Speaker 1: M HM. This is Mesters in Business with Very Renaults
Speaker 1: on Bloomberg Radio. This week on the podcast, I have
Speaker 1: an extra special guest, Jonathan Miller. I've been reading his
Speaker 1: research and writing about real estate and appraisals and home
Speaker 1: price trends and anything related to residential real estate for
Speaker 1: I don't know, it's got to be close to twenty years.
Speaker 1: He is the co founder of Miller Samuel. His data,
Speaker 1: analytics and research powers the back end of some of
Speaker 1: the biggest real estate agencies in the country. He always
Speaker 1: has a tremendous amount of insight as to the current
Speaker 1: state of the market and the best way to contextualize
Speaker 1: what's going on in real estate. And we really talked
Speaker 1: about everything from aspirational UH pricing to our markets at
Speaker 1: a peak, and how when markets do peak and roll over.
Speaker 1: In real estate, why it takes so long for prices
Speaker 1: to adjust UH newsflash, sellers are anchored via the endowment
Speaker 1: effect to their own value of their home prices, which
Speaker 1: lagged the actual market UH for a long time. We
Speaker 1: we talked about the death of cities being greatly overstated
Speaker 1: and and why it's so challenging to convert all that
Speaker 1: excess office space into residential properties. If you are at
Speaker 1: all interested in real estate, buying a house, selling a house,
Speaker 1: renting an apartment, owning a condo, or cooper just want
Speaker 1: to know what the heck is going on with real
Speaker 1: estate today. Uh, you will find this conversation to be
Speaker 1: absolutely fascinating. So, with no further ado, my conversation with
Speaker 1: Jonathan Miller. You're listening to Masters in Business with Very
Speaker 1: rid Holts on Bloomberg Radio. I'm Barry rid Holts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My extra
Speaker 1: special guest this week is Jonathan Miller. He is the
Speaker 1: CEO and co founder of Miller Samuel, a real estate
Speaker 1: appraisal and consulting firm he first founded in six His
Speaker 1: data and analytics powers many of the largest brokerage firms
Speaker 1: um reporting and information about the state of the housing market. Uh.
Speaker 1: He is our returning champion. I think you and Scott
Speaker 1: Galloway are tied for the most Masters in Business appearances.
Speaker 1: Jonathan Miller, Welcome back to Bloomberg. Great to be here, Barry. Thanks. So,
Speaker 1: so let's just talk a little bit about your background.
Speaker 1: You co found Miller Samuel in in six what what
Speaker 1: led you to the appraisal, real estate and consulting business
Speaker 1: way back then. Well, UH, initially I worked for a
Speaker 1: management company that was bought by Marriott back in the
Speaker 1: mid eighties, and I said, well, what am I gonna
Speaker 1: do with myself? And I got my real estate license
Speaker 1: and I became a real estate agent in Chicago, and
Speaker 1: UH was more on the analytics side, you know, sort
Speaker 1: of the bean counter type. And then I moved to
Speaker 1: New York and UH was eventually became a sales director
Speaker 1: on a new condominium building and saw these appraisers coming
Speaker 1: in without really data. There was no multiple listening system
Speaker 1: in Manhattan. And I eventually got together with my family
Speaker 1: and we started our firm, Miller Samuel in the eighties
Speaker 1: six and it covers the New York City metro area.
Speaker 1: And then UH, starting in n I started offering UM
Speaker 1: market studies UH for the real estate company UH Douglas
Speaker 1: Solomon and basically follow their footprints. I'm covering about forty
Speaker 1: different housing markets in the US right now, and that's
Speaker 1: really fun. And then it sort of marked in. I
Speaker 1: teach market analysis at Columbia for grad students UM, and
Speaker 1: so you know, it's just been this sort of progression
Speaker 1: of but everything related to housing in real estate trends. Well,
Speaker 1: I love that you are are one of the number
Speaker 1: crunchers who dive into the data and come up with
Speaker 1: analytics to really teach us about what's going on in
Speaker 1: the marketplace. And so I have to start with that question,
Speaker 1: what are you seeing these days in the real estate
Speaker 1: markets you cover? Are prices and volumes still going up?
Speaker 1: As of this recording, mortgage rates have just about doubled
Speaker 1: to six from you know, the low threes or even
Speaker 1: high twos um. What's going on in real estate? Well,
Speaker 1: I think of it as you know, you know, with
Speaker 1: affordability dropping literally by half since the end of December,
Speaker 1: the market is going through a pause where there is
Speaker 1: a tremendous pullback in demand and you know, this is
Speaker 1: a significant jump in rates. So you have this pullback,
Speaker 1: and what that's done initially is you know, new sign
Speaker 1: contract volume is down across all the markets we cover. Uh,
Speaker 1: And actually that's been occurring for the last couple of months.
Speaker 1: This is you know, the slowdown now is has accelerated,
Speaker 1: but really we started to see contract activity slowed down
Speaker 1: at the end of March, beginning of April. Initially it
Speaker 1: was because inventory had collapsed, uh and was keeping sales
Speaker 1: from occurring because there was no product. But it's really
Speaker 1: completely morphed into an affordability issue because nationally, you know,
Speaker 1: depending on the metrics you follow, we're looking at increase
Speaker 1: in housing prices plus rates doubling. What else could happen
Speaker 1: to slowdown? I think you told me this, or you
Speaker 1: got this from the internet somewhere somewhere you said, one
Speaker 1: of the best things for high housing prices or high
Speaker 1: housing prices. Well, that's that's the that's the old commodity
Speaker 1: trader's joke. The cure for high poses are high prices.
Speaker 1: At a certain point, either the demand cools or the
Speaker 1: supply rushes to meet it. Yeah, And I think what
Speaker 1: people generally have wrong with with the market cool down is,
Speaker 1: you know, initially, when you have an external event like
Speaker 1: great Spiky, you have sales activities slow immediately, and you
Speaker 1: have inventory rise immediately, albeit from an unusually low place.
Speaker 1: And I'll expand on that. But but the part, the
Speaker 1: third step that I think most people get wrong is
Speaker 1: they expect crisis to immediately fall and there's really a
Speaker 1: one or two year period that it takes sellers to
Speaker 1: capitulate to market conditions, although I do think that they'll
Speaker 1: capitulate faster in this condition, uh than in the past.
Speaker 1: But I you know, buyers are in already, you know,
Speaker 1: that's their hesitation. And then you throw in a war,
Speaker 1: you know, record or you know, high inflation. Um, you
Speaker 1: have all these uncertainties, and everybody just I mean, it's
Speaker 1: one of the biggest enemies of the housing market is uncertainty.
Speaker 1: And we certainly have a basketfull of that right now.
Speaker 1: You know, I have a very vivid recollection at like
Speaker 1: cocktail parties and barbecues in two thousand and nine, even
Speaker 1: people saying, why can't I get X from my house?
Speaker 1: The same house down the street sold for X and
Speaker 1: it's not as nice as mine, and that was sold
Speaker 1: in two thousand six. And my answer is always, well,
Speaker 1: you could get that money first. You need a time
Speaker 1: machine go back to two thousand six and you could
Speaker 1: get That's what the market was. And I watched what's amazing,
Speaker 1: especially about all the online services today. I watched these
Speaker 1: home sellers chase the price down. They were always lagging
Speaker 1: behind the market. Is that really a two year process
Speaker 1: for people? Before people you know, find religion and say
Speaker 1: here's where the market is. If I want to sell this,
Speaker 1: I have to get that. So yeah, So in my
Speaker 1: own you know, thirty eight years of experience, you know,
Speaker 1: it's a sort of anecdotal experience that has telling me
Speaker 1: that it takes an average nationally about fifteen sixteen months.
Speaker 1: But call it you know, year, two year and a half,
Speaker 1: two years, sort of, it's not a couple of months. Um.
