Commercial Real Estate morning News Show
Leaders in the commercial real estate industry discuss the latest news and provide insights that you will get nowhere else!
Commercial Real Estate morning News Show
Commercial Real Estate Morning News Show - August 27, 2024
Curious about how current market conditions are shaping the world of commercial real estate loans? Join us as we sit down with multifamily lender Jason Hull to uncover the increased activity in Fannie Mae and Freddie Mac loans, despite some tightening of credit standards. Learn how treasury rates and investor spreads influence multifamily loans, and discover why markets like Raleigh and Austin continue to thrive.
Shifting to the office sector, we explore the psychological impact of interest rate changes on new deals and discuss the prevalence of fixed versus variable rate loans and bridge loans for properties nearing stabilization. Our panel dives into the reported spike in office leasing activity, dissecting the role of hospitality-based office buildings and the nuances behind net leasing statistics. The evolving workplace environment and the challenges of remote and hybrid working models also come into focus.
Lastly, we tackle the broader real estate market sentiment and the hurdles in urban planning and housing development, particularly in the UK and Austin, Texas. From the potential of AI to streamline planning processes to the significant impact of major events like the Olympics on local economies, we cover it all. Discover the complexities of rent control and its effects on housing markets, and understand why a smarter approach to building practices could be the key to solving ongoing challenges. Don't miss this episode packed with expert perspectives and real-world examples.
All right, everybody, welcome to the next Commercial Real Estate News and View show, and I have my lovely panel today. I have Judy from California, judy Brown-Frencher is here, maria Ayala from Toronto, hector Cullinan is from New York and I have Jason Hull on the phone who has to drop really soon, and Jason is my buddy. I've known Jason for I don't know forever and he is a multifamily lender in the space. Looks like we got Paul Sheedy joining us today too, so this will be an awesome conversation. Jason has to drop soon, so we have a couple. I did want to get his perspective.
Speaker 2:We have a couple of stories out there today and, since Jason is my lender friend, there are Joy to Bank. This is one. There's a couple of stories out there today. Joy to Bank is planning to offload $1 billion in US commercial real estate loans. There's other stories around this loan regulation and tightening and kind of Freddie Mac and Fannie Mae have kind of looked for how they're going to structure loans in the future. So this is loan conversation that's happening out there today. I guess we all kind of anticipate that there's bad debt out there and so I'm just going to throw that out to the crowd to see who wants to pick that one up? Who wants to talk about it as well? Jason, can you say anything about loans? All yours are good, right.
Speaker 1:I would say that you know, at the end of the day, that the loans in the marketplace, I mean we've been if you look at what we've been doing on the Fannie Freddie side of the house, you know, especially with treasuries going down, we've been, I mean we've been signing up a significant amount of deals over the last couple of weeks, I would say the last month. We've been signing up two or three deals a day, compared to first quarter when we were signing up, you know, one deal a week, you know if you look at what's going on, like we're basically.
Speaker 1:you know, if you look at what's going on in the marketplace, one of the great places that we're playing, I think, is obviously Fannie and Freddie were designed to create liquidity in the marketplace when the banks weren't there, and you know the banks are still pricing pretty high. Their leverage is pretty low.
Speaker 1:They are also, you know, very, very selective on you know where they want to play and also the requiring deposits. So you know the agencies are providing some great liquidity to the marketplace and you know, if you look at some of the construction and bridge loans and things that are coming due, there's a great. You know we're doing a great job taking a lot of those out and converting them into perm loans. And I would say you know there's been some tightening of credit box for you know Fannie and Freddie across the board. But I would say you know great bars, great sponsors, you know good deals in good locations. You know nobody should worry. You know we're still getting deals done. We're just, you know, digging into the details of the rent rolls, operating statements, personal financial statements and things like that, but nothing more than anybody would expect for you know, to do a quality loan with good credit in the marketplace today.
Speaker 2:For sure, right, I, you know, I, I don't, I think a lot of, I don't know a lot of people. Not everybody is good as Jason Hall y'all. He's the greatest lender ever, just saying that loud.
Speaker 1:But Well, I appreciate, I appreciate the plug.
Speaker 1:I mean we'll do a great job.
Speaker 1:But I do think that the marketplace, you know, and what we're seeing today, I mean it's there's some great execution on the Fannie Freddie side of the house, even the HUD side of the house, and I think that you know what will give relief to the marketplace is a lot of these bridge loans and construction loans and things like that getting permed out. And you know, listen, I mean rents are still, you know they're stagnant in some locations, they're increasing in some others and you know people still need some great places to live and Raleigh is still growing, the Southeast is still growing. And you know, if you look at, you know, the jobs report, yes, unemployment's up but at the same time, I think that you know the U? S is still doing pretty well. I mean I was just in Austin last week and or two weeks ago and there's still a lot of activity going on with um, you know, with commercial real estate and people moving to the states where they feel like taxes are in their favor and they feel like the job opportunities are still there.
Speaker 2:Yeah, and so the loans are generally. So there's a talk about the 10-year treasury versus the two year treasury and this whole yield curve. So the 10 years treasury dropped again. I think all these things the multifamily loans are based off of the 10-year treasury, right? I think this all these things, the multifamily loans are based off of the 10 year treasury, right? Am I wrong about that? Are they based? I mean, what do the interest rates play and how the rates are being set, and multifamily loans.
Speaker 1:Well, are you asking me or you're asking the team?
Speaker 2:I'm asking you because you're our lender.
