The Real Estate Espresso Podcast

On today’s show we are taking another look at interest rates. We’re taking a walk through history. In Wednesday’s Federal Reserve press conference, Chair Jerome Powell suggested that there could be a quarter point cut in interest rates in September if conditions warrant. He said that rate decisions would be data dependent and taken on a meeting by meeting basis.  But I want to take you through history. We’re going to look at the Federal Reserve’s own data dating back to 1954. We would go back even further, but that’s as far back as the data series on the Federal Reserve Bank of St. Louis contains.  When we look through history we see a consistent trend. Whenever the Fed cuts rates, they don’t do it gradually. The cuts are much faster than the increases.  The graph looks a bit like a saw tooth with a gradual ramp upwards and followed by a sharp decline. We have had 12 periods of rate cuts since 1954. All of the rate cuts were steep and swift. Of the 12 rate cuts, 10 of them were associated with a recession.  -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we’re dissecting the latest Fed rate announcement. While the power of the Fed is often overstated, they do still influence market sentiment in ways that are difficult to fully dissect.  Chair Powell said in his opening remarks that the Fed was making excellent progress against their dual mandate of maximizing employment and maintaining price stability. In meetings over the past two years, the Fed Chairman has emphasized inflation to the point of sounding like a broken record.  But in some sense, none of that matters. After all, the FOMC sets one interest rate. They set the Federal Funds rate which is the rate the Fed charges its member banks at the discount window. It’s also the rate closely associated with the shortest term T bills.  The bond market determines the yield of the paper issued by the US government, and every other publicly traded bonds whether it’s British Gilts, EBC, Bank of Canada, Swiss Central Bank and so on.  In the minutes and hours following the Fed announcement, we saw bond yields drop significantly. On today's show we are talking about who wields the power when it comes to setting interest rates. ------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are looking at the industrial segment. Warehouses and manufacturing space were the darlings of commercial real estate over the past couple of years. This segment is also showing signs of being overheated.  We have nearly 4 times the amount of new product hitting the market as we have space being absorbed.  ------------ **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

Today’s show is a case study in due diligence. Last week our company put a property under contract for an industrial storage facility in Jacksonville Florida. We asked the seller for the usual list of due diligence deliverables. But the seller said they were only willing to send the due  diligence items after the property was put under contract.  They provided a complete due diligence file which included a phase 1 environmental study and a phase 2 on-site test results of soil samples and groundwater. The subject property has a history as an auto parts salvage yard. In 2017 a fire broke out which caused many of the vehicles, tires and petrochemicals to catch fire. -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are taking a look at an economic indicator. This indicator is suggesting that it’s time for the Fed to recognize the economic weakness and start cutting rates.  While rate cuts are positive for real estate investors, we have to remember that a rate cut is a sign of economic bad news. All of this despite this week’s unexpectedly high GDP measure for Q2 which was at 2.8% on an annual basis.  We are going to look at the automotive industry. There is a major shift happening in the automotive industry and it’s not making headlines.   ----------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

Mark Natale is based in Atlanta where he helps real estate developers create a brand for their properties on a nationwide basis. This was a great conversation and Mark is clearly an expert in this domain. ---------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

Howard Lorey is based in Beverly Hills where he is the Executive Vice President and Brokerage Manager for the Beverly Hills office at Nourmand and Associates. On today's show we are talking about the changing face of brokerage and how it's impacting the luxury segment. To connect with Howard visit: https://nourmand.com/agent/howard-lorey --------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

