The Economy and Current Affairs | Ashworth Partners

The Federal Reserve and Beer Goggles plus what Financial Repression means for Apartment Building Investments

James Montier, who works at the intersection of value investing and behavioral investing (Author of ‘The Little Book of Behavioral Investing’ http://amzn.to/X9Olzc on Amazon among others) has a great quote in his latest white paper published by GMO Global Investment Management entitled “The 13th Labour of Hercules:Capital Preservation in the Age of Financial Repression” Note that you may have to register at the site (free).

His paper discusses the effects of financial repression on portfolio stock and bond allocations and by implication the effects on real estate and particularly apartment building investments. Financial repression is the term used to describe central bank’s strategies for forcing interest rates to zero or negative to spur investment and spending at the expense of saving. Take it away James:

William McChesney Martin was the longest-serving Federal Reserve Governor of all time. He is probably most famous for his observation that the central bank’s role was to “take away the punch bowl just when the party is getting started.” In contrast, Bernanke’s Fed is acting like teenage boys on prom night: spiking the punch, handing out free drinks, hoping to get lucky, and encouraging everyone to view the market through beer goggles. [Emphasis mine]

The paper goes into depth on the effects of financial repression on investments, which grow the longer the repression lasts, up to twenty years. Does the phrase: “… for an extended period” ring a bell? How about QE1, QE2, QE3, and now QE-infinity?

Financial Repression and Apartment Building Investment — Source: James Montier, GMO

Apartment buildings are the real estate equivalent of Continue reading The Federal Reserve and Beer Goggles plus what Financial Repression means for Apartment Building Investments

Risks to Apartment Overbuilding Averted, For Now says ReisReports

In a piece just out today ReisReports says that new apartment starts have been postponed to 2014 by many developers.

The “bubble” now shows up in 2014, but if economic growth ramps up, then additional supply will most likely be absorbed relatively painlessly.

But not all Metros escape. The report mentions Washington DC and suburban Maryland as two of those who will still see large increases in supply next year.

Interestingly they name Seattle as a market that should be able to absorb the new supply coming because Continue reading Risks to Apartment Overbuilding Averted, For Now says ReisReports

The Point of Maximum Pessimism and Apartment Building Investments via Alhambra Investment Partners

Very nice piece from Joseph Y. Calhoun over at Alhambra Investment Partners covering some of the unexpected good things that could happen to our economy entitled Looking For Silver Linings. He includes this nugget with its implication of a good apartment building investment climate continuing:

In the ten years prior to the recession, household formation averaged 1.5 million per year. From 2007 to 2010 that rate was cut by 2/3. Household formation recovered to a bit over 1 million in 2011 and probably rose more this year. Still there is a gap of about 2.5 million households between the number formed in that period and what would be expected based on demographic trends. There is pent up demand for housing (although probably primarily rental housing) that only awaits some job growth to be realized. [Emphasis mine]

Even if Continue reading The Point of Maximum Pessimism and Apartment Building Investments via Alhambra Investment Partners

ULI: Seattle most attractive market for Apartment Building Investment but there are 36,000 units just completed, under way or in the pipeline.

Two quick links- you decide. From the Seattle Times: Urban Land Institute finds Seattle among most attractive real-estate markets and from Dupre + Scott ( The leading Seattle area apartment market research firm): Apartment development pipeline (video)

When I see this:

And then I see this: Continue reading ULI: Seattle most attractive market for Apartment Building Investment but there are 36,000 units just completed, under way or in the pipeline.

College towns are top destination for Gen Y job hunters…. and renters.

Where are Gen Y students most likely to find jobs? If you guessed New York or San Francisco, you’d be wrong. This year, small towns led the way as larger cities were more susceptible to economic downturns and only ranked outside of the college towns division on the index. As the report suggests, many small towns are essentially recession-proof since they house a consistent population of spenders.

Apartment building investments are good in small college towns — Cornell University in top rated Ithaca NY. Photo credit: campustravel.com

See the whole MFE piece with the list and a link to cool map here.

Those small college towns, or tertiary markets as they’re called, often fly below the radar of institutional investors and therefore dodge the cap rate compression that bigger markets suffer when institutions start buying up properties. Send me a message to find out how we analyze these markets for apartment building investment and some of the towns we like today. Continue reading College towns are top destination for Gen Y job hunters…. and renters.

How to make REOs-to-Rentals work: spin them into a REIT. Look out single family investors, here come the institutions.

