In this 20‑minute monologue, Jason Hartman argues that the only truly reliable real‑estate investment is residential income property because housing satisfies a universal human need—shelter—whereas the major commercial‑real‑estate sub‑classes (office, retail, industrial) are losing relevance. He explains how remote work, offshoring, and the rise of e‑commerce have dramatically reduced demand for office space, citing a Wall Street Journal story about the AT&T tower in St. Louis that fell from a $205 million purchase price in 2006 to a $3.5 million sale. He critiques the common practice of indexing office rents to the Consumer Price Index, calling the CPI a “scam” that understates inflation and erodes yields. He then describes the “retail apocalypse,” attributing it to Amazon’s dominance, and notes that only retail combined with entertainment (e.g., Irvine Spectrum) still thrives. Industrial property is portrayed as weakened by decades of offshoring to China and now Mexico, further diminished by trade policies. After outlining the decline of these commercial assets, Hartman emphasizes that everyone needs a place to live, and that residential income properties are historically the most proven and tax‑favored asset class in the United States. He concludes with a call to visit jasonhartman.com for assistance in building a housing portfolio, leveraging his 20+ years of experience.
Chapters
For the last 20 years, I have been teaching people the very, very big importance of investing in assets that have universal need, things that everybody needs. Now, of course, you've heard it's a cliche from forever ago. What do people need? Food, clothing and shelter. And when you think about commercial properties as an asset class, of course many people have made fortunes in commercial real estate, and commercial real estate as a generic term is a misnomer because there are many sub assets within the commercial real estate class. Are we talking about office space? Are we talking about industrial properties, retail properties, or multifamily properties, which over five units or five and over units would be considered commercial property? And I always say, you know, they can outsource all of the admin jobs, the call centers, the customer service centers, the software development, they can outsource that overseas very easily. So look at all the usual suspects. Tech support, call centers. India, Philippines, Costa Rica, other Central American countries are very popular for outsourcing, that kind of stuff. Admin task, Philippines, India, very popular. All of this offshoring is much more cost effective for employers. So that lessens the need for office space because all of those people would have in the past been in an office, but now they're working either remotely from home or in an office overseas. And of course, you know, it would be crazy not to mention the remote work revolution which really gained a foothold during COVID That is nothing new for me. I've been working remotely since 2012 when we gave up our last office space. My last company gave up our last office space in 2012. I built out seven offices in my career and have a lot of experience with commercial office leases, which by the way are, interestingly, most of them are indexing the rent or the rent increases to the Consumer Price Index. And we all know if you've been listening to this show for any length of time, we all know that the Consumer Price Index is is a complete scam. The CPA is massively understated because mostly due to weighting, substitution and hedonic indexing, which I have explained many times and they have a very good reason to understate the cpi, the Consumer Price Index. So if your rent is indexed only to the CPI as typical office properties are, then you are going to lose yield as time goes on. But that is nothing compared to what is going on in the office market in some cities like San Francisco, New York, but also St. Louis. Look at this. And I am showing this on the screen a piece from the Wall Street Journal, but I'll just Read it to you. It's super short. $3.5 million. $3.5 million. That's less than $4 million the approximate price. The 44 story AT&T tower now empty, recently sold for in downtown St. Louis. In 2006, this same property was purchased for $205 million. Oh my God, that is absolutely insane. Wow. The property was just sold for 3 1/2 million dollars and originally it was purchased in 2006 for $205 million. Wow, what an absolute bloodbath. Can you imagine the owners of that property? Now this is what can happen in various commercial properties because there is no universal need. I just talked about office space, but let's talk about other types of commercial properties. Well, you've all hear phrase the retail apocalypse. Now, the retail apocalypse has largely had its day. It has had its impact. As online shopping became so popular and Amazon took over the world. They put all these small retailers out of business because they just couldn't compete. And Amazon through lots of very predatory business practices, obviously big tech companies, the evils of them, you know, we don't need to go into that. We've