Speaker 1: And to clarify, what I'm really saying is that it
Speaker 1: takes a long time for the seller to capitulate to
Speaker 1: the market so that they feel like closing, like they
Speaker 1: didn't leave money on the table, right, So so it's
Speaker 1: where they didn't like walk away from a sure thing,
Speaker 1: and that takes a lot of time. Um. I think
Speaker 1: what's a little different in this cycle is there's been
Speaker 1: so much equity build up because of the rapid run
Speaker 1: up at prices that maybe it's less painful, uh, because
Speaker 1: it's money on paper too many um, you know in
Speaker 1: that in the sense of um, you know, people uh,
Speaker 1: you know, worried about walking away from something that they
Speaker 1: had in their in their hands. So if you're a contrarian,
Speaker 1: you become a buyer in the summer of Yes, yeah,
Speaker 1: I think so, and and and what what I find,
Speaker 1: uh interesting, is that, um, you know, when people look
Speaker 1: at pivoting conditions, pivoting markets, you append the word forever,
Speaker 1: like prices are falling forever, prices are rising forever. It's
Speaker 1: like this linear view. And if you look at some
Speaker 1: serious downturn periods in the housing market, like the housing bubble, um,
Speaker 1: you know, fifteen or so years ago, thirteen fifteen years ago. Uh, really,
Speaker 1: prices really didn't recover, took about six years, but activity
Speaker 1: actually returned pretty quickly by two thousand, late two thousand nine,
Speaker 1: early two thousand and ten. So this isn't like a
Speaker 1: decade or a you know, a generational thing. Um, it's
Speaker 1: you know, it's a shorter window than that. And um, honestly,
Speaker 1: I felt, you know, rap should have been raised specifically
Speaker 1: through housing market optics about a year ago. Uh. It
Speaker 1: feels like the fed plate to the party, because you
Speaker 1: could just see the obliteration nationwide of inventory. Like one
Speaker 1: of the ways I think about housing supply, I think
Speaker 1: we have a tremendous amount of over reliance on when
Speaker 1: you look at the state of the housing market of
Speaker 1: looking at new construction, new development, which in most local
Speaker 1: and national we're really talking you know, ten percent, and
Speaker 1: you know ebbs and flows of total inventory, Well what
Speaker 1: about the other eighty five or of supply? Um? That
Speaker 1: is the think of that supply as sort of the
Speaker 1: life cycle of occupants of the real estate. You know,
Speaker 1: they're they're you know, they're they're trading up to a
Speaker 1: larger home because they have an expanding family. They're trading down,
Speaker 1: they're downsizing. Um. You know, there's all these sort of
Speaker 1: life changes. And when you come at them with a
Speaker 1: two point six you know that market with a two
Speaker 1: point six thirty year fixed uh, you create this sensatiable
Speaker 1: demand this and you obliterate supply. And so this became
Speaker 1: a housing market of bidding wars. Most of the forty
Speaker 1: plus markets I covered for Douglas Sellman are seeing bidding
Speaker 1: like in southern California two thirds to three quarters depending
Speaker 1: on the segment of closings. In the early part of
Speaker 1: this year, we're above the asking price. You know, Uh,
Speaker 1: that would be our proxy forbidding wars. In Fairfield County, Westchester,
Speaker 1: Long Island, you know that ring New York City, we
Speaker 1: were looking at forty five. How is that sustainable? How
Speaker 1: is that a good thing? So I'm quite relieved at
Speaker 1: least thinking long term that we're moving out of this
Speaker 1: untenable frenzy. And you know, you and I have spoken
Speaker 1: about another aspect of UM, not the demand side, but
Speaker 1: the supply side. You know, there's normally that chain of
Speaker 1: purchases that takes place. Someone moves into a starter home,
Speaker 1: there's a move up, there's a move to a larger home,
Speaker 1: to a nicer neighborhood, eventually to waterfront, and that last
Speaker 1: person is downsizing. During the pandemic, especially when people were
Speaker 1: locked down in apartments, there were a lot of purchases
Speaker 1: with no correlating out. People just went out and bought
Speaker 1: a second or third house. That had to have a
Speaker 1: massive impact on the supply out there. Yeah, there's two
Speaker 1: things that happened. One was, uh so specifically with a
Speaker 1: Manhattan example, after the lockdown, the pandemic lockdown, rental prices
Speaker 1: fell a lot. They fell, um, you know, but there
Speaker 1: was no vaccine, there was you know that the city
Speaker 1: was the global hotspot, and so the rental demand weakened
Speaker 1: because would be tenants with the collapse and mortgage rates
Speaker 1: fled to the you know that sort of in air quotes,
Speaker 1: the narrative was fleeing the city or another air quote
Speaker 1: sort of a headline was exodus. UM. And so it
Speaker 1: was all outbound migration and no inbound And you had
Speaker 1: these these renters buying, and then you had people weren't
Speaker 1: selling during the pandemic. They in the city, they were
Speaker 1: buying a second home, something that I dubbed co primary,
Speaker 1: which should be you know, they're looking at a second
Speaker 1: primary residence that they can sort of toggle back and
Speaker 1: forth between the city and the suburbs and um. And
Speaker 1: it there was no seasonality you had. You had maybe
Speaker 1: five years of you know, the typical you know, young
Speaker 1: couple moves to the suburbs to have kids. You know
Speaker 1: that compressed into like three months, UM. And they had
Speaker 1: this whole distortion of sort of migration patterns UM. And
Speaker 1: then on top of it all you have remote, which
Speaker 1: became you know, zoom became ubiquitous in twenty four hours,
Speaker 1: and all of a sudden, you have a rethinking of
Speaker 1: what remote meant, and it became a powerful force. What
Speaker 1: I was saying during the lockdown was the tether between
Speaker 1: work and home became infinitely longer because you have a
Speaker 1: lot more flexibility. And on top of it, you have
Speaker 1: this skewed towards higher end meeting that you know, because
Speaker 1: of the economic damage from the lockdown was heavily weighted
Speaker 1: towards lower wage earners. The upper half of the market
Speaker 1: was where what woke up or saw this boom first.
Speaker 1: And part of it is because you know, just as
Speaker 1: sort of a generalized statement is that the higher the wage,
Speaker 1: the higher the mobility or you know, the ability to
Speaker 1: work remote and it just dovetailed together really well, quite
Speaker 1: quite interesting. So a couple of we're recording this UM
Speaker 1: in the middle of this week on the June one UM,
Speaker 1: some really interesting data points came out this week. Existing
Speaker 1: home sale prices hit a record of four hundred and
Speaker 1: seven thousand, six hundred dollars in May, and at the
Speaker 1: same time, home sales decline three point four in the
Speaker 1: face of rising interest rates. Is it sort of contradictory
Speaker 1: that prices are going up even as sales decline or
Speaker 1: is that more about the mix of of hiring homes
Speaker 1: and lauren homes. So I think it's more about the
Speaker 1: lag in UH closing information versus actual onmographic contract activity. Uh,
Speaker 1: it is UM. You know, if you can think of
Speaker 1: home price trends at the caboose on the end of
Speaker 1: the train. I always use this analogy, even though there's
Speaker 1: no cabooses on ends of trains anymore. UM. But really
Speaker 1: the initial impact you should really for trends, you should
Speaker 1: be looking at sales like petting, home sales, contract activity
Speaker 1: in general, and then new inventory entering the market that's
Speaker 1: much more fluid and in front of the prices occur
Speaker 1: after the dust settles. So, for example, UM we published
Speaker 1: monthly research in four different regions of the country, and
Speaker 1: new stign contracts were already beginning to cool back in March,
Speaker 1: and uh, you know, eventually that leads to an uptick
Speaker 1: in UM listing activity, which then eventually, uh you know,
Speaker 1: you know, levels off are cool sales. So I don't
Speaker 1: think the pricing, the prices rising is a result of
Speaker 1: a shift in the mix towards higher property. I think
Speaker 1: it's really just a lag in the actual data itself.
Speaker 1: So so where are we in this housing cycle? I
Speaker 1: noticed that more supply is coming online. There was a
Speaker 1: great chart the other day at at Calculated Risk showing
Speaker 1: the most single family home completion. Since I think, oh, seven,
Speaker 1: it is like a well over dead kid. Are we
Speaker 1: seeing that many more um new homes and existing homes
Speaker 1: come on the market as supply or is it really
Speaker 1: just been down so long it looks like up To me,
Speaker 1: I think the latter. So the way to think of it. Uh.
Speaker 1: And this is my analogy just using my my hometown
Speaker 1: in Connecticut. Uh, my town saw two hundred listings pre
Speaker 1: pandemic for the prior four or five years plus or
Speaker 1: minus twenty listings, but it was, you know, straddling the
Speaker 1: two D threshold. A year after the pandemic there were
Speaker 1: fifty and so you look at and go, wow, that's
Speaker 1: a real drop. Uh. And then the beginning of the
Speaker 1: year before the rate increases, there were twelve. Wow. And
Speaker 1: so that's where I would call it a clap. So
Speaker 1: now inventory has quadrupled, there's fifty. It's still s below
Speaker 1: pre pandemical bubbles. So when I look at I look
Speaker 1: at that and say, yeah, inventories rising, and that's a
Speaker 1: good thing. Um. But I don't know if people realize
Speaker 1: how insanely low inventory became began. Um. And and you know,
Speaker 1: one of the things, um, you know that I think
Speaker 1: is going to be apparent in the coming year or
Speaker 1: two is that we have probably built too much multi
Speaker 1: family rental product um right now. You know that it's
Speaker 1: all sort of responding to this surge in you know,
Speaker 1: the in rental prices. But part of that search in
Speaker 1: rental prices is because, uh, the surge or the rising
Speaker 1: rates are just the fact that lenders are not fast
Speaker 1: and loose that they are. You know, we're not going
Speaker 1: to have a banking crisis on the other side of this,
Speaker 1: because lenders are ti or than they were in the
Speaker 1: decades prior to the housing bubble um, and so people
Speaker 1: that don't qualify they tipped into the rental market, right,
Speaker 1: I mean, they're not. Um, you know, we don't have
Speaker 1: we don't have financial engineering like we did. You know
Speaker 1: in the mortgage world circa two thousand and five. Six,
Speaker 1: What a what a funny coincidence that mortgage lenders were
Speaker 1: much looser before the housing crisis. I mean, you know,
Speaker 1: sometimes these coincidences are just just amazing and sing And
Speaker 1: since the financial crisis, it's become much harder to get
Speaker 1: a mortgage. Um. And I'm not talking about you know,
Speaker 1: all day or sub prime I mean prime borrowers really
Speaker 1: had to jump through some hoops in the years after
Speaker 1: o ee oh nine. Is it's still that tight or
Speaker 1: has things you know normalized a little bit. So the
Speaker 1: way to look at it is uh uh underwriting standards,
Speaker 1: mortgage underwriting standards. You know, during the the housing bubble,
Speaker 1: you just had to have a pulse or bogramere. In
Speaker 1: the years subsequent it has the restrictions have deteriorated, but
Speaker 1: we're still not on par with sort of pre housing
Speaker 1: bubble era lending standards. That that lending is generally more
Speaker 1: conservative and there's less sort of maybe on the margin,
Speaker 1: but there's really less sort of alternative workarounds for financing.
