Monday Morning Quarterback

(Monday, February 3, 2025)

Yantai, an industrial city on the Yellow Sea in Eastern China, wanted to give a vast new beachfront development an icon. And who better to design it than Open Architecture, the Beijing-based firm that has already created some of the most original buildings in the world? Those include UCCA Dune, a contemporary art museum that looks like seashells strewn across a sandy beach, and the Chapel of Sound, an open-air concert hall that resembles a hollow boulder. Invited to submit a proposal for Yantai, OPEN’s husband-and-wife founders, Li Hu and Huang Wenjing (regular honorees on the AD100 list of?Architectural Digest?China and Harvard educated) were determined to create a building that, Li says, rewards repeat visits, inviting you “to explore, to contemplate, to understand.” The couple also envisioned a cultural destination for a part of the city that so far has very few. Opened to the public this past October, their Sun Tower rises from a 164-foot-diameter circle to a height of 164 feet. Roughly conical, it is cut open like a geode on its sea-facing side, revealing inner and outer concrete envelopes crossed by ramps that are also structural supports. The enclosed space functions as a multilevel gallery. At the building’s base is a large amphitheater, open around-the-clock and big enough to seat 800 people for a range of events (including the daily spectacle of the sun rising over the sea and nearby Zhifu Island). The theater also amplifies the sound of the ocean, like a seashell held up to your ear. The top of the building contains a public library branch with 5,000 volumes, many on ocean ecology. Aside from the ground-level café, it is the only part of the 53,410-square-foot structure that is air-conditioned (not for the people but for the books). The rest is cooled by air that rises up through what is essentially a giant chimney. Above the library is the “phenomena space,” so-called because the oculus in its domed roof serves as a porthole to the cosmos. (At noon on the summer solstice, for example, the sun casts a perfect circle on a small bronze pool—and the water in it starts to spin.) Meanwhile, at the plaza level, a shallow channel follows the shadow of the building’s peak during the equinoxes. Huang explains, “The whole building was sculpted by the movement of the sun.” Adds Li, “You can say that it’s a very complicated sundial.” Meanwhile, back in America, let’s get under the hood…

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The Housing Outlook for 2025. If you’re going to remember one important fact about the housing market, it’s that with the brief exception of COVID, the US has consistently built too few homes every year since the housing bust in 2007. For the first few years during the housing bust the under-building of new homes made perfect sense.?We built way too many homes during the housing boom, generating a massive amount of “mal-investment” in response to government incentives that included having Fannie Mae and Freddie Mac buying enormous amounts of subprime debt. But the under-building continued long past the point when the excess inventory was gone.?Back in November (the most recent reported month), builders started homes at a 1.289 million annualized rate, well below the 1.5 million plus rate that is needed to keep pace with population growth and scrappage (due to both voluntary knockdowns as well as disasters like fires, floods, hurricanes, and tornados.) As a result of the shortage of homes, economists expect housing prices to continue higher in 2025 in spite of some general broader economic headwinds.?The national Case-Shiller index for home prices was up at a 3.7% annual rate in the first ten months of 2024 (through October) and economists expect a similar pace of increases again in 2025. In terms of construction, housing was a mixed bag in 2024.?Single-family housing starts were up about 6% last year versus 2023, but multi-family starts plummeted 25-30% to the slowest pace in a decade.?However, it’s hard to see multi-family starts continuing to drop in 2025 – they’re already so low!?Economists expect a slight rebound in multi-family and continued gradual increase in single-family starts. In turn, some more construction should help boost new home sales modestly, as well.?New home sales were up 2% in 2024 versus 2023 and economists foresee a similar modest gain in 2025. Existing home sales, however, run on different dynamics and should just tread water versus the roughly 4.05 million annualized rate of 2024.?Builders of new homes will likely shift to lower-priced models with fewer features in the face of higher mortgage rates and economic weakness.?But existing homes are already built and often have to be priced high enough to entice homeowners who borrowed money at rock-bottom mortgage rates in 2020-21 to sell. Put it all together and we have a recipe for modest improvement in housing even as the rest of our economy slows down.

