WEBVTT - Interview With Jonathan Miller: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.600 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:08.960 --> 0:00:12.319 This week. On the podcast, We're gonna try something a 0:00:12.360 --> 0:00:16.360 little bit different, and I'll explain exactly what that is. 0:00:16.400 --> 0:00:18.599 I brought in a guest who really is kind of 0:00:18.600 --> 0:00:24.040 a Cheaty's and old friends, so experimenting really isn't I'm 0:00:24.040 --> 0:00:26.560 not out on a high wire without a net. I'm 0:00:26.560 --> 0:00:29.960 working with someone I know really well, so it allows 0:00:29.960 --> 0:00:32.879 me a little freedom to try something different. Look, the 0:00:32.880 --> 0:00:36.479 whole idea behind this show, the whole idea behind Masters 0:00:36.520 --> 0:00:40.680 and in Business is that you're eavesdropping on a conversation 0:00:40.800 --> 0:00:45.960 between at least two reasonably intelligent people having a thoughtful 0:00:46.520 --> 0:00:52.280 conversation about issues that are of significance. Ends. What ends 0:00:52.360 --> 0:00:57.279 up happening, partly through my own paranoia and partly through 0:00:57.280 --> 0:01:00.720 a desire to be thorough and prepared, is that we 0:01:00.840 --> 0:01:04.520 create a run of questions in five different segments, and 0:01:04.640 --> 0:01:08.480 each question leads to a different question, and what's supposed 0:01:08.520 --> 0:01:12.640 to be a conversation really becomes a bit of a 0:01:12.720 --> 0:01:15.760 Q and a There are a small handful of you, 0:01:15.959 --> 0:01:18.840 a very small handful of you that I know, deep 0:01:18.880 --> 0:01:21.680 down inside wish that I would just shut the heck 0:01:21.800 --> 0:01:25.640 up and let the guests uh speak and and that 0:01:25.680 --> 0:01:27.840 would be really boring for me to just sit here 0:01:27.840 --> 0:01:30.280 and read a list of questions. So for those of 0:01:30.280 --> 0:01:33.959 you who are hoping this episode is Barry reading questions 0:01:34.040 --> 0:01:37.119 and shutting up, I'm really sorry to disappoint you. In fact, 0:01:38.000 --> 0:01:41.479 this is the opposite. And instead of writing out um, 0:01:41.760 --> 0:01:48.000 normally we do four, six, five, seven, and twelve questions 0:01:48.080 --> 0:01:51.600 for each of the segments, I just have really really 0:01:51.840 --> 0:01:55.360 broad topics and Jonathan and I are by the way, 0:01:55.400 --> 0:01:59.200 my special guest this week is Jonathan Miller of Miller Samuel. 0:01:59.280 --> 0:02:01.600 I know him from mill of matrix is blog as 0:02:01.600 --> 0:02:04.560 well as his podcast. What was that like eight years ago? 0:02:04.640 --> 0:02:08.079 I started three years ago? It seemed much longer. Um 0:02:08.760 --> 0:02:12.079 that's right. Um. So, so this is gonna be a 0:02:12.160 --> 0:02:15.680 little more informal, a little more conversational, and I'm actually 0:02:15.720 --> 0:02:20.480 recording this intro before we do the show, so who 0:02:20.480 --> 0:02:22.600 knows how this is gonna come out, but I wanted 0:02:22.600 --> 0:02:25.160 to try something a little different and let's see how 0:02:25.160 --> 0:02:29.359 it how it rolls, So, with no further ado, here 0:02:29.440 --> 0:02:34.520 is my conversation, and literally my conversation with Jonathan Miller. 0:02:38.560 --> 0:02:42.880 This is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:02:43.440 --> 0:02:46.520 This week on Masters in Business on Bloomberg Radio, my 0:02:46.680 --> 0:02:50.840 special guest is Jonathan Miller of Miller Samuel. Jonathan is 0:02:50.880 --> 0:02:55.840 probably best known to fans of real estate as a 0:02:55.840 --> 0:03:01.440 appraiser extraordinaire. He now really uh special shalizes not only 0:03:01.480 --> 0:03:07.160 in data crunching and looking at the analytics behind real estate, 0:03:07.240 --> 0:03:11.640 both residential and commercial, but also looking at the high 0:03:11.840 --> 0:03:16.040 ends ultra lux real estate here in Manhattan as well 0:03:16.080 --> 0:03:20.280 as around the country. Jonathan, welcome