finyork.com

Category: FY Minute

Daily posts

  • NYC’s Real Estate Market: Roaring Housing Prices Show No Signs of Slowdown

    “The story that I’m seeing across the board: All segments are transacting. New York [real estate] is back, and people want to be here.”

    – Christopher Kromer, Brown Harris Stevens

    Statistically, that’s an excellent summation of New York City’s real estate market. While real estate was least of all financial asset classes hit by the COVID-19 pandemic, it’s not really “recovering”. Quite amazingly, it’s heating up. It has been for months now, but experts predict that was just a warm up (Singh, CNBC).

    “We’re coming off a record number of signed contracts in the second quarter, and what’s driving that is buyers are seeing value. They’re sensing opportunity, and there’s a real sense of hope for an economic boom in September when it opens up.”

    – Christopher Kromer, Brown Harris Stevens

    In other words, even reasonable rental prices are getting nearly impossible to find almost anywhere in New York City. The buyer’s market is a different story. As Kromer put it, “For the most part, if you’re buying today, it’s probably less expensive than it would have been three or four years ago”. For these purposes, suppose we break New York City’s real estate market into two distinct elements. The profit opportunity for cash buyers has been there and will continue to be there for a prolonged time. Conversely, the residential real estate market for renters, who are mostly living paycheck-to-paycheck, is a nightmare (Nasdaq).

    A Contradictory Study

    Although, a recent Douglas Elliman and Miller Samuel report appeared to somewhat contradict this philosophy. The report showed median resale prices for Manhattan apartments reached an all-time high in Q2 2021 (Douglas Elliman). Average sale prices rose 12% in the quarter (Douglas Elliman). They topped $1.9 million and there was also a 150% gain in sales during that same time period, compared to 2020. In Q2 of 2020, Manhattan apartment sales had their largest percentage decline in 30 years. Residents fled Manhattan during the COVID-19 pandemic, so brokers largely weren’t even able to show apartments to prospective buyers.

    Kromer had a response to the data presented by the Douglas Elliman and Miller Samuel report.

    “I think it’s probably tilted with a lot of high-end closings. The luxury market has been booming lately with a lot of discounts.”

    – Christopher Kromer, Brown Harris Stevens

    The recent activity in Manhattan’s luxury housing market still hasn’t wiped away the excess inventory created by COVID-19. In the luxury market, sellers are coming down on asking prices to meet buyers on their side. This in turn gives buyer’s even more buying power because they have options.

    “What’s driving this are more realistic sellers and softer prices. We still are at near-record levels of inventory. So, the sellers are going down to meet the buyers at their prices. The buyers have options.”

    – Christopher Kromer, Brown Harris Stevens

    Moving Beyond Manhattan

    Astoundingly, markets in the outer boroughs of New York, such as Brooklyn, showed far more resilience through the pandemic. This is again compared to the luxury, upscale housing market in Manhattan; a very significant geographic market difference.

    “People were looking for value, for space and less dense areas, and you did not see the discounts that you saw in Manhattan in the outer boroughs”.

    – Christopher Kromer, Brown Harris Stevens

    A few of Kromer’s own listings in Queens and Brooklyn recently sold above asking price, after receiving multiple offers. One two-bedroom co-op in Brooklyn even sold at roughly 8-9% above the price it sold at three years ago.

    “A single-family home in Queens was overwhelmed with interest. We had about 50 showings within the first week, with it selling for about 10% above the asking price”.

    – Christopher Kromer, Brown Harris Stevens

    In Conclusion

    Despite the study from Douglas Elliman and Miller Samuel, data shows NYC’s housing market is prospering. Housing rental prices on luxurious Manhattan properties are barely affordable. Rental prices outside the heart of New York are still steep and the availability of affordable housing is shrinking. This is nearly all attributed to the “buyer’s market” NYC real estate is clearly in the midst of. Prospective renters need to act fast to avoid losing out on any decent affordable housing in the five boroughs. Prices will only continue to increase, while availability will only continue to decrease.

  • As Fall 2021 Approaches, Will the Housing Market Cool Off?

    Today’s hot housing market is one of the peculiar outliers to the pandemic (Campisi, Forbes). Housing supply was already low before COVID-19, however it was even further hampered, as lockdowns took place, enticing people to begin looking for new homes. Experts have attributed this to a desire to leave populated cities for better home offices during the pandemic.

    The Federal Reserve’s steps in 2020 to keep financial markets liquid and ensure mortgage rates stayed low have continued. The Federal Reserve really deserves tremendous credit for keeping the housing market solidly afloat, virtually throughout the entire pandemic.

    Housing prices nationwide, including distressed sales, grew by 17.2% in June 2021 compared with June 2020 (CoreLogic). According to the latest CoreLogic housing market report, that’s a record high. While there have undoubtedly been “hot seller’s markets” in the past, experts argue they don’t quite compare to the current market, where more than 50% of homes for sale have fetched over the asking price (Campisi, Forbes).

    “We’ve been tracking housing prices for over 20 years, and we’ve never seen anything like this.”


    – Frank Nothaft, Chief Economist at CoreLogic

    Historically, the fall ushers in less competition and thereby better deals, as children return to school and the holidays overtake schedules. But the pandemic altered that trend last year, and many cities are going through double-digit percentage increases in housing prices (Campisi, Forbes).

