Landmark Links January 31st – Equilibrium


Lead Story…. Over the past couple of weeks, I’ve written about how a lot of capital available in the home building and development market today is a poor fit for where we are in the cycle.  I ended January 20th’s post that dealt with a lack of horizontal debt financing currently in the market by making a point that any solution to the problem would need to be priced correctly in order to be effective.  Today, I want to elaborate on both of those points.

We see a substantial amount of deal volume at Landmark.  As such, we frequently meet with capital providers who are looking to launch new financing programs.  When these meetings take place, we are typically being asked to answer two questions:

  1. Do we see a market need for the proposed business plan?
  2. Is this a type of capital that we can help deploy?

I’m going to write something that may seem obvious: every source of capital is viable if and only if it prices return properly for for risk it is taking.  Let me explain.  Let’s say that you have a fund that wants to lend money at a 50% advance rate with an 11% interest rate and 2 origination points.  There is absolutely nothing wrong with that structure if it’s going to be used to for bridge lending against land or on quick-close commercial deals with some hair on them.  However, if the lender has expectations of only lend against Class A properties with good debt service coverage and long term leases to credit tenants, there is plenty wrong with the structure. For starters it’s far too conservative on proceeds, much too expensive and restrictive on underwriting to ever get the capital placed in any kind of volume.  In other words, the way that capital is priced largely determines the type of projects that a capital source is shown.

We’ve witnessed several cases over the past few years where a capital source entered a space where financing was sorely needed and there was little competition but still failed to gain traction because of mis-pricing and/or overly onerous terms.  Some of these providers became what I call “The Capital Provider of Last Resort” – the source that sees deals only after any better options have passed, resulting in low quality opportunities.  Others simply folded due to a lack of deal volume.  Either way the deal flow was not of the quality that was initially anticipated when the business plan was put together.  There is nothing wrong with being a hard money lender so long as it’s recognized that segment of the market is being targeted.  The problem comes in when the hard money lender starts targeting top tier deals.  Every source of capital will eventually find equilibrium with deals that fit the risk profile for which it was priced.


Reaching: Plateauing productivity, combined with likely restrictions on both immigration and trade make the Trump administration’s 4% GDP target a long shot.

Times, They Are A-Changing: US immigrants are more likely to have college degrees and be employed in white collar jobs than ever before.

Playing Defense: China is selling US Treasuries at a record pace in an effort to support the yuan and keep money from leaving.  See Also: China’s army of global home buyers is suddenly short on cash as stronger capital controls take their toll.


The Run Continues: 2016 was a record year for multi-family deal volume.


Labor Shortage: From the Wall Street Journal “Overall, immigrants account for nearly half of all drywall and ceiling-tile installers, 43% of roofers and nearly 60% of plasterers and stucco workers, the research from the National Association of Home Builders found. Nearly 53% of immigrant construction workers were born in Mexico, the study found, and another 30% were from the rest of the Americas.”  If you don’t think that the current political climate regarding immigration is going to be a headwind for the home building industry and put more upward pressure on cost, it’s time to wake up.

Counterpoint: Last Friday’s lead story featured a NY Time piece about how changing demographics will tend to favor the suburbs over the next few years.  CityLab disagrees and posted a rebuttal that made a convincing argument as to why young people will continue to settle in cities in growing numbers in the years ahead.  This is a highly recommended article as it allows you to see both sides of the argument.  (h/t John Camera)

Flipper Returns: House flippers are back and partying like it’s 2006.

Shots Fired: The reaction from both sides of the political aisle from the Trump administration’s decision to cancel a reduction in FHA insurance fees indicates that future housing policy could look an awful lot like past housing policy.


The Disruptors: The fascinating story of how Uber and Airbnb went from bootstrapped upstarts to multi-billion unicorns in 8 years by addressing age-old problems in a new way.  See Also: Uber is decimating the cab industry, cutting the value of medallions in half and leading to massive defaults on the loans used to finance them.

A Sucker Born Every Minute: So it turns out that the hedge fund that raised $81MM to simply buy and resell tickets to the hit Broadway show Hamilton for a profit was…..wait for it…..a Ponzi scheme.

Chart of the Day

About face


Groovy: People in Silicon Valley are micro-dosing LSD and claiming that it makes them more productive because people in Silicon Valley are crazy.

Extra Crispy: Meet the drug-dealing Burger King employees from New Hampshire who used their store’s drive though to sell pot by using undercover code words.

Killing Brain Cells: Hipsters who finally got bored with Pokemon Go are playing Russian Roulette with tasers.  Ironically, of course.

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