|From: Glenn Petersen||9/11/2019 1:15:33 PM|
|How buying and selling a home could soon be as simple as trading stocks |
Artificial intelligence in housing could completely change the way we buy, sell and live
By Andrea Riquier
Published: Sept 11, 2019 10:30 a.m. ET
Illustration by Glenn Harvey
iBuying was just the beginning. Get ready for machine learning to remake real estate altogether.
On a recent weeknight, Dahlia and Adam Brown came home to a spacious Colonial on a quiet cul-de-sac in Marietta, Georgia. The Browns both work demanding jobs and have two young sons. They bought the house in June using Knock, a company that’s trying to revolutionize the real estate industry with a “home trade-in platform” making it easier to buy and sell at once. That solution was ideal for the Browns, who are just as busy as most couples, but are more introverted, making the idea of prospective buyers tramping through their private space seem excruciating.
Across town, Martha Seay was overseeing movers in a rambling brown ranch-style house nestled among tall hickory trees. The day before, she had closed on the sale of the house, where she and her husband had raised their family, to Zillow, the massive real estate company. The next day she would leave for Florida’s Gulf Coast, where they had just bought a retirement home.
Seay had wanted to move for years, but the idea of selling was daunting: “I said, maybe next year, maybe next year, maybe next year, because I didn’t want to go through all the crap you have to go through.” Selling to a company took just a few clicks and one visit from an appraiser, and Seay was delighted. “I cannot tell you how much the stress was relieved,” she said.
The Browns and Seay are the consumer faces of the disruption that’s currently roiling residential real estate. As different models — home trade-in companies, “iBuyers,” partnerships between new upstarts and old stalwarts — clamor for attention, lots of attention is focused on trying to determine what’s here to stay and what’s just an awkward rough draft: the Pets.com of the housing market.
But these families are also part of a massive industrial revolution. Information technology has remade old processes as different as ordering dinner delivery, hailing a cab and trading stocks. Now it’s coming for an industry so last-century that much of the paperwork is still done on paper, where customers are often steered among professionals scratching each other on the backs, and where there’s enormous incentive for incumbents to keep making it hard for customers to do it themselves.
The stakes are big: $74 billion of real-estate agent commissions were paid out in 2018, and investors have poured billions into all kinds of disruptors. Early adopters like the Browns and Seay give us a glimpse of what the future real estate market could look like. But just as online retail has hurt the bricks-and-mortar retail industry, and tech-enabled social networks have changed not just high school reunions but may be influencing the political process, data-fied real estate could upend our lives in many ways, some we can’t even comprehend yet.
“There’s over 100 million active users on Zillow Z, +0.70% and Trulia every month but only six million people buy and sell houses every year,” said Charles Folsom, Knock’s director of customer service. “Even if they’re just window shopping, there’s clearly a desire there. If you can empower the American Dream and enable mobility at the same time, that’s the best of both worlds.”
Zillow, a company that keeps an uneasy truce with real-estate agents even as it increasingly tries to automate the work they’ve done for decades, may have even bigger ambitions.
Krishna Rao, Zillow’s head of analytics for its Offers division, likens the current evolution in real estate to the democratization of stock trading a few decades ago. Not only is it possible to look up the value of any stock instantly today, he noted, but “there’s a kind of perpetual bid-ask spread on every stock, right? I think we’re a long way away from that in the real estate space, but how do we take incremental steps toward it?”
Zillow sees the listing price as a ‘machine learning’ exercise
In 2018, Zillow took what had been a small pilot program and announced it was going whole hog into iBuying, the practice of buying homes directly from consumers. (The term iBuying is also sometimes called “instant offers”; Zillow’s program is Zillow Offers.)
Rao, a macroeconomist by training, had joined the company in 2013 after a stint at the Federal Reserve Bank of New York in the thick of the financial crisis. At Zillow, he helped analyze and make useful the enormous quantities of data the company captures for the Zestimate and other kinds of forecasts and reports.
In the second quarter of 2019, Zillow bought more than 1,500 homes and sold nearly 800, and says it aims to transact 10 times that amount. Rao’s group is in charge of thinking about how it should all work: What should the company pay for a home? How much will it sell for — and what should it be listed for? How quickly will it sell? What upgrades are necessary and which contractors should be dispatched to do the work?
