Michael Coffee is with Stacksource.com, a fintech company that provides an automated and streamlined borrowing process for commercial real estate projects. The service matches the borrower with the lender that offers the best terms to the borrower's needs. You can find Michael on LinkedIn, or connect with him directly at [email protected] ------------ Host: Victor Menasce email: [email protected]

Our world is very confusing at the moment. Whatever thesis you create, you can find the evidence to support your point of view. Even a review of the headlines in the Wall Street Journal on a single day can be contradictory. Apple reports record revenue. Amazon forecasts falling sales and the shares dropped 12% in after hours trading US Gross Domestic product up 2.6% in the third quarter. Boeing reports a loss. Google reports falling advertising revenue. Facebook reports falling advertising revenue, Fedex reports falling revenue and suspends guidance. -------------------- Host: Victor Menasce email: [email protected]

Today is another AMA episode (Ask Me Anything). Mike asks, Hi Victor,  I listen to your great podcast a lot and I notice that you and your company do a lot of development, which obviously effects and impacts the worlds environment that we all share.  You seem like a very practical and good person, so I’m wondering what do you and your company do to make sure that your projects are sustainable and are not just hurting the environment? --------------- Host: Victor Menasce email: [email protected]

As real estate investors we are very sensitive to interest rates. Rates for permanent loans are indexed to the yield on the 10 year treasury and in some cases on the yield for the 30 year treasury. But for short term financing like bridge financing or construction loans, these loans are indexed historically to LIBOR. It’s common to see a construction loan with a rate of LIBOR + 5.75% with a floor of, say, 8.5%. So what is this thing called LIBOR and why is it used to set rates for commercial bridge loans? For more than 40 years, the London Interbank Offered Rate—commonly known as Libor—was a key benchmark for setting the interest rates charged on adjustable-rate loans, mortgages and corporate debt. The important aspect of SOFR is that theoretically, it will be more difficult to manipulate because unlike the LIBOR, there’s extensive trading in the Treasury repo market. SOFR is based on data from observable transactions rather than on estimated borrowing rates, as is sometimes the case with LIBOR. That makes SOFR much more difficult to manipulate. -------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about a major development project that we have underway. We closed yesterday on a parcel of land consisting of 1783 acres on the edge of Colorado Springs. This property was part of a much larger property called the Norris Ranch that originally was close to 20,000 acres. There is a story behind Mr. Norris and the Norris Ranch. We purchased the property from Mr. Steve Norris, son of Bob Norris who died in 2019 at the age of 90. Bob Norris was a cattle rancher. Through an unlikely turn of events, Mr. Norris had an elephant on his ranch. Bob Norris was famous as the Marlboro Man, the public face of Marlboro cigarettes.  This project would not have been possible without forging a partnership with some very prominent families in the local Colorado Springs market. We have a strong vision for this project as an extension and growth of the Colorado Springs community.  ---------------- Host: Victor Menasce email: [email protected]

Today is another AMA episode (Ask Me Anything). Davindra asks I am a long time listener of your RE espresso podcast and have thoroughly enjoyed your well thought out  and efficiently delivered content.  Time permitting, I had a question on the most recent podcast about potential scenarios for the economy.  In the second scenario, you said, bonds would have a significant "run up" as interest rates stabilize.  Can you explain what this means? I've been trying to wrap my head around the bond market but there are so many moving parts that affect it, and affect different maturation levels differently as well. If you can suggest a good primer on the bond market, that would be greatly appreciated. ------------ Host: Victor Menasce email: [email protected]

Allison Williams is a lender with walkerdunlop.com. On today's show we are talking about financing for multi-family apartment assets. Today's points are timely and top of mind for many investors.  --------------- host: Victor Menasce email: [email protected]

Mikkel Thorup is based in Panama City, Panama where he helps people find a plan B residency in favorable locations. Many countries have programs that enable accelerated residency with investment in the country. You can learn more and connect with Mikkel at expatmoney.com. He is going to be hosting a five day conference in early November which you can attend for free. To learn more about the summit, visit expatmoneysummit.com -------------- Host: Victor Menasce email: [email protected]

