Opening Comments
I have many college students or recent grads on the readership. I spoke with a few who recently moved to NYC for work. One told me that she will not take public transportation due to safety issues and she spends $75/day on Uber to/from work. After work, she goes home and works out and then to dinner again taking Uber. There are days she spends $150 getting around NYC. Prices of ride sharing companies have gone through the roof from the early days when the companies subsidized pricing. I just don’t understand how people afford it. Years ago in NYC, I could get to LaGuardia for $17 from the Upper East Side. It is now multiples of that price.
One correction, I wrongly stated that the Saudi/LIV Golf Tour upfront payments are over and above the winnings. Actually, the upfront is a draw against future winnings according to the lawsuit. This only takes away from the desire to compete in my mind. Bad idea. This Saudi headline is not comforting, “Saudi woman jailed for 34 years for Twitter activity backing women’s rights.”
My wife, Jill, and I had drinks with a lovely young couple Saturday night who just relocated from NYC. I had spoken with them in the spring about relocating and went over the pros/cons. She works for a large asset manager and he works in Private Equity (PE) and they have two young kids. They are well-educated, successful and could not be nicer. Tired of NYC, they moved to Boca for all the obvious reasons. The tipping point for the couple to move down was when this happened to their car in NYC (see picture). Poor policies have consequences. When will politicians learn that bad crime policy pushes out those you want and need to stay? No, South Florida is not just blue-haired 80-year-olds with walkers and oxygen tanks anymore.
Picture of the Day-Full Moon Fishing
Lost Time
Quick Bites
Markets
China Slowing
US Shipping Rates Easing
Inflation Reduction Act
Record Migrant Numbers
White Teachers Fired First
Kissinger on Russia/China
Other Headlines
Virus/Vaccine
Data-Largely Improving
Real Estate
My General Comments-Focus on NYC Commercial Today
Conversation with NYC Developer
Hudson Yards
Other Headlines
$145mm Palm Beach Estate
Home Builder Confidence
Housing Recession
NYC Residential Bracing for Slowdown
Home Buyers Backing out of More Deals
Hottest Zip Codes for Homes
Picture of the Day-Fishing
I did a quick fish Friday and got a decent Blackfin Tuna and Mahi and a few others. I missed a 25lb Wahoo next to the boat. 100% my fault. Sloppy mistake. I made Mahi/Tuna ceviche and seared tuna with sesame seeds. When I landed the Mahi, the boat was on auto pilot and heading towards another vessel. I had to use cat-like reflexes to get out of harm’s way. It could have been a disaster. Of note, we had a lot of bites given the full moon Thursday. For some reason, full moons result in fish feeding and there is no denying it.
Lost Time
If you thought today’s post was about something deep and meaningful about lost time with a loved one or old friend, you would be sorely mistaken. It is about the cumulative amount of lost time I have wasted looking for my keys, sunglasses, phone, wallet, earbuds, iPads, thumb drives, important papers…and other small things. I figure that I spend an hour a day looking for things. You think the number is high, but my wife and kids will tell you it could be low. I don’t think of myself as an idiot, but when it comes to finding something I need, it is never there. I will tell you that travelling over the summer and living out of a duffel bag has only increased the amount of time spent searching for my belongings. I do not like duffel bags given my clothes get wrinkled and there are no compartments. But it is far lighter than a big suitcase, and I have to lug it across the country and up stairs.
Now, I believe there are technological solutions such as AirTags by Apple which can help some of my lost items. I don’t think it will help with my sunglasses or wallet, but I should have them for other items. If I spend an hour a day looking for my lost items, that is 7 hours a week, 30 hours a month and approximately 360 hours a year. It means I am looking for things 15 days a year. I will not make an adjustment which will certainty cause me to spend more time searching as I age. If I straight line 15 days/year over 20 years, that is 300 days or almost 1 year of lost time.
This summer, I would take the over on time spent looking for lost items. I lost my Apple Earbuds 100 times or more. I drove back to hotels in search of them. I called golf courses asking if they were turned it. I tore apart our bags countless times. My new nap sack has a ton of compartments and those pesky buds seem to hide in them. I tore about my backpack no fewer than 200 times. I was convinced I lost them only to find them hidden inside the bag after my fourth attempt.
