In our previous blog we stated our belief that the economic ‘boom’ is not real. It is largely artifice consisting of government spending and data manipulation.
Now Home Depot’s former CEO and Chairman Bob Nardelli is calling out (Washington Times 8/26/2024) the Federal Reserve on this as well. In a recent interview he warned that job gains are overstated and the Fed should come clean about the labor market being weaker than many realize.
Following much fanfare, the government announces a jobs number, only to quietly walk it back a few weeks or months later. “Now even Goldman Sachs is talking about a downward adjustment of between 600,000 to 1 million jobs.” (FOX News 8/20/2024)
Big tech, Cisco, Intel, etal, are laying off thousands. Walgreens is closing a quarter of its 8600 US stores. This could amount to 2,150 locations. Car manufacturers are now feeling the pinch with Stellantis just announcing 2,500 job cuts. GM is laying off over 1,000 salaried software and service employees. We could go on, but you get the idea (The Epoch Times 9/3/2024).
It is past time the notionally independent Fed got honest. This is certainly not forthcoming from the political class with President Biden touting job creation under his watch as last month’s job growth slowed to 114,000 and unemployment ticked up to its highest level in three years.
Compounding this is Kamala Harris’ advocacy of price controls as a first step she will take to combat “price gouging.” When your own record of mis-governance and malfeasance is indefensible, best to find a scapegoat in corporate America.
As someone I believe to be an economic illiterate (she said yes to inflation by casting the two tie breaking votes to advance the American Rescue Plan of 2021 and the egregiously misnamed Inflation Reduction Act of 2022, increasing Federal spending by more than $3 Trillion) Harris is unaware this has already been tried in the Soviet Union, Venezuela, North Korea, Iran and other garden spots. However, the shortages, rationing black markets, and poor quality products that result will not halt their socialist march.
What is rent control other than price control as applied to the housing stock? CRE investors thinking they dodged this bullet with Biden’s re-election demise may be in for a rude awakening.
Housing accounted for nearly 90% of the monthly increase in CPI. Therefore, when democrats talk about the need for price controls, the bullseye is squarely on housing. The progressive bogey is a 5% cap on annual rent increases or risk losing current valuable Federal tax breaks. This is to apply to all ‘corporate’ owners, with corporate defined down to 50 or more units in their portfolio. Didn’t know you were that rich and powerful, did you?
This is why we are telling CRE investors that exchanging into a DST may be a great opportunity to get off the government radar screen.
At any one time, the majority of DST programs available to investors are multifamily properties. This is because most investors considering DSTs as an exchange option are selling some type of housing. Therefore, it’s an asset type they are already familiar and comfortable with.
Unfortunately, habitational assets like multifamily are simply vote harvesting mechanisms for politicians. There are infinitely more tenants than landlords so future legislation will not likely favor you. Politicians will presumably continue to pander to renters at landlord’s expense.
We think it pays CRE investors to remove the multifamily blinkers and consider other asset types that may be less politicized: self-storage, industrial, medical office buildings (MOBs), student housing, etc.
The first two are particularly attractive because they are used to warehouse and transit ‘stuff.’ Stuff doesn’t vote, so there is little incentive for the political class to intrude upon it or its owners.
The 65+ demographic is the nation’s fastest growing, so senior living is a no brainer. It is axiomatic that as we age more medical goods and services are needed
There is a paucity of good, non-hospital / ER delivery points. The specialized nature of their buildout tends to make tenants ‘sticky.’
In the age of “tenants rights” being a landlord is a tough job. The Biden – Harris administration considers you a “price fixing corporate landlord” who “raises rents by more than (the) increases in their own costs “….” Resulting in huge profits at a time when millions of Americans are struggling to cover rent each month.” (The White House Fact Sheet: President Biden Announces Major New Actions to Lower Housing Costs by Limiting Rent Increases, July 16, 2024).
By 1031 exchanging into non-habitational assets, landlords may relieve themselves of this government induced psycho-trauma. Don’t you think it’s time to get the target off your back?