to Bloomberg. Are great 0:03:20.280 --> 0:03:23.080 to be here, Barry. So those of you who are 0:03:23.280 --> 0:03:28.360 real estate fans are certainly familiar with Jonathan's work. He 0:03:28.600 --> 0:03:31.280 is the engine that powers a number of real estate 0:03:31.320 --> 0:03:35.560 companies and agencies companies own. I shouldn't really call it 0:03:35.600 --> 0:03:39.160 internal data, but you're the driver behind some of the 0:03:39.160 --> 0:03:42.560 biggest names in real estate. The glossy brochures they put 0:03:42.560 --> 0:03:44.360 out with all the all the data. That's well, the 0:03:44.440 --> 0:03:48.080 key word there was glossy, I think, but now I uh. 0:03:48.120 --> 0:03:52.080 For twenty two years, my myself and my firm, Miller Samuel, 0:03:52.120 --> 0:03:57.280 we have published or crunch numbers for the big real 0:03:57.400 --> 0:04:01.400 estate brokerage firm in New York called glas Elman Dugan 0:04:01.440 --> 0:04:05.000 Selman is the fourth largest residential real estate company in 0:04:05.040 --> 0:04:10.600 the country after all the big franchises, the cast of characters, uh, 0:04:10.640 --> 0:04:13.600 and the idea behind it is that I can speak 0:04:13.720 --> 0:04:17.120 independently of them. You know that they know that I 0:04:17.200 --> 0:04:20.240 know what I'm talking about, and it's been a great 0:04:20.279 --> 0:04:24.040 relationship for twenty two years. I basically speak in my 0:04:24.080 --> 0:04:26.800 mind about what's happening in the housing market, and they're 0:04:26.839 --> 0:04:29.320 happy to hear the unvarnished truth and let the chips 0:04:29.320 --> 0:04:31.640 full where they make yes. And you would think that 0:04:31.839 --> 0:04:35.080 more companies would be like that because the whole they're 0:04:35.080 --> 0:04:39.160 a transaction based business. So instead of pulling wool over 0:04:39.240 --> 0:04:43.320 somebody's eyes and saying everything is fantastic, you can help 0:04:43.360 --> 0:04:46.320 your client navigate a market that is I'm sure it's 0:04:46.320 --> 0:04:49.640 a lot like the financial markets in that regard of 0:04:49.640 --> 0:04:53.240 of you know, strategies and thinking, and some people do 0:04:53.440 --> 0:04:56.719 very well in down markets. I spent the better part 0:04:56.800 --> 0:05:02.000 of the mid aughts mercilessly mocking the National Association of Realtors, 0:05:02.480 --> 0:05:06.120 better known as n a R, for there always cheerful 0:05:06.240 --> 0:05:09.880 reports and it was just a constant. It's always a 0:05:09.880 --> 0:05:14.080 great still is it less so? But it's still there's 0:05:14.120 --> 0:05:19.040 still a sunny side as the as the the the 0:05:19.080 --> 0:05:26.120 current chief economists nickname Sonny Sonny June, right, is that 0:05:26.200 --> 0:05:31.200 his name, Lauren June. Yes, I recall the infamous UM 0:05:31.360 --> 0:05:33.880 material they put out cold It's always a great time 0:05:34.320 --> 0:05:36.320 to buy or sell a house. And I think all 0:05:36.320 --> 0:05:39.760 of Wall Street laughed at that, because well, look, it's 0:05:39.760 --> 0:05:41.520 either a good time to buy something or a good 0:05:41.520 --> 0:05:43.760 time to sell something. But it can't be a good 0:05:43.760 --> 0:05:46.520 time to buy or sell something unless you're the guy 0:05:46.560 --> 0:05:52.719 getting the commission. So that was that was their reputation. 0:05:53.320 --> 0:05:56.800 You're actually telling us that not every real estate agency 0:05:56.960 --> 0:05:59.840 follows that. Yeah, I mean, you know, they are in 0:05:59.880 --> 0:06:03.400 the selling business and are you know, certainly does a 0:06:03.400 --> 0:06:06.000 lot of good things for their members. I'm sure, but 0:06:06.120 --> 0:06:08.799 it is a trade group, you can mention, I'm sure, 0:06:08.960 --> 0:06:15.200 but I can't really know. But estate, this was I'm 0:06:15.200 --> 0:06:17.920 giving you the benefit of the doubt, right, But but 0:06:17.920 --> 0:06:23.440 but you know, I think the whole idea of UM conveying, Look, 0:06:23.480 --> 0:06:26.839 the consumer has everything in their fingertips, so you could 0:06:26.839 --> 0:06:29.200 search for anything you want on Zelo A Trilia you 0:06:29.240 --> 0:06:32.560 can go to all these websites. You can find a mortgage, 0:06:32.560 --> 0:06:34.800 you could find a house, you could do uh, practically 0:06:34.800 --> 0:06:37.000 a fly through of just about any house. I think. 