Real Estate Espresso

On today’s show we are looking at the result of a lawsuit that has been decades in the making. I’ve wondered for a long time why real estate commissions in the US have remained solidly anchored at 6% when in other markets real estate commissions seem to fluctuate much more widely. For example, where I live in Canada, it’s much more common in high priced markets like Toronto to see commission structures where the selling agent is charging 1%-1.5%, and the buyer agent who has a lot more work to do in many cases charging 2.5% for a total of 4% or 4.5%. In most professions there are two separate industry bodies. The first is a professional association that acts on behalf of the members. The second is a quasi government body that serves to regulate the industry and to enforce the licensing requirements. They also serve to protect the public. You see this dual structure in most professions whether we are talking about doctors, lawyers, psychologists, and also real estate agents. The body that represents real estate agents is an industry body in the US called the National Association of Realtors. A Kansas City jury last month delivered a $1.8 billion verdict to home sellers in Missouri against the National Association of Realtors and several major brokerages, finding they had conspired to keep commission rates high.

Bob Knakal is a senior executive at JLL in New York City. On today's show we are talking about some of the challenges facing real estate in the New York market. JLL is a large national commercial brokerage and the New York team is truly expert at what they do. You can connect with Bob at bob.knakal@jll.com -------------- Host: Victor Menasce email: podcast@victorjm.com

Chris Larsen is based in Asheville, North Carolina where he runs Next Level Income. On today's show we are talking about economic super-cycles. You can learn more or you can connect with Chris at nextlevelincome.com. -------------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about measurement diligence. People are human and they make mistakes. Often these potential mistakes are not checked, double checked or triple checked. You have no doubt heard the mantra, measure twice, cut once. Measuring sounds easy. In some ways it is. You take out your tape measure and you just measure. Diligence requires attention to detail. Those who make a lot of measurement errors are also prone to missing the details in a contract, or the details in a report. It requires a lot of focus and diligence to catch errors. If you think that errors are rare, you might be more prone to observer bias. This brings me to the most overlooked role in any organization. Quality assurance is a mandatory function in any business in my experience. The review process is a formal process that can’t be skipped. So often I work with consultants who aim to deliver their work on the deadline. They are assuming that there are no mistakes. They are assuming no review time in their schedule. If you actually do perform a review, you are guaranteed to be late. If you find an error, which is likely, then you are guaranteed to be even later than late. I started today’s show talking about measuring. But measuring is a metaphor for any critical item. It could be a test result or a consultant report. Each time a consultant makes an error, it can result in delays in securing building permits or in redesign of the project. If people are not used to the review process, they might be inclined to charge extra for that service. ------------- Host: Victor Menasce email: podcast@victorjm.com

Happy Thanksgiving to our listeners in the United States. We have lots to be thankful for. I’m personally thankful for a long list of things. I’m thankful for my health, for my family, for having the privilege of working with great people. I’m grateful for friendship and for you the listener to the podcast. I love listener questions. On today show, we are looking at several leading indicators that are painting a much clearer picture of what’s happening in the economy then the shortlist of lagging indicators that the federal reserve references as meaningful in their committee meetings that are held a times a year. The Federal Reserve is fixated on inflation, Gross, domestic product and unemployment. The only way to reduce wage and price increases is with a contraction in aggregate demand. However, government spending continues to grow with any contraction being disproportionately, concentrated on the private sector. The government didn’t get the memo that demand needs to shrink.

There is a new law which takes effect Jan 1, 2024. The primary purpose of the Act is to provide greater transparency of legal entities to detect and combat illegal activities. The new reporting requirements, however, will cause millions of existing legal entities to file new beneficial ownership disclosure forms with the federal government. The regulations are written so broadly, that nearly every small business in the US will be swept up in this new law. The idea here is not for you to be getting your legal advice from a podcast. That’s certainly not my role. You want to seek your own legal advice from your own law team. The purpose behind reporting this on the podcast is simply to make you aware that you likely have some work to do to understand the new rules and make sure you’re in compliance. ---------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are looking at the results of one of the most anticipated real estate auctions this year. Signature bank failed in the Spring of this year, shortly after the failure of Silicon Valley Bank. The loan portfolio was finally put to auction and it looks like a joint venture of two nonprofits and Related Fund Management is poised to win an auction for billions of dollars of Signature Bank loans backed by New York apartments, Signature failed in March following a run on its deposits, the fourth largest bank failure in U.S. history. While the failure had little to do with its real-estate portfolio, it was one of the biggest commercial property lenders in the New York region. -------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show, we are talking about four ways to liquidate debt. Our entire economy is driven by access to credit. Credit facilities of all types are essentially a claim on future earnings. I don’t have the money today, but I will in the future if you lend me some of that excess money that you are not using right now, I’ll give it back to you with extra in exchange for letting me use those funds today. It doesn’t matter cause weather the borrower is an individual, corporation, charitable, organization, or the government of a sovereign nation. There are four ways to liquidate a debt obligation. 1. You can repay the debt to future earnings and rely upon your week to week months to months, cash flow to service that debt and repay both interest and principal over the life of the loan. 2. You can rely upon a capital transaction to provide a source of funds to repay the loan. 3 You can wipe out the debt through an active insolvency by seeking bankruptcy protection. 4. You can inflate away the debt.

