397 | Wall Street Has Spent Billions Buying Homes. Crackdown Looming? & Not Your Average Insights

Headlines everywhere are showing institutional investors getting thrown for a loop in the post COVID era of real estate investing.

The Wall Street Journal recently put out a story about how Blackrock finds itself looking for ways to slow down the exodus from their largest commercial real estate fund.

They also just reported on how Wall Street's strategy to invest heavily in single family homes is causing lawmakers to consider regulating their ability to scoop up homes for investors.

But in this institutional instability lie clues and opportunities for mom and pop investors like us to thrive.

That's why we're breaking down these stories on the next edition of Not Your Average Insights!

Join Gregg Cohen, co-founder of JWB Real Estate Capital, show host, Pablo Gonzalez, and the Not Your Average Investor community as they bring some data and perspective to today's biggest investment related headlines.

This week, we're talking about:

- Why Blackrock finds themselves trying to stop the exodus from their biggest commercial real estate fund
- How Wall Street's rush to the single family market is creating a backlash amongst regulators
- What the mom and pop investor can do to hedge against these new risks while getting the upside of real estate that keeps bringing these institutions to the market
- and more!

This will be an interactive dialogue with a community packed with savvy investors.

Don't miss a chance to jump into the conversation and share your hot takes with us!

Join our real estate investor community LIVE: 
https://jwbrealestatecapital.com/nyai/

Schedule a Turnkey strategy call: 
https://jwbrealestatecapital.com/turnkey/ 

*Get social with us:*
Subscribe to our channel  @notyouraverageinvestor  
Subscribe to  @JWBRealEstateCompanies  
🌐 Facebook Group - https://www.facebook.com/groups/rentalpropertyinvesting
📸 Instagram - https://www.instagram.com/nyai_community
📸 Instagram - https://www.instagram.com/jwbrealestatecompanies

Transcript

original: 0:00

today we're coming at you with some hard hitting, not your average insights. A couple of funny headlines on the wall street journal, a few about, uh, the state of the commercial real estate market and how there's historical, historically high loan defaults. There's another headline on the commercial real estate market about. Blackstones, uh, number one fund and the trouble that they're having with commercial real estate. And then to boot, we have an article talking about how wall street has gobbled up all these Little family homes and there might be a crackdown looming So we're gonna talk about it all on today's edition of not your average insights Welcome everybody to your weekly dose of not your average investor show. I'm your host Pablo Gonzalez with me as always the man I affectionately like to call GC because he's got the genius concepts because he knows how to generate cash flow because he's a great co host and because his name is Cohen. Say hello Greg.

original (1): 2:18

everybody. Fantastic to be with you today.

original: 2:20

GC. do you know of really good way we might want to kick off this show perhaps a can invoke tradition we

original (1): 2:29

mind. How about the roll call, baby?

original: 2:32

We got our lead off hitter kicking us off today

original (1): 2:34

John

original: 2:35

right where should be the MVP everyone's heard of he

original (1): 2:38

Mr. Lee Bishop,

original: 2:39

You may have heard of him for sure. mama bear in the house.

original (1): 2:42

Cody Adams. It is our wonderful mama bear's birthday today. So everybody wish Cody a wonderful happy birthday. Her and her son, TJ, both have the same

original: 2:53

Oh, wow. That's awesome. Happy birthday, Cody. Happy birthday, TJ. We got the Maven from the mountains of Denver in the house.

original (1): 3:00

Leslie Wilson,

original: 3:01

We got the Voldemort. Good morning from the susuriously boisterous mountains of Colorado. We got the ringmaster in the house.

original (1): 3:11

Drew Barnhill,

original: 3:12

We got the very godmother in the house.

original (1): 3:14

Miss Jen Filson.

original: 3:15

We got Mark Norman back from SoCal market to have you back. We got her va France

original (1): 3:22

What's up from Jersey.

original: 3:25

swa from Jersey. Hello, Irving. Good to have you. We got our regulars Rosalind and Gary from Marietta, California. Riley you. We've got Pamela Myers from the lovely Seattle area, Pamela. Always good to have you. We in the house. got the shaman Charity Graham is back. Good to have you Charity bit over here regular. Chris, speaking of regulars, Christopher Lee from Fernandina beach. We got game Tammy in Colorado, time

original (1): 3:52

Gamison. It's good to see you

original: 3:54

Good to have you back, Tammy. Who else we got in here? Checking in. We got Airdrie Harris.

original (1): 3:58

from hot Lana.

original: 3:59

Good to have you, Eddie. Who else is in here checking in? Justin Senna, famous Hollywood producer. may have heard of him.

original (1): 4:05

You absolutely should have, if you

original: 4:07

You

original (1): 4:07

by now, you've heard of his work, I promise.

original: 4:09

we got big Papa in the house. We love it when he calls it big Papa,

original (1): 4:12

Pops. How are you, my

original: 4:14

the co founder of the co founder Jay Cohen, Greg's dad, everybody. all right, GC, let's get right to it, man. I'm going to. Flash a couple of these headlines here that, seem like we're in some, some tough economic times. I know that we've talked about it before. but we got this idea that office loan defaults are near historic highs right now with billions on the line. Then on top of that on the commercial real estate side, we've got Blackstone's beleaguered real estate fund that's trying to stem an exodus. This is like Blackstone's, like number one fund. They've, they've gone through some hard times. GC you sent me a whole bunch of notes and stuff that you, that you wrote on these articles, so I don't even wanna step in the way of a well formulated, uh, genius concept. Talk to me buddy. What are, what are you reading in these headlines?

