In the March Altus Insight there was a discussion of the unemployment numbers. Additional data has since been released. My thoughts can be found at the end of this Insight in italics.

I don’t think of myself as an ornery person, but if I am honest with myself, I have to admit that I sometimes can be described as such. The real problem is that I often slide into orneriness before realizing I have done so, leaving those around me to deal with it/me. A recent realization I had become cantankerous hit me when my computer rebooted about an hour into my first go on this month’s Altus Insight. No question, I should have saved my work earlier in the process, but in this day and age, what kind of computer just crashes? It’s enough to make someone ornery, but as it turns out there are a few more things pushing me that direction as well. As for the original content? The discussion of macro versus micro will have to wait for another day.  For now, let’s dive into my orneriness.

1. The presidential race is enough to leave a bad taste in most Americans’ mouths. Not only are there issues of incompetence and dishonesty, both candidates are tripping over themselves to make proclamations of their intent to do things that are sure to destroy the economy. A blanket 10% tariff? Forty-four percent capital gains tax? I get it, elections aren’t about logical solutions, they are about appealing to the wackier fringes of the electorate that are the marginal voters believed to push the winner over the edge. Similar to the college debt forgiveness, it is effectively the buying of votes. If we can give people things, while blaming China (or Mexico, Germany, etc.) or rich people for all the ills of the country, maybe we can get more votes. The higher proposed capital gains tax will go nowhere so long as there is any sort of split in the presidency/house/senate among the parties. Even if it is a Democrat sweep, I can’t see there being enough votes in Congress to agree to a capital gains tax higher than the highest earned income rate. But the tariffs? If Trump is elected there is a high likelihood of the blanket tariffs being passed. And even if he is not, there is still better than an even money chance. There are situations where tariffs make sense, most certainly where the country of imposition is stealing intellectual property or subsidizing their industry (i.e. China). But you don’t use a hammer to perform heart surgery, and blanket tariffs of any size will flow directly through to US consumer’s pocketbooks. We really need candidates, and not just for president, that aren’t so focused on pandering to their base as to ignore the realities of the world around them.
2. The press is driving me crazy. I don’t mean the political press. We all know about the massive biases that exist across the main media conglomerates (and most smaller companies as well). Trust in the media is at historical lows for that very reason. I am talking about the financial media. I understand and acknowledge click-bait and the need to have sensationalized headlines and reporting, but can we please get some acknowledgement of context (is $1 billion a large or small number)? Is it too much to expect accuracy? In business and finance there are some things that are verifiably right or wrong. There are some things that might be technically accurate but functionally inaccurate. And of course, there is opinion. I am most obviously in tune with the world of real estate. People in the industry and in the press have lots of opinions, with which I have no issue. We are all entitled to our own opinions, but we aren’t all entitled to our own facts. Medium is not the same thing as Mean. Revenue is vastly different than operating income. I could go on (and on…). These errors, either through sloppiness, ignorance, or willful inaccuracy, lead to decisions by those that read at face value. Do so at your own risk.
3. Maybe it is just my generally impatient personality, but it sure feels like everything is taking forever these days, and certainly longer than before COVID. Response times drag on for days, deadlines are often treated like a suggestion as opposed to a commitment, processes that should take hours take days, what should take days takes weeks, and so on. Is it a lack of urgency? Are people overworked and not able to turn things around quickly because they have too much on their plate? Is work speed diminished because of tech interruptions (social media, texts, etc.)? Have expectations just changed so that people don’t feel it necessary to respond and or hit deadlines? Much of what we deal with is more in services than products. The product world is dealing with shrinkflation. Maybe the services world is dealing with slowflation. This is a consistent battle for Altus. We have contracts with 3^rd parties that are down to a clause or two to be finalized before signing, but the process drags on for weeks waiting for the appropriate parties to review. We have several properties under letter of intent, that instead of going from LOI to purchase and sales agreement in 10 or 14 days is now taking months (literally). We have loan assumptions that are moving so slowly that transactions are taking twice as long to complete as they would have previously. And all the while, despite the lack of speed, responsiveness, or commitment, all the parties involved that can’t seem to push anything forward still want to be paid more than they did when things were actually getting done. It is like working with the government is now the norm in the private sector as well. I sure hope we can avoid Altus being one of these people/companies I am complaining about.
4. There is no question that part of my orneriness is tied to a property we sold this past week. It was a painful sale for us. It is a beautiful property with a great lease, but it also resulted in a sizeable loss in Altus’ investment. The property was purchased empty at the very height of the market (May 2022) using 1031 proceeds from a huge winner. Our financing was adjustable and financing rates doubled over the life of the ownership. This pushed cap rates higher (values lower), but also dramatically increased the ownership cost through the extra interest burden. And, frankly, as we did our analysis of the project, we didn’t do as good of a job managing the project as we could have either. Because of the structure of the investment, Altus investors, in total across the three investment vehicles, made money, with Altus taking nearly 100% of the loss. This is a good thing, had there been sizable investor losses the deal would have been even more painful. But the losses didn’t create the orneriness, just a bit of discouragement. The orneriness came from dealing with the buyer. They are a public company and made sure to throw their weight around constantly throughout the escrow period. The amount of stress their actions and words caused on the parties involved in the closing (lenders, attorneys, escrow officers, etc. – oh, and us) was completely unneeded and unwarranted. We will never do another transaction with them again, and even though the sale was a sale of necessity not choice, we probably wouldn’t have agreed to sell the property to them had we known the way they do business going into the escrow. Everyone is in this business to make money, and we all have to make decisions that are the best for our particular situation. But there is no reason I can see to do business in the manner in which they conducted themselves.
5. Guess what folks (speaking to the broader world, not the Insight readers), there is distress in the real estate world. The property sale referenced above wasn’t technically in distress, but we didn’t have a whole lot of options. But guess what else. There is a ton of real estate that isn’t in distress. The residential market remains strong. Retail and industrial are still mostly doing well. Multifamily has some short-term headwinds but is still doing fine. Even in office, as bad as the trends might be, most property owners are doing okay. I guess this cause of orneriness is similar to the comments about the press above. Yes, there is distress (and this is where there is opportunity), and yes there is a vast majority of real estate that is chugging along just fine. The fearmongers are so focused on the distressed they forget it is a small minority of the total stock. On the other side, the overly optimistic crowd is pretending the distress doesn’t exist. It is possible that there can be distress and the real estate markets are mostly still strong. That is certainly the case for our portfolio. We had a property (now sold) that we considered distressed, but the rest of our portfolio is doing just fine. Nuance exists. Many things can be true simultaneously.