    Are Housing Prices Starting to Slow Down?

    While a full-fledged celebration might be too easy, prospective homebuyers can breathe a little easier. Based on predictions from real estate experts, prices are beginning to decelerate in some areas. As more inventory of single-family homes becomes available, investors can expect consumer prices to decrease further. According to the National Association of Realtors (NAR), unsold homes rose 3.3% to 1.25 million from May to June this year (National Association of Realtors). Marginally increased inventory isn’t enough to handle demand; it might give buyers hope and potentially buying leverage with more options.

    “Mortgage applications have dropped to an 18-month low, and we are seeing some real buyer fatigue in the market. Sellers are responding to lower buyer enthusiasm with price reductions.”


    – Tamar Asken, Real Estate Agent at Avenue 8, Los Angeles

    In Northern Virginia, housing prices increased 10.9% year-over-year (YOY) in June 2021, compared to the same time last year. The more affordable areas of Northern Virginia, like Fairfax City, saw a sharper rise in YOY median housing price gains like 15.1%, compared to their more expensive nearby areas like Falls Church, which experienced a significantly smaller rise of just 3.2% (Andrews, Virginia Business).

    “The market in Northern Virginia has slowed significantly during the past month, with fewer offers and longer days on market. While this would be a normal pattern in a typical year, given the intensity of the spring market, it is surprising. It could well be due to an uptick in travel as pandemic restrictions eased.”


    –Ryan McLaughlin, CEO at the Northern Virginia Association of Realtors (NVAR)

    Buyer Behavior is Becoming More Predictable and Rationale

    Succinctly, consumers flocked out to the real estate market last year (Lake, Forbes). As demand for houses picked up, interested buyers have pulled out all the stops to outbid the competition.

    This caused all sorts of strange and certainly even reckless behavior, including buyers forgoing contingencies in the sales contract meant to protect themselves and their earnest money, which can amount to thousands of dollars (Treece, Forbes). Some buyers were using retirement savings, while others were getting loans, so they could appear to be all-cash buyers.

    The good news is that experts seem to agree this “go-for-broke” approach could be declining. Whether it’s because inventory is beginning to ramp up or home prices are flattening, some buyers realize that they might be putting too much on the line. Even Asken says she is noticing that more buyers are now proceeding with caution. Keep in mind she works at a real estate company based in Los Angeles, a notoriously expensive and competitive market.

    “I do not see the same level of desperation and urgency we saw a few months ago. After large price increases, many properties just don’t feel like such a good deal anymore.”


    – Tamar Asken, Real Estate Agent at Avenue 8, Los Angeles

    Mortgage Rates and Housing Price Forecasts for Fall 2021

    While history generally indicates that during a fall is when you can get a better deal on real estate, last year contested all trends with enormous housing market sales growth recorded in the fall season. So, are we likely to see a repeat later this year? Some experts claim demand will go back to its usual cooling-off period in the fall, noting the recent expansion of inventory and retreating home prices (Ralph B. McLaughlin, Chief Economist & SVP of Analytics, Haus, Inc.).

    “I think it’s absolutely likely that price growth will slow throughout the end of the year, as they’re already slowing from their peak in June. We expect price growth to moderate to the mid-high single digits by December.”


    – Ralph B. McLaughlin, Chief Economist & SVP of Analytics, Haus, Inc.

    Nevertheless, McLaughlin added that he doesn’t expect inventory to recover fully until next spring. This is instructive specifically for current, prospective buyers. The best course of action for patiently waiting buyers is to start getting their finances in order now. Waiting to do that until a deal comes along often means you’ll be too late. This is a good time to work on your credit score. A higher score means lower interest rates, which extends to a lower monthly payment. Keep in mind that as home prices rise, so does your down payment requirement. While we’re yet to see a true “cool off” in the housing market, there is plenty of reason to suspect it will continue to slow down substantially.

  • Liquidity for India’s REIT Market to Improve Based on Revised SEBI Norms

    As we’ve highlighted before, real estate is by far the biggest asset class in the world. A short time back, there was a relaxation in investment norms and real estate investment trusts by the Securities and Exchange Board of India (SEBI). Real estate investment companies directly impacted praised SEBI’s initiative (Nandy, MINT). Specifically, they were grateful SEBI took a proactive approach to address a growing, local real estate market problem (Nandy, MINT). Typically, when looking at financial markets regulated by a government’s central compliance department, it’s very rare to see them proactively intervene with the intent of improving liquidity conditions for market participants. Aside from major global economic catastrophes, which always require a unique centralized response, regulators are thought of as “watchdogs”. Here, a regulator intervened to create opportunities for investors to get simpler, quicker access to larger sums of cash. 

    Indian REITS are expecting to bring in more retail investors and encourage more public listings in the future. SEBI recently revised the minimum subscription and trading lot for publicly issued REITS and infrastructure investment trusts (InvITs). with the minimum application value to be brought down from ₹50,000 now to a range of Rs.10,000-15,000 and the revised trading lot shall be of one unit.

