Kuppy on Inflation

[Spekulatius]

Money saving tips for homeowners:

 

For appliances, Costco is now hard to beat.

 

If you are in n area with a lot of immigrants, try immigrant owner contractors. We lived in the Bay Area and there were great deals to be had with Chinese contractors. They often have also immigrant run stores for kitchen stuff. We found kitchen cabinets way cheaper at a Chinese store and got an unbelievable deal with countertop (50% less than what HD quote for similar quality) through a wholesale place on Oakland.

 

Same in Long Island where there was a kitchen store ( Asian immigrant run) near the Roosevelt Mall as I recall.

 

I never found that HD much less Lowe is particular cheap.

Edited January 12, 2022 by Spekulatius

[Blugolds]

5 hours ago, Gregmal said:

I have no clue why anyone eats at McDonalds anymore. My kids love that kind of crap but Burger King is the clear cheapest and Wendys the best quality/value. MCD is garbage food and now its basically on par with diner food in terms of price. A(yes, 1) fuckin hash brown is $2 and a Big Mac meal is near $10. Screw that. 

 

I agree and literally said the same thing a couple days ago...if the old golden arches are starting to get above $10 for a "value" meal, then you're better off going to a bar or regular restaurant and getting a burger basket for $2-3 more. McDonalds only advantage is speed (and often they dont even have that via a drive through) because they cant compete on taste and quality. I do think they have the best fries, but the rest is garbage IMO. 

 

I like a Whopper, but admittedly I havent had one in years and years...I do occasionally stop at Wendys and grab something off their cheap menu, a double stack or whatever they call it, its actually pretty good, tastes close to something you would make at home, fresh lettuce and tomato and a decent value. 

 

$2 for a hash brown blows my mind, I wouldnt eat one if they gave it to me for free, its a soggy pressed heartburn puck.

Edited January 13, 2022 by Blugolds11

[Gregmal]

Pocahontas now wants to investigate why rents are so high....I swear, the people who voted for these idiots should be taken out to pasture. Its beyond lunacy to the point of hysterical. 

[cubsfan]

^ Haven't you learned - Big Government fixes everything!

 

[rkbabang]

I'm sure she thinks that it is obviously the greedy landlords fault and there is no problem that can't be solved with government wage, rent, and price controls. 

 

[Longnose]

[Gregmal]

Nah theyre all just too busy continuing to try to make a big deal out of covid and investigating why people were protesting on January 6. In a vacuum theyre saving the world by making it harder to drill for oil and compensating everyone with free money. In the real world everything they do backfires. Its both awesome and amusing assuming you are on the right end of things. 

[Blugolds]

3 hours ago, Gregmal said:

Pocahontas now wants to investigate why rents are so high....I swear, the people who voted for these idiots should be taken out to pasture. Its beyond lunacy to the point of hysterical. 

 

This strikes close to home. As a landlord in a city that prides itself on being "progressive" the new laws that they are implementing and/or attempting to implement is enough to make a guy pull a Michael Douglas in Falling Down. Not quite as bad as Portland or Seattle, but they're on their way...

 

Examples:

 

1.) In an attempt to increase available affordable housing for everyone, I am no longer allowed to screen tenants via what I would consider "normal" criteria. Essentially the first person to fill out the application must be offered the available unit. 

 

The ordinance blocks landlords from screening for credit scores, insufficient credit history and certain criminal and rental histories

 

You are unable to conduct any other financial transactions in this world without credit score/history...including things as simple as a cellphone, but if an individual wants to rent a unit from you, which is basically their largest monthly expenditure...no need...Whats that? You have a score of 550, bankruptcy, kicked out of last 4 places you lived in 4 years because you couldnt pay rent, felon? COME ON IN!

 

Gimmie a break...

 

But wait there's more!

