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Stress In That Marketplace Is Just Beginning

A report from Bisnow on Massachusetts. “Recession alarm bells are ringing in one Boston real estate sector, but the backbone of the city’s economy is still pushing forward with more development. The higher education-backed development boom may be coming late in the cycle, but Suffock University John Nucci said universities are a safe bet when economic waters get choppy. ‘We’ve been here for over 100 years and will be around for the next 100,’ Nucci said. ‘In many ways, we see increases in enrollment at times of an economic downturn because people come in and realize it’s an opportunity to further their educational career.'”

“As to whether the development is coming too late in this economic cycle, Berkley Investments Young Park said Boston’s research-based economy and hard science insulates it from downturns. While consumer goods developed in Silicon Valley might take a hit in down times when people are cutting costs, the research done in Boston’s burgeoning higher education-backed neighborhoods will still move forward. ‘Harvard is a little late to the game but has enormous resources that haven’t been tapped,’ he said. ‘I think Boston has a lot of resources that would potentially shield it from the wild gyration of a recessionary phase in the economy.'”

The Arizona Daily Star. “In a sign that student-housing towers near campus are having an impact on similar outlying complexes, one of the earliest student-housing projects on the city’s west side is being converted into traditional apartments. Developer Holualoa bought Gateway at Tucson, a 188-unit complex built in 2005, for $12.9 million and plans to refurbish it into 273 units of conventional apartments. Churchill Commercial Capital arranged a $19.3 million loan for the renovation.”

“The proliferation of student housing around campus impacted Gateway and made additional amenities, such as a shuttle bus, necessary to compete, said Lani Baker, vice president of finance for Holualoa. ‘Once those towers started going up, occupancy significantly decreased,’ she said. ‘Profitability was impacted.'”

“Mike Chapman, senior vice president with NAI Horizon and a student-housing expert, said Gateway is the first major property here to convert from student housing to conventional apartments. ‘Stress in that marketplace is just beginning,’ he said of the complexes that are off campus.'”

“Predictions of saturation date back to 2013 when industry experts believed every new tower announced would be the last, but occupancy rates and high rents keep investors interested. When saturation will occur remains a mystery. ‘If I could tell you for sure,’ Chapman quipped, ‘I’d be sitting somewhere counting money instead of being on the phone.'”

The Lawrence Journal-World in Kansas. “Thousands of Lawrence residents are spending more than they can afford for their homes and apartments, and Lawrence City Commission candidates have no shortage of ideas for how to fix it. ‘The fact is that rents in Lawrence are higher than 30% of many people’s incomes,’ Stuart Boley said. ‘So you can look at that as a problem in housing prices; you can also look at that as a problem in income levels.'”

“Shipley said the city has focused funding on lower-end homes, when what people are demanding are homes in the $180,000 to $250,000 range. She said since developers have been overbuilding more expensive homes, the city may have to provide incentives to get those homes built. ‘So what kind of incentive could we come up with to get developers or builders to build the housing we actually need instead of things we’ve already overbuilt, which is student housing, hotels and higher-end housing,’ Shipley said.”

The Collegiate Times in Virginia. “Construction has begun for an apartment complex along Patrick Henry Drive after an extensive battle between Shenandoah neighborhood residents and Green Valley Builders, a local Blacksburg construction company responsible for the development. Since the proposal of this project in 2018, Shenandoah neighborhood residents, who live in the area where the buildings are being constructed, have been fighting against the development of this housing.”

“Blacksburg Mayor Leslie Hager-Smith urged the citizens of the town to understand this pivotal moment in Blacksburg history, noting the expected growth of Virginia Tech in the upcoming years. John McQuail, head of the Homeowner’s Association for the Shenandoah neighborhood, describes how many of the residents are unhappy about the decision, and that the majority of them lost hope in the battle against it.”

“‘I listed my house for sale the day after their decision,’ McQuail said, discussing his disappointment in the approval of the construction of these apartments. ‘In order for me to sell my house I had to reduce the price by $50,000. Several other neighbors had the same disappointing selling experience.'”

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  1. ‘While consumer goods developed in Silicon Valley might take a hit in down times when people are cutting costs, the research done in Boston’s burgeoning higher education-backed neighborhoods will still move forward. ‘Harvard is a little late to the game but has enormous resources that haven’t been tapped’

    Again, they see this student stuff as being recession proof. It’s a story they made up to justify paying too much for the land.

