The Real Estate Espresso Podcast

Latest Episodes:

Development Incentives Nov 09, 2022

Show notes

On today’s show we are talking about the impact of construction cost saving on rental affordability.

The narrative among tenant’s rights groups is that landlords are out there just getting rich and exploiting tenants. Developers need to be building more affordable housing.

In Canada, the government in the province of Ontario has finally been recognizing that the cost of housing is linked to a few inexorable facts.

The cost of rental housing is partly a function of supply and demand. If there are too many impediments to increasing supply, then the price of rental housing will go up.
The cost of new construction that meets the building code is determined by the cost of materials, the price of labor, the cost of land, and the fees that governments charge developers for the infrastructure to support those projects.

Cities have been progressively implementing more and more bureaucracy when it comes to new development applications.

My home city of Ottawa requires a long list of deliverables. They require almost the entire project to be detailed. The city requires the envelope of the building. But not only that, they require shadow studies, wind studies, noise studies, traffic studies, utilities reports, school loading, public transit impact, bicycle storage ratios, parking ratios, amenities, meeting affordability criteria. The list goes on and on.

But it’s not just my home city. Many other cities with affordability issues have implemented similar hurdles.

Municipal impact fees can vary widely and they directly affect affordability. These fees are designed to pay for infrastructure like roads, schools, utilities, that are forced to expand as a result of growth. Our development company recently went through a detailed analysis of the relationship between development cost and rent. The results were surprising and so I thought they would be worth sharing with you, the listening audience.

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Host: Victor Menasce

email: podcast@victorjm.com

Condo Assignments Nov 08, 2022

Show notes

On today’s show we are talking about a shadow market that appears in the grey zone of the real estate market.

When a condo developer launches a new building, you often get speculators who make purchase commitments on newly released units. They believe these first units released into the market are the lowest price point and that all future sales for those units will be at higher prices. It is true, that many condo developers do indeed have a price escalation built into their pricing model. Buying at the very start of a project on the first of sales guarantees you the lowest price. In a world where prices only increase and never decrease, this is a great strategy.

Fast forward to 2022. There are a number of properties that are newly under construction, where the buyers purchased in 2018, 2019, and 2020. The market conditions have clearly changed and interest rates are much higher than at any time in the past decade. These speculative buyers had no intention of ever having to close on the purchase of these new units.

This is uncharted territory for buyers who never expected to qualify for a mortgage on these properties.

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Host: Victor Menasce

email: podcast@victorjm.com

Where Will The Job Losses Come From? Nov 07, 2022

Show notes

We are reading the headlines about layoffs that have started across corporate America. Twitter made headlines this week. But then anything involving Elon is making headlines these days. Even Facebook parent Meta is expected to lay off thousands after hiring nearly 42,000 employees since the start of the pandemic. Free cash flow at the company has fallen 98% in recent months.

This is not limited to the US of course. It’s happening globally. If the economy is so strong as we are being led to believe, then why are these layoffs happening? Is it going to get worse? If so, why would it get worse? Is it falling revenues? The answer is yes, partly. But that’s not the entire story.

On today’s show I’m going to show you a leading indicator that can help you anticipate layoffs. The evidence is plainly and publicly available for anyone to see, if you choose to look. There are literally thousands of proof points. But we only need to look at a couple to establish the connection.

What is not making headlines are commercial bank balance sheets. These balance sheets are actually sitting on much higher risk than we can readily see.

Credit is the engine of business. Almost nothing happens in business today without credit. Inventory purchases are made with lines of credit. Construction of new manufacturing capacity in order to re-shore manufacturing to protect against global geopolitical risk requires credit.

With the near doubling of interest rates, the cost of that debt service will be crushing for business. Lines of credit are variable rate. Large capital projects are often funded by bond offerings. But bond offerings in a rising interest rate environment are difficult to underwrite and even more difficult to fund.

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Host: Victor Menasce

email: podcast@victorjm.com

Bob Lachance Nov 06, 2022

Show notes

There was a time when calling distressed home owners was a great way to find investment properties. Our guest this week runs a virtual assistant business with over 1,000 employees. On today's show we are talking about what makes for a successful hire when working with remote talent. To connect with Bob, definitely visit revaglobal.com.

Mike Ayala Nov 05, 2022

Show notes

Mike Ayala now calls Austin Texas home. He and his partner Andrew Lanoie own, manage and operate a sizeable portfolio of mobile home parks. To learn more and to connect with Mike, check out the Investing for Freedom podcast.