For the past several weeks we have been focusing on macro economic conditions. It seems that all markets, the stock market, the bond market, and real estate are being dominated by the macro environment. Traditionally, we think of real estate as hyper local, and it is. A piece of waterfront property is going to be valued differently than the same acreage two blocks inland. But still the macro environment is dominating. There are facilities available for banks that are in trouble to ask the Federal Reserve for help. These short term facilities are accessed through the discount window at the Fed and the what is called the REPO market. But REPO transactions are publicly visible. Banks are reluctant to use the facility because they’re effectively signalling to the world that they’re in difficulty. ------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about three different scenarios of central bank monetary policy and how that could impact the world of stocks, bonds, and real estate. I believe it’s important for investors to be able to have intelligent conversations with each other. We are all investors. I know very few investors that invest exclusively in a single asset class. The question then becomes what is the most attractive investment to make in the coming market conditions. Everyone is in search of safety in an environment where there is seemingly no safety to be found. There is no safety to be found in the stock market. We are heading into a recession and the PE ratios are not showing enough of a difference in yield compared with interest bearing notes like treasuries. That says to me that the stock market still has a long way to go down now that yield in the bond market is rising. The bond market has more downside in front of it as interest rates increase. Real Estate has more downside in front of it as interest rates increase. We will see cap rates expand and we will start to see distressed assets appear on the market. Keeping cash in the bank is a losing proposition with inflation running above 8.5%. So what do you do? Where do you put your money? Putting money in hard assets is usually a a good hedge against inflation. That includes real estate and certain commodities. But if we are heading into an economic downturn, commodity prices are likely to fall as demand falls. We probably won’t see the bottom in prices for gold, copper, silver for a while. As interest rates rise, commodities like gold have not moved up much because they don’t pay a rate of interest. It’s a real dilemma of where to place your money. In the absence of a safe alternative, more and more people are just dumping cash into treasuries. They yield is still negative compared with inflation, but it’s less negative than cash in the bank. So let’s talk about three different scenarios. In case #1: Inflation stays elevated and the Federal Reserve continues its unrelenting upward pressure on interest rates for the next 24 months. In case #2: Inflation starts to show signs of moderating and the Fed decides to hold the line on rate increases to bring a sense of stability to money markets. In case #3, We enter a steep economic contraction and the Fed pivots from QT to QE. They’re back to printing money and the treasury starts again with fiscal stimulus. All three of these scenarios are highly plausible. If you wanted to argue for any one of these futures, you could find the evidence in the world to support your thesis. What actually happens will be the result of the complex web of headwinds and tailwinds. -------------- Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at the the impact of the falling Euro on US real estate. A recent report by brokerage house Marcus and Millichap looks specifically at this question. The Euro has fallen by more than 15% this year reaching a more than 20 year low in September. Governments make decisions to be stimulative to the economy, or constrictive. In the US, the Federal Reserve is supposed to operate independently from the elected government and its mandate is to bring maximum employment to the nation and to maintain price stability. Since the start of the year, the Fed has increased interest rates five times so far this year and is on track to increase rates two more times before the end of the year. The Federal Funds overnight rate is currently between 3.25%-3.5%. But we expect that those rates will increase to more than 4.25% before the end of the year. In fact, with the latest inflation numbers, I would not be surprised to see interest rates hit 5% by the end of the year. In contrast, Europe is in an economic crisis and an energy crisis. Having a war in your neighborhood casts a huge shadow over the entire continent, to say nothing of the human tragedy that the war is bringing to millions of people. Governments in Europe have been trying to compensate for the higher energy costs by bringing fiscal stimulus to the population. There are widespread protests in France over high energy costs. The French government has pledged 100B Euros to help ordinary citizens combat high energy prices. This means deficit spending and increased debt levels in Europe. But when you look at monetary policy, the European central bank has only raised rates to 0.75%. So if you assume that within the term of the monetary instrument, say, the next 90 days, or even the next 365 days, you assume that neither the US, nor the European central bank will default on its notes, The US T-Bills are more attractive than their European counterparts. All other things being equal, there will be a flight of capital out of European bonds into US T-Bills. It’s that interest rate differential that is causing global investment dollars to flow out of Europe and into the US. The exchange rate between the currencies is merely a reflection of the supply demand situation. ---------------- Host: Victor Menasce email: [email protected]

On today’s show we are taking another look energy markets and how energy costs affect the price of virtually everything. I’m completely in favour of the idea of transitioning from burning oil, gas, biomass and coal to cleaner forms of energy. In the US there are still over 1,000 active coal mines. This is approximately half of the number of coal mines that were in operation in the year 2000. If you go back 15 years, western Europe produced more natural gas on the continent than was imported from Russia in 2021. They outlawed fracking, in order to help the environment and now find themselves having to buy natural gas from the US at a much higher price where fracking is the primary source of the natural gas. The energy security situation in Europe is a function of a series of policy decisions made over the past two decades, more than it’s the fault of Russia or any one nation. Last week the OPEC+ cartel announced a 2M barrel per day reduction in production quotas. The reaction in the US was swift. Prices at the gas pump jumped almost immediately. Many in the media have misinterpreted the announcement to mean that there will be a reduction of 2M barrels per day of oil production. The OPEC members have done little to correct the public perception. The truth is, that the announcement was a reduction in production quotas, not production volumes. Even before the announcement, the OPEC+ member countries were producing 3.5M barrels per day less than the production quota. So in theory, a reduction in a quota would have no impact at all on the actual amount of oil being exported into world markets by OPEC+. You have to remember that OPEC+ includes Russia. --------------- Host: Victor Menasce email: [email protected]