original (1): 4:57

You know, I, I think it hits on a lot of the same themes that we had been talking about for years now, and you're starting to see it play out more and more into the economy and in different investments and in different asset classes. And, you know, when you think about turnkey rental properties, the things that we have said in the past, as far as why this asset class stands out, you know, it's not sexy, but it is consistent and it produces above average returns and it is risk mitigated. You see all these other asset classes start to fall victim to some of these market dynamics. And you got to start asking yourself the question, why hasn't single family rental properties fallen victim to some of these? Some of these market conditions and the reason is it is a critical need for the individual. It's a critical need for the communities where our homes and our residents live. And it's a critical need for the government to get it right. And so you consistently see single family rental properties stay out of some of this negative news. so I put a whole lot of, uh, thought and, research into, you know, what's going on in these other asset classes because we need to shed a light on those and we also need to shed a light on why single family rental properties continue to work.

original: 6:08

Yeah, man. And I think when it comes to specifically the commercial sector, a couple of things have happened, right? the entire real estate world is feeling the pinch on high interest rates. the fundamental difference that we've discussed on the show here between the residential family, single family home and the. Commercial real estate asset is how they are bought, how they are valued, right? Like, when we buy these single family workforce housing that are cash flowing on on day 1 in Jacksonville, Florida, this is bought through a 30 year mortgage. Which means that for the life of the asset, the biggest cost that you have, is locked in, which is a really, really nice thing to be able to predict. And as we know that number one cost is constant rents go up, throughout time. So cashflow increases. The home appreciates all that good stuff happens while in commercial assets is not really the same, right? You see, they're buying in. they're not 1st of all, they're not just valued on comps the same way that single family homes are valued of just like, what is the family next door paying for this thing? They're valued almost like a business is the way that I understand, right? Like, they're valued based on, like, kind of their net operating process profits and their cash flows and stuff like that. And because of that. When these things are bought and they're put into these, deals that people can invest in, it is bought under a, a shorter term debt product that is put in place in order to take over the asset, increase the operations, right? Like often you'll talk about stabilizing an asset as bringing either the vacancy rate back to a certain standard and the average rent up to a certain standard. And then at that point, hopefully they're doing that in the life of this cheaper debt. And when that happens, then they refinance. And now it's a different valuation. I getting that kind of right? You see, Am

original (1): 7:56

you're getting the high level right. and I'll kind of take it from there. let's talk about other commercial assets right now. Let's focus on commercial office because that's in the news. You know, commercial office has both a demand problem and a supply problem and a financing problem. All at the same time. And when that happens, you start to see values go down your point about how these assets are valued being different than your single family investment properties are value is critical to understanding because you get a lot of benefits about. How the assets are valued in single family rental properties. and you also get the benefits that you get from the investment perspective. What I mean by this is interest rates have gone up significantly. For homes across the country, rental properties are a part of that. But when you go to actually see what the home is worth, people don't value that based on the income stream. We place a large value on the income stream as investors. It is one of the five profit centers. But the value of the home is based on what the family down the road emotionally wanted to pay for the home. And so while there is 8 percent interest rates is almost what we had. We're about 7. 5 percent right now for interest rates. Single family rental properties have continued to go up in value, even though the income stream has gone down because of the cost of debt. In commercial real estate, in apartment complexes, in other businesses, when the cost of the debt goes up so much, the value of that asset goes down. It doesn't matter what somebody paid for it down the street, in essence, because they didn't, they're not living in it. Somebody down the street would only pay the value of what that income stream can be. And so, your interest rate risk in commercial real estate, apartments, other types of assets that are dependent on debt is much higher than single family real estate. rental properties. We're kind of like this tweener asset where we get the benefits of the income stream and all five profit centers, but we don't have the same interest rate risk. so is that what you meant to say there?

original: 10:17

I think so. I think you just said it in a much more educated fashion, right? I was just trying to explain it for the layman. Yeah. Interest rate risk, right? This idea that, because of the way that we are valued, the. Interest rate plays differently in the fact that we lock in these 30 year mortgages, Like, so that stays constant forever. right

original (1): 10:33

And that's just one part of the problem with commercial office right now. So you mentioned how the debt that we have on single family rental properties is 30 year fixed rate debt. First of all, that only happens in our country and like a small handful of other countries around the world. Most people in the world, when they buy homes to live in or single family rental properties, they still have variable debt. The interest rate varies and it's only in place for maybe five years or 10 years. So we're super lucky to be in this country for so many reasons. And one of them from a real estate investment perspective is the debt. But here in this country, if you go and buy commercial office or apartments or anything that would be in the commercial debt space, you're going to find that your loan terms are much shorter than it might be a five or a 10 year loan, and your interest rates are variable, which means when interest rates go up. Based on what the Fed does and, indirectly by what the Fed does and other things when interest rates go up, your payments every single month go up as well. and so that's what office is facing right now. Single family rental properties do not. And at the same time, office has a demand problem and a supply problem. And the demand problem is coming from the post COVID world. And businesses are starting to come back to the office and have been moving in that direction, but it's nowhere near the demand for office space that we had prior to COVID. And it probably won't be anytime soon. so you have less demand at the same time, the office space that you have. It's built out. It's there. There's a lot of vacancies across the country, especially in downtowns, and it's just not easy to convert that office space into residential housing. It's very costly to do that. So that's why commercial office has been taking such a beating. Many people feel like they've been The beating is still yet to come with the defaults are now on the rise, but they're expecting more and more. and if we bring it back to the articles that you've prepared for the show today, you know, Blackstones. Fund, which was geared towards commercial assets. It was a fund that was geared towards individual investors, being able to invest in commercial real estate and apartments and warehouses and things of that, of that nature, it's had a real rough road and at the core of it, especially on the commercial side, that's the reason why,