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Host: Victor Menasce

podcast@victorjm.com

AMA - Development Criteria Nov 04, 2022

Show notes

Today is another AMA episode (Ask Me Anything). William from Northern California asks,

I find myself coming across more development opportunities and I'm needing some better "back of the envelope" criteria to help separate the wheat from the chaff. Almost every deal requires spending some amount of pre-development money to bring the project into better focus. However, at some point you should be able to come to a go/no-go decision based on the numbers, after which you would kick the deal or renegotiate the price. hat does your "back of the envelope" criteria look like in order for you to proceed with a development project?

Do you look at the projected:

- Equity Multiple?

- IRR?

- COC return?

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Host: Victor Menasce

email: podcast@victorjm.com

Understanding Fed Policy Nov 03, 2022

Show notes

On today’s show we are looking at the casualties of the latest Fed policy moves.

On Wednesday of this week, the Federal reserve announced another 75 basis point increase at the FOMC meeting. These meetings happen every 6 weeks. The next one will be in the middle of December.

We continue to experience a yield curve inversion where the short term interest rates are higher than long term interest rates. That inversion is even more pronounced than it has been in recent memory.

There is no question that the rates make a difference. Demand is being suppressed in numerous markets, even though the cause of inflation is the result of a decade of printing money, and most recently the showering of money across the population during the pandemic.

But inflation is not a US only issue. It’s a problem in Canada, the UK, Australia, Japan, Germany. It’s a global issue and it’s the result of the combination of supply shocks with the printing of money at an unprecedented level.

The question is, what are other countries doing? How are other central banks using monetary policy to combat inflation?

In my mind, Fed policy is disconnected from the global perspective. We need to listen to what Chairman Powell is say. The Fed’s governors are going to continue to raise interest rates until they see sustained tangible economic slowdown in demand. The floggings will continue until morale improves.

Leading Economic Indicators Nov 02, 2022

Show notes

On today’s show we are taking a look at some leading economic indicators that may give us some clues as to what is happening in our economy, ahead of the Federal Reserve’s meeting this week. I’m a huge believer in the law of supply and demand.

In a world of short term business visibility, just in time manufacturing, it’s difficult to see supply gluts form until they’re upon you.

Supply gluts can happen quickly, and before you know it, you have an excess of inventory. The opposite can happen too. We saw shortages appear during the pandemic. These long supply chains are fragile.

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Host: Victor Menasce

email: podcast@victorjm.com

Book Of The Month - Skin In The Game by Nassim Nicholas Taleb Nov 01, 2022

Show notes

Our book this month comes from Nassim Nicholas Taleb. He’s famous for his book “The Black Swan”. This book reshaped our culture’s thinking around rare but completely predictable events. His book, moved an entire generation of business leaders, and the title of his book The Black Swan has become part of the business vernacular. In fact, I would venture to say that most people who use the phrase Black Swan don’t really know what it means.

So when Nicholas Taleb wrote another book, I knew it would be well researched and well written.

The phrase “skin in the game” is one we have often heard but rarely stopped to truly dissect. It is the backbone of risk management, but it’s also an astonishingly rich worldview that, as Taleb shows in this book, applies to all aspects of our lives.

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Host: Victor Menasce

email: podcast@victorjm.com

AMA - Building Product Information Oct 31, 2022

Show notes

Today is another AMA episode (Ask Me Anything). Paul from Northern Florida asks.

I would like to first thank you for your work on your show. Your broad range of subjects and guest has made this a daily must listen to program for me. So thank you again.

I would like to ask your thoughts on product research for new residential construction projects. While I am not a developer nor do I want to become one I am in the process of selling my business and I want to do a couple of projects. I would like to build a couple of new homes for my children and myself.

Over the years I have seen various products and systems used on shows such as This Old House and such. But when you would go to the local retail building supply retailers (Home Depot/Lowes) they would not have any knowledge of the systems. I have come to figure out sometime it is a regional product only. I live in Florida where temperatures are regularly 35c or 95*s and the humidity is very high. We have our own regional issues (hurricane wind speed requirements, mold issues, termites and such) and I know I am going to study building codes and practices to build something correctly. I have tried to gather information at non-retail building supply businesses as well as national construction trade shows but have been met with “you are not a licensed contractor” and we only deal with them. I have tried reaching out to the local regional builders association but they just refer you to a member that just wants to build the house and tend to lean on what is best and I assume profitable for their business. I can find basic stuff like ICF vs poured concrete, zip wrap vs traditional, various forms of insulating and thing like that but I want to dig further and see which is the most beneficial or how a new product may be a better fit. Since I am doing this for myself I don’t want to base things on cost alone or what is the cheap and easy way of doing things.

I will work with a licensed architect for the actual design and engineering aspects but I would like to do research and educate myself reasonably before I just randomly ask them for ideas. However, since I am not in the trade I am not sure where to find new product information or ideas that may be beneficial to my projects other than just searching on the internet for new building ideas. I would appreciate your thoughts and opinion.

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Host: Victor Menasce

email: podcast@victorjm.com

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