Mar 10, 2020
James:
Hi audience and listeners, this is James Kandasamy from Achieved
Wealth Through Value Add Real Estate Investing podcast. Today we
are doing a podcast and a webinar as well because I've an awesome
presentation from Jeff Adler who's the Vice President of Yardi
Metrics. Yardi is one of the largest property management companies
in the nation and they have a lot of data behind them and Jeff is
going to provide a lot of insight, which is going to give us a
state of the union of multifamily industry. Hey Jeff, welcome to
the show.
Jeff:
Well thank you very much James.
James:
Alright Jeff, so let's go back to last year 2019 where we had a
really good podcast. I believe that's podcast number one. Where we
call it a state of the union of multifamily for 2019. So this time
is 2020. So let's have a recap. What has changed from 2019 to 2020
for the multifamily market?
Jeff:
Well, you know, in one regard, not much. Okay. And another regard a
whole bunch. So if you kind of recall at the beginning of 2019 from
an economic standpoint, there was a fair amount of uncertainty. The
fourth quarter of 18 was kind of a Swan dive, we had an, a big
inversion of the yield curve. The Federal Reserve had kind of
raised rates. Stock market had kind of gone into a significant
correction and 2019 we really weren't sure whether the economy
would continue to be able to grow. Would the fed take the
corrective action necessary? And the economy would be able to
navigate some of the trade pensions and basically the continued
health of the multifamily industry would it still kind of advance
at a good clip or what was the state of supply.
So there was some uncertainty around some of those kind of
components. And so the picture is a bit more clarified from the
macro economic standpoint. The feds did cut rates, the yield curve
stopped its inversion flat again. And the economy kind of advanced
forward, we had 2.3% growth over the course of the year. Job
formation has still been quite good. Difficulties with supply had
kind of stretched out that supply delivery curve and occupancies
have performed well. Overall rent growth across the country has
been around 3% with fewer markets performing poorly. Some of the
hot markets kind of beginning to tamp down. So the one I would say
negative component in all of the multifamily world is the
regulatory backlash that occurred from rent control legislation in
Oregon, New York and California, which has made those markets less
attractive compared to others.
But the basic outlines of the economy are still quite good. I just
came back from the NMAC conference in Orlando I guess it seems like
forever ago, but I think it's was only last week. And there the
mood is very good, lots of capital lots of activity going on.
People always worried about are things kind of richly valued, and
they are. But if you look at the spreads in cap rate in the 10
year, still pretty good. You look at good availability, still very
good. More capital is flowing into the multifamily industry from
not only outside the United States, but inside of the United States
with a multifamily being one of the two top asset classes for
investments. So when you look at the demographics continued to be
on a positive, you look at the supply, which we do not think will
be out of hand and we just finished up a new supply forecast by
property almost.
Taking into account a lot of the cycle time data we have on
deliveries of projects. We think that we'll actually, as a country,
deliver a tad less than the 300,000 odd units that were delivered
in 2019. And we are in generally speaking housing shortage
contrasted to the housing surplus that we had before the crash. So
it's really a really good time to be in multifamily. It's almost so
good we kind of pinch ourselves and saying we don't want it to be
this good. There must be something bad. What's the horrible thing
that's going to happen to us? We're just having a hard time dealing
with good news as an industry. But I'm cautious. I continue to be
cautiously optimistic.
I don't see a recession at least until 2021 and quite frankly, with
the way in which the economy has kind of come through this, I'll
call it a mini manufacturing recession. It didn't really affect the
services industry; it did affect manufacturing and sectors exposed
to trade. With us actually coming out of that growth prospects for
GDP are actually higher this year than they were in 2019. So I
don't really see a recession till 2021 and one could argue very
effectively, 2022 but certainly we have another good year ahead of
us and inflation is not out of hand in any respect. And because
inflation isn't out of hand, there really is no pressure for
interest rates at the short end to move higher. And there certainly
is no pressure on the long end. I mean, interest rates for the
tenure are back down to below one six and they were at one nine,
not just before this kind of corona virus scare. But if you look at
that, like if there's no inflation, then you're not going to see
kind of big interest rate moves. You're not going to see big
interest rate moves. You're not even going to see moving in cap
rates or movement associated with a recession.