Speaker 1:I mean, if you look at, I mean obviously the five. You know everything we do is up to five, seven and 10 year treasury, but also it's off of. I mean one other like little hidden piece of the puzzle is investor spreads. And you know treasuries go down. Investor spreads go up. So everybody thinks that treasuries go down. You get a ton of relief. That is true, you do. But at the same time investors need to make money on what they're investing in. So investor spreads in the marketplace kind of go up a little bit.
Speaker 1:But we base everything off the 5, 7. And we base everything off the 5, 7, and 10-year treasury, so the treasury is going down. I mean, if you look at the drop in treasuries over the last month or two, I mean if you have a $50 million loan or a $50 million construction project, you have 50 to 75 basis points in reduction in the 10-year treasury out of perm. Loan is very significant, right yeah?
Speaker 6:Yeah.
Speaker 1:We base everything off of 5, 7, and 10-year, depending on what product people would like to utilize in the marketplace. Awesome. Execute their perm loan Very cool.
Speaker 2:That's good. So, but do you think everybody? So everybody is seeing and this is for everybody in the group the news out now is everybody, like 75% of the world is expecting a rate cut, or no, 100% of the world is expecting some sort of rate cut in September, 75% are saying it's 50 basis points and a quarter are saying it's a quarter basis point. But no matter what happens, everybody's expecting some sort of rate cut in September, right, and so I'm just wondering if the markets have already kind of priced that in because they already know it's coming. So it's not gonna really we're not gonna feel any sort of relief. I don't know. I'm throwing that out to everybody.
Speaker 3:I think if you're starting new on a project right now and I always love to throw in because I'm so old I bought a house at 12% interest and I can't stop laughing that the developers are all like 4%, it's the end of the world. It's the end of the world if you price your money at zero and you have no pockets at all, which I'm in a couple of investments where I think the bank just won't take it back yet and I'm praying they get through it because they have no money to back up what they need to pay. But if you plan properly, 0% too bad, it's over, and I think that. Well, my only thing is that I think the quarter percent psychologically or 50, I mean whether it's 25 or 50 basis points I think that that will psychologically spur a lot, a lot of new deals to go under Cause if you know what your rate's going to be and you go under contract, you know with that in mind. If that's how you penciled it, then yay, it's still not like 12% or something, it's 4%.
Speaker 2:Right, as long as, as long as there's stability, correct, I mean, if you, if you, if it's stable, you know, know what's going to be, it's not going to move, and you can kind of you know there's no guarantees in anything in life but at least if you can kind of know what it's going to sit out for the next year or so. And I don't think anybody's chasing. I asked Jason, no one's getting variable rate loans anymore, right, is everything fixed now? Or are they chasing? I don't know what's in the the market today that works for folks that are transacting today.
Speaker 1:I mean, 95% of what we're doing is fixed rate Fannie and Freddie. But if you do look at bridge loans coming that folks that are just nearing stabilization are not stabilized yet. They are using floating rate product because they need to get to a point where they can take out, be taken out with a Fannie, freddie loan. But at the same time I would just say that everybody feels like if they have a floating rate product now, they're not. You know, they're factoring in what the cost is and they're not being unrealistic on that.
Speaker 2:Yeah, yeah, I feel you. Okay, that's awesome.
Speaker 1:I mean, listen, it's hard because some of the some of the fixed rate product is either Lifeco or Fannie and Freddie and you know some of the folks just don't have the revenue, the vintage or the stabilization to go that route, so they have to go floating most of the time I would say probably a majority. I mean, it'd be really interesting to know the stats on every single bridge loan that's been taken out. Is that's been taken out by some other bridge loan or by you know where? Where it's shaken out on how many of those have been taken out by floating rate product because they want to get to the next step?
Speaker 2:I don't know sure, right to figure out what the what, the um, the whole uh exposure is right, I mean that would be interesting to see. Um, for yeah, no, that's super awesome, so glad you're here, jason. Jason is that we haven't had a lender on this call, and it's always good. It's always super important to understand that from the financing perspective, for sure. Hey, hector, how are you, buddy?
Speaker 4:Good, how's everybody doing good.
Speaker 2:How's everybody doing? Doing okay? There's an article in talking about how, um, surprisingly I don't know, maybe not, but um, the office this in certain areas is leasing his spite, like there's more people going back to the office. It's like at, at like at crazy town, like 32% or something crazy. So what's happening in an office world man? What's going on?
Speaker 4:I mean, it also depends where, where the reports are coming from.
Speaker 4:Right, there is a flight to, there is a flight to monetization, there's a flight to kind of more hospitalized, hospitalized based, hospitality based office buildings, and so that is definitely leading back to the spike. But also, we've been waiting for some of the biggest leases to be renewed. Right, we're at that renewal window now where, yes, but there might be a spike in demand, but at what quantity? If they had a million square feet and they're now leasing 300,000 square feet, yes, the leasing market's going up, but how much are they leaving behind? So it's about looking more at the numbers more widely. Obviously, the office market and the landlords and the investors want to see some good news and it is good to see people moving into office, but I'm waiting for the dust to settle to actually look at the people who are moving into the office. Where are they coming from and what are they leaving behind? That's going to be a bigger signal that we have to look at and it's something that I'm waiting for more data around oh so the shuffle?
Speaker 2:are they just moving from one to the other and it's really the whole net. It's not larger, it's just you're seeing more traffic yeah, I can't.
