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Jonathan Miller on High Mortgage Rates · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with Barry rid Holds on
• 0:06
  Speaker 1: Bloomberg Radio.
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  Speaker 2: This week on the podcast, our returning champion for the
• 0:11
  Speaker 2: sixth time, my friend Jonathan Miller. He is founder and
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  Speaker 2: CEO of Miller Samuel, where he has been covering the
• 0:19
  Speaker 2: real estate market for the better part of forty years.
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  Speaker 2: Not only is he an appraiser, he's pretty much been
• 0:25
  Speaker 2: in every single penthouse in Manhattan. Some of the stories
• 0:30
  Speaker 2: he tells. I couldn't get him to coax out stories
• 0:33
  Speaker 2: about David Bowie and other celebrities, but I've heard them
• 0:36
  Speaker 2: all over at beer and they're amazing. There are few
• 0:40
  Speaker 2: people more knowledgeable about what's going on in the state
• 0:43
  Speaker 2: of real estate, why it got to where it is today,
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  Speaker 2: how it's changing, and what you should know about prices
• 0:51
  Speaker 2: and supply in the near future than Jonathan. He is
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  Speaker 2: just simply the go to guy when it comes to
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  Speaker 2: residential real estate. I found this conversation to be a
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  Speaker 2: lot of fun, and I think you will also. With
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  Speaker 2: no further ado, my conversation with Miller Samuels Jonathan Miller.
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  Speaker 2: Jonathan Miller, Welcome to Bloomberg.
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  Speaker 1: Oh great to be here. It feels like I've been
• 1:14
  Speaker 1: here before.
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  Speaker 2: You're a returning champion. I think this is your fourth,
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  Speaker 2: fifth something, sixth, sixth. So every time there's tumults in
• 1:24
  Speaker 2: the real estate market, my instinct is always to say,
• 1:28
  Speaker 2: let's get Jonathan in here and talk about what's going
• 1:31
  Speaker 2: on in the real estate world. To talk about what's
• 1:35
  Speaker 2: going on in real estate before we get to that.
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  Speaker 2: For the people who might not have listened to the
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  Speaker 2: previous five conversations we've had, why don't we just delve
• 1:43
  Speaker 2: a little bit into your background, starting with you said
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  Speaker 2: you stumbled into a praising in real estate. Tell us
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  Speaker 2: what that means.
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  Speaker 1: Well, Actually, I moved to New York in the mid eighties,
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  Speaker 1: and because my parents had moved here and my sister
• 2:01
  Speaker 1: had moved here, and they're saying this is incredible. I
• 2:03
  Speaker 1: grew up in the DC area and was living in
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  Speaker 1: the Midwest, and my wife and I came to a
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  Speaker 1: wedding here and were completely hooked. Within three weeks, we
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  Speaker 1: sold our cars and moved and slept on my parents'
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  Speaker 1: apartment one bedroom apartment floor. Within three weeks of our
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  Speaker 1: visit here. We just wanted to be here, and there's
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  Speaker 1: no regrets. We love it.
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  Speaker 2: The nineteen eighties New York area was kind of transitioning
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  Speaker 2: from yes, the really dumpy seventies to hey, the eighties
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  Speaker 2: and the nineties were kind of a boomy are you yeah?
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  Speaker 1: Yeah?
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  Speaker 2: What was that transition like?
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  Speaker 1: Well, when we moved and we went through we basically
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  Speaker 1: you got the ideas of family to start a real
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  Speaker 1: estate appraisal business. We'd actually raised money from Japanese investors
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  Speaker 1: through an attorney to start a real estate brokerage firm
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  Speaker 1: and got to the bottom of the form where you
• 3:03
  Speaker 1: had to sign the dotted line and said no, let's
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  Speaker 1: do appraisal. It was just like it was, you know,
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  Speaker 1: just this sort of odd moment where we really didn't
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  Speaker 1: want to become real estate brokers, and we had real
• 3:16
  Speaker 1: estate expertise. We had a lot of technology that we
• 3:20
  Speaker 1: were playing with. I used to sell units in an
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  Speaker 1: on site sales condo new development on the Upper east Side,
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  Speaker 1: and I literally put the entire schedule A, which is
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  Speaker 1: the pricing square footage unit numbers in a Hewlett Packard
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  Speaker 1: forty one B using bitmapping, and we could walk around
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  Speaker 1: and instead of having you know, when people had asked me,
• 3:44
  Speaker 1: what are the common chargers, what are the you know,
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  Speaker 1: I'd literally have it in my handheld and we sort
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  Speaker 1: of turned that into a valuation business. And it's been
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  Speaker 1: since eighty six that we've been in a praising property
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  Speaker 1: about five a year in Manhattan.
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  Speaker 2: Wow, that's amazing. So before we get to the pandemic,
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  Speaker 2: which obviously had an enormous outsized effect on real estate,
• 4:08
  Speaker 2: let's talk a little bit about the financial crisis in
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  Speaker 2: the mid two thousands. A lot of real estate companies
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  Speaker 2: crashed and burned. Then how did you manage through the
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  Speaker 2: GFC and what sort of world were we existing in
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  Speaker 2: back then?
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  Speaker 1: Well, actually I thought leading up to the Great Financial Crisis,
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  Speaker 1: I thought to myself, we're going to be out of
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  Speaker 1: business within a couple of years because nobody wanted an
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  Speaker 1: independent valuation. Everybody knew the number but the appraiser, and
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  Speaker 1: so the system incentivized mortgage brokers to hire the appraisers
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  Speaker 1: that made the numbers for them because they wouldn't get
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  Speaker 1: paid until the deal closed. And we weren't morally flexible,
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  Speaker 1: and so that was really a lean period. And remember
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  Speaker 1: I was interviewed in some national TV program interviewed me
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  Speaker 1: and said, you know what's the you know, what do
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  Speaker 1: we not know, And I said, most of the appraisals
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  Speaker 1: being done through mortgage brokers aren't worth the paper they're
• 5:16
  Speaker 1: written on. And I'd say seventy five percent of them. Wow.
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  Speaker 1: And then I was sort of attacked by my industry
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  Speaker 1: that at least the local competitors who were very morallly
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  Speaker 1: flexible and were really doing well. And in two thousand
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  Speaker 1: and eight, that same journalist came to me and said,
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  Speaker 1: this is the guy who told us three years ago
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  Speaker 1: that this was going to happen. And I ever since then,
• 5:41
  Speaker 1: apparently I got a lot smarter. You know, I was
• 5:44
  Speaker 1: saying the same thing, but I was right.
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  Speaker 2: It just sometimes takes a while for people to realize
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  Speaker 2: that the painful thing they're hearing. You know, when there's
• 5:53
  Speaker 2: a lot of pushback, it's because you're telling people things
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  Speaker 2: they don't.
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  Speaker 1: Don't want to hear, and they're invested in old way.
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  Speaker 1: And in fact, when I started going negative on the market,
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  Speaker 1: I remember being in a New York Times front page
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  Speaker 1: story about prices dropping x percent, and I remember a
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  Speaker 1: real estate brokerage CEO to remain nameless, called me and said,
• 6:19
  Speaker 1: what are you doing? You know, and you know this
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  Speaker 1: is wrong? You know you can't talk, and I said,
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  Speaker 1: you got to be transparent. And what's really interesting to
• 6:29
  Speaker 1: the industry's credit is there's a lot of market studies
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  Speaker 1: out like we publish, but the brokerage community has, you know,
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  Speaker 1: compared to what it was in the eighties and nineties,
• 6:42
  Speaker 1: is dramatically more transparent, even though not perfect about what's happening,
• 6:48
  Speaker 1: as opposed to you know, in the dark days of
• 6:52
  Speaker 1: Lehman collapsing and you know, brokers at Panels I was
• 6:56
  Speaker 1: on was saying, this is just going to last a
• 6:58
  Speaker 1: couple of weeks. Everything's great.
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  Speaker 2: It's always a great time to buy or sell, right.
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  Speaker 2: Do you remember that ad the association.
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  Speaker 1: He wrote a piece about I might have Yeah, where
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  Speaker 1: there was like one month out of like the last
• 7:13
  Speaker 1: twenty years that it wasn't a good time to buy.
• 7:16
  Speaker 1: It was.
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  Speaker 2: It was great. Listen. It's always a good time to
• 7:19
  Speaker 2: generate a commission if you're a commission real estate agent,
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  Speaker 2: which course, and my mom was a real estate agent,
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  Speaker 2: so this was always dinner table conversation. Like you, she
• 7:29
  Speaker 2: wasn't afraid to call people out. The fascinating thing is
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  Speaker 2: we'll talk a little bit more about the appraisal industry
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  Speaker 2: in a bit. But back then appraisers were not really
• 7:42
  Speaker 2: helping the buyers. They were just helping the brokers get
• 7:46
  Speaker 2: a bank loan through the process.
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  Speaker 1: Well yeah, sort of. I mean essentially, what no one
• 7:53
  Speaker 1: understood in the industry and still don't understand today in
• 7:56
  Speaker 1: the real estate industry is that the when appraiser is
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  Speaker 1: doing an appraisal for the buyer that's getting a mortgage,
• 8:02
  Speaker 1: their client is actually the bank. And so now there's
• 8:07
  Speaker 1: all kinds of restrictions post DoD Frank introduction to the
• 8:11
  Speaker 1: to the process, where you know, people can't talk to
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  Speaker 1: you like they could.
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  Speaker 2: Back in the day. Hey I have we're paying this,
• 8:19
  Speaker 2: and here's how much my mortgage is.
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  Speaker 1: This is what I need right?
• 8:23
  Speaker 2: Keep it fits like Rodney and Caddyshack. Well I just
• 8:26
  Speaker 2: keep it.
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  Speaker 1: I The term back then was here's a good apprais
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  Speaker 1: or good in air quotes, and good translated into making
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  Speaker 1: the number.
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  Speaker 2: So I was always shocked at the idea of quote
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  Speaker 2: unquote comparables. If you're in an upward price spiral that
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  Speaker 2: is essentially a mortgage driven bubble, what good are comparables? Hey,
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  Speaker 2: this house down the street is overpriced thirty percent. Give
• 8:50
  Speaker 2: these people a mortgage for a house that they pay
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  Speaker 2: thirty percent too much doesn't make a lot of sense.
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  Speaker 1: Yeah, the challenge is that, you know, when we're looking
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  Speaker 1: at valuation of a property, we're looking more than price.
• 9:02
  Speaker 1: Price is sort of the caboose at the end of
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  Speaker 1: the train. Leading indicators would be contract activity and listening
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  Speaker 1: inventory sort of transaction based rather than price based.
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  Speaker 2: And so I would imagine that would tell a bank, hey,
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  Speaker 2: if this buyer defaults on this mortgage down the road,
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  Speaker 2: the collateral looks.
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  Speaker 1: Like the collateral won't be adequate in or of view
• 9:27
  Speaker 1: or could would. There wouldn't be a perfect example. That
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  Speaker 1: is sort of the when you apply like the Greater
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  Speaker 1: Fool theory to South Florida real estate in the eighties,
• 9:37
  Speaker 1: where it was all about carpenters and nurses flipping, you know,
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  Speaker 1: quitting their jobs and flipping real estate and becoming you know,
• 9:46
  Speaker 1: making a lot of money, and then they would turn
• 9:48
  Speaker 1: around and sell it to somebody else for double and
• 9:50
  Speaker 1: double and double and double. And if you actually stood
• 9:53
  Speaker 1: back and looked at a chart of what was happening,
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  Speaker 1: prices were going straight up and sales are going straight down.
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  Speaker 1: And you can see it because sales actually lead price
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  Speaker 1: direction by you know, a year in many cases.
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  Speaker 2: In fact, in five and six people don't you know,
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  Speaker 2: people were not familiar with the history of the financial crisis.
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  Speaker 2: Price is peaked in i want to say summer of six,
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  Speaker 2: and volume peaked in five, correct, But the market didn't
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  Speaker 2: start to stumble. Market peaked in October seven, so you
• 10:26
  Speaker 2: still had a full the stock market. So you had
• 10:28
  Speaker 2: a full year or two after housing topped before it
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  Speaker 2: started to show. And really the heavy stuff didn't start
• 10:35
  Speaker 2: in Toil eight.
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  Speaker 1: The answer to that question is always consumers when there's
• 10:41
  Speaker 1: when they they're uncertain, they pause, and so you see
• 10:45
  Speaker 1: the transaction volume drop, but the pricing that's the greater
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  Speaker 1: full theory, right, continue until there's no more buyers, and
• 10:53
  Speaker 1: then the price is correct.
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  Speaker 2: So now let's flip that question and talk about the sellers,
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  Speaker 2: because we're only in a little bit of a challenging
• 11:02
  Speaker 2: market for both buyers and sellers. Not enough inventory, mortgage
• 11:07
  Speaker 2: rates are much higher. It seems like sellers are always
• 11:11
  Speaker 2: operating at a six to twelve month leg, maybe even
• 11:14
  Speaker 2: longer one to two years, one to two years, so
• 11:17
  Speaker 2: they're always a year or two behind the price, which
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  Speaker 2: when things start to slow down and prices start.
• 11:24
  Speaker 1: To roll over, they don't adjust quickly.
• 11:26
  Speaker 2: They really don't. And I'm genuinely shocked at when I
• 11:30
  Speaker 2: look at some prices, I'm like, hey, that was the
• 11:32
  Speaker 2: right price in December twenty twenty one, right, but that
• 11:36
  Speaker 2: ship is sales.
• 11:37
  Speaker 1: Well it's funny you say that because in the beginning
• 11:40
  Speaker 1: of this year, when people said, what do you think
• 11:42
  Speaker 1: twenty twenty three is going to be, Like I dubbed
• 11:45
  Speaker 1: twenty twenty three the Year of disappointment because people weren't
• 11:49
  Speaker 1: going to get their twenty twenty one price. The sellers weren't,
• 11:53
  Speaker 1: but the buyers weren't going to see a substantial savings
• 11:57
  Speaker 1: in price. Seeing that prices prices weren't going to correct,
• 12:02
  Speaker 1: and you know, into and we we have this collapse
• 12:06
  Speaker 1: of inventory that is now sort of when you think
• 12:10
  Speaker 1: about the home valuation or just market trends, you know,
• 12:16
  Speaker 1: typically when there's a negative external event, like you know,
• 12:19
  Speaker 1: spike in interest rates. So if you saw interest rates,
• 12:21
  Speaker 1: you know the thirty year fixes more than double what
• 12:23
  Speaker 1: it was a little over a year ago, you expect
• 12:26
  Speaker 1: sales to slow down. They did, and you expect inventory
• 12:30
  Speaker 1: to pile high to the sky, and that didn't happen.
• 12:33
  Speaker 1: And in fact, right now, new inventory is falling. New
• 12:38
  Speaker 1: inventory meaning inventory is coming in right now, is actually
• 12:42
  Speaker 1: going negative. And it should yeah, it should be going negative,
• 12:47
  Speaker 1: and it's I mean, it should be rising and it's not.
• 12:50
  Speaker 1: And the the and so what that does that you're
• 12:54
  Speaker 1: not seeing prices fall because we're actually seeing right now
• 12:57
  Speaker 1: in the second quarter, just looking at the suburbs around
• 13:00
  Speaker 1: New York City, like Westchester, NASA County, Fairfield County, the
• 13:05
  Speaker 1: market share of properties that closed in this recently completed quarter,
• 13:11
  Speaker 1: the market share of all closed sales was depending on
• 13:14
  Speaker 1: the location, typically about forty five percent of the transactions
• 13:19
  Speaker 1: went to a bidding war, meaning that they closed higher
• 13:22
  Speaker 1: than the last asking price of the transaction. And that
• 13:26
  Speaker 1: doesn't happen when mortgage rates double. Right, it makes your
• 13:29
  Speaker 1: brain crack thinking about it because it's so contrary. And
• 13:33
  Speaker 1: that's because the inventory factor is what is throwing all
• 13:37
  Speaker 1: the modeling off.
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  Speaker 2: How many of those transactions were cash transactions where mortgage
• 13:42
  Speaker 2: rates are relevant.
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  Speaker 1: Right, So, so in Manhattan, the second quarter had the
• 13:48
  Speaker 1: highest market share of cash transactions in history. Two thirds
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  Speaker 1: of the transactions, about sixty five percent.
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  Speaker 2: Amazing.
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  Speaker 1: Now, what's interesting if you dig a little deeper, is
• 14:01
  Speaker 1: that the it's not that the whole world is just
• 14:04
  Speaker 1: paying cash. It's that the number of transactions for cash
• 14:09
  Speaker 1: bures and financed buyers both fell sharply year over year.
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  Speaker 1: The aggregate total was about forty percent year every year. Wow.
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  Speaker 1: But and I'm sort of making this simplistic, but cash
• 14:21
  Speaker 1: buyers fell twenty percent and finance buyers fell fifty percent.
• 14:25
  Speaker 1: And so what it meant was there's a lot less
• 14:28
  Speaker 1: resistance to your point of cash bures. The other thing
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  Speaker 1: it says is that cash buyers skew higher in the
• 14:36
  Speaker 1: sort of price strata. So, you know, one of the
• 14:39
  Speaker 1: stories before the pandemic was Manhattan had almost eight and
• 14:44
  Speaker 1: a half years of unsold supply, and that's including active
• 14:49
  Speaker 1: inventory for new development. You know, unsold kind of miniums,
• 14:54
  Speaker 1: whether actively listed for sale or in shadow inventory that
• 14:59
  Speaker 1: the develop could sort of dip into when they ran
• 15:02
  Speaker 1: low of sales after the pandemic. And because of this
• 15:06
  Speaker 1: sort of the pandemic sort of introduced strength to the
• 15:11
  Speaker 1: high end market. The share of or the activity continued
• 15:22
  Speaker 1: to favor the high end of the market. So instead
• 15:25
  Speaker 1: of being a market that was sort of the low
• 15:28
  Speaker 1: end was where all the action was. It became a
• 15:30
  Speaker 1: market with a high end was strong because this share
• 15:36
  Speaker 1: of unsold condos fell from eight point three years to
• 15:41
  Speaker 1: about just over three years, meaning it fell by more
• 15:44
  Speaker 1: than half, you know, in terms of what it would
• 15:47
  Speaker 1: take to sell off the supply in New York its dramatic.