 

2.) OTP (Opportunity to Purchase) and this is the one that really, really is hard to swallow. If you decide that you want to cut some properties, consolidate, maybe 1031 exchange or even demo a property, you will have to notify renters of your intent and provide them opportunity to purchase. So you have these people that may or may not barely be able to afford the rent, you have to notify them of your intent to sell and provide them "adequate" time to secure financing if they are interested etc. There is a timeline on all of this so nothing is quick, its a long drawn out process that will inevitably bog down transactions and can end up costing someone a deal when time is of the essence. I've nearly lost deals because of a lazy loan agent, so now not only may you potentially have to battle the slow cluster F of the bank, its also your 550 credit score tenant that thinks they might want to be an owner...

 

It gets worse...

 

If the renter is not interested...you then have to submit your intent to the CITY! And this is the real "sweet" part...you have to do ALL of the legwork for them...condition report, current rent vs market rent, estimated value of the property, opportunity to increase rents etc and THEY HAVE FIRST CRACK AT IT. 

 

I mean what a racket right? Hey, if I could have a pile of properties coming across my desk every day and I could glance at them and all the heavy lifting was done for me, all the potential for value add, and could quickly determine what my return would be I would be ecstatic! What a dream! What RE investor wouldnt want that!

 

Interestingly enough there was nothing pertaining to how they determine fair market value and what the city would pay...thats the real question, Can you ask whatever you want for the property or is the gestapo gonna give you an offer you cant refuse regardless of what it will bring on the open market. 

 

All of this under the guise of providing more affordable housing and a pathway to ownership. The big bad landlords. They forget that there are a significant amount of those of us with only a handful of properties, what I would consider mom and pop landlords. And guess what, if I cant screen tenants Im gonna increase rents to do it for me, increase rents to discourage those that apply based only on affordability and then "negotiate" rent breaks after showing the unit. 

 

I have never discriminated against a renter for any reason, some of my best renters have been those that could have been discriminated against illegally. There is no lens that I look at a renter through outside of are they reasonably capable of paying rent, do they seem reasonably responsible etc..very basic...but to take that away from the landlord to me is an injustice and if you are expected to offer the unit to first person that applies (who could be a deadbeat) it does a disservice to those responsible parties that didnt get their application in as fast as the deadbeat and are looking for a decent place to call home. There is no benefit to getting approved by being responsible.

 

Combine all the aforementioned "perks" of being a landlord in this city with the fact that once you get these potential "dream" tenants in and start having issues, it is nearly impossible to get them out. Once I even offered to break mid lease, return deposit and give a credit to get them out, just to be done with them, I was gonna lose money anyway, and it was cheaper to cut loses and get a new quality tenant in rather than riding that lease out. Its a nightmare and has honestly had us considering if we even want to continue doing business in this city. 

 

I am empathetic to the lack of affordable housing honestly I am, I grew up in subsidized housing and there are plenty of people that have had a hiccup preventing them from buying,  Ive rented to those types before and it has been fine..life happens. The majority of tenants I have now are young professional hipsters due to our property locations in the city. IMO to tie the hands and bend over ALL landlords is not right at best and at worst actually does more to contribute to the exact problem they are attempting to alleviate when landlords increase rents. They are basically forcing me to use high rent as the only screening process.  I dont care about politics and there are extremes on both sides, this is what I would consider an extreme and a failure to consider 2nd and 3rd order effects of policy. Zero accountability for potential tenants but total accountability for the big bad landlords who just want a decent tenant. 

 

Edited January 14, 2022 by Blugolds11

[cubsfan]

^^^ Insanity!  What city are you in?

[gfp]

That's Minneapolis?  Bonkers.  That would never fly down here.

[Gregmal]

Yea that’s the thing people miss or overlook the most when evaluating the potency of the long term Sun Belt RE thesis. It’s your property and you aren’t subjected to any of that shit and that alone is worth a big premium in the cap rate. I’ve grown up a stone throw from NYC and it’s very attractive right now because it’s stinking cheap and irreplaceable. But the answer to why you invest in NY, today, short/mid term is the same as the answer to the question why you don’t want anything to do with it longer term….because it’s NY. These sort of absurd policies are totally unsustainable and create massive headwinds which will at some point come home to roost.