Shannon Robnett is based in Boise Idaho where he develops multi-family apartments. On today's show we are talking about how to navigate the current market environment with all of its challenges. There are a few nuggets in today's show that you will definitely want to pay attention to. To connect or to learn more, visit https://shannonrobnett.com/ ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show, we are taking a look at why interest rates for commercial real estate are actually falling despite the hawkish rhetoric this past week from Federal Reserve chairman Jerome Powell. Since the middle of the summer we have seen rising yields on the 10 year treasury. The rate peaked on the 19th of October at 4.99%. This benchmark rate has a much larger impact on Real Estate Investors Than the federal reserves short term, federal funds rate. Rates went up over the summer and into the early fall, because the US treasury has been printing vast sums of money and issuing new debt in addition to the rollover of existing debt that has matured. We have seen the 10 year yield fall to 4.43% since the middle of October. That’s more than 0.5% drop in less than a month, even though the Fed is holding short term rates steady. This is one of those stories where bad news is good news. The thinking is that if the economy is weak and we enter a deflationary recession, or a disinflationary recession, the Fed will pivot from their hawkish stance and lower interest rates. The mainstream media including the Wall Street Journal is pushing a narrative that the lower CPI numbers are the reason we need to celebrate that interest rates have peaked and are heading down from here. I think the story is more complex and more nuanced than that. ------------ Host: Victor Menasce email: podcast@victorjm.com

Jeff Love has been helping commercial clients with their real estate legal needs for more than 15 years. On today's show we are talking about distress in the current market. To connect with Jeff, visit gibbsgidden.com ----------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about the forecast flood of distressed deals in the marketplace. We’ve been hearing about how distress is coming and how deals will be available. I’m here to tell you that the future is now. We are starting to see a regular flow of large assets and portfolios of projects coming to the market. I’m getting phone calls from brokers on a nearly daily basis. Many of these so-called deals are frankly located in a areas that are far from our criteria. The team therefore needs to be incredibly selective to only allow projects into the pipeline that are truly exceptional in the context of today’s degraded market conditions. A random piece of land somewhere is not going to meet that criteria. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about deal structure. Some of the financing vehicles that are increasingly common in real estate had their roots on Wall Street. Others had their roots in the tech environment of Silicon Valley. When investors want to participate in a startup business that will certainly evolve over time, how do you decide what is fair to both the investor and the management team? What is the monetary value of the investment, pre-money, and post money? How do you know what percentage of the business to sell to investors? The value created by the business has several elements. The seed capital is part of it. But so too is the creativity and resourcefulness of the team. You won’t achieve business success, or any investment returns without both. ------------ Host: Victor Menasce email: podcast@victorjm.com

Prices in real estate are not determined by the broad market. Instead they’re often set by transactions at the margins of the market, by a tiny percentage of properties that transact, and not the majority of the market that is just staying put. On today’s show I’m going out on a limb to predict that we have just experienced several bellwether events that are signalling to the market the contagion of financial distress. ------------- Host: Victor Menasce email: podcast@victorjm.com

Matt Picheny is based in NYC where he acquires and manages multi-family apartment assets across the southern US. Matt is also partnered with Y Street Capital on two projects. On today's show we are talking about asset management. To connect with Matt and to learn more, visit picheny.com ------------ Host: Victor Menasce email: podcast@victorjm.com

Paul Winterowd is based in Salt Lake City where he specializes in helping sponsors capitalize commercial real estate projects. On today's show we're talking about the difficulties being faced by borrowers in the current environment. To connect with Paul, visit paulwinterowd.com ------------ Host: Victor Menasce email: podcast@victorjm.com

On today's show, Robby asks: "Why does Taiwan dominate the semiconductor industry?" ----------- Host: Victor Menasce email: podcast@victorjm.com

On today's show we are talking about the Buy On The Line Strategy ---------- Host: Victor Menasce email: podcast@victorjm.com

In September of 2019, I published an episode on the podcast entitled “Why Wework doesn’t work.” This week Wework filed for Chapter 11 bankruptcy protection in NJ. The bankruptcy filing affects the main company, and over 400 subsidiary entities that also simultaneously filed for bankruptcy. The landscape is littered with companies that have made long term obligations and have only secured short term sources of revenue to cover those long term obligations. Wework signed long term leases, many with payment guarantees that stretched years into the future. The only way out of those leases was would be to force a reorganization in a bankruptcy proceeding. The company’s balance sheet shows about 16B in assets and $18B in debts. -------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are looking at the energy transition away from fossil fuels. This is not real estate per-se. But it is a macro economic factor that affects our economy very deeply, even though most members of the population are completely oblivious. With global geopolitical tensions rising, understanding energy sources is critical to understanding what is happening in the economy. Energy is the economy. For every unit of economic output, there is an equivalent unit of energy consumed somewhere in the world. You might be wondering why the price of gasoline is falling at the same time that the price of diesel is rising. On today’s show we’re going to answer that question. ----------- Host: Victor Menasce email: podcast@victorjm.com