July 24, 2019
A lot has been covered regarding this past weekend’s 50th anniversary of the moon landing, but most accounts focused on the actual landing and not so much on aspects that impacted our economy – or our modern real estate industry. I felt the latter deserves some WIN attention. While a natural starting point would be to note what NASA has meant to the economies of places like Houston; the Florida Space-coast; Huntsville, Alabama; commercial aviation manufacturing hubs like those in Seattle; Charleston, S.C.; and now Mobile, Ala., with Airbus, the real unheralded legacy of the Apollo project was its creation of our modern-day Logistics and Supply-Chain industries. NASA had to invent supply-chain to source materials and specialized labor to travel to the Moon. Virtually every supply-chain model today has at its foundation elements engineered by NASA. In other words, our logistics and supply-chain industries trace their roots back to the Apollo missions as much as principles in computing, bioscience and materials science.
This past week Charles Fishman, author of “One Giant Leap: The Impossible Mission That Flew Us to the Moon” (story of the race to the Moon in the 1960s and its impact on today,) published a piece for LinkedIn titled The Apollo 11 Moon Landing's 4th Crew Member that summarized how much NASA had to overcome in computing power, supply-chain to build a space craft, and logistics to launch and retrieve the Apollo space vessel. The father of modern-day logistics traces back to NASA.
In honor of the incredible innovation that NASA and the Apollo program brought to the U.S. economy and incubating the technology industry we now fear for everything from job elimination to privacy invasion, I thought I would share a piece published this last week by Entrepreneur.com titled “Six Real Estate Startups Revolutionizing the Industry” that I thought was an appropriate commemoration of the entrepreneurial legacy for the 50th anniversary of the U.S. moon landing. Three of the six that I found germane to subject matter being addressed in some manner at virtually real estate industry conference were:
i. Atlant - Decentralizing the real estate marketplace: Realtors and bankers and REITS beware. This blockchain platform uses tokenized ownership (with real estate tokens representing shares in individual real estate assets) to facilitate investing in and trading with property assets, making the process liquid and transparent. Originated and based in London, this 2017 startup offers peer-to-peer (P2P) flat rentals globally which materially reduces fees for both tenants and landlords while also eliminating the possibility of fake reviews and ratings. Atlant is a business model for Realtors to keep an eye on as it is reducing the cost of buying and owning real estate assets while disrupting the need of real estate agents.
ii. Roofstock - Disrupting investments in single-family homes: A now 5-year old California founded company focused on the growth in single-family home rentals as an outshoot of the housing affordability crisis, Roofstock is the first online marketplace for single-family rentals. Whether it is individuals looking to lease a house or a homebuilder looking to rent an entire new subdivision of homes, Roofstock provides an efficiency and transparency to single-family home leasing familiar to the multifamily industry – and their business model is outside the Multiple Service Listing (MLS). The “R stands for Realtor” marketing campaign needs more in its offering to compete with the likes of both Atlant and Roofstock if it is going to continue to command RESPECT and deliver a value proposition. The traditional agent model by Realtors and controlled by MLS is under assault by technology and innovative new business models. One final note on Roofstock is that the technology, artificial intelligence (AI), and machine learning used by it also allows buyers to market their rentals without affecting renters or losing income.
iii. Fundrise - Introducing crowdfund investment to the real estate market: What Schwaab and e-Trade have done to the stock market for individual investors, Fundrise is making possible for individual investors in commercial real estate. And this commercial real estate investing disruptor is not New York or West Coast based. It is something innovative coming out of Washington, D.C. This now nearly decade-old start-up has merged the synergy of two major industries: crowdfunding (expected to exceed $300 billion by 2025), and real estate. As we all know, real estate crowdfunding disrupted the notion that property investments are accessible only to institutional capital sources - like Life Companies - or affluent individuals and development entities with industry expertise, by allowing entry-level investors with no previous commercial real estate knowledge to invest in real estate with as little as $500. In 2015, this Washington, D.C.-based platform introduced electronic Real Estate Investment Funds (eREITs), giving small investors access to commercial real estate as well. This startup paved the way for treating real estate investments like online stock investments which pay quarterly dividend distributions and asset value appreciation at the end of the investment term.