It's really quite positive. I think the biggest issue if you're
a multifamily investor right now is it's hard to find deals that
aren't very richly priced. You have to be very prudent with your
underwriting and with your capital investment. The competition for
assets is quite extraordinary, particularly in cities adjacent to
California and the Northeast; there are capitalist fleeing those
areas. I've been speaking to folks in Phoenix where the market for
multifamily is so amazingly red hot because of all the California
is trying to move their capital out of California on a gradual
basis. So I think that the biggest challenge right now is to
prudently underwrite and to find opportunities that make sense. And
if you're going to overpay and the fact of the matter is if you're
in a competitive bid situation and you won, you overpaid. The
question is will the market kind of bail you out? Are you in a
rising tide so that the fact that you overpay at any particular
moment doesn't really matter because the investment overall will
perform well as the market and your value creation strategy plays
out. So, long answer James, but I'm pretty optimistic about where
we are in 2020.
James:
So what would cause the recession in 2021/2022?
Jeff:
Well as I've been saying quite a while, I don't know if I had this
little piece here. Let's see. I'm trying to find out how do I kind
of explain, this is a classic way of thinking about, and by the
way, this slide is the same slide I've had since Trump was elected
in November of 2016. Alright. So seems like, okay, things are a
little more positive than I think they were even in November.
Alright. So the balancing act has always been the pro growth
elements of the administration's policy compared to the anti-growth
elements of the administration's policy. Pro-growth seemed first
tax reform, regulatory relief, executive orders. The anti-growth
came later immigration control, which has restricted the amount of
labor coming into the United States. It has created a labor
shortage which has boosted incomes at the lower end of the
economics and education scale.
So it achieved its objectives at the cost of some level of growth
and trade negotiation. Because the tussle with China has scrambled
supply chains. And so there's a little bit of clarity with the
signing of the USMCA in North America and the first phase of the
Chinese agreement in I think in mid January. So trade negotiation
is less of an anti-growth element than it had been. Immigration
control still is an anti-growth element and the program elements
are still kind of there, but kind of burning their way in and
nothing much has happened. Infrastructure, education reform or
healthcare, nothing's happened there. So when you look at it, I
would say it's more like three quarters full versus a half full
that I said in November.
So what would cause a recession to occur? Well if you had a sudden
increase in inflation, either labor cost inflation or materials
cost inflation that would raise shorter term interest rates, that
would cause an inversion and then you'd have a recession. Some
significant macroeconomic demand shock, negative demand shock would
cause it; apart from either of those things, I don't see a response
and the other thing I do look for constantly is where's
the debt bubble? Recessions are classically caused by excess
leverage in certain sectors of the economy. So you constantly, in
my mind, I'm constantly looking for where's the debt bubble and
it's a big enough to cause a recession? Right now one could argue
that there's a bit of a debt bubble in consumer auto loans, not
that big a deal. It's not happening in mortgage or real
estate. That's clearly the case.
Is it happening in corporate debt? Yeah, maybe, but they're
sophisticated folks. Is it happening to a certain extent in oil?
Well, one could argue that that the factors are a bit over levered
and the banks are trying to sort of reel them back in. But at 55,
60 bucks a barrel, it's not so bad. I don't see, again, when you
look around and say, where's the inflation coming from? It's not
coming from materials and it's certainly not coming from oil. I'll
go back here and kind of show you a little bit of slide on oil
production. It's not coming from oil. It's not really coming from
labor. If I kind of go back a further point, not really coming back
from labor, rent actually; rent, real estate is a quite frankly a
bit of a driver of whatever inflation we do have because of frankly
regulatory constraints to supply and the cost of materials and
labor.
