According to the GDP we are now in a recession. What is your plan?
I see recessions as a time where there can be opportunity in distressed and violative properties and markets. Do you have a respective plan or idea for as how to do the best during this upcoming year and a half +?
[{"id": "ii3wxas", "text": "NBER decides when it\u2019s a recession officially", "replies": [{"id": "ii3xs4l", "text": "Technically but I think right now there being used politically to dodge the reality. We\u2019re in a mess. UK is a mess, Russia is cutting of gas to Europe, bond rates are inversing, mortgages are up almost over 200 basis points in a few months, construction costs are high, developers and builders are getting squeezes, inflation is over 9% here and abroad, gas is higher than ever, economist &amp; finance companies are cutting positions and cash reserves are at an all time high;m, some hedge funds are up over 20%.", "replies": [{"id": "ii409fy", "text": "I take the opposite stance; we'll achieve a soft landing. Unemployment is at 3.6% (U-3), now this is strong, but doesn't matter so much as LPFR has been shrinking over time. The key factor to look at is prime age EPOP, which has been increasing during this \"mess\". Only recently (last month) has it started to move flat. \n\nConstruction costs being high and inflation being high and gas being high are three items that are all highly correlated given that two are inputs to one of them. The issue with CPI-U is it's a bastardized calculation and shouldn't really be used when you're thinking about general price increases since it's a COLI, not a COGI. The measure has been changed over time since 40% of the US outflows are linked to it.\n\nThe treasury curve inversing implies an expectation that the Fed will have to cut rates sometime next year, which would be in line with a general reduction in rates as they approach restrictionary levels. I don't entirely understand why a hedge fund being up 20% is a mess. The consumer is very healthly right now, DTI metrics across the board are still 23-28, looks to be little risk of them losing their jobs, especially blue-collar folk given the tight labor market in that space, so tough for me to say it's politically inclined.", "replies": [{"id": "ii5zj37", "text": "Appreciate your view and insight.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ii41pso", "text": "They make the decision retroactively. They may be pretending that objective facts don't matter for the moment, but they're going to have to accept reality at some point. And when they do, the recession will have officially started in January 2022.\n\nNBER refusing to formally announce the recession is like when the GSA wouldn't formally certify Biden as President Elect after the election. Accepting reality is unavoidable. All the government stooges can do is delay it slightly.", "replies": [{"id": "ii4hfsk", "text": "This. They use lagging metrics", "replies": [], "depth": 3}], "depth": 2}, {"id": "ii4l1b2", "text": "\u201cThe CDC decides if the vaccines will work officially\u201d\n\nLol ok.", "replies": [{"id": "ii4m4tq", "text": "Labor market doesn't have primary endpoints it has to meet to be term efficacious, a vaccine does\n\nLabor market is roaring right now and until prime-age EPOP slows, this won't be deemed one", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ii49dsz", "text": "What is different from 2 days ago?", "replies": [{"id": "ii6zsqh", "text": "Biden redefined what a recession is.", "replies": [{"id": "ii75ly3", "text": "2020 saw a 1Q duration recession, it\u2019s always been determined by NBER", "replies": [], "depth": 3}, {"id": "ii78vej", "text": "No he didn\u2019t.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ii4v5h1", "text": "3% unemployment is very very unypically a recession environment.\n\nGDP is rising up over the previous 12 months. \n\nJobs are rising. \n\nWages are rising. \n\nGas is down 25%. \n\nLumber is down like 59%?\n\nNobody is doing layoffs.  Tiny bit of hiring freezes in some tech companies. But no real slasher layoffs anywhere - just typical managerial shuffle of business units. No panic layoffs, I see no panic.\n\nThere's still more Job Openings Available- than workers.\n\nIt won't be a real recession until that changes. \n\nBecause hiring creates commercial real estate demand. \n\nPrices haven't come down in real estate.  