    1. They see students as recession-proof because they think they will be paid rent out of student loan money.

      But that game is over. Gen Z and their savvy Gen X parents aren’t about to fork over luxury rent just so that Junior can call up Dave Ramsey in 5 years asking how to pay back $86K in student loans. Yeah, the developers are fooked.

      1. Dave Ramsey in 5 years asking how to pay back $86K in student loans.

        Still love the bumper sticker I saw a few months ago on a beater Toyota Yaris: “Dave Ramsey makes me drive this.”

        1. Haha, I own not one but 2 beater Yaris’. They just keep going and going without any major repairs or problems.

          1. Good on you! People on this board give me grief for my Tesla model 3, but I took the bus during college, drove a 50 cc scooter, had a Honda Civic, and then an eBike. Vehicles can suck you dry!

          2. give me grief for my Tesla

            Incorrect. Have whatever luxury toy you want. We all have something. You were called to task for insisting that you were conserving energy. Nobody cares if you like the acceleration or whatever.

            When we mock the company, that is nothing personal.

  2. ‘Predictions of saturation date back to 2013 when industry experts believed every new tower announced would be the last, but occupancy rates and high rents keep investors interested. When saturation will occur remains a mystery. ‘If I could tell you for sure,’ Chapman quipped, ‘I’d be sitting somewhere counting money instead of being on the phone’

    And this is what counts for an expert. Downtown Tucson is wildly overbuilt and has been for years.

    ‘but occupancy rates and high rents keep investors interested’

    Let me explain how this went: 8% cap rate isn’t so bad. A year later, 5% isn’t so bad. A year later, well 3.5% isn’t so bad. Etc.

    1. Being a local, I read this the other day and was pretty confused.

      First off, if you have to switch from student housing to regular rentals, wouldn’t that indicate saturation of at least that sub-market?

      I drove down out of the Foothills and was amazed at how vertical things have become by the U of A. You can see it from miles away. I graduated less than 10 years ago and it was nothing like that when I was there.

  3. The higher education-backed development boom may be coming late in the cycle, but Suffock University John Nucci said universities are a safe bet when economic waters get choppy. ‘We’ve been here for over 100 years and will be around for the next 100,’ Nucci said.

    The hubris is unreal. Here’s what’s changed, Nucci: in our oligarch-looted economy, getting a college degree is only a guarantee of racking up huge student debts, while secure, living-wage jobs are vanishing. Most liberal arts majors headed for pitifully low-earning jobs in the gig economy or as baristas, waiters, or home-health workers once they go back to vocational school and learn how to do something useful.

    2. Most liberal arts majors headed for pitifully low-earning jobs in the gig economy or as baristas, waiters, or home-health workers once they go back to vocational school and learn how to do something useful.

      As a now discontinued talking Barbie doll used to say: “Math class is tough.”

      https://en.wikipedia.org/wiki/Teen_Talk_Barbie

  4. “In order for me to sell my house I had to reduce the price by $50,000. Several other neighbors had the same disappointing selling experience.”

    At least it was cheaper than renting.

    1. ‘In order for me to sell my house I had to reduce the price by $50,000. Several other neighbors had the same disappointing selling experience.’

      Yeah, and no acknowledgement that it could be worse.

  5. https://www.cnbc.com/2019/10/14/millennials-to-trigger-changeover-point-for-the-us-economy-bill-smead-says.html

    Don’t worry Millennials to the rescue!

    “So, we have got 89 million people in between 21 and 38 years old that are about to start their lives, form households, do incredibly economically impactful things and we don’t need anybody from outside the United States to cause that to happen.”

    “And we are giving them the lowest interest rates in the history of the United States of America to form their lives. We are practically giving them the money to buy houses and buy cars etc,” he added.

        1. Close enough.

          A reminder: “The 13th Amendment to the Constitution declared that “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”

          Note the use of the term “involuntary servitude”. Involuntary servitude relied on coercion, a rather nasty and troublesome method of imposing slavery upon a hapless victim.

          The modern equivalent is voluntary servitude, a less troublesome method of imposing slavery. Voluntary servitude relies on the art of persuasion rather than the brute force of coercion. The success of this art of persuasion is directly dependent on the complete ignorance of the prospective slave, and thanks to our modern education system such complete ignorance is the rule rather than the exception.