That's kind of hard to produce supply to enter the market. So I
don't really see inflation cracking over too, I don't see from the
material side, I don't see from the labor side. Read some
interesting papers by the way, that one of the issues we kind of
are scratching our head about is with all this labor shortage. Why
aren't labor unit costs going up? Or the fact of the matter is the
workforce is older, is less likely to move, is reasonably
productive. So there is wage inflation at the bottom end of the
scale, wages at the bottom end is going up 5% but it's not enough
to offset people who are retiring it at higher wage rates and
slower wage growth among older workers. So even, and we've had a
long history of services inflation with goods deflation and seems
to play out.
Now long story is the multifamily, not exactly economic piece, but
the basic point is if you understand the basic sort of lay of the
land, interest rates lower for longer, not really no big
inflationary pressure, then income producing real estate looks
really good because you're not going to get a reprising on the
value of the asset and that's the way real estate works and
generally you got growing incomes. So that's the basis of not
believing that there's going to be a recession kind of upcoming
immediately. We always thought, we're going to eventually have
recession, but I don't see the basis of the pressures that would
give rise to that at least for the next 18 months or more.
James:
Got it. Got it. So a primary would be the political climate is what
you are saying could be where we might be causing some of these
potential recession. It depends on what's the policy and you don't
see any other big risk, I guess, right. In any other...
Jeff:
Yeah. So I mean, so James, you're in Texas, I believe, Austin is
that correct?
James:
Austin. Texas,
Jeff:
Yeah. So your state and your city is the beneficiary of misguided
policies in other places. The growth in population, the growth in
tech centers is really occurring in the South and the West. It's
not to say that New York, San Francisco, LA, are not wonderful
places have very deep tech hubs and tech ecosystems. But what's
generally happening is that when a business decides it wants to
scale, it doesn't scale. In California, it can't, it doesn't scale
in New York. It scales outside. That's not the say that Google is
building a big footprint in New York City to access that labor
pool. That's not the say that there are large tech firms that are;
just yesterday I think Google was trying to in a wall street
journal get San Jose, we redeveloped the city of San Jose downtown
as an employment and a commercial center.
But the fact of the matter is the cost of housing and expansion is
so difficult in these major gateway cities that places that are
business friendly and have an intellectual capital infrastructure
like Austin are growing quite rapidly. Ross, Austin, Raleigh,
Atlanta, Denver, Phoenix, Salt Lake City, these are places where
the tech infrastructure on talent is expanding. Texas is a
beneficiary of having a great business climate. And so population
and I think I have a little slide on this one here, population is
moving as one would expect. Population is moving domestically;
Vegas, Austin, Phoenix, Raleigh, Charlotte, Nashville, Orlando,
Dallas, and Denver. You know, these are places that have
significant domestic inland ratio. If you look at the other, I'll
call gateway cities, they have a significant amount of domestic out
migration and in the past they really were covered by international
immigration. Now that as coming down a population in the US is
growing at seven tenths, I think now six tenths of a percent. So
these cities over here are growing quite rapidly. And Austin is one
of the beneficiaries of that.
Jeff:
Got it. Got it. So what about, I mean, in the beginning you
mentioned about the cities just outside of California or like
Phoenix, I mean, Phoenix and Las Vegas is beneficiary or people are
moving out to California and why is that? Why is that driving? Why
not they come to Florida or Texas? Why is Phoenix and Las Vegas
which had a huge cycle in the past crash, it went from hype to so
down. Why are they like now?
James:
So if you think about it both in New York and in California, you
have a hollowing out of the middle. And so if you're
extraordinarily wealthy, so let's convert this to almost a
apartment investment discussion because of the structure of the
economy if you can build a class A property in Northern or Southern
California, you should continue to build it. They will continue to
get occupied because there are a reasonable number of people that
have continued to expand at the very high end of the
market.
Jeff:
Got it.