Real Estate values are often driven by influx of job and influx of population. On today’s show we’re talking about the semiconductor industry and the $52B injection of funds that are wrapped up in the CHIPS act. This 1054 page document is filled with goodies for the tech industry. The recent export ban on advanced semiconductor manufacturing equipment and technology is aimed at slowing China’s ascent as a global technology player. The geopolitical instability and growing confrontation with China leaves the US vulnerable. The CHIPS act has triggered several new announcements including facilities to be built by TSMC, Samsung, Micron, and Intel. Samsung plans to build nine factories in Taylor Texas, and two in Austin. Micron has announced a new memory chip facility in the outskirts of Syracuse NY. TSMC has plans for up to six factories at a location in Arizona. Each of these facilities represent a lot of new jobs. These factories operate round the clock. But at the same time, I look at the capacity of each fab and ask the simple question, “Who will consume that many chips?” ------------- Host: Victor Menasce email: [email protected]

Amy Johnson is a partner with Y Street Capital and is based in Salt Lake City, Utah where she specializes in development in multiple cities across the US. On today's show we are talking about the relationship between the developer and city officials and how the reality differs from the utopian view of simply following the planning and zoning rules.  --------------- Host: Victor Menasce email: [email protected]

Today's show is a live talk given earlier this week at the Ottawa Real Estate Investors Organization. We are talking about what you need to do as an investor to prepare for what's coming.  -------------- Host: Victor Menasce email: [email protected]

Buckle up folks. I know this is starting to sound repetitive. But interest rates are heading higher, whether we like it or not. Our industry is incredibly interest rate sensitive, and the cost of capital is going higher. There are several inflation metrics published by various government departments. There is the consumer price index, the producer price index, the core CPI metric which is basically CPI without the more volatile food and energy components. The Federal Reserve looks at the Core CPI metric. Many had hoped, myself included, for a reduction in core CPI this month. Well according to the latest data from the bureau of labor and statistics, core CPI was up in September to an annual rate of 6.6% in September, up from a rate of 6.3% in August. This is the largest increase in Core CPI since August 1982. When economists speak about inflation they make a distinction between cyclical inflation versus secular inflation. You will hear these terms cyclical inflation and secular inflation. So what do these terms mean? If you’re not an economist, or haven’t studies it, you probably have  no idea what they’re talking about. Cyclical inflation is temporary, it’s something that will sort itself out without a lot of government intervention. There are many examples throughout history of inflationary periods that resolved themselves with no central bank intervention. That’s because there was no central bank in existence in the 1800’s. Secular inflation on the other hand is is basically creeping inflation that continues to persist over a long period of time. It becomes deeply entrenched in the system, the culture and the norms of the economy. I personally would make the argument that because our CPI metrics have been manipulated to such a degree that even though the BLS has been claiming that inflation has been at or near their 2% target for much of the past decade, no amount of inflation is good. We have indeed been experiencing secular inflation for the past 100 years. To suggest otherwise is not being honest.

On today’s show we are talking about the market for sovereign debt and what it means for investors. We have a severe interest rate inversion where short term interest rates are higher than long term rates. The obvious question is “Why is that a problem?” If you think about what a market interest rate says to investors, it communicates a perception of risk. In a natural environment it stands to reason that you could predict the next three months or the next year with greater certainty than you could predict the next 10 years or the next 30 years. If that is the case, why are short term interest rates higher than long term rates? Why is the market rate for the one year Tbill 4.28% whereas the yield on the 10 treasury is at 3.9% and the 30 year treasury is at 3.8%? What does that tell us about market sentiment? It says that there is much higher perceived risk in the short term than in the long term. On today’s show we are going to look at signs of contagion that are not making headlines, but I believe you need to be paying attention to. ------------- Host: Victor Menasce email: [email protected]

On today's show we are looking at what is happening in the office market in San Francisco as a proxy for what might be happening elsewhere in the asset class. Spoiler alert: It's not pretty.  ---------------- Host: Victor Menasce email: [email protected]

