Gregmal

Agree. I’m kinda at a loss for what the case is here on the downside? City pays then double the EV to relocate? Tao itself puts up a 10% FCF figure? Sphere gets 20% of market cap for naming rights? Weird all around.

I found the Elizabeth Warren squabble ironic. I rarely, although more than I like to admit, agree with her. How does raising rates help the middle class and lower? Pricing people out of homes and into expensive rentals? Or just in general making their cost of borrowing greater? How about pushing the economy into recession so that they have to worry about their jobs? It’s all very amusing watching this play out.

The biggest wiggle or kink with residential is that the majority of buyers are not doing so for financial reasons or with the expectation of a return. They want a house, they get a mortgage pre approval, and look to buy something. If you can get a real return out of it, that’s great, but it’s also why the market is so historically robust.

From what I followed, the only distressed selling I saw was people unloading high quality stuff at 4-5 cap rates and those became sub 4. And before we say “but rates were low”, remember that for a good while, even until the vaccine news, some markets were assumed dead and lending standards were ultra rigid. So it was hardly the opportunity it looks like in hindsite. But nonetheless turned out well.

Well that’s another unappreciated element to the market. You, me, even Viking if I read his post about Vancouver housing correctly…everyone is waiting to pounce on a little opportunity. Which usually makes it harder to get them. Remember all the distressed RE funds that popped up Q2/3 of 2020? How much distressed stuff actually came to market? Hardly any.

Also don’t forget there is a huge dynamic that goes unappreciated with regard to 1031 cash. Do we factor in tax savings?

Depends. You looking to make a fortune or just not be in cash and manage to inflation? I’d rather own that at breakeven with a gradual principal pay down then be in cash. But otherwise, who says rates stay there long term? Yes property value can appreciate HBU can shift what about additional development on the parcel? Again come back to “rates” and inflation. Doesn’t that mean cost to build goes up? Also means economy is too hot, which is probably good for future rental rates. Below market leases are sometimes coveted. The primary thing here is it’s a hard asset that definitely has inflation protection and a good bit of optionality.

Brand new 20 year net lease in California. These are transacting 4.5 and under. Yea. So when we hear “doesn’t work with elevated 10 year”… you’re looking at the wrong stuff

Exactly, these shops have spent the decade accumulating cash and liquidity. Now theyre getting showered with cash like a South Beach stripper from all the institutions. Housing is becoming easier to transact and more productized. Its not a trend thats reversing. Why do home prices keep rising? Entry market is being vacuumed up.

Theyre raising cash at like a $2B per month or something like that rate. So is Starwood. So is BAM. The funny thing is where is it coming from? All the tutes who are scared of the market and terrified of volatility. Probably because fundamental business and asset analysis is too hard for Ivy League educated pension managers making 6 and 7 figures. So illiquid, non traded real estate it is!

UK inflation comes in hot! What happens? All the inflation inputs plummet! Rates lower, commodities lower, energy lower. The market retards are in full control.

Looks like raising those rates is solving the housing problem….

Look at the market lately. One day treasuries are up big on inflation fears and the next they’re plummeting on recession fears. Guess what? Recessions are part of life. Deal with it. Inflation is too but again, does anyone really believe this isn’t a COVID byproduct? IMO it’s all bullshit if you’re well capitalized and can withstand a couple years of “turmoil”. End of the day the bulk of the money made with real estate is made watching paint dry. If you wanna get shaken out by CNBC or Cramer go ahead. During recessions many reits do very well. And during inflation? Again, looks at the 70s.