Speaker 1: I think it's much more sophisticated. I think some of
Speaker 1: the restraints with Dodd Frank uh you know, have have
Speaker 1: helped to a certain degree which makes us in a
Speaker 1: much less vulnerable, vulnerable position. But that has helped create
Speaker 1: much more tightness in the rental market in general. And
Speaker 1: I think we have this, you know, law large response
Speaker 1: in multi family rental development being created, and I suspect
Speaker 1: in over the next year or two that that's going
Speaker 1: to be a um where it's gonna be apparent because
Speaker 1: people when they look at the rental development being created,
Speaker 1: there's assumption of well more units lower rent. But just
Speaker 1: like new home construction, new rental constructions used to the
Speaker 1: upper half of the market. It doesn't address the entire market.
Speaker 1: So you're creating a lot more rental units, but you're
Speaker 1: creating not necessarily the right distribution of rental units. And
Speaker 1: I think that's the challenge for the rental market going forward.
Speaker 1: Just for I was just gonna say, just in New York, um,
Speaker 1: you know, we we report every month the rental um
Speaker 1: you know, the rental market, and in Manhattan, the median
Speaker 1: rent was four thousand dollars, cracking the four thousand threshold
Speaker 1: for the first time in history. Average rents are just
Speaker 1: shy of five thousand a month. It's still an all
Speaker 1: time record. And we're not even to peek leasing season,
Speaker 1: which is in August. The rental market sort of peaks
Speaker 1: at the end of the summer, and so there's still
Speaker 1: a lot of pressure in the rental market going forward
Speaker 1: over the you know, whether or not we um you know,
Speaker 1: we have rising inflation. It's it's very tenuous and this
Speaker 1: is not unique to much of the US so so
Speaker 1: let's let's address that because during the pandemic, I read
Speaker 1: at least in the New York Post, new York City
Speaker 1: is dead. It's never coming back, No one's ever going
Speaker 1: to move here. It's all over for cities, and not
Speaker 1: just New York, but San Francisco and Chicago and Austin
Speaker 1: and Philadelphia and Boston. And go down the list. What
Speaker 1: is the state of real estate in in the big
Speaker 1: cities and and where are you seeing more of the
Speaker 1: explosive of growth. Is that more the sun belt or
Speaker 1: is that the coast? What's the state of well well, well,
Speaker 1: so in terms of um urban markets, just starting with
Speaker 1: New York first, since some base there, uh here we
Speaker 1: have and this sort of speaks for what we're seeing
Speaker 1: across the US. You're looking at a city like New
Speaker 1: York and the office towers are two thirds empty right now.
Speaker 1: Yet Ino we've had some of the highest sales volumes
Speaker 1: in history. We've had record pricing in the rental market.
Speaker 1: We've had some of the highest new leasing activity in history,
Speaker 1: and we're having record rents. So people being in the
Speaker 1: city again to this sort of tether between work at home,
Speaker 1: it's you know, you have empty office because of remote
Speaker 1: but people are in the still in the city or
Speaker 1: want to be in the city, So it is um.
Speaker 1: This is uh. There is a white paper in the
Speaker 1: source escapes me from NBR talking about price growth is
Speaker 1: related during the pandemic era, is related to remote work
Speaker 1: in the churn that it has created. UM. And there's
Speaker 1: a bigness nomer. You know, there has to be another
Speaker 1: reason why people are in these urban coming back to
Speaker 1: these urban markets. And I think part of it is
Speaker 1: just what the cities have to offer and what um,
Speaker 1: you know, the cultural activity. I'm not working for the
Speaker 1: trade that the tourism bureau, but you know, there's other
Speaker 1: reasons people are in the city, you know, lifestyle or
Speaker 1: whatever broker term you want to call it. UM. And
Speaker 1: this is being borne out in the fact that office
Speaker 1: towers and two thirds empty still That almost sounds like
Speaker 1: a problem that solves itself. And my frame of reference
Speaker 1: was after September eleven, two and one, many of the
Speaker 1: office towers in Lower Manhattan either were converted to residential
Speaker 1: or partially converted to hotels and residential. How realistic is it?
Speaker 1: And and you know, I'm glad I wasn't an investor
Speaker 1: in Hudson Yards that came online just as demand for
Speaker 1: office space went through the floor. But how realistic is
Speaker 1: it to convert offices to to residential real estate? And
Speaker 1: and let me point out when I was in grad
Speaker 1: school and for about a decade afterwards, I lived at
Speaker 1: ninety Lexington Avenue that originally was a Blue Cross Blue
Speaker 1: Shield building that was converted to residential like a few
Speaker 1: decades before I got there, and a decade after I
Speaker 1: left it it went condo. So I know it's doable.
Speaker 1: How realistic is it? Uh, It's not very realistic at
Speaker 1: all in terms of scale. Uh. And the reason there's
Speaker 1: a couple of reasons for it. One the financial districts
Speaker 1: Uh conversion frenzy that was mostly Class B office older
Speaker 1: almost laugh like a lot of the development that I'm
Speaker 1: familiar with Class A. Yeah. So the way I look
Speaker 1: at it is um when you So there's a couple
Speaker 1: of things. One is time, so a lot of the conversion. Listen,
Speaker 1: there there will be some conversion. I'm saying there won't,
Speaker 1: but I think nowhere near on the scale of what
Speaker 1: could be. Uh, you know, the sort of the the
Speaker 1: opening question in this discussion is what are we gonna
Speaker 1: do with all these you know, empty offices. Well, part
Speaker 1: of what you're gonna do is you're going to drop
Speaker 1: the rents um but somewhat you know, in theory, except
Speaker 1: for that you've got them financed and this is a
Speaker 1: collateral right and all of a sudden, you know, the
Speaker 1: cash flow as much as half or you know, a
Speaker 1: third of what it was precandemic. UM. You also have uh,
Speaker 1: you know, converting these buildings to red to have residential
Speaker 1: certificate of occupancies is tremendously expensive. And the third is
Speaker 1: community approvals zoning approvals UM, which is a long process.
Speaker 1: I'm not saying it can't be done, but who knows
Speaker 1: what the conditions are going to be like five years
Speaker 1: from now. Um. One of the things we're seeing is, uh,
Speaker 1: we're seeing a tremendous amount of uh, you know, well
Speaker 1: obviously vacancy, but also concessions because landlords some aren't feeling
Speaker 1: the pain because you know, say eight of the leases
Speaker 1: in the building have you know, five or more years
Speaker 1: remaining on them. So uh, you know, if if if
Speaker 1: there's if there's still an occupancy, the business hasn't gone under.
Speaker 1: They're still paying their rent and they're paying sort of
Speaker 1: pre pandemic levels. Um. What we're seeing a tremendous amount
Speaker 1: of in the commercial world is that leasing on a
Speaker 1: per square foot basis. Everybody talks about sort of the
Speaker 1: asking rent, and when you look at all the reports
Speaker 1: on the state of the office market in cities, uh,
Speaker 1: they never talked about like the net effective you know,
Speaker 1: less the free rent and the build build outs and
Speaker 1: all those expenses you know, which you know in reality
Speaker 1: many land larger seeing thirty to fift hits at least
Speaker 1: in my you know, in my through my optics, um,
Speaker 1: which is not an inconsequential amount. Um. And so I
Speaker 1: think the asset that gets holding the bag on the
Speaker 1: post pandemic world is really, um, you know, the commercial sector.