The velocity of money tends to decline in highly indebted economies. The UK is currently one of those places that tried to use debt financing to restimulate economic growth. Instead, all they got was burnt toast, and you can’t unburn toast once it’s burnt. Let’s step through a chronology of what has happened in the past two weeks in the UK and break down why this could have a cascade effect into global financial markets. The UK has suffered a number of significant economic shocks. It started with Brexit and the flight of European headquarters to other parts of continental Europe. Then came the pandemic, then the supply chain disruptions, followed by a worker shortage, a food shortage, and now an energy shortage. It’s clear that despite very high price inflation, the UK is in economic contraction. Normally in a recession, the government wants to stimulate economic growth. But wait, stimulative policies can be inflationary and we already have too much inflation. The government of Liz Truss proposed a series of stimulative tax cuts on the 23rd of September. After the financial markets reacted negatively to the announcement resulting in a drop in the value of the British pound, and an increase in the yield on the sovereign debt called the gilt. The finance minister doubled down on the announcement and the prime minister went on national TV on over the weekend to say that the government would not change course on the tax cuts. The 180 degree about face came the very next day. The volatility in the bond market is truly unprecedented in the UK and is on par with the volatility we saw in the US in 2008. ------------ Host: Victor Menasce email: [email protected]

When you design a building, the goal is often to ensure you are meeting the building code. After all, the building code was developed with health and safety has primary goals. In the world of senior housing, the building code is not nearly enough. On today’s show we’re talking about how each second of every day in the United States, an older adult has a fall. So, for each step we take, someone aged 65 or older is falling. Currently, falls cost our health system $50 billion a year. ---------------- Host: Victor Menasce email: [email protected]

Patrick Soukup is an investor based in Fort Collins Colorado where he has a brokerage, a property management practice and a portfolio of single family and 1-4 unit rentals. Today's conversation is a refreshing take on how to generate cash flow using dollar cost averaging and conservative underwriting. To connect with Patrick you can find him on Instagram using his name. ---------------- Host: Victor Menasce email: [email protected]

Billy Keels is based in Barcelona, Spain where he lives with his family. Originally from the US, he continues to invest in the US. Billy is the host of the Going Long podcast. You can connect with Billy and learn more at firstgencp.com --------- Host: Victor Menasce email: [email protected]

The inflation metric is dominating today’s central bank policy which in turn is dominating the cost of capital as interest rates increase. The Federal Reserve is committed to raising interest rates until they suppress demand enough to see core CPI metrics average 2%, their stated target. On yesterday’s show we discussed how the health care component of the CPI metric is calculated. On today’s show we are talking about another fudge in the calculation of CPI. It partially answers the question of how Paul Volcker managed to tame inflation in the early 1980’s by pushing interest rates to 18%. Prior to 1983, the true monthly cost of housing included the cost of capital in the measurement of inflation. If you have a variable interest rate loan on your house, and if interest rates rise, then your monthly housing cost rises with it. This cost increase was reflected in the consumer price index. It all makes sense. Paul Volcker is largely credited with conquering inflation by doing the difficult thing and raising interest rates to 18%. It triggered a deep recession and caused massive economic pain and bankruptcies throughout the economy. But if pushing interest rates to 18% was going to create inflationary pressures, how could higher interest rate actually reduce inflation? I’m glad you asked. It’s simple. Change the measurement to exclude that pesky interest rate from the consumer price index and now the problem is solved. But what about the 65.5% of the people who live in owner occupied housing? How are their costs being reflected in CPI?  ------------ Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at the inflation index that is being used to determine interest rate policy. We live in a strange time right now where the Fed considers economic growth to be against their objective of taming inflation. What’s normally good is bad, and what is bad is good. The largest component of the Core CPI metric that the Federal Reserve uses to measure inflation is housing. It accounts for 40% of the Core CPI metric. On tomorrow’s show we are going to look deeper into the housing component of the Core CPI metric. On today’s show we are going to look at the healthcare component which makes up 11% of the Core CPI metric. We are used to getting newly updated inflation metrics from the bureau of labor and statistics every month for the previous month. But the healthcare numbers are only updated one a year. This happens every year in October. For the rest of the year, the healthcare component of CPI remains unchanged for reasons that I will explain in the next couple of minutes. Now Healthcare makes up about 19.7% of the economy in the US. But somehow it is only reflected as 11 of the core CPI or a little over 8% of the full consumer price index. Part of the reason for that is that healthcare costs have tended to increase faster than many other segments of the economy. For that reason, there is a widely held belief that the weighting in the CPI is reduced in order to reduce the impact of those cost increases in the inflation metrics. But healthcare is difficult to measure. Many people don’t access healthcare in the same way that they might buy milk at the grocery store. There is a major insurance component in any healthcare discussion. But an insurance premium is not the true cost of health care. Each year, insurance premiums go up according to a prescribed formula. This is where insurance companies get their revenue and the only way to gauge the costs is to subtract the costs paid by the insurance companies and look at the retained earnings at the end of the year. This sounds convoluted, and it is. They are measuring the profit earned by insurance companies as a proxy for health care costs. https://www.bls.gov/cpi/factsheets/medical-care.htm ------------- Host: Victor Menasce email: [email protected]

