Gregmal

Many people have spent a decade claiming the Fed has no credibility. The “Fed has lost all credibility” crowd, sang at its loudest this summer….and the dollar sat at an all time high. So “credibility” IMO is overrated. Credibility, if defined by the “I hold tons of cash/short the market” crowd, doesn’t matter at all. More relevantly, I think there’s great credibility in moving and adjusting to situations. Sitting here and demanding 2% inflation is equivalent to the investor who demanded a sub 14x PE on the broader market in 2013…. If they demand it in a stupid way that we get back to 2% and blow things up it will be a generational opportunity for the investor who doesn’t shit in their pants at the thought of portfolio volatility. Every mistake can usually be undone. However the other scenario is that they get with the program and then everyone sitting around being a negative Nancy misses the boat on plenty of opportunities which are already pretty damn good. I just don’t see a point to sitting around scrupulously fretting every flavor of the year “crisis”. That’s just not how long term money is made, although on the internet everyone can do that and still make 20% a year so who knows.

Yea this is actually eerily in line with my thoughts. 2% is a ridiculous totally made up target that is irrelevant to the extent they let it be. Sub 5% inflation is fine as long as it’s stable and predictable. Plenty of stuff will thrive. Much ado about nothing.

The managers themselves I have no opinion on. I remember buying BX at like 28-30 not “that” long ago. It wasn’t popular and everyone bitched and moaned that it hadn’t done shit for a decade since the ipo and that insiders didn’t own the same shares as everyone else. I sold most of it right before covid in low $60s. I don’t think over the 5 or whatever year period that the world has changed that much, but $85 doesn’t scream anything noteworthy to me as far as cheap or expensive. They’re cyclical and rates are important to the game they play, so it’s just not high conviction(or any conviction) in any direction for me. If I had to pick one, it would be BAM cuz I know that regardless of what happens they’ll cook their books to make it look better lol. Just kidding of course.

LOL I wasn’t even remotely mentioning you. Look at the talking heads and Twitterers. This sort of thing is standard course for a non traded reit. It’s not even yawn worthy. And there’s people pointing to this as evidence that things are gonna implode or get real messy. It’s really amusing watching people out themselves.

This whole BREIT drama really just highlights who knows what they’re talking about and who doesn’t. It’s a nothing burger.

Totally agree. I personally hate REITs, not even joking. Prefer the JOE/HHC C corp structure if anything. Mega large cap REIT is boring and only on occasion get priced interesting enough to warrant investing. Small and sub scale you need to make sure the asset base and capital structure allows an outside party to take you out. So many ways you can get fucked in Maryland.

It is, but its not always that simple. A city office building in a vacuum could easily be converted to residential units. Land there is gold. BUT whats it cost and how long does it take? Wanna gander what you gotta go through to get a crane setup in NYC? Its why people get SPG wrong. Land is great. Locations A+, period. But "its a mall". Theres truth to that. Repositioning a mall is mighty expensive. BUT, most of their malls represent a small percentage of their actual land. Also, some anchors are actually doing well and the anchors that arent, BAM/SPG already own, they're not going dark anytime soon. They'll be mixed use due to location, way faster than people think. Which is why SPG still commands A rating on credit and can borrow at will vs other office and mall peers who cant get financing or pay 10%. VNO? Not so much. VNO I'd argue, on the whole, has way better and higher value land than SPG. So its true generally, but with nuances. And its always true in the face of the Wall Street created bond product sub notion of NOI/term+credit tenant. Most of the REIT personalities just totally ignore this. No better example than Brad Thomas. Ugh gee, whats NOI? Whats net debt/NAV? Ah, lets slap an AFFO multiple on and see where it stands relative to peers. Wrong.

Panhandle is a somewhat different market. Building in general is more expensive simply because of the location. Existing homes are coming down big from ask, but asking prices got retarded. Real market sales prices are still easily double pre COVID, so still hardly cheap. South Florida, especially around Miami is like the new Vancouver.

$1M gets you a 1200 sq/ft 2/2 IF you're lucky and buy something older and somewhat fringe. Its still the hardest thing Im coping with in trying to find a place to buy so I can move down there. My whole life, the benefit to Florida and whatnot in terms of housing is that on top of all the no brainer benefits...you could buy a $1M Northeast home for like $500k down there. Now That $1M Northeast home is like $850k in the Northeast and in Florida its $1.2-5M

Same in NJ, and same in FL. Its an institutional level war being waged on main street; this attempt to derail it. This sort of economic health must be stopped!

Jobs market seems to keep telling the recession to fuck off.