More to the point, when your “inventory” is dozens of houses scattered around a sprawling metro area, with the constant threat of mold, floods, power outages, unmown lawns, downed tree limbs, etc., who’s keeping an eye on the goods? (Rao told MarketWatch that Zillow is currently recruiting high-level logistics people from the likes of Amazon AMZN, +0.53% and “classic industrial companies” like General Electric GE, +1.40% to make this transition.)
The promises — and the peril — of this new endeavor are weighty. Zillow’s stock ZG, +0.86% tanked after its last earnings release, in which management revealed that a small sliver of the homes it had purchased were being held longer than they had accounted for.
Analyst Brad Safalow, who has a short position on Zillow shares, betting on a decline, wrote: “Even a 10% hit to the company’s inventory could cut Zillow’s overall gross profits from its Homes division by 25%! The margin for error in this business is razor thin, and we think investors continue to underestimate the difficulty of this ambitious endeavor.”
But Zillow bulls, and management, point to what Rao calls its “competitive advantage.”
Lots of companies have housing-market data about supply — that is, listings of homes for sale. Zillow’s secret sauce is information about demand, gleaned from 180 million unique website visitors each month. “That is, seeing who’s searching in this neighborhood and are they also searching in that other neighborhood or are they really just pinned down in this area. What is the demand for three bedrooms like relative to four bedrooms?” and so on, Rao said.
What does that mean in real life? Zillow sees the listing price as a “machine learning” exercise, he said.
“That machine can look at what the relative demand is for homes like this, relative supply, how that’s trended, and take these gobs of data and crunch it down into a particular listing price. Over time, as that home is listed, we then get more and more granular information — how well is the home showing? Are we seeing lots of tours, lots of offers? And use that to refine our strategy.”
“How do we solve the problem of consumers’ pain”
In a shared office in Buckhead, a well-heeled Atlanta suburb, the Knock team is working on the same questions. Two of Knock’s co-founders also started Trulia, a Zillow competitor that the bigger company eventually bought. Both companies launched as the housing bubble was peaking. Zillow quickly became known for the “Zestimate,” a modern marvel of housing clickbait that made the value of a home, previously something an owner considered only infrequently, a near-real-time interactive experience. (The Zestimate preceded Zillow’s listings, while Trulia started by offering online listings and later developed its own home value estimate tool.)
“At Trulia they unlocked the database of listings and now they’re unlocking the other side — how do we actually solve the problem of the transaction,” said Stephen Freudenberg, Knock’s first employee and a former real-estate agent. “Most of these other companies are solving for the agent’s pain, not the consumers’ pain.”
Knock does that by helping customers buy a new home — usually a larger one to accommodate a growing family — then sells the old one once they’re settled, and out of the property that needs to be staged and shown. They charge a fee equivalent to 3% of the value of the home they helped their clients buy, and 3% of the cost of the house that gets sold, as well as a small surcharge to cover the costs they front their buyer clients, such as initial insurance and escrow payments.
It’s a personalized model, almost like a concierge service. Yet Knock seems to spend nearly as much time and energy on data analytics, specifically about price, as Zillow does. The company recruited its lead data scientist, Rafaan Anvari, from the Central Intelligence Agency.
Anvari spent months shadowing Freudenberg, asking a constant stream of questions about how and why Realtors do what they do to create an automated valuation model for homes that understands even better than a seasoned real estate agent how to gauge pluses, like access to a golf course, against minuses, like proximity to a busy road.
Their back-and-forth went on for months, and some of the futility of getting a machine to learn how to think like a veteran neighborhood salesperson are captured in their internal chats, as seen below.
Their automated valuation model is now named “Borg,” after the drone-like cybernetic beings that tried to “assimilate” humanity on “Star Trek.”
The Knock team doesn’t just think Borg will make them more competitive. They think it will solve a lot of what’s wrong in today’s housing market.
“Ask five different agents what your house is worth and you’ll get five completely different answers,” Freudenberg said.
Internally, Knock team members call the existing real-estate ecosystem a “gypsy market” because it’s so antiquated and opaque. “Everyone’s haggling but they don’t know what they’re haggling over,” Freudenberg said. “They’re just making up obscure numbers.”
He offers an example: A family might spend $100,000 remodeling a kitchen but add only $50,000 to the cost of the listing because properties in the surrounding area, which are comparable listings, might not have such fancy kitchens. “So they’re stuck with what the neighborhood sold for, but if we’re actually looking at the data then everyone could theoretically get a better deal.”