• 15:51
  Speaker 2: So there's normally a chain of sales the starter home
• 15:56
  Speaker 2: you was about to move up, right, there's a whole
• 15:58
  Speaker 2: run of this. But during the pandemic, make a lot
• 16:00
  Speaker 2: of people just said I'm going to go buy a
• 16:02
  Speaker 2: second home or a third home of vacation property, so
• 16:05
  Speaker 2: I'm not stuck in a city where I can't do
• 16:08
  Speaker 2: anything in a tiny apartment, and that really sucked up
• 16:11
  Speaker 2: a lot of supply.
• 16:13
  Speaker 1: Yeah, the way I look at it is in the
• 16:18
  Speaker 1: city itself, in Manhattan and most urban centers, sales activity
• 16:23
  Speaker 1: didn't you know, fell by half, And it fell by
• 16:28
  Speaker 1: half because during a global pandemic and a multi family building,
• 16:31
  Speaker 1: are you going to let strangers into your apartment? Right?
• 16:36
  Speaker 1: The thinking was no, But in reality the buyers that
• 16:42
  Speaker 1: zoomed out to the suburbs were largely from the rental market.
• 16:47
  Speaker 1: Because they weren't anchored to another asset.
• 16:51
  Speaker 2: They didn't have to sell the affluent.
• 16:53
  Speaker 1: Yeah, they bought in the Hampton's, you know, a second
• 16:55
  Speaker 1: primary home. I called it co primary at the time.
• 17:00
  Speaker 1: And high end markets in you know, the county surrounding
• 17:04
  Speaker 1: New York definitely did better. And and people moved farther.
• 17:10
  Speaker 1: I mean, my wife and I moved half an hour
• 17:12
  Speaker 1: farther from the city because we figured we weren't going
• 17:18
  Speaker 1: to be going into the city five days a week.
• 17:20
  Speaker 2: And you get a lot more bang for your buck
• 17:22
  Speaker 2: the further away, you are, correct, So more property you
• 17:26
  Speaker 2: live on a compound with how many different buildings that
• 17:29
  Speaker 2: on that property in Connecticut three that's a lot of buildings.
• 17:33
  Speaker 2: So you couldn't get that in Darien, right, We couldn't
• 17:36
  Speaker 2: get that on the near the water or near a
• 17:39
  Speaker 2: commuter line into the city, at least not for a
• 17:42
  Speaker 2: reasonable price. So we'll come back to a lot of
• 17:45
  Speaker 2: what's going on in New York and the rest of
• 17:47
  Speaker 2: the real estate market. I just want to touch on
• 17:49
  Speaker 2: one more aspect of your background. You're a professor at
• 17:53
  Speaker 2: Columbia Business School teaching a course on commercial real estate.
• 17:57
  Speaker 2: Tell us a little bit about that experience. What's the
• 18:01
  Speaker 2: course like and what are the students like at at
• 18:04
  Speaker 2: Columbia Business School.
• 18:05
  Speaker 1: Well, it's it's their architecture school. It's the Masters in
• 18:09
  Speaker 1: real Estate.
• 18:10
  Speaker 2: So not business school, architecture.
• 18:11
  Speaker 1: Architecture school. It's Masters in real Estate Development. And so
• 18:17
  Speaker 1: my students are mostly in there, you know, twenty three
• 18:21
  Speaker 1: to twenty nine, super smart and very eager to get
• 18:27
  Speaker 1: into the business. And so what it has allowed me
• 18:32
  Speaker 1: as a venue. I teach every summer. It's not year round.
• 18:37
  Speaker 1: I usually have about one hundred and fifty students. During
• 18:39
  Speaker 1: when we were zooming, during the pandemic, I had like
• 18:41
  Speaker 1: one hundred and ninety. Which there's a lot of icons
• 18:45
  Speaker 1: on your zoom screen.
• 18:46
  Speaker 2: Right you go five or panels in.
• 18:48
  Speaker 1: But the program is fantastic and I I'm one of
• 18:53
  Speaker 1: those people that run up and down the.
• 18:54
  Speaker 2: Aisles, you know, high five students.
• 18:57
  Speaker 1: Yeah, talking. And the other sort of secret passion is
• 19:02
  Speaker 1: I get to tell the same dad jokes every year
• 19:05
  Speaker 1: because they haven't heard them before or they have, but
• 19:08
  Speaker 1: not for me.
• 19:08
  Speaker 2: It's a whole new crop of new audience.
• 19:11
  Speaker 1: Victims, well students, right, and uh and and and what
• 19:15
  Speaker 1: it's what there's nothing better than talking about a topic
• 19:19
  Speaker 1: that you're really comfortable with and really smart people ask
• 19:24
  Speaker 1: you questions that cause you to maybe, you know, think
• 19:27
  Speaker 1: a little bit differently about the solution or whatever. I
• 19:31
  Speaker 1: just I just love the experience. Columbia has been very
• 19:33
  Speaker 1: good to me, and you know, and and I appreciate it.
• 19:37
  Speaker 1: And the thing that I like most about it is,
• 19:43
  Speaker 1: you know, by the end of the class and you're asking,
• 19:45
  Speaker 1: you're asking questions like they'll answer in Unison, you know,
• 19:49
  Speaker 1: one hundred and fifty students like like it's like locked
• 19:51
  Speaker 1: into their brain and there's not It's totally.
• 19:55
  Speaker 2: Satisfying that sounds.
• 19:56
  Speaker 1: And I've been doing it for about five years. And
• 20:00
  Speaker 1: my ritual was and they wooed me for like they
• 20:03
  Speaker 1: spent like a year and a half, like taking me
• 20:05
  Speaker 1: out to lunch and say you'd be perfect and say
• 20:07
  Speaker 1: you have sure you have the right Jonathan Miller. And
• 20:11
  Speaker 1: then I did it. And I remember I used to
• 20:17
  Speaker 1: call my father when he was alive. I'd call him
• 20:18
  Speaker 1: in the beginning of the class and say, hey, Dad,
• 20:20
  Speaker 1: I just taught my class and he said, Jonathan, you're
• 20:23
  Speaker 1: so respectable, And I'm like, what do you mean, wasn't
• 20:26
  Speaker 1: I respectable before like, is this like put me over
• 20:29
  Speaker 1: the top.
• 20:30
  Speaker 2: The official im premature of society is, oh, a professor
• 20:34
  Speaker 2: in an ivy League school, you have to be respectable, right,
• 20:38
  Speaker 2: fun stuff. So, what's the state of real estate in
• 20:42
  Speaker 2: the United States? What's going on?
• 20:44
  Speaker 1: Well, what I wanted to sort of comes to mind
• 20:47
  Speaker 1: is something that hasn't really happened in a significant way
• 20:52
  Speaker 1: in the real estate industry. But there is multiple listing
• 20:56
  Speaker 1: systems across the United States which are essentially a a
• 21:00
  Speaker 1: database for real estate agents and you know, for managing listings.
• 21:05
  Speaker 2: Who controls that monopoly.
• 21:08
  Speaker 1: The real estate brokerage community.
• 21:10
  Speaker 2: National Association realtors they own.
• 21:12
  Speaker 1: They control about fifty percent of them. There's also a
• 21:16
  Speaker 1: contingent that are anti uh you know, but but it
• 21:20
  Speaker 1: is it is a product of the brokerage community and
• 21:23
  Speaker 1: it is an essential tool to them. And so this
• 21:29
  Speaker 1: recently one of the big there's three or four major
• 21:33
  Speaker 1: software companies that drive the MLS systems. Core Logic is
• 21:38
  Speaker 1: one of them, with Matrix, there's Flex MLS and a
• 21:42
  Speaker 1: big one is also Rapatoni and Rapatoni uh just had
• 21:47
  Speaker 1: a ransomware attack and they power MLS systems. Like in
• 21:53
  Speaker 1: the Midwest, like Cincinnati and San Francisco and a few
• 21:58
  Speaker 1: other markets, and they can't you know, they're stuck sort
• 22:03
  Speaker 1: of like what happened in I think it was Suffolk County,
• 22:06
  Speaker 1: the ransomware attack on public records, where these people make
• 22:10
  Speaker 1: a living out of using MLS systems and they don't
• 22:14
  Speaker 1: have access or there's lots of problems. And I just
• 22:17
  Speaker 1: thought about you know, you know, big data and the
• 22:20
  Speaker 1: real estate community, and then you start seeing the you know,
• 22:23
  Speaker 1: there's more things go online, you're more vulnerable to attack,
• 22:27
  Speaker 1: and and that's a real problem for.
• 22:30
  Speaker 2: So I imagine things like Zillow and Redfinn are almost
• 22:34
  Speaker 2: powered by MLS.
• 22:35
  Speaker 1: Is that like they get their data you know, various ways,
• 22:40
  Speaker 1: but yeah, you know, like it could create who knows
• 22:43
  Speaker 1: how long this this will go go on, and and
• 22:49
  Speaker 1: it's you know, the MLS looks bad because hey, you
• 22:53
  Speaker 1: got you know, shut down.
• 22:54
  Speaker 2: But anybody could get hacked.
• 22:55
  Speaker 1: But anybody could get hacked, right, So there's no real
• 22:59
  Speaker 1: answer yet what they're going to do. And I just
• 23:01
  Speaker 1: I've never heard of a situation where you know, you know,
• 23:06
  Speaker 1: that's going to really impact the transactional volume in these markets.
• 23:11
  Speaker 2: Huh, amazing we're talking with Jonathan Miller about the state
• 23:15
  Speaker 2: of US real estate. So, so Jonathan, tell us what's
• 23:19
  Speaker 2: going on in the United States with residential real estate
• 23:23
  Speaker 2: right now.
• 23:23
  Speaker 1: The focus has been, you know, the the inventory challenge
• 23:27
  Speaker 1: and the doubling of mortgage rates. I remember in the
• 23:31
  Speaker 1: beginning of the FED pivot now a little over a
• 23:34
  Speaker 1: year ago now, where you know, we started to see
• 23:36
  Speaker 1: rates go up. There was this thinking within the real
• 23:41
  Speaker 1: estate community or just people that sort of you know,
• 23:45
  Speaker 1: tracked real estate, weren't necessarily brokers, that we were going
• 23:49
  Speaker 1: to see, you know, when rates fall again, then everything
• 23:52
  Speaker 1: is just going to go back to normal. And it's like,
• 23:56
  Speaker 1: you know, that doesn't seem to be on the horizon.
• 23:59
  Speaker 1: Golvin's acxious came out and said, you know, maybe we'll
• 24:03
  Speaker 1: see rate cuts by the second quarter of next year,
• 24:08
  Speaker 1: but they're not rate cuts that bring it from seven
• 24:11
  Speaker 1: to three. They're rate cuts that bring it from seven
• 24:14
  Speaker 1: to maybe six or high fives.
• 24:18
  Speaker 2: That's assuming Goldman is right correct. Everybody's been forecasting incorrectly
• 24:23
  Speaker 2: about recessions about rate cuts. So let's talk a bit
• 24:26
  Speaker 2: about I want to talk about rates, and I want
• 24:29
  Speaker 2: to talk about supply. Let's start with rates. So two
• 24:33
  Speaker 2: years ago, not even a year and a half ago,
• 24:35
  Speaker 2: mortgages thirty or fixed you could get as low as
• 24:38
  Speaker 2: two point seventy five. Now they're about seven and a
• 24:41
  Speaker 2: half percent. How big of an impact has this had
• 24:46
  Speaker 2: on prices, on transaction volume, and on inventory for sale?
• 24:51
  Speaker 1: So the idea that a rapid slowdown in sales, that's
• 24:57
  Speaker 1: the first. You know, sales, generally, depending on the markets,
• 25:00
  Speaker 1: are down twenty to forty percent every year, but transaction
• 25:04
  Speaker 1: volume units that's sold. But it's important to remember that
• 25:07
  Speaker 1: a year ago was a rocket ship. You know it was.
• 25:10
  Speaker 1: It was an anomal historical anomaly.
• 25:12
  Speaker 2: It wasn't in anticipation of rising rates. A lot of
• 25:14
  Speaker 2: people bought and sold property.
• 25:17
  Speaker 1: In a significantly higher volume than would be considered a
• 25:22
  Speaker 1: normal volume in every market. And and so we're coming
• 25:26
  Speaker 1: off of that high. So year year comparisons make it
• 25:30
  Speaker 1: look like, you know, you're down forty percent, but you
• 25:32
  Speaker 1: were up fifty eighty percent a year ago over the
• 25:36
  Speaker 1: prior year.
• 25:37
  Speaker 2: Rue, So what does this look like compared to the
• 25:39
  Speaker 2: pre pandemic average?
• 25:41
  Speaker 1: Where are we We're depending on the market, we're generally
• 25:44
  Speaker 1: about compared to say, second quarter nineteen compared to second
• 25:49
  Speaker 1: quarter of this year, we're down about, you know, in
• 25:52
  Speaker 1: the twenty to thirty percent range from normal. What's really
• 25:57
  Speaker 1: interesting in what is so different is, yes, you have
• 26:02
  Speaker 1: sales drop, so normally you'd expect inventory to rise. If
• 26:06
  Speaker 1: you look across Florida inventory compared to pre pandemic, which
• 26:09
  Speaker 1: became my alternative metric to year over year because the
• 26:14
  Speaker 1: distortion that has occurred in twenty twenty one two and
• 26:19
  Speaker 1: early well really early twenty three has been significant. So
• 26:25
  Speaker 1: in Florida and almost almost every market, inventory is more
• 26:30
  Speaker 1: than sixty percent less than pre pandemic. Amazing, And as
• 26:35
  Speaker 1: a result, you can argue, well, sales are down twenty
• 26:38
  Speaker 1: five percent, so you say, you know, hey, it's mortgage
• 26:42
  Speaker 1: rates have doubled. Well, it's also because you have dramatically
• 26:45
  Speaker 1: less product. And then on an anecdotal level, just in
• 26:49
  Speaker 1: sort of ground level chatter and various markets that I
• 26:53
  Speaker 1: connect with that the product that's coming in back to
• 26:58
  Speaker 1: your like, how long does it take a sell or
• 27:00
  Speaker 1: to capitulate to market conditions? The product that's coming in
• 27:04
  Speaker 1: is priced like it's still the boom, and so you know,
• 27:08
  Speaker 1: and it takes one to two years for a seller
• 27:11
  Speaker 1: typically or a developer to capitulate to the current market,
• 27:15
  Speaker 1: you know, because what do they do? They just don't sell?
• 27:17
  Speaker 1: They wait, it's going to get better.
• 27:19
  Speaker 2: There are no signs of capitulation out there, are they.
• 27:21
  Speaker 1: There's we're starting to see a little bit, but not
• 27:26
  Speaker 1: not in any significant way. I'd say, you know, we
• 27:29
  Speaker 1: were a year in, so I'd say we're going to
• 27:32
  Speaker 1: start seeing it in terms of better pricing over this
• 27:36
  Speaker 1: next year. But nothing dramatic would be my guess.
• 27:39
  Speaker 2: So let's come back to this inventory question. There are
• 27:42
  Speaker 2: two issues there I want to go over. One is
• 27:47
  Speaker 2: the footprint of people with you know, golden handcuff mortgages.
• 27:54
  Speaker 2: The data point I read recently sixty one percent of
• 27:58
  Speaker 2: homeowners with a house with a mortgage have a rate
• 28:01
  Speaker 2: that's at four percent or under correct. What does that
• 28:05
  Speaker 2: mean These people just aren't putting their houses up for
• 28:08
  Speaker 2: sealing a well?
• 28:09
  Speaker 1: I think first of all, the first thing that tells
• 28:11
  Speaker 1: you is that if mortgage rates drift meaningfully lower, and
• 28:15
  Speaker 1: by meaningful I mean you know in the high fives
• 28:18
  Speaker 1: certainly I'm not talking about fours or three percent range,
• 28:22
  Speaker 1: then you're going to see inventory enter the market.
• 28:24
  Speaker 2: Which would be good for inflation, and good.
• 28:26
  Speaker 1: For good for inflation, good for you know, pricing for
• 28:30
  Speaker 1: new homeowners because there'll be more competition, and and frankly,
• 28:36
  Speaker 1: at this time, the only thing I see of bringing
• 28:41
  Speaker 1: rates down, you know, besides a recession, which you know,
• 28:45
  Speaker 1: we've been forecasting a recession in the next six months
• 28:48
  Speaker 1: for the last couple of years, is you know, the
• 28:51
  Speaker 1: idea that we're going to see you know, the FED
• 28:54
  Speaker 1: at some point, perhaps soon, is going to stop, you know,
• 29:00
  Speaker 1: pushing rates higher. And when they do, and if they
• 29:03
  Speaker 1: stay still for you know, three four months, I think
• 29:07
  Speaker 1: you're going to see mortgage rates drift lower, but not correct,
• 29:12
  Speaker 1: not drop sharply. And I think that's going to bring
• 29:16
  Speaker 1: more inventory into the market, but still it'll be far inadequate.
• 29:20
  Speaker 1: The interesting thing about the state of inventory today is
• 29:25
  Speaker 1: you know, normally new construction accounts for ten to fifteen
• 29:30
  Speaker 1: percent of total inventory. That's true for Manhattan, it's true
• 29:34
  Speaker 1: for the nation. And now you have sub markets where
• 29:40
  Speaker 1: new construction is like fifty percent of inventory because there's
• 29:44
  Speaker 1: no there's there's and fifty percent existing because the existing
• 29:47
  Speaker 1: has collapsed.
• 29:48
  Speaker 2: Right, So let's talk about new inventory because that's something
• 29:52
  Speaker 2: I've been railing about for a while. Post Great Financial Crisis,
• 29:58
  Speaker 2: home builders were felt burnt because they were building a
• 30:01
  Speaker 2: lot of houses, they were speculating. A lot of them
• 30:03
  Speaker 2: got caught leaning the wrong way and they kind of
• 30:06
  Speaker 2: pivoted to away from single family homes towards multi family
• 30:10
  Speaker 2: and apartments. And if you look at a chart on
• 30:14
  Speaker 2: new home sales going back to the two thousands, it's
• 30:18
  Speaker 2: pretty apparent new home construction collapsed for the better part
• 30:23
  Speaker 2: of the decade that followed the financial crisis, which raises
• 30:27
  Speaker 2: the question, how short are we of new homes relative
• 30:33
  Speaker 2: to where we would have been without all the craziness
• 30:35
  Speaker 2: in the two thousands following the financial crisis? What is
• 30:41
  Speaker 2: the shortfall of homes that should have been built in
• 30:45
  Speaker 2: the twenty tens?
• 30:46
  Speaker 1: Yeah, millions, millions, And.
• 30:48
  Speaker 2: So the National Socition and Realtors have a number. Of
• 30:51
  Speaker 2: the National Association of home Builders, they're like four or five.