          1. a less troublesome method of imposing slavery

            Ironically, the greed of the volunteer slave only impoverishes them while enriching their lenders.

          3. “The rich rules over the poor, And the borrower is servant to the lender.” – Proverbs 22:7

    2. Does that jackass really think “Chipotle burritos” are the reason Millennials cannot afford housing in many metro areas?

        1. how about all those 38 year-olds that are just about to settle down and start raising families?

          I think that there are a lot fewer of them (ready to start a family) than many believe. Many of them are still stuck in low paying, dead end jobs and won’t be starting a family ever.

          1. Don’t underestimate the power of “baby rabies” on young women.

            On a related note, the number of young women putting themselves out there as ‘Sugar Babies’ has reached record levels in the past few years. There should soon be a growing intersection on the Venn Diagram with the label “Tag! You’re it (Daddy)!”

          2. I assume the overlap between “stuck in low paying, dead end jobs” and the guys that sugar babies are after is zero.

          3. Don’t underestimate the power of “baby rabies” on young women.

            Agreed, but there have been plenty of articles lately chronicling the severe lack of “suitable” men with adequate incomes they can play house with.

          4. I assume the overlap between “stuck in low paying, dead end jobs” and the guys that sugar babies are after is zero.

            I think what MG meant is that some of the gals might try to “oops” their sugar daddies. He might not marry her, but he will have to cough up child support for 18 years.

            Desperate times call for desperate measures, I suppose.

          5. Yeah I was trying to say if a 38 year-old hasn’t gotten married and started a family by that age, then they never will.

          6. ISTM that the sugar babies will be a good match for the MGTOWs. They arrive at the same goal from different directions.

          9. ISTM that the sugar babies will be a good match for the MGTOWs. They arrive at the same goal from different directions.

            Same goal? The sugar babies are looking for cash and prizes. MGTOWs are not.

          11. TL;DR – I was making reference to all those points and more. Yes, the implication was a “whoops baby” with a wealthy(er) old(er) man than they would normally have.

            A convergence of several factors relating to that is going on right now from an overload of debt amount gen-z to a dearth of gen-z who are “economically attractive” to the massive rise in the number of women (mostly young) that have signed up on Sugar Baby sites like Seeking Arrangement to the fact there is zero stigma to being a single mom. Add in a culture of near instant gratification and entitlement, a seeming endless number of romantic partners on ones phone, and a general attitude of “unwilling to settle” and you got a lot of women looking to trade in on their looks and youth.

            And then biology hits – that hasn’t changed despite all our societal changes. Many of the women my age have admitted to me that they went through a period of “baby crazies” – overwhelming urge to have babies. And there’s no real stigma these days to single moms or sugaring’ as they call it.

            Google “record number of sugar babies” …

            the #3 hit is typical: 514 UNC students are on SeekingArrangement. Who’s behind the number?

            Some choice quotes:

            Anna is one of 60.5 percent of political science degree-holders from UNC with a job six months after graduation — she makes $144,000 annually.

            Anna is a sugar baby on SeekingArrangement.
            …
            “I focus on long-term relationships so I don’t have to worry about where my next paycheck is coming from,” Anna said. “I get a level of trust and emotional connection. I find it more enjoyable.”

            Right now, Anna has three sugar daddies. She sees the primary one weekly, and the other two men between two and three times every month. At the start of the month, the men pay her. She’s able to stay on top of her bills and ensure the men requesting her time will have it.

            Here’s some eye opening reading: http://www.realworlddivorce.com/Massachusetts

            go down to “Scenario 5: 18 year old free spirit/music lover; no marriage” and if nothing else, just read that one section…

            Why yes, I am a little jaded. Have you met my ex?

      2. Does that jackass really think “Chipotle burritos” are the reason Millennials cannot afford housing in many metro areas?

        As an aside, I find Chipotle one of the best values around. I’ve been eating there with my son since he was about 18 months old. I can get a pretty decent meal for about $7.21 with tax that we split. Black beans, pinto beans, brown rice, fresh veggies, grilled chicken, lettuce, tortilla, corn, and pico. It’s hard for me to cook at home at make food that tastes as good and at that price. I do think that cooking will become a bit like sewing is now: a hobby for the well-to-do, but not something that necessarily makes economic sense once all costs are factored in (including kitchen utensils, appliances, etc.).