Borg plugs information including room sizes, home style, outdoor space and more into an algorithm to derive a home’s value. Meanwhile, Zillow is trying to get even more granular, by teaching its machines about internal fixtures and features. The company described that evolution in a July press release about the Zestimate: “The image-recognition model can classify patterns in the pixels of photographs and correlate them to home value. For example, while the human eye sees tile or granite countertops, the Zestimate identifies two different pixel patterns.”
It’s worth noting that the vast majority of data-science resources in real estate seem to be focusing on home valuation as the endgame, as least for now.
Rao suggests that may be “because it’s a very narrow, well-defined problem, so it’s kind of easy to show progress to investors. We think of the strategy of Zillow Offers not just as a crisper valuation, but kind of an end-to-end experience that can seamlessly integrate the mortgage piece of it, the title, the escrow, and the buying and selling. It’s a big challenge doing all those things at the same time.”
Still, revolution has to start somewhere. The industry’s focus on automating valuations means that very soon, the Federal Reserve is likely to finalize a regulation that says appraisals will no longer be required on most property sales up to $400,000.
For Dahlia Brown, the Knock customer in Marietta, having an algorithm at the heart of the real estate market may help counter some human bias by limiting “some of the historical practices that maybe have kept certain people from homeownership,” she said. “This process actually seems as fair and equitable as it could be.”
Dahlia Brown and her family in from of their Marietta home.Still, it goes without saying that the real estate industry and the capital markets and venture capitalists that fund them aren’t developing better data tools to create a more equitable playing field for families moving into their forever homes.
Jeremy Sicklick is CEO of HouseCanary, a platform that’s raised over $60 million from investors to help it aggregate what he calls “millions of data elements” to come up with accurate home price valuations, forecasts of where those prices are going, and rental valuations for those properties.
With HouseCanary, investors, like those who buy single-family homes to rent out, can see a property status change, like a price change or a default, in near real-time, Sicklick said. “We’re helping them identify real estate opportunities within five minutes,” he said. “We’re getting into a world of programmatic trading in real estate with large institutional investors that we help enable.”
With so many concerns about institutional investors like Blackstone BX, +0.30% snatching up homes to rent out, keeping low- and moderate-income Americans locked out of homeownership, is that a good thing?
“I actually think it’s a great thing,” Sicklick said. “What I think it does is it adds liquidity into the market. The iBuyers and the large institutional investors create a very liquid floor price for someone looking to sell and drive a faster transaction.”
There has to be a better way
For now, that model is as imminent as, say, driverless cars. Knock, Zillow and other upstarts are still plying their trade in a mostly 20th-century housing market. The Brown family, for example, contacted Knock, got pre-approved for a mortgage, had their house assessed, and started touring new homes within a week. But they hadn’t even moved out when their agent urged them to hurry to get the property prepped for sale, to take advantage of the waning spring selling season.
The Browns are happy with the outcome and say that having the process rush by so quickly — start to finish in two months — lessened the stress of having to do precisely what they dreaded in the first place: let strangers poke around their home. But it’s still worth noting that traditional cycles of demand and habits are trumping the potential that new models offer, at least for now.
The question remains: how much of what comes next comes down to algorithms, and how much to process? For now, the onslaught of machine learning in the housing market continues unabated. As Knock’s data team might say, resistance is futile.
|RecommendKeepReplyMark as Last ReadRead Replies (1)|
|To: Black Blade who wrote (2677)||9/16/2019 10:31:52 PM|
|From: Black Blade|
|Interesting Letter From Fundrise to Fundrise Investors:|
Dear Black Blade,
At Fundrise, our goal is to provide you with superior performance by combining our low cost, efficient technology platform with high quality real estate investments.
However, it is important to remember that performance comes with some trade–offs, namely liquidity. And, while our aim under normal market conditions is to provide liquidity for investors through our redemption program, we believe it’s critical for all our investors to understand not only how, but also why that liquidity is unlikely to be available during a sudden downturn.
So I am sharing with you an article that we send to every investor on the platform titled “What you should expect from us during the next financial crisis”.
Ultimately, Fundrise investments are meant for investors who have a long–term outlook and are able to manage potential periods of tight liquidity without having to redeem. And though a financial crisis isn’t pleasant to think about — with the right preparation and understanding, it can reveal its own unexpected opportunities to come out ahead.
We ask that you please take a moment to read the note and as always provide us with any feedback you may have.
