The Real Estate Espresso Podcast

On today’s show we are talking about what is happening in the economy. There is a narrative of bumpy landing, to a soft landing, and now more recently, no landing. It seems as if the market is convinced that the US economy is strong and is going to emerge from this deceleration into recovery. The stock market is booming which quite frankly is delusional optimism. We have seen a rapid increase in long term interest rates for both the 10 year and the 30 year US Treasury. The question is “Why”? ----------- Host: Victor Menasce email: podcast@victorjm.com

Today's question comes from Tracy who writes: I am a developer/builder in Eastern Washington State. I have been in talks for months with a regional bank for a new apartment building. We have satisfied all the preliminary requirements to be pre-approved. Recently, we went for final loan approval for the project and the bank came back with the determination that they did not have the liquidity to fund the 7.5M loan and they could not find another bank that was willing to participate in the deal. I am not completely surprised by this given the information you have imparted in your hugely informational podcast. However, I have several commercial loans with this bank, and it made me start thinking that I should probably check the health of the bank so I could determine if there is additional risk to my portfolio. So, my question is: What information should I gather and how do I gather it, to determine the stability of a bank? A secondary question is if a bank fails what happens to those that have debt with that bank? Everyone talks about the deposits, but how does a bank failure affect those who have loans in place with the failing bank? ----------- Host: Victor Menasce email: podcast@victorjm.com

Scott Choppin is based in Southern California. His company specializes in purpose built urban townhouses for rent. On today's show we are talking about the challenges and merits of building in California. He publishes a weekly article on Substack called "The Real Signal". You can also connect with Scott on Twitter @ScottChoppin. ----------------- Host: Victor Menasce email: podcast@victorjm.com

Tim Milazzo is based in New Smyrna Beach, Florida where he is the founder and CEO of StackSource. The company focuses on driving transparency into the borrowing process for commercial real estate borrowers. To find out more, visit stacksource.com --------------- Host: Victor Menasce email: podcast@victorjm.com

Today is another AMA episode (Ask Me Anything). Rueben asks: Can you suggest a good program for helping me build out my budget for a new single family 1500 sq. ft. construction? ------------ Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about demographics and policy. In Canada, our fertility rate is 1.48. We’re not making enough babies to maintain population. Like most western economies, fertility rates are below the 2.1 required to maintain population constant.  The US is at 1.64 Italy is at 1.24 China is at 1.09 So countries with low fertility and rising populations are acquiring population through immigration. That’s true in the US, Canada, and much of Western Europe. Canada is a large country in terms of land mass. But if it’s built, it is full. With nearly 1M people admitted to the country in 2022, people are finding it hard to find a place to live. The vacancy rate in many cities is hovering near and in many cases below 1%.  Newcomers to the country are having a hard time finding accommodations. I’ve personally had conversations with parents who are struggling to find student housing for their children who are moving away to attend university in another city.  Many foreign students choose to stay in Canada after their degree and eventually become permanent residents and then naturalized citizens.  This past week, Canada’s Federal government announced a plan to solve the housing problem by limiting the number of foreign student visas.  Honestly, this is one of the dumbest ideas I’ve seen in a long time. In an environment when you have an aging population, you want your immigration to be biased towards a younger demographic. You want people who are just entering the workforce to be the ones coming into the country. If the first few years of their stay here involves training and education that will enable a high quality of integration into the society, you can’t ask for better. Those who enter the country in their later years where they will contribute less to the economy and potentially represent a strain on the health care system exact a higher cost on the country.  --------------- Host: Victor Menasce email: podcast@victorjm.com

 Today’s question comes from Paul, who asks: I have a multi family apartment project that is currently up for renewal of its insurance policy. I have a quote for new insurance, but I’m having a difficult time, assessing whether the insurance being quoted is going to leave me over insured or under insured. I would like to have replacement cost insurance. How would I determine replacement cost for an apartment complex that is 40 years old. How do I determine the correct level of coverage?  --------------- HostL Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a look at the economy in China. China is the world’s second largest economy and it is the most systemically important from a consumer perspective. China is the factory of the world, at least for now.  As China’s industrial sector boomed over the past 40 years. People moved from the farms into the cities in order to work in factories. The growth in manufacturing was only possible through the availability of inexpensive labor coming from the farms.  We’ve seen entire cities built on speculation with the assumption that the space would be absorbed.  At this point China’s problems are systemic.  There are four major structural factors that are suppressing the Chinese economy. Three out of the four structural factors were present prior to the pandemic. But the disruption caused by the pandemic was so massive cause that it masked the presence of these for structural factors. Call number one we see a drop in demand in domestic consumption. A lot of this has to do with declining consumer confidence from deflation, and a reverse in the wealth effect that comes from falling real estate values. The second factor is that the credit markets appear highly leveraged. Borrowers have taken on about as much debt as they can stomach. With falling real estate prices, there is no opportunity to refinance and the mortgages remain. The banks are worried about large scale default rates. In the US in the 2008 era, the default rate peaked at about 10% which is incredibly high. But in the early 2000’s, some banks in China were reporting default rates between 22-25%. It took a large scale government bailout of the banks in order to prevent collapse of the financial system.  The fertility rate in China is currently 1.09, one of the lowest in the world.  We have heard about how the decline in China’s population is going to create massive problems for the Chinese economy, much like it did in Japan after Japan’s population peaked in the 1990’s.  Even though China’s population has peaked and is declining, that’s not enough to create the residential vacancy we are observing. There is a drop in household formation which is creating a gap in demand for housing. China’s urbanization trend could continue if the agricultural practices were to modernize and become less labor intensive.  Strangely, despite the falling population, the unemployment rate among young adults currently stands at 21%. The Chinese government announced that they will no longer report that statistic.  The final structural problem is the diversification of supply chains away from China. Geopolitical tensions between China and the West has cause direct foreign investment into China to plummet as companies set up second source manufacturing outside China.  --------- Host: Victor Menasce email: podcast@victorjm.com

As many of you are aware, the real estate development company that I’m a partner in is building several projects. On today’s show, I’m going to give you an update on the Norris Ranch project in Colorado Springs. It’s been about ten months since we closed on the purchase of this iconic property. While our investors get regular updates, we know that many of our listeners are also interested in following the story.  Let’s start with a bit of background and context. The Norris Ranch is a property of 1783 acres on the Eastern edge of Colorado Springs. The property is sandwiched between Pike’s Peak National Cemetery and Schriever Air Force Base. Schriever is US Space command. They are our neighbor.  The idea behind developing this property involves a major expansion of the city. It will contain 4 densities of residential, retail, commercial, office , hotel, police, fire, schools, etc. We started the annexation petition to the city in August of 2022, expecting the zoning and annexation process to take about a year. 

Ken Gee is based in Cleveland Ohio and he invests in multi-family assets. On today's show we are talking about the merits of a fund model versus syndicating individual deals. To connect with Ken and to learn more, visit kripartners.com ------------ Host: Victor Menasce email: podast@victorjm.com