Calvin Roberts might be the youngest insurance brokerage principal I've ever met. But he is clearly one of the most knowledgeable. On today's show we are talking about the massive increases in insurance premiums and explaining the underlying factors. To learn more or to connect with Calvin, visit falconinsagency.com. ------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about the architecture of the future. We are all accustomed to seeing the usual rectangular buildings with the vertical walls and 90 degree angles everywhere. Architects made them more interesting by articulating the facade with indentations and projections. Changing the materials on the exterior creates a sense of form, superimposed on what is still a rectangle.  I know what you’re thinking, any other shape is simply too costly to create. Standard materials can’t be used and it requires a tremendous amount of customization to create any other shape. All of this translates into extraordinary cost. With all of the emphasis on affordability, who needs a building shaped like a dolphin anyway? Ok, it doesn’t need to be a dolphin, but who needs a curved wall anyway? It’s going to make decorating the interior space difficult. Artwork won’t hang nicely on the walls. Our entire world is centred around flat surfaces. Even if it were practical to create irregular shapes in a building, would you really want that anyway?  What about those really tall narrow buildings that rise hundreds of feet into the air? When the buildings are that thin, how do they stay standing? Why don’t they fail in a wind storm?  On today’s show we’re going to answer these questions and more, with the answer coming from the world of crustaceans.  ------------ Host: Victor Menasce email: [email protected]

Today is a milestone for the Real Estate Espresso Podcast. This is the 2000th episode of the podcast. It seems like yesterday that the podcast was a concept, an idea. I had been experimenting with various ways of communicating and had been a guest on numerous shows. Publishing a show for 2,000 days in a row has definitely been a project.  In fact, of the 2M podcasts out there, 90% quit after 3 episodes, and another 90% of the remainder quit by episode 20. So to help celebrate 2,000 episodes, we’re going to be holding a little contest. A few lucky winners will be getting some podcast SWAG. We’re talking coffee mugs. I realize that some of you like a tall coffee and not just an espresso. So in about the time it takes you drink your morning coffee, you can share those few minutes with the real estate espresso podcast. To enter the content, send an email to [email protected] and put the number 2,000 in the subject line. The drawing will be held on July 14. To all of those who enter, best of luck and thank you for celebrating 2,000 episodes with me.  On today’s show, I’m going to take you through a little bit of a thought experiment. We know what has happened as a result of the rapid rise in interest rates and how it has affected the housing market. We know that supply of homes for sale has declined as a result of the so-called lock in effect.  If interest rates fall, will we see a deluge of houses come onto the market for sale?  -------------- Host: Victor Menasce email: [email protected]

Today’s question comes from Matt who asks: I have a property that we are considering buying that is in a hot neighborhood. The rents in the area are $2,500 a month for a 2BR apartment which is strong for the city as a whole. The city is a rustbelt city that has seen a lot of growth  The subject property was an industrial site that likely has contamination. The phase 1 indicates there is lead in the ground and there are likely petroleum products in the ground as well.  The seller is pushing for a closing of 30 days after completion of the environmental phase 2. The existing building is about 19,000 SF of structure above ground and we could ultimately build about 27 apartments in the existing structure. The land is $500,000 and it would likely require about $500,000 in environmental remediation costs. It’s likely that the site would qualify for 100% of the site remediation to be government funded.  What do you think about this deal? -------- Host: Victor Menasce email: [email protected]

On today show, we are looking at the market for construction workers. With the rising interest rates, there has been a significant reduction in the number of construction jobs underway compared with the same period Last year. It’s no secret that there is a shortage of workers in construction jobs.  According to a report in yesterday’s Wall Street Journal, many builders in Florida are experiencing an acute shortage of workers.  ------------- Host: Victor Menasce email: [email protected]

On this podcast we keep trying to make sense out of this economy. It is confusing and there are numerous contradictory signals.  On today’s show we are taking a look at why there appears to be a labor shortage. We keep hearing about the so-called labor shortage and politicians and the Fed keep pointing to the historically low unemployment rate.  So where did all the people go? There was not a labor shortage before the pandemic, although we did have historically low unemployment even back in 2019.  -------- Host: Victor Menasce email: [email protected]

Stewart Heath is based in the Huntsville market where he invests in stabilized commercial assets that have a customer facing component. On today's show we are talking about the opportunity that is coming in the world of commercial real estate, as well as some of the risks and pitfalls. Stewart can be found at harvardgracecapital.com ------------ Host: Victor Menasce email: [email protected]