    Support for SEBI Initiative from Major Indian REIT Investment Manager and CEO

    “We welcome SEBI’s regulation to reduce the minimum application value from ₹50,000 to Rs. 10,000-15,000, and trading lot to one unit. The earlier ₹50,000 cap restricted participation to only a certain set of investors. We believe that this amendment makes investment in REITs at par with other equity options in India. Reduction in minimum application amount will further bring in more investors thus improving the liquidity in REITs”.

    – Vinod Rohira, CEO, Mindspace Business Parks REIT

    In late 2020, it was first reported that SEBI was considering opening up REITs and InvITs to small investors by lowering the minimum trading lot size of REIT units from ₹50,000 to the value of just a single unit, much like how stocks are traded.

    Presently, there are just three publicly listed office REITs in the country – Embassy REIT, Mindspace Business Parks REIT, and the most recently listed Brookfield India REIT (Yadav, MINT).

    “We commend this proactive initiative by the regulator to reduce the trading lots of both REITs and InVITs. Embassy REIT’s listing in 2020, coupled with our strong and resilient performance since then, has paved the way for Indian REITs to evolve a mainstream asset class. With approximately $2 billion of primary REIT equity having listed in India in the last two years, leading global and domestic asset managers and growing numbers of retail holders now form the foundation of REIT unit holder registers. The reduction in lot size will increase liquidity for the entire REIT market, enable REITs to be included into benchmark domestic indices and allow greater participation from newer pools of institutional and retail investors.”

    – Michael Holland, CEO, Embassy REIT

    Impact to CRE Investing in India

    With India being on every investor’s radar as a country with potential lucrative returns, this should be welcome news. It’s also clear both Vinod and Michael, CEOs of two-thirds of India’s publicly listed REITs, echo each other’s statements. Revisions and relaxation to SEBI norms will improve liquidity conditions for REITs. This should encourage foreign investment and furthermore, the kind of investment India wants to see an increase in (Yadav, MINT).

    India has steadily been growing in CRE investment, something they telegraphed they would try to do. In India, CRE has grown at a 16 percent compound annual growth rate (CAGR) over the last five years. India was one of the few countries who avoided significant CRE investment decline resulting from COVID-19 (Sinha, Financial Express). All-in-all, while India’s real estate investment market (commercial or residential) obviously can’t be compared to the United States, the numbers paint a clear picture. The most influential Indian industry executives double down on what the numbers show. The aforementioned actions recently taken by SEBI will only continue that trajectory. How quickly India’s CRE market specifically will grow is definitely debatable, but for now there’s no doubt, investment is increasing. Again, SEBI altering norms to improve liquidity conditions for Indian REITs will continue to attract increasing investment to India.

  • Liquidity for India’s REIT Market to Improve Based on Revised SEBI Norms

    As we’ve highlighted before, real estate is by far the biggest asset class in the world. A short time back, there was a relaxation in investment norms and real estate investment trusts by the Securities and Exchange Board of India (SEBI). Real estate investment companies directly impacted praised SEBI’s initiative (Nandy, MINT). Specifically, they were grateful SEBI took a proactive approach to address a growing, local real estate market problem (Nandy, MINT). Typically, when looking at financial markets regulated by a government’s central compliance department, it’s very rare to see them proactively intervene with the intent of improving liquidity conditions for market participants. Aside from major global economic catastrophes, which always require a unique centralized response, regulators are thought of as “watchdogs”. Here, a regulator intervened to create opportunities for investors to get simpler, quicker access to larger sums of cash. 

    Indian REITS are expecting to bring in more retail investors and encourage more public listings in the future. SEBI recently revised the minimum subscription and trading lot for publicly issued REITS and infrastructure investment trusts (InvITs). with the minimum application value to be brought down from ₹50,000 now to a range of Rs.10,000-15,000 and the revised trading lot shall be of one unit.

    Support for SEBI Initiative from Major Indian REIT Investment Manager and CEO

    “We welcome SEBI’s regulation to reduce the minimum application value from ₹50,000 to Rs. 10,000-15,000, and trading lot to one unit. The earlier ₹50,000 cap restricted participation to only a certain set of investors. We believe that this amendment makes investment in REITs at par with other equity options in India. Reduction in minimum application amount will further bring in more investors thus improving the liquidity in REITs”.

    – Vinod Rohira, CEO, Mindspace Business Parks REIT

    In late 2020, it was first reported that SEBI was considering opening up REITs and InvITs to small investors by lowering the minimum trading lot size of REIT units from ₹50,000 to the value of just a single unit, much like how stocks are traded.

    Presently, there are just three publicly listed office REITs in the country – Embassy REIT, Mindspace Business Parks REIT, and the most recently listed Brookfield India REIT (Yadav, MINT).

    “We commend this proactive initiative by the regulator to reduce the trading lots of both REITs and InVITs. Embassy REIT’s listing in 2020, coupled with our strong and resilient performance since then, has paved the way for Indian REITs to evolve a mainstream asset class. With approximately $2 billion of primary REIT equity having listed in India in the last two years, leading global and domestic asset managers and growing numbers of retail holders now form the foundation of REIT unit holder registers. The reduction in lot size will increase liquidity for the entire REIT market, enable REITs to be included into benchmark domestic indices and allow greater participation from newer pools of institutional and retail investors.”

