Apartment Building, Commercial and Residential Real Estate state of the market video from Tom Barrack of Colony.

Tom Barrack was on CNBC last week to talk about real estate with the traders. Great TB quote to open the show: “It’s always great to be the slowest guy on Fast Money”. There’s more wisdom in that statement than any of the show’s regulars understood.

A couple bullet points but definitely worth watching the video. The link on the image below goes to the Colony website where they edited the three segments together (commercial free too):

  • Housing [of all types] is the best opportunity. Today there might be a Fed bubble but there isn’t a housing bubble.
  • The rise in interest rates while not big and still low historically speaking, will hit entry level housing. 100bp (basis point, where 100bp = 1%) rise in interest rates will cost a borrower an extra $150+/- a month on their mortgage payment for a $200,000 home. That will keep more people renting.
Apartment Building Investment and single family
Click on the image to go to the Colony website video (no commercials)

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

Biases That Cripple Smart Decision-Making; Great behavioral economics intro- but I’m biased.

Psychologists claim that many of our biases are evolved mental processes which at one point may have been adaptive to our environment. Because the mind is not a perfectly calculating machine, it uses many different heuristics (or “rules of thumb”) that help guide the decision-making process. Although this process isn’t perfect, it often gets the job done in terms of survival and reproduction. Many of these biases may still be functional in today’s world, but others can greatly inhibit us from making rational and intelligent decisions.

avoiding flawed thinking in apartment building investment

Starting with the Bias Blindspot which is our tendency to think we are less biased than others the article lists the different types of biases investors (and everyone) face and more importantly how to overcome them:

Why now is the right time for CRE and Apartment Building Investment. Video via Tom Barrack at Colony Capital

Tom is one of my mentors and I follow what he’s doing closely to learn from a pro in apartment building investing. Here’s a video 3fer with Tom on why now is the time, if you have any contrarian testosterone as he puts it (in other words you are a true value investor). See also my notes below with the exec sum in bold.

1st Video:

Tom Barrack on Commercial Real Estate and Apartment Building Investment

Tom Barrack on CNBC last week

Stock markets rise and fall, but investors with a long-term view will make money, real estate investor Tom Barrack of Colony Capital is a “slow money guy”.  Barrack has $27 billion invested in real estate and $45 billion in assets around the world.

Overall in the US

Where I think we are is actually a great Continue reading Why now is the right time for CRE and Apartment Building Investment. Video via Tom Barrack at Colony Capital