Our book this month is The Wim Hof Method: Activate Your Full Human Potential, by Wim Hof. Wim is famous. He has broken more than 26 world records. Some people call him the Ice Man.  In this book, Wim takes the reader through his personal life journey of accidental discovery. I’ve taken several training courses on the Wim Hof method. Each and every time I come away with a deep sense of calm that is unlike any other. A key element of the Wim Hof method is exposure to cold. I know what you’re thinking. That sounds uncomfortable. The second major component of the Wim Hof method is breathing. I’m not talking about the routine shallow breathing that we are accustomed to. Wim teaches deep breathing, utilizing our full lung capacity. The cycles of deep breathing will leave you feeling lightheaded and cause tingling in your hands and feet. But there is nothing wrong. You are merely pushing out the carbon dioxide from the blood stream and maximizing the oxygen saturation. The combination of these two unlocks capability within the body that most never knew was there. Definitely immerse yourself in the Wim Hof Method.

On today’s show we’re talking about household formation and why some adult children are living at home for so much longer than in generations past. It’s not secret that home affordability is a problem for many who are newly independent young adults. There are a few paths: 1)   After kids leave home they get a job, the best job you can get, and hope to save money from left over after they’ve  paid rent, the car, student loan, and the latest meal from door dash. 2)   Get a high earning job, rent a modest apartment and save up their pennies until they can afford a downpayment for a home. 3)   Get a loan for the downpayment from their parents 4)   Save most of their salary while living at home until they can afford a downpayment. It seems like an increasing proportion of young adults are relying on methods #3 and #4.

On today’s show we are talking about a project that so far has gone nowhere. It’s not a large project, and we did not have anything invested in it besides some time. The subject property was part of a development in the province of Quebec.   The owners of the land had got the property zoned for residential and developed the half of the land and sold half of the project for single family homes. Half of the road was built and homes were built on portion that was developed. It’s not entirely clear why the other half was not build. Maybe the owner ran out of funds. Who knows. The other half of the property which comprises about 18 acres was left undeveloped. Naturally, the property taxes on residential land are higher than the taxes on agricultural land.   The owner of the property was tired of paying the higher property taxes on the land that was basically doing nothing. So he downzoned the undeveloped 18 acre portion back to agricultural. The next generation were left owning this land and they recognized that the value of the land would be enhanced considerably if it were zoned residential. So we entered into a purchase agreement with the current owners that was contingent on getting the land rezoned back to residential.

Norway raised their interest rates by 50 basis points and announced another raise in August. Switzerland raise their benchmark rate by 25 basis points. The UK raised it’s benchmark rate by 50 basis points up to 5%. China lowered its rate because they see ahead what is going on in the real economy. If you’re confused by all of this seemingly contradictory data, you’re probably not alone. It is confusing. The root of the uncertainty and the apparent contradictions can be found by looking deeper at the data. There is one thing that is the master resource that cannot fool anybody about what is happening in the economy. The economy and energy are inextricably intertwined. If the real economy is growing, then so too is energy consumption. If the economy is shrinking, then energy demand will fall. ---------- Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at what is happening in the world of travel and tourism. These changes could have an impact on the world of hospitality as a result, and I believe an impact to where you might choose to invest.   The so-called revenge travel wave from the pandemic is largely over. Travel patterns are starting to normalize. They’re not reverting to pre-pandemic, since you can never truly go backwards. You can only go forward to a new normal. Here are a few things I’m observing in the world of travel. There is pent up demand for cruise ship travel. Back in 2019 there were 29.7 million cruise ship passengers. That went to essentially zero during the pandemic. Even in the second quarter of 2023, cruise lines were rebuilding, and getting back to pre-pandemic levels. Carnival Cruise line reported their latest financial results for 2Q2023. They reported record bookings and record deposits for future sailings. How will this affect the world of travel and tourism?