0:06:37.200 --> 0:06:40.760 I think the larger picture is that the role of 0:06:40.800 --> 0:06:44.720 the real estate brokerage company or agent is no longer 0:06:44.800 --> 0:06:48.159 the gatekeeper. And I think that that's that sentiment or 0:06:48.160 --> 0:06:52.760 mentality that still exists in some some firms that you know, 0:06:52.880 --> 0:06:55.400 we don't we don't want to be completely open because 0:06:55.400 --> 0:06:58.680 we want to control the transaction and U Yet the 0:06:58.760 --> 0:07:03.479 consumer now as access to virtually everything, but they still 0:07:03.520 --> 0:07:07.640 need guidance. What's really amazing is during periods where you 0:07:07.680 --> 0:07:12.640 have significant housing demand tight inventory, you see a lot 0:07:12.680 --> 0:07:15.640 of startups that hey, we're going to replace the broker. 0:07:16.040 --> 0:07:20.040 But the second that the market turns, all those companies 0:07:20.080 --> 0:07:24.200 go under and all of a sudden, everybody needs handholding again. 0:07:24.360 --> 0:07:27.440 So we have this sort of up and down psychle 0:07:27.480 --> 0:07:30.520 that we see as markets go up and down. There 0:07:30.520 --> 0:07:33.280 are some really broad and fascinating questions I want to 0:07:33.320 --> 0:07:36.200 get to in a little while, but before we do 0:07:36.240 --> 0:07:40.720 that multiple listing service was at one point in time 0:07:41.040 --> 0:07:45.720 that gatekeeper that actually had all the data, and it 0:07:45.760 --> 0:07:49.240 was unique to them. But once that went online, and 0:07:49.280 --> 0:07:52.280 not only is it MLS dot for US, it's MLS 0:07:52.360 --> 0:07:55.240 dot l I dot com, but it's whatever your local 0:07:55.520 --> 0:07:57.840 region is and they're hundreds of them, right, hundreds of 0:07:57.920 --> 0:08:01.200 versions of it, and everyone from red fin to Zillo 0:08:01.320 --> 0:08:04.680 to Trulia to you name it seems to pull that 0:08:04.880 --> 0:08:09.080 data into their web page. So it all comes pretty 0:08:09.160 --> 0:08:12.960 much from the same database. But still there are things 0:08:13.000 --> 0:08:16.080 that real estate agents know that you can't get from 0:08:16.120 --> 0:08:19.440 that in terms of what are the schools like. I mean, 0:08:19.480 --> 0:08:21.400 you could look at the ranking, but that's not the 0:08:21.440 --> 0:08:26.200 same as actually knowing unenaghble talking to somebody that has 0:08:26.240 --> 0:08:29.120 experienced in the neighbor and it talks to it. What's interesting, though, 0:08:29.160 --> 0:08:32.240 is there's a study that just came out and it 0:08:32.280 --> 0:08:35.840 was forgive me, I don't recall the three markets they tested, 0:08:36.320 --> 0:08:39.079 but it was a study that just came out recently 0:08:39.920 --> 0:08:43.920 that showed that even MLS data, which is supposed to 0:08:44.000 --> 0:08:49.559 be very clean and neutral UH is biased high. The 0:08:49.880 --> 0:08:54.960 pricing is biased high in other based high with the 0:08:55.040 --> 0:08:58.760 listing prices. And and also you know, if it closes, 0:08:58.800 --> 0:09:03.480 the agent will close the the price and report what 0:09:03.559 --> 0:09:07.040 it is, but that number they found in something like 0:09:07.120 --> 0:09:10.760 eight of the cases was a high number was higher 0:09:10.800 --> 0:09:14.480 than what the actual actual price was. You're listening to 0:09:14.640 --> 0:09:18.200 Masters in Business on Bloomberg Radio. My special guest this 0:09:18.240 --> 0:09:21.360 week is Jonathan Miller of Miller Samuel. He is an 0:09:21.360 --> 0:09:25.600 expert in real estate transactions and appraisals, both here in 0:09:25.720 --> 0:09:29.560 Manhattan and around the country. So, Jonathan, let's talk