James:
Conversely, in the very low end of the market, it is a draw for
people from around the world who want to get a start in the United
States. But if you're in the middle of the income stream, then your
life isn't that great and your costs are quite high and you can
improve your quality of life by going someplace not too far from
where you are. So if you look at California, the people
streaming out of California, Boise, Salt Lake, Phoenix, Las Vegas,
and yes, companies are moving all the way to Dallas. But there's a
steady stream of the middle income and I would say and low income
and it will cost 50 to 150,000 a year. Educated, skilled, but not
at the highest level, not the half a million dollar a year kind of
thing or $300,000 a year, but right there in the middle. Now the
same thing is happening coming out of the New York metropolitan
area, New York, New Jersey, Connecticut, and that's streaming to
the Carolinas and into Florida. That's what's happening. Orlando
has a little bit of a bump from Puerto Rican immigration, but
there's pretty much people streaming out of there. And if you're
talking about people leaving Chicago, they're going more to the
Tampa where they used to go for winters.
The new workers are going to the gold coast and the people in
Chicago go to the Gulf Coast and down to the Carolinas as well. And
Carolina is Georgia and so forth. And this is just where, look at
the numbers, look at where the people are coming from. I mean it's
in the numbers, it's in the cost structure. Certainly the tax bill
that it went to effect in 2018 is pushing people at the margin on a
slow roll kind of basis, adding a little extra push to what's been
going on otherwise. And so when I look at where the population is
growing, where the new supply is going, where intellectual capital
is moving this is what I see. That's what I see and that's where an
investment standpoint, my own view is you want to be in places
where the tide is rising. It's easier to make money where the tide
is rising and populations are growing and the economy is boosting
incomes and it is to kind of swim upstream. I'm not saying you
can't make money in Buffalo or Syracuse or Cleveland, but it’s
tougher.
James:
Awesome. Yup. Yup. So Jeff, I have a question in terms of the
rising, I mean the capital is comprising the price of buying an
apartment nowadays as reason now from, I mean if you look at Texas
in Dallas, Austin and San Antonio and I think everywhere, I think
everyone across nations. It used to be 50 a door to buy an
apartment. Now it has gone like 80 to 100 and in some places 120,
130 a door even for a class B and C properties. So how does it make
sense? Because you can construct new class A with that similar
cost, like a hundred, 110, you should be able to?
Jeff:
But no actually you can't and that is the entire point. Because of
restriction and again, we're obviously talking about the city and
which part of the neighborhood, but the fact of the matter is that
construction costs have risen significantly and regulatory burdens
have risen significantly, particularly in kind of urban cores so
that the cost of constructing new products is higher. Now there is
a lot of work being attempted to bring down the construction costs
through prefabrication, through potentially regulatory
streamlining. But it's not as easy as it seems and there's a lot of
institutional resistance to it. I've spent the whole year trying to
help crack the sort of affordability code and it's literally just
buried in a swamp. I mean, it's just, it's ugly. So can you build,
if a city planner will let you build essentially what it was
eighties product on sort of suburban ex urban land.
Then yeah, you can deliver it at maybe 80, a hundred thousand
dollars a door. But it's very hard to do so. And as a result, so if
you think about values, values are driven by two things. One,
what's the next best alternative? And two, are our incomes growing
to increase the value of the asset? In multifamily, you have both
of these dynamics happening. One, because of the general shortage
of housing and the higher cost of adding capacity rents are rising.
So if rents are going up three percent, NOI is easily going up five
to six. Plus given the fact that interest rates are lower for
longer and there's capital streaming into it that is saying, well
my cost of capital is lower and all the institutions which started
this cycle 10, 11 years ago, only in the urban sexy six all of them
are spreading out all over the country and they're bringing their
lower costs of capital with them and their lower return
expectations and that is having an impact on values.