On today show we’re taking a look at a major shift in the rental housing market. This change is a direct result of the rapid increase in interest rates. A lot has been written in recent months about the so-called lock in effect. I recently attended a talk by Dr. Doug Duncan, chief economist at Fannie Mae. He was speaking at a real estate meet up in Silicon Valley last week, where he shared a tremendous amount of data that the chamber Fannie Mae uses to understand what’s happening in the housing market. And I talked, Dr. Duncan shared that 90% of existing residential mortgages in the United States are more than 100 basis points below current interest rates. Furthermore, 70% of residential mortgages are 200 basis points low current mortgage interest rates. These people sell their homes and buy a replacement home, their housing cost will go up dramatically just due to interest rates. Financially, these people cannot afford to sell. They are locked in to their current low interest rate mortgage. This is going to put a tremendous amount of pressure on new supply entering the market. This is exactly what we’re saying in the current market. There are very few homes for sale. Prices have stabilized after falling in the fourth quarter of last year. In many markets, we are seeing prices rising again due to the shortage and supply combined with an excess of demand. of course it makes no sense to look at the averages because the averages obscure what is happening in the real economy. We see that homes at the affordable end of the spectrum are continuing to fly off the shelf. Homes at the luxury end of the spectrum are taking longer to sell. Buyers last year were cancelling contracts with new home builders over rising interest rates. Today builders are seeing an increase in demand for new homes. However, the demand for new homes is overwhelmingly at the affordable end of the spectrum.  Let’s go back and ask the question why do people sell their homes? People sell their homes when they want to move or they feel that the need to move. Older adults are sometimes ageing out of their homes. Sometimes people move for employment reasons. Sometimes they move for lifestyle choices, so what happens if someone needs to move but does not want to sell their house? They are locked in. I expect a large percentage of these homes to show up in the rental market. This is likely to translate into a supply surge of rental properties in the market. The forecast surge in demand for rental properties due to higher borrowing costs is likely to be satisfied by the unexpected supply of rental properties.  The rental market vacancy statistics that are maintained by the large national brokerages tend to focus on the larger scale commercial rental properties. Individual single-family homes in the rental market tend to fall below the radar. This could result in market vacancy metrics that are inaccurate over the coming months.

Ken McElroy is based in Scottsdale Arizona. I caught up with Ken and his sons in Belize this month where we were speaking at the Investor Summit on Sand. On today's show we are talking about the key constraints in the current environment. To connect with Ken, visit KenMcElroy.com where he shares tons of content and a very widely followed podcast and Youtube Channel. ----------- Host: Victor Menasce email: [email protected]

Alan Stewart is based in Grapevine Texas where he has built a sizeable portfolio of rental apartments. On today's show we are talking about making improvements that don't necessarily have to cost extra. To learn more or to connect with Alan, visit his website at sapientcg.com -------------- Host: Victor Menasce email: [email protected]

Investing is not easy. It is an active business that requires continuous improvement of systems and processes. It also comes with risks that you need to understand and quantify On today’s show we are talking about one of the biggest risks to a short term rental property. Last week Dallas City Council voted to outlaw short term rentals in residential zones. You wake up the next morning and realize that you are potentially out of business. Naturally, there is a lineup of lawsuits arrayed against the city.  --------------- Host: Victor Menasce email: [email protected]

On today's show we are taking a look at what is happening in the world of softwood lumber and lumber futures. The entire construction industry for new homes and for many multifamily apartment developments is heavily influenced by lumber futures pricing. There's a fundamental change taking place in the way that lumber futures are sold. But first we need to look at the two different types of futures contracts. The first type of futures contract is to purchase a single railcar worth of softwood lumber. That futures contract is an obligation to take delivery of a railcar worth of lumber. The second type of contract is an option contract which gives the buyer the option but not the obligation to purchase a railcar worth of softwood lumber. This distinction is important since it would intuitively makes sense that you would pay a different price for the option versus the price you would pay to fulfill an order. Futures contracts are being cut in size by 75%. Builders have been struggling with gaining control over their cost structure over the past couple of years with the wild price swings we have experienced. By accessing the futures market, builders will be able to control their cost structure in ways that had been previously impossible. For those who are developing multi family apartments, this can be a game changer. The smaller options contract also means that the cost of hedging for a single project is much lower. ------------ Host: Victor Menasce email: [email protected]

On today’s show we are looking at crypto currencies. It should come as no surprise that governments the world over are not enthusiastic about having a grass roots competitor to official currency of the nation.  Since most of the world exists in the realm of fiat currencies, the most practical way into the world of crypto currencies is through a crypto exchange.  Is it a coincidence that the SEC is targeting crypto exchanges? We don’t know for sure, but today’s show is going to zero in on that question and postulate why there seems to be a war on crypto from regulators.  The SEC has targeted two of the largest crypto exchanges Binance and coinbase. Binance has 62.5% market share and coinbase has 5.4% market share.  The government doesn’t want to call crypto a currency. Legal tender is the legal tender of the United States or the European Union or whatever jurisdiction. If crypto currencies are not money, then what are they? Now I’m not a lawyer, nor am I a securities lawyer. So I’m not qualified to comment on the merits of the case on either side. But it is clear that the SEC is arguing that securities laws apply to both Binance and Coinbase. If these are indeed securities, then securities laws would indeed apply.  So why is all of this happening, and why is it happening now? ---------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about demographics and how this affects real estate on a global basis. Most western economies have declining birth rates. The population of the world is growing.  On today's show we are looking at whether investing strategy is influenced by fertility rates and migration patterns. ------------------ Host: Victor Menasce email: [email protected]