Speaker 1: To a lesser degree, the retail sector, uh, which is
Speaker 1: you know, gets its oxygen, especially in central business districts
Speaker 1: from commercial office buildings. So you know, we're in, we
Speaker 1: still are in you know, three to five years of
Speaker 1: sort of figuring this out. This is this is a
Speaker 1: slow motion train wreck. Um. You know I mentioned the
Speaker 1: sun Belt earlier, where wherever I look, um, where the
Speaker 1: weather is warmer and the taxes are lower, and that
Speaker 1: could be places like Austin or Nashville or southern Florida.
Speaker 1: It seems they've been a magnet for people leaving either
Speaker 1: cold weather or higher tax state or or just sort
Speaker 1: of you know, retiring what's going on in the sun
Speaker 1: Belt and and and what does that look like going forward? Well,
Speaker 1: I cover almost two dozen housing markets in Florida, for example,
Speaker 1: And uh, what's interesting about a lot of these markets
Speaker 1: is just like you say, they're coming there for lower
Speaker 1: taxics bosure, but also these areas are aggressively going after
Speaker 1: the c suite of companies to relocate in these places
Speaker 1: for the tax credits UM and the weather and all
Speaker 1: that sort of thing, and have been relatively successful. I
Speaker 1: think initially after the the lockdown, you know where when
Speaker 1: you lines screamed in like to your earlier point about
Speaker 1: New York City is dead forever, you felt like by
Speaker 1: the end of that there's going to be eleven people
Speaker 1: left in New York City. You know that everybody was leaving. Um.
Speaker 1: But what we're finding is that the people that have
Speaker 1: left have been fairly quickly replaced. But we're still you know,
Speaker 1: net net losing population markets like Florida or Texas. Those
Speaker 1: housing markets are being restructured essentially because of remote and
Speaker 1: what we're seeing for the first time really is we're
Speaker 1: seeing um uh you know. The sort of the story
Speaker 1: was that the affluent you know, the wall streets that
Speaker 1: would um, you know, buy a second home somewhere, they
Speaker 1: would buy in Florida, they buy Palm Beach and Miami.
Speaker 1: And now we're seeing luxury or high end real estate
Speaker 1: statewide all over the place, like you know, and that's
Speaker 1: a sign of sort of structural I don't know if
Speaker 1: the word is dispersion, but it's just spreading out because
Speaker 1: the because the regional economy you know, has quickly adapted
Speaker 1: to um, you know, to this inbound cohort of the population.
Speaker 1: That this isn't a boom and bus cycle for Florida. UM. Sure,
Speaker 1: their market will slow down because of the spike and
Speaker 1: reals in interest rates. UM, but this is I don't
Speaker 1: think this is a flash in the pan. I think
Speaker 1: this is real because of every seemingly every part of
Speaker 1: Florida is expanding. So it's a secular trend, not a
Speaker 1: temporary issue. Let me let me ask you about California.
Speaker 1: I always thought California was a wonderland. The last few
Speaker 1: times I've been there. I've been kind of surprised at
Speaker 1: you know, you drive to Lahoya from San Diego. There
Speaker 1: used to be a lot of open space between the
Speaker 1: two and and now it seems like every ridge has
Speaker 1: a house on it, every every hill, every mountain. You know,
Speaker 1: it really seems like it really seems like they've wildly built,
Speaker 1: maybe even overbuilt parts of Southern California. What are you
Speaker 1: seeing in that that region, well, well southern California of
Speaker 1: all the regions that I cover. Uh, you know, the
Speaker 1: average market and this is a little dated now where
Speaker 1: it will be coming out with a second quarter in
Speaker 1: a couple of weeks, but the first quarter data was
Speaker 1: showing that on average, UM, about six of the transactions
Speaker 1: from Los Angeles down to San Diego. Uh, we're selling
Speaker 1: above the last asking price, like a tremendous demand above
Speaker 1: asked So our proxy forbidding wars is a purchase price
Speaker 1: that closed higher than the last asking price. UM, it's
Speaker 1: about two thirds of the transactions and in some sub
Speaker 1: markets that's UM we're not seeing that intensity now, but
Speaker 1: but still there's a significant in balance between supply and demand.
Speaker 1: Work demand is still overpowering UM. There has been a
Speaker 1: tremendous outbound uh migration into low tax states like Texas.
Speaker 1: But you know, at least in the housing market there's
Speaker 1: still it's still extremely tight. UM. The thing about California,
Speaker 1: they're going through a lot of problems draft and wildfires,
Speaker 1: you know, partly from overbuilding and are encroaching on woodlands,
Speaker 1: so it seems more tenuous, but it is still highly popular.
Speaker 1: Tremendous amount of demand at least in southern California that
Speaker 1: we're seeing. Um. But even in southern California, just like Florida, Uh,
Speaker 1: you know, you're seeing with the rise and raids, you're
Speaker 1: seeing a pullback in the intensity of contract volume. Really
Speaker 1: quite interesting. You're listening to Masters in Business on Bloomberg Radio.
Speaker 1: My extra special guest today is Jonathan Miller. He is
Speaker 1: the CEO and co founder of Miller Samuel, a real
Speaker 1: estate appraisal and consulting firm. His analytics power UH some
Speaker 1: of the most influential real estate agencies, back offices and
Speaker 1: back ends. He is also a professor at the Graduate
Speaker 1: School at Columbia University and additionally sits on the Mayor's
Speaker 1: at Economic Advisory Panel and the New York State Budget
Speaker 1: Division Economic Advisory Board. So let's talk a little bit
Speaker 1: about the the appraisal business. It has dramatically changed since
Speaker 1: the Great Financial Crisis and the mortgage boom and bust
Speaker 1: of the two thousands. Tell us what's going on in
Speaker 1: the world of real estate appraisals. Sure, so you have
Speaker 1: this uh sort of butting heads between human beings and uh,
Speaker 1: you know, uh we call them a v MS automatee
Speaker 1: evaluation models or press a button and you get a
Speaker 1: a number of value for the house. UM sort of
Speaker 1: the poster child for this. And if you don't mind
Speaker 1: me talking about this estamate real quick, sure, just to
Speaker 1: understand sort of the disparity between automation automating numbers and
Speaker 1: housing and how dirty the data is UM and human beings. So,
Speaker 1: if you look at the zestimate nationwide, the nationwide accuracy
Speaker 1: rate that let me clarify, the median accuracy rate of
Speaker 1: as estimate is two. So that means that fifty of
Speaker 1: the time the z estimate is within two percent of
Speaker 1: the actual value, and fifty at the time it's not.
Speaker 1: Now the consumer just sees, hey, two percent, it's within
Speaker 1: two percent. That's pretty accurate, But it's only fifty percent
Speaker 1: of the time it's within two UM. But it gets
Speaker 1: if you dig a little bit deeper. UM, it's only
Speaker 1: within two percent of the property is currently listed for sale.
Speaker 1: If it's not listed for sale as estimate, median accuracy
Speaker 1: rate is seven percent in the US, so that means
Speaker 1: that's seven percent at the time it's within seven If
Speaker 1: it's not listed, it's within what it will sell for
Speaker 1: within seven percent and five two percent of the time
Speaker 1: it's not. So In other words, this estimate needs human
Speaker 1: beings to price the listing to shave off five and accuracy. Listen,
Speaker 1: I'm not saying as human beings like appraisers or brokers
Speaker 1: don't have our flaws. But it is kind of interesting
Speaker 1: that it's been brilliantly marketed, yet it's wildly unreliable and
Speaker 1: half the time it works every time, exactly, I think,
Speaker 1: well percent of the time half the time that works
Speaker 1: every time. But but I but I look at that
Speaker 1: and and you know, it's sort of overpromising and under delivering.
Speaker 1: Because public record, the quality of public record across the
Speaker 1: the US is incredibly varied by municipality, by county. You know,
Speaker 1: however you want to break it out, UM, and they're
Speaker 1: they're they're largely reliant on that, and just a few
Speaker 1: years ago they started ah significantly waiting um the list price.
Speaker 1: So if you you know, house is worth a million
Speaker 1: five according to this estimate, you put it on for
Speaker 1: two The next day the estimate is too and then
Speaker 1: it doesn't sell and you take it off. This estimate
Speaker 1: goes down to a million and a half the next day.
Speaker 1: What is that like? That is? I don't And so
Speaker 1: any time I see a news story that relies on
Speaker 1: zestimate related information, to me, it's problematic because it's not
Speaker 1: what it is. It's certainly fun to poke around and
Speaker 1: look at stuff, but it's not necessarily it doesn't have
Speaker 1: the precision that has been brilliantly conveyed in their marketing. Well,
Speaker 1: obviously Zillo didn't do well trying to build a home
Speaker 1: flipping business relying on their own home. Yeah, they took
Speaker 1: a giant right on that. Yeah, the Zelo offers uh uh,
Speaker 1: you know that broke And I think the same goes
Speaker 1: for um, you know, the ie buyer, the Internet buyer
Speaker 1: subset um, where you know, there's this automation promise UM,
Speaker 1: and there's some validity to it I'm not saying that,
Speaker 1: but you've got the impression initially that that was going
Speaker 1: to just take over the entire market, and now it's
Speaker 1: something like one of transactions. It's a very small number.