It's more like a plateau.  \n\nBuying Real Estate isn't any cheaper than yesterday- because interest rates are up.  \n\nThe Speculative Herd Mentality FOMO Money is being chased out of so many different types of financial asset markets.  Because now it's Real Money instead of Supplemental Leverage Rules for Fed Primary Dealer banks in the stock market. \n\nLook for a growing area.  Strike hard.", "replies": [{"id": "ii5zlnp", "text": "Appreciate your insight.", "replies": [], "depth": 2}, {"id": "ii69ghl", "text": "Agree with most of this, but prices coming down - they absolutely are. Office is a disaster - often no bids from the debt side at all, unless you have FANG credit with 10+ years of WALT. Even multifamily sales have slowed dramatically - may not see many comps because sellers are holding the line, but the bid-ask is wide. Buyers having to plug their nose and take negative leverage at 3.5-4% caps, yet debt in the SOFR + 300 range (5%+ coupons).\n\nCBD office is going to be a blood bath - especially on the west coast.", "replies": [{"id": "ii6g6vu", "text": "Price is a little down in some things-mostly high end- like you mention.  But the overall carry cost is basically up from rate hikes- like you mention. What I mean is that it's not a trash heap and not a bargain bin.  \n\nI think the key is to be in Revenue Dependent properties.\n\nLike the STOR capital REIT business model. (STOR stock symbol)\n\nLike a veterinarian office - real estate with no alternative for the occupant to make revenue.  Can't do online vet medicine. \n\nHair Salon. No at- home haircuts. \n\nWarehouses. \n\nDentist office. \n\nFedEx store. \n\nAnything that is a true physical requirement for the underlying business is gonna be a good investment.", "replies": [{"id": "ii6wgsc", "text": "Agree - retail is looking much better these days - particularly open air strip centers with service businesses / grocery. I've seen these do very well throughout the pandemic, particularly in the sunbelt states. Malls continue to die a slow death.", "replies": [{"id": "ii6woal", "text": "Yeah.  And if you can add condos.  That's the bomb.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "ii6ggbj", "text": "Why would anyone choose to use negative leverage on a deal? If you can\u2019t afford to go all cash, why not just find a smaller sized deal instead of using more expensive debt?", "replies": [{"id": "ii6i0ap", "text": "Negative leverage would make sense if there\u2019s significant loss to lease in the portfolio/asset being considered\nThat\u2019s the main argument/idea right now in many IN portfolios BX has been buying up at significantly negative spreads", "replies": [{"id": "ii6ik9i", "text": "So basically it\u2019s only worth it if you have reason to believe that yields will quickly increase to be greater than the interest coupon?", "replies": [{"id": "ii6w40s", "text": "Suppose you plan to never sell the asset and just collect the cash flows. You roll forward the debt at the same rate each year. If you don't experience NOI growth, and you buy at a 5 cap, you're making 5% a year, but if your loan constant is 5%+, you're losing money. There are a lot of endogenous hidden assumptions in this premise though to make it simple that don't necessarily reflect reality, but think broadly, if you are paying out x% per year and only making (x-y%) per year, you're losing money. So, you need growth above and beyond in place NOI (from loss to lease/lease up/etc) for it to make sense.\n\n&amp;#x200B;\n\nEdit to put some concrete numbers for clarity: Suppose you assume your bldg pays $100 annually forever, no growth, you buy at a 5 cap. So, you pay $2k. To buy this asset, you borrow a $2k loan (for simplicity), at 6%, full term IO. Each year, you make $100, lose $120. This would be fine, however, if your NOI reset say in 5 years to market rents and you now received $150 per year.", "replies": [{"id": "ii6wui0", "text": "Negative leverage doesn't necessarily mean negative cash flow - it just means the impact to equity returns is lower, ie Levered IRR &lt; unlevered IRR.", "replies": [{"id": "ii6xawa", "text": "It doesn't mean that though. Take my edit math scenario - $100 annually, 5 cap to in-place NOI. In 5 years NOI bumps up to $150, over a sufficient time frame, levered IRR &gt; unlevered IRR. \n\n&amp;#x200B;\n\nYear one I agree, but the whole premise is that it works if there's growth. To be clear, my example was simple purely so it's understood from a mathematical perspective to the lay audience, agree there is nuance.", "replies": [{"id": "iibk0g3", "text": "If you buy at a 5% cap and your debt is 6%, that doesn\u2019t mean you\u2019re negative cash flow. If you had $100 of NOI and $1 of debt, you\u2019d pay $0.06 of debt service- that\u2019s not negative cash flow, but it is negative leverage. It all depends on LTV whether you can cover debt service.", "replies": [{"id": "iibmp22", "text": "Didn\u2019t say it was negative CF in every scenario, just gave the most simplistic example where it was. Your comment about IRR is not correct", "replies": [{"id": "ij7269l", "text": "Your comment about cap rate is incorrect.", "replies": [], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "ij3ik6o", "text": "Where on earth would you get a cap rate comp for in place NOI?", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "ij3i9gf", "text": "Buying at a 5% cap rate only means you paid $20 for each dollar of possible NOI.  It is not your return.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "ii6xlw7", "text": "If the buyer believes there's upside in the cash flows, then it may make sense. Could come from several sources - mark to market the rents, market rent growth, better expense management, value add activity... even a reduction in the index on floating rate loans. Year 3 forward SOFR curve is actually lower than Year 1 because the market is predicting a recession and lower rates in the future, so if that happens, then the buyer's cost of debt will drop.\n\nAlso, institutional buyers get paid on AUM fees, so putting equity out (at any returns) will be good for them. \n\n&amp;#x200B;\n\nA deal I'm working on right now has negative leverage, but the buyer is doing a 1031 exchange, so there are tax reasons to buy at that point. They are very long term owners (billionaire sponsorship), so they can wait forever for rent growth.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ii78wdn", "text": "Damn solid perspective", "replies": [], "depth": 2}], "depth": 1}, {"id": "ii4zt0q", "text": "Do what I do every day, and help my clients find their real estate requirements and other opportunities", "replies": [], "depth": 1}, {"id": "ii4zz11", "text": "Mom and pop strip centers where the owners might be scared into selling at a reasonable cap.", "replies": [], "depth": 1}, {"id": "ii543uj", "text": "False. This sentence is a non sequitor. \n\nThe two quarter contraction \u201crule\u201d is not real, it is a shorthand rule of thumb for rough estimates , just like BMI. You would not look at a super muscular athlete with a high BMI and say \u201caccording to bmi you are fat.\u201d \n\nLikewise, regardless of this popular shorthand rule of thumb on GDP contraction, the economy cannot be in a recession when there is full employment and a piping hot labor market. Recessions are accompanied by high unemployment. This is a fact. \n\nThat\u2019s why the actual formal barometer of business cycles is declared by the National Bureau of Economic Research. They have no declared a Recession, obviously. \n\nThis is trendy pop culture catastrophizing and patently false.", "replies": [{"id": "ii5em0g", "text": "You know that talking like a prompt on an SAT exam doesn't make you sound smart, right? You sound like Dwight Schrute", "replies": [], "depth": 2}, {"id": "ii60qtk", "text": "Besides all the unemployment data that's coming down the pike. If you need that for your barometer then I guess you can wait till next q for the data instead of reading all the headlines now about companies doing layoffs from S&amp;P, to Intel, to the auto manufacturers", "replies": [{"id": "ii62kys", "text": "Unemployment is reported monthly and the rate itself doesn\u2019t matter as much as prime age EPOP", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ii58f64", "text": "Imma help build big things.", "replies": [], "depth": 1}, {"id": "ii59exe", "text": "Cut expenses increase revenue, as always", "replies": [], "depth": 1}, {"id": "ii7k7x1", "text": "Buy low, sell high", "replies": [], "depth": 1}, {"id": "ii81zgm", "text": "Work less. Party more.", "replies": [], "depth": 1}]