A third component I would also argue that kind of fills into the
second one is that as cities grow and develop, and I'll use Austin
as an example, Austin has become an institutional grade capital
city. 20 years ago it wasn't, you had opportunities to capital, but
now it is. So what that tends to as a city changed in its nature
and becomes more broadly diversified and more accepted as having a
broader economic base, institutions with lower cost of capital and
lower return expectations now make it appropriate for investment
and they drive up values. So it's kind of tied up in a second lot
that I discussed. So multifamily is really in a situation where yes
values are going up, but the real question you have to ask yourself
is what does the future hold?
Are the conditions under which the fact that the values went up are
those likely to continue or are they likely to end? And like I
almost hit myself over the head, I don't see how they end. So
suddenly, admittedly we had always expected as a homeowner interest
rate would increase a little bit and I think it's up to 65%. But
it's down from 69 but up from 63 and we are going through a period
of time where the millennial are getting older and they will want
to live in basically the amenity if they have had children, more
than one, they are more likely to want to live in the suburbs in
better school districts, which is in the historical pattern. So,
but be that as it may have, demographics are still very much people
are renting for longer. They're getting married later. They're
having fewer children. All that was elongating the rental period
initially.
And then as people are living longer and living healthier they
are selling the house and then moving back downtown in a
multifamily asset. That one asset class you really have to worry
about are very large suburban homes that are sort of ex urban go to
Fairfield County, Connecticut. You can buy a big estate for a
relatively speaking a song. Nobody wants to live there. The taxes
are too high. It's too hard to get to New York. There's no reason
to be there anymore. That asset class is going to experience some
real problems, but if you're near an employment center with a
modest sized home or apartment, you're going to do okay.
James:
Got it. Got it. Yeah. I mean, you don't see anything in the horizon
as long as you're by the employment center you should be good from
what we see right now.
Jeff:
That just looks pretty good. So yeah, that's when someone says,
okay, the careful thing you have to be at worry about excess
leverage and overpaying. That's the biggest problem one has to be
concerned with right now is there will be a recession. I don't know
when. But you do not want to be in a situation where you are
squeezed out during a recession because you're over levered and you
have a debt maturity and you basically you get pushed out of a
great long-term investment. That's the biggest concern.
James:
So let's say we have a recession right now, so the rents are going
to drop. So if you have a long term loan, you should be able to
ride and you should have some cushion in your operation cash flow.
But one trick that has happened, not say one trick, one thing that
has happened that what I realized in 2015 onwards, there used to be
a lot of interest only loan started being given out by lenders
after 2015. I don't know. That's what I feel. I know I used to be
very hard to get even one year higher loan in 2015 and now it's
like so easy to get three to five years higher loan. So it's the
lenders that made it easier for people to buy and extend this
expansion boom?
James:
Yes. I mean, so what they're doing is in order to sort of compete
to get the loans, while they're not reducing the LTV percentage,
they are allowing you to go IO and not pay down the principal which
effectively helps you pay more. That's what it does because you
have time for the rents to rise. So that by the time the loan comes
due, you can refinance it and do okay. So certainly if you can get
an IO loan for three to five years and increasingly you can
fantastic. If you're a 65% levered, you can ride out a 5 or 6%
reduction in rent that do occur in a recession. Obviously the
reduction in rents will be higher at the class A levels than the
class B, class B has got some more insulation.
Value adds assets right now are priced to beyond perfection. So a
lot of folks are basically saying, particularly in the
institutional level, 150 units and higher, 90's or 2000 vintages a
lot of the folks that I talked to were just saying it's not worth
it. The prices are basically, I'm going to work for somebody else.
I'm paying him all the profits from the value add. There's no point
doing the work. So they're going back to, it's called core plus or
kind of just building new again because those are the better
returns converted value add. So the value add, you can still make
work but you may have to sort of go under 50 units. You may have to
do something to avoid the institutional capital pressure on
values.
And I saw about a year and a half ago credentials saying they were
suddenly going to enter the value add space; by the way, I love
credentials, they are great people, but it's kind of like run for
the hills man because they're going into a value add place where
you know there's an innovation risk. And that's not something they
usually price too. I usually price to kind of a buy and hold deal.