At our golf course in Massachusetts, the manager of the small cabin with rooms is Mel. She would be hysterical with the number of times I went to her. “Mel, did anyone turn in my phone? Mel, I can’t find my ear buds. Have you seen them?” “I am missing by black sunglasses.” Any time I would walk up to her she would look at me funny convinced I lost something else. It was getting embarrassing and I chalked it up to old age. Convinced my earbuds were lost, Mel and her crew were looking for them with me. I then tore apart my rental car only to find them wedged between the seats. I had to go back to Mel and let her know the fire drill is over and they were found yet again.
I misplace my wallet constantly. I have a Ridge wallet which is heavy and made of metal which prevents scanners from getting your credit card data. Also of note, when it drops, it makes a noise due to the metal. I keep my cash separate from the wallet, so when I cannot find one, I have a way to get back home.
You question if I am exaggerating? Below are some of my sunglasses and earbuds. I must have another half dozen sunglasses in the car, golf bag and on the boat because I constantly lose them. I had another few earbuds, but shockingly, they have gone missing. At one point this summer, I had 8 of them. Yes, I embarrassingly tape my name on my earbuds. It has gotten that bad.
At 52-years-old I spend this much time looking for lost items, what will happen at 65? I might be spending my entire waking moments looking for my lost items. My life will be simple. I will wake up, eat breakfast and start looking for my lost things. I will then have dinner at 5:30pm and go to sleep . Wow, life will be a blast.
Quick Bites
Stocks fell on Wednesday as the rally on Wall Street that has pushed prices higher since mid-June appeared to lose steam as traders assessed the latest retail data and minutes from the Federal Reserve. The Dow shed 1729 points, or 0.5%, to close at 33,980. The S&P 500 slid 0.72% to close at 4,274, while the Nasdaq tumbled 1.25% to 12,938. The 30-stock index snapped its 5-day win streak but finished the session slightly positive week to date. The S&P 500 and Nasdaq have slipped 0.14% and 0.84%, respectively, since the start of the week. Stocks were volatile as traders assessed the latest Federal Reserve meeting minutes, which showed that the central bank would continue its aggressive hiking campaign until it can tame inflation. At the same time, the Fed also indicated that it could soon slow the speed of its tightening, while also acknowledging the state of the economy and risk to the downside for gross domestic product growth. The 10 Year Treasury is out to 2.9% from 2.6% on 8/1. The 2 Year Treasury sold off to 3.29% and 2s/10s is now -39bps from recent lows of -48bps last week. Bitcoin hit $25k, but has since pulled back to $23.4k and ETH is back down to $1.8k. Despite the sell-off today, the stock market is sharply higher in the last month as seen in the chart below.
Makers of Christmas decorations to clothing and tents say orders from overseas customers are drying up, with some predicting the best they can aim for is flat demand versus last year. The snapshots from factories in key Chinese hubs indicate households worldwide, already tightening their belts to contend with a rapid rise in the cost of living, may be cautious for longer and adds weight to warnings about a potential global recession. “Consumers don’t have the money to spend with soaring inflation” and the decline in demand has happened suddenly, said Wendy Ma, marketing manager at a textile maker in the eastern city of Ningbo. Headwinds have been slowly building for months. Clark Feng, whose Vita Leisure Co. buys tents and furniture from domestic manufacturers to sell overseas, said export orders have been dropping since March and European clients are only asking to buy about 30% to 50% of what they wanted last year. This CNBC article on China gives numerous examples of slowing including retail sales, industrial production, Real Estate….China cut rates due to weakening economic conditions in the country. The surveyed jobless rate for those aged 16-24 climbed to 19.9%, a record high and headache for the Communist Party as it gears up for a major congress in coming months that’s expected to give President Xi Jinping a precedent-defying third term in power. For perspective, the US unemployment rate for 16-24 is 7.8% according to the St Louis Fed data.
U.S. freight shipping rates have likely peaked, according to new Cass Freight Index data, in another sign that inflation is easing U.S. freight rates increased 28% year over year, but declined nearly 2% month over month in July, according to new data from Cass Information Systems. Shipping rates from China have come down as well. These logistics-related rates skyrocketed with the pandemic and drove prices of goods far higher. Another sign that inflation has peaked now.