I think it’s nuanced. The crux of the market right now is currently very conflicting and even hypocritical. There are a ton of well capitalized and cash flush buyers still out there. Next, if you believe higher rates and inflation is warranted, then the question is for how long? You can’t have higher commodities, higher housing, higher energy and higher rates because they conflict. If those inputs starts coming down, the rates will have to as well. If they keep rising it will support higher rents and housing prices. So while we are selling off, it doesn’t make a whole lot of real world sense. The spreadsheet analysis is that it’s hugely negative for real estate. But again, if this then that. And if higher rates, rents and housing prices keep going up otherwise there’s no more reason to raise. If the 10 year is 4 now, why? Across the board commodity prices are plummeting. So short term, that’s good for builders. I don’t like builders because they need volume. But if you’re developing, that’s pure margin. So something has to give. I was a big winner in Q1 and a big loser in Q2. So take it all with a grain of salt. But a lot of this is flavor of the month type market action. Where were the inflation is forever folks last year? Nonexistent. What’s the private market saying? NAREIT was last week. Most positive on their outlook. If you have short term maturities, you’ll get squeezed. If you are week funded, it’s still Pac-Man time. BX is still buying like a drunken sailor. The whole thing that’s hilarious to me is that inflation occurred because of COVID. So it will go away in time just like everything else. And then what? If we settle at normal rates, things look pretty good. I’m coming from the perspective of someone who owns multiple homes and has exposure through a couple well positioned equities. AIV is trading at a major discount to their pre vaccine NAV despite creating tremendous value, restructuring their maturities at an excellent time and rate, and picking up some awesome properties. PCYO is trading at a 20-30% discount to pre COVID, despite home prices then at 350k and now 550-600k and oil and gas revenue going parabolic. JOE has seen lot prices going bananas and we re still worrying about $20k per acre. They’re likely $25k per parcel, minimum. Parcels are 1/3 to 1/8 an acre. MSGE has largely funded sphere. They trade at an EV covering the Garden. I’m cool being on an island, always have. But when you look at what goes right vs what goes wrong….inflation inputs, despite CPI, are headed lower. Fed has stated they aren’t trying to cause a recession, but we already technically got one. China is now even urging resolution in Ukraine. Biden is begging oil companies to produce more. Homebuyers are still desperate for a home. I just saw a property similar, identical even to to one I bought in 2017 for $140k, minus a finished basement and upgraded kitchen, sell for 250k cash after listing for $225. The local realtor working for my tenant who’s home shopping summed up the market as ….there used to be 10 buyers competing for one property. Today it’s more like 5 each competing for 2. Supply and demand is still working. Again, the folks tapping equity, all you need is comps. Labor market still strong. So what do I know? No idea lol. But if prices leveled off would I buy? Stock market, sure but cautiously. Private market, in a heartbeat.

That’s what they’re doing. Making things better for themselves. Wasn’t it nice eating at fancy restaurants and staying in luxury hotels at 1/10 the normal cost during the “pandemic”? Now things have gotten too pricey for their liking. Too much competition for vacation homes, restaurants and investments.

It’s all just a joke that highlights how dumb most of these governments are. They all largely did the same dumb shit with COVID and now largely get the same results. Negative rates, neutral rates, higher rates don’t matter. Japan, EU, US….the problems need time to work themselves out and that’s the only remedy. Or you can get rich folks to lobby the same politicians who created this mess to just keep creating more problems. I still keep laughing at the rate logic. Look at the recent housing data. Bullish for rental property owners, bullish for owners of existing homes-but yea let’s save the little guy from inflation by pricing them out of the market! What did Blackstone write this part of the economic policy playbook?

I’ve gotten several renewals last few weeks and surprisingly they have not moved much.

100%. The structural fundamentals are still there. So if you are overpaying it’s never going to be a great investment. If you locked a 30 year at 3-4% it’s still probably not the end of the world. But location is always key. From what I’ve seen the “relevance ring” as I call it, definitely expanded. @thepupil knows about what I mean in DC. Lots of areas fall into this category. In NJ it’s always been city based proximity. Mahwah the greatest example I’ve seen in my lifetime. Florida has a lot of them. But buying anywhere just cuz is gonna backfire for those who didn’t think it through. And of course, there’s the landmine properties or rural stuff that you have long term bag holders in who now throw out sucker prices hoping for an impatient buyer. In my town specifically you have 100 year old homes with major work needed that were $250k pre COVID and people asking $500k for. So really no different than anything else. Invest wisely. Make sure you are comfortable being a long term investor. I would hate to be up against a short term shot clock in a shitty flip or project where I based by underwriting on a mirage or short term aberration. Ive actually heard a number of stories where contractor friends or folks looking to do work have said they seek out quotes and the guys giving estimates tell them “hey, wait a little bit because you’re paying way too much but hey, I’ll do that deck renovation if you really want”.

It’s rare to get great comps like that. But they’re useful. One big trend I’ve noticed in markets I follow is that total dogshit gets listed for way more than it’s worth. It then sits there, then gets massive price cuts, and can create the appearance that there is no demand. That appearance would be accurate because no one wants a mediocre property for 100% premium to its fair value. I probably get a dozen flyers a day for raw acres in various southern places. It’s almost exclusively this above problem. Like no I’m not paying $200k an acre for land in Tavares Florida and no I don’t care that it’s technically waterfront either. This was $15k an acre land pre COVID and maybe it’s worth a few multiples of that now, but fuck off with that asking price. So I think a good piece of the puzzle as well is this aspect of the market. Everyone and their mother has heard of how hot the housing market is and so everyone is reaching for the moon on price. Not everyone’s properties are great though, and not everyone can afford a 6% mortgage, so as always, quality matters.

And to clarify, this isn’t to say the idiots who bought 3 caps while underwriting 10% annual rent growth don’t get blasted, but existing owners of assets and ones who are well capitalized are sitting pretty. Rents and absolute prices don’t really have much room to come down unless something much more severe than what we are currently looking at occurs.