    – Michael Holland, CEO, Embassy REIT

    Impact to CRE Investing in India

    With India being on every investor’s radar as a country with potential lucrative returns, this should be welcome news. It’s also clear both Vinod and Michael, CEOs of two-thirds of India’s publicly listed REITs, echo each other’s statements. Revisions and relaxation to SEBI norms will improve liquidity conditions for REITs. This should encourage foreign investment and furthermore, the kind of investment India wants to see an increase in (Yadav, MINT).

    India has steadily been growing in CRE investment, something they telegraphed they would try to do. In India, CRE has grown at a 16 percent compound annual growth rate (CAGR) over the last five years. India was one of the few countries who avoided significant CRE investment decline resulting from COVID-19 (Sinha, Financial Express). All-in-all, while India’s real estate investment market (commercial or residential) obviously can’t be compared to the United States, the numbers paint a clear picture. The most influential Indian industry executives double down on what the numbers show. The aforementioned actions recently taken by SEBI will only continue that trajectory. How quickly India’s CRE market specifically will grow is definitely debatable, but for now there’s no doubt, investment is increasing. Again, SEBI altering norms to improve liquidity conditions for Indian REITs will continue to attract increasing investment to India.

  • The United States NO LONGER Leads the World in CRE Investing

    It’s been covered extensively, but the COVID-19 pandemic has not been kind to CRE investment. Unfortunately, from looking at Real Capital Analytics CRE investment numbers for July 2021 and the general trajectory over a longer-term period, the CRE investing landscape in the US is not likely to change anytime soon (Clark, 2021). That considers far more than the decline in CRE investment we witnessed during the COVID-19 pandemic. It largely considers the reality that the world’s leading financial giants are contemplating a permanent hybrid work schedule. Real estate still continued to dominate as an investor-friendly asset class, in fact the largest in the world. However there’s no doubt CRE subsector investment dropped significantly and is continuing to, as a result of the pandemic. 

    How the US Fell Behind in CRE Investment

    When the COVID-19 pandemic created a recessionary period March 2020 for the United States economy, the EU began flourishing. According to the same Real Capital Analytics report, “US investment volume for deals priced $10 million and greater slipped behind those in Europe by $19 billion” (Clark, 2021). Unfortunately for the US economy, this occurred in simultaneous months. As soon as the EU began to pick up momentum in deals, they grew quicker and larger. The United States economy – largely attributed to government political infighting – was placed on the back burner at that time. Then President Trump was in the heat of his re-election celebrations, until a global pandemic that’s been pegged as worse than the Spanish Flu, came around (Cox, USA Today).

    This understandably sidetracked the Trump administration into both shock and damage control. While lawmakers in the United States were looking for who to blame for the pandemic’s “miss”, a Brookings University study concluded other countries were busy seizing on the opportunity to attract new business. Predominantly African countries, but definitely also many of those previously really hurting in the EU. 

    Jim Costello, Senior Vice President at Real Capital Analytics, described how investors are facing greater uncertainty around “underwriting future income trends for a property” because of the then relatively novel coronavirus.

    “The social safety nets of European countries can look more expensive, but in a time of crisis, they can also help investors understand how economic losses will be distributed. A single large entity-level transaction boosted quarterly European deal activity ahead of that of the US in late 2017, but otherwise the U.S. has been a larger investment market.”

    – Jim Costello, Real Capital Analytics

    Where CRE Investment in the US Currently Stands and the Outlook Moving Forward

    It’s worth noting the report states that in under normal circumstances, the US is the world’s “most liquid region” for commercial real estate activity. However, in the second quarter of the 2020, Europe moved past the US as a “hub for investment” (Clark, 2021). The trend is yet to discontinue. As CRE investing, raising capital through debt issuances, crowdfunding, and other methods of obtaining credit for CRE projects are rapidly declining, investor confidence is dropping in parallel. While data hasn’t favored bullish CRE investors since the onset of COVID-19, we’ve continued to cover hypothetical positive CRE resurgences.

    Nearing the conclusion of Jim Costello’s findings, different calculations tell the same story. Commercial real estate holdings in the US are not the most advisable investment presently (Costello, 2021). The early figures for July show a double-digit decline in the number of commercial real estate deals in the US. However, deal volume for July is projected to be more than $10 billion. In 2009 – the last officially recorded recession – deal activity averaged around $6 billion per month for the whole year and was closer to $5 billion for July (Costello, 2021).

    The findings Jim Costello referred to align with data collected by Statista, a well-known statistics portal for large market data.

    Figure 1 – Commercial Real Estate Investment Volume in US, 2019-2020 ($B of USD)
    Source: Statista Consumer Data, 2021
    Figure 2 – Totaled Values of Commercial Real Estate Sold in US, 2019-2020 ($B of USA)
    Source: Statista Consumer Data, 2021

    “So while conditions in the US are poor, as of yet, investment activity is not as bad as the last downturn, the commercial real estate data suggests that there is less confidence in the US at the moment.”