original: 13:02

So it's 1 thing to talk about black stones fund, having a rough road. But 1 of the things that you've taught me is Unlike this turnkey vertically integrated single family home investment piece where I own the home outright, and I can sell it to the family down the street. Right? Like, obviously, there's no supply problem. There is no demand problem happening in single family workforce housing. But even. Beyond that, for an investor, this idea that Blackstone is trying to stem an exodus, I think is a story behind the story, which is something that I think you've tried to illustrate to me, which is the story of control when it comes to investing in assets like these, how does a fund like the Blackstone one work? if you are seeing, hey, cash flow's upside down on this thing because this mortgage is coming due and now it's variable and it's going up. So it's killing my cash flow. And on top of that, we're way more vacant than we thought because supply has gone down and I'm an investor myself, trying to get that money out, trying to stem this exodus. what is the normal, how is that normally happen if somebody would want to get out of something like that?

original (1): 14:03

well, it's always a risk when you're investing in a fund. You know, I've shared stories of my own family members who have invested in funds. Not JWB funds here, but other funds and they've been met with the situation where they should be able to request their funds to come back. But there is always a clause in the fund documents that says if the operator says that they don't want to allow redemptions. Guess what? They shut down redemptions. One of my closest family members is going through that right now in a fund. and you know, this is a time when, you know, this family member is, just retired and could really use those funds coming back. And it's been years. and that, that has been tied up for them. so if we're relating it to what can happen when you invest in a fund and with Blackstone here, you know, at the end of the day, it's not always about the fundamentals when it comes to your money being in a fund, right? Blackstone still believes in this fund. The, is what it's called. They still believe in it. and for many years, this was the darling fund for Blackstone and so much so that other hedge funds and private equity came up with similar style funds. I was looking it up to 2022, Blackstone raised 87 billion in this fund, but it's not always about the fundamentals. They believe that it's going to be fine. In fact, the returns on this fund have actually been 10 and a half percent. It's what I looked up even till now. So it's, it's not always based on the fundamentals. There's a lot of emotions that come into the fund. And so of course, a lot of people have been talking about the impending problems when it comes to commercial. And so as a fund investor, you have to be paying attention to what are the cash reserves and what are the rate of redemptions that people are asking you to get their money out. Which a lot of that can be emotion based. So what's happened with Blackstone here is that as the narrative around the impending doom of commercial started to play out last year they went from raising a lot of billions per month to now getting redemption requests in the billions per month. And they just flat out didn't have the cash to be able to handle it. So in November of 2022, they said no more redemptions. And it has been that way since November of 2022. they were paying out more than 3 billion in redemptions per quarter. That's just regular individual investors saying, Hey, I want my money out. No matter what the returns are, I want my money out. And they just stopped it. So they couldn't do it in November of 2022. The reason it just made a little bit more of the news is because they just now in February or March here of 2024 were able to fulfill the redemption requests because they were only 966, 000, 000 in February and 799, 000, 000 in March. Those were the first months they were able to actually fulfill it. You know, and then as I was reading this, I didn't know what the returns were, but I'm like 10. 5%. I'm like, you know what else earns about 10. 5 percent right now, Pablo?

original: 16:56

You What, what, under 10, a half percent. think

original (1): 16:59

turnkey rental properties. And you know, you get full control when you own a turnkey rental property, right? there's no such thing as a redemption request not being honored. and then you think about this asset class turnkey rental properties being, resilient in the face of 8 percent interest rates, resilient in the face of a pandemic, resilient in the face of an eviction moratorium, resilient in the face of all of the, Talking heads saying there was going to be a crash and there was going to be a foreclosure crash and resilient in the face of the great recession, as well as values have come back and have been right along historical norms. If you had been investing for 20 years and you start to think about what you can get, especially, it's not like you're getting better returns out there for a whole lot of other investments, but you keep control. And if you're somebody who likes control, Investing in a fund has its risks and you really need to understand it. And you can't always prepare for it because you're not going to know how much cash is on hand at any point. You're not going to know the redemption requests that are, that that fund may be facing. And I see it firsthand with my family members who have felt that. And you see it from a distance here, for any of those investors that have invested with Blackstone for the last year and a half.

original: 18:14

It's interesting, man, because I feel like everything we ever talk about when it comes to investing in these funds. Investing in these commercial assets. It's always. You know, the returns are great. you know, they can put these things at the end of the day. It's just like operator risk. So what you want to really do is make sure that you are investing with somebody with a ton of experience, something with somebody with deep pockets, right. Somebody that can withstand some kind of externality. And I would argue that the people that invested in Blackstone did it right. Right. Like they invested with the biggest gorilla in the market. you know, everything possible checked every single box. But at the end of the day, when something went south, they're off ramp, all of a sudden change directions at a certain point, because you don't have that thing of control that you have when you own a single family home. That gives you about the same returns might be less sexy. You know, you might not be. telling people how you're in with all these other rich guys and whatnot that are doing it. and you might not want to drive past it and take a picture and, like, show it to all your friends. But at the end of the day, it's yours. You can exit it. Right? Like, I think people talk about this, thing about. Real estate liquidity and how it not being liquid is a bad thing, but at the end of the day, it is liquid enough to sell. If you are hard up for cash, whether you are trying to sell it at market retail, which I'm sure anybody that's bought anytime recently is making a profit on selling your retail or even try to like liquidate it out. There's always an ecosystem looking for this workforce housing around an urban core. In a growing city that if you really do value liquidity, it is liquid enough to get off of your hands and say, under 60 days, and be able to have that unlike these other sexy funds with, you know, big institutional investors that you're investing alongside of in these, like, commercial things that everybody kind of like, feels like they want to graduate to investing in commercial when in reality, it's like, what are you really graduating to? You're graduating to having less control.