Economic and Real Estate Industry News of the Week: This is the week we will disrupt our summer vacations before getting kids readied for return to primary or secondary school. So what do we have to endure, dread or look forward to depending on your vantage point? To start, we have almost 20% of the S&P 500 companies reporting earnings. Transportation companies like railroads have missed due to Midwest flooding, slowing in energy industry, and some tariffs impact. Next up is Mueller before Congress and reignition of as much media and political blast as was needed to launch Apollo 11. Of real relevance is the first reading on Q2 GDP. I am guiding to an advanced estimate of at least 2.5% (likely higher). And anything at or above 2.5% is a solid performance for our economy for a Q2 period. Q1 period is typically 1% or less so the 3.1% final GDP was amazing. Corporate earnings suggest a solid Q2. Q3 is a real wild card that we won’t know until Oct. 30. Lack of a trade deal with China, devastation to agriculture for the Midwest flooding, Boeing 737 Max grounding, etc. all are likely to converge and keep Q3 GDP from hitting a 3% figure. No recession or doomsday as being forecast by Senator Elizabeth Warren. And then next week at the July 30-31 FOMC meetings, we get the anxiety of a Fed rate cut behind us. The Fed goes on vacation in August so no return of Fed rate decision chaos until Sept. 17-18 followed by Oct. 29-30 and then Dec. 10-11. Enjoy the break from the Fed in August.
This past week we learned there are still malls doing well – so well one even has a 100% occupancy and a wait list of tenants wanting to lease space. Who? Bal Harbour Mall in Miami. I was involved with its refinancing a few years ago when mall lending was considered a high risk.
We also learned in a new NREI July feature on Multifamily Cap Rates that “New investors keep finding reasons to buy apartment properties, and prices for these assets keep rising.” There is little risk Cap Rates will rise anytime soon with this kind of investment demand. “New investors are coming in at a rate that I have never seen before,” reported Brian McAuliffe, president of CBRE Capital Markets. Investors continue to pay higher and higher prices for apartment properties, though prices are not growing as quickly as they once did. “Prices are still increasing… just at a slower pace,” reports Will Mathews, managing director and platform leader of the east region multifamily advisory group with real estate services firm Colliers International. Prices for apartment properties grew by 8.8% over the 12 months that ended in May 2019, according the Commercial Property Price Index (CPPI) tracked by real estate research firm Real Capital Analytics (RCA). As my friend Jim Costello at RCA states: “That 8.8% YOY increase is a lot faster than inflation. It’s also faster than the 7.2 % rate of growth for commercial properties overall over the same period.” In summary, all is good in multifamily heading into 2H 2019.
Finally, as we are in earnings season and upon reflection of how the Apollo project altered our economy, the Visual Capitalist compiled a neat graphic comparing the largest companies by market capitalization today versus 20 years ago. Think about this graphic and ponder who might be your office tenants in five, 10 or 20 years (many of them are not even companies in existence yet), and then think about where the NextGen of large cap companies will locate for workforce, housing and logistics infrastructure. In the 1999 vs. 2019 graphics below, note the rise of Amazon and fall of Walmart; the survival of Johnson & Johnson; and the rise of Chinese large cap companies like Tencent. Where oh where did the financial institutions like Citi go, and where are the auto manufacturers like GM & Ford? I was surprised not to see the king of logistics – FedEx – appear in any of the graphics 1999 to 2019.
Have a good week! I enjoyed my trip and time at Harvard University – thank you for the invite and honor to present Scott McLain, ACRE Leadership Council member and Harvard University Graduate School of Design AMDP graduate.
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