On today’s show we’re taking a look at the aftermath of Hurricane Ian, a week after the event cut a path of destruction across the middle of Florida. I have spoken with several people I know in Florida who own property there and have recounted their experience in that harrowing day. Beyond the immediate aftermath of the storm, and helping those who have lost their homes, the biggest question is on the future of the market post hurricane. Florida is no stranger to hurricanes. There was Hurricane Andrew in 1992 which caused major damage and flooding in Miami and the Florida keys. That storm caused $25B in damage in those dollars. We learned a lot about critical infrastructure from that storm. The local telephone operators stored the battery banks which would keep the phone network running in the event of a power outage in the basement of the buildings. The flooding from the hurricane, flooded the basement and shorted out the batteries causing an even more widespread phone outage than merely the loss of electricity. I used to own properties in Pinellas county and I spent several days shopping for property in Fort Myers and Cape Coral. In the end I chose not to purchase. So many of the homes were too close to sea level for my comfort. The idea of a canal behind your home with your boat parked out back seemed appealing. But the reality of many of these properties is the network of man made canals is so extensive that you might have to navigate a few miles of canal before getting to the open waters of the Gulf. You would think that people would shy away from buying in hurricane prone areas. Did Miami lose population in the wake of Hurricane Andrew? Not at all. Back in 1992, Miami had a population of 4.1M people. Today, Miami has a population of 6.2M people. The city has added another 1.9M people in the 30 years since the hurricane. In fact, the population grew even in the year immediately following the hurricane. How many of the homes in Florida are truly second homes is a topic of debate. According to state statistics, about 1.1M homes or about 14% of homes are second homes. I believe the real number is actually much higher. If you lived part of your working life in NY state or Mass which have very high state taxes, there is a large incentive to declare Florida as your principal residence and your vacation home is in NY or Connecticut or Mass. There is no doubt that the real number of vacation homes in Florida is much higher than the official number. When I visit Palm Beach where my Aunt and Uncle used to have a second home, very few apartments have lights on in the evenings. That suggests to me that these apartments are vacant for a large percentage of the year. ----------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about staff retention and how to address the staffing shortage that is plaguing many industries. Nowhere is worker burnout being felt more acutely than in the healthcare arena. Whether we are talking about acute care that you would see in a hospital setting, or more chronic care like you would see in assisted living skilled nursing, worker burnout is a major issue. Many of you know that I’m a part owner in a senior living and memory care development. Senior care is a service business, that happens to be built on a real estate platform. The folks at Senior Housing News just published the results of a survey on workforce perspectives on the industry. Spoiler alert: People are burned out! -------------- Host: Victor Menasce email: [email protected]

The Grand Banks is a continental shelf off the coast of Newfoundland that has centuries of abundant fishing in its history. The cold Labrador current mixes with the warm water of the Gulf Stream. The water depth varies between 50 feet and 300 feet, very shallow considering the distance from shore. The mixing of these two ocean currents and the shape of the bottom lifts nutrients to the surface. The result was one of the most fertile fish habitats in the world. There was cod, swordfish, haddock, lobster, I grew up on the east coast of Canada and while I’m not into fishing, nor is anyone in my family, the port was only a few blocks from my house and we would go down to the port to look at the boats on a regular basis. We regularly saw ships from Portugal, Japan, and Norway to name just a few. The local politics were often dominated by debate over fishing quotas. The argument was that it was unfair for Canadian vessels to be subject to quotas while ships in international waters could fish as much as they wanted. Eventually that debate was put to rest when the entire ecosystem collapsed and there were no more fish. There was an outright ban on fishing and now nearly 30 years later, the fish population is still a fraction of the population in the 1990’s. Last month we had an entire week dedicated to the question of food security. On today’s show we are going to look at one of the richest ocean ecosystems on the planet. The Galápagos Islands sit virtually on the equator and have been a territory of Ecuador since 1837. Despite being on the equator, the cold water Humboldt current brings nutrients for the Antarctic region up the coast of South America. Combatting illegal fishing is a problem in the Galapagos as well. In 2020 during the height of the pandemic, there were over 340 Chinese fishing vessels fishing in the region of the Galápagos Islands. Those 340 vessels logged more than 73,000 hours fishing in those waters. The protected waters of the Galapagos are home to more than 20,000 species of wildlife. Ships crossing the Pacific from China are not little rowboats with a single fishing rod. No these industrial ships are designed to harvest the ocean indiscriminately on a large scale. The first warning signs of rapidly declining fish stocks in the Grand Banks of Newfoundland happened only about three years before the complete collapse of the fishery. -------------- Host: Victor Menasce email: [email protected]