The Inflation Reduction Act sent to President Biden’s desk will end up forcing working-class Americans to pay billions of dollars in new taxes, according to the nonpartisan Congressional Budget Office. An analysis by the CBO estimates those earning less than $400,000 — the group on which Biden promised not to raise taxes — will pay an estimated $20 billion more in taxes over the next decade as a result of the Democrat-pushed $740 billion package, which also sets aside $80 billion to hire 87,000 IRS agents. The CBO analysis confirms an earlier report from the Joint Committee on Taxation that found that throwing an extra $80 billion at the IRS to improve the agency’s collection of under-reported income will end up targeting small business owners to pay for the legislation. I do not believe the name of this bill is appropriate and do not think it will reduce inflation or have the intended impacts. This article outlines price hikes for EVs which are in-line with the $7,500 tax credit. Auto companies claim price increases are inflation related and has nothing to do with the new tax credits.
This WSJ article is entitled, “Record Numbers of Migrants Arrested at Southern Border, With Two Million Annual Total in Sight.” Border Patrol agents have made about 1.82 million arrests at the southern border so far in the government’s fiscal year, which runs from October to the end of September. The number beats the record set last fiscal year, which was 1.66 million apprehensions in the year ending September 2021. I do not understand why the Biden Administration allows or wants porous borders. Why is this good for Americans? I have no problem with legal immigration and love the fact that America is a the “Melting Pot.” After all, my family immigrated from Eastern Europe. However, there should be a process and we should be making sure bad actors do not get into the US. Also, I think we have enough issues housing and feeding our own citizens and trillions in deficits need to stop.
Minneapolis Will Fire ‘White Teachers’ First under a new contract between Minneapolis Public Schools and the local teachers union. This violates a well-known Supreme Court decision overturning the race-based layoff of a white teacher, and contradicts a well-known federal appeals court decision, which ruled that race-based layoffs of white teachers violate Title VII of the Civil Rights Act. It is illegal under Title VII of the Civil Rights Act. When it comes to termination (as opposed to hiring or promotion under an affirmative-action plan), an employer can’t racially discriminate even against whites. The Third Circuit Court of Appeals ruled in 1996 that an school district can’t consider race even as a tie-breaker, in deciding who to lay off, even to promote diversity, because that (a) unduly trammels the white teacher’s rights — even affirmative action plans are supposed to be mild and not unduly trammel someone’s rights, and getting fired as opposed to being denied a promotion unduly trammels someone’s rights — and (b) putting that aside, the school district couldn’t consider race to promote diversity when black people weren’t seriously underrepresented in its workforce as a whole. That ruling was Taxman v. Board of Education of Piscataway, 91 F.3d 1547 (3d Cir. 1996). I am adamantly opposed to such the Minneapolis rule. If you insert “Black” where it says “White” in the title, what would the reaction be? Fire based on performance or lack thereof. Minneapolis Public Schools is defending its deal with the teachers’ union to lay off white educators ahead of their less-senior minority colleagues, arguing that it is a necessary measure to remedy “the effects of past discrimination.”
“We are at the edge of war with Russia and China on issues which we partly created, without any concept of how this is going to end or what it’s supposed to lead to.” That’s the view of Henry Kissinger, the 99-year-old former secretary of state, in an interview with The Wall Street Journal. He recommended the U.S. not “accelerate the tensions and to create options, and for that you have to have some purpose.” Kissinger added that foreign policy is “very responsive to the emotion of the moment.” He did say that even though the U.S. played some role in triggering Russia, Ukraine now has to be treated like a NATO member, whether formally or not. On Taiwan, he advised being “very careful” in measures that seem to change the structure of the relationship with China, without directly criticizing the recent visit by House Speaker Nancy Pelosi.
Other Headlines
Walmart sticks with second-half outlook after earnings beat expectations
Home Depot’s second-quarter earnings beat expectations, company stands by 2022 guidance
Target’s earnings take a huge hit as retailer sells off unwanted inventory
Cisco tops estimates on revenue and profit and gives optimistic annual sales forecast (after the close Wednesday).
Wells Fargo Plans Major Retreat From Mortgage Business It Long Dominated
Scandals spur a debate among new leaders at bank that once set records
Apple tells employees to come in 3 times a week starting September
Apple reportedly lays off 100 contract recruiters after committing to hiring on a ‘deliberate basis’
UK inflation hits new 40-year high of 10.1% as food and energy price surge continues
Bank of England expects inflation to peak at 13.3% in October.