        1. I’ll let you in on a little secret. In 12 years or so, you’ll still be good with one burrito. He’ll order five.

        2. Sounds like you care about nutrition. If you can get past that I’ve noted that in addition to Taco Bell, In-n-out in California also competes for the calories-per-dollar title. You can get it down around $5 or so. Maybe Subway still competes in that space but I lost the ability to gag it down years ago. You would think that would have happened with Taco Bell first, but oddly no.

          1. In-n-out in California

            Did you know that In-n-Out operates quite a few franchises in Utah? We have one in St. George and it is just as busy as the one in Vegas.

            We live on Trader Joe’s food and a couple of local joints around town, including an amazing Poke Bowl place and a Korean joint.

          2. “You would think that would have happened with Taco Bell first, but oddly no.”

            They tried with cutting the meat content down with cardboard substitutes but failed. That aside im still a big TB fan 😉

  6. “… one of the earliest student-housing projects on the city’s west side is being converted into traditional apartments….”

    “Luxury” student housing .

    The biggest scam of the 21st century.

    Even Bernie Madoff would be embarrassed.

    1. Seems like a modern version of this:

      “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” – J. Paul Getty

      Matt Levine said it better today in his column:

      ome of SoftBank’s cash could also be used by Mr. Neumann to repay hundreds of millions of dollars of personal bank loans, one of the people said.

      “Ah! Yes, most of the billions of dollars of fresh capital will be shoveled into the money furnace to keep WeWork running for another year, but some of it—hundreds of millions of dollars of it—will be handed to Adam Neumann to pay for all the houses he bought back in better times. This is one of those if-you-owe-the-bank-$10-billion-that’s-the-bank’s-problem situations, with SoftBank in the role of the bank: SoftBank, at this point, needs WeWork to work more than Neumann does—he’s already been pushed out, and he already lives in all the houses—and so presumably he can hold them up for more money. He gives them control, they pay off his debts, they call it even; fine, I get it, but for SoftBank it must hurt to have to pay Neumann even more for the rights to the money furnace that incinerated all their cash.”

    1. The thing is, most of the people employed by universities (outside of a select few admins and tenured faculty) aren’t paid particularly well, or the same as private sector positions in the same job. I don’t see how that’s the thing that keeps the market up.

    1. The Neumanns’ borrowings could create headaches for the bank that has bankrolled the couple at every turn: JP Morgan Chase. The bank, as WSJ reports, extended close to $100 million mortgages and other loans to Neumann. JPM is also one of the lenders behind a $500 million line of credit that allowed him to borrow heavily against his shares in WeWork parent ‘The We Company’. Of this credit line, Neumann has already tapped some $380 million, which puts his lenders in a bit of a bind.

      It’s a good thing the Fed and middle class taxpayers have JP Morgan’s back.

  11. Which unicorn company will declare bankruptcy first, WeWork or Uber? We need a revival of the hilarious F**ked Company dot com, which during Tech Bubble 1.0 chronicled the march of doomed dot com companies toward the dead pool. Gosh, sure hope none of the axed Uber employees are paying mortgages on insanely overpriced shacks they bought in anticipation of future riches.

    https://www.marketwatch.com/story/uber-to-lay-off-roughly-350-employees-report-2019-10-14?mod=mw_latestnews

      1. The have nots- zero debt, mobility, choices, marginally positive net worth

        The haves-A mountain of debt, empty pockets, negative net worth and deep in debt, no choices

  13. ‘Shipley said the city has focused funding on lower-end homes, when what people are demanding are homes in the $180,000 to $250,000 range. She said since developers have been overbuilding more expensive homes, the city may have to provide incentives to get those homes built. ‘So what kind of incentive could we come up with to get developers or builders to build the housing we actually need instead of things we’ve already overbuilt, which is student housing, hotels and higher-end housing’

    It’s interesting that the media doesn’t ask how we manage to overbuild so much, in Kansas and everywhere else, yet somehow are unable to provide affordable market rate housing. And somehow we managed to create affordable housing for centuries, then suddenly, it’s unpossible! They just accept the REIC line about a shortage of Guatemalans and high land prices. Are they short of land in Kansas?

