I'm worried about the real estate market right now

[Sauce]

With the current inflation trends, I'm raising my residential rents right now. And the price of single family homes is going up in my area.

What's happening in the real estate market in your area?

Home prices are still rising. Home showings have slowed, I think due to them not wanting to continually fight and lose houses.

Rents are way up and still going.

 

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[17thgreem]

I'm worried right now about what is going to happen in our real estate markets in the immedate future. There are some segments that may be, or are, in troublesome.

Several segments in the commercial market are stressed. Properties used for retail sales, the mall properties, and the office space market are having huge problems with vacancies, loan & rental defaults and potential foreclosures. These problems were already trends that have been blown up with the lock-downs due to the virus.

Another market that is suffering is people who have Airbnb rentals and vacation rental properties. I received an email from Airbnb today that they are planning to go public. They are adjusting their rules. Again. In the meantime, there are many people who built mini empires based upon Airbnb rentals. The stories usually involve people taking on massive debts, long term leases, and/or making heavy investment to create short term rental income streams. I was reading yesterday about people who can't pay their rent or payments on many of these properties.They are unsuccessfully trying to sell the properties or hang on.

(As I was reading about their Airbnb woes, I thought about how these investor's business model is similar to people who built e-businesses on other people's platforms. It's a pretty slippery slope for the long haul. I was feeling grateful that I only have a couple of sleeping rooms & summer RV spaces listed with that platform. My life is not dependent on the income from them.)

Another market that is starting to show some stress cracks is the multi-family residential market (apartments). Over the last few years the watch words have been OPM (oher people's money). That is a business model using as much debt as possible to buy as many units as possible. I have friends who have refinanced the minute that they had any equity in their buildings. They would use the loan proceeds to go buy more residential units. The problem with this type of agressive investing is that these loans are commercial loans that are subject to different rules compared to single-family homes and small residential unit (2 - 4 units). If the market value of these apartment buildings drops, the bank can call for the owner to pay down these loans to bring them into conformance. And those rules can tighten as the market retracts. (I remember when those loan calls happened to a lot of people around 1990 and they ended up losing their properties.)

So, I'm going to be sitting on the sidelines to wait and see what happens -- no new investments. If the real estate market starts to slide, it normal leaves no man standing. It cascades throughout the different RE segments one after another. If the dominos start falling, cash will be king. Sure, I may miss out on a few deals while hold my cards close to my chest. That's OK. I will survive to invest another day.

I am a commercial real estate broker and land developer that up until recently focused heavily in the Industrial sector (warehouse) and have some thought that may be interested to hear. Lots of individuals in my business speicalIze or essentially pigeon hole themselves into one asset class (office space tenant rep, retail Landlord rep, industrial investment, etc, etc. While it is a highly complex business, nothing like residential RE in the slightest, I was taught by my mentor, type of guy who has moved absolute mountains at age 39, that the best in the biz are able to somewhat effectively keep an eye on multiple balls at once, so I’ve done just that with a focus for the last three or so years on industrial investment sales and leasing. Over that span I did roughly $35 million in total volume transacted, with maybe 25% coming from land deals, retail leases/sales, office development from raw pads to sale.

Well as of the last six months I’ve completely reworked my entire approach and focus as to how I am going about the business. I like to think I read the tea leaves ahead of time and took a risk and moved further out from suburb type market industrial deals to smaller rural communities on major thoroughfares within one hour or so drive to the major hub.

As far as deals, I am doing exclusively land development with an emphasis on residential density developments primarily in the 1500 - 2000 sf range. I work with large local and some national builders as far as site selection and that trend is playing out to a tee with them as well. A.) I can take advantage of lack of savvy players/agents not having a good feel for valuation regarding current acreage and pricing. B.) Mass exodus from the cities will continue (fyi - homes with acreage was the no. 1 request in 2020).

We will inevitably get a rate hike, which will slow the market, but a large void has to be filled with plenty of runway, at least in the south. Btw my partner and I who is a GC are actually putting our money where our mouth is and have a 74 acre tract under contract in a small and very quaint hallmark type town. Currently taking through rezoning, but have a contract being prepared to purchase from us for a pretty penny on the zoning contingency being met.

Moral of the story, they don’t make anymore land, but just like anything else, you make your money when you buy.