 

and yea, as a small mom and pop landlord, it’s just like OK why even bother? If you’re a big corporation or have a fleet of lawyers you can make it work with scale. But if you’re not, I don’t think I’d even want to mess with that shit at a 10 cap rate. Rather take my chances in the stock market at 30x

[Blugolds]

14 minutes ago, gfp said:

That's Minneapolis?  Bonkers.  That would never fly down here.

 

Yes

[Dinar]

46 minutes ago, Gregmal said:

Yea that’s the thing people miss or overlook the most when evaluating the potency of the long term Sun Belt RE thesis. It’s your property and you aren’t subjected to any of that shit and that alone is worth a big premium in the cap rate. I’ve grown up a stone throw from NYC and it’s very attractive right now because it’s stinking cheap and irreplaceable. But the answer to why you invest in NY, today, short/mid term is the same as the answer to the question why you don’t want anything to do with it longer term….because it’s NY. These sort of absurd policies are totally unsustainable and create massive headwinds which will at some point come home to roost.

 

and yea, as a small mom and pop landlord, it’s just like OK why even bother? If you’re a big corporation or have a fleet of lawyers you can make it work with scale. But if you’re not, I don’t think I’d even want to mess with that shit at a 10 cap rate. Rather take my chances in the stock market at 30x

Gregmal, am I correct in understanding that you think that NYC is very cheap or the suburbs are very cheap?  if so, which areas of NYC if the former or Bergen county if the latter, do you think are very cheap?  Thank you.

[hasilp89]

“This kind of caught us off guard, these high num­bers and what it im­plies for our pol­icy and our pol­icy frame­work,” he said.
 

https://www.wsj.com/articles/feds-christopher-waller-says-high-inflation-caught-central-bank-off-guard-11642119289?st=ngk65mrcwssk78o&reflink=article_copyURL_share
 

 

Amazes me how oblivious folks running the country have been to the realities businesses and consumers face. Im becoming more cynical by the day.

[Gregmal]

12 minutes ago, Dinar said:

Gregmal, am I correct in understanding that you think that NYC is very cheap or the suburbs are very cheap?  if so, which areas of NYC if the former or Bergen county if the latter, do you think are very cheap?  Thank you.

I think the public market stuff is cheap. Private stuff, like physical ownership of an individual property, is probably fairish valued IMO. Suburbs probably erring on the side of overheated a tad but all that changes if the SALT stuff comes back. 

[Dinar]

48 minutes ago, Gregmal said:

I think the public market stuff is cheap. Private stuff, like physical ownership of an individual property, is probably fairish valued IMO. Suburbs probably erring on the side of overheated a tad but all that changes if the SALT stuff comes back. 

Understood, thank you very much.

[RichardGibbons]

10 hours ago, Gregmal said:

Pocahontas now wants to investigate why rents are so high....I swear, the people who voted for these idiots should be taken out to pasture. Its beyond lunacy to the point of hysterical. 

 

It would kind of amuse me if the investigation was honest, and came back with the response that rent-control and other artificial barriers means rentals require a massive risk-premium. Consequently, there's few who would sign up to be a landlord, and that scarcity results in rentals being twice as expensive as they would be in a less regulated market.

In Vancouver, there's a city councilor who is a socialist or even a communist (I'm not one to use that word lightly). But she's the biggest boon for landlords, because she attempts to block almost all attempts to build rental housing because the new housing wouldn't be affordable to the poor. And she's literally said in council meetings that if middle-class people move into these new buildings, freeing up their old spaces for the poor, that would also be a bad thing. Her reasoning is that when people move, rental controls reset. So, the average rent would go up, which is a bad thing.

 

It's such amazing "logic", considering that nobody in this 4-person transaction loses. The middle class renter gets a better space, their landlord has a tenant and income, the poor person gets an older apartment to live in (instead of a tent), and their landlord makes money too. Everyone involved in the transaction wins. But in her eyes, it's still a bad thing.

