Tag: investment

Fed Chair Yellen- Maybe we are turning Japanese

Actual and Expected Inflation in Japan
“Here, Japan’s recent history may be instructive: As shown in figure 9, survey measures of longer-term expected inflation in that country remained positive and stable even as that country experienced many years of persistent, mild deflation.” – Janet Yellen Sep. 24, 2015

Was talking about this just last week (again):

As a value guy like you it’s hard to figure out how buying something in the sixes on cap rate works out to be a good deal. But what if the Fed is trapped at the Zero Lower Bound and we are turning Japanese? Their ‘Lost Decade’ is now old enough to graduate with a Master’s degree and we’re following the exact same playbook. I offer last week’s Fed decision as exhibit #1. They would dearly love to raise rates just to prove they can but there’s just thin ice between us and

Continue reading Fed Chair Yellen- Maybe we are turning Japanese

Happy Flash Crash 2nd Anniversary. Lack of trust in stock markets is scaring away investors…

… small and Large. Sunday was the 2nd anniversary of the May 6th Flash Crash of 2010. High Frequency Trading (HFT) insiders have hacked the stock markets so they get a sneak peak at your, and everyone’s trades before they’re executed. Think of it like one player at the poker table can secretly see your cards, and everyone else’s before they bet- Want to play in that casino?

When the HFT trading robots all lock onto the same pattern they can take a major market like the Dow Jones Industrial Average down 700 points in 10 minutes and thus we all remember the Flash Crash. Now it so happened that that time the market recovered about 70% of the loss shortly after but the damage to confidence was done.

Once bitten twice shy, investors are leaving the HFT rigged stock markets

Once bitten, twice shy. Or as Joe Saluzzi and Sal Arnuk at Themis Trading (a specialty company that trades equities for large institutions and hedge funds- stock traders not OWS supporters) put it: ” traditional retail and institutional buyers and sellers of stock have been steadily waking up to the dangers of drinking at the increasingly dangerous ”stock market watering hole”. Like the animals on the Serengeti, who for years were accustomed to sipping long and heartily at their favorite spot, retail and institutional investors now see what’s beneath the surface. And they are deciding that the drink they crave is just not worth the risk.

It isn’t hard to blame them. They have witnessed a radical transformation of the best capital allocation market system in the world, into one where:

– 13 stock exchanges cater to hyper traders who game the system, chasing exchange rebates, and leveraging speed for the purpose of a nanosecond scalping dance.
– More than 40 dark pools together trade more than 1/3rd of all shares.
– Conflicts of interest abound as exchanges own stakes in Continue reading Happy Flash Crash 2nd Anniversary. Lack of trust in stock markets is scaring away investors…

Increasing Sources of Multifamily Rehab Funding Spur Value-add Projects.

3-4% 10yr bridge money for apartment building investment and rehab “coming out of the woodwork”. See the whole article here: Capital Streams Grow for Rehab

Apartment Building Investment MFE Mag

What is Money? There’s more to it than meets the eye. From GK Research via David Hay over at Evergreen Capital Mgt.

Great exploration of what money is and what it requires to remain viable. The piece covers such topics as:

Why it’s good news that more Americans are renting rather than buying homes. Via Slate. Good for #Multifamily

Exec Sum:

The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year.

[R]enting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.

But it is conclusive: Not everyone should own a home. The recession has helped erode the stigma against renting, with about 70 percent of Americans now admitting that it has advantages over buying a house. If people are making unsentimental decisions about whether homeownership is really worth it for them, that is at least one small benefit of the housing bubble bursting.

See the whole article with links to reports and surveys here: The Rent Isn’t Too Damn High

Multifamily rental construction definitely the brightest sector in housing market.

See the Housing Wire piece here:

FHA Streamlines Approvals on Multifamily loans less than $25M/250 units.

“It’s a huge help,” says Jonathan Camps, managing director of production for Washington, D.C.-based Love Funding.

In the past, any loan of at least $15 million, or any deal of more than 150 units, had to go through the FHA’s National Loan Committee. That threshold has been dialed up to $25 million, or 250 units.

What’s more, any existing FHA-insured loan looking to refinance through the Sec. 223(f) program no longer needs to go through either the regional or the national loan committee.

Good news indeed! See the whole article here: FHA Streamlines Multifamily Loan Approvals

Is a Gold Standard the Answer to Our Monetary Crack-Up?

My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”.

I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:

With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.

The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways.  Debt creation can be reduced and austerity can be imposed to make room for Continue reading Is a Gold Standard the Answer to Our Monetary Crack-Up?

Converting Cap Rates to Earnings Multiples

After a recent speaking engagement I was asked about how and why I use the earnings multiple concept when evaluating apartment investments. It was a great question and so I’m sharing my answer here in this blog post.

As a value investor two of the fundamental questions I always ask is what am I buying and how much do I have to pay for it. With an apartment investment (or really any investment) I am buying current income and the potential for appreciation so the second question comes down to “How many years of earnings do I have to pay for these returns?” The question can be answered by converting the cap rate to an earnings multiple. The Cap Rate is the return in current income on an apartment investment you could expect if you paid all cash. To convert a Cap Rate into a Earnings Multiple use the formula: Continue reading Converting Cap Rates to Earnings Multiples

Why are Cap Rate explanations so complicated?

If you listen to any conversation about commercial real estate (CRE) within a minute the subject of cap rates will come up. Those who are just beginning to explore CRE are often thrown off by what one is and how it is calculated.  A cap rate is really a simple thing that is often made overly complicated by the way it is explained. Let’s walk through what a cap rate is and then we’ll look at how they are used so that the next time the conversation turns to CRE you’ll be right there in sixty seconds when they get to cap rates.

A Capitalization Rate or Cap Rate for short is simply what you would earn on a property if you Continue reading Why are Cap Rate explanations so complicated?