Speaker 4:I can't say that it is or isn't until I see more of the data. Um, the problem is, you know, you've got to trust your sources, and a lot of folks now are like saying you know, yes, offices are refilling, but it's the same thing we keep seeing. You know, after covid the occupancy went up. More tags, more, more, more swipes were happening at the building yeah but yeah, we're comparing it to.
Speaker 4:Are you comparing it to a sunday in the middle of summer or are you comparing it to, you know, last year or 10 years ago? Right, you've got to kind of have um data can tell a story, but until you can actually see the underlying data, um, I just think be a little bit careful. But I mean, we've discussed it in the last couple of weeks. There is a shift to office. There is a shift to regenerate areas using office. We're seeing creative uses, multi-use, so we are going to see more people moving into offices, especially in areas where they've run experiments in the past.
Speaker 4:So what we've seen a lot of kind of large organizations do is give their members or their employees kind of free reign work wherever you want, but use these apps to. Kind of large organizations do is give their members or their employees kind of free reign work wherever you want, but use these apps to kind of book into things and then they use that data to be like, hey, we thought we needed an office in manhattan, but we have 100 members of our team sitting in brooklyn, so that's higher space in brooklyn instead of having everyone jump over the river and waste an hour of their lives every, every morning and every evening, um, so we are seeing that happen as well, where it is a bit of a shuffle, people are kind of figuring out where they're going to put their people. Um, but you know, people, people not canceling completely is a good sign. Um, if everyone just canceled their leases and all those spaces just suddenly became available, um, I think we would have a bigger problem on our hands.
Speaker 6:Yeah, there's an article I think the media has done a good job of, or a great job of it's an underlying fact of trying to kind of create a more positive story. But I do see that there was an article. I think it was Seabury Hector, I'm not sure one of the brokers, but it was about startups wanting or maybe you know not as mature as large organizations wanting more of a presence in the core, not as mature as large organizations wanting more of a presence in the core, needing a presence in the core that is a little bit more permanent than co. Did you see that? I can't remember, but I thought it was very encouraging because there's organizations that are growing that recognize they need a presence for customers. Yeah, so I think that's probably also contributing to the rise in leasing demand.
Speaker 2:That's probably also contributing to the rise in leasing demand. Is it still the stigma? Still, you're not legit unless you have an office. I mean, is that what people feel like? The startup and they're working out of the garage and not really legit A little bit of that, I think a little bit of that is more mature.
Speaker 4:Yeah, sorry, I think it's mature, but I think it's also like culture building.
Speaker 4:Going back to what Paul was mentioning last week Right, you want your team to be around you, you want to have a space, you want someone to congregate and go for, is the fact that businesses, especially in the uk and europe, are becoming really, really privy at renting an office three days a week? Right, paying a slight premium on a day rate, knowing that monday, wednesday, thursday it's their office and the other days they don't care who has that office, and paying less than a monthly sense. So they're just getting really, really smart about how they're using real estate, and I think we're seeing a lot of creativity from landlords coming in like, okay, well, you don't need this piece six days, seven days a week, I can do something else with a weekend, I could do something else with it. In the evenings I can do so, and so we're seeing this. This monetization go more than the average on square footage just takes a lot of creativity. Um, we're at the very early days of that yeah, yeah totally agree to hector.
Speaker 5:I was going to say one of the clients we're advising right now, um, co-working, co-working they're where they have locations close to universities they're trying to. They're trying to create these working groups on weekends or those who are looking to start a new business where you know, let's say, in fact you're going to have your salary coming in. It's a big risk that trying to help companies are looking at establishing a business to have a space where they come on weekends and actually those focus groups and look at how they're going to build out the product. So agree with you completely, hector the more creative these people are, the more they're going to get buck per hour, per day coming in on those spaces that are costing a lot of money. Um, the other thing I'm seeing as well is some of the co-working organizations realizing they're very good at running co-working organizations and managing buildings for corporates, so that you don't have that whole department who are there to look after the building and the access control et cetera, and it's a much tighter model where they don't have the longer lease. And so I think we're still too early in for anyone to really know where we're going.
Speaker 5:There's a lot of fluidity there and I think people are beginning to realize that sort of I realized maybe 18 months ago actually this whole great woke scenario isn't work for me, um, and wasn't work for the company, so we decided to go against it. It's a fashion set actually, where you're all like in again and others. I'm seeing change quite a lot in where you are, your growth rates. You know it's, I think, for a big corporate where you've got a lot of little cogs working in your company. You can work where anybody wants. The smaller companies, I think, need a lot more flexibility and it's an interesting time for everyone.
Speaker 6:Yes, for sure, there's a little bit of Zoom fatigue going on too, though. Right In terms of how deep can you go with Zoom, right In terms of behaviour, and then you kind of want the look and feel, the in-person look and feel. So I think that's what's changing. It's the behaviour that's changing and the acceptability. Not that this is not going to become a norm, it's not going to be a norm for the, you know, for the end game, but I think it's maybe the start, not the finish, not so much at the end. So I saw another article on Zoom fatigue, on Zoom fatigue.
Speaker 2:Yeah, zoom fatigue. I don't think Zoom ends. I do think there's more hybrid kind of environments where people can have meetings and there'll be people remote. I mean that whole how you determine the connectivity solutions, and I think a lot of it is just the technology hasn't caught up with remote working yet. I mean, I think there's Zoom, and that's great. There's Zoom and that's great. But collaborating and understanding how you can, how can you create the same kind of environment with two people sitting over a water cooler and having an idea? You know you sometimes, yeah, exactly.
Speaker 6:Or a whiteboard, or a whiteboard right.
Speaker 2:Yeah, yeah, exactly.