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U.S. Retail Closures Up Almost 70% As Thousands Of Stores Prepare To Go Dark in 2025. The new year is upon us, but U.S. consumers will have far fewer options in the new year when it comes to brick-and-mortar retailers. Family Dollar and CVS top a list of U.S. retailers announcing multiple store closures in 2024-2025. About?7,100 store closures were announced nationwide through the end of November 2024, according to a new report from research firm CoreSight. That metric is up 69% from this time last year. Family Dollar?announced 677 store closures, more than any other retailer. CVS Heath?came in at No. 2 with 586. Big Lots, Conn’s and Rue 21 rounded out the top five with 580, 553 and 543 closures, respectively. CoreSight also counted 45 retailers who filed for bankruptcy in 2024, up from 25 in all of 2023. While consumer spending appears strong?at the moment, many customers have been more selective and bargain-driven in the current climate. “There is not enough growth in the retail market for every chain to do well, which is why we are seeing polarized results,” Global Data?analyst Neil Saunders told CBS News.?“However, many of the chains closing stores are those that have problems which go beyond the economy. Their propositions might not be right, their offers might not be what consumers want, and they might not have responded to competitive threats in the right way.” Family Dollar, for example, was purchased by its longtime competitor Dollar Tree?for $8B in 2015. The parent company was exploring a sale of the smaller chain?earlier this year. Dollar Tree posted $1.7 billion loss?in its quarter ending on Feb. 3 and announced plans to shutter around 1,000 stores the following month. Meanwhile, CVS is not the only pharmacy chain struggling. Rite Aid?and Walgreens?announced 408 and 259 store closures, respectively, this year, according to the CoreSight report. CVS’ stock price rose from about $60 a share at the onset of the pandemic to more than $100 through much of 2022, but it has been falling since and now sits at just $45.

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Another High-Profile Local Real Estate Figure Joins the Trump Administration. Real estate investor Tom Barrack (fellow polo player – but much MUCH better than me) is becoming ambassador to Turkey amid huge conflict on the country’s border. The Colony Capital founder’s life is one of the most vivid of anyone in modern real estate.?Born to Lebanese immigrants in Southern California, Barrack graduated from law school in the early 1970s, and his first firm shipped him off to Saudi Arabia, where he became a squash partner to?a member of the royal family. He worked briefly in the Reagan administration before moving into real estate in the mid-1980s, and in 1988, he made a tidy profit selling the Plaza Hotel to one Donald J. Trump (who lost the property to foreclosure).?He founded Colony in 1990 and made his first major fortune in the early 1990s crash buying assets from the government Resolution Trust Corp. Colony and Barrack made big forays into hotels and other typical private equity deals, but it also bought assets that were far from typical: French soccer club Paris St Germain, Michael Jackson’s Neverland ranch, loans to photographer Annie Leibovitz, and film company Miramax.?Colony’s merger with fellow real estate firm NorthStar in 2016 was a damp squib, but before he stepped back from the business in 2021,?Barrack did help start Colony’s pivot away from real estate into digital infrastructure assets like data centers and cell towers?— a move that looks highly prescient today, with the firm renamed DigitalBridge.?He ran Trump’s 2017 inauguration committee. In 2021 he was arrested on charges of being an agent for a foreign power, but was subsequently acquitted. A lot of ambassadorial appointments are purely symbolic — but not Turkey!?Syria is on the country’s eastern border and has just seen a violent dictator overthrown by a rebel group about whom little is known in the West. Further, there are 3 million Syrian refugees in Turkey, and the situation in the region is uncertain.?So clearly, this is Barrack’s most difficult job yet.?

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Miami's Beachfront High-Rises Are Sinking Fast. This is a warning for coastal properties worldwide. Coastal properties?worldwide are sinking, including some of Miami's pricey waterfront high-rises. Specifically, high-rises on barrier islands near Miami are sinking, a new study found. In a study?published in the journal Earth and Space Science in December, researchers found that 35 buildings along the coasts of?Miami’s barrier islands?have sunk into the ground by 2 to 8 centimeters between 2016 and 2024. This sinking phenomenon, called “subsidence,” is happening "almost everywhere that we look," said Manoochehr Shirzaei, a geophysicist at Virginia Tech who was not involved in the Miami area?study. That sinking can lead to expensive (and sometimes deadly) damage and flooding?in some of the most populated places on Earth. It doesn't have to, though. The new Miami study shows how satellites can help save buildings and infrastructure?before the sinking contributes to catastrophic failure. Cities all over the world?weigh so much and draw so much groundwater from beneath them that they're sinking into the ground. It's been documented on every continent. Sinking coastal cities?are extra vulnerable because the seas are rising to meet them, doubling the flood risk. "One centimeter of sea level rise and one centimeter of subsidence each have the same effects" on flooding hazards, the lead authors of the new Miami study, Farzaneh Aziz Zanjani and Falk Amelung report. Many of the most afflicted coastal cities?are in eastern and southern Asia, but major hubs in Europe, Africa, and Australia are also sinking rapidly. In the US, Shirzaei's research group found?that huge swaths of the East Coast?(including New York and Baltimore) are sinking by at least 2 millimeters each year. On the west coast, it appears portions of Long Beach, Huntington Beach, Newport Beach, and San Diego are most in danger.

