We’re also discussing the new real estate platform “Ribbon” making waves along with shorting NYC developers due to rent control laws.
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Resources Mentioned in this Episode
https://www.wsj.com/articles/look-to-israel-for-signs-about-new-york-landlords-11572346802
https://seekingalpha.com/article/4297879-top-3-mega-trends-will-shape-real-estate-markets
Show Transcription:
Eric Worral: (00:00)
Hey everybody, welcome back to another episode of RentPrep for Landlords, this is episode number 284 and we’ll be talking about various news stories that are out there that affect real estate investors and landlords. We have some pretty interesting ones coming down the pipe here where a new real estate startup called the Ribbon that just occurred, $330 million to grow home buying platform. We’re also gonna be talking about some interesting insights coming out of New York City and how people are betting against the real estate market there due to the new rent control laws. And then also at the end of the episode, we’re going to discuss the top three megatrends that will affect real estate according to one blog article. And we’re going to discuss all that right after this.
Voice Over: (00:47)
Welcome to the RentPrep for Landlords podcast and now your host, Steven White, and Eric Worral.
Eric Worral: (00:54)
I should start off by saying that I do acknowledge the fact that I said that this company called Ribbon suckered $330 million. I didn’t want to just gloss over that and pretend like that doesn’t happen. So yes, you did hear that correctly, but you might be wondering what is Ribbon? Well, I’d never heard of it until today, but a funny recent news story. This was posted on November 1st on housingwire.com and the article’s author is Ben Lane.
Eric Worral: (01:22)
He said that Ribbon is a home-buying startup that offers a unique proposition to its customers and currently operates in eight markets in four states and the company has big plans for expansion now that has secured more than 300 million in new funding. So I thought this is pretty interesting what this company is doing and they started operating in the Carolinas and in the last few years it works with homebuyers to ensure they can buy the home they want on their timeline rather than waiting for their mortgage to be approved and processed. So basically if a home buyer can’t close on their mortgage and time to buy the home they want, instead of losing out on the house, Ribbon will buy the house with its own funds and reserve the home on their behalf for as much as six months. The buyer then rents the home from Ribbon until they get their financing in the order. So it says the program appeals for both sides of the deal. As sellers get a guaranteed cash offer and buyers don’t lose the house they want because of delays in funding. Last year at this time they raised 225 million and a combination of debt and equity financing to grow as business. Now the companies raised even more money as it seeks to continue back row.
Eric Worral: (02:31)
I thought it was really interesting. A, it’s a, it’s an interesting concept. I’m assuming that they are making their money from the fact that they’re renting this out and getting money on top of the money that they’re going to get back anyways. So you figure if you know, they buy this house for 200,000, person has to rent it for two months and then maybe they’re getting a little bit on the deal when they’re selling the house back to the person as well. If somebody much smarter than me would have to figure out all the numbers on that to make it work to make sure that don’t lose their pants. Cause obviously, you know, if it falls through and that person doesn’t buy it and they’re stuck holding onto this property that maybe was overpaid. I’m assuming that there’s some sort of valuation that has to be done before they will just buy the property for you at the price that you said you’d buy it at because a, if you’re overvaluing it, I, I’d imagine they’re not just going to buy any property at any price that you said you wanted it at.
Eric Worral: (03:22)
But looking at my own situation and just recently selling had a couple of offers come through and one of them was through what’s called a NACA program and it took that person a couple, well not a couple of weeks, probably about like 10 days to get their mortgage secured. Where the other buyer, they had it right away. And I could see how that person you know, might’ve lost that bid on the house and be interested in a service like this if it helped to reassure that they would get the house. The next article I’d like to highlight is from the Wall Street Journal. And it is posted. Where are we looking at here? This was wall street journal and the title is Look to Israel for Signs About New York Landlords.
Eric Worral: (04:01)
And it says beneath that at least two investors are shorting the bonds that were prominent in New York landlord. This is by Conrad pots ear and will Parker. So and this one pretty interesting. There is an apartment, a landlord or Brooklyn born developer and the chief executive officer of the Pinnacle group. His name is Joel Wiener Rose to prominence by buying up thousands of rent-stabilized New York apartments, many of which he renovated and converted to condominiums. And his firm has raised funds by selling more than 500 million in bonds on the Tel-Aviv stock market or the stock exchanges. And say, making pinnacle one of the largest bond sales by a foreign company in Israel’s history. So it’s saying that now at least two investors are shorting the pinnacle bonds or bedding, that the prices will fall further. The new laws make it harder for landlords to raise rents, evict tenants or convert rent control units into market-rate apartments or condos and to investors are betting this will push on the value of pinnacles portfolio and could force it default on its bonds.
Eric Worral: (05:07)
Pretty interesting, right? You hear about this more so typically with, you know, household stocks they were all familiar with, actually, I was reading an article recently talking about Tesla and how there is a lot of people betting on Tesla to not do well. So they’re shorting the stock trying to make money by the stock price plummeting. And I know that their quarter three report came out, I believe it was, and the stock price actually jumped up considerably, like 10, 11%. So those people who are betting on it shorting the stock don’t love to see that. But this is a, you know you don’t really hear about these kinds of things too often unless you’re really looking forward. But it’s pretty interesting that there are people actively shorting the bonds that are out there for a real estate developer in New York city due in large part to the rent control laws that have out and the fact that that person has invested heavily in rentals and apartments in New York City.