a 0:09:29.559 --> 0:09:31.840 little bit about some of the new rules that have 0:09:31.920 --> 0:09:35.040 come out over the past couple of months that have 0:09:35.280 --> 0:09:38.320 really caused the stir. The two I'm thinking of, in particular, 0:09:38.840 --> 0:09:43.120 the Consumer Financial Protection Board rules about a waiting period 0:09:43.120 --> 0:09:46.720 on a mortgage were introduced last fall, and that caused 0:09:46.760 --> 0:09:49.960 a lot of rucus. And then just recently, the Treasury 0:09:49.960 --> 0:09:54.520 Department came out with new anti money laundering rules even 0:09:54.559 --> 0:09:58.120 for cash transactions of real estate. Let's let's talk about 0:09:58.360 --> 0:10:01.360 why these rules are here and what impact they're having 0:10:01.920 --> 0:10:07.000 on the housing market. Well, the Treasury rule is a 0:10:07.200 --> 0:10:10.600 temporary rule that is starting March first, and it's supposed 0:10:10.640 --> 0:10:14.520 to last six months. And the idea is or it 0:10:14.640 --> 0:10:19.040 came about from a New York Times front page story 0:10:19.120 --> 0:10:22.240 in early two thousand and fifteen called Towers of Secrecy 0:10:23.000 --> 0:10:26.280 and It was a huge, huge article people hiding money 0:10:26.520 --> 0:10:31.000 correct right, Louise story was I believe it was one 0:10:31.040 --> 0:10:33.600 of the authors at the Times. And it was a 0:10:33.720 --> 0:10:39.800 very well written, big piece with lots of lots of 0:10:39.880 --> 0:10:42.680 data but also lots of visuals on the web and all. 0:10:42.720 --> 0:10:45.680 You know. It was very compelling stuff. And and the 0:10:45.800 --> 0:10:51.720 takeaway was they didn't really link. Uh. It said, yes, 0:10:51.840 --> 0:10:55.920 do people do wealthy people that by high end apartments 0:10:55.960 --> 0:10:59.440 for all cash? Are some of them doing something they 0:10:59.480 --> 0:11:02.839 shouldn't do? And I think the inferred answer is yes. 0:11:02.920 --> 0:11:05.520 And I think any reasonable person would assume that right 0:11:05.640 --> 0:11:08.439 when you say doing something they shouldn't do. So, so 0:11:08.760 --> 0:11:13.040 what an evolent dictator raiding rating their treasury at the 0:11:13.160 --> 0:11:16.640 in the home country and buying a twenty million dollar condo, 0:11:16.840 --> 0:11:20.280 parking it there for a rainy day? Uh, you know, 0:11:21.280 --> 0:11:25.280 a drug deal, some anything elicit where you don't you 0:11:25.280 --> 0:11:28.800 don't want to be traced. So that's the logic. Um, 0:11:28.840 --> 0:11:32.440 the problem is, uh, there wasn't. There's no proof that 0:11:32.480 --> 0:11:36.120 this is a widespread problem. I don't have any personal 0:11:36.160 --> 0:11:39.480 knowledge one way or the other, just basically on the street. 0:11:39.480 --> 0:11:41.960 It's something. It's not something that people just sort of 0:11:41.960 --> 0:11:44.480 brush aside and say let's ignore it. It just isn't 0:11:44.480 --> 0:11:48.079 something that ever comes up in conversations. And so there's 0:11:48.120 --> 0:11:51.800 all kinds of implications or problems with with going this route. 0:11:51.960 --> 0:11:55.400 Um uh in terms of look, if you're if you're 0:11:55.440 --> 0:11:58.400 a billionaire and you're buying a home in Manhattan, a 0:11:58.480 --> 0:12:02.640 pieditear uh for your family. Uh, first you fill out 0:12:02.640 --> 0:12:05.880 a mortgage applicated, right, so so that individual first of 0:12:05.880 --> 0:12:09.280 all doesn't need a mortgage. Secondly, they don't want the 0:12:09.280 --> 0:12:13.000 hassle of that and just and the third is privacy 0:12:13.080 --> 0:12:15.880 or security. You know that they become a target. This 0:12:15.960 --> 0:12:19.560 is a you know, I'm all for transparency up to 0:12:19.559 --> 0:12:22.400 a certain level. But if I recall correctly, the Time 0:12:22.480 --> 0:12:27.600 story had an thing about a number of corporate entities 0:12:27.679 --> 0:12:29.400 and some are here and some are in the camps, 0:12:30.400 --> 0:12:33.520 and they were essentially set up not to hide income 