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America’s Frozen Housing Market is Finally Thawing. After nearly three years of grappling with an expensive housing market, home buyers are showing signs of getting used to it. Though the data is still preliminary, it points to an emerging trend in which house hunters are adjusting to higher mortgage rates. Home transactions are broadly up over the past few months, and consumer sentiment toward buying a house is warming up. “Home-sales momentum is building,” eternally optimistic Lawrence Yun (chief economist at the National Association of Realtors) said recently. Consumers have grown accustomed “to normal mortgage rates between 6% and 7%,” he added. Even if homeowners with ultra-low mortgage rates remain reluctant to move (a phenomenon known as the “lock-in effect”) that dynamic may be easing among those with relatively higher rates. And that gradual shift in home-buying attitude is giving the housing industry some hope for 2025. The two major pieces of data that suggest consumers are begrudgingly accepting a new, more expensive housing market are the recent increase in home sales and the uptick in housing sentiment. In November and December, the latest months for which data was available, home sales increased, according to the NAR. That trend was broad-based: The number of homes sold across most of the nation grew between November and December as buyers snapped up properties during a brief period of time when the 30-year mortgage rate fell close to 6%.?The median price of a home sold over that period was $406,100 (which was up nearly 5% from the same month a year ago). Additional data suggests that more buyers are on the way. Pending home sales, which refer to contracts signed a month or two before a home is sold, also rose in most regions. At that point, Yun said, “consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory.”

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Home Selling Profits Slide Again in 2024 Despite Continued Price Gains. ATTOM data services released its Year-End 2024 “U.S. Home Sales” Report, which shows that home sellers (including investors) made an average $122,500 profit on typical sales nationwide in 2024, generating a 53.8 percent return on investment. But even as both measures remained near record levels, and home prices kept rising around the country, the profit margin on median-priced sales nationwide decreased from 56.9 percent from 2023. The drop-off marked the second straight annual decline – a pattern of consecutive downturns that hadn’t happened since the aftermath of the Great Recession in the late 2000s. While the gross profit on median-priced single-family home and condo sales did inch up about $2,000 from 2023, the typical profit margin stood eight percentage points below a peak hit in 2022. The downward investment-return trend continued despite the median national home price rising 5 percent to yet another annual record of $350,000. Margins fell back as the increase in home values failed to keep up with larger price spikes recent sellers had been paying when they originally bought their homes. “After a weak 2023, the U.S. housing market mostly rebounded nicely in 2024. Prices went back up at a healthy clip and homeowners continued to make some of the best profits on sales in the past 25 years. The renewed shine, however, didn’t come without a bit of tarnish as margins took another turn for the worse,” said Rob Barber, CEO at ATTOM. “Amid the generally good news, that’s something worth following closely in 2025.”