Kathy Fettke hosts the Real Wealth Show and Real Estate News and a new show on Bigger Pockets called "On the Market". She is co-owner of the Real Wealth Network and has been investing in portfolios of homes for more than 20 years. To connect with Kathy, visit realwealth.com. ------------- Host: Victor Menasce email: [email protected]

Our book this month is by Peter Thiel, founder of Paypal, Silicon Valley entrepreneur and venture capitalist. For a business leader to have success in one company is rare, but multiple home runs is truly rarified air. So I had to read his book and learn from him.  --------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about the crisis of confidence in an entire nation. The UK might go down in history as a case study in how not to handle a period of financial turmoil. I am not one to dive into the political fray and point fingers at politicians. But this one was so egregious that it needs to serve as a cautionary tale to investors about what can happen when ignorant people are put in positions of power. That power can be put to enormous good when aimed in the proper direction. Equally, that power can truly mess things up when a politician or a public official does the wrong thing. --------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about how to prepare for a major storm event and equally important what to do in the aftermath of the storm even if you do not experience storm damage or flooding. As we are recording today’s show, hurricane Ian has ravaged the western part of Cuba and is scheduled to make landfall on the west coast of Florida. About 2.5 million people are under mandatory evacuation order. In hurricane prone areas, the cost of insurance can be a major issue for both residential as well as commercial property owners. We own property in Louisiana located 19 miles inland from the coast where we experienced two major hurricanes in 2020 only five weeks apart. We also have experience from Hurricane Harvey which flooded major parts of Houston. These storms taught us a lot about storm preparation. ----------- Host: Victor Menasce email: [email protected]

On today's show we're talking about a looming crisis in pensions that has not been reported widely in the mainstream media.  -------------- Host: Victor Menasce email: [email protected]

On today's show we're talking about how monetary policy is dominating business fundamentals.  ----------------- Host: Victor Menasce email: [email protected]

On today's show George demonstrates his extraordinary prowess in negotiation when speaking about controlling the pace of negotiation.  ------------------ Host: Victor Menasce email: [email protected]

On today’s show we’re talking about how to rethink construction projects that might have made sense a year ago, but today’s higher cost, higher interest rate environment are looking questionable. Costs are up across the board. The cost of capital has risen faster than the cost of construction and the compounding of those two makes for a massive increase in the cost of any new construction. Buyers are being cost conscious. Purchase prices have already started falling and are likely to continue a downward trajectory for a while. Where they will bottom is unknown. So if you have a project that looks like the costs are spiralling out of control, what do you do? Do you simply hang on and wait for better days? That’s one option. But there might be additional hidden value that can be extracted. Maybe now is the time to consider value engineering the project. Value engineering is more than just being cheap, substituting less expensive components. It’s an exercise in making decisions that respect the original design sensibility, but actually save money. ------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about the cost of home ownership and how the consumer price index fails to properly account for housing cost in its metrics. Agency loans make up 70% of the mortgage market in the United States. These are typically underwritten by Fannie Mae or Freddie Mac as the guarantor of the high ratio loan. The average down payment is 5%, as compared with the minimum down payment of 3% for the FHA 203B loan. These loans have a 30 year amortization. A year ago, borrowers were paying 3.25% for that loan. Today that loan is pricing at over 6.25%. At the start of the pandemic the average house price in the US was $374,500. At the end of 2Q 2022, the median house price was $525,000. So the average loan size increased by 40% from 2019 to today. But in that time, we also have a dramatic increase in interest rates. When you combine the two together, even if we neglect the other increasing costs, just the cost of capital has gone up by 112%. A mortgage payment on a $374 home with 5% down is $1,548 per month. That same house having gone up 40% in the past two years at today’s 6% interest rate would cost $3,275 per month. Now housing makes up 40% of the consumer price index. I honestly can’t figure out how the government is computing the housing contribution to the CPI. Rent is part of it, and home purchase price is part of it. The true monthly cost of ownership has gone up by 112% in two years, and the increase in interest rates is responsible for more than half of that increase in cost. The rise in interest rates is supposed to reduce inflation, and here it looks like the opposite. -------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about the link between risk and reward. The conversation started over a lunchtime discussion in Dallas. We’ve all heard the phrase “high risk, high reward”. The opposite side of that coin is low risk low reward. On today’s show I’m here to tell you that there is no real link between risk and reward. The phrase which has been repeated so many times is utterly false and yet people repeat it like a law of nature. Risk is risk, and reward is reward. It starts with the notion of what is a risk. A risk is anything that is not in your plan. The fact is, that risks can have significant impact, even if their likelihood of occurring is low. If that item is taken into account, and embedded in the plan, then by definition it is not a risk. If the risks are already visible and the impacts can be quantified, then you can start to attach a risk premium to a plan or a project. For example, if you have a loan that is secured by a mortgage in first lien position followed by a loan that is secured in second lien position, most would agree that the second lien carries a higher risk of default than the first lien. For that reason, the second lien position lender attaches a risk premium and charges a higher interest rate in exchange for accepting that higher risk. It follows that a borrower with a poor credit score should be charged a higher interest rate than someone with a stellar credit score. The higher interest rate is a risk premium. The phrase high risk, high reward has its roots in that notion. But you can’t make the inverse general argument. Nothing says that all loans in first lien position are lower risk than all loans in second lien position. ---------------- Host: Victor Menasce email: [email protected]