Co-Founder & CEO
BLACK BLADE: As I expected but many don't realize that FUNDRISE is an equity REIT with funds capped for bundled real estate projects (Stablized, Renovations and New Construction). Still holding and investing.
|RecommendKeepReplyMark as Last Read|
|To: Glenn Petersen who wrote (2684)||9/18/2019 1:36:27 PM|
|From: John Vosilla|
|I constantly get bombarded texts, emails, robophone calls, flyers, brochures and letters trying to buy my properties.. Some individuals, some are corporate. Some are local some are across the country.. I noticed it really took off in 2017.. Not sure how much influenced by technology, changing economy or rising prices..|
|RecommendKeepReplyMark as Last Read|
|From: Black Blade||9/20/2019 8:57:00 PM|
|RICH UNCLES NOW LARGEST CROWD FUND REIT (MERGER) .................................................................................................................|
BLACK BLADE: I threw a few bones into Rich Uncles (and Fundrise)
Real Estate Crowd Funding Pioneer Announces Transformational Transaction RW Holdings NNN REIT, Inc. to Merge with Rich Uncles Real Estate Investment Trust I and Acquire its External Advisor
News provided by
Rich Uncles Sep 20, 2019, 06:05 ET
COSTA MESA, Calif., Sept. 20, 2019 /PRNewswire/ -- RW Holdings NNN REIT, Inc. ("NNN REIT") and Rich Uncles Real Estate Investment Trust I ("REIT I") announced today that they have entered into a definitive merger agreement pursuant to which NNN REIT would acquire REIT I. Concurrently, NNN REIT announced it has entered into a contribution agreement with BrixInvest, LLC ("LLC"), the external manager and sponsor of both REITs, whereby LLC would contribute substantially all of its assets to NNN REIT's Operating Partnership ("NNN OP"). The two all-stock transactions will create the largest real estate crowdfunded equity REIT with over $450 million in real estate assets under management and the first FinTech real estate crowdfunding platform to be wholly owned by its own investors.
This transformational transaction establishes NNN REIT as a best-in-class public, non-listed real estate investment trust (REIT) where investors benefit from internal management, a board of directors with substantial public company real estate experience, the elimination of all external advisory fees and a direct-to-investor business model that cuts out the high-commission middlemen.
"Today over 10,000 individual investors should be congratulated. Were it not for these intrepid spirits uniting under the belief that investing in high quality real estate is available to everyone in a better and more cost-effective way, the private REIT industry never would have emerged from the dark ages," stated Aaron Halfacre, NNN REIT's CEO. Mr. Halfacre added, "Since joining the company a year ago, I have worked tirelessly to bring about a vision of a shareholder-owned structure for the non-listed real estate industry, a structure that we believe can dominate the industry in the years to come just like John Bogle's vision for Vanguard revolutionized the mutual fund industry."
Following the transactions, the Company is expected to be the first and only known continuously offered, public non-listed equity REIT that offers the diversification benefits of private real estate investment with the best-in-class corporate governance features of publicly listed REITs. In an industry known for REIT sponsors that profit by collecting large fees from their managed REITs and a FinTech industry dominated by institutional venture capitalists with nearly exclusive access to investments, the Company intends to offer investors an alternative that will enable them to put even more of their investment dollars to work by paying no advisory or management fees to external managers and having direct ownership of one of the most successful FinTech real estate crowdfunding platforms.
"Over 14 years ago I had the simple notion that the investment world would be a better place if individual investors, of all walks of life and at every stage of their journey toward financial freedom, could invest in high-quality, institutional-grade real estate without the cost, burden and complexity historically embedded in the heavily intermediated real estate investment industry," commented Ray Wirta, founder and Chairman of NNN REIT. Mr. Wirta further stated, "Through tremendous effort, trial and learning, we are now seeing that simple notion become a powerful path forward for investors."
Following the successful merger with REIT I, the combined company will have an improved portfolio that is poised for growth. Owning 45 income-producing properties in 14 states, with approximately 2.2 million square feet, the combined company portfolio will be 100% occupied, with approximately 67% of the combined company's net rents, on a pro forma basis, coming from properties leased to tenants and/or guarantors with investment grade or equivalent ratings. The combined company portfolio will have a balanced diversification consisting of 19 retail, 14 office, and 12 industrial properties, and no tenant will represent more than 8.1% of the net rents of the combined company, on a pro forma basis, with the top five tenants comprising a collective 32% of the net rents.