    – Jim Costello, Real Capital Analytics

    Those final words from Jim Costello in this piece concisely summarize the point we’ve been driving home. While you may not agree with Jim’s rationale, the data does not lie. CRE investments in the US have been going downward since the start of COVID-19 and furthermore, the vast majority of reputable real estate financial analysts would not agree CRE is the best real estate vehicle to invest in at this time, at least relatively passively. It’s perhaps most important to conclude by reminding investors of the 2008 recession, ultimately collapsing from a massive residential housing market bubble. The lessons of 2008 not only taught investors, but also regulators to be vigilant of potential bubbles with systemic risks. However in this case, all the experts suggest the “crash” of US CRE investing during COVID-19 had to do with consumer confidence.

    Once it began to fall, CRE investing opportunities essentially bottomed out because investors ran to relocate their assets. From placing investments much more frequently in REITS and other well diversified real estate vehicles, direct CRE investors became harder and harder to come by. When you add hybrid work schedules, to a push for more productive work-at-home time, and bottom line cost cuts from closing down “brick-and-mortar” offices, at best, the uncertainty of the delta variant in the COVID-19 virus is continuing to hold back CRE investing in the US. At worst – or most likely – CRE investing in the US is, at least temporarily, does not appear to favor any realistic bullish outlook.

  • Study Finds Long, Working Hours Kill Nearly a Million Individuals a Year

    According to the WHO (World Health Organization), long-working hours are directly attributed to the death’s of thousands, upon thousands, upon thousands in global cities (check out this past year, alone). We’re talking about nearly a million people in 2016 alone. The study – again conducted by the incredibly prestigious WHO and cited in BBC News – has some truly alarming statistics. This global survey contains data that is some of the first of its kind and begins gathering data to reach the hypothesis that was likely reached as early as 2016 (BBC News Service).

    As this research was being conducted all the way dating back to 2016, it’s vital to note this takes into account labor market conditions mostly prior to the global, COVID-19 pandemic. Following the aftermath of the pandemic, we’ve seen companies adapt more of a hybrid office schedule for employees. We’ve even seen some companies abandon office schedules altogether (at least for the time being). Perhaps once these working conditions began, it was somewhat refreshing to those who commuted to the office everyday. However, as other studies have shown, while many really didn’t mind working from home, some individuals who were previously content with their weekly schedules became increasingly uncomfortable. Nonetheless, as labor market conditions are returning closer to pre-pandemic times, we can likely expect to see a bit more hybrid working schedules, but largely the same pre-pandemic conditions as in 2016 (BBC News Service).

    Some Alarming Conclusions

    Referring back to that 2016 study done by the WHO and initially reported on by BBC News, of the various alarming statistics, the very first one jumps out: 745,000 people died in 2016 as a result of stroke and heart disease due to long working hours. The article goes on to cite several egregious examples of worker abuse. Lora Jones, a 22 year-old described her initial role at a digital marketing firm as “cult-like”, regarding their adherence to a 72-hour minimum work week (Jones, BBC News).

    While this may not surprise many, Goldman Sachs was thrown under the rug for overworking entry-level analysts. One report details entry-level analysts joining together to have a discussion with their managers at Goldman. They asked for an 80-hour work week cap, calling their current working conditions “abusive” and even “inhumane”. Nonetheless, in a subsequent BBC Report, Goldman CEO David Solomon had no problem with – now – a 95-hour work week. While applauding the courage of the entry-level personnel, Solomon noted “going an extra mile can go a long way”. Everyone reading this should understand the meaning of that pretty clearly.

    Furthermore, the research compared those working a 55-hour work week with those working 35-40 hours. It found that those working a 55-hour work week had a 35% higher risk of stroke and a 17% higher risk of dying from heart disease, compared to those working 35-40 hours.

    A final study, conducted by the International Labour Organization (ILO), concluded men were clearly at a higher risk. Specifically, they reported nearly three quarters of those that died due to working long hours were middle-aged or older men.

    What Will The Future Impact Be?

    BBC News continued with additional regurgitations of the same message; there’s a renewed interest in debating US working class conditions. Reports not cited by BBC show CEOs and executives taking great interest in the happiness of their everyday staff. With that, it’s important to note we’re not suggesting these BCC reports are fair portrayals of the average executive attitude, or average company culture. As we noted in the beginning, a key impact will be many companies adapting a hybrid work routine. This should appease both employees who don’t mind working from home and those who want to be in the office.

    While hybrid work schedules aren’t necessarily great news for CRE investors, they are already a reality. This isn’t something companies are considering doing in the long-run; this is something several big companies have pledged to. The list is likely to only keep growing. These positive changes, combined with a renewed interest in publicly debating this topic, bodes well for the working class. For bullish CRE investors, perhaps not so much.

  • Investigating a Critic of Real Estate Investing

    Why Rental Properties Are Not Good Investments

    While real estate continues to be the biggest asset class in the world, there are still asset managers who are skeptical about recommending it to their clients as an investment vehicle. As Andy Rachleff puts it:

    One of the most common pieces of financial advice our clients hear from their friends and family is to invest their excess cash in rental properties. Unfortunately, this is terrible advice for all but a lucky few.


    Andy Rachelff

    The piece goes on to give four distinct reasons for critics’ deviation from traditional logic. Let’s break it down one by one.