Speaker 6:And some of those technology Another whiteboard.
Speaker 2:Yeah, I know Another whiteboard. I get dangerous with a dry erase marker. By the way.
Speaker 1:Again like it starts.
Speaker 6:You know everything starts happening and it just all comes out of my head when I have a dry erase marker in my head the built environment in terms of bringing people together to brainstorm or to meet one another and to drive that kind of kind of difference. But I think you have to be open to working in different ways to achieve what you used to achieve, kind of in the office five days a week, I think certainly right. Adapt to whatever it is, depending, yeah, but I do think the presence makes a difference, right, especially as, having been a customer of vendors for so many years, you kind of you meet with them and then you really want to see the substance and sometimes that substance comes in into like what's your storefront? Look like it's not like where you know. You know what I mean. I think sometimes it does come to that eventually, but yeah, this is an article for.
Speaker 2:This is an awesome conversation. This is an article for Judy and Jason if Jason can stick around for a little bit.
Speaker 1:The.
Speaker 2:California Department of Education is launching a statewide plan to develop millions of new housing units on the land that's owned by the school districts. They have 75,000 acres and they're going to put 2.3 million housing units in California. Do you think it'll make up for that? I mean, I think y'all are 2.3 million. Is it going to make a dent? I don't know. Is it going to make a dent you think Certainly helps?
Speaker 2:I know right, I know they did the ADU law, they took away the parking code requirements and now the school district has to get involved because there's not enough housing in California.
Speaker 3:I think partly. In our neighborhood there are no houses for sale. There are. Our neighbors are leasing and the owners, whom we know, have decided to kick them out and sell the house, so there will be one. We're in a 300 and something home community and there's none. But I'm just saying so. It's kind of crazy pants right now. And the other thing is that the lottery did not end up giving money to the schools. I don't think. I think that was all fake, whatever was supposed to happen. Like I don't think the schools are all rich now and think of how much money they'll make by selling that land for houses. They don't need it for schools. I think it's really smart for the money side of it.
Speaker 2:Well, I think it is just going to cause another problem, right? So if you get rid of all that land, you're going to need more schools. If you have more people move in, you got more heads, you got more kids you're going to need a bigger school to serve them. So maybe it's self-serving, maybe they're going to get away like grow their school districts because they're going to put housing on their school land. Right then they can grow the schools, get more bonds.
Speaker 6:I don't know, I like if you do were they older schools, judy, like the schools, are they older schools that they're tearing down? Because here there's some. There was a discussion on the schools that they had to be torn down anyway because of the environmental issues, because they were so old. So it was better to sell the land. Like you know, I think it's excess land. Yeah, it's excess land it was excess land.
Speaker 3:Yeah, it was excess land. Yeah, like they had, maybe huge. They, you know, had huge pieces of land and they built the schools much smaller than the land was, and maybe the parking lots. If you have an elementary school, you probably don't really need much parking. Yeah.
Speaker 6:Yeah, I think it was just a different. Yeah, it was a different approach too.
Speaker 5:Yeah, yeah, I mean, I thought that's super interesting. Yeah, go, paul. So we've had a change of government here in the uk about four weeks ago, been an interesting four weeks, um, but they have come in very, very rapidly and one of the big, one of the big things of changes is is a planning commissions, which is our take here. I mean, don't want to sound too here, but they're run by a bunch of old people who do not want to see change happening and they have all these committees and everything goes into public consultation. It has to take four years because that's just the right amount of time. And we've got a new government in, obviously, with a new government a massive majority, by the way, huge majority they've come in and they're railroading all this. So what they? Angela Rayner, who's now the housing minister, she's come in and said Robert, it's going to literally tear up the regulation.
Speaker 5:Now, a lot of the I was listening to literally a program last night about this and the reason why these regulations were put in place in the first place was to stop landowners just doing what the hell they wanted and not have consideration. Uk is that one. Our housing prices are absolutely astronomical. Um, we haven't got enough houses by any stretch of imagination and I think they're going to railroad things in rapidly and probably make a lot of mistakes, by the way.
Speaker 5:But one of the things that points it was coming true is that, like ai and law, there's so much happens, so many law cases have happened before that once you start getting some precedence, actually don't need you know it's there, it's been, you know presence been made already and they're going to start looking at in a town like this or in a village like that or a city like X, what was the impact, et cetera, and how do we just railroad those barriers that happened before to remove this situation and just cut and paste.
Speaker 5:And I think we're going to get to a much more cut and paste sort of philosophy where we're going to build a million houses and that's just being the end story, and I think the plan is to build 1.5 million houses in the next four years. So we'll see what happens. But it'd be good to sort of shake up this nonsense that's happening here right now because, honestly, when I see some of the planning commission, it can take 10 years for planning commission to go through and I don't think any of these people have ever actually worked in a business where the impact of that sort of nonsense goes on.
Speaker 2:You know it's um man, I thought austin texas was bad. 10 years, oh my lord, it takes a year to get a site plan approved here in austin and probably about nine months to get your building permit. And I was complaining about that.
Speaker 5:They were talking about a building that was called HS2, high Speed Railway 2, between London and Manchester, and they were talking about that for the last 30 years. By the time they eventually got through, after every public consultation you ever imagined would ever happen, and got ahead with it and spent colossal billions, they've now had to abandon the entire railway line because they've realised now it's too expensive in 2024 to build it. And you just think, if you just did it 30 years ago, which is going to happen anyway? Actually, I wrote an article a few years ago, back in maybe three years ago, saying you're saying why don't we just get the chinese to come over and build the first stretch and then copy and paste what they do, because they can do things efficiently?