original (1): 20:12

I think there's a place for a lot of assets. I'm not saying that turnkey single family rental properties are the only asset that people should have, but I also don't believe that you have to graduate from single family rental properties to other asset classes. It's like, you know, single family rental properties are just thought of only as a stepping stone to get to other asset classes and I don't get it. I mean, I've lived my entire investing career investing in single family rental properties. I'm doing it for 18 years. I still do it because the risk adjusted returns on investment are great here. And the barriers to entry are not nearly what they are in these other asset classes. I mean, even if you want the right. To be able to invest with Blackstone in this fund, you can't do it unless you're an accredited investor. So you wouldn't even have the opportunity to go out there and earn, call it 10 and a half percent returns or, you know, something similar to that. And the opportunity to have no control if they decide that they don't want to redeem and honor redemption, you wouldn't even have that right because it's only available to accredited investors. For single family rental properties, the debt is better, there's risk mitigation built in, and the returns are great. So I just personally don't get the huge desire to go and find something different. But I also recognize that this isn't the end all be all. I just think it needs a seat at the table. That's kind of where I've kind of landed as far as my message when it comes to single family rental properties.

original: 22:20

yeah, I get that. You've settled nicely on that message. And by the way, just as easy as anything else to buy, right? Go to chat with JWB. com, book a call, get on with a teammate, and they'll talk you through how to do this and do it completely passively. Just like if you were investing in any other passive asset. We've got a couple of questions here, GC, on this story before we move the Wall Street story that we're leading. on to Jamila Bonum has a good, great question. Thank you, Jamila. what about people not being able to pay their rents due to recession? How does that compare to this risk that we're looking at that's happening in the, in the office market?

original (1): 22:54

Well, in the office market, you face economic risks, first of all, we should talk about the fact that there really is not a recession. Now, a recession generally is defined as two consecutive quarters of negative GDP growth, and our economy is humming along and there, and we haven't had a decline in GDP, um, and we haven't had two quarters of it. So it's, we haven't experienced the recession overall. but those economic risks are there, whether it's commercial assets or apartments or single family residential, you always have that risk of recession. Job loss. when it really makes it tough is when you could potentially have that happen, you could potentially have folks not being able to support the Rent payment, whether that is commercial or single family, we'll focus on commercial here. But what really makes it tough is if you enter recessionary times, businesses can't afford to pay the rent and that loan is due at that same moment. That's what really makes office scary for many people right now. It's because when you have that loan due at that moment and values for commercial real estate have gone down, your opportunity to refinance and pay off that loan is not there unless that company who owns the real estate Has significant cash reserves to go and bring that to the table and most don't in an environment like this. And so that's really where commercial office is feeling the pinch. And that's why in that article, it talks about how the default rate is going up. And is expected to continue to stay high. Now on the single family side, you still have recessionary risks out there, but you don't have the debt risk as well because these loans are fixed rate loans and they stay in place for 30 years or however long you want them to stay in place up to 30 years. And so while you may have temporary issues with a resident who maybe can't afford to pay the rent, the downside to that is much lower. because the debt is in place. You just have to have effective property management to work with that resident, hopefully be able to come up with a situation and a solution to keep them in the home. And if that can't be the case to work with them compassionately, to help them find another place, and then to fill that home with another great resident. So your income stream comes back up, but you don't have that risk of income going down and debt being due right now, like you have on commercial. And that's the big difference.

original: 25:18

I think the idea that every type of investment has some type of risk, right? So obviously the idea of like a recession hitting. And your resident may be falling on hard times. Israel. I also think about the fact that there are some investments that are particularly well suited to handle recessionary times. Right? People love to talk about how, like. Auto zone stock is great during a recession because people spend more money on their cars instead of buying new cars. What I've learned by hosting the show is this idea that workforce housing itself has like an extra added layer of does well during a recession because workforce housing at the end of the day is a critical need. People really, you know, need to have their homes. And this is an asset class where, people there it's, it's their best option. And when people hit hard times, folks that are living in Luxury housing, luxury rentals recede back to workforce homes, right? So, it has this built in kind of like installation of, it is a very viable asset for some people all of the time. And then during hard times, it actually increases its, I don't know if market cap is the right way to do it, right. But like an agree, it increases its, its market size and the people that it, that it serves during hard times. So while you don't have the. Debt risk that Greg was talking about. You're always going to have the short term, you know, loss of rent risk, but you don't have this like other demand risk. That is also something that commercial offices are really struggling with. People always will want single family houses around urban core. workforce the

original (1): 26:54

along our, our history of business, we thought people would always want an office to work in. That was the appeal for decades and decades and decades. Well, we quickly realized that that was not the case because of different cultural shifts and technology. And of course the pandemic didn't allow us to even think that way for a period of time. So we realized that people don't always need to be in an office to work. That means decreased demand and increased supply at the same time for office. But I don't think people are going to figure out another place to. Hey, there lay their heads at night other than a home. so I, so that's built in risk mitigation. Like you're talking about.

original: 27:35

Great question here from the patron Santorius, he's got a question for you, Greg. He says, according to rent cafe office to apartment conversions from 2021 to 2024 have increased from 12, 100 to 55, 300. Wouldn't, You agree this will destroy the apartment rental market with too much supply.