The National Association of Home Builders Housing Market Index was published on Monday of this week. The NAHB publishes a housing index that is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. We have seen a steady month over month decline from an index peak of 84 in December 2021 to 46 now in September. Looking at the housing starts and the sales center traffic provides a forward looking view of the pipeline. ----------------- Host: Victor Menasce email: [email protected]

On today’s show I’m going to give you a historical perspective on behind the scenes trade that if it occurred as I observed, would have evaded international trade sanctions. The cold war between NATO countries and the eastern bloc lead by the Soviet Union initiated in the wake of WW2, when it became clear the Stalin, while an ally during the war, was an ideological and military threat to western democracies. For many years, the embargo on the Soviet Union was quite severe. The embargo on Eastern European countries was less stringent, in hopes of driving a wedge between the Soviet Union and its allies. At that time, I was a young engineer at Bell Northern Research where I was responsible for the design of the central processing unit of the equipment that routed telephone calls within the phone network. My parent company, Northern Telecom manufactured and sold the telecom equipment that our team designed. We had developed the world’s first fully digital telephone exchange system. Most of the sales were within North America, but we also had sales of our equipment all over the world. We had a licensee of our equipment in Turkey through a company called Netas Telecommunications. Netas supplied equipment to Turk Telecom which was the operator. But Netas also supplied and installed our equipment to other parts of the middle east. Back then, it was illegal for under the trade embargo for world’s most advanced telecommunications equipment to be installed in Russia, or any of the Soviet bloc countries. ---------------- Host: Victor Menasce email: [email protected]

Billy Brown is based in Nashville where he runs a commercial lending business. But his real passion is golf. On today's show we're talking about the Gold Sanctuary, located at the epicenter of numerous high end membership golf courses. You can connect with Billy at billybrown.me ------------------------ Host: Victor Menasce email: [email protected]

Today's show is a live talk from the Secrets of Successful Syndication Conference in Dallas. Today is a case study that focuses on the troubles that investors are facing when transitioning from bridge financing to permanent financing.  ------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about the driver for the value of real estate. Some people will tell you that location is the number one factor influencing the value of real estate. Size and features of the property might be another factor affecting the price of a new home. If we look back at the great financial crisis which started in 2008 and over a five year period decimated real estate, we can learn a number of lessons which would apply to today’s market conditions. Last year there was the crowd that was arguing that inflation was going to be transitory. That’s been replaced with a variation on that theme. The inflation round of inflation which was caused by the emergence from the pandemic should peak around mid 2022 and then decline back to the 2% we have experienced over the past 25 years. The central bank playbook of the past 25 years appears to be the definition of normal. Whenever there is a problem, the central bank will step in, print some cash, buy some bonds, and all will be good. We just need to wait a bit more and interest rates will drop, the central bank will become stimulative again and we will enjoy another hit of the drug that the economy has become addicted to. What if that thesis is incorrect? What if inflation was actually being held artificially low over the past 25 years by factors that no longer exist? We need to understand why inflation was being held so low. ------------------- Host: Victor Menasce email: [email protected]

Today's question comes from Marc who asks: "I’m hearing from a few institutional investors that they’re not making any decisions for the next 90 days. Some of the investments they made in 2021 have run into difficulty and the investment committee is gun-shy about making any decisions about new projects in the current environment. Given this feedback, Would it be unethical for me to discuss the project with other investors at the present time? Should I wait another 90 days for things to stabilize before holding any any investor conversations? Somehow just losing 90 days doesn’t feel like a good plan. What are your thoughts?" ---------- Host: Victor Menasce email: [email protected]