Speaker 2:we've been radical again, huh yeah, I know right, let's just do something that makes logical sense. Paul's cheating for prime minister, that's all I'm saying come on, president every single time.
Speaker 2:That's too funny. So, uh, there's a report report out talking about how people are starting to get the sentiments a little bit changing. I think it's because everybody's thinking and just pray they're going to cut or whatever it might be, but people are starting and, to Jason's point, he had a drop off but transactions are starting to happen. I'm hearing that from more and more people, like people are starting to get a little more bullish on commercial real estate. More people, people are starting to get a little more bullish on commercial real estate and it used to be like the dog, but it's no longer the dog, I guess, or either people who have been sitting with dry powder or waiting to pounce on certain things are starting to pounce. I think also it has to do with the lenders recognizing.
Speaker 2:So Deutsche Bank sold off a bunch of its loans and the reason why they did that was because, no, I think this is what people are saying that they're glad they did it because there's no transactions happening. Therefore, there's no way to do an appraisal, there's no way to do anything because you have no transactions. You don't know what. We can't do valuations on properties anymore because there's no transactions happening. So it's kind of an interesting dilemma is when you get stuck and everything's based off of a normal active environment. That's what I think is so fascinating about this whole space. But people are starting to get very bullish now, which is a good sign. If we're looking at sentiment and what people think, I think that's a good sign. I think the next couple of years will be pretty cool. I don't know what they're bullish on. Maybe they're looking for half-price real estate, but who knows, maybe who knows Real estate is just now for sure.
Speaker 5:Are you talking about residential or commercial, commercial, commercial, commercial? I saw some reporting. I've sort of read some reporting in the States yesterday said there was a 50% drop in price of commercial buildings.
Speaker 2:Is that right?
Speaker 5:No, it depends on the asset class.
Speaker 2:Yeah, it depends on the asset class, probably office buildings for sure.
Speaker 5:There was one building I mentioned in the article UBS in New York where it was sold for 99.7%.
Speaker 5:It sounds like a spurious story, a little bit left field, but a multi-story building for $8.5 million. But I think there's some caveats there. I mean, I think sorry to drop off the line, but I think Pompey's all sort of valuing buildings, you know, even say five years ago okay, before ago, before COVID, we expected occupancy of X. There was a lot of preconceived. These are the metrics that are going to actually work and this is what happens and therefore we can decide over the next 20 years. This is what we should be. Covid was a massive bomb that got us all spinning and we still. I don't think we have anywhere really hitting over 50% occupancy. I think 43% in the US on average. I think when you put those metrics into your financing, it just doesn't make sense anymore, and a lot of what I think we're going to see here why I think the US didn't lower its rate and why the uk clearly barely touched them by quarter percent um is I think they're seeing longer term. We got it, we've got to get in terms of house prices. We've got our house prices leveling right off or declining over the next few years. So the affordability factor comes in, because this is all down to affordability. Now I think that our metrics on any on any sort of scale we want to look at, are out of kilter completely now and we need to get back on track and not have what we've had before in crashes in 2008. I think everything lies now, after these crashes. Actually, what we're going to do is avoid those crashes and therefore we change the metrics so we don't have any big drops and then booming again, Because the UK economy has been constantly boom and bust, boom and bust.
Speaker 5:It has never changed. I think now there's a wisdom in the banking sector that actually we have got, you know, Terminal 5 cancer right now, but let's not hit anybody and try and prolong the life. I do think we're going to be okay, but I don't think we're anywhere out of a. I don't want to see any sort of massive scaling up of prices in the short term at all. I think there's some serious medicine to be taken. I'm Irish and we saw in Ireland we had a huge crash over there, and when I say crash, I mean I'd love to know who these banking analysts are that built 130% more houses than there were people. Surely you know what the population is and therefore how many houses you need. But you know all these banks are, you know building houses in our like tomorrow, how you build house always be my, my belief, but just a simple man an antenna million in a school field is exactly the issue.
Speaker 5:Oh, I do antennas. What we need to see is a bit of wisdom.
Speaker 3:You're cutting out.
Speaker 2:Paul, I'm sure it's brilliant, it's brilliant.
Speaker 5:I'm sure it's brilliant. There's a lot of people in the markets.
Speaker 2:I'm sure it's brilliant whatever you're saying, but you're cutting out man. I don't know what it is.
Speaker 5:Sorry, I'm unfortunately on my internet today. It's horrendous anyway.
Speaker 2:It is All right, no, but I got you. But the boom and bust cycle I mean, but generally it happens. I mean real estate has boom and bust cycles. I mean I don't think you know, it's in an 18 year cycle here in the US. And I mean it just generally is I don't, I don't think that's, I don't think that's new. I don't mean, do you all have a cycle shorter than 18 years in the?
Speaker 5:UK we use about every 10 years yeah.
Speaker 3:Well, that's tumultuous. Yeah, champs Elyseées report from my trip. Yeah, I just was in Paris for the Olympics. I tried to get in the pole vaulting as a walk-on but it didn't work out. I have a friend who works heavily in the retail world there, so he gave us a tour of the Champs-Élysées of what was new and what had been, and it looks gorgeous. For one thing, the Champs-Élysées has a committee, an organizing committee that everybody had to be done by the Olympics Wow, deadline.