 

[WJK]

I am a commercial real estate broker and land developer that up until recently focused heavily in the Industrial sector (warehouse) and have some thought that may be interested to hear. Lots of individuals in my business speicalIze or essentially pigeon hole themselves into one asset class (office space tenant rep, retail Landlord rep, industrial investment, etc, etc. While it is a highly complex business, nothing like residential RE in the slightest, I was taught by my mentor, type of guy who has moved absolute mountains at age 39, that the best in the biz are able to somewhat effectively keep an eye on multiple balls at once, so I’ve done just that with a focus for the last three or so years on industrial investment sales and leasing. Over that span I did roughly $35 million in total volume transacted, with maybe 25% coming from land deals, retail leases/sales, office development from raw pads to sale.

Well as of the last six months I’ve completely reworked my entire approach and focus as to how I am going about the business. I like to think I read the tea leaves ahead of time and took a risk and moved further out from suburb type market industrial deals to smaller rural communities on major thoroughfares within one hour or so drive to the major hub.

As far as deals, I am doing exclusively land development with an emphasis on residential density developments primarily in the 1500 - 2000 sf range. I work with large local and some national builders as far as site selection and that trend is playing out to a tee with them as well. A.) I can take advantage of lack of savvy players/agents not having a good feel for valuation regarding current acreage and pricing. B.) Mass exodus from the cities will continue (fyi - homes with acreage was the no. 1 request in 2020).

We will inevitably get a rate hike, which will slow the market, but a large void has to be filled with plenty of runway, at least in the south. Btw my partner and I who is a GC are actually putting our money where our mouth is and have a 74 acre tract under contract in a small and very quaint hallmark type town. Currently taking through rezoning, but have a contract being prepared to purchase from us for a pretty penny on the zoning contingency being met.

Moral of the story, they don’t make anymore land, but just like anything else, you make your money when you buy.

Have you thought about doing some mixed-use development? In our area, that's very common. And I have seen a lot of those kinds of situations in rural areas.

 

[WJK]

I am a commercial real estate broker and land developer that up until recently focused heavily in the Industrial sector (warehouse) and have some thought that may be interested to hear. Lots of individuals in my business speicalIze or essentially pigeon hole themselves into one asset class (office space tenant rep, retail Landlord rep, industrial investment, etc, etc. While it is a highly complex business, nothing like residential RE in the slightest, I was taught by my mentor, type of guy who has moved absolute mountains at age 39, that the best in the biz are able to somewhat effectively keep an eye on multiple balls at once, so I’ve done just that with a focus for the last three or so years on industrial investment sales and leasing. Over that span I did roughly $35 million in total volume transacted, with maybe 25% coming from land deals, retail leases/sales, office development from raw pads to sale.

Well as of the last six months I’ve completely reworked my entire approach and focus as to how I am going about the business. I like to think I read the tea leaves ahead of time and took a risk and moved further out from suburb type market industrial deals to smaller rural communities on major thoroughfares within one hour or so drive to the major hub.

As far as deals, I am doing exclusively land development with an emphasis on residential density developments primarily in the 1500 - 2000 sf range. I work with large local and some national builders as far as site selection and that trend is playing out to a tee with them as well. A.) I can take advantage of lack of savvy players/agents not having a good feel for valuation regarding current acreage and pricing. B.) Mass exodus from the cities will continue (fyi - homes with acreage was the no. 1 request in 2020).

We will inevitably get a rate hike, which will slow the market, but a large void has to be filled with plenty of runway, at least in the south. Btw my partner and I who is a GC are actually putting our money where our mouth is and have a 74 acre tract under contract in a small and very quaint hallmark type town. Currently taking through rezoning, but have a contract being prepared to purchase from us for a pretty penny on the zoning contingency being met.

Moral of the story, they don’t make anymore land, but just like anything else, you make your money when you buy.

I like land too.

Are you in an area that has a dominant industry? I've been tucked away here for a while, but I've been thinking that some areas could really use some "incubator" properties. We had some of those when I was in Los Angeles. I saw them as a commercial appraiser/expert witness.

These are usually one large anchor space for a dominant/or shared support business and then smaller spaces for start-ups. Sometimes the larger space was a shipping/warehouse company. Other times it was business that used the components that the others produced. One example was in the food business where they all used the freezer space and loading docks in the bigger space. And most of their finished goods were wholesaled and distributed together.

We're going to have a lot of 'reshoring" with industries coming back to the States. Many will be small start-up businesses that manufacture small parts. How about shaping plastics? There are all kinds of parts to make. That may be an opportunity for a landlord to participate in the core business and get the right smaller businesses for supporting the manufacturing process. With the right mix of small manufactures, you could create a "productocracy" that will blow your mind.

Or visualize this... a tire manufacturer next to an oil refinery that uses the sludge from the refinery to make their tires... just a thought...

 

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