Speaker 1: Uh and in a declining market. They haven't really been tested. Um,
Speaker 1: they've only existed in rising housing markets, flats arising. So
Speaker 1: it's going to be an interesting few years to see
Speaker 1: how they do huh, really really intriguing. I'm kind of surprised,
Speaker 1: um that they didn't do better, because you would have thought, hey,
Speaker 1: forget the what we're sharing publicly, we have our own
Speaker 1: internal net tricks. Let's let's see how we can use that.
Speaker 1: And it turns out they were just relying on everybody else. Uh,
Speaker 1: you know, everybody the same date to everybody else saw
Speaker 1: and it didn't really work out. No, no, it didn't.
Speaker 1: And I think it also says something about there's just
Speaker 1: too many people in the space. Uh. And so I
Speaker 1: think there's gonna be some compression in participation just because
Speaker 1: the scale of investment is so enormous, the stakes are
Speaker 1: so high. Um. Yeah, I wish so well. I just
Speaker 1: I think it's it's been a little bit over over hyped. Um.
Speaker 1: But back to your question, sort of the state of
Speaker 1: the of the appraiser, sort of the appraisal world. Um,
Speaker 1: the you know, we're going through a period. It's it's fascinating. Um.
Speaker 1: You know the appraiser I was told by someone senior
Speaker 1: to me a long time ago. You know, UM doesn't
Speaker 1: have the answer in the transaction has the answer, the
Speaker 1: answer being the price. The brokers have the answer, the
Speaker 1: mortgage company has the answer. The buyer and the seller
Speaker 1: all have the answer because they all have skin in
Speaker 1: the game, right, they're all sort of part Right, everybody's smart.
Speaker 1: They all know what the value is, what the number is.
Speaker 1: And the external third party that doesn't have they get
Speaker 1: paid whether it's high or you know, they're above or
Speaker 1: below or at the the purchase price. UM. Uh, you
Speaker 1: know they and they don't. We don't have as an industry,
Speaker 1: we don't have much representation. Um. In Washington, we're just
Speaker 1: a fraction. There's only about you know, optimistically, there's seventy
Speaker 1: five thousand appraisers in the US versus a million and
Speaker 1: a half real estate agents. So you know, we're vastly outnumbered.
Speaker 1: In lobbying, you might have two lobbyists really of any um,
Speaker 1: you know, UM gravitas in Washington compared to a much
Speaker 1: different world, so we tend to be sort of run over. However,
Speaker 1: our industry also has some real problems where we have
Speaker 1: no diversity UM as an industry. UM the beer of
Speaker 1: Labor Statistics ranks four occupations by diversity, you know, inclusion
Speaker 1: of women and yes, who's dead last in the BLS
Speaker 1: ratings the eppraisal industry, it's it's night white and so
Speaker 1: I'm a middle aged white guy and I'm I'm I'm
Speaker 1: the profile of of the industry. And yet we go
Speaker 1: through periods like re five booms where those of chronic
Speaker 1: shortage and a lot of the problems UH stem from
Speaker 1: primarily UH an organization called the Appraisal Foundation, which I
Speaker 1: have been a pain in the neck for them for
Speaker 1: a few years. You are anticipating a question of mine
Speaker 1: and let me frame this for listeners. So so you
Speaker 1: put out a weekly email that I've been getting for
Speaker 1: a hundred years. It comes out Friday afternoon, and it's
Speaker 1: just a broad overview of the state of the market
Speaker 1: with lots of charts and data, and at the end
Speaker 1: there are a whole bunch of lengths including a bunch
Speaker 1: of real estate links and your links and some more
Speaker 1: interesting odd bowl lengths. But every now and then, it
Speaker 1: seems that you and the UM I keep calling them
Speaker 1: the Appraisal Institute, the Appraisal Foundation. You seem to have
Speaker 1: a beef with the organization that supposedly represents your field.
Speaker 1: Is this the underlying basis of your ongoing UM harassment
Speaker 1: of them for everything from incompetency to I don't know
Speaker 1: if I could say criminality, but you've certainly come pretty
Speaker 1: close to accusing them of that. Yeah, I just think
Speaker 1: it's um. So what the Appression Foundation does is they
Speaker 1: essentially maintain, uh, for lack of about a word, sort
Speaker 1: of the standards that I, as an appraiser to be certified,
Speaker 1: have to adhere to, and that's embedded in states and
Speaker 1: means un territories, fifty five states and territories. And every
Speaker 1: time there's an update, you know that all the fifty
Speaker 1: five states and territories have to update. And they've wildly
Speaker 1: overstepped what I think their charter is. Like, they they
Speaker 1: the diversity thing, I told you, uh, you know they're
Speaker 1: so they hired the head of their new diversity effort
Speaker 1: is a middle aged white guy seems that I have
Speaker 1: a problem with it. And and also, um, they have
Speaker 1: created a essentially UM it's called us PATH. That's our license.
Speaker 1: Are the standards uniform standards of professional appraisal practice that
Speaker 1: we have to follow and sign certifications and our reports
Speaker 1: um to you know, it's a whole idea is to
Speaker 1: protect the public trust. The problem is that it's really
Speaker 1: a sort of an effort. The rules that are are
Speaker 1: our world doesn't change very much, um, and yet this
Speaker 1: is updated every two years and UM. And they what
Speaker 1: they do is they make changes and then they and
Speaker 1: then they embed that into state law and two years
Speaker 1: later they remove those same changes or four years later,
Speaker 1: and and it just kind of goes back and forth.
Speaker 1: And the reason for that is that they can sell
Speaker 1: and charge for classes to maintain your license by providing
Speaker 1: new materials every two years that the praisers have to buy.
Speaker 1: So you can show me that this, you know, year
Speaker 1: two thousand, two thousand to two thousand four, two thousand six,
Speaker 1: two thousand and oh four were the same O two
Speaker 1: and oh six. I mean, is it that metronomic? Are
Speaker 1: they that blatant? Uh? It's it's more through incompetence. So
Speaker 1: I'll give you, I'll give you an idea. So uh,
Speaker 1: they they changed a rule that said if you're intentionally
Speaker 1: or unintentionally misleading, then you violated your license. So in
Speaker 1: other words, if you made a typo, you've basically uh,
Speaker 1: you know, can lose your license. And and uh, they
Speaker 1: don't have counts up until at least you know, lately,
Speaker 1: they don't have lawyers to review this. This is getting
Speaker 1: embedded into fifty states and municiparia that keep saying MUNI
Speaker 1: about territories uh, across the US. And yet uh, there's
Speaker 1: no review of this. It's just a bunch of appraisers
Speaker 1: on a board that sort of say, Hey, wouldn't it
Speaker 1: be nice because I know this because I've been there, Uh,
Speaker 1: would it be nice to just define misleading when definitions
Speaker 1: like that should be done in a court of law,
Speaker 1: interpreting a court a lot, and not just by a
Speaker 1: bunch of appraisers on a board, um the other And
Speaker 1: and so that came, that became challenge because of my writings, um.
Speaker 1: And then there's just an endless example of this. The
Speaker 1: bottom line is that, uh, I'm against anything that damages
Speaker 1: the credibility of appraisers in the public eye, because if
Speaker 1: you don't have that public trust, which is what this
Speaker 1: organization is charter, you know, supposed to maintain UM, then
Speaker 1: you're doing a disservice to everybody in the industry UM
Speaker 1: you know that has a license that you know puts
Speaker 1: their their job on the line every day when they
Speaker 1: do sign off on an appraisal. It's just sort of
Speaker 1: amateur hour. And I'm doing it, and I've I've myself
Speaker 1: and sort of a band of other people I think
Speaker 1: have really created pressure to UM to invoke change, but
Speaker 1: it's slow going, quite quite fascinating. So so let's talk
Speaker 1: a little bit about one of my favorite topics, which
Speaker 1: is a phrase that you coined a couple of years
Speaker 1: ago called aspirational pricing, to tell us about that. Sure,
Speaker 1: it's uh, it's sort of a safety and numbers really
Speaker 1: started seeing this in luxury vacation UH locations where I'll
Speaker 1: just throw out random numb versay, a home luxury at
Speaker 1: home is purchased for five million dollars and they put
Speaker 1: a million into it or two million into it, and
Speaker 1: then they put it on the market for thirty million,
Speaker 1: and and and you're like, okay, well, that's silly, right,
Speaker 1: but but you know, they become a bold faced name
Speaker 1: in on page six on the post, you know, because hey,
Speaker 1: they've got a home on the market for thirty million.