Speaker 3:So all these brands were working on new flagships and blah, blah, blah, the whole place is full, like there's no empty storefronts, practically. That's great to hear. That's great to hear. Lvmh has a building that they are going to figure out. They bought a bunch of spaces recently for a lot of money on a huge prime corner and they're deciding which brand they're going to let go in there of the all their brands.
Speaker 3:He also talked to us about money and I can't tell any secrets cause I can't remember the exact amount, but most of the stores, like the average or whatever, is five times the amount of sales per square foot. As our Apple stores. You know our I don't know if you know our Apple stores are basically across the U? S. Every Apple store is doing huge numbers per square foot compared to other brands and their stuff in general their apparel, everything is doing five times as much.
Speaker 3:So, um, they're doing really well in Paris. It's not just on the Champs, it's like generally in Paris, but the US has. I think, and I apologize on the statistic I think we have three times as much retail per person as they do in Europe, like when he was talking about, when Paul was just talking about the housing that they built way more housing than there are humans was talking about, when Paul was just talking about the housing that they built way more housing than there are humans. We have, in the past, had way too much retail for how many humans. We have the overbuilding, yeah, when you can get a loan without anybody looking at whether there's a need and everything and everyone's building on other people's money and all that. However, in the places where it's more balanced right now, like in Europe, the retail is doing fantastic.
Speaker 2:Yeah.
Speaker 6:Question Judy, are all the brands doing like so high end? Because when I was on Champo I say you know it was before the pandemic. I haven't been there since, but it was. I was surprised with the Zara's, the H&M. So is it all brands that are doing equally well, like I guess the mix is their? Is their HSO? Is it all brands that are doing equally well? I guess the mix is their plant right.
Speaker 3:So it appeals to everybody walking down the street, sorry, we were walking along and these two young women, one of them goes Zara and grabs the other one and they both go running.
Speaker 6:Yeah, it's a mix now right, it's not just your high ends, it's everything.
Speaker 3:But it alsolympics did not make the shopping busy, which I think they were disappointed that that that didn't really wasn't really going on. But, um, because you know, most of the tourists that were there are there for the olympics and they're, maybe they're seeing the sights, but they aren't really shopping as much as normal vacationers, which I was a normal vacationer, so I shopped.
Speaker 2:There you go. That's awesome. So are you still talking about the Olympics and the economic activity? Are you seeing anything happening in LA? Because in four years, that's where it's going right, it's going to LA. So is there lots of activity or any activity starting in?
Speaker 3:LA. The developer that I worked with in the past, maybe eight years ago, was already planning for Olympics, oh, ok. So the development in the area has taken that into mind, and I think that was before it was super decided. The World Cup soccer did that already happen?
Speaker 2:I'm not sure, sorry, yeah, I don't think so it was a european cup this year right yeah, this european cup, that happened, champions league happened, but I think the world cup happens in the in between of the olympics so I think in two years time, two years yeah, so every four years on that, even la pretty soon also, or?
Speaker 6:yeah it'll be pretty.
Speaker 3:It'll be in two years 26 yeah 27 so with that, with that, and then they were hoping whatever to get the olympics. So between those two there's been quite a bit of development. That is, um, with that in mind, happening um and has the world cup come into la.
Speaker 2:I didn't know that. Yes, wow, well, look at that yeah, yeah.
Speaker 3:And then two years later they get the summer games for the olympics or whatever.
Speaker 3:So yeah there there are developers, um, expecting to have an uplift from that. But I think, as we know, most of the cities, except a couple of famous ones, they improve themselves for the olympics because they have that extra push and extra probably um easier approvals and everything to get done on time. And then in the, in the normal cities, that aren't crazy. It ends up the whole city is just better off from there. Yeah, what's that one where they built that train in china or something and nobody ever went back to the town again?
Speaker 2:Oh yeah, I remember that story.
Speaker 5:London did an amazing job, legacy-wise, I mean, I have to say, beyond outstanding. It's quite incredible. Everything was planned for what's going to be how it's going to be redeveloped afterwards, and right now Stratford, which was really, you know, no one in England would have an issue with saying it was a dump. It was a dump of a town in London and what they did is just outstanding. I mean, the swimming pool is used seven days a week or constantly. Everything is used all the time. And they regenerated what was really one of the worst areas in london into one of the most spectacular places.
Speaker 5:Now huge numbers of universities have moved in. They built a westfield uh shopping mall as a sort of staging post and it's just grown and grown and they're constantly. In fact, even I read two days ago new um student accommodation built, new uh accommodation, new tower blocks being built, but they're all done very, very well. They're really executed perfectly fantastic and the open spaces around it are just stunning. So I hope LA comes here looks at what can be done. In fact, I think every Olympics now has to be done on where you go forward, because they're getting too expensive. I mean, most countries can't even consider hosting an Olympics or a World Cup. So otherwise the law will be on the Middle East, which I do not want to be running a marathon in 50 degrees of heat.
Speaker 2:Yeah, no, I feel you. But I do remember there was a thing about the Olympic Committee and why LA was chosen was because they don't want people to have to go build brand new stadiums that they can't reuse, right. So they're trying to find cities where they already have infrastructure there that they can use, so that they're not causing because the environmental impact of what the olympics can bring. Same thing, like you build all this stuff and then they don't use it later. So why would you do? What's, what's the good in it? Uh, for sure, yeah, I don't know I feel. Yeah, yeah, it's, it's, it's super interesting. So you were just, you just happened to schedule your trip to Paris over, like you know the.
Speaker 2:Olympics. It wasn't that, or did you do yours way before?
