All Forum Posts by: William Jenkins

@Michael Haas - Markets vary obviously, but I wouldn't be too sure that there is a "HUGE" meta trend ahead for millennials and condos/apartments.  I think that trend is coming to an end.  Reasons:

1. COVID accelerated the work from home movement.  Millennial buyers are more likely than other generations to partake in this.  Living in sub optimal conditions to be close to work is no longer necessary. 

2. COVID destroyed the vibrancy that draws millennials to the City.  What good is living in a trendy area if nothing is happening.  Some of this will come back, but I think more than you think will be gone for good.

3.  Millennial buyers are now getting older.  That means kids and then eventually the suburbs for schools.  That takes priority over being withing walking distance of 2 brew pubs, an Asian fusion restaurant, and a whisky bar.  

On point 3, I've argued for a long time that Millennials aren't really that different from any other generation.  You start sharing and apartment, graduate to your own condo/apartment, and then move to a house.  We are shifting to the "move to a house" part of that process from what i am seeing.  COVID isn't the main cause but it is accelerating the process.  

Disclosure:  Born in 1981 so according to most definitions I am a millennial.  

  

@Dana Rusconi - I hear a lot of bullish sentiment amongst investors too and I just can’t understand the reasoning.  

A year ago fundamentals (unemployment, job growth, pay, etc.) were much stronger than they are now yet the RE market has gone into hyperdrive.  

I can’t predict the future but it reminds me of 99 in the stock market, and 2006-7 in the RE market....classic blow off top.  Lots of FOMO (fear of missing out) right now that is driving things.  

@Jay Hinrichs - But correction coming is going to just take some time to play out its not a situation were hey i am going to wait 60 days and the deals are going to be like 09 ..

that's my thought

Spot on......  A correction doesn't fully play out in 2 months, 6 months, or even a year.  I tend to think their are some issues with the RE market and we are very late cycle, but I don't expect a correction to play out quickly. 

Speaking from a Midwestern point of view, I recall during the last bubble seeing the coasts fall well before there any issues locally.  Everyone pointed to NYC, CA, FL, LVS, etc. and the current fall, but seemed to think that we were immune..... "Hey its only $2M condos in Miami... nothing to see here."  It was about a year after that you started seeing issues around here on mainstream properties, and even then it took years to reach the true bottom. 

Everyone pontificates about how they have "cash" ready to buy the next dip.  This so called "cash" will disappear if/when we have a true correction.  This "cash" is in the form of LOCs, perceived equity, and in exceedingly rare circumstances, actual reserves. 

What will happen to this cash if we see a large correction?  LOCs get cancelled (read the fine print), perceived equity disappears (no refi until you die), and the true cash (what little there is) goes into hiding because its now actually being used as a "reserve."

Real estate doesn't fluctuate like the stock market (Bottom in March, and high a few months later), it is a process and a grind.  When the true best buying opportunities are out there, many will be afraid to act, unable to close, and most likely out of the game entirely.  At that point real estate won't be as sexy as it is now days and you won't be talking about being a developer/investor/etc. with your friends at cocktail parties....... Then the cycle repeats....  

@Debbie J. Skora - Most if not all MLS' auto populate to the major real estate websites (zillow, trulia, realtor, etc.) if you allow it. If you are a broker it is much easier to use the MLS as marketing platform knowing that you have all of those bases covered. It makes it much easier to list vs logging into 20 different websites to post the same listing(s).

Facebook Marketplace and Craigslist, etc. need to be posted individually obviously.

@David Krulac - I always consider myself a buyer as well, and always have..... except for 1981 when I was a newborn.  Haha.

Sure there are good residential deals out there right now but they are few and far between and everyone is fighting for them.   At this point in the market, the time spent finding them far outweighs the reward in my opinion.   I have a niche area of commercial that I would rather devote that time to and even that has gotten hyper competitive.  

Everyone is an investor nowadays and we know how that story ends.  Cycles ebb and flow for stocks, bonds, commodities and real estate.  It is pretty obvious that we are in the late stages of this RE run.   Having said that I am not saying I can predict when it ends, the reason, severity, etc.  

 

@David Krulac - You can extrapolate these stories to the St. Louis, MO market as well.  I work mostly commercial/investment property, but I do invest in residential when a deal presents itself.  I've not bought residential in 3 years as the risk/reward is just not there for me.  This is a classic blow off top in my opinion.... Everyone is an "investor" now days! 

What concerns me right now is the fall off in NYC, CA, and FL high end real estate.  In 2008 it took about a year or so for the weakness to hit the heartland and I expect that rule to hold true this time.  

Lumping all commercial together is a mistake in my opinion.  Their are some segments of commercial that will keep plugging along like nothing has happened, and some that will be decimated. 

It is pretty easy to open your eyes and separate the good from the bad.  Retail and office in general are going to have a very tough time in coming months/years.  Industrial on the other hand is still thriving and will likely continue to do so in a relative sense.     

If a deal is out there then go for it!  Having said that, I would be careful to underwrite your deal using assumptions from the "new normal."

I am not seeing any deals at all in the markets I work.  Sellers are still trying to get pre-COVID pricing for properties that are going to have obvious collection issues.  I mean its common sense that a strip center with a restaurant, salon, dry cleaner, etc. should be worth less today than a year ago, but sellers are choosing to stick their head in the sand and keep their asking prices high.  We will see how it works out, but I think we will eventually see a seller capitulation....  That will generally be the time to buy in my opinion.   

@Joe Villeneuve - One of the most important things you learn in school is "how to learn". College takes that statement to a much higher level.

Great post..... I have a BS in Finance and even went back to get my MBA.  Their were a lot of things I learned that were not applicable to success, but it does teach you how to learn and how to research/solve problems. 

Also, most investors start out working in a non real estate related full time career and then leverage that income to invest in real estate.  I still think college is very valuable in terms of its ability to get you into a higher paying career path.  That income stream make getting into real estate MUCH easier.     

@Lumi Ispas - I personally think we could see deflation followed by inflation similar to what we saw in 2008.  The root cause is different, but I think the outcomes could be similar. 

Having said that, you still have to be very careful with leverage, even if the cash flow is there.  I know plenty of people in 2008 who were holding properties that "cash flowed," but the banks still called the notes.  Commercial loans are typically a 5-10 years balloon and if values are down when the balloon is due or a covenant is breached, then you better be prepared to write a payoff check.

Again, not saying leverage is bad, but many out there with a "leverage to max" mentality will likely get burned.  It is a cycle that repeats unfortunately.  
   

You cannot have a discussion about the money supply without taking into account the velocity of that cash (how quickly it is spent and recirculated throughout the economy).  We are in a situation right now where M2 is expanding rapidly but velocity is cratering.  The Fed is printing trillions, but that money is not making its way into the real economy.... i.e. the lower and middle class pocket books where it gets spent and recirculated.  The newly created trillions are (a) papering over previous speculative losses and (b) going onto the balance sheets of companies/individuals that simply add another digit to their net worth.  That money will never see the light of day if/until the people/companies holding it perceive that it is necessary to "use it or lose it."  

Word of caution.... Even with all of the money printing that you have seen, it is still entirely possible to see deflation in real estate.  The Fed can go wild, but if the banks don't lend it, you will see deflation.  Imagine if all banks immediately required a 50% down payment on all properties, or 800 credit scores for any loan, etc.  Look out below.  

I'm not claiming to be a monetary expert, but I would caution everyone out there with the "refi until you die," mentality.