Don’t worry, I don’t stay ornery forever. My wife can attest to such and is thankful that I do come out of it eventually. Maybe I already am. In preparing for our quarterly investor call this coming Friday (click here to register, even if you aren’t yet an investor), I am seeing more green shoots that are causing me growing optimism. Orneriness and pessimism are definitely not synonyms, and I think it probably is possible to be an optimist while also being ornery, but for me, as optimism builds, so does my creativity and positive energy, and it is hard for me to be a curmudgeon when the positive energy is flowing. Hang with me, I will be there soon.

Happy Investing.

Here is the follow up from last month’s Insight:

The April labor establishment data reported 303,000 new jobs being added to the economy versus the expected 214,000. At danger of looking like I am digging my heels in, it is worth examining the data closer. For one, all of the job gains, on a net basis, were part-time jobs or went to non-American workers. Additionally, all of the job gains were by those over 55 or under 25. Prime-aged workers (25 – 54) actually lost jobs. Also, there continues to be severe oddities in the labor numbers. As CNBC reported last week, the initial jobless claims in five of the last six weeks were exactly the same – 212,000. The one outlier was 222,000 and the week previous to the string of similarity was 210,000. As economist Jim Bianco pointed out, it is nearly a statistical impossibility for this to occur. The non-adjusted numbers have considerable variation, but the seasonably adjusted numbers…not so much. There is a distinct possibility that my skepticism is unwarranted, but between the general angst in society, inconsistent numbers between the household survey (actual people, actual statistics) and the establishment survey (a big computer model that includes impactful assumptions on the birth/death rate of businesses), and the craziness of the numbers themselves…I will stay skeptical for the time being and believe the labor market to be much weaker than the narrative is assuming.

About the Author: Forrest Jinks is CEO of Altus Equity Group Inc and a licensed real estate broker. Forrest has decades of experience as principal in a variety of alternative investment segments including real estate (residential rehab, in-fill development, multi-family, office and retail), debt, and small business start-up (online marketing and site retail). He can be reached at fjinks@altusequity.com.