Edited January 14, 2022 by RichardGibbons

[scorpioncapital]

for leftist communists everything is a bad thing, even your walking may crush a lowly ant.

 

[Ulti]

Blackstone acquires Decatur apartments for $100 million...

   

 

The apartments were sold far above average market price for the area, indicating high-value sales are pushing pricing higher.

 

This is happening all over the metropolitan Atlanta area ( and I'm sure all over the Sunbelt). It seems this trend really started in 2009-2010 with  Colony and other companies buying up massive amounts of housing for rental property and will continue even with high inflation\interest rates.  And as you read about the effort to form Buckhead City, for myself and many Buckhead residents, it's not only about the crime.

It's about progressive proposals to increase density in single family neighborhoods and eventually eliminate single family zoning altogether. And the arguments that Buckhead was founded on racist policies to back these proposals is also being made.

( full disclose: I'm a moderate and I also can't stand the people who are leading the effort for Buckhead City.)

 

All this leads me to the questions 1)what can stop this multifamily trend and 2) when does it stop? How does demographics and boomer retirement play a roll( and it does according to Calculated Risk post )? Is it cyclical like I'm seeing in energy and commodities? I'm not the brightest bulb on the planet by any stretch and appreciate in advance any responses that help my education.

 

[thepupil]

40 minutes ago, Ulti said:

Blackstone acquires Decatur apartments for $100 million...

   

 

The apartments were sold far above average market price for the area, indicating high-value sales are pushing pricing higher.

 

This is happening all over the metropolitan Atlanta area ( and I'm sure all over the Sunbelt). It seems this trend really started in 2009-2010 with  Colony and other companies buying up massive amounts of housing for rental property and will continue even with high inflation\interest rates.  And as you read about the effort to form Buckhead City, for myself and many Buckhead residents, it's not only about the crime.

It's about progressive proposals to increase density in single family neighborhoods and eventually eliminate single family zoning altogether. And the arguments that Buckhead was founded on racist policies to back these proposals is also being made.

( full disclose: I'm a moderate and I also can't stand the people who are leading the effort for Buckhead City.)

 

All this leads me to the questions 1)what can stop this multifamily trend and 2) when does it stop? How does demographics and boomer retirement play a roll( and it does according to Calculated Risk post )? Is it cyclical like I'm seeing in energy and commodities? I'm not the brightest bulb on the planet by any stretch and appreciate in advance any responses that help my education.

 

 

complex topic re housing policy, history, etc....

 

but I think $BX buying sunbelt apartments is more simple. $BX is simply raising a massive amount of long duration capital* and has loads of money to put to work. They have created a fundraising retail machine and are setting the price for desireable assts ever higher. Mass affluent have decided they'd rather invest in a $BX managed private REIT for their core RE than REITs  because they don't like the volatility or whatever. 

https://www.breit.com/wp-content/uploads/sites/4/2020/10/BREIT_Fact_Card.pdf?v=1640618455

 

BREIT has $78 billion AUM and 2300 properties, including 137,000 units of multifamily.

 

Atlanta is their #2 market. 

 

I don't know if this is correct and i can't find historical financials on BREIT's website, but I heard that BREIT is raising like $2-4 billion per month. Let's just say that's $1 billion.

 

At 40% leverage that translates to $1.6 billion of apartment purchases per month going to a vehicle that has quasi-permanent capital (if they're only buying apartments) or $800 million if they're doing 1/2 apartments. Recall there are some months they may be raising more than $1 billion.

 

At $300K/unit and $800 million, that's 2,600 units per month that $BX is buying. 31,000 per year. That's a Mid America (the largest  multifamily REIT in the US at 100K units) every 3 years.

 

Who knows how long it will last, but that giant sucking sound you hear is $BX hoovering up all the desirable real estate to put in its long duration low returning core private REIT sold to mass affluent / retail 

 

 

*what's odd is that it's not really permanent capital, technically 5% / quarter (20%/yr can redeem) so it's looong duration capital, but not permanent. it would be interesting to see what happens if the fundraising stops and you get net redmeptions > sustainable rate. 