"The independent directors of NNN REIT believe that following a lengthy and thorough evaluation process, the transaction will result in a stronger company that is even better positioned to meet the needs of our existing investors and to attract potential future investors," stated Curtis McWilliams, Chair of the Special Committee of Independent Directors of NNN REIT. Mr. McWilliams added, "Based on the committee's collective years of public company real estate experience, we believe that NNN REIT has become a company like no other."
As part of its goal to establish best-in-class corporate governance and raise the standards within the industry, NNN REIT has assembled a slate of directors for its board, comprising its six current directors and an additional director nominee for election to the board, that exemplifies the highest standards of independence, acumen and integrity. Unprecedented for a public non-listed REIT, these individuals have the unique distinction of currently and/or previously serving in such titles as Chairman, Chief Executive Officer, President, Chief Financial Officer and Chief Investment Officer for over 12 public and private real estate companies (including 8 publicly listed REITs) that were responsible for nearly $200 billion in real estate assets, in total, during their respective tenures.
In exchange for each share of REIT I common stock, REIT I stockholders will receive 1.000 share of NNN REIT common stock, which is equivalent to $10.16 per REIT I share based on NNN REIT's most recent estimated net asset value per share of $10.16.
In exchange for each LLC unit, LLC unitholders will receive 1.000 Class M Unit in NNN OP, which are ultimately convertible into a minimum of 5.000 shares and, contingent upon the successful achievement of specific milestones, a maximum of 9.000 shares of NNN REIT common stock following the fourth anniversary of the transaction close. Following the fourth year, the converted units will be entitled to dividend distributions and voting rights. Based on NNN REIT's most recent estimated net asset value per share of $10.16, the minimum conversion ratio of 5.000 shares of NNN REIT common stock is equivalent to $50.80 per LLC unit.
Following the closing of the transactions, NNN REIT, REIT I, and LLC stockholders are expected to own approximately 58%, 29%, and 13% of the combined company, respectively.
The transactions are expected to close in late December 2019 or early January 2020, subject to the satisfaction of certain closing conditions, including the approval of the merger by NNN REIT and REIT I stockholders and approval of the contribution by LLC unitholders. The merger and contribution transactions are expected to close concurrently but are not conditioned on the consummation of each other. There can be no assurance that the transactions will be consummated.
In connection with the pending transactions, all of the registered REIT offerings managed by the LLC have been temporarily suspended and, following approval by the respective REITs' board of directors, will be reopened at a later date.
"The merger with REIT I and the acquisition of LLC are, without doubt, important events in NNN REIT's history. Equally important is the status of the SEC investigation of our advisor that was opened in early 2017 and fully disclosed by us in our 10-Q filed on May 15, 2017. I am pleased to announce that over the last several months we have been working hard with the SEC Staff to resolve the investigation and that the LLC has now proposed a settlement of the investigation to the SEC, that subject to SEC approval, could be announced very soon. As we have disclosed in more detail in today's 8-K filing, a key element offered by the LLC in the settlement was to provide even greater protection to our investors while staying true to our goal of making real estate investing less expensive. We believe the settlement provides us the opportunity to commit to using securities offering and distribution best practices to implement the guidance of both the SEC and FINRA. We look forward to sharing additional details about our advisor's settlement once it is approved by the SEC as well as updates on the progress of today's announced transactions," concluded Aaron Halfacre.
The NNN REIT special committee, comprised of the four independent directors, was advised by UBS Investment Bank as exclusive financial advisor and Morris, Manning & Martin, LLP as its legal advisor. The REIT I special committee, consisting entirely of independent directors, was advised by SunTrust Robinson Humphrey, Inc. and Cushman & Wakefield, Inc. as its financial advisors and Corporate Law Solutions, P.C. as its legal advisor. LLC was advised by Nelson Mullins Riley & Scarborough LLP as its legal advisor.
About Rich Uncles Real Estate Investment Trust I
Rich Uncles Real Estate Investment Trust I is an unincorporated public, non-listed real estate investment trust and was formed primarily to invest in single-tenant income-producing properties principally located in California and that are leased to creditworthy tenants under long-term net leases. As of June 30, 2019, the REIT's real estate investment portfolio consisted of 20 properties in three states, including 10 retail, six industrial, and four office properties with approximately 607,000 square feet of aggregate leasable space.
About RW Holdings NNN REIT, Inc.