0:12:33.600 --> 0:12:36.000 from the I R s, but for exactly what you're 0:12:36.040 --> 0:12:39.360 talking about, to hide who the owner is, to prevent 0:12:39.640 --> 0:12:43.440 right safety uh, security and secure and and and and 0:12:43.480 --> 0:12:46.200 also to um you know, one of the you know, 0:12:46.240 --> 0:12:50.040 the llc um has been used quite a bit in 0:12:50.040 --> 0:12:52.160 in In fact, I believe the Times article and some 0:12:52.240 --> 0:12:54.240 other things. I've read that at the high end of 0:12:54.240 --> 0:12:58.160 the market, about half of the transactions are LLC have 0:12:58.200 --> 0:13:00.920 an LLC of some form within me, and I've I've 0:13:00.960 --> 0:13:04.719 seen that in other housing markets as well. At the 0:13:04.760 --> 0:13:08.720 high end of the market. Land sales in the Hampton's 0:13:08.760 --> 0:13:13.440 about a third of those last year were either on 0:13:13.480 --> 0:13:15.640 the bye side of the cell side had an LLC 0:13:15.760 --> 0:13:18.640 associated with them. So so let me ask you a 0:13:18.720 --> 0:13:23.200 related question, because you we referred to benevolent dictators. But 0:13:23.200 --> 0:13:27.320 but sometimes it's not such an affaious situation. I'm in 0:13:27.440 --> 0:13:30.720 Vancouver pretty regularly. I speak at a conference there every year, 0:13:30.960 --> 0:13:33.000 or at least I used to until that conference ended. 0:13:33.480 --> 0:13:37.800 And they have what are called see through uh condos 0:13:37.840 --> 0:13:41.000 and see through towers. There are these residential high rises 0:13:41.040 --> 0:13:44.680 their glass they're completely empty. You look, you could literally 0:13:44.720 --> 0:13:46.520 you're on the highway, you drive by, you see right 0:13:46.520 --> 0:13:50.840 through them. But they're fully sold and unoccupied. And I 0:13:50.920 --> 0:13:52.960 asked a couple of real estate people there and they 0:13:52.960 --> 0:13:56.079 all told me the same thing. These are Chinese people 0:13:56.080 --> 0:13:58.640 who still live in China but need to get some 0:13:58.720 --> 0:14:01.120 money out and kind of cree a life raft in 0:14:01.160 --> 0:14:03.880 case you get a little hairy in China in other 0:14:03.920 --> 0:14:07.240 words of yes, it's the same thing, uh, the same 0:14:07.280 --> 0:14:11.120 application we have here. Uh many of the newer, newer 0:14:11.200 --> 0:14:13.480 projects that are being built, especially at the high end 0:14:13.480 --> 0:14:16.720 of the market, are what we call bank safety deposit boxes. 0:14:17.200 --> 0:14:21.040 You put your valuables in there and then you rarely visit, right, 0:14:21.080 --> 0:14:26.200 and so so it's a it's an interesting I think 0:14:26.200 --> 0:14:31.600 that's for nuclear warhouse. But uh, what what's so there's 0:14:31.600 --> 0:14:35.480 so on one hand, there's no there's no evidence that 0:14:35.640 --> 0:14:41.239 it's um that it's a you know, a widespread problem. 0:14:41.320 --> 0:14:44.000 But on the but there's no evidence that it is, 0:14:44.040 --> 0:14:46.200 you know, one or the other. There isn't The problem 0:14:46.240 --> 0:14:48.640 I have with with this as a as a device 0:14:48.800 --> 0:14:52.520 to capture money laundering is that what you end up 0:14:52.560 --> 0:14:57.320 doing is basically throwing a wet blanket over an entire 0:14:57.480 --> 0:15:02.240 real state asset class for perhaps a few bad actors. 0:15:02.560 --> 0:15:05.760 And we don't know if it's two zero, we don't know, 0:15:05.880 --> 0:15:07.760 we don't we don't know what that is. But the 0:15:07.840 --> 0:15:11.520 but the downside to that is this only applies to 0:15:11.640 --> 0:15:14.760 properties three million and above in New York County, in 0:15:14.800 --> 0:15:18.960 Manhattan and one million dollar properties in Miami. The City 0:15:18.960 --> 0:15:22.560 of Miami that's Itami is understandable because also all Miami 0:15:22.680 --> 0:15:25.280 vice drug dealers that was the eighties, right, that was 0:15:25.360 --> 0:15:29.240 that that was that was sort of cocaine cowboys, that 0:15:29.360 --> 0:15:32.440 the whole movie of So so isn't that a little 0:15:32.440 --> 0:15:35.560 odd that it's just two places in the whole country? Right? 