    Income Isn’t Guaranteed

    While this is true, this is true when it comes to any financial investment vehicle. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021 the average 25-year return for private commercial real estate properties held for investment purposes slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. Residential and diversified real estate investments also averaged returns of 10.3% (NCREIF). Keep in mind, this data takes into account both the 2008 financial crisis and the COVID-19 pandemic. Each calamity gravely deflated assets in the real estate market. So while it’s certainly true that income isn’t guaranteed, over a 25-year period both commercial and residential real estate holdings outperformed the S&P 500 Index. While income is almost never guaranteed, this should make you feel more at ease about investing your money in the real estate sector.

    It’s Hard To Generate A Compelling Return

    Another generic statement that can be said about almost any investment vehicle. If generating a compelling return was easy, everyone would follow the same system. When you invest in real estate, whether it be through direct property management or a REIT, you still maintain some level of ownership over a physical asset. Conversely, with stocks, as an example, you own a piece of a publicly traded company that has a board of directors, executives, and senior management controlling the day-to-day operations. In other words, your money is in the hand’s of others. With the majority of real estate investment vehicles, you are in control. Therefore, you are the one who has the ability to make decisions that generate a more compelling return, versus leaving those decisions in other people’s hands. It’s easier to generate a compelling return when you have control because at the end of the day, no one will care as much about your money as yourself. Additionally, the under 8% net over eight years earned by Weatherfront’s portfolio is not only a logical fallacy as it is only one data point, but their complaint is largely surrounding the tax structure of rental properties investors will have to pay. It is anecdotal data tailored to disprove a very generic argument to begin with.

    It’s Better To Diversify Your Portfolio

    In this section, the writer essentially makes a compelling argument to investing in a REIT versus direct real estate investing. While we’ve covered both strategies in depth, it’s true that in the long-term a REIT, REIG, or some form of pooled investment will mitigate your portfolio’s risk. This is especially true for individual properties that “fall out of favor”, sometimes due to external factors (i.e. COVID-19 pandemic). The writer correctly points out the substantial risk in a situation where you have enough capital to invest in only one property and advises you against it, but then makes a perfect argument for how to actually diversify your capital within the real estate market. After all, diversification is cited by a vast majority a major benefit to the real estate investment sector. Irrespective of how much money you have to invest upfront, you have control over how much risk you want to take on. Therefore you can choose to diversify your real estate portfolio, or you can put all your eggs in one basket. We are in agreement with Weatherfront that the latter generally isn’t advisable.

    Liquidity Matters

    Depending on what approach you take to real estate investing, the writer has a point. If you take a direct approach to real estate investing, you can easily get stuck with an undesirable property. Alternatively, investing in a real estate index fund, gives you the same liquidity as investing in any other index or stock. Nowadays, it’s very rare to see an investor take all their excess investment capital and tie it down in one property. If they do, they’re doing so at their own peril. With so much data available that shows national long-term economic growth is cyclical, one would have to have a very high appetite for risk to directly invest in a single property. Diversification has been proven to be an essential component to any successful investment portfolio.

    Concisely, do we agree with the critic’s assertion to avoid investing in real estate holdings? No, we don’t. While the writer points out some opportunities to improve your real estate investment strategy, they don’t provide a compelling argument to avoid investing in the entire segment. While some data is anecdotal and some is actual, they make a good case to be wary of rental properties. At the same time, they make a great case for diversification through REITs and other real estate index funds. The fact is there will always be critics and skeptics of any investment choices. There are analysts who are paid to do just that. However real estate has been the world’s largest asset class for awhile and it isn’t going anywhere. For investors, it would be wise to embrace that and research the abundant amount of strategies available within the real estate segment. Diversification will always be critical. Especially if you’re not currently invested in the real estate market, it would be prudent to look into various strategies because you’re all but sure to find some that suit either your short or long-term goals.

  • Investigating a Critic of Real Estate Investing

    Why Rental Properties Are Not Good Investments

    While real estate continues to be the biggest asset class in the world, there are still asset managers who are skeptical about recommending it to their clients as an investment vehicle. As Andy Rachleff puts it:

    One of the most common pieces of financial advice our clients hear from their friends and family is to invest their excess cash in rental properties. Unfortunately, this is terrible advice for all but a lucky few.


    Andy Rachelff

    The piece goes on to give four distinct reasons for critics’ deviation from traditional logic. Let’s break it down one by one.

    Income Isn’t Guaranteed

    While this is true, this is true when it comes to any financial investment vehicle. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), as of Q1 2021 the average 25-year return for private commercial real estate properties held for investment purposes slightly outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. Residential and diversified real estate investments also averaged returns of 10.3% (NCREIF). Keep in mind, this data takes into account both the 2008 financial crisis and the COVID-19 pandemic. Each calamity gravely deflated assets in the real estate market. So while it’s certainly true that income isn’t guaranteed, over a 25-year period both commercial and residential real estate holdings outperformed the S&P 500 Index. While income is almost never guaranteed, this should make you feel more at ease about investing your money in the real estate sector.