Speaker 1: And then what happens The ten houses in that vicinity
Speaker 1: put their homes on the market for million and none
Speaker 1: of them ever sell because they're not worth that. But
Speaker 1: it's like the safety and numbers and that was quite
Speaker 1: a phenomenon, uh, leading up to the sort of the
Speaker 1: pandemic era. And this is another sort of this is
Speaker 1: a recent development, UM that is starting to starting to
Speaker 1: see uh. And it's like the if we you know,
Speaker 1: for your nationalists, be the Park Avenue, fifth Avenue, Manhattan
Speaker 1: type apartment luxury sort of old world type apartments, and um,
Speaker 1: you have they have boards that approved the buyers and
Speaker 1: uh and and making the numbers up to say, someone
Speaker 1: you know pays ten million dollars for an apartment and uh,
Speaker 1: you know three years ago something in the same line
Speaker 1: sold for fifteen or thirteen, um, and it sold for less,
Speaker 1: and so the board kills the sale because they're not
Speaker 1: happy about the price because it went down. And then
Speaker 1: the seller put you know, puts it back on the
Speaker 1: market and they get another offer of ten million. Department
Speaker 1: has been clearly vetted by the market, and it's the
Speaker 1: board kills that sale. And and I'm aware of a
Speaker 1: handful of those recently. And and that's as operational pricing
Speaker 1: in the context of the the co op board. Because
Speaker 1: they think that they're protecting their you're performing their fiduciary
Speaker 1: duties of protecting the value. However, they can't control the market.
Speaker 1: The market is the market is, you know, as someone
Speaker 1: once said, and um, and what they're actually doing is
Speaker 1: damaging value of you know, they're violating their fiduciary responsibility.
Speaker 1: And I think there's going to be We always see
Speaker 1: this in a in a market that's cooling, We tend
Speaker 1: to see this activity and then we get involved in litigation,
Speaker 1: you know, as an expert, um to to um sort
Speaker 1: of empirically demonstrate this. Just just a reminder that there's
Speaker 1: a special room in hell for anyone who's ever served
Speaker 1: on a condo board or cooper you know, it's they're endless.
Speaker 1: If you're in New York for any length of time,
Speaker 1: and I'm sure other cities have comparable things. There are endless, endless,
Speaker 1: endless stories about UM. The relentless stupidity of the behavior
Speaker 1: of boards. I don't know what it is you put
Speaker 1: six people together in a room involving real estate and
Speaker 1: their average I Q haves. It's it's quite amazing. Um
Speaker 1: that that that's kind of fascinating and related to you know,
Speaker 1: you mentioned old world New York City, Um, Fifth Avenue
Speaker 1: and Park Avenue apartments. Um? Am I stating this wrong?
Speaker 1: Or have you pretty much been into just about every
Speaker 1: penthouse in Manhattan? How how accurate is that statement? I'd
Speaker 1: say I've been in probably nine I mean, I'm I'm
Speaker 1: wild guessing here nine plus percent. The one missing, the
Speaker 1: big one missing from my list is the Pierre Hotel.
Speaker 1: And how so been in the Sherry, Netherlands and about
Speaker 1: most of the penthouses on Central Park South and West.
Speaker 1: That's the one big one that's left over. I came close,
Speaker 1: but it didn't quite make it. And it's it's it's
Speaker 1: always very exciting, um, you know, to see very large space,
Speaker 1: spectacular views. Um. And it's really a mixture of Some
Speaker 1: apartments are in amazing condition and some haven't been renovated
Speaker 1: and you know, multiple decades. But but just being and
Speaker 1: seeing the entirety of it is quite never gets old,
Speaker 1: you know. I can imagine and and do those go
Speaker 1: for market prices or are we still seeing aspirational pricing now?
Speaker 1: They go they go for market Like during this sort
Speaker 1: of five or so years ago sort of peak aspirational pricing,
Speaker 1: there was a penthouse I want to say it was
Speaker 1: you know, I can't recall off and by where it was,
Speaker 1: but it was asking a million, and uh, you know,
Speaker 1: catch a following knife. The price kept dropping and I
Speaker 1: think it's sold for in the forties, all right, but
Speaker 1: you anchored people up at a hundreds, so maybe it
Speaker 1: would have gone for twenty otherwise. Is is that the
Speaker 1: thought process behind this, let's get people anchored higher. I
Speaker 1: think that's the the the the idea. But you know,
Speaker 1: after it's on the market for three or four years,
Speaker 1: I can't imagine that being a uh sort of a
Speaker 1: positive uh positive thought for the owner, um, especially if
Speaker 1: they're barely living in it and they're paying twenty five
Speaker 1: a month in homeowner association piece. You know. So so
Speaker 1: maybe initially that was the strategy, but I find that
Speaker 1: that almost never works. Uh. It just you know empirically that, um,
Speaker 1: the market is not that dumb. Right, So let's talk.
Speaker 1: You and I have talked about one of my favorite
Speaker 1: Zillo tricks. Pick a town, especially higher in town. You
Speaker 1: could do Greenwich, Connecticut, or Santa Barbara, California, or by
Speaker 1: me Sands Point, New York, and uh, you'll get a
Speaker 1: full listing of everything that's for sale. Um. And you
Speaker 1: could then use the Zillo app to sort and I
Speaker 1: always like to sort by. Now, show me the most
Speaker 1: recent listings, and then I scroll all the way down
Speaker 1: to the bottom. And your shocked that this has been
Speaker 1: the hottest housing market certainly since O eight oh nine,
Speaker 1: if not oh six oh seven, if not our lifetimes.
Speaker 1: And it's amazing. There are houses that have been listed
Speaker 1: for sale for three hundred days, five hundred days, fifteen
Speaker 1: hundred days. I mean, is are those homes really for sale?
Speaker 1: If they can't find a buyer after five years, that
Speaker 1: just seems absurd. Yeah, yeah, I mean they are. And
Speaker 1: it's all based on the notion that hey, you know, somebody,
Speaker 1: you know, I get you know, it's sort of like
Speaker 1: I'll get lucky. Uh. Didn't Google have that a search
Speaker 1: button at one time? I don't know it still does?
Speaker 1: You know? Uh? I feel lucky. Yeah, Yeah, it's sort
Speaker 1: of analogous to that. Maybe I don't know, but it is.
Speaker 1: It is amazing. I also think part of that is
Speaker 1: just dirty Zello data, you know that it's just not removed. Um.
Speaker 1: Oh no, a lot of this stuff is. I'm gonna
Speaker 1: disagree with you on that because I sifted through a
Speaker 1: lot of these um most recently. So most recently. Uh,
Speaker 1: this kind of small waterfront um supposed to be on
Speaker 1: an acre and you look at the map and it's like,
Speaker 1: there's no way that's an acre. And they were asking
Speaker 1: nine five, which I thought was insane, when right, you know,
Speaker 1: three houses down. So this is like a three thousand
Speaker 1: square foot UM, one car garage, no basement, waterfront, lovely
Speaker 1: house on a built around a um sort of center courtyard,
Speaker 1: but tiny down just like three or four houses down
Speaker 1: is like a twenty five thousand square foot three acre
Speaker 1: house is half the price. So I called the agent
Speaker 1: and said, I don't understand. I'm not looking at bust
Speaker 1: your chops, but how do you figure nine and a
Speaker 1: half when for four and a half I get four
Speaker 1: times out? Well, you know, the owner is a collector
Speaker 1: of fine arts, and he thinks eventually he'll get his price.
Speaker 1: So now I have to go back through the Zillo
Speaker 1: history and it was originally up for sale for like
Speaker 1: twelve or fourteen, six years ago, off back on for
Speaker 1: eleven and off back on for ten off, And I'm like,
Speaker 1: so this house really isn't for sale. This is just
Speaker 1: someone goofing around. Call me when the call me when
Speaker 1: the estate has to dispose of it, and the market
Speaker 1: will find a real price. Yeah. I mean if if
Speaker 1: you're looking at a listing that in this market that
Speaker 1: you know is a hundred eighty days or older just
Speaker 1: as us, or it's not even serious, right, I mean,
Speaker 1: it's not even Um I had a situation. Um I
Speaker 1: remember this is four or five years ago when Grenwage
Speaker 1: was really a weak market. I may have told you
Speaker 1: the story of the past. And you know, some well
Speaker 1: known financier you know, had a house I'm guessing you
Speaker 1: know was worth six or seven million, put it on
Speaker 1: for fifteen million, no offers. You know, this is that
Speaker 1: aspirational pricing era. Uh, no no activity. And then they
Speaker 1: cut the price to a eleven you know, it's worth
Speaker 1: six or seven probably on a good day, cut it
Speaker 1: to eleven four million dollars and uh, sat on another
Speaker 1: year and no offers, and then they go on stage
Speaker 1: and say you can't give a house away in Grants, Connecticut.
