the value of retirement savings. The first question is how much income can you expect your retirement savings to earn on an annual basis? Many actuarial tables used by pension funds assume an investment income of 8% per year. But that income has been cut down in recent years as a result of a decade of low interest rate policy. Many pre-retirees look at the value of their stock portfolio and calculate the 4% based on the value of the stock portfolio. If you had a stock portfolio worth $1M, and let's say that inflation was running at the government benchmark of 2%, and let's say that you were earning a conservative 4% in your retirement account, you would need $1M to have your money last you all the way to age 90. But there are a whole lot of assumptions in that amount. When we see a pull back in hiring as companies experience a reduction in earnings, and at the same time you will also see a wave of people re-entering the workforce. The Federal Reserve pointed to strong underlying economic metrics for their more aggressive interest rate policy. They pointed to strong ongoing hiring and historically low unemployment as to why they believe the economy has inherent robustness. But they have forgotten that the jobs picture is the result of years of loose monetary policy. The demand for employees and the shortage of workers is a direct result of the monetary policy. Asset price inflation is one of the reasons that there are so few workers. Once people wake up and realize that their retirement is at risk, they will be forced to return to the workforce in large numbers. They will realize that not only will they need to get a job, but that the job market will quickly dry up when the economic downturn takes hold. You won't see this narrative in the Wall Street Journal. You won't see economists from the Federal Reserve making this assertion. You won't see members of Congress talking about this in the middle of a mid-term election campaign.

On today's show we are talking about the merits of large scale landlords on the housing market. The affordable housing advocates are highly critical of institutional buyers removing inventory from the market by competing with buyers for single family homes. These big bad landlords are making huge profits on the back of these poor tenants. As interest rates increase, it is true that many first time buyers will get shut out of the market at least for a while. But if someone has the monthly income to rent, presumably that exact same property would cost the same amount of money to hold it if it was owner occupied versus owned by a landlord. The intrinsic cost of a given property should be very similar regardless who owns it. On today's show we are looking that basic premise and asking: 1) is it true, or at least is it substantially true such that the differences between an individual buyer and an institutional buyer don't materially affect the dynamics of the housing market? --------------- Host: Victor Menasce email: podcast@victorjm.com

Nathaniel comes from Los Angeles where he specializes in luxury properties in the celebrity segment of the market. On today's show we talk about how the celebrity segment of the market differs from other segments in the market. To connect with Nathaniel, please visit instagram and search for GetzelsGroup. ---------------- Host: Victor Menasce email: podcast@victorjm.com

RJ Burr is with Panther Exploration, an oil and gas exploration company based in Bowling Green Kentucky. The entire Burr family are deeply entrenched in the oil industry. Today's conversation centers around the prediction that oil prices are likely to remain elevated for a long time. To learn more about the oil industry and to connect with RJ at Panther Exploration, visit panex.us --------------------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we're talking about market valuation and the narrative that investors attach to prices. The daily headlines are about the latest stock market bloodbath. We hear terms like bullish and bearish. Some people I know have earned the nickname perma-bear to somehow denote that they are biased towards pessimism. The first part of this year has resulted in a tremendous amount of paper wealth destruction in the stock market and in the crypto currency market. I simply don't buy into the notion of bullish or bearish as a label that I would attach to myself. Think about it this way. Imagine if you had a one ounce gold coin. If you wanted to trade that gold coin for two half ounce gold coins, that would be a fair trade. If you traded that one ounce gold coin for five 0.25 ounce gold coins you would be turning a profit of a 0.25 ounce of gold. In that trading scenario the frame of reference is ounces of gold and you either trade for a profitable amount of gold, a neutral amount of gold, or a losing amount of gold. It's simple math. 1+1=2. 5-4=1. These are all within the grasp of any second grade student who understands addition and subtraction. In today's market, I'm seeing many cases where a single family home is selling for a substantial premium over what it costs to construct a replacement of that home. That valuation doesn't make sense to me. I want to see valuations grounded in tangible hard math that is grounded in a rationale. That rationale should be based exclusively on what the last trade price was. Too many markets are relying on the last trade price as the benchmark and for that reason we see words like bubbles being thrown around. Does that make me a bull or a bear? I think neither narrative applies. I'm just pushing for a simpler time when value could be tied back to something tangible, rather than an arbitrary story.

On today's show we talking about the impact of energy policy on housing. The fact remains, the US has underinvested in oil and gas since 2015. Despite the high prices currently in the market, the number of new wells being drilled is not quite enough to keep production levels constant on a year over year basis. The US currently produces about 20% of the world's LNG, and over the next 6-7 years that will increase to producing about 30% of the world's LNG. That will make the US the dominant player. Even with that, the US will still keep the majority of it's natural gas for domestic consumption. The constraint on liquefaction capacity will ensure that domestic prices for natural gas will still be lower than global prices for natural gas. We still have 40% of the world's energy being consumed by 15% of the world's population. As emerging market economies grow, so too will their demand for energy. There are a lot of movements across the political spectrum to invest in green energy technologies. I'm here to tell you that these will only truly win when the economics of energy efficiency. When you can convince the guy on the streets of New Delhi with two bricks of coal that there is a cheaper alternative than cooking on two bricks of coal, then you have a realistic shot at true improvement of greenhouse gas emissions. We don't have viable sources to make up for the structural shortage we are experiencing globally at the moment, let alone displace oil and gas with green alternatives at a rate that will replace expansion of emerging market economies like China and India. Energy prices have the makings of protests in Europe and these are spreading all over the world. North Americans are the largest consumers of energy per capita in the world. While the pain of $7 a gallon of gas is real in many parts of the US, we have not seen riots over this yet. But it's possible. I believe that higher energy prices are here to stay for the foreseeable future. Much like in the 1970's when the US lost its dominance of the auto industry by resisting energy efficiency, we are at another inflection point where energy efficiency and energy transitions become important. In the world of real estate, this is best addressed through design in new construction, but is difficult to retrofit to existing buildings. ------------------ Host: Victor Menasce email: podcast@victorjm.com

Today's show is another AMA episode (Ask Me Anything). Today's question comes from John who asks: I have an acquaintance who has a land assembly under contract that has development potential. The assembly consists of two properties on a main street with close proximity to a river. The property will need to be rezoned and I'm being told that the property will sell to a backup offer with someone else unless the current contract is completed. The timeline for waiving the conditions on the existing contract is too short to complete my due diligence. The property is in an amazing location and I'm scared to let this one go. At the current price, I think the property is a good deal. What are your thoughts on buying from the wholesaler? ----------------- Host: Victor Menasce email: podcast@victorjm.com