Ive looked at a few and been referred several times to crowdstreet. But overall I have never been able to get comfortable with all the variables. Too much stuff reliant on trusting random 3rd parties. RE, especially non traded has always been ripoff central as far as fees and shady characters goes. So without any supporting evidence with respect to these sort of platforms specifically, I'd need an awful lot of it tot he contrary to convince myself this is not setup in a way where the risk skews to the individual and the reward to the guy taking your money. At least with private securities where you pay 10% commissions you can see it all in front of you and know that you'll probably get an IPO at some point. Its wayyyy too easy to goose individual real estate transactions.

The pricing scenario would largely come down to something like would you rather own the Walgreens with a 7 year duration in DC at a 5.5 cap or the Tesla parcel at a 5 cap in Palm Beach? Or a Tesla in Washington state at 7%? And the institutional investor largely looks at the NOI, then the time left on the lease and potential renewal term, then the credit quality, then the location. Theres plenty of people who "get it", its why they dont give em away, but those are typically where the opportunities and real alpha come from. Check out grocery anchored strips in net inflow MSAs. NYC properties trading hands at 4 caps but holding air rights and redevelopment opportunities galore in the 90s and 2000s are a prime example. Those made more money for folks despite shitty NOI and irrelevant tenant quality vs those who bought corporate guarantee Staples and Morgan Stanley office leases. The CVS/Walgreens triple net, if they leave you are typically fucked. If Tesla leaves in Washington state, IDK you probably got some work to do. The one in Palm Beach...I'd almost guarantee theres gonna be no shortage of developers bidding for that site. Dirt/location and optionality beat NOI and term, at least thats how I viewed it. Its why those shitty outparcel for QSR are 4-5 cap all day if theyre in a good MSA or near a Walmart/Costco/HD. Ill happily take less of the NOI/term/credit worthiness in exchange for the location optionality. Thats your upside. But that stale status quo for a long time was "its a bond"? Its not. Its why office REITs cant be given away and even if you own some great location in NY/Boston/DC/SF, that "what can you do with it afterwards and how easy will it be" question right now is biting a lot of people in the ass. If FB can leave Hudson Yards, who cares about a 15 year office lease? Its why class C mall is worthless, class B semi interesting and class A mall is still king. So for the Tesla in Palm Beach...I'd pay high 3 or low 4 cap on that before I considered a Walgreens in DC at 5-6 or an office leased to ABC in LA at 8 cap. Nevertheless theres folks who prefer the nonexistent 5% treasury to any of them. When that treasury expires Ill tell you with ease who has the best investment. Probably the WPB Tesla, LA Office, then the Walgreens and then the treasury, in that order.

One of the golden rules of old school institutional REIT or real estate investing was to almost exclusively focus on lease term and credit tenants. Why? Probably unspoken but of course if you’re not looking to take any career risk and wanna do nothing and line your pockets with fees, a 15 year lease to Facebook or Verizon corporate probably ensures you never have to answer any questions or face blowback during your tenure. But all that nonsense has been turned upside down the last half decade or so. If you’re a real owner/operator or private market operator looking to achieve better than mid single digit returns, the money is in growth markets and often turning over properties and repositioning as sentiment and sectors shift. That’s why Miami parcels are going for a quarter billion plus an acre. It’s what drove NYC prices for several decades. Essentially if your value is not in the land you probably don’t want to touch it. Or at least that’s what I’ve stuck with and done well with.

This one is open for offers. Just used that as an example. But it’s probably in the ballpark of what most would arrive at. It’s why most of traditional Wall Street missed a huge boom in retail net lease the past half decade. Way more to it than just “oh retail sucks”. “Oh cap rate”. Same reason many have been massacred in office but just in reverse. Way more to it than just “oh credit tenant and 12 years left”.

I think it’s awesome. Anyone who invested in a non traded reit and less than a year or two later is thinking of pulling their money deserves to get burned. These definitely ain’t day trading vehicles and they’re definitely not good investments in any light. They’re fee machines for the sponsor. I’d even argue that the only reason these became popular and successful over the past decade is because all the scams run pre COVID got lucky and were able to cash out at such huge profits that all the shenanigans were able to be swept under the rug.

I hope folk see how this all works. Just as we move on from hyper inflation fears, now we gotta have something else to obsess over and drive fear about. Not much? Ah, recession works. Now fret about recessions endlessly til a new topic comes up.