Oh today’s show we are talking about the current macro economic climate and provide a forecast for interest rates for the second half of this year.  The fact is that we live in an interconnected world and the attempts by central bankers to look at the economic conditions within a nation as a closed system is extremely naive.  We have Germany in recession having experienced two consecutive quarters of economic decline. New Zealand is now officially in recession.  The biggest news in the past week is that China announced a drop in interest rates and is launching a massive public infrastructure spending program aimed at stimulating its flagging economy. As the largest manufacturing economy in the world, China’s manufacturing is a bellwether for global consumption. The promised economic jolt from China reopening from the COVID pandemic lockdowns failed to materialize. It was an economic whimper.  ---------------- Host: Victor Menasce email: [email protected]

Russell Gray is the co-host of the Real Estate Guys Radio show, now in its 26th year. On today's show we are talking about the current monetary environment and the risks inherent in today's FIAT currency based system. To connect with Russ or to learn more about the upcoming 22nd annual Investor Summit at Sea, send an email to [email protected], or visit realestateguysradio.com ----------------- Host: Victor Menasce email: [email protected]

On today's show we are talking with Chad Zdenek who is based in Los Angeles. Chad has a side hustle as the host of at documentary TV series called "Inside Mighty Machines". By day, he owns and operates a portfolio of multi family apartments. On today's show we are talking about making changes to property management and the challenges inherent in making such a change. To learn more or to connect with Chad, visit csqproperties.com ------------- Host: Victor Menasce email: [email protected]

We have all experienced entering a search query only to receive a long list of unrelated products that happen to match one of the keywords in the search.  Incorporating artificial intelligence into the customer experience will transform search. You might be wondering how this will affect real estate investors. I’m glad you asked.  Imagine you have a portfolio of rental properties and the client is looking for a three bedroom apartment within 10 minutes walking distance of a specific elementary school, or within a five minute walk of the number 65 bus route. Today’s apartment listing sites force you to wade through hundreds of listings and for you to make the determination whether a property will meet your criteria.  In the future, those companies that deliver a better search experience will have the differentiated offering in the market. In fact it will not be enough to incorporate AI in your offering. You have to remember, these systems can learn. Just like you have to train a newly hired employee in your business, you will need to train the software to respond appropriately for your target customer’s queries.  ------------ Host: Victor Menasce email: [email protected]

Today's question comes from Adam who writes: Hello Victor, Thank you for the wonderful podcast.  I am a daily listener and I regularly recommend the Real Espresso Podcast to others. Today you ended your podcast (S6 E166 Cand the Banks Survive Another Rate Increase?) with words "before it all comes crashing down".  I know many are like me wondering what this crash will look like in our own sectors of real estate, but I also know you are not big on making predictions.  That being said, when you say "before it all comes crashing down",  what does that mean for us real estate investors? Which real estate asset classes do you think will be impacted most? Thank you again and have an awesome day!! --------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about the coming financial crisis. You might be wondering how I can say that. We are not seeing more bank failures since the failure of First republic Bank.  We are seeing signs of it creeping into the news headlines. Yesterday’s Wall Street Journal has zero’d in on the looming crisis in commercial real estate and the associated credit crunch. Today the Federal Reserve is meeting, as they do every six weeks. Their interest rate announcement will be a few hours after this podcast is published.  The bank failures so far this year, while larger and more severe than the failures of 2008 have been explained away by banking regulators and Federal officials as isolated cases. These banks we are told were not well managed.  But on today’s show we are going to look at the underlying conditions that led to the failure of these institutions and see if they are isolated to those banks or not.  ------------- Host: Victor Menasce email: [email protected]