original (1): 27:52

That's that's really great data. so let's talk about it a couple of different ways. Because I think there's a few different perspectives here, office to apartment conversions going from 12, Is a lot if you're looking at it in a vacuum, you know, if you had this data from 10 years ago, and you said you had conversions from 12, units across the country, you'd be like, Hmm, what's going on here? But that was 10 years ago, right? That's not when there was this impending doom and gloom for the commercial real estate and office, specifically commercial office sector. Now, where we are today, there's a lot of doom and gloom as we've just talked about, the demand problem, the supply problem, and the financing problem on the commercial office size. So when I look at 12, 000 to 55, 000, I think, man, it should be more than that. If you really wanted to save commercial office. And there was an easy way to do it. You would see that number go way up. And so, you know, the reason why you're not seeing more commercial conversions of office space to a single family or excuse me, multifamily housing and apartments in, like downtown settings is because it's cost prohibitive. It's really expensive. The way that many commercial offices are built does not jive with how multifamily and apartment housing works. So you have to entirely redesign floor plates and it's just cost prohibitive. And that's why. Most, you know, in most situations, you're not able to go and just easily convert into, you know, another housing sector. Because ultimately we have a real shortage of affordable housing in the residential space and both apartments and single family homes can fill that. So many bright minds have been like, Oh man, can we just convert the office? To multifamily or apartments downtown, solve this problem. It's a cost problem and would take a ton of incentives for cities to be able to incentivize developers to do that. And, it's just not, it's just not happening. So that's 1 perspective of it. Now. The question is. You know, with that from 12, 000 units, is that going to destroy or hurt the apartment. Industry. You know, I don't think that that's going to have a dramatic effect on the apartment industry. I'm assuming those numbers are national numbers. And so, you know, I don't see that that's going to have a huge effect. But what we've talked about on the show is that there is going to be an over supply. Temporary issue in the apartment industry, even if we don't do these conversions, we talked about how single family rents in Jacksonville are expected to grow. They have grown year over year over year. As we've shown, they grew last year and they're expected to go up in future years on the single family side. But that's not the case on the apartment side. Apartment rents are down about 4%. Last year to 2023, two years ago to 2023. So they went down about 4 percent in 2023 and they're expected to decline next year until they eventually get back to like three, four or 5 percent growth. And I'm referencing Jacksonville numbers. The main reason why you're seeing a decline in rents in apartments is because of an oversupply issue. In apartments, so that's there regardless of what happens with the office to apartment conversion scenario and the reason that you're seeing more supply and oversupply in apartments is because debt was so cheap 2 and 3 years ago that apartments. We're being, if funds were created, raising tons of money, attaching cheap capital, cheap debt to it, and building a ton of apartment complexes. And those have been delivered in 2023 and in 2024. So you can see how this supply and demand equilibrium plays out and affects different asset classes differently, even though we're all in real estate.

original: 31:52

Good explanation, buddy. Pamela Myers says there's talk recently about the Florida market declining. Is that referring more to commercial than residential? Have you heard that stuff, G. C.

original (1): 32:01

I mean, we've been hearing this forever. I'm not surprised that they're still talking heads out there saying that the market is declining. What I will say is you really can't even look at. an entire state as a market, you really need to look at a certain metropolitan statistical area. That's really just kind of like a region, another name for a region. and so Jacksonville is a, an MSA. So you really need to look at individual MSAs and, in Jacksonville, home prices have gone up. Last year, they are going up again this year. last year, home prices went up 1. 1%. And that's taking a look at median home prices from 2022, uh, 2023. So taking seasonality completely out of the equation, home prices went up 1. they're expected to go up again this year. They are still going up. Right now. So, I can't speak for every market in Florida, but home prices, absolutely. You're going up in Jacksonville. There's the data to support it. Same thing with rents. and I would imagine that in Florida, home prices are going up on the residential side as well. If I, if I had to think about the state of Florida overall, the commercial side, commercial offices down. So it depends which, what you're really looking at. and then people lump apartments under the commercial umbrella as well. So if you're talking about rent prices for apartments, it is accurate to say that apartment rents are down in Jacksonville. year over year. I'm expected to be down going forward. And I would imagine it's that way in other major MSAs in Florida as well. although I don't have the data right in front of me.

original: 33:29

Good stuff. You see good answers, man. That brings us to our title story, right? This idea that this alarming headline right here, right? Wall Street has spent billions buying homes. A crackdown is looming. And it's a story essentially that, you know, to no surprise, With the commercial sector doing what it does, Wall Street is smart. They ran to single family homes and particularly during the pandemic. And there's been these large institutions buying large swaths of single family homes. It's created a bit of a backlash in certain communities. Politicians and lawmakers have caught wind of this thing, and there seems to be some kind of bipartisan support saying that this might be an issue because it's driving up prices for people trying to buy their 1st homes and things of that sort. Do you see what do you think about this headline in this story

original (1): 34:16

I think this is a great opportunity to mix data with perspective. I really do. I think the narrative that, Wall Street is buying up all of these homes and, you know, stepping in the way of the American dream and that, there are certainly parts of that, that, may be true in circumstances, but there's another side of the coin. And I think we need to be able to look at the data. Taken the perspective and see all perspective, because there are some negatives. There's a whole lot of positives, too. And if we only focus on the negatives, and we might draw, you know, the wrong conclusion. so I put some of those data points together. I thought we would 1st, start with this idea that Wall Street is buying up all of these. And I went back and I said, well, what's that? How can I really see the impact of how much Wall Street has been buying? And can I go back over time and see, is this a new phenomenon? Is this a been around for 15 years? And so I put some of the stats together here, but what you're going to see in public, if you want to go ahead and bring up the first slide here, So what we're looking at here are the total of investor purchases in Jacksonville, Florida, since 2006. Investor purchases would be institutions like wall street, buying purchase, buying properties, as well as. people like you and me who buy properties in our company names. so that's the way that this is defined. And so if you, you can actually look back from 2006 all the way to 2023, probably just looking at, I know you're looking at this for largely the first time. what do you see here? What, what jumps out to you?

