Thursday, March 22, 2012
Ice Water
One more observation about the Knicks-Sixers game. Previously, I have not been shy about questioning whether Jeremy Lin is for real. Last night he impressed me. Arguably, he had a lousy game. But, in the fourth quarter he stepped up, going 10-10 from the line. That's the sort of way that you get in my good graces.
Wednesday, March 21, 2012
"Faaascinating!"
I am reading through a new paper by Steve Keen and was struck by the following data points:
"The downturn in GDP was relatively minor -- from $14.4 trillion at its peak to $13.9 trillion at its lowpoint, a fall of just over half a trillion or 4% of nominal GDP...
The downturn in private aggregate demand was much more severe; from $18,4 trillion at its peak in November 2007 to $11.4 trillion in February 2010, a fall of $6.9 trillion or 38% over 2.3 years."
Now, had I followed through on my promised review of important concepts from Keen's book, your reaction might have been the same as mine. However, as I have been lazy, Irving Fisher's debt deflation theory did not automatically trigger, within the context of Hyman Minsky's financial instability hypothesis. And so here we are.
Oh well, I'll get around to it I guess.
"The downturn in GDP was relatively minor -- from $14.4 trillion at its peak to $13.9 trillion at its lowpoint, a fall of just over half a trillion or 4% of nominal GDP...
The downturn in private aggregate demand was much more severe; from $18,4 trillion at its peak in November 2007 to $11.4 trillion in February 2010, a fall of $6.9 trillion or 38% over 2.3 years."
Now, had I followed through on my promised review of important concepts from Keen's book, your reaction might have been the same as mine. However, as I have been lazy, Irving Fisher's debt deflation theory did not automatically trigger, within the context of Hyman Minsky's financial instability hypothesis. And so here we are.
Oh well, I'll get around to it I guess.
Monday, March 19, 2012
Studying the Market
I want to dig in a little more on what you need to think about when surveying a market as a real estate investor. Clearly, the most important part is getting a read on the direction and speed of expansion. And whether it exists at all.
Last week, I was on the road performing such a task. I will leave out names in order to ensure my continued anonymity, but let's just say I was in the periphery of a large U.S. market that has some unconstrained features and a below-trend growth forecast overall. Sounds like a bad start, but it doesn't mean pockets might not exist, and I was there to find out.
The niche in this case was an area that represents the next node out from the already well-developed suburban sub-markets for the city. My read was that the particular location in question has some possibilities, but at the end of the day it would come down to pricing. In other words, while the market seemed to have some interesting retail popping up, the particular property in question was not in the ideal location within the submarket (meaning that its rents should probably be a little bit lower than its competitors, which they were) and the plan of attack, if purchased, should not be to dump money into a "value-add" with expectations of huge rent bumps. Simply put, it was a property in a potentially overlooked area that could be had on a good price per unit basis, and the focus upon taking ownership would be to deal with deferred maintenance issues over anything else. The spread in rents with its competitors would shrink somewhat, and then you could hold the property with the belief that downside risk was mitigated by a good entry point.
So, let's circle back to my original focus. The market is okay with some positive pressure points showing up. But, as we don't expect the larger MSA to have huge upside, caution and restraint must be exercised. Again, the strategy for the deal is different than one where population and job growth is expected to be outsized. And you can only figure these things out on the ground.
Enough for now.
Last week, I was on the road performing such a task. I will leave out names in order to ensure my continued anonymity, but let's just say I was in the periphery of a large U.S. market that has some unconstrained features and a below-trend growth forecast overall. Sounds like a bad start, but it doesn't mean pockets might not exist, and I was there to find out.
The niche in this case was an area that represents the next node out from the already well-developed suburban sub-markets for the city. My read was that the particular location in question has some possibilities, but at the end of the day it would come down to pricing. In other words, while the market seemed to have some interesting retail popping up, the particular property in question was not in the ideal location within the submarket (meaning that its rents should probably be a little bit lower than its competitors, which they were) and the plan of attack, if purchased, should not be to dump money into a "value-add" with expectations of huge rent bumps. Simply put, it was a property in a potentially overlooked area that could be had on a good price per unit basis, and the focus upon taking ownership would be to deal with deferred maintenance issues over anything else. The spread in rents with its competitors would shrink somewhat, and then you could hold the property with the belief that downside risk was mitigated by a good entry point.
So, let's circle back to my original focus. The market is okay with some positive pressure points showing up. But, as we don't expect the larger MSA to have huge upside, caution and restraint must be exercised. Again, the strategy for the deal is different than one where population and job growth is expected to be outsized. And you can only figure these things out on the ground.
Enough for now.
Saturday, March 17, 2012
Post Mortem
As I was away when it happened, this post is one more opinion, just later to the party.
D'Antoni deserved to be fired. He is a great offensive coach, but defense is his downfall. Which is why his Suns teams were fun to watch but never really a threat (save for the one year when a little scrum and a couple of suspensions ruined their best shot). Which is not to say all the blame should be laid at his feet. The more I watch them this season (after initially getting blacked-out), it's clear the team is imbalanced and lacks enough guys who make the effort on the defensive end. Basically, when the offense isn't clicking, chances of grinding one out 75-73 are low.
I also think Jeremy Lin is a liability at the point - a turnover waiting to happen. He was fun for awhile, but now he is a marketing ploy more than the player who can run this team. I feel more comfortable with Baron Davis. And to repeat what I wrote some time back, Stoudemire is nothing like the player of last year. Which means his contract could go down as one of the worst in franchise history (Allan Houston's will never be outdone) if he can't turn it around. All of which is why I was willing to trade those two with Tyson Chandler (who I think is simply one of the best signings in recent memory) to get Dwight Howard.