Eric Worral: (06:03)
So take it for what that’s worth. You know, it’s only two people that are, I’m betting on that company to not do well. But it says that pinnacle has nearly 1800 unsold condominium units in his portfolio and most are still occupied by runners. So short-sellers don’t have much to show for their wager between the New York state elections in November 2018 and the changes in rent laws in June the bonds dropped 13% in price. But if since recovered some of that loss, the Pinnacle is threatening legal action against Mr. Eisenberg saying that the portfolio is built over 40 years during which time management is navigating any number of economic. And regulatory cycles. So it’d be interesting to see what happens with that. But it’s another interesting fallout from these rent control laws in New York City. As you’re seeing at least one, a real estate developer having people bet against them due to the run control Raul laws. But if you’re anything like me, a lot of that stuff kind of goes over my head, but I get it in concept. But once it starts getting into the weeds, I get a little confused, but that will not discourage me from sharing this next article with you from seeking alpha.com. This is written by Jussi Askola who specializes in reeds real estate and he’s a research analyst. And the title of this article is Top 3 Mega-Trends That Will Shape Real Estate Markets published on October 29th, 2019.
Eric Worral: (07:20)
And I thought this was pretty interesting. Again, this is just one person’s opinion, but he said he attended the conference actually in Madrid, Spain on Rethink, a real estate conference and bringing together executives and other private equity leaders to discuss future trends and opportunities in real estate markets. So the three things that he boiled down at the conference that you heard about, number one megatrend, and this will apply to you if you’re a landlord and you’re, you know, thinking about where, where the market’s shifting to. He said the number one mega trend is urbanization. So it’s nothing new to real estate investors. It is however interesting to see that it remains a major point of conversation year after year at real estate conferences. So it’s saying that several speakers of the conference explained that rural areas are set for further population decreases and therefore depreciation, whereas larger cities are separate rapid growth and appreciation.
Eric Worral: (08:11)
So people want to live in cities and for a lot of people, they want to be as close to the city center as possible. It is expected that there will be up to 50 megacities in the future and identifying these growing markets as what will separate winners from losers. Pretty interesting. It gives an extreme example. He calls it in the city of Lagos’ Nigeria, which according to this article, is the fastest growing city in the world, which I would not have guessed. And I said a fortune calls it the big Apple of Africa. And in the 1970s, it had about 2 million people, but as are today, both 16 million people with a growth rate of 85 new lot Goshi ins per hour, which is probably my favorite stat I think I’ve ever heard in my life.
Eric Worral: (08:54)
I love the fact that they’ve got it down per hour, but as a, that total world population is continuing to grow rapidly. We’re expected to reach 9.5 5 billion in 2015, which represents a close to 30% increase from today’s 7.4 billion. But they’re saying that the majority of these people are trending towards living in urban areas. And that says that finally you also see more densification of cities in the future. Hong Kong, New York, and London are great illustrations of what’s to come. Just imagine if you bought in prime locations early on before land value skyrocket and these markets, well according to many speakers, urbanization is far from being over in cities will continue to get more and more expensive over time. So the number two trend that the article author talked about was digitation or digitization. That’s a tough word for me to say along with rural really a given it to myself today here technology is reshaping properties and how we use them.
Eric Worral: (09:52)
Most property sectors are impacted by the rise of digitization with new competitors emerging. So it gives some examples here. So retail is impacted by the rise of Amazon, right? We all know the mom and pop shops and a lot of different retailers are closing because Amazon is gobbling up sales and have retail sales, I should say. Also offices by coworking giant. We work in remote working. So you’re seeing these more like remote working spaces, but where they, they own the space and people aren’t, maybe that’s affecting commercial real estate as well. And then obviously one of the biggest examples is hotels getting affected by Airbnb. Which you know is interesting because Airbnb is the largest seller of essentially hotel space without owning a single hotel, which is fascinating. But it says today we live in a sharing economy and we may not need so many hotels in the future.
Eric Worral: (10:48)
We may not need so many office buildings or malls either. So it’s saying this is especially true in secondary markets with poor locations that experience stagnating to declining demographics. So it talks about the fact that people are that urban centers are rapidly growing as it gives property investors a moat in their location. As an example, a mall may lose its appeal due to the growth of e-commerce, but if the properties in a desirable location, you can always repurpose space and other uses. On the other hand, if the property was in a more rural area and may become obsolete over time. So it saying that many of the speakers also note that some property sectors are much better insulated from technology than others. Specifically net lease storage, residential and industrial are among the most resilient to technological changes. As an example, the need for apartments and desirable urban locations will only keep on rising.
Eric Worral: (11:42)
So they’re kind of more so talking about commercial space where you’re maybe threatened by the fact that so many digital presences are coming out such as Airbnb that kinda disrupt different markets, where investing in a hotel after Airbnb is probably not as profitable if Airbnb didn’t exist. So it’s an interesting thing to think about if you’re investing in rates or anything like that as well. The third megatrend is talking about the value add and why it’s key for rates. I won’t get into that on this. But again, if you want to read any of these articles, I will link to them from our show notes as the rate discussion gets a little bit into the weeds for me in this podcast. But I just wanted to share some of these updates with you guys because I think they’re all kind of fascinating in their own ways on where the markets are going and what the fallout is from rank control in New York City is we’re continuing to see that.
Eric Worral: (12:39)
And also I find that that Ribbon platform to be really interesting to see if they can create kind of that way for a, somebody to really guarantee their offer on a, a, home purchase and to be able to actually rent from Ribbon and then reclaim the home. I thought that it was an interesting business model that just brought it up. So we’ll see what it comes with that as well. All right guys. Until next week, I hope you have a great week and I look forward to catching up with you guys next week and sharing more of what’s going on in the real estate space and what’s affecting you as a landlord, property manager or real estate investor. All right guys, have a great week and take care.