0:15:35.680 --> 0:15:39.240 And and so here here you know, the big thing 0:15:39.360 --> 0:15:42.200 that that sort of was a red flag for me 0:15:42.280 --> 0:15:45.480 is that this is only a six month rule. So 0:15:45.680 --> 0:15:48.800 you're encouraging people to not do transactions for six six 0:15:48.840 --> 0:15:51.760 months because all they're gonna do is wait, right, So, 0:15:51.880 --> 0:15:54.760 but you they have the option to renew. If this 0:15:54.920 --> 0:15:58.520 was a widespread, deep problem that the Treasury Department suspected, 0:15:58.720 --> 0:16:00.600 why would it be a six month rule. It would 0:16:00.600 --> 0:16:05.360 be a forever rule. Uh, it's not logical otherwise. So 0:16:05.360 --> 0:16:07.880 so I think because of the sort of political or 0:16:07.920 --> 0:16:12.080 peer pressure um to do something about it. When there 0:16:12.120 --> 0:16:14.280 was this front page New York Time story last year 0:16:14.880 --> 0:16:17.360 and hey, this is low hanging fruit for you know, 0:16:17.440 --> 0:16:20.520 money laundering. Let's you know, let's let's look at this. 0:16:21.120 --> 0:16:23.200 Are you saying this is really in the last minute 0:16:23.240 --> 0:16:25.360 we have in the segment, is this really just an 0:16:25.400 --> 0:16:28.880 optics issue? Looking for a problem or or that's what 0:16:28.960 --> 0:16:31.720 I that's what I believe because of the six month timeline, 0:16:31.720 --> 0:16:34.600 it doesn't make any sense to me. You know, normally, 0:16:34.680 --> 0:16:38.600 my knee jerk reaction isn't to react against regulation. Usually 0:16:38.640 --> 0:16:41.720 when there's regulation, you assume it's there for a good reason. 0:16:41.920 --> 0:16:44.880 You're saying that's not the case. Yeah, that's that's the 0:16:44.920 --> 0:16:47.760 way it looks. And and so what it ends up 0:16:47.760 --> 0:16:50.160 doing is you have a high end housing market that's 0:16:50.200 --> 0:16:54.320 weakening because of overbuilding. Big Bloomberg article last week saying 0:16:54.360 --> 0:16:57.560 that has the uh, the high end luxe market real 0:16:57.680 --> 0:17:02.440 estate peaked, and the article concludes it has I'm Barry Ridhults. 0:17:02.600 --> 0:17:06.200 You're listening to Masters in Business on Bloomberg Radio. My 0:17:06.359 --> 0:17:09.479 special guest this week is Jonathan Miller. He is the 0:17:09.520 --> 0:17:13.679 co founder and CEO of Miller Samuel, a high end 0:17:13.800 --> 0:17:18.159 residential appraisal and data crunching shop. You know, you and 0:17:18.200 --> 0:17:20.480 I have been going back and forth over the years 0:17:20.520 --> 0:17:23.720 about the Case Shiller numbers, which are reported on a 0:17:23.720 --> 0:17:26.440 little bit of a lag, but they're still I think, 0:17:26.520 --> 0:17:30.600 pretty interesting numbers. But they run into the same problem 0:17:30.720 --> 0:17:35.199 that much of residential real estate comes into, which is 0:17:36.000 --> 0:17:40.160 the data ain't all that great. So with Case Schiller, 0:17:40.200 --> 0:17:42.680 it's interesting, Um, I don't know about you, but when 0:17:42.680 --> 0:17:45.000 you get up in the morning, do you take the 0:17:45.200 --> 0:17:47.879 look at the average temperature from six months ago and 0:17:47.920 --> 0:17:49.960 that's what you use as a basis to get dressed. 0:17:50.000 --> 0:17:52.119 I see it was raining six months ago, and then 0:17:52.119 --> 0:17:55.000 I bring an umbrella, right right. So so the problem 0:17:55.000 --> 0:17:58.960 with Case Schiller is it was never designed for consumer consumption. 0:17:59.240 --> 0:18:02.159 It was designed for Wall Street to hedge housing. The 0:18:02.240 --> 0:18:04.879 problem is is that it's a housing is a slow 0:18:05.040 --> 0:18:09.720 moving process. And when you get a number casular number 0:18:09.760 --> 0:18:13.240 released today, the meeting in the minds between buyer and 0:18:13.320 --> 0:18:17.679 seller on that data occurred six months ago, five to 0:18:17.760 --> 0:18:20.600 seven months ago. So let's let's put that into context. 