Monday Morning Quarterback

(Monday, November 13, 2023)

Don’t look now, but the largest leaseholder in the world just filed Bankruptcy. Yep, the Office-sharing company WeWork?filed for Chapter 11 bankruptcy protection in New Jersey federal court last week.?Announcing the bankruptcy filing, the company stated it had entered into agreements with the vast majority of its secured note holders and that it intended to trim “non-operational” leases (bad news for thousands of landlords). The bankruptcy filing is limited to WeWork’s locations in the U.S. and Canada, the company said in a press release. WeWork reported total debts of $18.65 billion against total assets of $15.06 billion in its initial filing. WeWork has suffered one of the most spectacular corporate collapses in recent U.S. history over the past few years. Valued in 2019 at $47 billion in a round led by Masayoshi Son’s SoftBank, the company tried and failed to go public five years ago. The Covid pandemic caused further pain as many companies abruptly ended their subleases, and the economic slump that followed led even more clients to close their doors. WeWork debuted through a special purpose acquisition company in 2021?but has since lost about 98% of its value. The company in mid-August announced?a 1-for-40 reverse stock split to get its shares trading back above $1, a requirement for keeping its New York Stock Exchange listing. But WeWork shares fell to a low of about 10 cents and were trading at about 83 cents before the stock was halted Monday. Former co-founder and CEO Adam Neumann, who ran the company into the ground, said the filing was “disappointing.” But his opinion is probably worth less than WeWork stock! The company leases millions of square feet of office space in 777 locations around the world, according to its regulatory filings. In other real estate news, let’s get under the hood…

Construction Spending Rises For Ninth Month In A Row. Construction spending rose in October, as companies and the government continued to ramp up projects across the U.S. Spending on construction projects rose 0.4% in October to nearly $2 trillion, the Commerce Department reported last Wednesday.?Economists were expecting construction spending to rise 0.4% in October. Construction spending reveals how much the government and private companies spend on projects, from housing to highways. The more the U.S. spends on construction, the higher the level of economic activity.?The government revised spending on construction in September to 1% from an initial read of a 0.5% increase. Over the past year, construction spending is up 8.7%. Construction spending rose for the ninth month in a row according to the Census Bureau. In terms of residential real-estate, private residential construction rose 0.6% in October from the month before. Single-family construction rose 1.3% in October, while multifamily fell 0.1%. Spending on public residential construction fell by 3.2%.

Zombie Foreclosures Rise In Fourth Quarter. ATTOM released its fourth-quarter 2023 “Vacant Property and Zombie Foreclosure” Report showing that 1.3 million (1,294,505) residential properties in the United States are vacant. That figure represents 1.27 percent, or one in 78 homes, across the nation – virtually the same as in the third quarter of this year. The report analyzes publicly recorded real estate data collected by ATTOM (including foreclosure status, equity and owner-occupancy status) matched against monthly updated vacancy data. The report also reveals that 320,765 residential properties in the U.S. are in the process of foreclosure in the fourth quarter of this year, up 1.7 percent from the third quarter of 2023 and up 12.8 percent from the fourth quarter of 2022. A growing number of homeowners face possible foreclosure following the nationwide moratorium on lenders pursuing delinquent homeowners was imposed after the Coronavirus pandemic hit in early 2020 and was lifted in the middle of 2021. Among those pre-foreclosure properties, about 8,900 sit vacant as “zombie” foreclosures (pre-foreclosure properties abandoned by owners) in the fourth quarter of 2023. That figure also is up slightly from the prior quarter, by 1.4 percent, and up 15.3 percent from a year ago. The latest increase marks the seventh straight quarterly rise. The stable number of zombie properties in the fourth quarter has come as our housing market has rebounded from a temporary setback last year. Among 166 metropolitan statistical areas in the U.S. with at least 100,000 residential properties in the fourth quarter of 2023, those with at least 100 properties facing possible foreclosure and the highest zombie foreclosure rates are Peoria, IL (12.4 percent of properties in the foreclosure process are vacant); Indianapolis, IN (9.9 percent); Cedar Rapids, IA (9 percent); Fort Wayne, IN (8.6 percent) and South Bend, IN (7.9 percent).

A Fireproof Home? Just a few weeks ago, I wrote about how an unstoppable fire?could easily blow through Topanga Canyon, potentially in just minutes, trapping motorists and residents, leading to a Paradise-like catastrophe. In short, strong winds, steep hills, narrow roads and huge amounts of long unburned vegetation, make building a home there quite dangerous. In fact, throughout the canyon you'll find typical, vulnerable wood frame houses tucked in between the laurel sumac. But while I was reporting on Topanga Canyon, I heard about a structure like no other, that seemed to disappear into the hillside around it. And, once I spoke with the builder, I found out that embedding the home under a mountain of dirt was done, in part, to make his place resistant to even the worst wildfires that might blow through Topanga. Even if you frequent the main road through the area, odds are that you probably haven't even noticed it, because from the backside, the property looks just like any other dirt hill dotted with chaparral. But turn down a driveway and the front of the house reveals itself. All you'll see are windows surrounded by large white walls, with concrete and gravel at the base. There are no eaves to burn, no mass of material (like mulch) pressed right up against the structure that could carry a flame and melt windows?and no fence to catch on fire. Instead of wood siding, there’s smooth white stucco. The body of the home is made of a four-plus-inch thick reinforced concrete shell, designed by the company Formworks, out of Colorado. After the hillside was excavated, builders put up a big steel frame, filled it with foam, and blasted it with layer upon layer of concrete. They then pulled out the foam, covered the shell up with tons of dirt, and built up the interior like any other house. The guy responsible for building the house is stuntman Eddie Conna, who has 140 different credits to his name, including?Natural Born Killers,?Mr. and Mrs. Smith, and the?Fast & Furious?franchise. But how safe would Conna's home actually be in a fire? It's tough to say. We won’t know how the house actually performs until a fire shows up.