On today’s show we’re taking a look at the effect of rising interest rates on virtually all real estate projects. On today’s show we are going to do some math so that you can see the impact on the underwriting of projects. It will clearly show why so many projects are getting cancelled in the current rising interest rate environment. These numbers are coming directly out of our own underwriting tools and they are the result of what-if analysis that we have performed on several projects. The real estate projects we’re looking at have fundamentals that are actually quite good. But we're seeing these interest rate changes and inflation as a math problem. I’m seeing so many projects being cancelled at the moment as a result of the higher cost of capital. We are entering a dangerous period. That means that there will be bargains on the horizon if you’re playing offence, and there will be pain on the horizon if you’re playing defence. Notice that in this discussion, we have not even discussed whether market cap rates change. That’s because they’re irrelevant to the math when you’re debt coverage limited. We have performed so many of these analyses over the summer that we can almost do the math in our head. -------------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about what manufacturers look for when deciding where to locate manufacturing for their products This decision usually comes down to four main factors. The availability of skilled labor at an acceptable wage. A plentiful low cost energy supply. A favourable tax structure Access to major transportation routes by rail, ship, and highway. If you eliminate one or more of these four requirements that is enough to disqualify a location for manufacturing. The latest geopolitical energy crisis as a result of the war in the Ukraine has caused factories in Europe to close. Some will not reopen. Germany has been a manufacturing powerhouse in Western Europe, despite its relatively high labour cost. The labour force is highly skilled with a strong work ethic. Historically Germany has enjoyed relatively low energy rates that have averaged about half those compared with the rest of Western Europe. We are suffering a global inflationary phenomenon. The cause of this inflation was the global printing of money by central banks the world over. This period we are experiencing is more analogous to the post war 1945 when the US was moving from war financing to business financing. We all printed money while fighting the war on the pandemic. Now that the pandemic is over, it’s appropriate to tighten monetary policy Inflation is the direct result of too much money chasing too few products and commodities. When that happens the price of those commodities gets bid up and that causes the producer price index to rise, the consumer price index to rise, and just about every price index to rise. You couple the money printing with very low interest rates and easy credit, and you get asset price inflation in the stock market, in real estate and even the bond market. We have a global financial system where politically government don’t actually need to cooperate and often they don’t. But the monetary system does rely on central bank collaboration. If you look back over the period of the pandemic, central banks largely acted in unison. That might have been coincidence, but I believe that the European central bank and the Bank of England and the federal reserve and the bank of Japan were all in communication. Fast forward to today and we have a major divergence in central bank policy. The federal reserve is tightening monetary policy and raising interest rates while the European central bank is now in a massive stimulus. The ECB had been raising interest rates slowly but in collaboration with the Fed to fight inflation. --------------------- Host: Victor Menasce email: [email protected]

This question comes from John who writes: "I listen to your show all of the time.  I have been studying macro economics hard for about 5 years.  I feel very well informed and knowledgeable regarding the macro economic picture most of the time,  Then I listen to you and I feel like a brand new apprentice.  You are one the smartest people I have listened to.  And I listen to a lot, including all rich dad advisors. My question is this.  I am a business owner in the United States teaching martial arts, with a primary focus on teaching children ages 5-10 years of age.  I have several full time and part time team members.  I am looking to expand my operation as we are very busy at our 1 location, to the point where we are busting at the seams. We have received top notch mentoring and they have provided us top notch systems. We have all of our systems down and are able to duplicate them with more locations and provide more opportunity.  My concern is the constant attention on recession.  I owned the business in 2008 and rode out the last major recession, but I was a business of 3 employees then.  Today we are 15.  I want to expand but have fears I am doing it at the height of the market, and that when I do pull the trigger the next recession will be close behind and then I won’t be able to pay my bills.  This is the only thing keeping me from pulling the trigger and providing more opportunity and more jobs.  Should I just go for it knowing that we know how to expand and duplicate our systems, or should I wait for a year and see what happens?  I would love to know your thoughts." --------------- Host: Victor Menasce email: [email protected]

Chris is the founder and principal at Harvest Returns, a Fort Worth based venture capital firm that specializes in agricultural investments. The company is an early adopter of new agricultural technologies and they have grown the company to the point where they are investing in advanced production methods that can apply equally in the warehouse environment as in the field. To connect with Chris and to learn more, visit harvestreturns.com ------------------- Host: Victor Menasce email: [email protected]

Inaky Strick is based in New Braunfels Texas. But before moving back to Texas, he specialized in selling investment properties in Belize at the amazing Mahogany Bay Village Resort. It was this experience that built both comfort and expertise in international investing. On today's show, we're talking about owning short term rentals in Tulum Mexico. To learn more or to connect with Inaky, connect with him on Instagram at Inaky_Strick. ----------------- Host: Victor Menasce email: [email protected]