Colony Capital has big plans for the REO-to-Rentals (RtR) sector. Not only do they want to buy 30,000 plus houses to rent them out, they also want to turn RtR into an institutional grade asset class. That has big implications for single family real estate investors who will now have deep pocketed competition that enjoys economies of scale.

Apartment Building Investment and Foreclosures — How Foreclosures Ate America. Click for interactive map from WNYC

Granted I was initially skeptical about single family homes becoming an institutional asset class but people said that about apartments twenty years ago too. In an interview printed in Institutional Real Estate Letter, Kevin Traenkle of Colony Capital maps out their strategy in pretty good detail, including what I think is Tom Barrack’s real genius piece, their exit plan of Continue reading How to make REOs-to-Rentals work: spin them into a REIT. Look out single family investors, here come the institutions.

A Family Inflation Gauge for Everyday Americans; rent, food, energy, medical costs, education and childcare.

Yes the Fed is fighting DEflation but it sure doesn’t feel like deflation when we go to the store or pull up to the gas pump. While I am glad that Ben is battling the correct demon, it would be very helpful to know what ‘living inflation’ is doing to or for our apartment residents. Especially since on their National Apartment web conference earlier this week Reis said that in many of their largest 79 markets class B & C owners ability to raise rents has or soon will run into the 35% of income barrier. Watching what the costs of rent, food and beverages, energy and medical expenses are doing to our residents’ pocketbooks could guide us in raising rents. Today Pragmatic Capitalism had a very interesting piece on just that.

Inflation Gauge for Apartment Building Investors and residents — Source: Pragmatic Capitalism http://pragcap.com/wp-content/uploads/2012/10/CPI1-e1349809833759.png

Right now ‘Family Inflation’ is in the 2% range but you can see that last year it was as high as 7% and that it’s quite volatile. Most of that feels like it could be from rising fuel costs but let’s take a look to see if we can find out what’s really going on. Continue reading A Family Inflation Gauge for Everyday Americans; rent, food, energy, medical costs, education and childcare.

Good News and News: Apartment Q3 update web conference replay now posted from Marcus & Millichap

Good presentation on the current national apartment building investment sector from Marcus & Millichap. New supply remains constricted except for a few cities, they didn’t mention any names *cough Seattle cough* but if you’re in one of them and tracking the pipeline it’s easy to read between the lines.

Another interesting trend is that Continue reading Good News and News: Apartment Q3 update web conference replay now posted from Marcus & Millichap

Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

Renting vs. Buying debunks the myth of home ownership as an investment

There have been a number of reports recently claiming that renting is more expensive than buying a house. This is a great thing as everyone involved in selling, building and financing houses would tell you, especially if it were true. Unfortunately it is not for a variety of reasons, one of them being that owning the home you live in just isn’t that good of an investment, but we’ll get to that in a moment.

The first hurdle is the challenge of amassing the 20% down payment. On the average US home price of $242,300 the downpayment would be $48,460. That is essentially one whole year’s worth of the US median income of $51,413, so the question is how long would it take someone to save that much? This question is nearly always ignored in these comparisons. But say we all have a rich relative who leaves us the downpayment in their will, it’s all good after that right?

Some of these type of reports simply compare the average local rent to the mortgage payment for the area’s average home and therefore can be discounted out of hand. Others include taxes and insurance which is slightly better but they are still missing a very big piece of the cost of owning and operating a home; repairs and maintenance. Continue reading Rent Vs. Buy And The Great Myth of Homeownership as an ‘Investment’

Zombie homeowners are 50% of the single family move up market and they can’t buy. Good for Apartment Building Investment?

Mark Hanson of MHanson Advisors, researchers and strategists focused on North American and Australian real estate and finance markets, has a very good piece out questioning the recent calls of a housing bottom. His research shows that 20-30 million current homeowners (half the market) either cannot sell and net enough for a downpayment on another house or could not qualify for a new mortgage if they did have a downpayment.

He also charts that out in relation to the over all supply:

Zombie housing supply creates opportunities for apartment building investment — Source: MHanson Advisors

Here’s Mark’s breakout of the zombies:

1) “Effective” Negative Equity – 25 million borrowers / houses. These borrowers are dead to the housing market, as they don’t have the equity to pay a Realtor 6% to sell and put 20% down on a new house. They were once the most active participants, the repeat buyers. Now they are “zombie homeowners”.

2) Impaired Credit – 28 million borrowers. These are borrowers with Continue reading Zombie homeowners are 50% of the single family move up market and they can’t buy. Good for Apartment Building Investment?