This question comes from Paul who writes: I have booked a strong capital gain as a passive investor in a syndication. The sponsor of the deal is asking all investors to come along for the ride in a 1031 exchange. The sponsor seemed to do a good job on this first project. However, the proposed replacement property is in Houston and I don’t have a good feeling about the fundamentals of this replacement property.  -------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about my personal experience with the media. I also want to be careful to make sure this does not come across as sounding like a bunch of conspiracy theories.  There is an accepted social norm called social proof. This is based on the idea that if you say you are great, that is not as powerful as having someone else say you are great.  That is why reviews for a hotel on Trip advisor are more valuable than a glossy advertisement from the hotel saying how great the hotel is. We can also imagine that maybe not all of the reviews on Trip Advisor could be planted by people connected to the hotel. The long list of glowing reviews can sometimes overshadow the small number of negative reviews. The question is, “What is are more accurate reflection?” Are the negative reviews more accurate? Who knows? We tend to believe what we see, read and hear in the news. 

Andrew Abernathey is based in Phoenix Arizona where he develops storage facilities in Arizona and California. Working closely with a family office, Andrew and his team at Abernathey Holdings are scaling up aggressively. To learn more or to connect with Andrew, visit Abernatheyholdings.com --------------- Host: Victor Menasce email: [email protected]

Anna Kelly is based in Lancaster Pennsylvania and she invests in several markets across the SE USA including multi family apartments and short term rentals. She has established herself as a leader in the space. On today's show we are talking about risk, and some of the lessons of the past three years. To learn more or to connect with Anna, visit reimom.com ----------------- Host: Victor Menasce email: [email protected]

Today's question comes from Christian who asks: I’m small time RE investor and about to do my first long distance flip. Is it worth hiring a project management company? It is a flat fee and they would help with design, compare costs, negotiate with contractors, and management. The project budget is $50k-$100k and the cost is $7k for the PM. Is it worth it? ------------- Host: Victor Menasce email: [email protected]

On today’s show we are going through a thought experiment about the risk of large global divisions and how that might affect your real estate development project. To walk through the process, we are going to use an example of a small construction project for a single family home. The home is already under construction and the foundation has been poured and the wood framing is 80% complete. The project has been started and like all construction projects, once it is started it must complete. Any discussion of risk requires a more detailed analysis of the elements of risk. Let’s start with a definition of risk. A risk is anything that is not in your plan. In this context it is fair to say that most businesses have not taken into account the risk of China becoming fully isolated from the western world. Europe and the US would certainly face severe product shortages if that were to happen. When we talk about risk we need to break it down further. Risk gets broken down into likelihood and impact. We know from history that people are notorious poor at assessing whether a risk is likely to come true or not. So we are not going to even try to assess the likelihood. What we can quantify is the impact. ------------ Host: Victor Menasce email: [email protected]

The Wall Street Journal finally reported on something that investors and lenders have known for more than nine months.  The rapid rise in interest rates has created a structural problem for commercial real estate.  The issue goes far beyond the headline that nearly $1.5T in commercial real estate debt is vulnerable to default in the next three years.  The punch line of the article is that lenders are prone to foreclosing on these loans because the issues with office occupancy are not likely to be resolved anytime soon.  Unfortunately the simplified reporting completely neglects the fact that the lender is not some rich dude who can withstand the loss with no consequences to everyday citizens.  The counter party risk that was present in 2008 is still present today.  Why is that?

How do you know if a project bid is good? On today’s show we are talking about how to value engineer a project. We’re going to look at a project that has a firm bid on it. Overall, the construction bid seemed to be fairly reasonable in terms of total price per square foot. Having said that, there could still be problems in the bid. Some line items might be too high and others might be too low. One of the most common mistakes is to accept a total price merely because the overall price seems to be in the ballpark. When we conduct a budget review we look at every single line item. When problems occur in a budget, it is often because the scope of the work has an error in it. We double check the contractors numbers of every single component of the project. We use material estimating software that measure the dimensions for each material using the architectural drawings. We measure the roof area, the wall area, the number of electrical fixtures, all the doors, you get the idea. There are literally hundreds of line items to be estimated. It is in this process that we find errors. -------------- Host: Victor Menasce email: [email protected]

On today’s show we are looking at the design of industrial warehouse buildings. Building designs are changing from a functional perspective and this is important when you consider investment in industrial buildings. When we hear about warehouses, people tend to talk in terms of square feet and rent per SF. But these facilities are not universally interchangeable. Operators think in terms of volume, not just area.  So when you take design into account it is clear that not all warehouses are considered equal. Older buildings that do not meet the logistics demands of a modern facility will not even be considered. They are treated like a functionally obsolete building, even if they are only a few years old. It all comes down to the racking system that is used to plan the warehouse operations. --------------- Host: Victor Menasce email: [email protected]