A few weeks ago we spoke about the surge in residential real estate in parts of Florida. Inventories are up in several markets. But we are also seeing a surge in condos appearing on the market in South Florida. In fact, the condo sale inventory is up 90% in South Florida and the volume of transactions has fallen through the floor. The number of sale transactions was the lowest it has been since 2012 which was at the bottom of the GFC.  We now have 8 months of inventory for condos as compared with last year and the sales statistics for 2024 to date are even lower than 2023.  Naples Florida has 12.5 months of supply in the condo market compared with 3.8 months at the same time last year. Active inventory is up 204%.  Sarasota has 3,600 condos for sale, an increase of 87% compared with the same time last year. Tampa has a 6100 condos for sale. These numbers were not seen since 2011.  The redneck Riviera is also seeing a surge in inventory. Pensacola’s inventory is up 148%. Destin has 11.7 months of inventory.  We’re talking strictly the condo market.  But Florida has a unique situation. If you remember the Surfside condo building that collapsed three years ago killing 98 people, the state of Florida implemented two new sets of regulations aimed at improving the safety of condo buildings. The first regulation instituted mandatory engineering inspections of condo buildings on a prescribed schedule.  The second regulation implements a strict set of guidelines for the condo corporation’s reserve fund.  These two factors are causing condo fees to increase, on top of the rising expenses associated with insurance. This is resulting in special assessments of in many cases tens of thousands. ----------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are talking about what in some locations is a scarce resource. The headlines decry shortages of fresh water. Certain water sheds have been abused over the past century. The Colorado River is one example of those powerful rivers that seemed limitless. It flows through 7 states and 2 states in Mexico. So many communities along its path would not exist if it were not for the water supplied by the Colorado River. The Colorado river has been so exploited that it no longer reaches the Pacific Ocean.  But the truth is that the planet is covered by 70% water. We are not going to run out of water any time soon. I know what you’re thinking. The oceans are salt water and we need fresh water.  Fresh water is basically ocean water that has been distilled through the process of evaporation and then being deposited in the form of rainfall. Some areas are blessed with more rainfall than others.  We often hear about problems with wastewater sustainability.  The fact is, water is incredibly cheap to turn into drinking water. We tend to think of it as expensive. But in truth, it is very inexpensive. Reverse osmosis technology has been around for a long time. What we are really talking about is the amount of energy required to purify the water.  Let’s put this into the context of a domestic water bill. If you are starting with a fresh water supply and then the city puts the water in reservoirs, purifies and treats the water, distributes it in pipes to all the homes, and then collects all the wastewater and treats the wastewater.  In the city of NY, this comes to 1.7 cents per gallon to supply the water and then to collect and treat the wastewater.   The energy required to produce a gallon of water through reverse osmosis is 0.4 cents per gallon. So if we had to treat the water and the wastewater the same as today and then insert a reverse osmosis system to purify sea water, we would be talking about increasing the cost of producing fresh water from 1.7 cents per gallon to 2.1 cents per gallon. This is hardly the crisis of the century that threatens the very existence of the human race.  -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)  

On today’s show we are taking a look at the most recent announcement from the Bank of Canada. Today the Bank of Canada lowered its benchmark rate by 0.25% to 4.5%. That means the US and Canada have a full percentage point difference between the benchmark lending rates of the two central banks.  This makes for two back to back rate cuts in Canada. The Bank of Canada cut its key lending rate by 0.25 back in June.  The message from the Governor of the Bank of Canada was that lower rates were appropriate in order to stimulate economic growth. The economy is generally weak. Debt levels are nearing record levels and higher interest rates are making housing increasingly unaffordable.  Inflation fell in June after a small bump in May. In June the inflation rate was at 2.7% on an annual basis. It’s still above the central bank’s 2% target, but the falling demand in market seems to be having a disinflationary impact on a broad set of goods.  This means that real estate investors are starting to see some relief. The yield on the commercial mortgage bond has been dropping steadily over the past month. As of today, the 5 year CMB is yielding 3.54%. The best commercial financing available in Canada is priced 0.35% higher which would put the interest rate at 3.89%. That’s a very good rate and is considerably better than rates that most US investors are getting from agencies like Fannie Mae and Freddy Mac which today are pricing at 5.82%.  That’s nearly a 2% spread between commercial mortgage rates in Canada versus the US.  ------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1)   iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613)   Website: [www.victorjm.com](http://www.victorjm.com)   LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce)   YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734)   Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso)   Email: [podcast@victorjm.com](mailto:podcast@victorjm.com)  **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com)   Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital)   Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)