Skid Row Housing Trust Receives City Loan. The L.A. City Council has approved another $10 million loan to fix apartments operated by the troubled Skid Row Housing Trust — a nonprofit that is the largest provider of subsidized housing in Skid Row. That funding comes on top of a previous $10 million the council approved in June and another $2 million earlier this month. It would go to the work of Kevin Singer, the person the judge put in charge of the trust’s buildings in June as a court-appointed receiver. The bigger budget is needed to pay for higher costs for security, insurance, utilities and janitors, according to a court filing by Singer. In a report to a judge and city officials, Singer noted his original security budget through September was $1.9 million, but ended up being $3.8 million. He also said there were higher costs tied to the previous receiver, Mark Adams (who was briefly in charge of the trust starting in April before city officials forced him to resign in late June). Singer was appointed by an L.A. Superior Court judge to try and right-size the housing trust’s problems back in June. What is a receiver? Glad you asked. A receiver is someone appointed by a court to take control of a property and fix problems. They essentially become the landlord, with oversight by a judge and the city. The Skid Row Housing Trust case is by far the city’s largest court-appointed receivership in the history of L.A., according to the city attorney. The Skid Row Housing Trust is a nonprofit formed in the late 1980s. It's the largest provider of subsidized housing in Skid Row, L.A.’s main neighborhood of unhoused people. The organization operates 29 buildings in Downtown L.A. that house people who formerly experienced homelessness. In recent years, the nonprofit completed construction on about 250 units with Measure HHH funding, the $1.2 billion housing bond voters approved in 2016.

Case-Shiller Index Continues to Trend Upward in August. Last week, S&P Dow Jones Indices released the latest results for the S&P CoreLogic Case-Shiller Indices (the leading measure of U.S. home prices). Data released for August 2023 show that 13 of the 20 major metro markets reported month-over-month price increases. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index ( covering all nine U.S. census divisions), reported a 2.6% annual change in August, up from a 1.0% change in the previous month. The 10-City Composite showed an increase of 3.0%, up from a 1.0% increase in the previous month. The 20-City Composite posted a year-over-year increase of 2.2%, a slight increase of 0.2% in the previous month. Chicago led the way for the fourth consecutive month, reporting the highest year-over-year gain among the 20 cities in August. For this month, seven of 20 cities reported lower prices. Twelve of the 20 cities reported higher prices in the year ending August 2023 versus the year ending July 2023. Nineteen of the 20 cities show a positive trend in year-over-year price acceleration compared to the prior month. Before seasonal adjustment, the U.S. National Index,10-City and 20-City Composites, all posted a 0.4% month-over-month increase in August. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 0.9%, while the 10-City and 20-City Composites posted a 1.0% increases each. “U.S. home prices continued to rise in August 2023,” says Craig J. Lazzara, Managing Director at S&P DJI. “Our National Composite rose by 0.4% in August, which marks the seventh consecutive monthly gain since prices bottomed in January 2023. The Composite now stands 2.6% above its year-ago level and 6.4% above its January level. The 10- and 20-City Composites each also rose in August, and likewise currently exceed their year-ago and January levels. “One measure of the strength of the housing market is the relationship of current prices to their historical levels.” On that dimension, it’s worth noting that the National Composite, the 10-City Composite, and seven individual cities (Atlanta, Boston, Charlotte, Chicago, Detroit, Miami, and New York) stand at their all-time highs. Observing the breadth of price changes provides insight into another dimension of market health. On a seasonally adjusted basis, prices increased in 19 of 20 cities in August (and Cleveland only missed by a whisker); before seasonal adjustments, prices rose in 13 cities.

The Oculus by Santiago Calatrava (New York). This building has redefined architecture. Architect Santiago Calatrava has built a reputation for creating structures so dynamic, they appear poised to take flight at any moment. And the Spanish-born's design of the Oculus is no exception. But what is Oculus? I bet you can’t guess? Oculus is a subway station in lower Manhattan, New York City. The structure is built of steel, concrete, stone, and glass. It takes the shape of a bird, specifically a phoenix, in mid-flight. The symbolism of a phoenix rising from the ashes is immediate, as the building is located mere feet from the September 11th Memorial and Museum in downtown Manhattan. But it's not just the symbolism, it's also the design—the ability of visitors to move with ease through a space that connects 11 subway lines and countless retail and office spaces—that makes this transportation hub such an architectural marvel. "I wanted to build a station that anyone can easily find their way around. Why? Because finding one’s way in a station is essential," explains Calatrava. "The idea of going underground through long escalators, entering dim places, this is our everyday life in New York. I wanted to create a place that delivers to the people a sense of comfort through its orientation, while also delivering a sense of security by opening everything to the naked eye." For anyone who has visited Calatrava's Oculus, it's evident he's done this in spades.