0:18:20.960 --> 0:18:25.400 So data is released on January whatever. So the data 0:18:25.480 --> 0:18:30.400 that came out this month occurred in August before Labor Day. 0:18:30.480 --> 0:18:34.320 So how that's when the transaction took place, which means 0:18:34.359 --> 0:18:37.440 the offer and acceptance and contract was probably a month 0:18:37.520 --> 0:18:40.440 or two before that. So it's really no, no, no, no, 0:18:40.640 --> 0:18:44.120 it's it's that's when the that's when the contract occurred, 0:18:44.920 --> 0:18:48.520 and the transaction was when they would be two months 0:18:48.680 --> 0:18:54.320 three months later. So January we get November data reflecting 0:18:54.320 --> 0:18:58.000 a contract from August something along those lines exactly, except 0:18:58.359 --> 0:19:03.000 that the November data is the average of November, October, 0:19:03.119 --> 0:19:06.440 and September, so it's even more blended. And that's why 0:19:06.440 --> 0:19:08.920 there's really no seasonality that shows up in a Case 0:19:08.960 --> 0:19:12.800 Shiller line to nice Bell curve for the housing crash. 0:19:12.880 --> 0:19:16.439 But that that is sort of one one. It's certainly 0:19:16.920 --> 0:19:19.600 the consumer doesn't understand that as a reason as and 0:19:19.960 --> 0:19:23.359 and I think that the Case Shiller reliance on Case 0:19:23.359 --> 0:19:26.920 Schiller nothing against Robert Chiller, Nobel laureate and all that 0:19:27.560 --> 0:19:31.600 is that it was a reaction to the misinformation or 0:19:31.840 --> 0:19:35.119 spin coming out of U n a R, which was 0:19:35.160 --> 0:19:37.840 sort of the big provider with the existing homesale report 0:19:37.840 --> 0:19:39.920 and all that is still widely published. But it's some 0:19:40.119 --> 0:19:42.639 concerns about that. And by the way, we had Chiller 0:19:42.680 --> 0:19:45.119 on the show and he talked about the thinking behind 0:19:45.640 --> 0:19:49.199 Case Schiller and the report was, hey, how can we 0:19:49.240 --> 0:19:51.640 find a way for people who want to hedge real 0:19:51.720 --> 0:19:55.760 estate exposure to do that? There was no trading, transactionable 0:19:56.440 --> 0:19:58.919 way to do that. The case report and theory was 0:19:58.920 --> 0:20:02.200 supposed to generate that except for you know, these startups 0:20:02.200 --> 0:20:05.720 like Zillo can actually accurately project what the next case 0:20:05.720 --> 0:20:07.600 Shiller number will be within a few tens of a 0:20:07.680 --> 0:20:11.320 point the reverse engineer, so it doesn't matter. The other 0:20:11.440 --> 0:20:15.440 bigger problem I have with Schiller in any price index 0:20:16.280 --> 0:20:20.399 is that, to me, pricing in housing is the is 0:20:20.440 --> 0:20:25.960 the caboose on the transaction train? That is it? What 0:20:26.400 --> 0:20:29.040 matters more? Is it volume? Is it shape? Is it 0:20:29.119 --> 0:20:36.040 amount of cash versus mortgages? It's sales, sales, sales transactions. Uh. 0:20:36.440 --> 0:20:39.879 We found I was with a startup that was going 0:20:39.960 --> 0:20:41.879 to compete with Ki shill Or a while back before 0:20:41.920 --> 0:20:46.600 the stock market crash, and what we found was that 0:20:46.320 --> 0:20:49.399 say that you were, you were an advisor to Radar 0:20:49.480 --> 0:20:54.160 Logic at the time, ended up getting bought by No. Yeah, 0:20:54.160 --> 0:20:56.800 they end up going under. Uh. You were also with 0:20:57.080 --> 0:21:01.520 Truly which on the advisory board Zello Public and that's 0:21:01.520 --> 0:21:04.480 been a home run exactly. But the but the the 0:21:04.520 --> 0:21:07.360 problem with transact or the problem with pricing as a 0:21:07.359 --> 0:21:10.680 as an indicator, is that we found nationally it lags 0:21:11.400 --> 0:21:15.280 the sales activity by twelve to fifteen months. Here's here's 0:21:15.320 --> 0:21:20.120 a perfect scenario, South Florida two thousand five, housing prices 0:21:20.160 --> 0:21:23.080 are going up and at the greater