    It’s Hard To Generate A Compelling Return

    Another generic statement that can be said about almost any investment vehicle. If generating a compelling return was easy, everyone would follow the same system. When you invest in real estate, whether it be through direct property management or a REIT, you still maintain some level of ownership over a physical asset. Conversely, with stocks, as an example, you own a piece of a publicly traded company that has a board of directors, executives, and senior management controlling the day-to-day operations. In other words, your money is in the hand’s of others. With the majority of real estate investment vehicles, you are in control. Therefore, you are the one who has the ability to make decisions that generate a more compelling return, versus leaving those decisions in other people’s hands. It’s easier to generate a compelling return when you have control because at the end of the day, no one will care as much about your money as yourself. Additionally, the under 8% net over eight years earned by Weatherfront’s portfolio is not only a logical fallacy as it is only one data point, but their complaint is largely surrounding the tax structure of rental properties investors will have to pay. It is anecdotal data tailored to disprove a very generic argument to begin with.

    It’s Better To Diversify Your Portfolio

    In this section, the writer essentially makes a compelling argument to investing in a REIT versus direct real estate investing. While we’ve covered both strategies in depth, it’s true that in the long-term a REIT, REIG, or some form of pooled investment will mitigate your portfolio’s risk. This is especially true for individual properties that “fall out of favor”, sometimes due to external factors (i.e. COVID-19 pandemic). The writer correctly points out the substantial risk in a situation where you have enough capital to invest in only one property and advises you against it, but then makes a perfect argument for how to actually diversify your capital within the real estate market. After all, diversification is cited by a vast majority a major benefit to the real estate investment sector. Irrespective of how much money you have to invest upfront, you have control over how much risk you want to take on. Therefore you can choose to diversify your real estate portfolio, or you can put all your eggs in one basket. We are in agreement with Weatherfront that the latter generally isn’t advisable.

    Liquidity Matters

    Depending on what approach you take to real estate investing, the writer has a point. If you take a direct approach to real estate investing, you can easily get stuck with an undesirable property. Alternatively, investing in a real estate index fund, gives you the same liquidity as investing in any other index or stock. Nowadays, it’s very rare to see an investor take all their excess investment capital and tie it down in one property. If they do, they’re doing so at their own peril. With so much data available that shows national long-term economic growth is cyclical, one would have to have a very high appetite for risk to directly invest in a single property. Diversification has been proven to be an essential component to any successful investment portfolio.

    Concisely, do we agree with the critic’s assertion to avoid investing in real estate holdings? No, we don’t. While the writer points out some opportunities to improve your real estate investment strategy, they don’t provide a compelling argument to avoid investing in the entire segment. While some data is anecdotal and some is actual, they make a good case to be wary of rental properties. At the same time, they make a great case for diversification through REITs and other real estate index funds. The fact is there will always be critics and skeptics of any investment choices. There are analysts who are paid to do just that. However real estate has been the world’s largest asset class for awhile and it isn’t going anywhere. For investors, it would be wise to embrace that and research the abundant amount of strategies available within the real estate segment. Diversification will always be critical. Especially if you’re not currently invested in the real estate market, it would be prudent to look into various strategies because you’re all but sure to find some that suit either your short or long-term goals.

  • NYC’s Real Estate Market Outlook as the CDC’s Moratorium on Eviction Expires

    When the CDC (Center for Disease Control and Prevention) last extended the eviction moratorium a third time, due to the COVID-19 pandemic, from the end of June 2021 to the end of July 2021, they were clear that would be the final extension. Republicans opposing another extension of the eviction moratorium cited the recent 5-4 decision by the Supreme Court, which suggested legislative approval would be required. Leading Democrats responded with brief arguments that the eviction ban needs to be extended, as Congress has only distributed $3B out of the $46.5B in approved rental relief. According to a study by the Aspen Institute, more than 15 million people in 6.5 million US households are currently behind on rental payments. The same study estimates the collective cost to landlords to this point has been over $20B. Landlord groups previously came together in an unsuccessful attempt to end the moratorium earlier, arguing the CDC overstepped their legal authority, but they were rejected by the Supreme Court’s ruling then. Determined not to give up, the National Apartment Association (NAA), with 82,600 members that collectively manage more than 9.7 million rental units, sued the U.S. government on Tuesday July 27th, seeking billions of dollars in unpaid rent due to the moratorium (Shepardson, Reuters).

    While opportunities for a federal extension essentially ended when the House of Representatives adjourned Friday July 30th, effectively giving up, there are states that have already extended the eviction ban. New York and California top the list, with the two states passing bans on evictions until August 31st and September 30th, respectively (Shepardson, Reuters). Keep in mind, the justification for the CDC initially issuing this policy was due to the federal government’s direction to self-quarantine during the worst of the COVID-19 pandemic. It was not primarily over economic concerns, as that would be outside the CDC’s purview. Regardless, assuming nothing changes from this point, New Yorker’s in financial crisis will only have one additional month of safe haven before they too will have to deal with the reality of federal protections stemming from the COVID-19 pandemic ending.

    What does the looming end of the eviction moratorium mean for NYC’s real estate market? Firstly, as predicted by several well-known real estate attorneys, there will be a huge backlog of cases in Housing Court. Prior to the pandemic, during routine economic and geopolitical times, evictions could take anywhere from three to six months – considered typical – or sometimes drag out for years on end (Hogan, NY Post). The backlog will in turn lead to some landlords, who have certainly been financially struggling throughout this ordeal, being forced into foreclosure or given no choice but to sell cheap to cash buyers. Landlords need revenue in order to run a building. They have expenses, such as providing heat, paying personnel and staff, building supers and contractors, as well as real estate taxes to boot.