Ultra-rich fueling sales of luxury brands despite inflation and recession fears
Long list of items being bought from high-end sneakers, to luxury sports cars, expensive clothes, and many others.
Top Rolex Dealer in London Plans 8-Fold Expansion to Meet Booming Demand
Probably a sign of the top of the Rolex market.
World's fastest airliner 'Overture' to usher in era of supersonic travel
The article suggests travel times are cut in roughly half with NYC to London being 3:30. No mention of cost. The design and fuel usage considers the environment according to the article.
Dept. of Ed cancels $3.9 billion in student debt for over 200,000 borrowers—here’s who qualifies
Los Angeles County DA George Gascon recall petition found ‘insufficient’ to qualify for ballot
A petition to recall LA County DA George Gascon had nearly 200,000 signatures out of more than 715,000 invalidated. This means the horrible DA who is soft on crime stays in power. Wrong outcome for the citizens, but good for criminals.
‘Defund the Police’ Rep. Bowman sees 30% violent crime spike in Northern Bronx
'A system this cruel and inhumane can't be reformed,' Bowman said of policing in 2020.
I think Leo is an amazing actor who leads a full life. I appreciate his commitment to the environment, but he does fly private and hang on massive gas-guzzling yachts. Someone needs to call out the hypocrisy. Leo, you are not alone. Many others claim to be environmentalists and fly privately.
Trump Executive Nears Plea Deal With Manhattan Prosecutors
Weisselberg won’t cooperate with a larger investigation into Trump.
Trump is rushing to hire seasoned lawyers — but he keeps hearing ‘No’
Mercer County man charged with threats to kill FBI agents after Mar-a-Lago search
More than $7B in US military equipment seized by Taliban
I had no problem with the US leaving Afghanistan. I did have an issue with leaving billions of dollars of military equipment for the Taliban. How did we not destroy it? Bring it back to the US? I spoke with multiple veterans who did multiple tours there and they are livid.
Miller High Life Makes an Ice Cream Bar That Tastes Like Dive Bars
The treat includes a peanut swirl to mimic peanut shells always found on dive bar floors as well as a hint of tobacco smoke flavor.
‘Floundering, not drowning’: Russia’s economy is withstanding sanctions onslaught — for now
The Russian economy shrunk by 4% year-on-year over the second quarter, although this was less sharp than the 5% expected by analysts.
Virus/Vaccine
Data improving with cases -18% over the prior two-week period. Positivity is holding steady at 17% and hospitalizations and ICUs continue to fall. Deaths only rose 4% after being up double digits for some time.
Real Estate
Today’s Rosen Report is going into commercial R/E more than residential, just to mix it up. I reached out to various brokers for comments. My long-time friend, Brian Goldman, a Vice Chairman at Newmark said, “Class A office and New Construction properties that offer substantial amenities and modernized interiors continue to be the primary focus for many leading companies. They’re leveraging an upgraded workspace to entice workers back into the office and as a way to attract top talent.”
Also, while there have been some well publicized larger transactions (IBM, Macquarie, HSBC, Vista Equity), there remains limited activity/absorption Downtown and within commodity product. In general, rents have not moved much. There is still an 8-10% difference between quoted ask and final taking rents, but the biggest benefit is still substantial concessions being offered by Landlords, which reduce overall Net Effective Rents. I am told on many 10-year deals, between free rent and cash allowance or build-out, a well-advised Tenant should anticipate obtaining 2-3 years equivalent of total concessions. Existing Park Avenue/Midtown Trophy Product compared to newer construction completed within the past 36 months (Midtown & Westside; Manhattan West/Hudson Yards) shows a difference in Net Effective rents of approximately 45%, with similar free rent packages but greater cash allowances offered for the newer/more expensive product. Some data points from a recent Newmark market update on NYC. Charts are Newmark as well.
Current mobility versus pre-pandemic: traffic +7.5%, buses -40%, MetroNorth -9%, LIRR -26% and subways -42%.
New York City occupancy rates based on key fob swipes from buildings tracked by Kastle registered 40.1% over the past week. The 10-city major market average declined slightly to 43.6% with just one market increasing from the prior week.
Year-to-date leasing activity reached 20.0 million square feet with 3.6 MSF leased in July.