• 30:55
  Speaker 2: The Architectural Group, I forget the name, they all have
• 30:58
  Speaker 2: thrown out numbers two, three, four, five million home short
• 31:02
  Speaker 2: for that seems huge.
• 31:04
  Speaker 1: But it's actually probably worse than that.
• 31:07
  Speaker 2: In the population growth.
• 31:10
  Speaker 1: Yes, well, no, it's it's more more because if you
• 31:15
  Speaker 1: look at the product that is being built in all
• 31:17
  Speaker 1: the national home builders in the last ten years, they've
• 31:20
  Speaker 1: really there's been a lot of pivoting to higher end homes,
• 31:23
  Speaker 1: luxury homes, and so when you look at just raw units,
• 31:27
  Speaker 1: they're skewed higher end. So I'd say there's a much
• 31:31
  Speaker 1: more severe inventory challenge for starter homes first time buyers.
• 31:37
  Speaker 1: Then we really give credit for it that it's the
• 31:41
  Speaker 1: product mix has skewed higher end. Why has that happened
• 31:45
  Speaker 1: because primarily land sales, right, I mean, you know, land
• 31:50
  Speaker 1: appreciates and improvements depreciate, right, the way you should think
• 31:54
  Speaker 1: of it, land is what appreciates, and I think we're
• 31:58
  Speaker 1: now seeing a lot of home builders gobble up land
• 32:03
  Speaker 1: to sort of anticipate the next wave.
• 32:05
  Speaker 2: I'm shocked when I play around with Zillo. Everybody loves
• 32:08
  Speaker 2: the Zillo surf, and the percentage of homes for sales
• 32:13
  Speaker 2: are essentially lots with new construction on ye and it's
• 32:17
  Speaker 2: not you know, and they'll they'll build it to suit,
• 32:20
  Speaker 2: but you're not buying a house, You're buying a piece
• 32:23
  Speaker 2: of land and a builder, right, And that seems to
• 32:26
  Speaker 2: be especially in parts of Florida. The Hampton's that that
• 32:29
  Speaker 2: seems to be a wildly disproportionate amount of.
• 32:34
  Speaker 1: It's not of inventory, it's it's not conducive for a
• 32:37
  Speaker 1: first time home buyer environment, you know, to do that
• 32:41
  Speaker 1: because of lending challenges. The other thing I thought was,
• 32:45
  Speaker 1: you know, the numbers that have come out, I may,
• 32:48
  Speaker 1: I don't know if I have this exactly right, but
• 32:51
  Speaker 1: that the number of homeowners in the US with a
• 32:54
  Speaker 1: without a mortgage is like thirty five percent.
• 32:57
  Speaker 2: Pretty big. It's so it's everybody who does cash purchase
• 33:00
  Speaker 2: and every.
• 33:00
  Speaker 1: Which towards investors and then long term homeowners where they've
• 33:05
  Speaker 1: paid down the mortgage. But you know, so you think
• 33:10
  Speaker 1: about transactional volume is being restrained by high mortgage rates.
• 33:15
  Speaker 1: But you you do have a large cohort of the
• 33:18
  Speaker 1: housing inventory that is or a potential inventory that doesn't
• 33:23
  Speaker 1: have a mortgage issue with it, which I think is
• 33:28
  Speaker 1: something that's probably not understood.
• 33:30
  Speaker 2: So so how many new homes have to be built
• 33:33
  Speaker 2: to sort of stabilize demand for both starter homes and
• 33:39
  Speaker 2: move up homes versus the inventory.
• 33:41
  Speaker 1: That well, it's funny I interface a lot with the
• 33:46
  Speaker 1: affordable housing industry here in New York because our research
• 33:52
  Speaker 1: is you know, open market. It's not you know, we're
• 33:56
  Speaker 1: not looking at subsidized housing or anything along that line.
• 33:59
  Speaker 1: And uh, the mantra when you talk about like how
• 34:02
  Speaker 1: many more to build, the answer across the board is
• 34:05
  Speaker 1: I don't know, but a ton.
• 34:06
  Speaker 2: More like literally millions of new homes.
• 34:09
  Speaker 1: Yes, like you know that that this is this is
• 34:12
  Speaker 1: the this is the problem.
• 34:14
  Speaker 2: So let's talk about a specific new home building problem.
• 34:18
  Speaker 2: How difficult are zoning regulations, Health Department, Department of Environmental Conversation, conservation,
• 34:26
  Speaker 2: just general nimby to the ability to put up a
• 34:30
  Speaker 2: decent number of houses.
• 34:31
  Speaker 1: It's significantly challenging. What I find, just maybe as a
• 34:36
  Speaker 1: sidebar to this is on top of that, when you
• 34:39
  Speaker 1: think of things like flood insurance and the cost of
• 34:41
  Speaker 1: flood insurance, FEMA prices flood insurance basically at a level
• 34:47
  Speaker 1: that the private market can't compete. And so in many ways,
• 34:51
  Speaker 1: the federal government is encouraging development in in flood zones.
• 34:55
  Speaker 1: In flood zones, and flood zones are not just on
• 34:59
  Speaker 1: the coastline. You know, we're seeing dramatic where we were
• 35:02
  Speaker 1: seeing dramatic flooding problems in the northeast Inland.
• 35:06
  Speaker 2: Uh what just happened in Vermont and Hampshire. They got
• 35:09
  Speaker 2: slaughtered up there.
• 35:10
  Speaker 1: Yeah. So I know, I see ads on TV for
• 35:13
  Speaker 1: FEMA and it's cheap, and I'm like that that seems
• 35:18
  Speaker 1: counter to sort of public safety. You know, a dozen
• 35:23
  Speaker 1: or almost a dozen years ago, when we had Superstorm
• 35:26
  Speaker 1: Sandy hit, you know, one of the by products I know,
• 35:29
  Speaker 1: I'm going off on a tangent.
• 35:31
  Speaker 2: Well a decade ago that was a that destroyed huge
• 35:33
  Speaker 2: swaths of Jersey and New York and just up and down.
• 35:36
  Speaker 1: All the Long Island, the south shore, and uh, what
• 35:41
  Speaker 1: came out of that is a lot of product that
• 35:43
  Speaker 1: was destroyed was middle class housing and so the resulting
• 35:48
  Speaker 1: product on the waterline. And they rewrote the the FEMA
• 35:55
  Speaker 1: maps for the New York City metro area, making them
• 35:59
  Speaker 1: much much bigger coverage area. And politically it was shot
• 36:03
  Speaker 1: down because it would make it more expensive. And what
• 36:08
  Speaker 1: we saw in parallel to that is that, you know,
• 36:12
  Speaker 1: say you had two modest houses on the shore south
• 36:16
  Speaker 1: shore of Long Island that were destroyed, investors who come
• 36:20
  Speaker 1: in and buy both lots and build one big house.
• 36:24
  Speaker 1: And that's that's been you know, after significant flooding events
• 36:28
  Speaker 1: like in Fort Myers. You know, that's what you're seeing
• 36:32
  Speaker 1: come back. It's you know, the existing sort of middle class,
• 36:37
  Speaker 1: modest housing is destroyed and those homeowners can't build.
• 36:42
  Speaker 2: What I've noticed on the south shore of Long Island,
• 36:45
  Speaker 2: both in Nassau County and out in the Hampton's is
• 36:48
  Speaker 2: when you are rebuilding a destroyed house, seems the rules
• 36:52
  Speaker 2: are you have to elevate that house, yes, ten or
• 36:55
  Speaker 2: thirteen like substantial, like a whole flight of stairs up
• 36:58
  Speaker 2: and every that's underneath that is just outdoor storage essentially
• 37:03
  Speaker 2: correct with breakaway walls, but cement pilings holding the house
• 37:08
  Speaker 2: up on the assumption that there's going to be another
• 37:12
  Speaker 2: storm that will raise water levels five.
• 37:15
  Speaker 1: And that's how they can continue to get flood insurance.
• 37:17
  Speaker 1: So neighborhood where I used to live, the neighborhood next
• 37:22
  Speaker 1: to me in the next town over was on the water.
• 37:25
  Speaker 1: We kept our boat there and you'd see a house
• 37:29
  Speaker 1: that was, you know, normally just sitting where it was
• 37:32
  Speaker 1: sitting before sandy, and then you saw the houses on
• 37:35
  Speaker 1: either side were like on ten foot pilings. Imagine the
• 37:39
  Speaker 1: garage now on the second floor right.
• 37:42
  Speaker 2: Well, a lot of these houses, no basements, no garages, right,
• 37:45
  Speaker 2: but there's a like a car port, right, the assumption
• 37:48
  Speaker 2: that if your car gets washed away, Hey.
• 37:50
  Speaker 1: It is what it is. It just but it was
• 37:52
  Speaker 1: almost comical to see all these garages on the second
• 37:55
  Speaker 1: floor and you can't really get your car up there.
• 37:57
  Speaker 1: So it's obviously going to be redesigned and made into
• 38:01
  Speaker 1: some of these.
• 38:01
  Speaker 2: So these are existing houses, Like think.
• 38:04
  Speaker 1: Of a raised ranch with a two car garage on
• 38:06
  Speaker 1: the side. Now the whole thing gets raised up to
• 38:09
  Speaker 1: the second floor, so it's really a three story structure, right,
• 38:14
  Speaker 1: pilings and place to park your car the first floor
• 38:17
  Speaker 1: which is now the second floor, which is where the
• 38:19
  Speaker 1: garage was. And uh so you got to think the
• 38:24
  Speaker 1: data is not definitive yet, but the house that's in
• 38:27
  Speaker 1: between these two properties is going to be punished in
• 38:33
  Speaker 1: value because the buyer, you know, if they want to
• 38:37
  Speaker 1: have flood coverage, they have to elevate or raise the house.
• 38:40
  Speaker 2: Huh, that's amazing that there's a house near by. When
• 38:44
  Speaker 2: my in laws live out in the Hampton's and I'm like,
• 38:47
  Speaker 2: I'd like to take a look at that house. So
• 38:49
  Speaker 2: Saturday morning, I call the agent and or I do
• 38:54
  Speaker 2: an online request I'd like to see the house, and
• 38:57
  Speaker 2: the text comes back the seller requires twenty four hours notice.
• 39:02
  Speaker 2: And I just remember my mom saying, Hey, a buyer
• 39:06
  Speaker 2: wants to come look at your house. I don't care
• 39:07
  Speaker 2: if you haven't a wedding. Send everybody their story over
• 39:12
  Speaker 2: the house show. Of course, you don't know if that's
• 39:14
  Speaker 2: the right buyer for your house.
• 39:15
  Speaker 1: Correct.
• 39:15
  Speaker 2: And I was like, well, you know, we could try tomorrow,
• 39:18
  Speaker 2: but you know, let us know. They get back to
• 39:21
  Speaker 2: us on Wednesday. Yeah, and I'm like, we already have
• 39:24
  Speaker 2: an offer in on another house, but thanks.
• 39:27
  Speaker 1: Yeah for the call. And yeah, because because really, especially
• 39:32
  Speaker 1: even more so today than a year or two ago,
• 39:35
  Speaker 1: you have to be bend over backwards in a position
• 39:40
  Speaker 1: as a seller to be accommodating. You don't control well,
• 39:45
  Speaker 1: I shouldn't say that you do, because there's a short
• 39:48
  Speaker 1: of of listings. You still have control of the transaction
• 39:53
  Speaker 1: in that sense, but it's you don't have the same
• 39:56
  Speaker 1: level of control you had a year year and a
• 39:58
  Speaker 1: half ago, but not a that as your mother was
• 40:02
  Speaker 1: very very accurate in her assessment. You shouldn't think that way,
• 40:06
  Speaker 1: you know, unless.
• 40:07
  Speaker 2: It evinces the wrong attitude for a seal listen. I've
• 40:10
  Speaker 2: owned a bunch of property in and about New York
• 40:13
  Speaker 2: over the years. I've had some terrible sellers we've purchased
• 40:17
  Speaker 2: from walked away from deals. There are other sellers that
• 40:20
  Speaker 2: but from my wife, the deal never would have gone through.
• 40:23
  Speaker 2: And there have been other sellers who've been and buyers
• 40:26
  Speaker 2: who've been a pleasure to deal with, Like I wish
• 40:28
  Speaker 2: I had another house to sell. You. You've been a delight.
• 40:32
  Speaker 2: And so when the first like it just rubbed me
• 40:35
  Speaker 2: the wrong way. They require twenty four hours notice. Yeah,
• 40:39
  Speaker 2: that's to show a house on a weekend. Hey tell
• 40:44
  Speaker 2: you what, Let's have this conversation again in six months,
• 40:47
  Speaker 2: and maybe I'm wrong and you'll get more than the
• 40:49
  Speaker 2: three million ask, which is crazy for this house, or
• 40:54
  Speaker 2: maybe you'll realize you made a mistake. But the process
• 40:57
  Speaker 2: is just like, oh, from right out of the gate,
• 41:00
  Speaker 2: you're going to be difficult. I don't have time for
• 41:02
  Speaker 2: seal that.
• 41:03
  Speaker 1: Well, it's funny, you know, in this in this market,
• 41:05
  Speaker 1: like we sold right as the market pivoted. I remember,
• 41:08
  Speaker 1: and my wife always kids me about being overly eager
• 41:14
  Speaker 1: to pay full retail. And so we went into the
• 41:18
  Speaker 1: house that we ended up buying. We ended up paying
• 41:24
  Speaker 1: that we beat thirty people.
• 41:26
  Speaker 2: You paid way over ass only.
• 41:28
  Speaker 1: Thirty six percent.
• 41:31
  Speaker 2: Although I did they price it low to yes, I
• 41:34
  Speaker 2: think frenzy and you you gave it a straight up appraisal.
• 41:38
  Speaker 1: Yeah, I thought it was about fifteen percent underpriced and.
• 41:42
  Speaker 2: You overpaid by fifteen percent.
• 41:44
  Speaker 1: Right, right, And but I don't really care.
• 41:49
  Speaker 2: Is the house you're going to live in for the
• 41:50
  Speaker 2: rest of your life, You're done.
• 41:51
  Speaker 1: It's just giving me a long time. And also too,
• 41:54
  Speaker 1: we just absolutely love it. And I've never looked at
• 41:56
  Speaker 1: it as an investment vehicle housing itself. It's just a
• 42:00
  Speaker 1: slow moving asset. And right, I in fact, the last
• 42:04
  Speaker 1: three houses I haven't paid under the ask we had
• 42:08
  Speaker 1: interesting yeah, yeah, because of the timing that it came on,
• 42:12
  Speaker 1: and it was like, you know, I always seem to
• 42:15
  Speaker 1: we're ready to move, like we became empty nesters. That's
• 42:18
  Speaker 1: why we moved this last time. Our four kids are
• 42:20
  Speaker 1: all gainfully employed and you know, out of the house
• 42:22
  Speaker 1: and out of the house and uh, and we wanted
• 42:24
  Speaker 1: to live a little bit more in the country and
• 42:27
  Speaker 1: so it was just perfect. But it was like for
• 42:30
  Speaker 1: shock value always you know, I always own it. You
• 42:32
  Speaker 1: know and say, hey, you know, we overpaid.
• 42:35
  Speaker 2: And over the court. Here's the crazy thing, especially if
• 42:38
  Speaker 2: you're rolling out of a similarly priced house. Yeah in
• 42:42
  Speaker 2: the and I've had this argument with my kid brother,
• 42:44
  Speaker 2: who you know, he just looks at the transit. It
• 42:47
  Speaker 2: looks at a very transactional yeah, and every dollars and
• 42:51
  Speaker 2: cents and I'm like, think about it. If you're in
• 42:53
  Speaker 2: that house for twenty years and you overpaid twenty percent
• 42:57
  Speaker 2: in the grand scheme of.
• 42:58
  Speaker 1: Things, does it matter.
• 42:59
  Speaker 2: It's really not seeing people have a very hard time
• 43:03
  Speaker 2: wrapping their head around that. Nobody wants to overpay for anything.
• 43:08
  Speaker 2: But this isn't a car or a piece of furniture
• 43:11
  Speaker 2: that right, This is where you're going to live, where
• 43:15
  Speaker 2: your homestead is going to be, where your heart is
• 43:19
  Speaker 2: for you know, the next couple of decades, a couple
• 43:22
  Speaker 2: of bucks one way or another. And I know that
• 43:24
  Speaker 2: sounds flippant, but it isn't.
• 43:26
  Speaker 1: No, I mean that's how we thought about it. It
• 43:29
  Speaker 1: was perfect. And we were joking because our old house
• 43:34
  Speaker 1: was built in eighteen twenty five and this one's built
• 43:36
  Speaker 1: in seventeen fifty five.
• 43:38
  Speaker 2: You're running out of centuries to buy house, right, we
• 43:41
  Speaker 2: wanted to take. Next one is sixteen.
• 43:43
  Speaker 1: We really wanted to get something that was built before
• 43:45
  Speaker 1: the US was a country.
• 43:47
  Speaker 2: So let's talk a little bit about the rethink that
• 43:52
  Speaker 2: the pandemic caused, how it changed our relationship with real estate,
• 43:58
  Speaker 2: work price. This is where to even begin. It's just
• 44:02
  Speaker 2: such a giant topic. Is it safe to say the
• 44:06
  Speaker 2: pandemic caused us to rethink everything about real estate?
• 44:09
  Speaker 1: I think that's a fair description. In fact, I think
• 44:12
  Speaker 1: the easiest way to sort of start talking about the
• 44:15
  Speaker 1: sub subject is the idea that zoom became ubiquitous within
• 44:21
  Speaker 1: twenty four hours after the lockdown. Suddenly everybody in the
• 44:25
  Speaker 1: world knew what zooming was, and you'd probably never heard
• 44:28
  Speaker 1: of the software beforehand. While there had certainly been there's
• 44:32
  Speaker 1: other video products, this was far easier to navigate and
• 44:37
  Speaker 1: it became part of our culture almost overnight. And so
• 44:42
  Speaker 1: as a result, it changed what I call I described
• 44:46
  Speaker 1: as the tether between work and home that normally, when
• 44:50
  Speaker 1: people majority of people that are buying homes and aren't
• 44:53
  Speaker 1: retired are thinking about the commute and how far away
• 44:59
  Speaker 1: and uh, and that all got thrown out and we're
• 45:03
  Speaker 1: rethinking it to the point where you know, we've seen
• 45:07
  Speaker 1: people move farther from the city. I'm one of those
• 45:10
  Speaker 1: people where I don't go into the city as much
• 45:12
  Speaker 1: as I did. There are people that that you know,
• 45:17
  Speaker 1: love still working five days a week, and there's people
• 45:20
  Speaker 1: that don't want to work at all in the city.