Speaker 1: And it's like, well, you know, that's really not fair
Speaker 1: to Gramwich, Connecticut because you're, you know, your view of
Speaker 1: the value of your property has nothing to do with
Speaker 1: what the market will support. And I find that I
Speaker 1: you know, we would see that all the time, you know,
Speaker 1: where it's like they view the original price as like
Speaker 1: their equity, and then out of the goodness of their heart,
Speaker 1: they're giving away, um, you know, a chunk of it,
Speaker 1: even though you know it's all based on nothing. One
Speaker 1: of the things that I do as a hobby is
Speaker 1: I collect listings I'm sorry, closed sales around the u
Speaker 1: US that sold at or above million dollar. You've had
Speaker 1: a chart of this that you update on a regular basis. Yes, yes,
Speaker 1: And it's sort of a hobby gone wild because in
Speaker 1: two thousand and fourteen, I remember I was approached by
Speaker 1: a homeowner that had a house in California and I
Speaker 1: don't even know what it was probably worth, but you know,
Speaker 1: it was single digit, you know, but a lot of money,
Speaker 1: and they put on the market for like thirty plus
Speaker 1: million and that's when we started to see this sort
Speaker 1: of aspirational prop pricing phenomenon occur. And it never sold.
Speaker 1: And um, I just started tracking them nationwide and not
Speaker 1: listings but just actual sales and U as in one
Speaker 1: was the biggest year by far, and they were well
Speaker 1: over forty transactions in the US residential that whether single
Speaker 1: family condo or co op that sold for UM fifty
Speaker 1: million or higher. And and this is sort of just
Speaker 1: before uh, you know, well up through today. I think
Speaker 1: there's been if you if you were to annualize, you know,
Speaker 1: so optimistically, if you annualize the sales to date, it
Speaker 1: would be the second highest in history. And there was
Speaker 1: just a closing of a hundred seventy five million dollar
Speaker 1: transaction in Florida just this week. Um. And so what
Speaker 1: in two thousand and fourteen was something I would add
Speaker 1: to the list once a month or two months, It
Speaker 1: literally is now once a week. I remember the I
Speaker 1: remember the developer that had created that five hundred million
Speaker 1: dollars spec house in l A, which seemed absurd. He
Speaker 1: filled it with you know, high end sports cars and art,
Speaker 1: and I believe, if I remember correctly, it was ventually
Speaker 1: auctioned off at bankruptcy for about a quarter of that price.
Speaker 1: Yeah about him. I think it was a million five.
Speaker 1: Yeah that was yeah, that was the one. It was
Speaker 1: called the one, and well now you can call it
Speaker 1: the quarter. Yeah, the corn exactly. Uh. But but you know,
Speaker 1: it's funny because it's sort of this circus side show
Speaker 1: for housing, because you know, just like in New York
Speaker 1: there was a two nine million dollar condo, and there
Speaker 1: was a hundred million dollar condo, and at least these
Speaker 1: big numbers and so um. You know, you'd see people
Speaker 1: with modest houses saying, hey, if someone's willing to pay,
Speaker 1: you know, h million for a home, then my home
Speaker 1: has to be worth ten more. And you're like, no,
Speaker 1: it has nothing to do with you. It's a it's
Speaker 1: a circus side show, you know. That's the aspirational pricing
Speaker 1: is great for your realistic neighbors. So the six million
Speaker 1: dollar house that's up for sale for thirty million, Hey,
Speaker 1: if you're two houses down and your house is five,
Speaker 1: you could say, hey, I really am looking for seven.
Speaker 1: Look at that house down the street. It's thirty million.
Speaker 1: Seven is a bargain if you're realistic. Yeah, Well, we
Speaker 1: were having people in Manhattan in a you know, six
Speaker 1: floor tenement walkout. Uh. You know, looking at you see
Speaker 1: you have to walk up six flights of sarious your
Speaker 1: your apartment, you know, much more modest pricing. Uh, making
Speaker 1: comments that, you know, when Michael Bell bought his for
Speaker 1: a little over a hundred million at seven that hey,
Speaker 1: you know mine has to be worth more. And we're like, no,
Speaker 1: it's a different market. It's a different market, has nothing
Speaker 1: to do with you. Plus, he's worth twenty three billion
Speaker 1: dollars and a hundred million is a rounding era to him,
Speaker 1: right right, exactly. People, people forget that. All right, I
Speaker 1: have one curve bawl question for you before we get
Speaker 1: to our favorite question, and that is why does your
Speaker 1: Twitter bio mention that you're a lobster fisherman. Well, let's
Speaker 1: just say I'm kind of hanging onto the past. Um.
Speaker 1: I lived close to Long Island Sound, um, big body
Speaker 1: of water, and when I I'm an empty nest now.
Speaker 1: But I had four sons and we used to drop
Speaker 1: lobster pots and you know, fish for lobster. But I
Speaker 1: only caught We only caught one legal lobster a year.
Speaker 1: Everything else we had to throw back the end to
Speaker 1: be a certain weight, and you know, we had a
Speaker 1: instrument to measure them and um. And I always said
Speaker 1: it was the most expensive lobster caught on the Eastern
Speaker 1: Seaboard every year, because when you add up the cost
Speaker 1: of the boat, the dock, the fuel, the winterization, um.
Speaker 1: The time, uh, you know, and then half the time
Speaker 1: when we caught a legal lobster, I just threw it
Speaker 1: back in cast and release. But it was it was really,
Speaker 1: it was really fun. Um. Uh. They I think they've
Speaker 1: pretty I think they've banned UM. I sold my boat
Speaker 1: two years ago, so we don't lobster fish anymore. But
Speaker 1: I'm very proud that I was once a lobster fisherman,
Speaker 1: even though if you delve in deeper, I wasn't that
Speaker 1: good at it. All Right, let's jump to our favorite
Speaker 1: questions that we ask all of our guests, starting with
Speaker 1: tell us what you're streaming these days? What was keeping
Speaker 1: you entertained during lockdown and beyond? So I'm going to UH.
Speaker 1: I was anticipating this question as I listened to other
Speaker 1: UH interviews, and I'm very sad to say that I
Speaker 1: hardly watch any television and I don't stream anything. My
Speaker 1: wife does. I could answer for her, but I literally
Speaker 1: and I think, I don't know where this came from.
Speaker 1: But my grandfather was a motion picture projections at the
Speaker 1: Town Theater. And my my dad was a latchkey kid
Speaker 1: and watched you know the same movie a hundred times
Speaker 1: only in sections and did his homework with his dad
Speaker 1: and uh, and so as a kid, I we never
Speaker 1: went to movies. Um. And so I'm like, it's funny.
Speaker 1: I'm just I don't know what it is. I guess
Speaker 1: maybe that makes me old fashioned or something. I don't
Speaker 1: know what it is. I just don't care. So I
Speaker 1: became a full blown television idiot during the lockdown, just
Speaker 1: we couldn't go anywhere, we couldn't do anything, and it's
Speaker 1: just stream stream stream, And now I'm trying it's become
Speaker 1: a habitual. And now I'm trying to break that habit
Speaker 1: and uh get out of the house more as the
Speaker 1: world rights up again. But it's a rabbit hole that
Speaker 1: you can use. I just I just like screen time
Speaker 1: for me is I just I try to fight it.
Speaker 1: I'm on my laptop so much, you know, working at
Speaker 1: all that that I try not to um, try not
Speaker 1: to do it. It probably makes me dull and boring,
Speaker 1: but not at all. So so I'm gonna give you
Speaker 1: one streaming recommendation, which is a very broad one. I
Speaker 1: signed up for YouTube Premium, so there's no ads, no commercials.
Speaker 1: YouTube is an endless world of just whatever your favorite
Speaker 1: topic is, There's an infinite amount of it and more
Speaker 1: every day. It's genuinely astonishing, right. I mean, if you
Speaker 1: think HBO or Netflix has a lot of stuff, YouTube
Speaker 1: believes them in the dust. Amazing. Yeah, I I, Um,
Speaker 1: I have Hulu, but I really just use that to watch,
Speaker 1: you know, the occasional sports or whatever. Um. We cut
Speaker 1: the cable connection during the pandemic. Interesting, Um, tell us
Speaker 1: about some of your early mentors who helped to shape
Speaker 1: your career. Uh So, one of them was, um, it
Speaker 1: was a gentleman named John Nelson, who was my first
Speaker 1: job out of college. I worked as a department head
Speaker 1: in a hospital and and he taught me. Um. First
Speaker 1: of all, you know, very organized guy, but he spoke
Speaker 1: very softly. And one of the things I learned when
Speaker 1: you're speaking in public, uh, is that it the less.