original: 35:47

It's pretty black

original (1): 35:48

Right? I didn't know this before I went and put the data together. I knew that investors had purchased, call it 30 percent of homes in 2021 and 2022. But I didn't know if it went from like 4 percent to like 30%. But looking at this gives us a little bit more perspective. So, you know, going back in 2006 to 2023, the average rate of investor purchases, which would include institutions is about 20 to 25 percent of all purchases in Jacksonville, Florida. So the fact that we went up to 30 percent and at points it was a little bit higher than 30%, not like going from zero to 100 miles an hour, right? So then I want you to look at one thing there. Look at 2013. What was the rate of purchases in 2013?

original: 36:34

30.

original (1): 36:35

30%, right? 30 percent the same rate that was being talked about profusely over the last couple of years. But nobody was talking about that in 2013. Now, the reason why people are really concerned about, well, there's a couple of reasons and I want to dive into them. and the reason, one of the reasons why people are really concerned about Wall Street and their involvement here is because of this thought that Wall Street is pushing up rent prices and home prices. And there's a lot to that. So we'll take a little bit of that discussion here today. And if you have questions, this is a great time to get into it. But 2013, we had 30 percent of all purchases being done by investors. Wall Street would be lumped into that. Let's go to the next slide. Because in 2013, I ran back and looked back at the, at the rent debt. In 2013, investors made up 30 percent of all purchases, but rent only went up 2%. That's 44 percent below what the historical average is. of rent price increases in Jacksonville, Florida. So the theory here is that Wall Street has created a monster and that when Wall Street gets involved, Wall Street with their big wigs and their, they're always smarter than the rest of us that they're, you know, pulling this lever and pushing up rents. But that's not really what the biggest problem is here, right? Home price affordability is a big concern. And I'm very concerned about that for our country as well. But the biggest problem is not Wall Street. The biggest problem is a lack of supply. And there are things that are within our control to be able to increase supply. And if we do that, we wouldn't have seen home prices go up as much as they did in 2021 and in 2022. We still would have seen them go up significantly because the debt was so inexpensive at that point, but it was like a perfect storm. Wall street was a part of it. And wall street did compete with first time home buyers in 2021 in 2022. When it came to buying assets, that is absolutely true. But Wall Street's involvement is not the reason why home prices went up. The real reason, the big thing that we need to solve is affordability. And the biggest driver of affordability is a lack of supply. I mean, that's the biggest reason why even as interest rates have gone up to almost eight percent, home values in Jacksonville and across the country still have gone up. It's a supply issue.

original: 38:54

Yeah. Like, if I can jump in on that, right? I did not see this coming. Right? I love this data with perspective that that you. Bring to the table, I saw a bunch of like opportunistic times where a bunch of people just moved to Jacksonville from the North. You know, I heard investors complaining about competing with Wall Street. I never heard first time homebuyers competing against competing with Wall Street, right? Like it feels like the first time homebuyers. We're already in the competition cycle of there just is not supply in this, like, workforce housing sector. Like, it's really, really hard to find a home there. And then you have people coming from, like, New York and Miami and all these other markets are we're moving to Jacksonville during that time that for them, it was just like, really, really easy to go buy a 150, 000 dollar condo to, like, write out the pandemic, and then keep it. Right, so, yeah, I mean, that's a really, really interesting take of yes, there is data that is saying that this stuff is happening. The data shows that there wasn't that big of a change historically in comparison to like, where it's been and to it is not correlated just because it happened at the same time doesn't mean it's causal or even necessarily correlated, which is essentially what you're saying, which is what people are concerned about, which we're all concerned about home price affordability.