Monthly absorption was positive in July (+1.1 MSF) for the first month since January 2020.
Recent signed leases include: Edelman (renewal)/173K at 250 Hudson, Cohen & Steers/160K at 1166 AoA, Capital One (renewal & expansion)/116K at 114 Fifth.
62.8% of tenants in the market are from FIRE (Financial, Insurance, and Real Estate) and TAMI- (Tech, Advertising, Media, Information sectors.)
5 tenants for a total of 750K, each greater than 100K were removed from TIMs (Tenants in Market)
New tenant requirements include: Eisler Capital/35K, AustralianSuper/25K, MHR Fund Management/10K.
20.8 MSF total sublease space (on the market + coming to market).
Net sublease space was down 52K this week, largely due to Door Dash subleasing 57K from Yelp.
New avails on market include: Pixacore/24K at 1357 Bway, Stone Source/17K at 215 Park Ave So.
9.1 MSF has been withdrawn from sublet market since April 2020, with 3.13 MSF removed thus far in 2022.
In a separate conversation, I spoke with a developer of commercial and residential R/E in NYC. He had strong views about the market. On the office side, he sees challenges in anything off the run which is not clear "A" product. He has brand new, but smaller office/retail in good locations which is struggling mightily. One project was reliant for 80% of revenues on retail (pre-covid) and has ZERO retail clients today. It is near Penn Station and with fewer commuters, foot traffic has slowed sharply and retail is under pressure. His office clients are not covering expenses. Right now, 60% of revenues goes to R/E tax in the building as the process to be re-assessed by the city is cumbersome. Given the lack of tenants, the R/E tax needs to fall sharply. Historically, 30% of revenues went to R/E taxes for stabilized buildings which are fully leased. With debt service and expenses, the buildings cannot handle the taxes. The lender does not want the property back. I believe there will be far more defaults in the next 36 months on properties such as this. He also owns high-end condos downtown and traffic has slowed to a screeching halt recently. Any offers are significantly below asking price and most fall away prior to closing. A combination of mortgage rates, volatile markets, layoffs and concerns about year-end bonus levels are all contributing.
Hudson Yards is first and foremost an office complex, with four huge towers comprising 8.6 million square feet. Although privately-held Related, led by chairman Stephen M. Ross, is shy about sharing data, several brokers helped us to estimate that all the expensive office space is about 95% leased or sold. At the newest tower, 50 Hudson Yards, which opens later this year, a bunch of large deals recently closed that totaled a whopping 285,000 square feet in a sluggish market. The new space commitments bring the tower to around 84% leased. The most impressive is a new lease of 95,000 square feet for Vista Equity Partners. Asking rents for the remaining available space are in the $175-$240-per-square-foot range, brokers said. I love what has been done at Hudson Yards and need to commend Ross and Related for having the vision. I believe the total square footage is approximately 20mm square feet across all uses and spans 28 acres. It was an eyesore of nothingness and is now a beautiful place for working, living, restaurants and shopping and it is getting top dollar on rents. I have no idea how people from Westchester or Connecticut commute there. It would be an unmitigated disaster. Even if I lived at my old place on 74th and Park, I don’t know how I would commute to Hudson Yards.
Other R/E Headlines
Billionaire Larry Ellison Lists $145 Million Estate in North Palm Beach
The Oracle Corp. co-founder paid $80 million for the beachfront property in April 2021. Will be interesting to see how fast this sells, given the lack of similar properties on the market and the overall slowdown.
US Homebuilder Confidence Hits Worst Slump Since 2007 Collapse
Homebuilders see 'housing recession' as sentiment plunges to fresh 2-year low
The reading is now 49 and any reading above 5 is considered positive. The gauge stood at 80 a year ago and 90 in November 2020.
Hot NYC Brokerage Compass Is Bracing for a Brutal Housing Slide
They laid off 450 people in June (10%) and suggested more to come.
The link was for Bloomberg Professional Only, so it is not included, but you get the point. I believe given the layoffs coming and challenging bonus season, higher end real estate is likely to correct in NYC/Hamptons.
Home buyers are backing out of more deals as high mortgage rates persist and recession fears linger
Home buyers Turn to New England Bargains in Hottest US Markets
New England dominates a list of the hottest zip codes for housing in the US this year.
