Description

FAR 010

News

• Commercial Markets are bullish on Trump. Article in bizjournals.com. In 2014, 100% of the brokers surveyed said they were uncertain with the federal government's policies and how they would affect markets. In their most recent survey that number is down to 37 percent feeling uncertain. I don't know what that means but the article states that this is a sign that the commercial real estate industry is generally bullish on President Trump. I don't know whether a decreased level of uncertainty is actually a measure of anything.
  • We all know or should know that much of the market is driven by consumer and investor confidence.
  • This article is an example of a survey with rather nebulous logic being used to try to create positive momentum. The rest of the article suggests a commercial building boom is in our near future. It concludes with an authoritative sounding quote from Mark Stapp, Executive Director of the W.P. Carey Master of Real Estate Development program. But his quote is basically his opinion, which by definition would be biased in favor of an optimistic view of the commercial market. He offers no supporting evidence whatsoever.
  • Hey, everyone is entitled to their opinion. I respect Mr. Stapp's opinion and would agree he is in a more informed position than I. I just don't think combining his opinion with a survey of the opinions of other commercial brokers makes a conclusive case. On the other hand, as part of a larger effort to create enthusiasm, I concede they will ultimately be correct, but only because consumer and investor confidence is picking up.
  • I have opinions too. I happen to believe that Trump's presidency will ultimately be good for the economy and as a part of that, commercial real estate. I am not going to use some semi-logical and quasi-authoritative article to substantiate that claim.
  • Am I being contradictory? No. I try to make a habit of sorting out the actual news from opinions. I consider the source for whatever I'm reading or hearing. I compare with other voices. I intentionally read the opinions of those with whom I fundamentally disagree. Why? Because if you always listen to people you know you agree with you are only learning how to repeat someone elses thoughts. If you consider other points of view, you arrive at your own opinion. You still might be wrong, but at least you own it.
  • So I agree that commercial real estate will soon be back on the rise. I just don't think this article proves anything other than some people agree with me.
• America's Real Estate is Booming, but is it a bubble?
  • No question it is hot.
    • Shortages everywhere
    • Builders scrambling to ramp up production, Four high rise projects within ¼ mile of me - all 25+ story buildings and all residential.
    • 26% surge in prices nationwide since the low in March 2012
  • In the next 12-24 months supply will begin to catch up to demand
  • The rate of increase will level off.
  • Hedge Funds are beginning to dump properties. Their models must be suggesting it is time.
    • Seattle times: Alexander Phillips, Twinrock Partners, "We view this as a trade, not as a business."
    • Larger hedge funds are buying smaller ones, but many properties are hitting the market
    • They have about 200,000 homes.
    • Blackstone has about 45,000.
  • According to www.thebalance.com, banks returned to selling mortgage backed securities on the secondary market in 2013, BUT
    • They are holding on to more of their own paper due to Fannie and Freddie fee increases. It's cheaper for them to hold on to the safer loans.
    • They are making more jumbo loans which are not insurable by Fannie and Freddie
    • Lending requirements are tighter, basically requiring the borrowers to demonstrate credit-worthiness. No more "liar loans."
    • When the housing market collapsed, these loans accounted for less than 20% of all loans made but caused 50% of the losses.
    • So far there are no Collateralized Debt Obligations being sold.
  • I think we might have learned some lessons and I do not believe we are about to repeat the cycle of 10 years ago.
  • Interest rates will continue to rise as the economy strengthens.
  • I predict we will see a flattening of the rate of cost increases of homes. In super-heated markets we might even back up a bit when supply begins to exceed demand.
  • What does all this mean to you as a real estate investor?
    • This is a good time to buy rentals if you can find distressed properties at below market rates.
      • Higher home prices mean more renters.
      • Be prepared to hold them awhile.
    • The Hedge Funds showed no mercy to competitors while paying too much for most of what they bought. Show them no mercy in buying what they are dumping. It's not revenge, it's just doing business to win.
    • Whatever the market conditions, there is opportunity out there. All you need to know is what you can sell it for and your costs of improvements, From those two numbers you can back into what you will pay for anything. Not all sellers will play ball. But some will. Keep asking, keep seeking, keep knocking.

Mail

Lesson