discussed it before on prior shows, but they have put it retail out of business. Right. So the only retail that really works anymore is retail with some sort of other draw, usually entertainment, because people still like to go out, they still like to be around other people. And really one of the first big successes with the retail kind of entertainment blend was in my former hometown of Irvine, California in the 90s. The they built a big development called the Irvine Spectrum. And it was an absolutely huge success. The Irvine Spectrum. And it had retail. You could definitely shop there. You could buy clothing, you could buy candles, you could buy, you know, a zillion other things. But it had big emphasis on entertainment. And so the retail entertainment worked and it still works. That formula works for retailers. But we're all familiar with the shopping malls that have gone out of business and trying to reuse those shopping malls and the Sears stores and the Macy's stores that are closing and so on and so forth. Look, let's just review. They can outsource office space to remote work. In other words, just tell everybody to go work at home. They can outsource office space to offshoring, which they've been doing for many years. Tell people, you know, hi. Instead of hiring Americans, hire people in the Philippines or in India or in Central America. All of this lessens the need for office space. Well, what about retail properties? Well, that's been largely outsourced. To the Internet, mostly to Amazon.com huge market share gainer. You know, I mean, I don't have to tell you about Amazon. The story is self evident. Jeff Bezos just became a member of the $200 billion club. Elon Musk, by the way, speaking of him, I just saw an article on Saturday that said he thinks that AI could be as smart as humans next year. Now that's artificial intelligence, right? But there's a bigger leap for AI. So if AI can be smarter than one human, what happens when it gets smarter than the combined brain power of all humans? That's where we're going, folks. Whether we like it or not, the ghost in the machine may take over the world. This may become Terminator 2, right? Anyway, okay, so we've lessened the need for office space. We've lessened the need for retail properties. What about industrial? Well, we're certainly all familiar with offshoring of workers, right? China picked up most of that business for the last couple of decades. But you know, with the trade war and all of this stuff, it's so ironic and ridiculous that so many people accuse Trump of all these bad things in his dealings with China, right? Oh, you're going to alienate our, you know, our trade partners and all of this stuff. Yet Joe Biden has basically continued the exact same Trump era policies, right? It's just absurd, right? You just can't make this stuff up. Anyway, so industrial properties, right? China became the workshop of the world. And a lot of industrial properties, the need for industrial properties, all those workers were overseas now thanks to Bill Clinton selling out America through NAFTA, okay, in the 90s. Now Mexico is really taken a big chunk of China's business and many other countries of course too. So the idea is Americans think they sweat, right? And that's the saying. And that has happened. Now, I don't think that's good. I don't think it's good for the American economy. I think overall you need a good manufacturing base. That's always very important to have a good manufacturing base. But the reality is what it is, right? It's much cheaper to hire these workers overseas and that lessens the need for industrial properties. Now there are many other commercial real estate asset classes as well that we didn't talk about. But those are the three main ones, office, retail and industrial. At the end of the day, everybody needs a place to live. They need a place to sleep and they need a home. They need a roof over their head. And interestingly, they can do some of these jobs from their home. A lot of retail businesses, Amazon sellers, you know, they're working out of their house. And some manufacturing is done in the home too. Small manufacturing. And with the 3D printing revolution coming, it's kind of coming kind of slowly, but it is coming. There will be more of this going on in the house, certainly office work taking place in the house. Don't have to discuss the remote work revolution. We've discussed that ad nauseam. So you've got retail, very light industrial, artisan style, industrial Etsy sellers, et cetera, Amazon sellers taking place in the home. All of this lessens the need for the three major types of commercial real estate assets. So invest in housing. That's the place to be. Housing when it's income. Property specifically is the most historically proven asset class in the entire world and it is the most tax favored asset class in America. Go to jason hartman.com for more on this and let us help you build an awesome income property and housing portfolio. Because that's what we do. I've been in that business for over 20 years now. We've helped thousands and thousands of people do it. So go there and check it out.