I think there’s a lot of these sort of misconceptions around that aspect of housing. Prices rose steadily and then violently and then kind of settled. They’ll hang in a range like everything does, but there’s little to show a scenario where we revisit pre covid prices. I hope we do, but don’t hold your breathe. Rents too. The bulk of the rent growth already happened. But every month new leases get marked to market so if you signed a lease 11 months ago and 10 months ago rents spiked, now you’re paying for it. Most of the headlines are bullshit narrative spins put out by folks with an agenda. Can’t tell you how many articles I’ve seen about rents slowing and then the numbers are basically that they only went up 11% this month vs 12% last one….like ok. Cool story bro. There is a whole lot in the housing ecosystem that will straight bank cash if prices stay around these levels. In other words you can get these stupid headlines about housing slowing or rents falling but if they continue to remain in absolute levels at the current pricing thresholds for purchasing or renting..it won’t matter.

I actually think Klarman is probably a very good thinker and excels at smart guy type investments. Distressed stuff, complex capital structures, etc. I don’t think he s very good at traditional stock picking, nor is he a wise choice to emulate. His approach is definitely not one the average investor should bother with. Wasn’t his biggest or one of the biggest positions for this entire decade VSAT?

Ya I’ve never loved the AAPL position, it’s size, or Buffetts indications he d buy more after what was a mere 10% dip. But I’ve also been wrong on Apple too for a while so that’s the appeal as well of BRK, outsourcing brainwork. In a way, I am to AAPL what a lot of the current general market bears are. “Woohoo it’s going down, I knew it!”….truth is I started mouthing off about it being overvalued at prices it’s still well above so I don’t really deserve a victory lap…. I agree there are much more compelling investments than Berkshire if you care to look. There are actually a lot of super compelling cheap ones.. Personally I’ve exhausted myself the past decade investing in a manner that requires being fully plugged in, 24/7, and after last year into Q1s bonanza I kind of decided I want to allocate more time to the real world and less to investing. Burnout I guess. So I decided the to wait for the next big market dislocation and begin the process is shifting to just buying shit I don’t have to spend too much time on, Berkshire kind of being the core of that. On the downside numbers, even the $200 EPS on SPY is what? Another 10% left? Meaning we re more than 2/3 the way through? And if 2023 is $200 are we entering a depression? Why and how? Don’t see it. You’d imagine once some of the kinks, mostly COVID related get worked out, we re back to status quo. I’ve heard the stagflation arguments, but don’t totally buy them. So if no stagflation, you can’t have higher rates and a recession scenario for too long. And this is what I’m kinda getting at, the real negative fear inspired scenarios are largely contradictory. If the economy craters the Fed stops raising rates. Market will bring bonds back down in a hurry. If rates keep going up, it’s because the economy continues to be strong and buck the trend. So there’s a lot of double and triple negative type theoretical stuff there, but none of them really pass the smell test. Additionally, again I think we need to look a little further than just the indexes. A whole lot of stuff is off wayyyy more than that. Even look at the IWM. I think the only way you decide not to be a buyer of good quality businesses and assets here is if you expect some sort of Great Depression, and I honestly haven’t seen an ounce of anything to remotely support that. All I’ve seen is stuff ranging from minor to modest recession. Which again, if that occurs and for one year that market decides you get to buy everything at single digit or mid teens PE with no credit for future earnings….if your time horizon is more than a few years I think you take that and run.

You never want to ignore risks. So have a plan of course, but making ridiculous presumptions your baseline for investing seems foolish. If you look at all the people who are having their 15 minutes of fame right now, do some digging. You’ll see almost all of them have been saying the same thing for ages and performed pretty terribly. If you’ve been calling bubble or recession 6 times a year for the last decade, you don’t get credit for getting 1/20 right.

For a few years I had a picture of the article from some expert, I forget the guy, who was calling for a “further 20-30%” decline at like 680 S&P in 2009. Reminder to self, don’t ever be that clown. In 2008-09, the GFC occurred because the entire system was illiquid and propped up by ghost loans and phantom products tied to a housing market that was unsustainable in terms of pricing and supply. The 10 year then was what? Maybe 5%? As a result, major banks failed, housing which is the largest driver of the economy imploded and the market fell like 45-50% from the peak to the trough. Today, depending on which index you think is most relevant, we re off maybe 25%. Why? Supposedly it’s a 3.5% 10 year and one minute the economy is too hot and needs to be killed and then next minute it’s OMG the economy is headed for a recession? Housing is fundamentally sound, job market strong, unemployment low, individual household balance sheets better than they’ve been in ages….Of course markets can go anywhere short term but it’s a little preposterous and definitely bombastic to currently be acting as if it s a given there is significantly more material downside. And yes, I am aware we can list every current fear, ignore the ytd declines and state that it’s not priced in, and then find further reason to be scared, but idk, I’d rather just look for good solid attractive long term investments than run in that hamster wheel.