• 45:22
  Speaker 1: You know, in the in the office, it's not it's.
• 45:25
  Speaker 2: Not the work, and it's not even the office. It
• 45:28
  Speaker 2: seems to be the commute. It's the kid the biggest problem.
• 45:32
  Speaker 2: And I think the pandemic kind of made us realize
• 45:37
  Speaker 2: a lot of us have a too long commute and
• 45:39
  Speaker 2: an uncomfortable commute. And when you're shopping for a house,
• 45:43
  Speaker 2: she kind of imagined, well, I'm forty seven minutes away
• 45:46
  Speaker 2: from door to Then you actually do it day to
• 45:49
  Speaker 2: day and there are delays and there are misconnections all
• 45:52
  Speaker 2: this and what was supposed to be a forty seven
• 45:54
  Speaker 2: minute commute is really an hour and ten minutes and
• 45:57
  Speaker 2: that adds up ten times.
• 45:59
  Speaker 1: It's time out of your life that you can't get back.
• 46:02
  Speaker 2: That's gone.
• 46:03
  Speaker 1: The other thing I think right away, uh, the the
• 46:07
  Speaker 1: sort of stereotypical description of work from home was suburb
• 46:11
  Speaker 1: to city. You know, people moved out of the city,
• 46:14
  Speaker 1: they bought you know, they they lived with relatives, or
• 46:17
  Speaker 1: they you know, bought houses or rented and then commuted
• 46:21
  Speaker 1: via zoom into their their job in the city. The
• 46:25
  Speaker 1: problem with that, first of all, it's completely misleading. Uh
• 46:28
  Speaker 1: there's I contend there's just as many people in the
• 46:31
  Speaker 1: Upper East Side of Manhattan that were we're doing work
• 46:35
  Speaker 1: from home as people that live in Westchester. I mean,
• 46:37
  Speaker 1: you know that that that the city people are committing
• 46:41
  Speaker 1: commuting in the city the same way. So it wasn't
• 46:45
  Speaker 1: about like the you know, driving in or taking the
• 46:47
  Speaker 1: train into the city so much as it was just
• 46:51
  Speaker 1: physically not going to work and working in your pajamas
• 46:55
  Speaker 1: or you know, just you know, totally.
• 46:56
  Speaker 2: A lot more flexibility, a lot, a lot easier feel,
• 47:01
  Speaker 2: and at least in the beginning of the pandemic, it
• 47:03
  Speaker 2: felt like, and maybe I'm projecting my own experience, it
• 47:07
  Speaker 2: felt like I was working more hours than I normally
• 47:11
  Speaker 2: would because I gave up, I gave up the commute,
• 47:14
  Speaker 2: I gave up bathing, I gave up getting dressed, roll
• 47:19
  Speaker 2: out of bed. You sit at your desk and my
• 47:21
  Speaker 2: wife would say, hey, you've been there for fourteen hours.
• 47:24
  Speaker 2: Time time and it's like we used to joke we
• 47:27
  Speaker 2: shower Saturday night, whether we need one or not. And
• 47:30
  Speaker 2: at a certain point she would come into the office,
• 47:33
  Speaker 2: the office upstairs, and say, listen, you got to open
• 47:37
  Speaker 2: some windows and add this room atcos it's getting ranking here.
• 47:41
  Speaker 2: I just picture that replayed all across the country. So listen.
• 47:46
  Speaker 2: I love going into I love being in the office.
• 47:49
  Speaker 2: I like work, but everything that takes you to listen,
• 47:54
  Speaker 2: I know people who commute from the Upper East Side
• 47:57
  Speaker 2: down to Wall Street, and it takes them about as
• 47:59
  Speaker 2: long to get to work as it does me coming
• 48:01
  Speaker 2: in from the burps.
• 48:02
  Speaker 1: Yeah.
• 48:03
  Speaker 2: Right, And it's just we we don't have the sort
• 48:06
  Speaker 2: of mass trends that they have in Europe.
• 48:08
  Speaker 1: Yeah, and I think, you know, there's there's people that
• 48:12
  Speaker 1: have the opinion that we're going to revert back to
• 48:17
  Speaker 1: let's call it four and a half days a week,
• 48:18
  Speaker 1: you know, where like you know, weekend schedules, people work
• 48:21
  Speaker 1: half days on Friday, but just you know, call it
• 48:24
  Speaker 1: four and a half days a week. And I contend that,
• 48:29
  Speaker 1: you know, we're probably you know, if I had to
• 48:31
  Speaker 1: make up a number, I'd say we're at two and
• 48:33
  Speaker 1: a half to three days a week as an average.
• 48:36
  Speaker 1: That's what we are in our company, and most of
• 48:39
  Speaker 1: the people I interact with, you know, it's it's it's
• 48:41
  Speaker 1: like a little less than three days. And the argument is,
• 48:46
  Speaker 1: first of all, that can vary by you know, industries
• 48:49
  Speaker 1: that are more collaborative. You know. The challenge is you can't.
• 48:54
  Speaker 1: It's harder to build corporate culture and to train new talent.
• 48:59
  Speaker 1: You kids, right, So that's a chance to do that
• 49:01
  Speaker 1: zone you can't. And so that is what's going to
• 49:04
  Speaker 1: be figured out over the next five to ten years.
• 49:06
  Speaker 1: I don't think that's there's a quick solution. And you
• 49:10
  Speaker 1: definitely have you know, some industries or some companies that
• 49:13
  Speaker 1: you know, want five days a week right now. And
• 49:16
  Speaker 1: so the idea is that you know, what I've heard
• 49:19
  Speaker 1: is like, hey, you're in a you know, we're going
• 49:22
  Speaker 1: into a recession or a week economic period. So therefore
• 49:24
  Speaker 1: everybody's going to go into work four and a half
• 49:26
  Speaker 1: days a week because they want FaceTime with their boss.
• 49:29
  Speaker 1: And you know, I just don't think that's it's not
• 49:35
  Speaker 1: realistic in my mind. I don't care whether the economy
• 49:38
  Speaker 1: is strong or weak, it's not going to be the same.
• 49:40
  Speaker 1: But you know, again, I think probably we're at a
• 49:45
  Speaker 1: period of time right now where it's you know, the
• 49:48
  Speaker 1: default is going to be more time in the office
• 49:51
  Speaker 1: than we have right now, but not much more.
• 49:54
  Speaker 2: So. Let's talk about some other impacts of the pandemic.
• 49:57
  Speaker 2: You you were one of the first people who wrote about, Hey,
• 50:02
  Speaker 2: the death of New York City has been greatly exaggerated.
• 50:05
  Speaker 2: And you know, every time there's a sale. I actually
• 50:09
  Speaker 2: just shared a silly article with you from the New
• 50:12
  Speaker 2: York Post earlier. Okay, all right, So there's a little
• 50:15
  Speaker 2: there's a town adjacent to where I live called Center Island,
• 50:18
  Speaker 2: small town, a couple of a couple of you know,
• 50:21
  Speaker 2: there's a few hundred houses on it, and the New
• 50:24
  Speaker 2: York Posts and Billy Joel lives there, and he just
• 50:26
  Speaker 2: listed his house for sale for forty nine million dollars
• 50:29
  Speaker 2: and it says just mass sales of houses on Center Island.
• 50:35
  Speaker 2: Who are they selling this way? Isn't this a mass
• 50:38
  Speaker 2: purchase of homes? Like every time I see see that
• 50:43
  Speaker 2: sort of argument. And we have a similar argument in
• 50:45
  Speaker 2: the stock market, all this cash on the sidelines. What
• 50:48
  Speaker 2: do you mean I sold the stock for one hundred dollars?
• 50:50
  Speaker 2: Somebody had to buy the stock for one hundred dollars
• 50:53
  Speaker 2: this exact same amount of cash as it was beforehand.
• 50:56
  Speaker 2: So how could there be massive selling if there isn't
• 50:58
  Speaker 2: a match of massive by.
• 51:00
  Speaker 1: Well, that New York Post is one that had that article.
• 51:04
  Speaker 1: That was just a brilliant move, you know, forgetting you know, attention,
• 51:10
  Speaker 1: because it was so you know, you have a nightclub
• 51:13
  Speaker 1: owner saying not only saying New York is dead, they
• 51:16
  Speaker 1: added new York is dead forever, right, like you know proclamation.
• 51:21
  Speaker 2: He'd say his name James Altoucher, Yeah, which ultimately led
• 51:25
  Speaker 2: to Jerry Seinfeld's counter argument and between al Tooscher and Seinfeld.
• 51:30
  Speaker 2: I'm in Seinfeld's camp absolutely. But now let's talk specifics
• 51:35
  Speaker 2: and let's put some meat on the bone. You discussed
• 51:39
  Speaker 2: how there's been a huge influx of purchasers and renters, yes,
• 51:45
  Speaker 2: of young people coming from other parts of the country,
• 51:48
  Speaker 2: other cities. What's going on in the in the New
• 51:51
  Speaker 2: York City real estate market.
• 51:53
  Speaker 1: Well, it's really interesting if you look at the census data,
• 51:55
  Speaker 1: because you know, I think you know, the term migration
• 51:59
  Speaker 1: can take, you know, all kinds of connotations in the
• 52:03
  Speaker 1: in the context of New York City. The concept of
• 52:06
  Speaker 1: net migration. You know, what's the what's the difference between
• 52:09
  Speaker 1: inbound and outbound? And in twenty twenty two, according to Census,
• 52:15
  Speaker 1: Manhattan had a net inbound matan Manhattan, other Burroughs had
• 52:21
  Speaker 1: a sharply a sharp drop in the outbounds, meaning that
• 52:25
  Speaker 1: everything got a lot better. The narrative is, and I
• 52:28
  Speaker 1: remember in the early days of the lockdown where if
• 52:34
  Speaker 1: I read and took every headline to heart, you know,
• 52:38
  Speaker 1: because the keywords, like you had told me years ago,
• 52:41
  Speaker 1: like if you put gold in your post title, you're
• 52:45
  Speaker 1: gonna get a lot of traffic, right, And the words
• 52:48
  Speaker 1: during the pandemic were exodus and the phrase fleeing the city, right,
• 52:54
  Speaker 1: And so I took it. As you know, this was
• 52:58
  Speaker 1: in the spring of twenty I was thinking, boy, if
• 53:02
  Speaker 1: all this is true, there's gonna be eleven people left
• 53:04
  Speaker 1: in Manhattan in the by the fall, which of course
• 53:07
  Speaker 1: was not the story. And we've seen it, you know,
• 53:11
  Speaker 1: And it creates this really confusing narrative because we have
• 53:16
  Speaker 1: office buildings that are fifty percent or less than fifty
• 53:21
  Speaker 1: percent used according to Castle card swipe data as sort
• 53:26
  Speaker 1: of a proxy for that, and then we have record
• 53:29
  Speaker 1: rental prices right where people are.
• 53:32
  Speaker 2: So only there was a solution to be worked out.
• 53:34
  Speaker 1: Right, right, So you know, the solution's talked about a
• 53:37
  Speaker 1: lot is this idea of converting unused office space to rentals.
• 53:43
  Speaker 2: Which post nine to eleven down in the Wall Street
• 53:47
  Speaker 2: area of New York. It took a couple of years,
• 53:50
  Speaker 2: but there was a massive conversion office to Now those
• 53:55
  Speaker 2: were older buildings.
• 53:56
  Speaker 1: Right, Class B or C.
• 53:57
  Speaker 2: Right now you have just so you have Midtown South,
• 54:01
  Speaker 2: you have Hudson Yards, you have the High Line, you
• 54:04
  Speaker 2: have Midtown proper. There's a ton of new office buildings
• 54:08
  Speaker 2: that you put up in the past decade.
• 54:10
  Speaker 1: But the numbers don't work like to convert them to residential.
• 54:16
  Speaker 1: Any developer will pretty much say that's not possible.
• 54:21
  Speaker 2: But on the marginal to me, after the bankruptcy sale,
• 54:24
  Speaker 2: see if it.
• 54:24
  Speaker 1: Makes more, Okay, So that's the next stage. So so
• 54:28
  Speaker 1: when you think about it, and you know, my company
• 54:30
  Speaker 1: was looking for new office space, we ended up staying
• 54:33
  Speaker 1: in the same space, got a great deal, build out
• 54:35
  Speaker 1: and all that. But what we found when we were
• 54:38
  Speaker 1: looking at we're looking at Class B. You know, there's
• 54:40
  Speaker 1: a B and C for those that aren't familiar, and
• 54:44
  Speaker 1: really the upper half of class A isn't going to
• 54:46
  Speaker 1: be impacted in significant way. It's the bottom half of
• 54:50
  Speaker 1: A and B and C. It's all bets are off right.
• 54:53
  Speaker 1: And the one thing that I didn't fully appreciate until
• 54:57
  Speaker 1: I went through sort of looking for space is that
• 55:00
  Speaker 1: many you know, we were talking about sellers capitulating to
• 55:03
  Speaker 1: the weaken market conditions in the office environment. Landlords, Many
• 55:08
  Speaker 1: landlords can't capitulate because the debt service. They can't cover
• 55:14
  Speaker 1: the debt service. So I think the way this is
• 55:17
  Speaker 1: going to play out, and it's already starting. You can
• 55:19
  Speaker 1: read about you read San Francisco, you can read in
• 55:22
  Speaker 1: New York City. What's happening is that we're going to
• 55:26
  Speaker 1: see a lot of a tremendous amount of office space
• 55:29
  Speaker 1: move from weak hands to strong hands.
• 55:32
  Speaker 2: And to keep in mind the people are concerned about
• 55:36
  Speaker 2: this being a systemic threat. I keep seeing these clickbait headlines.
• 55:40
  Speaker 2: Every one of these buildings is its own LLC, its
• 55:44
  Speaker 2: own corporation. Right, So if you're a giant real estate
• 55:47
  Speaker 2: trust and you own a thousand buildings and one building
• 55:51
  Speaker 2: is in trouble, well, if that building goes belly up,
• 55:53
  Speaker 2: it's like oops, sorry, and on to the next. So
• 55:56
  Speaker 2: now you're down to nine hundred and ninety nine buildings
• 55:58
  Speaker 2: and you don't have the troubles building. This can take
• 56:01
  Speaker 2: place in a very managed process where one building after
• 56:08
  Speaker 2: another moves from weekends.
• 56:09
  Speaker 1: To strong and that's where you could see you know,
• 56:13
  Speaker 1: more creative you know, adaptive reuse where the you know,
• 56:18
  Speaker 1: the new owner is able because they don't have the
• 56:21
  Speaker 1: same level of debt service.
• 56:24
  Speaker 2: So prices can come down or.
• 56:26
  Speaker 1: Coming down to market and you know, you can you know,
• 56:29
  Speaker 1: you know, think of other reuses of the property. What
• 56:34
  Speaker 1: I uh, you know what. Also a lot of people
• 56:36
  Speaker 1: don't realize don't think of it when they think of
• 56:38
  Speaker 1: this challenge is especially in midtown Manhattan where you have
• 56:43
  Speaker 1: these very big office buildings. The floor plates.
• 56:46
  Speaker 2: Too far from the windows to be right unless they
• 56:50
  Speaker 2: replace all those elevators with like interior courtyard.
• 56:53
  Speaker 1: Right right, or you know, they they they create you
• 56:57
  Speaker 1: know a court, you know, sort of like an al
• 57:00
  Speaker 1: you know, a center. They dig, they cut out, cut
• 57:03
  Speaker 1: through the floorest but that's very expensive, right, so so
• 57:06
  Speaker 1: there's ways around it. But it is not like one
• 57:08
  Speaker 1: of these hey, let's flip the switch. It because of
• 57:12
  Speaker 1: the debt service. It's gonna this is going to take
• 57:16
  Speaker 1: four or five years at a minimum to sort of
• 57:19
  Speaker 1: see it.
• 57:20
  Speaker 2: But it'll eventually. One assumes market forces will eventually rebalance
• 57:26
  Speaker 2: the demand for office space correct is falling, and the
• 57:29
  Speaker 2: demand for residential, which seems to be strong paining.
• 57:33
  Speaker 1: Yeah. Actually, the joke during the pandemic is Manhattan's just
• 57:37
  Speaker 1: becoming all residential, right, Everything's going to convert to residential.
• 57:41
  Speaker 1: That was sort of the thinking.
• 57:44
  Speaker 2: Think about how crazy it is how much new office
• 57:47
  Speaker 2: space hit the New York market right before the pandemic.
• 57:52
  Speaker 2: Hudson Yard Yards is millions and millions of square feet.
• 57:56
  Speaker 2: And by the way, if you haven't been there, it's
• 57:58
  Speaker 2: it's spectacular. Yeah, it's fantastic. It's like the new version
• 58:02
  Speaker 2: of Rockefeller Center. And every time I see a new
• 58:05
  Speaker 2: building going up somewhere, you're like, wow, that's huge. I
• 58:10
  Speaker 2: walk by the JP Morgan Chase building all the time,
• 58:13
  Speaker 2: and they seem to not care about the excess office space.
• 58:18
  Speaker 2: They're putting up a giant building on Park Avenue right right.
• 58:21
  Speaker 1: I think part of that, though, too, is that there's
• 58:24
  Speaker 1: like a four year five.
• 58:26
  Speaker 2: Year leads started in twenty eighteen.
• 58:28
  Speaker 1: Exactly right, So, but that's part of it. Yeah, like
• 58:32
  Speaker 1: the long term view, but I look at it as
• 58:36
  Speaker 1: when so the big problem or big challenges New York
• 58:41
  Speaker 1: City's budget, over fifty percent of revenues are real estate related, really,
• 58:46
  Speaker 1: and so I don't know what the division is the
• 58:50
  Speaker 1: breakout is for commercial specifically, but it is it is
• 58:56
  Speaker 1: inherent in our revenue structure for real estate to succeed.
• 59:03
  Speaker 1: And even before the pandemic, we had changes in laws
• 59:06
  Speaker 1: like the mansion tax, the rent law changed so that
• 59:11
  Speaker 1: conversions of existing buildings are almost impossible. So you know,
• 59:18
  Speaker 1: those sort of large scale revenues from residential real estate
• 59:22
  Speaker 1: are severely challenged going forward to the city, and it's
• 59:25
  Speaker 1: in the city's interest. The city sort of caught. You know,
• 59:29
  Speaker 1: the state is the one that's driving these new laws,
• 59:34
  Speaker 1: but the revenue is critical to the city for the
• 59:37
  Speaker 1: city not to rely on the state. So it's sort
• 59:40
  Speaker 1: of this catch twenty two.