original (1): 40:11

Absolutely. this battle between wall street and first time home buyers, Is emotional, right? It's it's David versus Goliath, right? We can we can create that narrative. And unfortunately, that's what's being talked about. And when it comes to legislation to, you know, to stem that that's a lot of what's being compared. So I just think data with perspective really helps here. I'm not saying that. there aren't potential negatives to Wall Street being involved in single family rental properties. I'm just trying to look at it from all perspectives. You know, this isn't the first time that Wall Street has become involved in the renting of American homes and by default, right, the owning of homes indirectly. Right. Apartments became institutionalized at some point. Right. Still getting the data on it. I think it was around the 1980s when Wall Street really started to buy up apartment complexes. Right. so it's not like as soon as Wall Street comes in, they get in, they institutionalize something and then they back out the next day. And, you know, the values of apartments crash or things of that nature. This has happened before. There are actually positives as far as Wall Street coming into, the housing economy at a certain level, which we get to enjoy one of the benefits of Wall Street being in our housing economy is Wall Street It makes decisions based on returns. And when prices get to a certain level and interest rates get to a certain level, Wall Street starts gobbling things up. And if you think about what happened in 2008, in the great recession and the housing crash that happened, there was no institution based single family house buying vehicle out there. They were not mobilized to do that. And so one reason why home prices fell as much as they did was because there was not institutions. in the housing economy in 2008. So institutions being here provides a higher floor for pricing and greatly decreases the risk of another real estate crash happening. and many people don't think about that. There's other things that come into play that, um, are benefits to institutions being here that aren't talked about. Like for the fact that institutions are buying properties and partnering with homebuilders. So that they can form partnerships to hold on to these assets for the long haul. And when they form partnerships, They're building new inventory. So they're actually bringing new inventory to the marketplace. It's called build to rent. And JWB started to do this in 2011. We're doing it at the scale that Wall Street is doing it now. We still do it. We still don't do it at their scale, but this is what got us on the front page of the Wall Street Journal in 2011. So this build to rent phenomenon, if you think about is this helping or hurting affordability? Build to rent is absolutely helping affordability when it comes to rent prices, because builders, institutions partnering together are building hundreds and thousands of rental properties, which is increasing supply, which is helping with home price affordability, and people fail to see that relationship. And then, you know, I think that there's a lot to be excited about as far as the renter experience because you have the ones with the deepest pockets and a whole lot of talent, coming into this space. And I think the renter experience is set to benefit from that. You're already seeing that and build to rent communities where they have better amenities and so they're creating this new space here used to just have single family or apartments. Really? Where you're going is you're going to have single family. You're going to have built to rent communities and you're going to have apartment living. And so, and this serves the need for residents that they just have never had before kind of in between apartments. And single family. So a whole lot of positives as well. There are negatives and we can talk about the potential downsides, but I just want us to all see all sides of it, you know, because there is legislation out there that is really demonizing wall street here. And, you know, I think it really could hurt, a lot of the good things that are coming here because of wall street's involvement. Some of the legislations says, if you own, I think over a hundred homes or. thousand homes, you're going to be forced to sell through just excessive taxation. And I just don't think people understand, all sides of it here.

original: 44:29

That's interesting, man. So, all right, so what I'm taking from you right now is this idea that, hey, let's have some perspective with what's going on. It's easy to demonize wall street. it's easy to do these kinds of things. There is some good things that are happening with it. There is still a big problem out there, which is home price affordability. But this thing is not going to fix it. This idea of demonizing Wall Street because it's not what is causing the thing, right? So that is one side of it. Let's take like a real hard look at this thing and look at the benefits that come with it. You know, I thought when I first read this article, I was like, Oh, this is referring to those kind of. Like, 1000 home funds that they have out there, right? Like, when I hear of wall street owning homes, I'm thinking of, like, 1 institution buying up a whole bunch of homes, operating them and selling them the same way that we were just talking about these, like, black rock type. Investments, which isn't what we're doing here, right? Like we are, we're out here mostly buying ourselves a single family home to 10 single family homes to 20 single family homes that we each own individually. We might have it under a company, we might have it under our own name, but it's not this like. It's not the asset class that is being necessarily demonized in this, in this article of talking about big institutions and wall buying is that right GC? street it as

original (1): 45:51

aim at Wall Street, or institutional, investors. And they've, we've largely defined that as institutions are, investors that own over a thousand single family rental properties.

original: 46:03

So it doesn't, that doesn't feel like something that's targeted to us who invest with JWB or people that generally listen to this program that are more the mom and pop investor. And therefore it feels like. Again, alarmist headline, but also not something that outside of this idea of maybe bringing up the idea that let's not get so quick to demonize wall street, but it's also kind of like this targeted towards me either.

original (1): 46:25

It's not

original: 46:26

is not

original (1): 46:27

but if some of this legislation would go through, which it's not on the floor, it's not something that's imminent. It is something for people to take notice of. It would absolutely affect JWB. We own over 1000 properties. And so the business model would absolutely start to take, would have some effects if, if that was the case. so it is something to be aware of and, you know, I hope, I hope it doesn't go very far because I just, I think it's like taking a bazooka out to try to fix, you know, a very small problem. What are you, you're better than with me.

original: 46:57

gotcha.

original (1): 46:58

You know what I'm

original: 46:59

Take a bazooka to a knife fight. I don't

original (1): 47:01

There we go. Thank you.

original: 47:02

Charity Graham's got an interesting question. The partnership with Wall Street and single family homes. Do you see lease to own programs coming out of this for renters

original (1): 47:10

I'm so glad you asked that charity. One of the best things that I see coming from this is Wall Street's talent and dollars, uh, being mobilized to help increase home price. Excuse me to increase home ownership. I look at that because I look at JWB and that is a big deal to us. We want to help our renters become home owners because this is a big deal for them. The home owner to take part in the, in the benefits and people to take part in the benefits of owning a home for themselves, for their financial future and for also their future generations. It is like the single greatest thing that a family can do to set themselves up. And their future generations and it's great for communities and it's great for society overall for our home ownership rate to go up and it's more profitable for Wall Street to get this right as well. I was literally just listening to the CEO of invitation homes. Dallas Turner talk yesterday. And he talked about how he sees this as an opportunity help folks go from renter to homeowner. And it's like he was living in my head because that's where we've been for JWB for a long time. And with the formation of JWB Realty, which happened over the last year, and a lot of our realty services being in house and even more cohesive than they've been, a big part of that is helping our renters. enjoy home ownership as well. And guess what? We're incentivized to do that too, right? So when things are aligned, incentives are aligned and great value can be created. I think that absolutely is going to be happening. And I think it's really critical for our country to, you know, home ownership rates have declined. They're actually the same rate today that they were 25 years ago. And if you knew that there was something that was going to set up yourself, Financially your retirement and future generations. And it was 25 years later in the last 25 years, so much wealth and technology and improvements have been made in our economy that should create more wealth for, for individuals. If you knew that that thing home ownership was at the same level, 25 years ago, as it is today, that's a huge fail. You know, and I think, and there's a lot of predictions that it's the highest it's going to be for a while right now, as home prices are, are unaffordable. So it's absolutely a mission for us. And I am starting to hear wall street. I heard it from invitation homes, that it's a mission for them to be able to help more homeowners, uh, or more renters become homeowners.