 

 

Edited January 14, 2022 by thepupil

[Ulti]

Thanks Pupil... If ever interest rates start approaching the annualized distribution rate of the fund...It would slow down?  And companies paying above market rates for properties like Blackstone is currently doing is one of Gregmal's thesis behind APTS and AIV bets? Sorry if the questions seem very basic. I've been in the medical field for 40 years and my commercial real estate understanding, except on a very personal basis, has been nonexistent.

[Gregmal]

The way I view multifamily is rather simple, but essentially it's viewed as what it is. Its a diversified income stream with massive flexibility on the asset desirability side which ensures, generally, the reliability of the cash flow. If 2/125 tenants suck its not hard to turn them over. If its a newer building, or even an older one, assuming the construction wasn't faulty, maintaining the asset is again, predictable, and reasonable on the cost side. If the dirt its on top of is in a business friendly and desirable location, there really arent too many things in the ENTIRE WORLD that I would say provide similar risk/reward. This IMO is what the rest of the world is starting to figure out. 

 

When it comes to allocating new capital, this is what I see on MF. Another awesome wrinkle is the financing durability. APTS was a great exercise in that. CLPR too. Everyone, including folks like Brad Thomas look and say "too much debt"....but fuck, again, NOT TRUE. Whats real estate debt? Mortgages? Preferred are different and thats a different topic which was discussed elsewhere so Ill leave it, but how any sensible investor looks at a mortgage and goes..."nope too levered"...mortgages are awesome because you dont need things to go right all at once. The property is yours for the term of the mortgage and you have no problems unless you dont make your monthly. Actually, scratch that. You would have to not make multiple monthlies, and then you still have time. Otherwise, its the lowest cost debt, can generally be refinanced, etc. How people look at this the same as a regular operating company who have 2x debt/EBITDA but can have the business impaired materially in a matter of months is so stupid! But its a common part of the traditional thought process. Learn to see things differently. 

 

Where I notice people run into problems is when they see this asset, encompassed in a stock, and because of the way finance is structurally taught, people assume all stocks are risky and $100 I put into a stock has the potential to lose $100. This is so not true on any level outside of obviously an academic one. Since my early 20s Ive been doing thousands of stock transactions a year. I have never bought something and had it go to 0 overnight or even in a month or two timeframe. Its EXTREMELY HARD to do, even if you tried. Let alone overnight. Honestly, its hard to even do with options although please understand where thats coming from and dont try it at home unless you know what you're doing. But my point is that people claim to be "investors" and think like value investors, but then get wildly obsessed with these distractions like "collapse", "crash", "correction". Dont get me wrong, if we had a crystal ball and could predict 10-20% corrections, sell, go to cash, rebuy, that works. But in the long game, its a fools distraction. Like when you are at the casino and the super hot chick serving drinks comes over. You know those titties and the gin and tonic are there just to get in your head. Fear of loss is the same thing in the markets. DO NOT, EVER, completely ignore risks or take on risks that threaten your livelihood. But on a different level, when I look at cash, and I look at liquidity, to me its the same except cash has little value other than paying for shit that you can use liquidity for and liquidity at 1-5% annually is worth utilizing. If those hurdles are too high, you shouldn't be investing. But with cash, its like...can I not pay my bills? Do I have a huge, non financeable expense coming up? WTF do I need cash for? Then I look at long term charts and think, would I rather own cash, or have my pick of any number of tremendous businesses? And its easy. If you have no access to liquidity, perhaps its different, but in todays age when Joe Blow can get 4:1 margin at IBKR, or 2:1 for 8% anywhere else.... who doesnt have access if they want it? If you have 20% cash at iBKR, you likely have buying power equal to your entire friggin portfolio! You also have other thought exercises...like go ask your local pharmacy or HVAC owner if they ever wake up and are like "yea, im gonna dump 15% of my business cuz its getting choppy out there"...Or if you own RE, you know why private owners generally do well? Cuz its expensive and burdensome so they sit on their asses and just let it be. Same applies to stocks but the whole system is so reliant on transactions and trade activity that its obvious why we are constantly encouraged to do "something". So for the majority of my shit I try to really think as a business or an asset owner. If you picture the microwave in the kitchen of your new build MF rental in Miami...you're not thinking about, "well what if we get a 10% correction? Better cash up!"....A lot of value investors dont actually behave like investors who are obsessed with the fundamentals. 