Anyway, they are fighting for the 8th seed and have looked impressive in the last two games. I hope it continues.
D'Antoni deserved to be fired. He is a great offensive coach, but defense is his downfall. Which is why his Suns teams were fun to watch but never really a threat (save for the one year when a little scrum and a couple of suspensions ruined their best shot). Which is not to say all the blame should be laid at his feet. The more I watch them this season (after initially getting blacked-out), it's clear the team is imbalanced and lacks enough guys who make the effort on the defensive end. Basically, when the offense isn't clicking, chances of grinding one out 75-73 are low.
I also think Jeremy Lin is a liability at the point - a turnover waiting to happen. He was fun for awhile, but now he is a marketing ploy more than the player who can run this team. I feel more comfortable with Baron Davis. And to repeat what I wrote some time back, Stoudemire is nothing like the player of last year. Which means his contract could go down as one of the worst in franchise history (Allan Houston's will never be outdone) if he can't turn it around. All of which is why I was willing to trade those two with Tyson Chandler (who I think is simply one of the best signings in recent memory) to get Dwight Howard.
Anyway, they are fighting for the 8th seed and have looked impressive in the last two games. I hope it continues.
Monday, March 12, 2012
Radio Silence
I will be away for the next few days and unable to post until the end of the week. Meaning the NBA trade deadline will have come and gone. My suggestion to the team at 33rd and 7th: offer Chandler and Stoudemire for Howard and Turkoglu. If you have to throw in Lin, do it.
How To Invest In Real Estate
I put this analysis together as much for myself as for my scant readership. Consider it my list of major considerations that need to go into any decision about allocating money towards real estate (primarily large commercial, not single family homes, in spite of some overlap).
Typically, I like to start with a macro perspective, consistent with the cycle I outlined recently. I prefer the larger, more established markets, but the analysis can be applied anywhere. In the particular market in question, focus on whether population is growing and whether employers are creating jobs. That means going there and looking around, identifying the particular sub-markets that have the positive trends developing. For example, Charlotte, NC may interest you, but there are better parts of town than others. And even if company XYZ is opening up a new plant that will create 2,000 jobs there, the positive effects will not be felt equally across the metropolis. So you need to be able to make that distinction. Again, go there, take a map, drive around and mark it up with your comments about the different neighborhoods. You can start to focus your time more efficiently afterwards.
Some of the other data points to factor in:
-Demographics, both locationally and over time. Claritas provides a service that gives you exactly that information. I like to look at population changes and median household income data.
-Economic and rental trends. I usually turn to Reis and PPR for that sort of stuff. You can learn about unemployment, rental growth rates, a hodge-podge.
After doing the above, you probably have developed a point of view on whether you like the market. And now you can start to hammer in on the micro that is more deal specific. (Note: Any deal in any market could seem cheap enough that you potentially skip the macro and head right to the micro, but then it becomes a much more speculative play. Kind of like the guy who buys a stock before earnings, expecting good news and a quick profit.) At this level, you want comfort about prevailing cap rates, recent sales and the type of product that will be attractive to your renters.
-Real Capital Analytics can give you information about recent sales.
-You'll need to shop the competitors to the property you're considering, to see how rents compare and what type of spread may exist or not.
-Is the property in question a value-add play? A mistake often made is confusing deferred maintenance with the need for a major overhaul. Depending on the market in question, and particular clientele, the wrong interpretation can be deadly for your future returns.
-Sometimes the cap rate might be expensive, but the price per unit is very cheap. And if you think the market has good growth prospects, you can still justify the purchase.
I will add to this outline as new thoughts pop into my head. But, generally, this covers a large part of my approach.
Typically, I like to start with a macro perspective, consistent with the cycle I outlined recently. I prefer the larger, more established markets, but the analysis can be applied anywhere. In the particular market in question, focus on whether population is growing and whether employers are creating jobs. That means going there and looking around, identifying the particular sub-markets that have the positive trends developing. For example, Charlotte, NC may interest you, but there are better parts of town than others. And even if company XYZ is opening up a new plant that will create 2,000 jobs there, the positive effects will not be felt equally across the metropolis. So you need to be able to make that distinction. Again, go there, take a map, drive around and mark it up with your comments about the different neighborhoods. You can start to focus your time more efficiently afterwards.
Some of the other data points to factor in:
-Demographics, both locationally and over time. Claritas provides a service that gives you exactly that information. I like to look at population changes and median household income data.
-Economic and rental trends. I usually turn to Reis and PPR for that sort of stuff. You can learn about unemployment, rental growth rates, a hodge-podge.
After doing the above, you probably have developed a point of view on whether you like the market. And now you can start to hammer in on the micro that is more deal specific. (Note: Any deal in any market could seem cheap enough that you potentially skip the macro and head right to the micro, but then it becomes a much more speculative play. Kind of like the guy who buys a stock before earnings, expecting good news and a quick profit.) At this level, you want comfort about prevailing cap rates, recent sales and the type of product that will be attractive to your renters.
-Real Capital Analytics can give you information about recent sales.
-You'll need to shop the competitors to the property you're considering, to see how rents compare and what type of spread may exist or not.
-Is the property in question a value-add play? A mistake often made is confusing deferred maintenance with the need for a major overhaul. Depending on the market in question, and particular clientele, the wrong interpretation can be deadly for your future returns.
-Sometimes the cap rate might be expensive, but the price per unit is very cheap. And if you think the market has good growth prospects, you can still justify the purchase.
I will add to this outline as new thoughts pop into my head. But, generally, this covers a large part of my approach.
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