Landmark Links January 19th – Get Back in the Game


Lead Story…. At times, California’s housing affordability crisis can seem so overwhelming in scope that its difficult to figure out where to start.  We are so far behind in developing the number of units needed that any incremental changes appear to be little more than a drop in the bucket.  Fortunately, for the first time in ages, there seems to be a desire to fight entrenched NIMBY interests and make some serious changes.  State Senator Scott Weiner’s Transit Density Bill (SB 827) would be a major step in the right direction if he can somehow get it over the finish line.  Blogger @HousingForLA wrote a wonderful post at urbanize.LA entitled 25 Solutions From A Builder’s Perspective To Fix The California Housing Crisis that should be required reading for any state legislator looking to wade into the dangerous waters of housing reform.  One of the points addressed was the lack of involvement by CalPERS, the nation’s largest pension fund in providing investment capital to address California’s biggest challenge: housing.  I will probably circle back to a few of the proposals over time but wanted to provide you with a bit of a flavor for some of the common sense ideas and reforms that you will find in this long but absolutely fascinating post:

16. CalPERS Needs To Start Investing In California Homebuilding Again

CalPERs is an agency that manages the pension and health benefits for over 1.6 million California public employees, retirees, and their families. CalPERs is the largest pension fund in the United States.

CalPERs started investing in California homebuilding in 1992. They invested in the construction of all types of California housing: single family housingmultifamily housingsenior housingurban infill housing, all types of housing. For twenty years, CalPERs was the player in financing new home construction in the state. In this transaction alone they financed the development of 22,000 housing units. During the Great Recession, CalPERs took huge losses on its residential housing portfolio. By 2012, they had basically exited the space and have never returned. They are greatly missed. The funding hole they left has not been filled.

CalPERs made the same mistake we all made before the Great Recession.  We were building a lot of housing, but we were building them in the wrong parts of the state. Places that were wrong from an environmental, economic, urban planning, and practical standpoint.  CalPERs was heavily invested in these areas. They were underinvested in the urban infill areas that quickly recovered.

In order to meet our housing goals, CalPERs must reenter the residential construction financing market. In order to avoid the mistakes of the past, they should focus investment on urban infill and transit-oriented development.  I have heard nothing from any of the candidates for Governor or Treasurer about CalPERs reentering the residential construction business. This needs to be a campaign issue.

IMO, the two largest problems facing the state of California today are the housing affordability crisis and CalPERS’ funding deficit.  Ironically, they can both be partially addressed in the same way: by CalPERS investing in residential development again.  As I’ve written here before, CalPERS left a gaping hole in the residential capital market when it decided to pull out.  That hole has been filled by private equity funds and others that have more expensive and less flexible investment capital.  If a large, flexible and reasonably priced source of equity capital (CalPERS) were to return to the market, it would eventually help to increase the number of units being developed and earn CalPERS a return somewhere in the high teens from an IRR standpoint.  As stated above, were CalPERS to do this, they would need to learn from past mistakes and avoid massive, multi-decade, billion dollar blunders (cough, cough, LandSource) and stick to more infill projects of reasonable duration.  Would this solve the California housing affordability crisis on it’s own?  Nope.  But it certainly would be a big step in the right direction.


Help Wanted: It’s difficult to find a single market in the United States where employment conditions are not tight. But See: Part of the reason that wages haven’t gone up much may be that there are too few companies, resulting from consolidation.

All Clear? Both Goldman Sachs and Calculated Risk still see little chance of a US recession in 2018.


No More Cheating: The Secured Overnight Funding Rate which will be based on the cleared and bilateral repurchase transactions of the US Treasury and will be published by the NY Fed in the middle of 2018 is poised to replace Libor in 2021.

Out of Balance: A new mega-project recently approved for Silicon Valley is projected to bring 25,000 new jobs but only 1,360 new homes as the already-massive jobs to housing imbalance only continues to get worse.

Don’t Call It a Comeback: Why well-located and well-amenitized suburban office and multi-family projects could be poised to outperform in 2018.


All In: KKR just recently a $2 billion dollar fund that is going to target multi-family investments that cater to Millennials and Baby Boomers.

Leading Edge: How State Senator Scott Weiner’s Transit Density Bill could act as a model for other states facing a housing affordability crisis……but it has to pass first.


Sign of the Times: This excerpt from The New York Times article about crypto investors entitled Everyone Is Getting Hilariously Rich and You’re Not is unreal:

He wears a bracelet from his Burning Man camp (Mayan Warrior) and a necklace that is a key on a chain. “I was given this necklace and was told my net worth would go up, and it’s gone up six x since then,” he said.

He drew a chart to explain the crypto community: 20 percent for ideology, 60 percent for the tech and 100 percent for the money, he said, drawing a circle around it all.

A roommate on the sofa perked up and asked if he’d ever invest in his lucid dreams start-up (the idea is a headpiece that induces them). Mr. Gardner did not seem impressed: “Probably not,” he said. A reality show wants to follow him around, but he’s skeptical that it can add to his life.

“I literally have a date with Bella Hadid not having a reality show,” he said.

How the Mighty Have Fallen: Why a GE breakup is becoming all the more likely.

Boondoggle: In news that should be surprising to absolutely no one, the high profile California bullet train to nowhere is already coming in well above cost.  In the meantime our water and inner-city transit infrastructure – things that people actually need and use – still suck.

Charged: There is no way to get rid of the need for batteries completely but charging technology is about to get much better – think batteries that charge like wifi.

Charts of the Day

US inflation expectations continue to rise

Source: The Daily Shot

One of my all-time favorites: the market doesn’t care what it did the year before

Source: MarketWatch


An Immigration Policy We Can All Get Behind: Swiss town denies passport to Dutch vegan because she is ‘too annoying.’

Invasive: Florida’s latest headache involves a killer strain of herpes carried by wild monkeys introduced to the area in the 30s and 40s to entertain tourists.

Slow Getaway: Pennsylvania police are looking for a pair of obese robbers on motor scooters who are suspected of stealing cash and credit cards from Walmart shoppers.

Relieved: Porn site traffic increased 50% from users in Hawaii in the minutes after the ballistic missile threat was revealed to be a false alarm

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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