Speaker 3:We were in Greece, we were in Athens and then we went on a little cruise in Greece and I was like you know, the flights kind of for us the flights's the most expensive part of the trip. I think 180 dollars. We could fly to paris from athens. So we did that's what. We extended our trip just to enjoy being in europe and I didn't realize why I was having trouble finding a hotel.
Speaker 2:I like just missed this whole big event that's happening. It was really fun. The city was in a really good mood. It was not crowded.
Speaker 3:I was really fun. The city was in a really good mood. It was not crowded. I was really afraid that we wouldn't even get from the airport to our hotel because they were like streets are going to be blocked and blah, blah, blah and it's like it was just fine and it wasn't crowded at all, like it was planned.
Speaker 1:That's interesting.
Speaker 3:There were a lot of people walking into venues. There was an occasional motorcade going by with either dignitaries or maybe Olympic people. They were moving around together or something. But it was super easy to get around and lovely and quite smooth and, like I said, everyone was happy, so it was sort of extra fun.
Speaker 2:Yeah, that's good, that's awesome. One of the that's so, that's so cool. It's one of the last stories I wanted to get to and I don't like to talk politics on this show, but I can't avoid it sometimes. So we're going to talk about this whole thing around the Biden administration and whomever wins, about the rent caps and the rent stabilization and all this other thing that they're trying to do with rents, and I don't, and I just it boggles my mind why legislatures think this is ever a good idea.
Speaker 2:Why is rent control ever a good idea? I'm going to throw that out there because it doesn't work. It's like it does the exact opposite of what you want. What you want it to do, like, um, I'm a, I was a multifamily owner. If I was in a rent control area, you know what I would do.
Speaker 2:I would make my qualifications so hard to make sure that whoever I got in there, I you know that that whatever was going to work, like it, just it it doesn't do, doesn't add more housing, it doesn't do a lot of different things to it, because whatever rents I'm going to get, I'm not going to spend as much money on that house. I mean, you have, I don't know what I'm trying to say. You have economic constraints and rent control is not going to make sure a multifamily owner maintain it, because the price of what it's going to be at is I'm not going to go build something new that I can't charge the rents I need to charge for because of what I need to build. Does that make sense? I know what. I scrolled all over the place.
Speaker 3:Statistics are correct, though there's there's no proof. It just doesn't work Like you're saying. It just literally doesn't work doesn't work.
Speaker 2:Like you're saying it just literally doesn't work. Yeah, I mean it doesn't.
Speaker 3:It doesn't Because I definitely would vote. I'm going to vote for Harris, but but then it's insane. There's nothing about that that works. It's proven that it doesn't work. Everything you're saying is correct. People won't invest. I I actually have a property that I'm going to probably sell because I I read the more regulations that are coming in. It's like it just makes it not worth it. I can make more money doing something else than owning a rental property, and this is just an individual residential property, but it's just not worth it anymore. I don't think If you're a huge developer and you know what you're doing. What's going very well right now is across the US, I believe, is affordable housing, though that's a different structure. Yes, it is Rent control sort of, but they get so much help.
Speaker 2:See you, hector, thanks for coming. Yeah, no, it is because a lot of so and so, right now, what pencils is? Affordable because you're getting a subsidized, or luxury, because the people can afford to live there and it doesn't really matter, right, it's the middle because the people can afford to live there and it doesn't really matter, right, it's the middle. The missing middle is still a prevalent thing. That's happening today and but you have a lot of it and then. So where they're going to live is an existing product that nobody can maintain because of inflation, and where we're at so it's really kind of a quandary of where we are. So the missing middle. But so the B and C nobody's going to go build a class B or working workforce housing product today Just not going to happen, right, because they it doesn't make sense, they can't get the rents that they need in order to get that whatever they're trying to get built.
Speaker 2:So it has to be either these lovely things are being built in Austin, texas, these high rises that are going up 50 feet, you know, 50 floors in the air, and those will build all day long, because then you can get people to pay the rents that you need to have done and then affordable because it's subsidized. Yeah for sure, right? So it's going to be interesting to see what happens with the inventory over time, because you have a bunch of luxury, to see what happens with the inventory over time because you have a bunch of luxury. So will it get? See you, rand, thanks for coming. Uh, will it get, basically, and turn into a? Um you know, will the, the a class multi-family turn into b class quicker, because there's going to be a newer A class which you find all the time coming behind it, because there is no B stuff anymore. It's decreasing. That whole section in the middle is decreasing. It's kind of an interesting thing. What's going to happen when this whole thing shakes out?
Speaker 3:for sure, Is that the same Paul in Europe or in London?
Speaker 5:Well, it's a big issue here. I mean, I just again it's day I say I was writing back a response to someone last night about an issue that's come up, where the councils in London most of them now I think 10 out of 38 councils are now about to go bankrupt because they cannot afford to pay the housing benefits. Because you know, people on what would be would have been deemed a decade ago a very reasonable salary, who now earn, who now cannot afford to pay the rent. So now what's happening is the taxpayers paying the housing benefits because of the again that, as I said before, the, the disproportionality of where we've gone. So salaries have not risen, risen, house prices have risen far, far, far higher than salaries have. So now we're in a position where a decade ago, people on certain salaries are now getting housing benefits.