Deborah Smith is based in the NY area where she plays a key role in institutional investing at the Center Cap Group in industrial real estate. In particular, she is a big fan of industrial outdoor storage. We share that in common. On today's show we are talking about the market dynamics. To learn more or to connect with Deborah, visit centercapgroup.com. ------------- Host: Victor Menasce email: [email protected]

Dan Haberkost is based in Colorado Springs where he is the founder of Front Range Land. The company specializes in in-fill land improvements all over the South-east. On today's show we are talking about the current market conditions for in-fill land projects and the marketing for land. To learn more or to connect with Dan, reach out to him on Instagram at https://www.instagram.com/danhaberkost/ ---------------- Host: Victor Menasce email: [email protected]

On today’s show, we are taking a look at one of the largest economies in the world and wondering why it seems to be sputtering. We are of course, talking about China. Earlier this year the Chinese economy was in strict lockdown due to the COVID-19 pandemic. After weeks of protest, the Chinese government change course and opened up the economy, seemingly overnight. At the same time, the economy inn, Europe, Japan, And even the United States were showing signs of weakness. China reopening was heralded as the saviour to pull the global economy out of what seems like an impending recession, but that recovery failed to materialize. We witnessed other economies around the world emerge from the lockdown to the pandemic and experience a massive surge in spending. We saw a recovery in demand for products and services that have been suppressed during the lockdown periods. We saw international travel resume. We saw a surge in demand For new homes. We saw businesses throughout the west, respond to the supply, chain shortages of the pandemic, whereby they were placed just in time inventory management with just in case inventory management. Retailers did not want to leave business on the table by failing to carry ample supply or products that customers wanted to buy. After all, interest rates were low, and the additional cost of carrying that extra inventory was much cheaper than the loss of revenue associated with supply chain shortages. Surely, China reopening would see a surge in demand for everything from finished products to raw materials. But it did not happen. Why did China’s economy sputter when the rest of the world emerged from the pandemic with their economy on fire? ------------- Host: Victor Menasce email: [email protected]

 Our book this month is called "Debt: the last 5000 years.”  I expected this book to be thought-provoking, and it did not disappoint. The author of the book is anthropologist David Graeber and the book was written in the week of the great financial crisis of 2008 and published in 2011.  For those who went through 2008, and for those who remember it, the great financial crisis was the mother of all deleveraging events observed so far in our modern history. The author of the book is also the organizer of the occupy Wall Street movement, that captured headlines and attention from around the world. The association with the occupy Wall Street movement immediately biased me against the book. However, as I went through the books pages, I found the authors arguments to be well constructed. 

On today’s show we are looking at an outlook for inflation of construction prices and how this is going to play out over the next three years.  There is no question that construction prices have come down in the past 6 months and continue to fall. This has been driven by the fall in lumber prices. Labor prices have stabilized and many subcontractors who have been forecasting no capacity for the next 36 months are coming back on one knee asking for work.  The pricing for construction sub trades varies widely. We have seen prices for HVAC increase during the pandemic. We’ve seen paint and steel and copper and fasteners all go up in price. For the time being, these prices have stabilized.  The question then becomes what will happen in the coming years? Can we forecast what will happen next, and what can we do about it? I believe that the answer is yes, we can predict what is going to happen. ------------ Host: Victor Menasce email: [email protected]