• 59:41
  Speaker 2: Right back when we had Deblasio and Cuomo, they both
• 59:45
  Speaker 2: despised each other, yes, and there was no cooperation. One
• 59:48
  Speaker 2: would hope that the new mayors and the new governor
• 59:53
  Speaker 2: get along a little better and would allow us to
• 59:56
  Speaker 2: make some rule changes. So let's talk about you mentioned
• 1:00:00
  Speaker 2: and migration. There has been a general shift lasting decades
• 1:00:07
  Speaker 2: towards the sun Belt. I think it was Steve Johnson
• 1:00:11
  Speaker 2: wrote about how air conditioning made this possible, Like people
• 1:00:15
  Speaker 2: don't want to live in Louisiana without AC or at
• 1:00:18
  Speaker 2: least a lot of people don't. But this has been
• 1:00:20
  Speaker 2: going on for quite a while. What's it look like now?
• 1:00:25
  Speaker 2: I recall, so we looked in Florida in twenty nineteen
• 1:00:29
  Speaker 2: on the West coast, and I didn't know, did I
• 1:00:32
  Speaker 2: want a house? Did I want a condo? You don't
• 1:00:34
  Speaker 2: have to worry about maintenance on the condo. But then
• 1:00:36
  Speaker 2: you have neighbors and a house, you have a little more.
• 1:00:38
  Speaker 2: And between then and two years later, like these little
• 1:00:42
  Speaker 2: highs more than that double and it's no bargain. In
• 1:00:48
  Speaker 2: terms of real estate taxes, Florida real estate taxes are
• 1:00:51
  Speaker 2: like New York real estate tax Yeah.
• 1:00:53
  Speaker 1: Yeah. The way to think of Florida, the way I
• 1:00:57
  Speaker 1: think of it without sounding like I work for the
• 1:01:00
  Speaker 1: tourism bord of Florida is the real estate industry down
• 1:01:04
  Speaker 1: there because of work from home is undergoing restructuring that
• 1:01:08
  Speaker 1: it's sort of evolving from a place you go to
• 1:01:11
  Speaker 1: vacation or visit to a place that you live. And
• 1:01:14
  Speaker 1: what is remarkable about some of the towns or cities
• 1:01:20
  Speaker 1: in Florida is they now hire employees specifically to recruit
• 1:01:28
  Speaker 1: CEOs from the Northeast who then will bring their companies
• 1:01:33
  Speaker 1: to Florida. And they've had I'd say, you know, there's
• 1:01:37
  Speaker 1: been some standout results. I wouldn't say it's you know,
• 1:01:40
  Speaker 1: over the top successful, but it's certainly their population growth
• 1:01:45
  Speaker 1: since the pandemic. Florida's up about seven percent. I mean
• 1:01:49
  Speaker 1: the substantial, substantial. And so you know, New York State
• 1:01:55
  Speaker 1: and the New York metro area has to think of
• 1:01:58
  Speaker 1: themselves in competition with the areas, which is it is
• 1:02:03
  Speaker 1: seemingly unable to do.
• 1:02:05
  Speaker 2: I had a buddy who runs a bond shop, and
• 1:02:08
  Speaker 2: about fifteen years ago he relocated to Sarasota, Florida, and
• 1:02:12
  Speaker 2: he said John Corzine, then governor of Florida, of Newton,
• 1:02:16
  Speaker 2: New Jersey. He said, John Corzine bought me a house
• 1:02:19
  Speaker 2: in Florida, meaning his taxes had gone up so much
• 1:02:23
  Speaker 2: moving there was was pless transaction. Although that said that
• 1:02:30
  Speaker 2: seven percent boost isn't evenly distributed. And there's lots of
• 1:02:35
  Speaker 2: stories about these areas in Florida, particularly on the East coast,
• 1:02:40
  Speaker 2: but parts of the southern west coast that have just
• 1:02:44
  Speaker 2: been overrun. The infrastructure can't handle it. You bring all
• 1:02:48
  Speaker 2: the Northeast problems, so there's a lot of traffic, the
• 1:02:51
  Speaker 2: school's lack capacity, even the water and electrical grid and
• 1:02:56
  Speaker 2: sewage grid can't handle it. Are these areas ready for
• 1:03:01
  Speaker 2: this influx of migrants.
• 1:03:04
  Speaker 1: It's a tough balancing act. You know. You can certainly
• 1:03:07
  Speaker 1: see in housing prices that there's even with all the
• 1:03:11
  Speaker 1: building that's going on, there's inadequate supply. The focus seems
• 1:03:15
  Speaker 1: to be on other institutions that create employment, like healthcare,
• 1:03:20
  Speaker 1: you know medical, you know tech medical type services. There's
• 1:03:26
  Speaker 1: been a lot of emphasis on sort of competing with
• 1:03:29
  Speaker 1: New York bringing financial services there. You know, there's been
• 1:03:33
  Speaker 1: a lot of marquee announcements like Citadel and others that
• 1:03:36
  Speaker 1: have artists, Yeah, the ones that they're going to move their.
• 1:03:40
  Speaker 2: So there's been chatter about you have this big surge
• 1:03:44
  Speaker 2: down to Florida, and now some of that's begun to
• 1:03:47
  Speaker 2: reverse and people have come back. There was a hilarious
• 1:03:51
  Speaker 2: article in Bloomberg where they were quoting a trader who
• 1:03:55
  Speaker 2: had relocated temporarily to Florida, and the line that stood
• 1:03:59
  Speaker 2: out was the only problem with living in Florida is
• 1:04:04
  Speaker 2: all the Floridians, right, And I thought that was hilarious.
• 1:04:09
  Speaker 2: And some of these folks have been coming back to
• 1:04:11
  Speaker 2: New York. How exaggerated is the migration to away from
• 1:04:18
  Speaker 2: California into Texas, away from New York and Massachusetts into Florida.
• 1:04:23
  Speaker 2: I mean, it looks like it's real, But are are
• 1:04:26
  Speaker 2: the numbers hyped up? No?
• 1:04:28
  Speaker 1: I don't. I think it is real. It's probably exaggerated. Well,
• 1:04:32
  Speaker 1: it is exaggerated a bit, but it's clearly something that
• 1:04:36
  Speaker 1: changed during the pandemic. And the reason why I say
• 1:04:40
  Speaker 1: that is in two thousand January first of twenty eighteen,
• 1:04:45
  Speaker 1: the federal salt tax was initiated. It's you know, I
• 1:04:48
  Speaker 1: used to think salt stood for state and this would
• 1:04:51
  Speaker 1: be like one of my local tax Mike Columbia student jokes.
• 1:04:54
  Speaker 1: You know, I used to think salt tax stood for assault,
• 1:04:56
  Speaker 1: stood for stateon served for Strategic Arms Limitation treaty. But
• 1:05:03
  Speaker 1: you know state and local tax where the deduction on
• 1:05:08
  Speaker 1: the combination of your state and local taxes and your
• 1:05:11
  Speaker 1: property taxes. The deduction was only was capped at ten
• 1:05:15
  Speaker 1: thousand dollars. When you have houses in Westchester with the annual
• 1:05:18
  Speaker 1: estate taxes of one hundred and seventy five thousand dollars,
• 1:05:21
  Speaker 1: you know that's a tremendous cost hit. So I don't
• 1:05:27
  Speaker 1: know what point.
• 1:05:27
  Speaker 2: Was well, the takeaway about what does that do to
• 1:05:32
  Speaker 2: the so called high tax blue states? Yeah, and is
• 1:05:36
  Speaker 2: the jiu jitsu that benefits the low tax red states?
• 1:05:41
  Speaker 1: Right? So the thinking was when that law went into
• 1:05:45
  Speaker 1: effect January first of twenty eighteen, that you know it
• 1:05:50
  Speaker 1: was going to be like the Beverly Hillbillies packing up
• 1:05:52
  Speaker 1: and like going to Florida. And the brokerage community was
• 1:05:56
  Speaker 1: all telling me, you know, we're sitting there, we're waiting,
• 1:05:59
  Speaker 1: and it it didn't happen at scale. It was definitely noticeable,
• 1:06:04
  Speaker 1: but it wasn't this mad gold rush. When the pandemic hit,
• 1:06:09
  Speaker 1: that was what really stimulated the migration, whether it was
• 1:06:15
  Speaker 1: temporary or full time.
• 1:06:18
  Speaker 2: So where a price is stabilizing, I look around, I
• 1:06:22
  Speaker 2: see Florida isn't the bargain. It once was cheaper than
• 1:06:25
  Speaker 2: New York but not as cheap as it once was.
• 1:06:30
  Speaker 2: And when you look at so Florida loves Homeowners Association
• 1:06:34
  Speaker 2: fees between the state real estate tax and hoa's, Florida
• 1:06:40
  Speaker 2: doesn't seem like much of a bargain where a price
• 1:06:43
  Speaker 2: is stabilizing and where's some value left.
• 1:06:46
  Speaker 1: So I would what's a little different. And why I
• 1:06:50
  Speaker 1: call Florida going undergoing this restructure rather than it being
• 1:06:55
  Speaker 1: some sort of fluke or high moment in price and
• 1:06:58
  Speaker 1: then it's going to go down, is because of work
• 1:07:01
  Speaker 1: from home, as I said, And part of what's happening
• 1:07:05
  Speaker 1: is the market is maturing, it's pivoted into there's a
• 1:07:11
  Speaker 1: lot more high end. So one of the things that
• 1:07:13
  Speaker 1: I noticed, you know, like as a hobby, I collect,
• 1:07:17
  Speaker 1: because I'm a dull and boring numbers guy, I collect
• 1:07:19
  Speaker 1: fifty million plus closings across the US.
• 1:07:23
  Speaker 2: And you used to used to put out a chart
• 1:07:25
  Speaker 2: tracking yeah yeah, fifteen million, yeah.
• 1:07:27
  Speaker 1: Yeah yeah. And you know I put into my newsletter periodically,
• 1:07:31
  Speaker 1: and you know it used to be something, you know,
• 1:07:34
  Speaker 1: over fifty million dollars was like La and Manhattan and
• 1:07:39
  Speaker 1: the Hampton's and maybe an occasional sale in Palm Beach.
• 1:07:43
  Speaker 1: Now it's you know, dozens of markets in in Florida
• 1:07:48
  Speaker 1: in general are seeing these transactions. It's much more I'm
• 1:07:52
  Speaker 1: just thinking of that as a proxy for sort of
• 1:07:55
  Speaker 1: sort of this discovery of Florida is much more broad
• 1:07:58
  Speaker 1: based than Hey, Miami in Palm Beach. That's that's it.
• 1:08:01
  Speaker 1: It's a lot more spread out than it was, and
• 1:08:04
  Speaker 1: I think that says a lot about how the economy
• 1:08:07
  Speaker 1: is expanding into this sort of year round living.
• 1:08:11
  Speaker 2: Although if you've ever been in Florida in July, you
• 1:08:14
  Speaker 2: would question, question.
• 1:08:15
  Speaker 1: I do have one of my my oldest son, got
• 1:08:18
  Speaker 1: a great job offer and he works in Fort Lauderdale,
• 1:08:20
  Speaker 1: coming from Connecticut, and he likes the heat.
• 1:08:24
  Speaker 2: So so it's August. What is he saying, now, did
• 1:08:28
  Speaker 2: you realize that photons have so much mass when they
• 1:08:32
  Speaker 2: hit you it beats your sun?
• 1:08:34
  Speaker 1: Feel it right?
• 1:08:35
  Speaker 2: Yeah?
• 1:08:35
  Speaker 1: It has w Yeah, No, it's you know, he's still
• 1:08:39
  Speaker 1: an enthusiast, so so I guess you know.
• 1:08:42
  Speaker 2: I used to jokingly say, Florida in the summer, you
• 1:08:46
  Speaker 2: run from air conditions house the air conditioned car. Like
• 1:08:50
  Speaker 2: New York in the winter, you run from heated house
• 1:08:52
  Speaker 2: to heated.
• 1:08:54
  Speaker 1: And the same idea.
• 1:08:56
  Speaker 2: Right, it's just but it hasn't been getting much cold
• 1:09:00
  Speaker 2: to hear. But you know parts of the southwest Texas
• 1:09:04
  Speaker 2: and now parts of Florida. You see what's going on
• 1:09:06
  Speaker 2: in the ocean off of so that I wasn't planning
• 1:09:09
  Speaker 2: on asking you a climate change question, but it certainly
• 1:09:12
  Speaker 2: raises a question. At what point do does these like
• 1:09:18
  Speaker 2: wildfires and persistent heat and water shortages. And I'm not
• 1:09:22
  Speaker 2: asking this as a left or right argument, at what
• 1:09:27
  Speaker 2: point does this affect property values? Has become harder to
• 1:09:30
  Speaker 2: get insurance, Like, what are the economic costs of what's
• 1:09:35
  Speaker 2: going on with all of these climate related disasters we
• 1:09:39
  Speaker 2: keep seeing?
• 1:09:39
  Speaker 1: Yeah, and actually, you know, we're seeing a you know,
• 1:09:43
  Speaker 1: climate change. I think of it as just bringing a
• 1:09:46
  Speaker 1: higher frequency of disasters and larger scale disasters.
• 1:09:50
  Speaker 2: So bigger and more other than that other a hoax,
• 1:09:54
  Speaker 2: it's exactly.
• 1:09:57
  Speaker 1: But you know it's interesting, you know. And so first
• 1:10:01
  Speaker 1: of all, you know, A, it adds to your cost
• 1:10:03
  Speaker 1: of home ownership. B. You have the insurance industry sort
• 1:10:07
  Speaker 1: of grappling with can they continue at the premium even
• 1:10:12
  Speaker 1: close to the premiums that they're with When you think
• 1:10:14
  Speaker 1: of there's already insurance crisis in Florida.
• 1:10:17
  Speaker 2: I mean, it's crazy what's going on there. You can't
• 1:10:19
  Speaker 2: it's very hard to get in show.
• 1:10:21
  Speaker 1: And that was my point before, is that you know, FEMA,
• 1:10:25
  Speaker 1: a federal program, is basically cutting out by having such
• 1:10:30
  Speaker 1: low pricing relative the private markets, is cutting out the
• 1:10:33
  Speaker 1: private markets. So it's just bringing on more risk onto
• 1:10:36
  Speaker 1: the taxpayer for these locations. Yeah, wildfires in California, all
• 1:10:44
  Speaker 1: this just means a higher cost of home ownership and
• 1:10:48
  Speaker 1: eventually some markets not being suitable for occupancy. And you know,
• 1:10:54
  Speaker 1: I mean that's that's really what it comes to.
• 1:10:56
  Speaker 2: Phoenix been triple digits for like twenty one days in
• 1:10:59
  Speaker 2: a row. Yeah, I mean that's hot. Yeah, we have,
• 1:11:02
  Speaker 2: but at least it's a dry oven, right, it's a
• 1:11:04
  Speaker 2: dry one hundred and twelve degree exactly. I mean they've
• 1:11:07
  Speaker 2: had crazy, crazy Yeah.
• 1:11:10
  Speaker 1: Yeah, it's it's interesting because I just as a kid,
• 1:11:14
  Speaker 1: and you know, as an adult with kids, I always
• 1:11:17
  Speaker 1: went north for vacation like skiing or cold weather, and
• 1:11:22
  Speaker 1: the idea of that heat. My relatives that have moved
• 1:11:25
  Speaker 1: to Florida, all you adjust to it, Yeah, I guess
• 1:11:29
  Speaker 1: I'm just not willing to.
• 1:11:30
  Speaker 2: So it's certainly an unusual thing. So so if Florida
• 1:11:35
  Speaker 2: isn't a bargain anymore, what parts of the country still are.
• 1:11:39
  Speaker 2: I know, people look in the Carolinas, in Virginia. There
• 1:11:43
  Speaker 2: are parts of the West, Montana and Utah and Colorado
• 1:11:49
  Speaker 2: that seems to be interesting.
• 1:11:50
  Speaker 1: I you know, it's funny. We have good friends in
• 1:11:53
  Speaker 1: Montana and I look at the housing prices of things
• 1:11:56
  Speaker 1: that are praising.
• 1:11:58
  Speaker 2: Right, and I mean the five thousand acre ranch.
• 1:12:01
  Speaker 1: No, no, no, no, I mean single family houses?
• 1:12:03
  Speaker 2: Have they gone up? Also?
• 1:12:04
  Speaker 1: Absolutely?
• 1:12:05
  Speaker 2: The way still California exodus.
• 1:12:07
  Speaker 1: Yes, that's part of it, with more Idaho, but yeah. Absolutely.
• 1:12:11
  Speaker 1: The way I think that we should look at housing
• 1:12:15
  Speaker 1: prices in the US during this pandemic is virtually every
• 1:12:20
  Speaker 1: housing market was impacted, and we saw dramatic price growth
• 1:12:24
  Speaker 1: in a very short people period of time because you know,
• 1:12:27
  Speaker 1: the FED, I believe, kept rates too low for too
• 1:12:31
  Speaker 1: long and now have to undo the damage by making
• 1:12:37
  Speaker 1: rates a lot higher. But prices aren't really falling because
• 1:12:41
  Speaker 1: the rapid change in rates has basically kept inventory frozen.
• 1:12:47
  Speaker 2: Huh. Really fascinating. So let's talk a little bit about
• 1:12:51
  Speaker 2: what's going on in the world of appraisal. You've been
• 1:12:55
  Speaker 2: appraiser for decades. The space seems to be going through
• 1:12:59
  Speaker 2: a little bit of turmoil these days. What's going on
• 1:13:03
  Speaker 2: in appraiserville.
• 1:13:05
  Speaker 1: Praiserville is what it is. Yeah, So, you know in
• 1:13:09
  Speaker 1: the residential appraisal world, where you know, you buy a
• 1:13:12
  Speaker 1: house or refinance your house, your mortgage on your house,
• 1:13:16
  Speaker 1: you know, appraiser comes out values the property and then
• 1:13:21
  Speaker 1: and then gives the appraisal to the bank, and then
• 1:13:24
  Speaker 1: the bank decides how much money they're going to give you,
• 1:13:27
  Speaker 1: and then you close. This industry is if you think
• 1:13:36
  Speaker 1: about the numbers of people, there's about seventy five thousand
• 1:13:39
  Speaker 1: appraisers nationwide. There's organizations and trade groups that are active,
• 1:13:47
  Speaker 1: but really the whole industry has been asleep at the
• 1:13:51
  Speaker 1: switch for the changes that have been coming. I have
• 1:13:55
  Speaker 1: been publicly highly critical of an organization called the Appraisal Foundation.