Speaker 5:And that's where you just think well, how am I taking the eyes of the taxpayer now to get funding a bigger proportion of the lower earners? And now we've got the mid-earners because they can't? And this is where we have to look at why is our valuation so, so disproportionate to salaries now? And when that adjustment happens, we're not going to have these issues. And I think the problem now is that I would say in the UK, while they're now talking about rent caps et cetera, is they can see that they just what's happening again is those who are paying taxes, looking at anything, are funding larger and of the of the population, and what they're seeing is obviously the the property owners have seen, you know, increasing in their asset values. We're way out of proportion of anything else happening, and that's where the issues are here, um, at the end of it getting smarter building and we're getting more efficient the building.
Speaker 5:Why does that that? That shouldn't be feeding into the equation either yeah, I think it's a supply issue.
Speaker 2:I think if you go, you get more and more supply in the market, whether it's you, we find some tweener that's uh, not affordable, where you have all this like government regulation and headache and constraints and things like that, but um, but if there is more supply in the market, then the rents come down. Because you, because right now we have a housing crisis, a housing shortage, so the rents have to stay up higher because they can, um, partly, but so who's?
Speaker 5:who's the only person benefiting from that is a landlord. Everybody else is losing in the equation. Maybe they can't have lower rents, so who's the only person benefiting from that? It's the landlord. Everybody else is losing in the equation. Maybe If you can't have lower rents, as you're saying, then obviously they're going to make it as profitable.
Speaker 5:There's a rebalancing needed really sooner rather than later, and I think what the banks do is take a longer-term view on this, which is why they've got to keep interest rates higher. So those who are struggling a little bit now are going to maybe have to offload some of that property. In the UK for the last I would say nearly a decade, they've tried to make it less and less attractive to be a landlord, really taxing high paying taxes on selling off your assets. So they've made it very, very difficult for anybody to get into that fresh now, because people who were in there have made an absolute killing. In the UK. We're talking hundreds and hundreds of percent increase in values on the properties over the last 20 years, which doesn't equate to anything else in the market.
Speaker 2:Yeah, and that value. So the values of the real estate are only good when you sell right or when you get some sort of loan. It gets that value. I mean, that's the only thing the values are good for. So if you're holding, your operational costs are higher than they've ever been. So I will tell you, in workforce housing multifamily in the United States, it used to be back in the day 2010, when I first started. If I was running a property and my operating expenses were at 45%, I'm like there's something wrong with me. I'm like the worst operator ever. Like, oh my God, this is so high.
Speaker 1:What am I?
Speaker 2:what did I not catch? What am I not doing? I need to be afforded and it's in in the span of one year. And then it got to. We were underwriting two years ago at 50% and it's like, okay, just make your operating expenses at 50%, whatever. Now they're averaging 70% your operating expenses from your payroll, your insurance, your taxes is seven, you can't pay your mortgage. And if you're operating yeah, and that's what's happened in this whole multifamily industry over here in the US is people they're getting squeezed from everywhere can't pay their mortgages. The insurance blew up in front of everybody and so they have to raise rents. And so then you have to. You're trying to raise rents on people and but, but we've hit.
Speaker 2:What happens is, and what? The magic thing that happened was wages did not keep up with inflation and so when you're in a multifamily business, the wages have to be three X the rent Right, otherwise you can't. You can't raise your. Whatever the average median income of the area is is your rents can basically naturally cap there. Anyway, you don't have to do rent caps because you're going to want to qualify your tenants and you know you might say, oh, we'll go down to two and a half, but it doesn't make sense to go lower than two and a half Right. So it's going to naturally out so it. But that's, that's what's happening in multifamily here in the US. I mean, it's insane, especially in the workforce housing space where I was for a long time. Workforce housing you're not profitable anymore.
Speaker 5:And again, when you finance these buildings, here we're in the UK, we're at about half a percent, a quarter percent interest rates on bank dividends for so long, I mean way over a decade and then it went to five and a quarter percent. I mean that's just one massive shock that nobody saw coming. I think we have a thing called the squeeze middle. Now I think the middle of the UK is really, really suffering. Those who are on benefits, those who are rich, fine, but it's the middle, and that middle is getting bigger and bigger and squeezed every penny out of them. And that's where the issues, that's where the fundamental issues are coming through now.
Speaker 2:Yeah, no, I feel you and I just don't. You know, I think it's once the job numbers. I think in the US that they're talking about is this we had a bad jobs report in July and I think that's what they were waiting on, to call the recession. I think they need to see another bad jobs report in August and then they'll lay off the belt like the tightening right. They'll lay off and ease up a little bit, but they're not doing anything until they see the August numbers, I think, and then so we're hoping that.
Speaker 5:The foreign stock markets? Yes, very badly. I think Nick gave us about 18% of what was important. The foreign stock markets just tumbled yesterday morning, I think. Yes, same in the US. Was that right? Yeah, no, I feel you. Yeah, same in the US was that right? Yeah, now I feel you.
Speaker 2:Well, this has been fun, this has been awesome. And look, it's always fun. I love this show. It's so cool. I get to hear all sorts of different things. It's so super awesome. Well, say bye to everyone. Tell everybody who you are. We'll do an outro real quick. Say, paul, tell everybody who you are.
Speaker 5:Paul Trudy. We run Unified Building Intelligence Company lowering costs, making buildings safer.
Speaker 3:That's awesome and Judy and Judy Berra-Fancher. And I am a commercial real estate investor and I am also an art consultant, helping commercial real estate companies do their public art requirements when they have them, or to just make their homes more attractive or their product more attractive to visitors and to tenants when they are seeking those.
Speaker 2:That's awesome, and I'm Amy Palvado, chairwoman of the US PropTech Council. We'll see you all next week, see you.
Speaker 5:Pleasure. Thank you.
Speaker 2:All right, bye.