RW Holdings NNN REIT, Inc. is an incorporated public, non-listed real estate investment trust and was formed to primarily invest, directly or indirectly through investments in real estate owning entities, in single-tenant income-producing properties located in the United States, which are leased to creditworthy tenants under long-term net leases. As of June 30, 2019, the REIT's real estate investment portfolio consisted of 24 operating properties, a 72.7% tenant-in-common interest in an office property and one parcel of land in 13 states, including 10 office, nine retail, and five industrial properties with approximately 1,537,000 square feet of aggregate leasable space.
About BrixInvest, LLC
BrixInvest, LLC (f/k/a Rich Uncles, LLC) is an advisor and sponsor of three public, non-listed real estate investment trusts: Rich Uncles Real Estate Investment Trust I, RW Holdings NNN REIT, Inc., and BRIX REIT, Inc.
ADDITIONAL INFORMATION ABOUT THE MERGER
In connection with the proposed merger, NNN REIT will prepare and file with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement and Prospectus jointly prepared by NNN REIT and REIT I, and other related documents. The Joint Proxy Statement and Prospectus will contain important information about the merger and related matters. INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT AND PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED BY NNN REIT AND REIT I WITH THE SEC CAREFULLY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT NNN REIT, REIT I AND THE MERGER. Investors and stockholders of NNN REIT and REIT I may obtain free copies of the registration statement, the Joint Proxy Statement and Prospectus and other relevant documents filed by NNN REIT and REIT I with the SEC (if and when they become available) through the website maintained by the SEC at www.sec.gov. Copies of the documents filed by NNN REIT and REIT I with the SEC are also available free of charge on NNN REIT's and REIT I's website at www.RichUncles.com.
This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
PARTICIPANTS IN SOLICITATION RELATING TO THE MERGER
NNN REIT, REIT I and their respective directors, trust managers and executive officers may have direct or indirect interests in the merger due to securities holdings, indemnification agreements and employment terms, and may be deemed to be participants in the solicitation of proxies from NNN REIT's stockholders and REIT I's shareholders in respect of the merger. Information regarding NNN REIT's directors and executive officers can be found in NNN REIT's most recent Annual Report on Form 10-K filed with the SEC on March 29, 2019. Information regarding REIT I's trust managers and executive officers can be found in REIT I's most recent Annual Report on Form 10-K filed with the SEC on March 27, 2019. Additional information regarding the interests of such potential participants will be included in the Joint Proxy Statement and Prospectus and other relevant documents filed with the SEC in connection with the merger if and when they become available. These documents are available free of charge on the SEC's website and from NNN REIT or REIT I, as applicable, using the sources indicated above.
This press release contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; NNN REIT and REIT I can give no assurance that their expectations will be attained. Factors that could cause actual results to differ materially from the expectations of NNN REIT or REIT I include, but are not limited to, the risk that the merger will not be consummated within the expected time period or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the inability of NNN REIT or REIT I to obtain stockholder approval of the merger or the failure to satisfy the other conditions to completion of the merger; NNN REIT's inability to consummate the transaction with LLC; risks related to disruption of management's attention from the ongoing business operations due to the merger and/or the transaction with LLC; the possibility that the SEC will not approve the settlement of the SEC investigation on the terms recommended by the staff of the SEC or at all; availability of suitable investment opportunities; changes in interest rates; the availability and terms of financing; general economic conditions; market conditions; legislative and regulatory changes that could adversely affect the business of NNN REIT or REIT I; and other factors, including those set forth in the Risk Factors section of NNN REIT's and REIT I's most recent Annual Report on Form 10-K for the year ended December 31, 2018, as updated by NNN REIT's and REIT I's subsequent Quarterly Reports on Form 10-Q for the periods ended March 31, 2019 and June 30, 2019 filed with the SEC, and other reports filed by NNN REIT and REIT I with the SEC, copies of which are available on the SEC's website, www.sec.gov. Each of NNN REIT and REIT I undertake no obligation to update these statements for revisions or changes after the date of this release, except as required by law.
Chief of Staff
SOURCE Rich Uncles
Related Links www.richuncles.com
|RecommendKeepReplyMark as Last Read|
|From: John Vosilla||12/2/2019 3:47:15 PM|
|Signs of a housing top forming??|
Home Builder Stocks: $312 Million for This?