original: 49:35

to see as we, uh, we got like 3 more minutes left here. Anything else you want to touch on on this article? that you feel like we haven't hit on yet.

original (1): 49:43

I I'm going to hit you with some stats because I think they're really relevant because there is a big fear that now wall street is just going to gobble up 30, 40, 50 percent of homes going forward. Like you said, early on in this, in this call today, Pablo, it was a time where wall street was like, I'm putting all of my money here because this is a great value to invest in. And you know, that's the same thing. They like, they pushed all their chips. They, they front loaded their purchase plans. They're still buying. But they front loaded their purchase plans, which is the same thing that we talked about what I advised you to do multiple years ago. but this idea that they're just going to continue at that rate just doesn't make a whole lot of sense. And we're already seeing that. So some of this legislation out there is like trying to fix a problem that we don't really even have anymore. You know, I showed you those stats where, you know, between 20 to 25 percent of purchases are investor purchases traditionally in the Jacksonville market. Well, guess what? In 2023, we had right around 20, 25 percent of purchases were investors. And because interest rates were so high, you know, investor activity pared down, they're still buying, but investor activity is 20, 25%. So keep that in mind that this, this fear that we have of, of, Wall Street controlling and ultimately crashing a market or raising prices or whichever way we want to look at it. The greatest time for that was probably 2 years ago. 3 years ago. with that being said, overall, again, if there are monopolistic type of activities that are going on where Wall Street would be, you know, controlling so much that they could, you know, Jack up rents and home prices and all of that, you'd have to have the FTC kind of defines a monopoly of right around 50% of a firm's market share is where they start to look into that firm and see if it's monopolistic. single family, rental properties, institutions own only 3% of all the rental properties across the country, and that's all institutions. The biggest one player, if you're talking about somebody controlling the market, would be they, they would own less than 1%. So you are so far from a macro sense of institutions owning so much. Don't buy into those headlines that institutions own 30% of all the homes in America, it's less than 3%, and one institution owns less than one. so then I looked a little bit closer to Jacksonville because that's the macro sense. One question that you may be asking yourself is, yeah, but what if they own a concentrated amount in one market? What if they wake up one day and they just want to bail and sell everything? Could that crash the market? Well, I'll give you some data on this. the largest single family property owner in Jacksonville is Progress Residential. They own 5, 400 properties. There are 551, 000 properties in Jacksonville, so they own less than 1 percent of the properties in Jacksonville. So I just think that perspective is good to know. That's not to say that they couldn't wake up one day and decide to sell everything. You know, there's risks with everything. I think that's highly unlikely though, because they have gone so deep into building this infrastructure. It's a great asset. Their investors are, are winning here and they're forming more and more robust partnerships with home builders. Uh, so I just don't see that happening, but Hey, it could happen, but we also need to look at the more positive side too, because I think what's more likely is that they're going to be here for a while and that when market fluctuations happen, that higher floor is going to be there. And I think that's better for the economy overall.

original: 53:14

Makes sense, man. Makes sense. I'm glad we, I'm glad we cover this. it's a touchy subject, right? Because it is at the end of the day, the affordability crisis is real. So it's easy to like, strike that nerve. And I think the more that we look at it with, Okay. Objective and have perspective have data. Look at these things is the only way we're really going to find solutions for it. Right? Not like, rushing to panic and do these different kinds of things. So, really well done by you of, like, looking deeper into the data. Bring the perspective being the cooler head that, like, doesn't react based on emotion, but, you have this data flywheel, you have access to all this type of stuff. So I think this is 1 of those. Shows that it's kind of like what this show is meant to be, right. It's meant to be the, the fair take on what is out there and what people are freaking out about based on people that are educated, have been there before and have access to this, like information advantage that us as JWB investors have when we are investing in Jacksonville through JWB, man. So good job covering it, my friend.

original (1): 54:11

much appreciated. And thanks for everybody saying, everything in the, uh, in the chat there. I appreciate you guys. And yeah, I, I'm really excited that there's so much emotion around this. I want to put all that emotion into the thing that's really going to help solve the affordability crisis, which is increasing supply. and there's a lot that's going on there. So maybe we'll do that for a future show.

original: 54:29

Ooh, good idea, GC. But that being said, next week is a big show.

original (1): 54:33

It is a big show at the

original: 54:35

do we got going on next week?

original (1): 54:36

Is it the market update

original: 54:38

market update, man, the granddaddy of the granddaddy is every single quarter, it gets the most attendance as the most people that watch it on YouTube. So it is our giant social soiree of the state of the union. In Jacksonville, real estate at JWB. And you know that your boy GC always comes up with a nuanced take of something that's news happening out there. And we hear it all the time. People come to this podcast, come to this show cause they want insider information in the Jacksonville market. So hope to see you all there next Tuesday. Do you see, we'll be in studio back again. I miss you when I'm not there. I feel like these are fun. You did a great job, but it's not the same seeing your glowing gray hair right next to me. And, um, and feeling your energy coming from the mic, man. So I'm pumped to be back next week in studio. Any advice for the audience from now till next Think about it. Think about it. Tuesday

original (1): 55:35

Don't

original: 55:35

Be average. See you next week.