So they're not the only institution. A lot of institutions have
found values add, but they found it as usual a tad late.
Jeff:
Got it. Got it. So I want to come back to the high leverage comment
that you made. So on a value add deal, usually even though you buy
it at 1.25 DSCR. So, for example, most of the banks gives us a loan
at 1.25 but when you do value add that 1.25 could be
1.85, [31:22unclear] in a couple of years. So even
though...
James:
But when you're
done [31:31unclear] in-going with the
expectation that you'll invest in and raise the rents and then
you'll be at a 1.75 when it's time to cash out. But my point being
is, if you're paying a lot and you're not getting a big pop in the
rent relative to what you paid, then that 1.25 may not move high
enough to cover the risk. Remember, building a value add as anyone,
I'm sure you and other people know. There's a lot of hard work. I
mean, you've got to sweat for it. There's a lot of sweat to make a
value add work. It's not just doesn't show up on its own. And I've
seen a lot of value ads go horribly wrong. Because people didn't
get the ducks in a row.
So it takes skill to do one. But the fact of the matter is values
add is really from a public policy standpoint and indictment of the
inability of supply to expand to meet the needs of upper income
renters because that's really what happens. What ends up happening
is because there's not enough supply at the upper end value add is
a near price substitute for new supply. It also happens to withdraw
supply from the lowest income consumers. That is what it does
because you don't add a new supply at the bottom end of the scale.
And one could argue that the rent control in New York and rent
control as executed in California are essentially a rebellion
against value add because in New York they basically wiped out the
value added trade entirely. And in California they basically
changed the value adds from a maybe a two to three year exercise to
a seven to eight year exercise.
But remember they didn't say [33:30unclear] it's very
difficult to build in any one of these locations to get through all
the permitting and the environmental zoning and all these other
kinds of garbage. But they're not stopping luxury housing. What
they're trying to do is stop the value add trade because there's no
structure to add supply in the middle to the bottom end of the
stack. And the fact of the matter is that the public policy
response is short term in nature. So rather than solving the root
cause they are basically kind of putting a Band-Aid on the symptom
and that's unfortunate. It's bad public policy. But I don't see it
changing
James:
That's very interesting. Never heard anyone looking at that
perspective that I know it's basically a going against value adds
in that cities that's why the rank [34:25unclear]. But
it absolutely makes sense. So I want to ask before we end
because we are almost to the end, I want to ask a few more
scenarios that may cost impact to the apartment; and you can answer
it quickly in a short. Fannie and Freddie Mac becoming private,
what could that be impacting?
Jeff:
Well obviously the intent is for there to be no impact and their
current program and current capacity of 20 billion a quarter each
without any kind of green exceptions is kind of, I'll say, calm the
market. So it's always been profitable. It's been the most
profitable part of the, the GSEs there is, I think, and the NHC and
NAA are doing a fine job communicating to Congress the fact that
multifamily isn't the problem. The blow up was in single family
housing underwriting. So if you look at Brickman, David Brickman
became head of Freddy and he came out of the multifamily industry.
He was in charge of multifamily for Freddy. Now in charge of all of
Freddy. So in my mind, that kind of bodes well because at least
from Freddie and Fannie, they know how to make money doing what
they do for multifamily.
I mean, they make money, they know how to make money. It's always
been profitable. They could rebuild their capital cushions
relatively quickly. I think the issue will continue to be how does
Freddie and Fannie support single family home ownership without
pushing so hard on home ownership that it blows it up like the last
time. So how can they retain their underwriting criteria? The fact
of the matter is, should they be differentiate pricing by market
for single family. They don't really do that and do that for
multifamily much either; but they are supporting their mandate and
really if you think about it Freddie and Fannie's mandate is to
supply multifamily capital where the life insurance companies or
other places won't go, which really is the middle of the stack. A
smaller to mid size markets, class B assets. It's one of the
reasons why Freddie and Fannie don't do construction lending. They
say that's a commercial banks business. It's not our business. And
so I'm optimistic that it'll all work out okay. It absolutely has
been a tremendous boom to the multifamily industry to have Freddie
and Fannie because it basically puts a lot of stability into asset
pricing, but I think it's quite recognized. So I'm hopeful that
that won't cause disruption.