full full theories 0:21:23.119 --> 0:21:27.119 and full play where sales activity is falling because affordability 0:21:27.240 --> 0:21:29.520 is going through the floor and you have fewer and 0:21:29.560 --> 0:21:32.280 fewer people to buy the next flip. And we saw 0:21:32.320 --> 0:21:36.159 that nationally in oh five oh six. Housing peaked in 0:21:36.359 --> 0:21:39.000 volume of oh five, but it didn't peak in price 0:21:39.160 --> 0:21:42.440 until the summer of oh six. So as sales are falling, 0:21:42.920 --> 0:21:46.879 prices are still rising, right, and they don't fall until 0:21:47.160 --> 0:21:49.560 there's no more buyers left that will are the greater 0:21:49.600 --> 0:21:51.960 full right, there's no buyers left that will pay. So 0:21:52.000 --> 0:21:55.280 I feel like emphasis. I'm not saying that you should 0:21:55.280 --> 0:21:59.359 ignore price trends or indexes. That's what people understand. Watch 0:21:59.440 --> 0:22:03.199 volume US. It's a it's ahead of pricing and and 0:22:03.200 --> 0:22:06.119 and the interaction with inventory. So in the last minute 0:22:06.160 --> 0:22:10.040 we have in this this segment we had mentioned previously 0:22:10.119 --> 0:22:13.360 the MLS data was pretty dirty as well. It wasn't 0:22:13.440 --> 0:22:18.399 updated and sometimes it seemed to be misrepresented by agents. 0:22:18.520 --> 0:22:21.800 How significant is that? And what can a buyer do 0:22:22.000 --> 0:22:24.560 to make themselves more So? I think it's less of 0:22:24.600 --> 0:22:28.320 a problem than it appears because it's a random problem. 0:22:28.400 --> 0:22:31.600 In other words, I don't think it impacts trends. I 0:22:31.640 --> 0:22:37.240 think it's it impacts specific references to properties that that 0:22:37.359 --> 0:22:39.920 and of itself is a problem. But from a trend, 0:22:39.960 --> 0:22:42.359 if you're trying to understand whether market is rising or falling, 0:22:42.400 --> 0:22:44.960 I don't I don't think it is. I'm Barry ri Hults. 0:22:44.960 --> 0:22:48.360 You're listening to Masters in Business on Bloomberg Radio. My 0:22:48.480 --> 0:22:51.199 special guest this week is Jonathan Miller, and we have 0:22:51.280 --> 0:22:56.200 been discussing real estate, both the regulatory side of it 0:22:56.280 --> 0:22:59.440 and some of the data reporting problems. Now let's get 0:22:59.440 --> 0:23:05.040 into the stuff. Let's talk about the crazy expense of houses, apartments, 0:23:05.119 --> 0:23:09.679 and various numbers that are just I popp in. I 0:23:09.720 --> 0:23:12.280 know here in Manhattan, there have been a few hundred 0:23:12.280 --> 0:23:14.960 million dollar units. There's a there's a hundred million dollar 0:23:15.119 --> 0:23:18.640 unit that closed. There's Bill Ackman bought a ninety three 0:23:18.680 --> 0:23:21.040 million dollar but he got a deal. That is a deal. 0:23:21.119 --> 0:23:23.399 He got seven million off the hundred Well, no, no, 0:23:23.560 --> 0:23:26.480 it wasn't that. His price per foot was about three 0:23:26.520 --> 0:23:29.720 thousand of foot less than the hundred million dollars sail 0:23:29.880 --> 0:23:32.080 and he's up on like the ninety three or ninety 0:23:32.119 --> 0:23:34.280 four floor. It's a different kind of unit. Have you 0:23:34.320 --> 0:23:36.560 been in that building, that unit, not that unit now, 0:23:36.600 --> 0:23:39.240 but pretty much been in. You and I have talked 0:23:39.240 --> 0:23:43.760 about time. You've been in just about every major house 0:23:43.800 --> 0:23:46.119 in Manhattan. It's like it's like a it's like a 0:23:46.160 --> 0:23:48.280 work bucket list, Like I want to be in the 0:23:48.320 --> 0:23:53.600 Penthouse of you know, the Sherry Netherlands Hotel, or or 0:23:54.200 --> 0:23:57.320 the eight million dollars Sandy Wild or but other than 0:23:57.359 --> 0:24:00.640 a handful of them, you've pretty much walked your way through. Yeah. Yeah, 0:24:00.640 --> 0:24:03.840 I've been in about eight thousand Manhattan apartments in my career, 0:24:04.200 --> 0:24:07.560 which is probably more than I should admit. Um. But 0:24:07.560 --> 0:24:12.360