 

Disclosure, Ive recently trimmed down a lot of my excess holdings and even took off 40% of an extremely overweight BRK position, but Im doing these things to manage my "liquidity", not my cash. I still have margin and still think theres worlds of cash subs out there from ALCO, to PSTH, to ALX, to BKEP type things. Liquidity you need to manage and be prepared for anything with. But cash....

[thepupil]

47 minutes ago, Ulti said:

Thanks Pupil... If ever interest rates start approaching the annualized distribution rate of the fund...It would slow down?  Not clear to me at all. I think generally want to store their savings in risk assets (stocks/real estate). Rising rates would increase the cost of financing, potentially decrease the price paid, but I don't know if rising rates would "crowd out" flows into stocks/real estate/risk assets 

 

And companies paying above market rates for properties like Blackstone is currently doing is one of Gregmal's thesis behind APTS and AIV bets? By definition, companies are paying "market". they are the market. they have driven the market price higher than it was previously. The private (and public) institutional flows into sunbelt RE and multifamily generally is a part of Gregmal's (and my) positive view on MF pricing. I think Gregmal is more bullish on the long term sustainability of rent increases than i am but i'll let him speak for himself. Institutions and individuals need to make a real return and don't want 100% stocks. Bonds and cash offer no real return. Unclear if a little rate rise changes this. It may change the pricing though. 

 

orry if the questions seem very basic. I've been in the medical field for 40 years and my commercial real estate understanding, except on a very personal basis, has been nonexistent. 

 

[Gregmal]

My view is kind of twofold much like with response to @Dinar question on NYC area RE. Public markets you dont really need the same trends to continue to still make decent money if the discounts are there. Private market, if you're underwriting a 4 cap on a new build with 10% annual growth for a decade, thats probably a dumb bet to make. But we dont really have to and I think it says a lot that many of these types of shops are going the public market route more than they have in the past. 

 

Longer term thought, if RE and MF does well(I obviously think it does) Sun Belt should be first in line due to the underlying trends. Weather, politics, taxes, migration, etc. 

 

The thesis doesnt need to be too complex. I buy good and appreciating assets at a discount. Can hold them in an efficient manner, and enhanced when opportunistic with options or margin. Barring MAJOR management screw ups, I'll make money. And even there, outside of egregiously share issuance in most cases its damn difficult. Guys overpaying themselves millions per year doesnt really destroy a thesis that the market is turning more appreciative of the asset class and someone will try to take them out in the next 12-18. 

 

95% of the risks here IMO are general market related risks, and these are IMO very high up on the quality/low risk totem pole so they should do better than average under general market turbulence. Ive never been a fan of the "well if the housing market blows up, a housing stock will get killed" thesis. Its a weenie way to say you're making a market timing call and even outside of that, very easy to hedge. 

[Gregmal]

Like theres been an indisputable trend with well location RE going on for decades. You want to own it and especially if you look at the NYC Jewish Mafia guys....the ones who have just crushed it for decades on buy and never sell strategies.....its obvious. Even the "crashes" are really just washouts. Dont be a forced seller, and you're golden. But even there, there's been what? 2-3 housing hiccups in the last 40 years? LOL You want to try to time the next one, good luck. Me, like with margin, I'd rather spend 2-3 weeks every 10 years worrying about a margin call than 10 years worrying about a 2-3 week per 10 years event. 

Edited January 14, 2022 by Gregmal