• 1:14:02
  Speaker 2: And let me just annotate that you have been humiliating
• 1:14:06
  Speaker 2: those guys on a regular basis, just embarrassing them for
• 1:14:10
  Speaker 2: not doing their jobs. Am I overstating that you called
• 1:14:14
  Speaker 2: them on the carpet repeatedly.
• 1:14:16
  Speaker 1: Yeah, it's began during the pandemic and it's just an
• 1:14:20
  Speaker 1: endless array of problems, which I'll sort of explain in
• 1:14:24
  Speaker 1: a second, but what it led to is this idea,
• 1:14:30
  Speaker 1: and it's one of the platforms of the Biden's White
• 1:14:36
  Speaker 1: House in terms of removing racial bias from the appraisal industry,
• 1:14:42
  Speaker 1: residential and commercial. And for context, the Bureau of Labor
• 1:14:48
  Speaker 1: Statistics tracks four hundred industries in the US, and on
• 1:14:53
  Speaker 1: the matter of diversity, in twenty twenty one, the appraisal
• 1:14:58
  Speaker 1: industry was four hundredth out of four hundred in diversity.
• 1:15:02
  Speaker 1: We were less diverse than farmers and ranchers.
• 1:15:05
  Speaker 2: Wow.
• 1:15:06
  Speaker 1: And this, you know, it fluctuates a couple percentage points
• 1:15:10
  Speaker 1: up and down every year. But the structure of the
• 1:15:14
  Speaker 1: industry and how new people to get in is was
• 1:15:19
  Speaker 1: created by the Praisal Foundation and they have basically refused
• 1:15:25
  Speaker 1: to take any action. They set up committees and councils
• 1:15:28
  Speaker 1: as if that is action, but they don't actually do anything,
• 1:15:32
  Speaker 1: and so it's become more and more heated to the
• 1:15:37
  Speaker 1: point where the Appraisal Subcommittee, which is allowed to monitor
• 1:15:44
  Speaker 1: and review the Appraisal Foundation. The Appraisal Foundation is basically
• 1:15:48
  Speaker 1: to maintain the sort of the verbiage of our license,
• 1:15:52
  Speaker 1: you know, our certification what we're supposed to do, and
• 1:15:57
  Speaker 1: and you know, like the the appraisal subcommittee, which is
• 1:16:02
  Speaker 1: basically provides no oversight. This, this appraisal Foundation, not for profit,
• 1:16:08
  Speaker 1: literally has no oversight. They figured out a work around
• 1:16:10
  Speaker 1: which I've exposed, and and they're flying to Dubai first
• 1:16:16
  Speaker 1: class and they're going to you know, having meetings in
• 1:16:20
  Speaker 1: Palm Springs and you know, within the highlighte which all
• 1:16:23
  Speaker 1: could be on zoom and and it's a very sort
• 1:16:27
  Speaker 1: of it's a monarchy.
• 1:16:28
  Speaker 2: To be fair, Dubai is where all the best appraisers
• 1:16:32
  Speaker 2: go for you know content.
• 1:16:35
  Speaker 1: Yeah, especially from like Iowa and you know, Montana.
• 1:16:39
  Speaker 2: So let's let's put some flesh on these bones so
• 1:16:42
  Speaker 2: people understand what you're referring to. And there have been
• 1:16:46
  Speaker 2: not one, but multiple stories about a black family in
• 1:16:50
  Speaker 2: America owns a house they want to refinance, They want
• 1:16:53
  Speaker 2: to take advantage of low rates. They have an appraiser
• 1:16:56
  Speaker 2: come in. The appraisal comes in not only too low
• 1:17:00
  Speaker 2: for them to do the refinance, but too low compared
• 1:17:04
  Speaker 2: to the neighbor's house. So they request another appraiser, only
• 1:17:08
  Speaker 2: this time, all the photos of the black family and moved.
• 1:17:12
  Speaker 2: Dishia of African American home ownership goes away. They literally
• 1:17:16
  Speaker 2: hang photos of the smiling white family. They have their
• 1:17:19
  Speaker 2: neighbor greet the appraiser, the white woman from next door,
• 1:17:23
  Speaker 2: so she greets them, and lo and behold, the appraisal
• 1:17:26
  Speaker 2: comes in pretty much as expected.
• 1:17:28
  Speaker 1: Right.
• 1:17:29
  Speaker 2: That sounds like either a ridiculous sitcom or a made
• 1:17:33
  Speaker 2: up story. But this is a real thing, isn't it.
• 1:17:36
  Speaker 1: It's it's largely yes, that's that's largely the way. We've
• 1:17:41
  Speaker 1: seen a dozen or so of these stories, and they
• 1:17:46
  Speaker 1: get recirculated and over and over again. What we're actually
• 1:17:50
  Speaker 1: seeing now is so the logic is that, hey, you know,
• 1:17:56
  Speaker 1: I think my home is worth five hundred thousand. You
• 1:17:59
  Speaker 1: appraise for four hundred thousand, So you're a racist.
• 1:18:03
  Speaker 2: Well that's a little that's a little over the top
• 1:18:05
  Speaker 2: in the other direction.
• 1:18:06
  Speaker 1: Correct, So, but that is that is a big part
• 1:18:11
  Speaker 1: of the narrative. So so you have like two core
• 1:18:15
  Speaker 1: parts of the appraisal world. You have. Now you have
• 1:18:18
  Speaker 1: a whole sloth of people saying, hey, I'm not a racist,
• 1:18:21
  Speaker 1: like I'm just assessing the value. And then you have
• 1:18:26
  Speaker 1: people like me that are saying let's not you know,
• 1:18:30
  Speaker 1: we don't have a leg to stand on as an industry.
• 1:18:33
  Speaker 2: Say hey, you're one hundred percent white and lo and behold,
• 1:18:36
  Speaker 2: you're appraising black owned homes in white neighborhoods for less
• 1:18:40
  Speaker 2: than the white on correct. So it's raising some question.
• 1:18:42
  Speaker 1: So you're sort of preaching to the choir when you say, hey,
• 1:18:45
  Speaker 1: we're you know, we don't have this problem even though
• 1:18:48
  Speaker 1: and listen, is there you know, unconscious bias in everyday life?
• 1:18:53
  Speaker 1: Of course there is, right. So the other side is
• 1:18:56
  Speaker 1: my focus is to force the foundation or remove the
• 1:19:02
  Speaker 1: leadership of the foundation so that so that the regulatory
• 1:19:07
  Speaker 1: world or you know, sort of the government side of
• 1:19:14
  Speaker 1: the story, you know that there's a representative membership, you know,
• 1:19:20
  Speaker 1: not zero of people of color. Right, that's the first step,
• 1:19:24
  Speaker 1: because this other step is just not effective. Right. So
• 1:19:29
  Speaker 1: I've been talking about this for for like a couple
• 1:19:31
  Speaker 1: of years. And then the Appraisal Subcommittee, which is made
• 1:19:36
  Speaker 1: up of like the head the heads of you know
• 1:19:39
  Speaker 1: of various organizations like fd I C and the g
• 1:19:44
  Speaker 1: S S and you know, the Alpha the alphabet soup
• 1:19:49
  Speaker 1: of Washington sort of anybody that really CFPB, like anybody
• 1:19:53
  Speaker 1: that touches on like the mortgage process. And I was invited,
• 1:20:00
  Speaker 1: uh back, testified for three hours, and it was my
• 1:20:04
  Speaker 1: only first time on c SPAN. But it's three hours, and.
• 1:20:08
  Speaker 2: So anybody could go to YouTube or c span find
• 1:20:10
  Speaker 2: your testimony.
• 1:20:11
  Speaker 1: Yeah. Absolutely, And I was highly critical of the foundation,
• 1:20:17
  Speaker 1: which there were five experts and two of them were
• 1:20:19
  Speaker 1: from the foundation, and they one of them attacked me.
• 1:20:24
  Speaker 1: You know, it's sort of named names because of the
• 1:20:27
  Speaker 1: massive conflict this person has in her job with what
• 1:20:30
  Speaker 1: her husband does for a living, which is what runs
• 1:20:33
  Speaker 1: like the biggest online sort of continue ed credit thing.
• 1:20:38
  Speaker 2: And they have any deal corrupt.
• 1:20:41
  Speaker 1: Right, But they don't see it that way.
• 1:20:44
  Speaker 2: Just because you're giving the gig to your husband's business
• 1:20:47
  Speaker 2: doesn't mean it's corrupt. Perhaps they're the best person for this.
• 1:20:51
  Speaker 1: Absolutely, then you shouldn't be the chairman of the committee
• 1:20:54
  Speaker 1: that changes the regulations that causes changes that go into
• 1:20:59
  Speaker 1: the class anyway, it's a it's convoluted, but like that's
• 1:21:03
  Speaker 1: what we're dealing with, and it's a little fiefdom. Yeah,
• 1:21:07
  Speaker 1: and I remember after it, you know, like I'm only
• 1:21:10
  Speaker 1: in this to try to make it right and to
• 1:21:14
  Speaker 1: make it fair. I don't get anything out of it
• 1:21:17
  Speaker 1: other than like not taining our industry.
• 1:21:21
  Speaker 2: How dare you, sir?
• 1:21:22
  Speaker 1: I know, But anyway, it's sort of that's the kind
• 1:21:25
  Speaker 1: of stuff I talk about.
• 1:21:26
  Speaker 2: And you know, we talked earlier about the National Association
• 1:21:30
  Speaker 2: of Realtors and I used to be so in just
• 1:21:35
  Speaker 2: infuriated by their monthly releases back in six seven eight,
• 1:21:42
  Speaker 2: because the first paragraph would be the data, right, and
• 1:21:46
  Speaker 2: then the next six paragraphs were just endless spin. And
• 1:21:50
  Speaker 2: it's like, I understand you're a trade group, right, but
• 1:21:55
  Speaker 2: if you're a trade group, maybe the government shouldn't rely
• 1:21:58
  Speaker 2: on your data because you're not fair actors in the space.
• 1:22:02
  Speaker 2: You're biased and self interested. I don't care what the
• 1:22:05
  Speaker 2: data is. I just needed to be accurate so I
• 1:22:08
  Speaker 2: could do my job.
• 1:22:10
  Speaker 1: So that's exactly right. And and actually, you know, if
• 1:22:14
  Speaker 1: you look at the timeline, so NAR was like the
• 1:22:19
  Speaker 1: what the FED used the like all the NAR data
• 1:22:22
  Speaker 1: for like understanding the housing market, and you know, and
• 1:22:27
  Speaker 1: you had the I can't remember that David Loay wasst
• 1:22:31
  Speaker 1: and then it's been Lawrence you and ever since. And
• 1:22:33
  Speaker 1: I remember, like in the beginning, it was like, you know,
• 1:22:36
  Speaker 1: the when Lehman happened, the leaning collapse. It was like,
• 1:22:39
  Speaker 1: it's a bubble with a slow leak in the housing bubble,
• 1:22:43
  Speaker 1: and uh, there are all kinds of housing bubble blogs,
• 1:22:47
  Speaker 1: you know, just huge, you know, like you know, it's
• 1:22:50
  Speaker 1: a black hole. We're all gonna die, We're going to
• 1:22:52
  Speaker 1: follow on the edge of the abyss. So you get
• 1:22:54
  Speaker 1: like the extremes. And then it was interesting the FED
• 1:22:57
  Speaker 1: pivoted to case Shiller, you know, so academia for looking
• 1:23:03
  Speaker 1: at the state of the housing market. But the problem
• 1:23:07
  Speaker 1: with case Shiller is it's the equivalent and I've joked
• 1:23:11
  Speaker 1: with you before about this, you know, highly respected Nobel laureate,
• 1:23:17
  Speaker 1: but it's not really suitable for everyday use because it
• 1:23:22
  Speaker 1: reflects the housing market five to seven months ago. So
• 1:23:26
  Speaker 1: so like when you got up this morning, did you
• 1:23:28
  Speaker 1: take the average temperature of five to seven months ago
• 1:23:31
  Speaker 1: to decide what you're gonna wear today? Right, it's it
• 1:23:34
  Speaker 1: was made for trading to hedge housing, and it never
• 1:23:40
  Speaker 1: you know, there was no adoption of it, and then
• 1:23:43
  Speaker 1: they they went from there, and then they went to
• 1:23:45
  Speaker 1: core Logic because was more sort of.
• 1:23:47
  Speaker 2: A little more real time, a little more.
• 1:23:49
  Speaker 1: More more harder data, more data, and probably better.
• 1:23:54
  Speaker 2: So you brought up David lay Maria. I have a
• 1:24:00
  Speaker 2: couple of blog posts on him, yes, but my favorite
• 1:24:04
  Speaker 2: was the one that took the book he wrote and
• 1:24:06
  Speaker 2: then just revised it cover year, just revised the cover. Yeah,
• 1:24:11
  Speaker 2: and it's literally are you missing the real Estate Boom?
• 1:24:15
  Speaker 2: Was two thousand and five, and then the two thousand
• 1:24:18
  Speaker 2: and six edition, same book, different cover, Why the real
• 1:24:22
  Speaker 2: Estate Boom Will Not Bust and how you can profit
• 1:24:25
  Speaker 2: from it now, And then the two thousand and seven
• 1:24:28
  Speaker 2: version of the exact same book, All real Estate is Local, Yeah,
• 1:24:33
  Speaker 2: and that right. And then he left in two thousand
• 1:24:38
  Speaker 2: and nine. Yeah, and I had to change my title
• 1:24:43
  Speaker 2: from one export of to a a more tolerable expot of,
• 1:24:47
  Speaker 2: which I simply just called it former nar Economist David
• 1:24:52
  Speaker 2: lore Is. But it's just about. It was just about
• 1:24:57
  Speaker 2: an article I remember was the time, so the journal
• 1:25:01
  Speaker 2: that working for realtors, David Lorea was famously optimistic. Not
• 1:25:06
  Speaker 2: so much anymore was the headline. So so wait, you
• 1:25:09
  Speaker 2: switched jobs and suddenly your entire belief system change that.
• 1:25:14
  Speaker 2: That's a little and we all do it, but not
• 1:25:17
  Speaker 2: one hundred and eighty degree. No. No.
• 1:25:20
  Speaker 1: It was one of my favorite moments during the run
• 1:25:24
  Speaker 1: up to the housing bubble was I was in the
• 1:25:26
  Speaker 1: green room on a National TV special something. It was
• 1:25:32
  Speaker 1: like it was about housing and it was a town
• 1:25:34
  Speaker 1: hall and I was literally in the green room with
• 1:25:38
  Speaker 1: David Lay, Robert Schiller, Susie Ormond, and Doddie Hermon no,
• 1:25:46
  Speaker 1: some other I don't remember what. He wasn't a housing person.
• 1:25:53
  Speaker 1: And I got to listen to them. I was listening
• 1:25:55
  Speaker 1: to talk and I remember, I remember, this is really surreal.
• 1:25:59
  Speaker 2: Because wait, Larrea and Schiller Killer. Yeah, yeah, because he
• 1:26:03
  Speaker 2: was pretty bearish.
• 1:26:05
  Speaker 1: Yeah, he actually, you know, was really calling for I
• 1:26:10
  Speaker 1: did a thing with him, like a two years later
• 1:26:15
  Speaker 1: at Lincoln Center, and uh, he was like predicting like
• 1:26:19
  Speaker 1: a fifty percent correction in housing prices.
• 1:26:22
  Speaker 2: Which is a little aggressive, a.
• 1:26:23
  Speaker 1: Little aggressive, but but you know, not like a single
• 1:26:27
  Speaker 1: digit decline. It was, you know, more in the the
• 1:26:30
  Speaker 1: scope of happen.
• 1:26:31
  Speaker 2: I did a panel with him, so it was Schiller, myself,
• 1:26:35
  Speaker 2: maybe it was Dottie Hermon and somebody else. So it
• 1:26:38
  Speaker 2: was like real estate, real estate, stock market and then
• 1:26:43
  Speaker 2: Schiller being the academic, and I referenced the who are
• 1:26:47
  Speaker 2: the guys who wrote this time is different. I'm drawing
• 1:26:49
  Speaker 2: a blank. R Rogoff, Yes, so Rhin Harden Rogoff had
• 1:26:52
  Speaker 2: this wonderful paper, I want to say.
• 1:26:55
  Speaker 1: It was.
• 1:26:57
  Speaker 2: Like two thousand and six and they looked at five
• 1:27:02
  Speaker 2: financial crises. It was Sweden, Mexico, Japan, the US, and
• 1:27:06
  Speaker 2: twenty nine. I never remember what the fifth one was,
• 1:27:09
  Speaker 2: and they found, on average, when you have a crisis
• 1:27:12
  Speaker 2: that originates in the finance sector due to too much leverage,
• 1:27:16
  Speaker 2: too much speculation, on average, markets get cut in half
• 1:27:20
  Speaker 2: and real estate looses about thirty percent of its value.
• 1:27:23
  Speaker 2: Sometimes it's less, sometimes it's more. But when you look
• 1:27:26
  Speaker 2: at right and so that, by the way, that paper,
• 1:27:32
  Speaker 2: which was on fifteen pages long, became the basis for
• 1:27:35
  Speaker 2: this time. It's different. Eight hundred years of financial folly
• 1:27:39
  Speaker 2: and the numbers stayed the same. It's when you have
• 1:27:42
  Speaker 2: a speculative bubble built on easy money and excess lending.
• 1:27:47
  Speaker 2: Assume at the peak it's going to be a thirty
• 1:27:50
  Speaker 2: percent drop in real estate prices, which goes to your statement,
• 1:27:56
  Speaker 2: what we're seeing today is probably not going to have
• 1:28:00
  Speaker 2: the same sort of drop as then, because this isn't
• 1:28:03
  Speaker 2: based on easy money. This is based on where we've
• 1:28:06
  Speaker 2: locked in easy money and we don't want to sell.
• 1:28:08
  Speaker 1: Right, But also I would I would differ a little
• 1:28:12
  Speaker 1: bit and say that we're not locked in on easy money.
• 1:28:17
  Speaker 1: Banks during the called the pandemic or a housing boom,
• 1:28:20
  Speaker 1: never lost their mind.