On today’s show we are going to put forward a hypothesis. A hypothesis is an untested idea. It’s hypothetical which is why it is called a hypothesis.  Specifically we’re going to look at the balance of revenue and expenses that make for a profitable venture in hospitality.  It’s no secret that hotels suffered greatly during the pandemic. They were forced to close as the stay at home mandates caused travel of all kinds to dry up. A few that agreed to become quarantine facilities enjoyed some revenue thanks to the very government that forced the closure.  Short term rentals suffered greatly as well. Depending on the location, some managed to get revenue from traveling health care workers who were on pandemic duty to provide relief to overworked and overstressed ER facilities.  If you’ve traveled lately, you will notice that hotels have become a lot more expensive. I used to find bargains for hotels in NYC for $150-200 per night prior to the pandemic. Sure you could spend $1,200 a night if you wanted to. But you could still find good hotels in good areas at a decent price.  In Toronto, I could find bargains in the downtown core for under $200 a night.  This week I was at a conference in Toronto and it was extremely difficult to find a hotel room in the downtown core at the last minute under $500 a night. Most were $700 a night.  Several of the people I spoke with at the conference had booked a short term rental and were grateful to have paid a lower nightly rate than the equivalent hotel room.  It’s no secret that interest rates have gone up. You had to be living under a rock to have missed that one. Hotels are sometimes owned by the brand, but often are independently owned and flagged under a franchise agreement.  The issue is that a significant percentage of the hotels in the world were funded through bond offerings at extremely low interest rates over the past decade.  Some of these hotels have bonds coming due this year and next year and the year after that. They will be forced to refinance at higher interest rates.  This means that those hotels will need to increase their nightly rates in order to survive. If the market won’t tolerate higher nightly hotel rates, then the owner will have to hand the keys back to the lender. A hotel in foreclosure is likely to close which will remove supply from the market, which in turn will push up nightly rates.  I don’t see a scenario in which hotel rates don’t go up from here. Even in a recession, falling travel won’t mean lower nightly rates. The hotels will fail. So the only choice for owners is to raise nightly rates. They have no choice.  They have to find a way to increase revenue or die. I’m convinced that the hotels will act in tandem to protect the industry.  If hotel nightly rates go up, then STR rates go up.  There you have it. That’s the hypothesis. The only thing that could hurt STR owners is if government steps in and forces STR to close, or imposes regulation that is so onerous, that is makes an STR business impractical.  Local governments might do this to protect the hotels from going under.  Of course everything I’ve said on today’s show neglects the hyper local nature of real estate, hospitality and STR. Your local situation could vary widely. But maybe an analysis of the hotel business in your area could yield some valuable data that might validate, or maybe invalidate this thesis. 

On today’s show we’re coming to you live from Multi Family Conference in Toronto.  There were a number of great speakers at the conference, but I want to focus on one speaker in particular. Our North American culture can be celebrity obsessed and I don’t buy into that. However, I believe that success leaves clues and that success is rarely accidental.  That speaker was Alex Rodriguez. He is known as a baseball player, first for the Seattle Mariners, then the Texas Rangers and finally the NY Yankees. He played a total of 22 seasons in MLB, an industry in which the average tenure is 5.5 years.  Most recently he is known as one of the Sharks on the TV Show Shark Tank. Naturally, most people believe that he made his money in baseball. There is no doubt that baseball helped. But baseball did not come close to affording the growth that Alex has experienced.  I’m here today to talk about none of the celebrity stuff that most people focus on. Alex Rodriguez is a real estate investor. He started like all of us, with a small single family rental, duplexes, triplexes and eventually moved up to small multi-family buildings 10 units, 12 units and so on. He started investing early during his baseball career. In the early days, his baseball salary was used to cover the negative cash flow in his real estate portfolio and there were many times when he was at risk of running out of cash.  Today, ARC has a portfolio of over 20,000 units. He is not known as a real estate investor. But he is a real estate investor at a very high level.  A portfolio of that size is operating at an institutional level. Here are some of ARod’s key take-away’s. He has been investing in real estate for over 22 years. This looks to me like one of those 20 year overnight success stories.  He continues to grow the ARC companies by having hired A players. He has had the good fortune of developing a friendship with Warren Buffet who counselled him to only hire A players. A players tend to hire other A players. B players tend to hire C players which can poison an organization. He’s better off maintaining a smaller organization of higher quality people than having an organization of mediocre players.  While ARod had an impressive 696 HR in his 22 year major league career, ARod also holds the title of having the fifth most number of strike outs in the history of major league baseball. It was this fact that trained Alex to approach the plate to a clear head each time he went at bat. It didn’t matter if he had just struck out. It was this quality that meant he could simply never quit. He was unaffected by setbacks and failures along the way. In his experience, most people can’t handle the emotional pain of failure and quit far too early. He has tried to bring some other professional athletes into real estate investing only to see them quit after a short period when they discover that it’s difficult.  When A rod is hiring people into the organization, he always looks for people who have that emotional stability in the face of adversity. It’s the one thing he looks for that he considers to be a super-power in business.  ---------- Host: Victor Menasce email: [email protected]

Mark Kenney is a principal at Think MultiFamily in Dallas Texas. He and his partners have amassed a portfolio of more than 14,000 apartments. On today's show we are talking about lessons learned from the current market conditions. This is a fairly sobering episode and Mark is extremely transparent about the stresses he is experiencing. To connect with Mark and to learn more, visit ThinkMultiFamily.com -------------- Host: Victor Menasce email: [email protected]