A Daily Reckoning White Paper Report
by Mike Shedlock, Whiskey & Gunpowder
THE TOLL BROTHERS, Meritage Homes, and Simon Property Group Joint Venture announced the purchase of a 5,485-acre land parcel in Phoenix’s Northwest Valley for $312 million. It is the largest real estate transaction in Arizona history:
“The Maricopa County property, which DaimlerChrysler currently utilizes as a vehicle endurance testing and development facility, is bound by 183rd Avenue on the east, 211th Avenue on the west, Dove Valley on the south, and Joy Ranch Road on the north. DaimlerChrysler will continue to lease the property for the next few years, in order to plan and accommodate for the orderly transition of its testing operations.
“Toll Brothers and Meritage Homes each plan to build a significant number of homes on the site. Simon Property Group Inc. has the option to purchase a substantial portion of the commercial property. Other parcels may be sold to third parties. Initial plans call for a mixed-use master planned community, which will include approximately 4,840 acres of single-family homes and attached homes. Approximately 645 acres of commercial and retail development will include schools, community amenities, and open space. Initial homes sales are tentatively scheduled to begin in 2009. According to the approved General Plan, the site allows between 15,000-31,000 homes.
“Robert I. Toll, chairman and chief executive officer of Toll Brothers Inc., stated: ‘We are thrilled to have been chosen by DaimlerChrysler and to have teamed up with two excellent partners to develop this fabulous piece of real estate. The northwest area of Phoenix has experienced unprecedented popularity, and this particular parcel is a highly coveted site.'”
$312 million for 5,485 acres of desert with a testing track on it. That amounts to $56,882 per acre of flat desert.
Enquiring Mish bloggers might be wondering exactly where Phoenix’s magnificent Northwest Valley is. Through the wonder of Google satellite imagery, I am pleased to show everyone the following pictures of just what that consortium of buyers got for their $312 million.
It seems to be about 35-40 miles from Phoenix. The attraction? A commute from there to downtown during rush hour might be close to an hour each way, and where will gas prices be in a couple of years anyway?
There it is. I boxed it in. The premier spot to test-drive your new Camaro, provided, of course, Toll Brothers decides to keep that test track up and running. If not, what’s the attraction?
Home Builder Stocks: Homebuilders Buried in Land
With that in mind, I note with interest this Street.com article entitled “Homebuilders Buried in Land.” Enquiring Mish readers might want to know more, so let’s take a look at that too:
“Ed Wachenheim, a long-term value investor, agrees with the general view that homebuilder stocks are cheap right now. But the money manager, who was once a major owner of the sector, has sold off most of his positions because he’s worried about the huge amount of land on builders’ books.
“‘My fear is that many of the companies took on too large land positions at too high prices. And that means that should the industry turn down that there is risk that there will be some impairment of land values,’ says Wachenheim, who runs Greenhaven Associates, a Purchase, N.Y.-based firm that manages $3.7 billion of capital, mostly for wealthy individuals.
“It’s difficult to determine if Wachenheim’s concerns are justified and builders have been too aggressive in taking on new land. Builders report the dollar value of their total land holdings in quarterly filings, but nothing is usually said about the prices paid for individual parcels.
“There also is no geographic breakdown to determine whether a builder like Pulte Homes, for example, has too much exposure to a frothy market like Las Vegas. All the public knows is that Pulte’s total inventory of owned land was $5.3 billion for the quarter ending Sept. 30, up from $4.49 billion a year earlier. That amounts to 170,000 home lots, or roughly three years of supply, the company says.
“But what if that’s too much land to be holding in a slowing housing market…
“The issue is of particular note since builders have spent the bulk of their earnings over the past few years buying land for future building. Although most builders have at least 50% of their lots controlled through options, a large amount of purchased land continues to be placed on balance sheets. As a result, the sector in general has seen negative cash flows for some time now.
“‘I have never seen a group, in 20 years of analysis, post negative cash flow from earnings for four of the last five years and prosper as a stock group without having to pay the piper,’ says Jim Poyner, an analyst for Palladian Research, an independent New York research house. Poyner thinks land impairments could begin popping up over the next year if builders start slashing prices on new homes for sale.
“Robert Curran, a Fitch Ratings analyst who covers the builders, says it’s premature to worry about land impairments now, but grants that the issue could arise in the future.
“‘There isn’t anyone who really stands out as being overloaded on raw land on the balance sheet that is just sitting there,’ Curran says. It would take an economic recession or a really problematic regional housing market for there to be large land impairments, he adds. ‘If home prices come down, it doesn’t mean you will write down land assets.'”
Home Builder Stocks: Another Telepathic Question
On that note, I just received another telepathic question. It’s been awhile since we have had one of those.