• 1:28:22
  Speaker 2: Right this time as opposed the last time, right, So,
• 1:28:24
  Speaker 2: so and there is no there isn't the same amount
• 1:28:27
  Speaker 2: of non bank lenders as we saw in six oh
• 1:28:30
  Speaker 2: five or seven, right that where it was outside of
• 1:28:33
  Speaker 2: Fanny Mayon, outside of Pew.
• 1:28:36
  Speaker 1: But but but in this cycle, like credit you know
• 1:28:41
  Speaker 1: got easier during the boom, but it was still well
• 1:28:45
  Speaker 1: below long term norms. And so you know, even with this,
• 1:28:50
  Speaker 1: you know, the inventory sort of distortion, We're not looking
• 1:28:53
  Speaker 1: at the banking world like collapsing at the end of
• 1:28:58
  Speaker 1: this because on the lending itself, because the lending standards
• 1:29:03
  Speaker 1: never really got crazy.
• 1:29:05
  Speaker 2: If anything, they got tighter.
• 1:29:06
  Speaker 1: They get yeah, especially after the last year after rates
• 1:29:10
  Speaker 1: that they really clamped down. So lending is much tighter
• 1:29:14
  Speaker 1: now than it was a year ago. But a year
• 1:29:15
  Speaker 1: ago it was you know, significantly tighter than the last
• 1:29:21
  Speaker 1: three decades excluding the housing bubble. You know, going back
• 1:29:26
  Speaker 1: in time, it was banks just never lost their mind,
• 1:29:28
  Speaker 1: which I think is a huge difference in the two eras.
• 1:29:33
  Speaker 2: So before we get to our favorite questions, let me
• 1:29:35
  Speaker 2: throw you a couple of curveball questions. The first I
• 1:29:40
  Speaker 2: should really just throw this one away. The article that
• 1:29:45
  Speaker 2: described you as the most quotable trusted man in New
• 1:29:50
  Speaker 2: York real estate also said you look like a middle
• 1:29:53
  Speaker 2: aged Tom Hanks. I have to admit I don't see that.
• 1:29:58
  Speaker 1: Well, it's funny because no, I don't see that. But
• 1:30:02
  Speaker 1: but uh, in the early days of my blogging, I
• 1:30:06
  Speaker 1: think I started in five and you were, you know,
• 1:30:09
  Speaker 1: several years ahead of me. You're my first interview on
• 1:30:12
  Speaker 1: my podcast.
• 1:30:13
  Speaker 2: I recall that in your old office was renovated.
• 1:30:16
  Speaker 1: Yep, you know.
• 1:30:17
  Speaker 2: I've never walked into an office where every square into
• 1:30:20
  Speaker 2: the walls is covered with newspaper clippings in frames. How
• 1:30:23
  Speaker 2: many times have you been in the front page of
• 1:30:25
  Speaker 2: the Times nineteen? That's insane?
• 1:30:29
  Speaker 1: Yeah, yeah, I about once a year is the last few.
• 1:30:36
  Speaker 1: But uh, yeah, I what were Tom Hanks? Oh yeah,
• 1:30:43
  Speaker 1: Tom Hanks. So a long time ago, a blogger in
• 1:30:47
  Speaker 1: the Midwest said that I was a look alike of
• 1:30:52
  Speaker 1: Bobby Flay, that I've.
• 1:30:54
  Speaker 2: Had Bobby Flay on the show. I could see some
• 1:30:57
  Speaker 2: sense they did much more than Tom Hanks.
• 1:30:59
  Speaker 1: They they compared two pictures side by side and it
• 1:31:03
  Speaker 1: did look pretty similar. Right, but that was like twenty
• 1:31:06
  Speaker 1: years ago, so I haven't been able to generate any
• 1:31:11
  Speaker 1: pr out of that.
• 1:31:12
  Speaker 2: No more celebrity. And then the other curveball, which I'm
• 1:31:15
  Speaker 2: fascinated by. I think you've been into pretty much every
• 1:31:21
  Speaker 2: penhouse in Manhattan. I mean maybe that's a slight exaggeration,
• 1:31:25
  Speaker 2: but not much a lot. Yeah, what's the favorite apartment
• 1:31:28
  Speaker 2: you've been into in your history of appraising these apartments?
• 1:31:33
  Speaker 2: What's the one that really stands out? And they could
• 1:31:37
  Speaker 2: be two different.
• 1:31:38
  Speaker 1: Yeah, yeah, yeah, So I thought, you know, forgetting the
• 1:31:44
  Speaker 1: like the condition it was in and just like the
• 1:31:46
  Speaker 1: look was one of my favorites was in the Sherry Netherland,
• 1:31:52
  Speaker 1: which is a hotel co op on the corner of
• 1:31:56
  Speaker 1: the southeast corner of the Park. H It was just spectacular.
• 1:32:00
  Speaker 1: The view. You know, the thing that I don't get
• 1:32:03
  Speaker 1: to do very much in my business is see these
• 1:32:06
  Speaker 1: apartments at night, right in the night, you know, with
• 1:32:08
  Speaker 1: all the lights. Although you know, we used to live
• 1:32:10
  Speaker 1: when we lived in Manhattan, we could see the park
• 1:32:14
  Speaker 1: but I have to say, and I have a picture
• 1:32:17
  Speaker 1: of myself standing on the there's a I think it's
• 1:32:20
  Speaker 1: fifty Central Park South. It's not the penthouse. It was
• 1:32:24
  Speaker 1: a penthouse that was going to be created inside the
• 1:32:26
  Speaker 1: giant green roof that was you know, it looks like copper,
• 1:32:31
  Speaker 1: even though it was fake. It was painted green to
• 1:32:33
  Speaker 1: look like it was copper. But I literally climbed through
• 1:32:36
  Speaker 1: like a porthole and stood on the roof. I have
• 1:32:38
  Speaker 1: a picture of it of me.
• 1:32:40
  Speaker 2: So you're outdoors.
• 1:32:41
  Speaker 1: I'm outdoors, and you're in the center of Central Park
• 1:32:44
  Speaker 1: South looking north, and you see fifth in Central Park
• 1:32:48
  Speaker 1: West on either side, and it just spectacular And many
• 1:32:51
  Speaker 1: people don't get that opportunity, and that was an amazing experience.
• 1:32:56
  Speaker 1: I may end up being hopefully it'll I'll be able
• 1:32:59
  Speaker 1: to use it in my book someday as a cover.
• 1:33:02
  Speaker 2: All Right, So let's jump to our favorite questions, starting
• 1:33:05
  Speaker 2: with what are you streaming these days? What's keeping you entertained?
• 1:33:10
  Speaker 1: So every year every time you ask me this, because
• 1:33:13
  Speaker 1: I know you you you're a big fan of you know,
• 1:33:17
  Speaker 1: you've called this the golden age of television.
• 1:33:20
  Speaker 2: Is it not? I mean, it's just I was never
• 1:33:24
  Speaker 2: never watched television as a kid, and I'm making up
• 1:33:27
  Speaker 2: for lost time.
• 1:33:28
  Speaker 1: It is the strangest thing. But I hardly watch any TV.
• 1:33:31
  Speaker 1: I know that, and I don't stream anything regularly. Podcasts
• 1:33:36
  Speaker 1: I listen to Masters in Business.
• 1:33:40
  Speaker 2: I sucking up not necessary.
• 1:33:42
  Speaker 1: But but it's true. I uh. I listen to one
• 1:33:47
  Speaker 1: of the One of my favorite new podcasts is called
• 1:33:50
  Speaker 1: hard Fork.
• 1:33:51
  Speaker 2: Hard Fork.
• 1:33:52
  Speaker 1: It's a New York Times podcast about technology.
• 1:33:55
  Speaker 2: Huh.
• 1:33:56
  Speaker 1: And it's the guys laugh throughout the whole show. It's
• 1:33:59
  Speaker 1: they're serious writers. It's it's highly entertaining, especially following the
• 1:34:04
  Speaker 1: Elon Musk and Twitter escapades over the last six months.
• 1:34:08
  Speaker 1: It's been incredible, but really good stuff I listened to.
• 1:34:14
  Speaker 1: I really like Professor Galloway his stuff. He does a
• 1:34:19
  Speaker 1: podcast called Pivot.
• 1:34:21
  Speaker 2: He he also is locked out of his Twitter account
• 1:34:24
  Speaker 2: as a why And it's just now I have a
• 1:34:27
  Speaker 2: couple of hundred thousand, he's got half a million followers. Yeah,
• 1:34:30
  Speaker 2: they're like, yeah, we don't care. Yeah, just just like
• 1:34:33
  Speaker 2: the competency is mind blowing.
• 1:34:36
  Speaker 1: It's my next level, right, It's it's it's like how
• 1:34:39
  Speaker 1: to devalue an asset without even trying.
• 1:34:43
  Speaker 2: And normally no one's around to pick up the pieces
• 1:34:46
  Speaker 2: and take advantage. It looks like Threads might have a shot,
• 1:34:51
  Speaker 2: considering that that was built with you know, a dozen
• 1:34:55
  Speaker 2: or so engineers, very quick.
• 1:34:57
  Speaker 1: And leveraging off of the technology of the platform for Instagram.
• 1:35:00
  Speaker 2: But if Facebook, which is a giant company, which is
• 1:35:03
  Speaker 2: an eight hundred billion dollar company, if they throw one
• 1:35:06
  Speaker 2: hundred people at it, they could to me, wait, you
• 1:35:10
  Speaker 2: wouldn't hire one hundred people to steal a forty billion
• 1:35:13
  Speaker 2: dollar business? Yeah, forty four. I mean it's there for
• 1:35:16
  Speaker 2: the taking. Just I'm I'm not a big Instagram fan,
• 1:35:20
  Speaker 2: and I'm certainly not a Facebook fan, but I'm I'm
• 1:35:24
  Speaker 2: on Threads waiting for compliance to give me approval to start.
• 1:35:27
  Speaker 1: Yeah three tweeting.
• 1:35:29
  Speaker 2: I don't even know what you yell.
• 1:35:30
  Speaker 1: I call it, Yeah, I call it threading. But yeah,
• 1:35:34
  Speaker 1: I'm on it every day, just playing around and not
• 1:35:38
  Speaker 1: by Twitter yet. No, there's not enough engagement yet, But
• 1:35:41
  Speaker 1: that the engagement on Twitter is collapsed, you know, it's
• 1:35:45
  Speaker 1: completely closed, like there's hardly any engagement.
• 1:35:48
  Speaker 2: Now. I thought that's because I have two hundred followers
• 1:35:50
  Speaker 2: in my backup account, right as opposed to two hundred thousand. Right,
• 1:35:54
  Speaker 2: But my buddy Dave Nadick has said they he has
• 1:35:58
  Speaker 2: a friend who tracks in twit activity and he said,
• 1:36:03
  Speaker 2: if you look at the top five hundred one thousand accounts,
• 1:36:05
  Speaker 2: everything's just fallen off a cliff.
• 1:36:07
  Speaker 1: Yeah. Yeah, it's sad. That was my social media of choice, Yes,
• 1:36:12
  Speaker 1: same same years.
• 1:36:14
  Speaker 2: And the DM side of it was really interesting to
• 1:36:19
  Speaker 2: like I could slip into a DM with Dick Taylor
• 1:36:22
  Speaker 2: and say, hey, have you seen this paper? And I'm
• 1:36:24
  Speaker 2: not going to bother him on his phone with that,
• 1:36:26
  Speaker 2: and an email seems too formal, so I miss that,
• 1:36:31
  Speaker 2: and I've kicked it up the chain at Bloomberg to
• 1:36:34
  Speaker 2: try and you know, figure, hey, they're a big client
• 1:36:36
  Speaker 2: and there's like eleven people left there and it's the
• 1:36:41
  Speaker 2: same phone number that I set the account up with
• 1:36:43
  Speaker 2: years ago. I'm gonna stop whining about my and Scott
• 1:36:46
  Speaker 2: Galloway's Twitter accounts and ask you tell us about your
• 1:36:50
  Speaker 2: mentors who helped to shape your career.
• 1:36:54
  Speaker 1: Yeah. The first one was before it got into real estate.
• 1:36:59
  Speaker 1: Actually was a food service director of a of a
• 1:37:02
  Speaker 1: hospital in Chicago.
• 1:37:04
  Speaker 2: I kind of knew that, didn't I.
• 1:37:06
  Speaker 1: Yeah, I ended up and my first boss out of
• 1:37:09
  Speaker 1: college gentleman named John Nelson really just taught me how
• 1:37:16
  Speaker 1: to navigate the politics and how to get stuff done.
• 1:37:21
  Speaker 1: He was fascinated with post it notes. But I always
• 1:37:26
  Speaker 1: felt a really good you know, I always had a
• 1:37:29
  Speaker 1: really good feeling. I'd have to say. In sort of
• 1:37:34
  Speaker 1: the modern era, my It's It's was was Dottie Herman,
• 1:37:39
  Speaker 1: who was basically the person that put Douglas Almon together.
• 1:37:44
  Speaker 1: She's not not active with the company these days, but
• 1:37:48
  Speaker 1: she saw what I did with market studies, you know,
• 1:37:51
  Speaker 1: what I could do, and she embraced it and pushed,
• 1:37:55
  Speaker 1: you know, you know, encourage me, pushed me to expand
• 1:37:59
  Speaker 1: my print out of side of New York City.
• 1:38:02
  Speaker 2: She's wildly she was wildly successful in real estate. I've
• 1:38:05
  Speaker 2: met her a couple of times. She kind of reminded
• 1:38:08
  Speaker 2: me of my mom, who was one of these like
• 1:38:11
  Speaker 2: just my mind right, classic real estate agent, but knew
• 1:38:17
  Speaker 2: the area, knew the neighborhood. No bs. Hey, we'll find
• 1:38:20
  Speaker 2: you a house that'll fit you, and we'll do whatever
• 1:38:24
  Speaker 2: we We'll show you a million houses if that's what
• 1:38:26
  Speaker 2: it takes. She sort of like tough Broad grew up
• 1:38:30
  Speaker 2: in the Bronx. My mom Dotty Harmon kind of reminded
• 1:38:33
  Speaker 2: me of that in the same way.
• 1:38:34
  Speaker 1: I always felt like, you know, she recognized, you know,
• 1:38:38
  Speaker 1: what I could do, and she pushed and protected and
• 1:38:41
  Speaker 1: nurtured and made it happen. Some forever appreciative of that.
• 1:38:46
  Speaker 2: And you've been doing these reports for Douglas Ellman for
• 1:38:48
  Speaker 2: a long time.
• 1:38:49
  Speaker 1: Ninety four is when we began.
• 1:38:51
  Speaker 2: So you're coming up on your thirtieth year. That's amazing.
• 1:38:54
  Speaker 1: It's it's a lot, but it's, uh, I don't know,
• 1:38:59
  Speaker 1: it's it's it's it's fascinating because on one hand, you're
• 1:39:03
  Speaker 1: looking at all these different markets markets, but they they
• 1:39:07
  Speaker 1: draw you know, you can look at very similar metrics
• 1:39:11
  Speaker 1: and tell different stories by the sort of combination of
• 1:39:15
  Speaker 1: the metrics and guess what, there's median price trends in
• 1:39:19
  Speaker 1: Orange County, California, just like there are in Manhattan. What
• 1:39:23
  Speaker 1: do they say? And actually, I think what has really
• 1:39:27
  Speaker 1: established the report series for Douglas Solomon is that it's
• 1:39:32
  Speaker 1: anybody can spit out numbers. It's it's sort of you know,
• 1:39:36
  Speaker 1: capturing the you know, what's actually happening.
• 1:39:41
  Speaker 2: Your reports are about putting them into context.
• 1:39:44
  Speaker 1: The right, it's usable, right, so so I interact with
• 1:39:47
  Speaker 1: a lot of media. I probably get six interactions by
• 1:39:52
  Speaker 1: email or phone call every day. I don't have I
• 1:39:54
  Speaker 1: don't have any pr and and it's just because I
• 1:40:00
  Speaker 1: I'm accessible. That's the biggest thing about the.
• 1:40:04
  Speaker 2: Media that's really interesting. Let's talk about everybody's favorite question,
• 1:40:09
  Speaker 2: which is what are you reading? Tell us about your
• 1:40:11
  Speaker 2: favorite books and what you're reading right now.
• 1:40:13
  Speaker 1: So, I uh, just finished two books. One was A
• 1:40:17
  Speaker 1: Billionaire's Row, which was written by a friend of mine,
• 1:40:20
  Speaker 1: a reporter named Kathy Clark. And if you ever want
• 1:40:25
  Speaker 1: to know like what the how insane the development world is,
• 1:40:34
  Speaker 1: this is the book.
• 1:40:34
  Speaker 2: Because this is about these pencil thin, right, twenty story buildings,
• 1:40:39
  Speaker 2: toller than the Empire State Building, right, but but on
• 1:40:42
  Speaker 2: like a smaller footprint.
• 1:40:44
  Speaker 1: That would have been possible fifteen years ago.
• 1:40:46
  Speaker 2: It's it's all the material materials.
• 1:40:48
  Speaker 1: And the engineering has changed dramatically, but they're more expensive
• 1:40:52
  Speaker 1: to build, right And yeah, and to see you know,
• 1:40:57
  Speaker 1: you know, you have a condo that's fifteen hundred and
• 1:40:59
  Speaker 1: fifty feet tall, tallest condo in the world, one.
• 1:41:03
  Speaker 2: Hundred million dollars, some crazy number.
• 1:41:06
  Speaker 1: Well, the Penthouse is for sale for two hundred and
• 1:41:08
  Speaker 1: fifty million dollars.
• 1:41:09
  Speaker 2: Good aspirational pricing a term that you coined.
• 1:41:12
  Speaker 1: Yes, actually on the air during a Bloomberg interview on
• 1:41:16
  Speaker 1: a TV interview. I don't remember, like two thousand and
• 1:41:20
  Speaker 1: fifteen or sixteen, but you know that you have one
• 1:41:25
  Speaker 1: eleven West fifty seventh on billion Billionaire's Row is really
• 1:41:28
  Speaker 1: sort of west and east fifty seventh Street to Park
• 1:41:33
  Speaker 1: Avenue on the east and probably eighth Avenue on the west.
• 1:41:36
  Speaker 1: But then in the book she includes two twenty Central
• 1:41:40
  Speaker 1: Park South, which has the two hundred and thirty nine
• 1:41:42
  Speaker 1: million dollars sale.
• 1:41:45
  Speaker 2: By this a bargain fifty right, exactly save yourself eleven minute? Right?
• 1:41:50
  Speaker 1: Is it?