James:
Got it. How was China's economy slow down could impact the US
economy and multifamily?
Jeff:
The fact of the matter is the us economy is mostly driven by
services and the dynamic and technology services in particular. So
if you think about the recent trade spats, which really slowed and
began separating the economies, the places that got hurt had a
manufacturing or agricultural bend to them. Minneapolis, classic
example right there. Even their urban jobs were tied to those
sectors and then they lost employment. So I don't think it's a
tremendous problem. The fact that there's excess capacity in China,
for example, means that goods costs even less, there'll be less
inflationary pressure on goods. What we sell to the Chinese are
primarily agricultural goods that are what we sell. And anything
else ends up being produced there with our intellectual capital.
So, I think according to the trade agreement they'll buy some more
agricultural goods, which will help rural areas, but they weren't
big multifamily centers anyway, so it doesn't really have an
impact. And for manufacturing centers, those were pretty much,
manufacturing takes a lot of land that occurs in ex urban and rural
areas where rents are low multi family, where it's done well is
where it's tied to intellectual capital and technology that drives
down costs globally. So all in all, I don't think much is what I'd
tell you.
James:
Got it. Got it. And that's one piece of advice on how to be
prepared as we move forward. And in case there's a recession, what
kind of what would you advise a property investor that already owns
a property or is going to buy a property?
Jeff:
Yeah. So I mean, first one should mind dependence. This is a
relatively speaking low margin business. There is a increasingly
systems and technology available to sort of squeeze expenses down.
So the way one prepares for recession is always to really look at
your cost structure and re-examine what you're spending money on in
a very meaningful way. You need to sort of be mindful of your
leverage and model up. What happens if your rents go down five or
6%. Remember, it won't happen all at once. What you'll see is the
new leases will go negative, renewals will hang together. You will
have a higher skipping of the upgrade. So you kind of need to model
out what happens to you and in a recession, I don't think it'd be a
big one, but only a mild one.
What happens? Are you prepared? Do you have a cash flow reserve?
Have you spoken to your investors and your lenders already about
what you would do? So are you prepared? And then I'm chairman of a
ULI council and our council members, about a year ago, we went
through a recession planning exercise. Like what kind of recession
we're going to have and what are you going to plan for right now;
and so every one of the organizations that I was working with had
had a recession scenario plan in place about a year ago. Not that
they had to execute on it, but everyone had one. So what I've
experienced in all of now I've seen through four or five recessions
and a big blowout is you need to have a plan, you need to be
prepared, in a calm moment have thought through what you're going
to do because in the moment in the crisis your brain just doesn't
work that well.
Under that kind of stress you don't think it through. So I would
argue whatever organization size you are, if it's just you and your
spouse or you and a slogan of investors, spend the time now to come
up with a recession plan, put it to paper, talk about it. And then
begin asking on the steps that you can take right now to prepare
yourself. Again, I hope you don't have to do it, but weaning and
hoping it'll never happen and not being prepared for it is a sure
fire away to not be able to capitalize on it. And we had a great
session from Clyde Holland who basically he capitalized on
recession. He's a chairman of Holland partners’ pledge, great guy.
And he basically in preparation, he saw something bad coming in oh
seven, he basically slashed costs built a lot of dry powder and
basically waited to pounce and came out of the recession incredibly
strong. Now I don't think we'll see another recession like that one
in front of their 80 years. The recessions we're going to see it
more like the typical post World War II recessions. But you can get
yourself prepared and you can be ready to act. And with that James,
I have to run. It's been a real joy speaking with you
today. Take care now. Bye bye.