Most people would do the lazy institutional thing. Look at the NOI and then assign a cap rate. Maybe small premium or discount based on tenant quality. That’s totally wrong. First, where is the dirt? It’s in one of the hottest MSA in America. Next, what’s it zoned for and what can it be zoned as? How business friendly is the area? Look at what similar parcels or acreage goes for. This is what’s called a covered land play. You have an income stream and investment grade tenant, but a huge call option to put something more valuable there. Look at what’s transpired with much of that South Florida assets. Even office is smokin hot. So while someone who’s never been outside an office cubicle in NY might arrive at a 7-8 cap on Excel…someone active in the market probably sees significantly more value and optionality and views a 7-8 cap as a total steal. Well located properties aren’t just what they currently are, they’re also priced as a function of what they can be. Which highlights how dumb the “I’d rather buy treasuries at the same yield” argument is.

I think the larger lesson or takeaway is simple. Find something that works within the parameter or framework of where we are going. I get the urge to short and all that shit. I am a natural born trader. I’m good at it too which is doubly addicting in regards to the urge to sit there and try to predict the next big short term move. That’s how I made my money. But in hindsite I also left so much money on the table longer term, not to mention coulda saved myself so much focus and brainwork, by simply focusing on good businesses rather than every stupid macro headline. So if you’re shorting to scalp 5-10% outperformance then that’s fine. But if you’re doing it to outright make money, longer term that’s damn near suicidal. When valuations are fair you have, or should have your watchlists. Mines like 300 names. When the whole world is down 25%+ you should being teeing off and your best ideas with almost no concern for tomorrow WSJ stories.

General housing data is pretty useless. Housing has always been regional. Theres more stuff than not in that report that I find horrifically wrong. For instance mortgage spread to treasury is nearly double its historical average, so future rate hikes arent really going to have a 1:1 impact. I see virtually no way the 30 year fixed is over 7% all year.

Don’t forget we also had a recession this year and they just changed the definition and denied it…

Heading into 2018 and we were tapped out and tax cuts provided the final savings boost before rates went up and destroyed the market as we had a deep recession long overdue. 2020 covid was gonna produce a Great Depression. 2021 mighta been the first year there wasn't widespread talk about recessions but some folks still sat around following the science but claiming a new and more lethal variant was right around the corner. 2022 has been recession and inflation. It seems that every year we need to have something to make headlines with; and when there isnt anything special....the default is just to call for a recession. Whatever it is, the world will go on and so will the opportunity to make money investing.

Whats double cool, if you really step back from the whole thing...there is an angle that makes sense. I always like to imagine "what will the history books say?". So again, IDK anything with certainty, but from 1000 ft, you could say all of this perfectly marked the transition of the low interest rate bubble into a new economy(led by the old economy) where new leaders will be born and they'll be banks, energy, housing, and insurance companies or stuff that earns real money and lots of it vs the asset lite technology theme of the past decade. What are the hallmarks? Blow off top...covid. Shit and Ponzi blew up first. Then the mediocre but ok tech. Then the fringe quality. Then, like we've seen the last 6-9 months or so....everything. Hit all the hallmarks of a cycle turn. So I lean toward being in or close to being in, a new cycle. Fed seems to be getting what it needs on the inflation front and the economy is still decent. So they could have engineered the soft landing. But whats more stunning to me...all along the big bear thesis of the Roubini variety have claimed the Fed is trapped. Well, over the past 6 months it seems they've given themselves a whole lotta room for 25 bps cuts if things deteriorate. In a roundabout way these jackasses kinda pulled it off. So if nothing else, its interesting and a theory I'm paying attention to. That said, I still aint super duper bullish and like half my shit is in MSG, AIV and JOE which hardly scream balls to the wall long but I do think theres plenty now available that has real earnings and will do well and as we'll touched upon...if that is the case, do the indexes matter?

Theres a lot of decent literature but one of the more useful things for me is just to observe. See whats going on in different areas. Drive by new development. Check out different areas or read various surface level stuff to get an idea. Realdeal and shoppingcenterbusiness are good. CREXI has listings. CBRE, JLL, etc have reports. Randomly call brokers. Ultimately if you're interested in something you'll figure a lot out on your own. Ive just never fully grasped the appeal or moat of stuff like warehouse or office. Ones done well, ones sucked. I dont know if my apprehensions were right or not, but I just found other stuff like retail and residential and done very well with that. So stick with what interests and makes sense to you. Also before anything else either, try to understand HBU. Its why that Tesla shop above is probably worth a ton more than 95% of people would think at first glance.

Like how bad where things in 2009? And the forward multiple was 70x! Or Q2 2020 when the covid infatuation had people screaming Great Depression! and GDP is going to be awful! Of course, the market doesnt give a shit about what everybody already knows. Todays headlines are worthless. Its about seeing whats ahead. CPI will roll into nothing next few Qs. Things may not be over forever, but this story IMO is for now.