• 1:41:51
  Speaker 2: Is it true these buildings are essentially half sold.
• 1:41:55
  Speaker 1: I think the numbers now is that they're about in
• 1:41:58
  Speaker 1: aggregate about sixty p sen sold. But there are buildings
• 1:42:02
  Speaker 1: that are have done, you know, sold out, like four
• 1:42:05
  Speaker 1: thirty two Park, and then buildings that are you know,
• 1:42:09
  Speaker 1: having trouble. I mean this is you know, the miscalculation
• 1:42:15
  Speaker 1: of Billionaire's Row was that the market, the global market
• 1:42:19
  Speaker 1: wasn't as wide and as deep as everybody thought. You know.
• 1:42:23
  Speaker 1: I used to joke that these buildings or the high
• 1:42:27
  Speaker 1: end buildings in New York were like the world's most
• 1:42:29
  Speaker 1: expensive bank safety deposit boxes where you put your valuables
• 1:42:33
  Speaker 1: in and then you don't go there very often. And
• 1:42:37
  Speaker 1: that's many what these are. Where the there was a
• 1:42:39
  Speaker 1: New York Magazine article years ago one of these buildings
• 1:42:42
  Speaker 1: where it's dark at night there's like one or two
• 1:42:45
  Speaker 1: lights on because nobody's there.
• 1:42:46
  Speaker 2: Right, It's just they're just self storage.
• 1:42:49
  Speaker 1: Right, right, and anyway, So, but I can't say enough
• 1:42:53
  Speaker 1: about this book. The other book I'm reading, I just
• 1:42:55
  Speaker 1: read wait.
• 1:42:56
  Speaker 2: Before you go off of Billionaire's Row. I have to ask.
• 1:43:00
  Speaker 2: So I've seen people try and extrapolate these sales and
• 1:43:04
  Speaker 2: listings quarter billion dollars as if it's an actual marketplace.
• 1:43:09
  Speaker 2: It's almost like, oh, there's one of eleven rem brands
• 1:43:13
  Speaker 2: around for sale, and it comes up for sale every generation.
• 1:43:18
  Speaker 2: In the other ten I've already been grabbed by right museums.
• 1:43:21
  Speaker 2: How much can you really read into it? Considering there's
• 1:43:25
  Speaker 2: a few dozen of these and maybe a few dozen
• 1:43:28
  Speaker 2: potential purchasers. This isn't like a true real estate market.
• 1:43:33
  Speaker 1: It is a so I think of it as a
• 1:43:35
  Speaker 1: market of outliers and so I told you earlier that
• 1:43:40
  Speaker 1: I I started in twenty fourteen tracking any sales that
• 1:43:47
  Speaker 1: actually closed for a fifty million or higher then and
• 1:43:54
  Speaker 1: I went back in time back to like two thousand
• 1:43:57
  Speaker 1: and really that world began about twenty fourteen, where there
• 1:44:03
  Speaker 1: were maybe seventeen or eighteen nationally sales fifty million or higher.
• 1:44:09
  Speaker 1: And now and now, so twenty twenty one was the record,
• 1:44:14
  Speaker 1: and it was in the low forties. I want to
• 1:44:17
  Speaker 1: say there were forty three sales. There were, you know,
• 1:44:20
  Speaker 1: somewhere in the mid thirties and twenty two, and then
• 1:44:22
  Speaker 1: this year looks like it's on track to be you know,
• 1:44:25
  Speaker 1: probably in the mid twenties. And you know, you look
• 1:44:31
  Speaker 1: at this and there's like a transaction like a week
• 1:44:35
  Speaker 1: or you know, every other week. But in twenty twenty one,
• 1:44:40
  Speaker 1: there was like a transaction every it felt like every day.
• 1:44:42
  Speaker 1: It wasn't. It became a market that is detached from
• 1:44:49
  Speaker 1: the local market that it sits.
• 1:44:52
  Speaker 2: Within in anyway.
• 1:44:53
  Speaker 1: In many ways, these transactions have nothing. You know, they
• 1:44:57
  Speaker 1: get so many more eye balls through article coverage on
• 1:45:03
  Speaker 1: high end transactions and titans of industry buying these places,
• 1:45:07
  Speaker 1: but they really are this market a national international market.
• 1:45:13
  Speaker 1: That's not like, Hey, these are New York City sales.
• 1:45:16
  Speaker 1: Now these are you know, these are not that well
• 1:45:20
  Speaker 1: connected to New York.
• 1:45:22
  Speaker 2: In the spring of twenty twenty two, I was speaking
• 1:45:25
  Speaker 2: at the International Luxury real Estate Alliances Annual Conference, and
• 1:45:30
  Speaker 2: at night we're having dinner in One of the people
• 1:45:33
  Speaker 2: there as a real estate agent in Palm Beach, and
• 1:45:36
  Speaker 2: she gets the confirm from her assistant. Hey, the one
• 1:45:39
  Speaker 2: hundred million dollar house is now in contract. The deal
• 1:45:44
  Speaker 2: went through, and I said, Wow, that has to be
• 1:45:46
  Speaker 2: a hell of a house, and I'll never forget. Her
• 1:45:48
  Speaker 2: response was, Eh, don't really like it. It has a
• 1:45:52
  Speaker 2: has a seawall, it doesn't have a beach, not the
• 1:45:54
  Speaker 2: ideal part of Palm Beach. Like, oh, ho ho, pull
• 1:45:58
  Speaker 2: that back. If I'm spending.
• 1:46:00
  Speaker 1: One hundred large, yeah.
• 1:46:02
  Speaker 2: You're telling me it's not the perfect house. Even one
• 1:46:05
  Speaker 2: hundred million dollars is a bunch of compromises. And her
• 1:46:09
  Speaker 2: answer was not a lot of inventory around. If you
• 1:46:12
  Speaker 2: want that type of house in that part of the world,
• 1:46:15
  Speaker 2: you're gonna have to make some compromises. And my answer
• 1:46:19
  Speaker 2: would be, then I guess I'm gonna skip that part
• 1:46:21
  Speaker 2: of the right right, one hundred million dollars. I want
• 1:46:23
  Speaker 2: exactly what I want, and uh, I don't want the
• 1:46:25
  Speaker 2: sea wall. I want the white sandy.
• 1:46:27
  Speaker 1: Beach right right. No, it's and it's what's interesting in
• 1:46:30
  Speaker 1: New York is it's building by buildings. So so you
• 1:46:34
  Speaker 1: have one fifty seven, which was I call Extel Development, uh,
• 1:46:41
  Speaker 1: which I think they were originally. I read this in
• 1:46:43
  Speaker 1: the Billionaires Roebook. They were originally called Intel Development, but
• 1:46:47
  Speaker 1: they got sued for the name, so they changed your
• 1:46:49
  Speaker 1: name to Extel. Right because but but sales you know,
• 1:46:55
  Speaker 1: that closed from the sponsor, the developer in twenty sixteen.
• 1:47:00
  Speaker 1: By twenty seventeen, twenty eighteen, their values were fifty percent less.
• 1:47:05
  Speaker 1: They were selling for fifty percent less. That seems to
• 1:47:08
  Speaker 1: be about the marker. So you say, oh, that applies
• 1:47:11
  Speaker 1: to all billionaires in a row.
• 1:47:12
  Speaker 2: No, you know, you have douses a lot more than
• 1:47:15
  Speaker 2: everything else.
• 1:47:16
  Speaker 1: Right, well, also to yeah, the penthouse there sold for
• 1:47:19
  Speaker 1: one hundred million Michael Dell bought it. That was the
• 1:47:23
  Speaker 1: at the time, that was the highest for a short
• 1:47:25
  Speaker 1: period of time. But my point is that you look
• 1:47:28
  Speaker 1: at other buildings during the same era, like four thirty
• 1:47:31
  Speaker 1: two Park, or you look at two twenty Central Park South.
• 1:47:35
  Speaker 1: They didn't see it. They didn't see fifty percent discounts.
• 1:47:38
  Speaker 1: In fact, two twenty Center Park South a Ornado Realty development.
• 1:47:44
  Speaker 1: The resales, you know, after they were bought from the sponsor,
• 1:47:48
  Speaker 1: we've had a resale sell for double what they bought
• 1:47:53
  Speaker 1: from the sponsor, which is sort of crazy. And it's
• 1:47:57
  Speaker 1: only two blocks away.
• 1:48:00
  Speaker 2: So that the building itself matters, not not just the building,
• 1:48:03
  Speaker 2: the size, the amenities, everything about it really makes a
• 1:48:06
  Speaker 2: big differ, absolutely all right. So besides billionaire's row, what else?
• 1:48:10
  Speaker 1: What else? I just read a sort of fast and
• 1:48:12
  Speaker 1: easy book just out of the blue called Easy Money,
• 1:48:15
  Speaker 1: and it's basically a throttling of cryptocurrency. Who wrote it,
• 1:48:22
  Speaker 1: I can't remember. I don't remember his name, but he
• 1:48:26
  Speaker 1: it's very very clear and how he's going through it,
• 1:48:30
  Speaker 1: and basically there's no you know that he contends there's
• 1:48:33
  Speaker 1: no value to crypto. You know, it's just basically, you know,
• 1:48:37
  Speaker 1: it's a rife with people, nefarious sort of types that
• 1:48:43
  Speaker 1: most people lose money, you know, who knows.
• 1:48:46
  Speaker 2: But interesting though.
• 1:48:47
  Speaker 1: But it was an interesting take. And then the one
• 1:48:50
  Speaker 1: I just I'm actually just started two books. Sometimes I
• 1:48:54
  Speaker 1: read books. In parallel is a book called The Slip,
• 1:48:58
  Speaker 1: which is about Kuent's I think that's how you pronounce it.
• 1:49:03
  Speaker 1: Slip in downtown Manhattan was one of the first sort
• 1:49:07
  Speaker 1: of artists enclaves like you would think of Soho or
• 1:49:10
  Speaker 1: Tribeca in the seventies. This was more like in the
• 1:49:14
  Speaker 1: forties and fifties. And I had no idea, you know,
• 1:49:19
  Speaker 1: I'd never heard of this, but it's a really it
• 1:49:21
  Speaker 1: looks really good. I've read a little bit of it.
• 1:49:23
  Speaker 1: And the other the other book is that Gretchen Morgenstern
• 1:49:28
  Speaker 1: vas these are the Plunderers something about.
• 1:49:32
  Speaker 2: I had her on the show. I read the book. Yeah,
• 1:49:34
  Speaker 2: really interesting. But by the way, we went to the
• 1:49:36
  Speaker 2: Hopper exhibit down at the New Whitney at the end
• 1:49:40
  Speaker 2: of the high Line, and apparently off of Washington Square
• 1:49:45
  Speaker 2: Park was another one of those artists enclave where Hopper
• 1:49:49
  Speaker 2: and a bunch of his you know, comy.
• 1:49:51
  Speaker 1: Like East Village, like Saint Mark's Place.
• 1:49:54
  Speaker 2: No, this is this is right off of West Fourth
• 1:49:57
  Speaker 2: or off of Washington Square Park. At the show, there's
• 1:50:02
  Speaker 2: a series of letters printed about him arguing with his
• 1:50:05
  Speaker 2: landlord and him arguing with really he testified at the
• 1:50:09
  Speaker 2: local zoning board because they wanted it was sort of
• 1:50:13
  Speaker 2: zoned the way eventually, soho was that gave a good
• 1:50:17
  Speaker 2: advantage to artists? And before anyone really understood who he was,
• 1:50:23
  Speaker 2: he was complaining and saying, you're going to change the
• 1:50:26
  Speaker 2: whole character of the neighborhood from an artists enclave to
• 1:50:30
  Speaker 2: just a commercial district.
• 1:50:31
  Speaker 1: Well, when I when I first moved to New York,
• 1:50:34
  Speaker 1: the East Village or you know Alphabet City, you know
• 1:50:37
  Speaker 1: the Avenue ABC as you go further east, I remember
• 1:50:41
  Speaker 1: there was a condo conversion right on the park there
• 1:50:46
  Speaker 1: that the neighborhood centers around, and it was it was
• 1:50:50
  Speaker 1: spray painted on the front door of this conversion, Die
• 1:50:53
  Speaker 1: Yeppie scum.
• 1:50:54
  Speaker 2: I remember that.
• 1:50:55
  Speaker 1: That became the battle cry, and.
• 1:50:57
  Speaker 2: That picture was in New York magazine or somewhere. I mean,
• 1:51:00
  Speaker 2: that became a famous image.
• 1:51:02
  Speaker 1: Yeah, yeah, yeah, I was there. It was. It was,
• 1:51:05
  Speaker 1: you know, it was a pretty rough neighborhood in terms
• 1:51:07
  Speaker 1: of you know, a lot of you know, elevated crime
• 1:51:10
  Speaker 1: and all that, but now you'd never know it.
• 1:51:13
  Speaker 2: Totally gentrificed.
• 1:51:14
  Speaker 1: Yeah, totally gentrified.
• 1:51:15
  Speaker 2: Amazing. Down to our last two questions, what sort of
• 1:51:19
  Speaker 2: advice would you give to a recent college grad interested
• 1:51:23
  Speaker 2: in a career in either real estate or data analytics
• 1:51:27
  Speaker 2: or appraisal.
• 1:51:28
  Speaker 1: Yeah, so I'm sort of I think of it as
• 1:51:33
  Speaker 1: I've seen my various four sons, you know, going through
• 1:51:37
  Speaker 1: interview processes, and first of all, it's so different than
• 1:51:42
  Speaker 1: when I began, So I don't know how relevant my
• 1:51:44
  Speaker 1: advice would be, but we had you know, it's all
• 1:51:47
  Speaker 1: through Zoom. They winnow it down, you know, and then
• 1:51:50
  Speaker 1: you finally meet in person and you go through like
• 1:51:52
  Speaker 1: multiple layers of interviews on Zoom. So it's very detached.
• 1:51:56
  Speaker 1: There's not a lot of sort of personal connecting. So
• 1:51:59
  Speaker 1: so the first sort of base level advices really think
• 1:52:03
  Speaker 1: about your appearance on Zoom. It sounds really you know,
• 1:52:07
  Speaker 1: because I find Zoom to be sort of soul sucking,
• 1:52:11
  Speaker 1: you know, if you do quite a you know, during
• 1:52:13
  Speaker 1: the pandemic, I think I was doing like eight hours
• 1:52:15
  Speaker 1: of Zoom a day. Yeah, and you're just completely drained.
• 1:52:21
  Speaker 1: But but I think that that's you.
• 1:52:22
  Speaker 2: Know the secret to zoom, Right, turn your camera off
• 1:52:28
  Speaker 2: and just surf through, bring a trailer and just you know,
• 1:52:33
  Speaker 2: uh huh, just say frequently yep, yeah, right, Yeah, it's
• 1:52:36
  Speaker 2: a big connection. I got no video, and well what.
• 1:52:39
  Speaker 1: I have got I do zoom, you know, because I
• 1:52:42
  Speaker 1: always found it challenging to look up at like the
• 1:52:45
  Speaker 1: top of the.
• 1:52:46
  Speaker 2: Mother So I have the cameras that hang out.
• 1:52:49
  Speaker 1: Yeah, I got the camera that hangs down in the
• 1:52:51
  Speaker 1: center of the screen. It's very small so it doesn't
• 1:52:53
  Speaker 1: block anything. That was like one during the pandemic. I
• 1:52:57
  Speaker 1: bought them for one for home and one for the
• 1:52:59
  Speaker 1: office through a Kickstarter startup. Now there's a bunch more
• 1:53:03
  Speaker 1: of them. But it's the greatest thing ever for that
• 1:53:06
  Speaker 1: because you can check emails and look at you know,
• 1:53:09
  Speaker 1: if you're not nobody knows, nobody can tell. It's it's
• 1:53:12
  Speaker 1: a it's a great invention.
• 1:53:14
  Speaker 2: That's hilarious. And our final question, what do you know
• 1:53:17
  Speaker 2: about the world of real estate today? You wish you
• 1:53:20
  Speaker 2: knew forty years or so ago when you were first
• 1:53:23
  Speaker 2: getting started.
• 1:53:24
  Speaker 1: Uh, you know, I think to do everything I could
• 1:53:29
  Speaker 1: to buy something earlier on. I didn't buy a house
• 1:53:33
  Speaker 1: till my mid thirties because I was trying to grow
• 1:53:36
  Speaker 1: my business, and I think if I had started, you know,
• 1:53:40
  Speaker 1: the idea of you know, starting a little bit earlier
• 1:53:44
  Speaker 1: is you know, when I think of the prices, even
• 1:53:48
  Speaker 1: relative to my income at the time, there wasn't such
• 1:53:52
  Speaker 1: a stretch, such a multiplier effect, even though mortgage rates
• 1:53:55
  Speaker 1: are much higher.
• 1:53:56
  Speaker 2: So let me flip that answer on you and say,
• 1:54:00
  Speaker 2: would you give your kids, who are now in their
• 1:54:03
  Speaker 2: late twenties early thirties, right more or less? Would you
• 1:54:06
  Speaker 2: give them the same advice, Hey, buy a house sooner
• 1:54:08
  Speaker 2: rather than later.
• 1:54:09
  Speaker 1: Yeah. Three of my four sons are all homeowners, are
• 1:54:15
  Speaker 1: multiple homeowners, and you know, have set up you know,
• 1:54:20
  Speaker 1: they're they It's worked out great so so not that
• 1:54:26
  Speaker 1: you know, I advise them in the negotiation a little
• 1:54:28
  Speaker 1: bit and all that, but they really did it on
• 1:54:30
  Speaker 1: their own and and got the homes that they love.
• 1:54:34
  Speaker 1: My youngest, who just turned twenty five, is living his
• 1:54:39
  Speaker 1: best life in Manhattan as a renter. But you know,
• 1:54:43
  Speaker 1: he's got a completely different lifestyle than his brothers in
• 1:54:46
  Speaker 1: the suburbs.
• 1:54:47
  Speaker 2: So they're all married and getting married.
• 1:54:49
  Speaker 1: In four grandkids and it's very odd.
• 1:54:54
  Speaker 2: Jonathan, thank you for being so generous with your time. Cheryl,
• 1:54:58
  Speaker 2: thank you for coming in. I appreciate this. We have
• 1:55:01
  Speaker 2: been speaking with Jonathan Miller. He is CEO of mir Samuel,
• 1:55:06
  Speaker 2: one of the most respected appraisal and data analytics firm
• 1:55:11
  Speaker 2: covering the world of residential real estate. If you enjoy
• 1:55:15
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