    2. ‘So what kind of incentive could we come up with to get developers or builders to build the housing we actually need instead of things we’ve already overbuilt, which is student housing, hotels and higher-end housing’

      You can’t come up with any “incentive” short of pitchforks and torches to compete with the malinvestment and speculative excesses enabled and encouraged by the Fed’s “No Billionaire Left Behind” monetary policies.

  14. The dollar is stronger than ever and that’s a warning sign for the stock market
    Published: Oct 14, 2019 12:22 p.m. ET
    Normally ‘something gives’ when the greenback gets this strong
    Author photo
    By Andrea Riquier

    With so many conflicting signals about markets, the economy in the U.S. and abroad, the impact of the China-U.S. trade war, and more, what’s an investor to think?

    Through all the noise, there’s one measure that bears watching. Even investors who don’t trade currencies should pay attention to the strength of the U.S. dollar, according to a note out Monday. That’s because while the strong dollar has a lot of effects, its cause, at least right now, is that investors around the world are skittish.

    Normally when the greenback gets this strong, something gives, and other currencies start to strengthen, observed Nicholas Colas, co-founder of DataTrek Research. “If they don’t, it means something is very different this time around. And ‘different’ in this case probably doesn’t mean ‘good’ when it comes to investor risk appetites,” he said.
    …

  15. From the front in Chicago – Old Mish Shedlock posted a note about the exodus from ILL – ANNOY – a disaster that is not recognized by the tradition MSM – NY and NJ similar issues – all due to more taxes, more teacher and public union pensions that are beyond bankrupt. Property taxes are literally gutting the paychecks of those that remain there.
    Though this state (Colorado) has its issues – gradually becoming Cali sadly – it ain’t anything close to what I lived with in Chicago.

    And my beloved Cubs – hoping that Theo Epstein will gut the pitching staff and re – build – yikes they dialed it in the last three weeks!!! Joe is gone and I suspect that Yu Darvish will be on his horse soon. One can only pray.

    1. And yet bonds are seen as “safe” investments. I looked up a few bond funds and the top holdings were STATE OF ILLINOIS. I’d rather stash in money market.

  16. The something gives is usually the Fed cuts interest rates when the rest of the world cuts interest rates. It was a very strange situation when the rest of the world was decreasing rates and the US was raising them.

    1. I’ll save others the hassle of reading the article: “The ‘potentially elevated levels of formaldehyde’ were caused by an issue with the manufacturer.”

  18. “insulates it from downturns.”

    No matter where you go there are always con artists explaining why their particular scam is impervious to the economic perils that threaten the same scam promoted by a different con artist somewhere else. I am sure there were real estate gurus and developers saying the same thing in Detroit in 1950.

    1. That’s the kind of car you see some trust fund baby driving around Santa Barbara, CA taking in a coastal drive while the workers are keeping the productivity curve pushed up there for Wall street.

      1. My thought: The same self-respecting man who would vote for Warren would choose that color car.

      2. The only car color I won’t ever do again is black. Looks good when it’s clean, detailed, waxed, and polished, but keeping it looking good is like having a part-time job!

        1. Yeah. I love cars. I love most colors. But I enjoy driving them, not washing/waxing them. So I always buy white. Looks pretty good even when oxidized. My white 335xi is at 140k miles right now. I keep going around and around in my head what I want to do with it but I think I’m going to keep it for another 5-10 years. I’m only a turbo swap away from being really fast/fun and the new cars are good enough that nobody pays attention to it so it can actually function as a sleeper, which I didn’t originally think was going to be possible for a BMW. It’s probably the last car I’ll own with a manual transmission so I might as well enjoy it a little longer. But if the Audi RS3s were depreciating faster I would make the switch sooner. I might buy a Tesla Model Y at some point for a family car but I don’t think that’s going to work as my car guy fun car too even though the sport model is fast and fun. So I want both.

          1. +1 on the white car

            I almost went with a white model 3, but changed to midnight silver metallic the night before. I’ve always liked silver. Boring, yes, but hides dirt very well.

            My wife has always been an Audi girl. She is wants the new Audi eTron, but the more she drives in my model 3, the more she is leaning towards that. For now, the cheapo Chevy Spark is just fine!

    3. Audi E Tron GT has caught my eye on new EVs. It would take me winning the lottery to let that kind of money go down the drain for a car though. Something that scares the chit out of me is these self driving cars that can go 0-60 in under 3 seconds. Could be troublesome if the wrong persons hacked into one of these rocket mans creations

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