    If you’re one of the savvy, fortunate investors who came out of the pandemic with a solid amount of disposable income set aside for your portfolio’s growth, a direct real estate investing approach could prove to be extremely rewarding. REIGs (Real Estate Investment Groups) can also become a powerful force in NYC’s residential real estate market in particular, once the moratorium ends. This vehicle gives real estate investors the ability to join together and pool both their money and knowledge to invest in multiple residential real estate properties. Similarly, members of the REIG would share the costs associated with property management. They could also benefit from diversification and economies of scale, which are additional benefits to joining a REIG. The bottom line for NYC is once the eviction moratorium does end, you’ll see solid opportunities for a long-term residential real estate investment. As is usually the case with financial markets during times of uncertainty, there’s definitely opportunity, but with that opportunity comes inherent market risk.

  • Investing in a REIT: The Pros and Cons

    One of the most notable investment opportunities available to investors looking to enter the real estate market is a REIT (Real Estate Investment Trust). A REIT is a publicly traded company that owns, operates, or finances income-producing properties and real estate investors are able to purchase shares in them (Ranchers, Investopedia). This contrasts to direct real estate investment, which is typically considered purchasing a property, then either managing it, renovating it, renting it out, flipping it, etc. The primary difference centers around whether you’d prefer a hands-on approach to real estate investing. REITs give you the opportunity to diversify your portfolio and more specifically, your investment portfolio within the real estate segment.

    A typical REIT has publicly traded shares that can be purchased on a national exchange, however they often fund underlying properties directly. Such companies, known as Equity REITs, are typically involved in the construction of office buildings, or the management of apartments, hotels, etc. Conversely, Mortgage REITs may purchase asset-backed securities or make direct real estate loans. REITs must register with the SEC, and they’re subject to various regulations, most notably the requirement to pay 90% of the company’s taxable income in the form of shareholder dividends each year. Contrary to popular belief, there are also REITs that are not traded on an exchange, but they likely come with hefty fees, and far more limited liquidity options. Concisely, perhaps the most important takeaway from a REIT is that it provides access to a diversified pool of real estate investments that are essentially impossible for the typical investor, even a large-scale investor, to create on their own.

    The Pros of a REIT

    The biggest pro commonly referred to is a REIT gives a typical retail investor – who may not have enough liquid capital – to take a diversified approach to the real estate market. REITs may also be beneficial to investors that don’t have the expertise yet to assess the risks of a real estate investment. These investors may very well prefer a pooled approach to real estate. In case those cases, a REIT would be a great alternative to direct real estate investing, which would require a lot more experience and intricate knowledge of the real estate market. Investors not only get access to an income-producing product, but additionally to one that’s physically managed by a professional real estate market expert.

    Equity REITs, which are traded on national exchanges, have low capital requirements because investors are only buying a share of the trust. Since it’s traded on a public equity market, an investor can buy and sell these assets with relatively few liquidity constraints.

    Additionally, as we all know, investors are always cognizant of their tax rate, especially from capital gains investments. REIT investors are taxed more favorably on income from the investment because income is not typically taxed at a corporate level, due to the income from these pooled real estate assets being “passed through” to the investor. Contrary to a large corporation where all income is taxed before distributing dividends, REIT investors receive profits as ordinary income.

    Lastly, real estate investors may not always have a bullish position on the overall market and even more so on a specific project or space. Taking a short position on a real estate project, without utilizing an Equity REIT, would require considerable savvy, as well as most likely the use of expensive derivative products. In contrast, REITs allow market speculators to go long or short, depending on their market view.

    The Cons of a REIT

    As this section will conclude, there are definitely more pros than cons to investing in a REIT. As is often the case, one of the primary cons is the opposite of one of the main pros. Since REITs are a massive pool of assets, this makes understanding the underlying risk quite difficult to an average investor in the real estate market. Though the properties are thought to be managed by seasoned professionals, they aren’t exempt from making errors on occasion. The average investor may overlook an essential aspect of the REIT because they’re working under the assumption it’s managed by real estate professionals, or they may struggle to gain a comprehensive understand of the portfolio beyond simple summary statistics.

    Additionally, while this ties in partially with the investor’s preference of direct vs. passive real estate investing strategies, REITs can also be more expensive than a direct lending approach. As an example, fees charged for a REIT managers’ salaries can eat into the potential income gained from the investment. Savvy and wealthy investors with enough capital to diversify could definitely put themselves in a position to achieve higher returns by managing assets themselves. The issue becomes what constitutes “enough”. Should a single investor choose the path of diversification within the direct real estate investment market, “enough” would likely mean tens, if not hundreds of millions. Even so, they would have to incur management costs and while they may be lower than a REIT managers’ salary, the risk incurred would be unlikely to offset the potential capital gains benefit. This is why REITs are far more common and much more likely to be a better tool for investors who are seeking to diversify their portfolio, as opposed to diversifying their real estate portfolio with expensive and frequently reoccurring direct property investments.