Warren Buffet’s Home in Omaha. Did you ever wonder where the “Oracle of Omaha” lives? Well, here’s the simple answer. The Berkshire Hathaway chairman and CEO maintains a modest residence in his hometown of Omaha, Nebraska. His massive net worth (currently at $120.5 billion) has not moved the 93-year-old to flee for more temperate climates or waterfront views. According to a CNBC?report from earlier this year, Buffett’s 1921 abode located just minutes away from Berkshire Hathaway’s corporate headquarters is still fine by him: “I’m warm in the winter, I’m cool in the summer. It’s convenient for me,” he told BBC’s Evan Davis in 2009. “I couldn’t imagine having a better house.”?Buffett bought the five-bedroom dwelling for $31,500 in 1958, which amounts to approximately $330,000 in today’s value. “I’m happy there,” he said. “I’d move if I thought I’d be happier someplace else.” Buffett calls his home the “third best investment” he’s ever made.

World’s Most Inconvenient Convenience Store Hangs 393 Feet Off the Side of a Cliff. An inconvenient convenience store sounds like an oxymoron, not a place that actually exists. And yet it does. Or at least that’s what locals are calling a small water and snack shop in China. Dubbed the world’s “most inconvenient” convenience store, the tiny mart is hanging off the side of a cliff—393 feet in the air. Located on a mountain in the Shiniuzhai National Geological Park in Hunan province, the shelter spans only 21.5 square feet, reports CNN.?As its nickname suggests, reaching the store is no easy feat: It requires scaling the cliff it hangs on. The climb is reported to take about 90 minutes. However, once climbers get inside they’re rewarded with a free bottle of water. The convenience store is located along a 2,624-foot via ferrata route, which is a type of protected rock climbing in which steel anchors, cables, and railings are attached to a mountain face to help adventurers cross difficult terrains. “Considering it’s a store—for people already climbing—where there wouldn’t normally be one, I think it’s actually the most convenient store,” one user commented?on a recent post. Still, it’s not just the customers to consider—there are the employees too. This was a big question among Weibo users (a Chinese social media platform similar to X) when images of the shop went viral on the website in May of 2022. As Insider?reported at the time, one employee is on duty at a time, and it’s their job to restock the shop each morning. “The store doesn’t make much money, but the tourists are very grateful for it, so we all feel like our jobs are very meaningful,” an anonymous worker reportedly told CCTV, a Chinese state-run media outlet. According to the worker, after getting over the initial fear of the climb, the biggest issue is the bathroom. “It’s exhausting to have to climb back down and up again just to use the toilet, so we try not to drink too much water,” they said.

Out-of-State Summit. For our annual Summit, LAC-REIA has identified the four strongest cities in the USA that have dynamic job and population growth, along with affordability, landlord-friendly laws, renter desirability, and positive cash flow.?We then identified the most professional turnkey operators in each of these cities and invited them to speak at our Out-of-State Summit: Michael Drew (Indianapolis), Emily Nesselroad (Montgomery, AL), Michael Scher (Little Rock, AK), and Phil Alexander (Baltimore, MD). Thursday night, December 14, 2023, 6:30 to 9:30 pm, Iman Cultural Center, 3376 Motor Avenue, Los Angeles, CA 90034 (Culver City). RSVP: www.LARealEstateInvestrors.com.?

Vendors Expo Returns!?Our world-famous "Vendors Expo"?returns on Thursday night,?December 14, 2023. The Vendor Expo opens at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034.?FREE Admission.?Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

“LARealEstateInvestors.com” Podcast.?We are so very excited about our podcast, "LARealEstateInvestors.com" (cleverly named after our domain) hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor since the Ice Age!?No one is more experienced in local Southern California real estate than Bill Gross. Each week, Bill interviews real estate professionals sharing their insights and advice. Every Tuesday at 3:00 pm, and anytime thereafter on YouTube, Facebook, and Google.

This Week. Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, the Consumer Price Index (CPI) will be released on Tuesday by Bureau of Labor Statistics. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. Retail Sales will come out on Wednesday from the Census Bureau. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data is a key measure of the health of the economy. Housing Starts will be released on Friday by the U.S. Commerce Department.

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Weekly Changes:

10-Year Treasuries:????????????Rose?050 bps

Dow Jones Average:??????????Fell????100 points

NASDAQ:???????????????????????????Rose?100 points

Calendar:

Tuesday (11/14):????????????????Consumer Price Index

Wednesday (11/13):???????????Retail Sales

Friday (11/17):????????????????????Housing Starts

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For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

www.LARealEstateInvestors.com

310-409-8310

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