Here it is: “But Mish, what about those fabulous P/Es?”
Those P/Es are a mirage. The homebuilders have negative cash flow and keep sinking every penny of their earnings into land, land, and more land at increasingly absurd prices, as the article above addressed and that $312 million transaction proved.
Here is the homebuilder picture:
* Homebuilders have negative cash flows
* Homebuilders put the bulk of their profits into buying more land at absurd prices
* Homebuilders are totally ignoring the yield curve
* Homebuilders are discounting the odds of a recession.
That, of course, does not mean that homebuilders will sink anytime soon. They may or may not. There has been one hell of a short squeeze lately, and everyone seems to be playing the trend of 2003 right now. No one seems to see falling sales, rising inventories, sinking refis, and discounts by the homebuilders.
Just two weeks ago, I was told by a real estate broker friend of mine that Atlanta was impervious to a slowdown and there would be no recession coming our way. I note with interest this ad by Centrex.
$60,000 off? Everything is fine in Atlanta?
Everyone seems to think their area is impervious to a slowdown, because of demographics, warm weather, an ocean, or whatever. That seems to be the key to this mania.
Well, I have news for you. An “Interest Rate Squeeze” does not care where you live. Prices matter, as do prevailing rents. Home prices do not always go up. Please click on that link and see what I am talking about. I suspect Toll Brothers and Meritage Homes will find out in due time just how silly that purchase in Phoenix was. By then, it will be too late. It is the overpayment for land that bankrupts homebuilders every cycle. This cycle will be no different.
Mike “Mish” Shedlock
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|To: John Vosilla who wrote (2688)||12/16/2019 6:12:32 PM|
|From: John Vosilla|
|Home-Builder Optimism Hits a 20-Year High. One Bull Says Buy Lennar, Beazer, and 2 Other Stocks|
Home builders haven’t been this optimistic in two decades.
“The current reading of 76 is about as good as it gets,” said Ward McCarthy, chief financial economist at Jefferies.
Watching this closely along with yield curve and oil prices. Home builders stocks lead by 2 years MOL downturn in economy. All looking rosy for now. Seeing lots of new construction especially starter homes, job creation continues job market very tight along with very low rates fueling demand, 97-98% LTV financing especially FHA getting millenials into these starter and mid market priced homes FINALLY (for better or for worse longer term?). More and more we will be sensitive to a backup in longer term rates. Perhaps 10 year treasury back above 3% for an extended period of time will do it?
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|To: John Vosilla who wrote (2689)||12/18/2019 8:38:55 AM|
|The high rise condo building continues at full speed in NYC. Along Broadway and the adjacent blocks there are 5 sites racing each other to completion from West 96th to 91st Street. Each at least 100 units. I travel all over the metro area for claims and really see it up close. A 200 unit building at a former warehouse in College Point, hipsters in Brownsville and Bushwick.|
None of it is seems even close to affordable.
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|To: renovator who wrote (2690)||12/23/2019 6:41:18 PM|
|From: John Vosilla|
|I thought was going to be way overbuilt three years ago all that new construction especially downtown Brooklyn and LI City? |
Money from mainland China has dried up? Offset by money coming in from Hong Kong?
I'm looking realtor.com and seeing about 10 months of existing inventory in mid Manhattan right now with 11 months lower Manhattan. That is down substantially from 2018 when we had well over year of inventory..
Been following 432 Park Ave for a long time. The ultra high end crash didn't really materialize. See resales from 2015 somewhat lower but these billionaires can take the 10-20%% hit...LOL
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|To: John Vosilla who wrote (2692)||1/4/2020 12:38:41 PM|
|No, I think they just ran into a lot more issues than initially expected. I handled a couple of claims earlier in the reconstruction process. |
My wife worked in that building for several years as a legal secretary for Kaye Scholer LLP before a major downsizing purge when they reorganized a lot of low producing partners out and shipped a lot of back office work to Florida. That firm is now Arnold & Porter and has relocated to the West side.
Meanwhile at 425 Park the building rebuild was complicated by new/old height allowance rules--very arcane in NYC--which dictated that when they demo'ed the existing building the lower 18 floors had to stay in order to allow all the new floors above to be added. However, the existing superstructure would not accommodate the load from the new added floors so there was a 5 floor deep excavation and installation of new interior superstructure sistered to the existing and then all the way up for the new floors. In addition, I suspect they had some approval issues with the three fin arrangement on top, which I think was not part of the original approved design.
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