Quentin DSouza is based in Toronto Canada where he has grown as sizeable portfolio of multi-family apartments. On today's show Quentin talks about his strategy for stimulating rent growth in a rent controlled market. To connect or to learn more, reach out to Quentin at quentindsouza.com ------------- Host: Victor Menasce email: [email protected]

Today’s question comes from Mathieu who asks: I’m experiencing sellers who are demanding unreasonable terms when it comes to even looking at a property. They are asking me to get the property under contract before even viewing the property and they are demanding due diligence timeframes and closing schedules that are simply unreasonable for us to accept. How would you recommend that we negotiate the property purchase under these conditions? ----------- Host: Victor Menasce email: [email protected]

On today’s show we are looking at short term rentals to see what market conditions are best suited to this product type.  In addition, some critics are zeroing in on a legal gray zone in the world of residential tenancies, short term rentals, hotel stays, and medium term rentals.  The world of short term rentals has been suffering a growth in supply and a fall in occupancy in some major metros. Phoenix and Las Vegas are among those cities that have suffered the most.   But any market follows the laws of supply and demand. The bright spots are those cities where constraints on supply are being imposed through regulation. Without constraints on supply, the sharing economy will continue to attract new entrants until the revenue falls to a level of tolerable pain and nobody is making any money. The classic example is that there is no constraint on adding another vehicle to the fleet of Uber drivers. Supply can grow unconstrained.  ---------- Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at the so-called liquidity crunch to understand why it is happening. Is it just rumour? Is the lack of liquidity real?  On today’s show we have concrete proof as to why the credit markets are seizing up.  A few months ago it was simply a thesis that the regional banks were losing deposits to the major banks. These medium sized banks were under pressure ever since the failure of Silicon Valley Bank. The outflow of capital has been largely to the benefit of the larger banks like JP Morgan Chase, Wells Fargo and Bank of America.  But the outflow has not been a zero sum game. A recent review of the Federal Reserve Bank of St. Louis data set shows that nearly $1T in deposits have left the banking system entirely since June of 2022. The bulk of that decline was in the last 8 weeks. Back in June there was 18.1T in deposits in US banks. Today, that number is down to 17.1T. Somewhere along the way, 1T just vanished from the banking system.  The question is, where did it go?  ---------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about conservation easements.  We tend to think of the income tax code as a mechanism for extracting revenue from the population and from businesses. To be fair, that is true. But there are thousands upon thousands of pages in the tax code.  You can describe how much a business or an individual needs to pay in income tax in a very small number of pages.  The remainder of those thousands of pages is primarily a series of incentives  Conservation easements are one of those incentives.  Under standard conservation easements, landowners give up development rights for their acreage to a land trust. In return, they receive a charitable deduction equal to the property’s value, at its highest and best use, and the public benefits by the preservation of the land, which in some cases is made available as a park. In order to be eligible for conservation, the land must have actual conservation value. If the land was previously developed, it’s unlikely that you would successfully argue that the property has conservation value. Conservation easements are more robust than zoning when it comes to protecting land. Zoning can be changed, and conservation easements are perpetual. But there have arguably been abuses of this provision that went beyond the original intent of the legislation. In particular, the so-called syndicated conservation easements have been deals where promoters would buy a piece of land for a low price and then go get an appraisal for the value of that land as development land, regardless whether there was any realistic development potential for that land. With that appraisal in hand, the land would be donated to a land trust and the promoter would claim a tax deduction for the appraised value of the property. ------------- Host: Victor Menasce email: [email protected]

Today's question is from Marc in Montreal The information you provide on your show helps me every day sharpen my strategies and tactics.  Thanks for that. I run a strip mall with a laneway behind it that is used for a McDonald’s drive through.   The city, rightly or wrongly, is not permitting McDonald’s to update is signage until “this is resolved”.  This seems quite unreasonable since the laneway does not belong to them, the last owner was alive 80 years ago, and this usage has been in place for 10 years.  We are going for prescriptive acquisition. Strangely enough, a neighbour on the other side of the laneway has a garage door that backs right into the laneway.  The lawyer has said that it would be good to get an agreement with this neighbour before taking ownership of the land, since they would likely object to potentially losing an exit for their garage. Even if we were to buy this neighbour out, we would still need an agreement that would keep the value of this property.  My question is “how would you go about making an agreement with this neighbour, and what kind of agreements are possible?" ---------- Host: Victor Menasce email: [email protected]