Speaker 1: I just found that the audience leans in a little
Speaker 1: bit more when you're not shouting, you're soft spoken. I
Speaker 1: just found bit very It's been very effective for me
Speaker 1: and sort of that's just how I present. And I
Speaker 1: just before that, I always, you know, thought public speaking
Speaker 1: was sort of shouting and you know, really being it's
Speaker 1: if you're slower and delivery in a little bit less um,
Speaker 1: I don't want to say less animated. I just find
Speaker 1: at least in the subject material that I speak with,
Speaker 1: I'm I'm I'm a better presenter than I would be otherwise.
Speaker 1: And so I've always appreciated it was like a subtle thing.
Speaker 1: And I've always appreciated that. Let's talk about books. Tell
Speaker 1: us some of your favorite books, and what are you
Speaker 1: reading right now? So I'm I'm on an auto industry
Speaker 1: kick and uh and so um, partly because my father
Speaker 1: in law, I'm in Detroit. Um, my father in law
Speaker 1: worked for Ford for thirty nine years and like most
Speaker 1: of my wife's family, had some connecttion to the auto industry.
Speaker 1: So I've always been intrigued by it. And I just
Speaker 1: read an amazing book called finns Um and it's it's
Speaker 1: all about Harley Earl, who was essentially the GM uh
Speaker 1: you know sort of yeah, just lad lead the industry
Speaker 1: brought Finns into the mix. And uh. And one thing
Speaker 1: I learned in the book was I didn't didn'tonomy that that.
Speaker 1: You know, the president of GM his last name was Sloan,
Speaker 1: and the second in command was Kettering. And my one
Speaker 1: of my daughter, Dodden Lawyers, works at Sloan Kettering because
Speaker 1: they were sort of behind the that hospital in terms
Speaker 1: of getting it started, is my understanding. And who would
Speaker 1: have thought. I'm reading a book about Detroit auto industry
Speaker 1: and they had this cancer hospital in Manhattan, which is
Speaker 1: sort of, you know, this world class saying. So I
Speaker 1: thought that was really interesting. And then the other thing,
Speaker 1: and I've read like that. I just reread The Reckoning
Speaker 1: by David Halberstan and and and and I just never
Speaker 1: realized how backwards Henry Ford was, uh, you know, beginning
Speaker 1: in from the Depression on, he just built one car.
Speaker 1: You know, the famous saying you can you can have
Speaker 1: any color you want as long as it's black, um.
Speaker 1: All that um. And how the industry really changed and
Speaker 1: Harley Earl really sort of brought it into accessorizing and
Speaker 1: making cars decorative and a sort of a statement of yourself. Um.
Speaker 1: And and that's been my my focus. I've read several
Speaker 1: auto industry books just in the last couple of months,
Speaker 1: just because, Um. I think I was subconsciously because I
Speaker 1: was preparing to go to Detroit and I wanted something
Speaker 1: to talk about with me and loss. You know. The
Speaker 1: funny thing is, I just read the book some seven
Speaker 1: UM trying to remember who who wrote it, but I
Speaker 1: love everything he writes and he talks about. That was
Speaker 1: kind of a myth that it was you can get
Speaker 1: a Model T in any color you want, as long
Speaker 1: as it it's black, um, Bill bright. It turns out
Speaker 1: of if you've got the coupe, you could get in
Speaker 1: this color and the convertible and that color or or
Speaker 1: they were like adding, Yeah, I started. It's like three
Speaker 1: or four colors they started adding, but only after intense
Speaker 1: pressure and shutting the factory down for a year to
Speaker 1: retool for the next Really interesting Yeah, Ford was in
Speaker 1: Ford was in a lot of trouble and and GM
Speaker 1: had really given them a run for the money in
Speaker 1: the twenties, UH by introducing design and new innovations right,
Speaker 1: and a lot of people because of the car itself,
Speaker 1: made fun of ed Salt like what EDEL stood for,
Speaker 1: but exel is really the one that kept are going
Speaker 1: as you know, the father sort of you know, was
Speaker 1: sort of anchored to the past and not such a
Speaker 1: nice guy, um to say the least. But yeah, yeah,
Speaker 1: for sure. Let's talk about advice to a recent college
Speaker 1: grad who was interested in a career in either real
Speaker 1: estate or appraisal. What what sort of advice would you
Speaker 1: give them? Well, uh, I think, you know, in when
Speaker 1: I think of real estate or valuation, I think there's
Speaker 1: a lot more upside in terms of future potential going
Speaker 1: into the commercial side rather than the residential side of
Speaker 1: the of the business. Um, I think there's more opportunity. Um,
Speaker 1: it's a on the residential side. And this is going
Speaker 1: back to my earlier criticism the appraisal foundation. To get
Speaker 1: into residential you essentially have to work for two years
Speaker 1: for nothing or barely anything. You have to hire somebody.
Speaker 1: You have to be hired by somebody is willing to
Speaker 1: mentor you. And the reason why they generally don't is
Speaker 1: because after they teach you everything you know for two years,
Speaker 1: many many times the new person goes out on their
Speaker 1: own right. So there is a UM, it's an industry
Speaker 1: that's aging out and That's part of the reason why
Speaker 1: I'm so emphatically you know, trying to um sort of
Speaker 1: hit a swing a baseball bat against what the Appraisal
Speaker 1: Foundation has done. They've essentially you know, part of the
Speaker 1: problem is this to your mentoring system, which accountants and
Speaker 1: lawyers and like, no one has this. After you take
Speaker 1: your license recensing test, you can function and make a living.
Speaker 1: You don't make as much as somebody with more experience,
Speaker 1: but you let the market sort it out in terms
Speaker 1: of you know, feed for service. In our industry, you
Speaker 1: can't do that. So I wonder if there's a correlation
Speaker 1: between mentoring process and the lack of diversity. If you're
Speaker 1: hiring a friend or a family member, hey, maybe that
Speaker 1: person is less likely to be different than you are. Oh. Absolutely,
Speaker 1: that's a big part of it, And that's part of
Speaker 1: the problem. Uh, you know, it just it just um,
Speaker 1: you know, sort of continues the sort of the composition
Speaker 1: of the industry, which industry desperately needs, you know, new voices. Um.
Speaker 1: So that's why I've been very outspoken about it. Um. So,
Speaker 1: I have four boys. I they're all adult men now,
Speaker 1: and they all are gainfully employed. So I feel like
Speaker 1: we did our job as parents. Um, they're all, you know,
Speaker 1: doing well and all that, But I with my wife
Speaker 1: and I wouldn't let them take over from us because
Speaker 1: I fear for the future. Um of the infloor are
Speaker 1: of the residential industry. Uh And and you know also too,
Speaker 1: I think kids taking over the family business. I feel
Speaker 1: like they need to be out in the world for
Speaker 1: five or seven years, UM, and then come back if
Speaker 1: they really want to come back. But I think that
Speaker 1: that ship has sailed really interesting. And our final question,
Speaker 1: what do you know about the world of real estate
Speaker 1: appraisals market pricing today that you wish you knew way
Speaker 1: back in the nine eighties when you were first launching
Speaker 1: Miller Samuel. Uh So, this is really a a I
Speaker 1: thought a lot about this. UM. People with experience in
Speaker 1: real estate don't know as much about market pricing as
Speaker 1: you think they do. Just because someone is experienced has
Speaker 1: been around a long time doesn't mean they're any better
Speaker 1: than someone that has experience that is a fraction of that.
Speaker 1: And the reason why I say that is there's a
Speaker 1: lot of lethargy where UM, individuals, Hey, I've been doing
Speaker 1: it this way for twenty five years, UM. And As
Speaker 1: it turns out, real estate in the last decade or
Speaker 1: maybe a little bit longer last years, has become a
Speaker 1: lot more volatile. So all the rules of thumb, so
Speaker 1: to speak, that someone you know with my my sort
Speaker 1: of level of experience in terms of you know, time, um,
Speaker 1: is it relevant and uh and so I think I
Speaker 1: think you don't want to have that sort of age
Speaker 1: bias towards you know that youth is is also a
Speaker 1: good source of feedback on market conditions. Huh, really really
Speaker 1: quite interesting. Thank you Jonathan for being so generous with
Speaker 1: your time. That was Jonathan Miller. He is the CEO
Speaker 1: and co founder of Miller Samuel. If you enjoyed this conversation,
Speaker 1: well check out any of the previous four hundred discussions
Speaker 1: we've had over the past oh, I think it's just
Speaker 1: about seven years. You can find those at iTunes, Spotify,
Speaker 1: wherever you get your favorite podcasts. We love your comments,
Speaker 1: feedback and suggestions right to us at m I be
Speaker 1: podcast at Bloomberg dot net. Sign up from my daily
Speaker 1: reading list at Rid Halts dot com. Follow me on
Speaker 1: Twitter at rid Halts. I would be remiss if I
Speaker 1: did not thank the team that helps put this conversation
Speaker 1: together each week. Sebastian Escobar is my audio engineer. Sean
Speaker 1: Russo is my head of research. Attica Valbron is my
Speaker 1: project manager. Paris Wald is my producer. I'm Barry Rihlts.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.