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Dinosaur Highway’ Tracks 166 Million Years Old Discovered in England. A worker digging up clay in a southern England limestone quarry noticed unusual bumps that led to the incredible discovery of a “dinosaur highway” and nearly 200 tracks that date back 166 million years, researchers announced. The extraordinary find made after a team of more than 100 people excavated the Dewars Farm Quarry in Oxfordshire expands upon previous paleontology work in the area and offers greater insights into the Middle Jurassic period, researchers at the universities of Oxford and Birmingham say. Four of the sets of tracks that make up the so-called highway show paths taken by gigantic, long-necked, herbivores called “sauropods” (thought to be Cetiosaurus, a dinosaur that grew to nearly 60 feet in length). A fifth set belonged to the “Megalosaurus,” a ferocious, nearly 30-foot predator that left a distinctive triple-claw print and was the first dinosaur to be scientifically named two centuries ago. An area where the tracks cross raises questions about possible interactions between the carnivores and herbivores. “Scientists have known about and been studying Megalosaurus for longer than any other dinosaur on Earth, and yet these recent discoveries prove there is still new evidence of these animals out there, waiting to be found,” said Emma Nicholls, a vertebrate paleontologist at the Oxford University Museum of Natural History. The group that worked at the site this summer took more than 20,000 digital images and used drones to create 3-D models of the prints. The trove of documentation will aid future studies and could shed light on the size of the dinosaurs, how they walked and the speed at which they moved. “The preservation is so detailed that we can see how the mud was deformed as the dinosaur’s feet squelched in and out,” said Duncan Murdock, an earth scientist at the Oxford museum. “Along with other fossils like burrows, shells and plants, we can bring to life the muddy lagoon environment the dinosaurs walked through.”

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Out-Of-State Investing Summit. Why buy one house for $800,000 in Los Angeles (with negative cash flow) when you can buy eight houses (or more) in another state for the same amount of money, and enjoy positive cash flow without any of the landlord headaches? If you appreciate the significance of this question, you must attend our 6th Annual “Out-of-State Investing Summit.” Each year, the Los Angeles County Real Estate Investors Association evaluates the strongest cities in the United States for dynamic job and population growth, along with affordability, landlord-friendly laws, renter desirability, low prices, and positive cash flow. We then identified the most respected turnkey operations in each of these cities. Companies that buy distressed properties at substantial discounts, renovates the properties efficiently, makes them rent-ready, finds qualified tenants, sells them to investors like you, and then manages the properties for you professionally. The marvelous thing about turnkey companies is that they do all the work and then send you a check every month. This is why the theme of this year’s Summit is “Be an Investor – Not a Landlord.” Saturday, February 22, 2025, 9:00 am to 2:00 pm. Iman Cultural Center, 3376 Motor Avenue, Culver City, CA. $49.00 if paid before February 15. After February 15, the price increases to $99.00 per person. Don’t miss it.?This is the ultimate cashflow strategy. RSVP: www.LARealEstateInvestors.com.

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Vendors Expo Returns!?Our world-famous "Vendors Expo"?returns in 2025, on Thursday night,?February 13, 2025. The Vendor Expo opens starting at 6:30 pm. We'll have 30+ 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), Culver City CA.?FREE Admission.?Please RSVP at our website, LARealEstateInvestors.com.

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February LAC-REIA Meeting. Our special guest for February will be investor Jeremy Beland. Jeremy Beland is a real estate investor with extensive knowledge in investing, wholesaling and acquiring off-market properties. In 2017, at 40 years old, he sold his townhouse and downsized to a tiny apartment, using the equity to invest in a beginner’s coaching program and start his wholesaling journey. Since then, he has completed over?450 off-market acquisitions, utilizing various exit strategies like wholesaling, flipping, and rentals. His efforts have generated?$10 million?in total gross profits, transforming multiple markets into million-dollar successes. Now he is passionate about showing others how to achieve the same financial freedom and success. We are fortunate having Jeremy visiting us from New Hampshire.?Thursday night, February 13, 2025, 6:30 to 9:30 pm, Iman Cultural Center, 3376 Motor Avenue, Culver City, CA 90034. Free admission. RSVP: www.LARealEstateInvestors.com.

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This Week. Investors will continue to look for additional guidance from Fed officials on their plans regarding future monetary policy. For economic reports, the ISM national Manufacturing Index will be released on Monday and the Services Sector Index on Wednesday. The JOLTS report measuring job openings will come out on Tuesday. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.

Weekly Changes:

10-Year treasuries:????????????? Fell????010 bps

Dow Jones average:???????????Rose??500 points

NASDAQ:????????????????????????????Fell????100 points

Calendar:

Monday (2/3):???????????????????????ISM Manufacturing

Wednesday (2/5):??????????????? ?ISM Services

Friday (2/7):??????????????????????????Employment

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For further information, comments, and questions:

Lloyd Segal

President

Los Angeles County Real Estate Investors Association, LLC

[email protected]

310-792-6404

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