What Does the Future Hold for Real Estate

We want to make sure we get. But everyone, thank you so much for joining us today. I know our amazing guest, Mr. Neal Balwa doesn't need an introduction because we're all fans and excited to learn from him. But before I kick this off, I just want to introduce myself and my business partner, Sarah. My name is Amy Silvis with Sylvis Capital. I connect people with wonderful investment opportunities in the commercial real estate space. I currently invest in multifamily and now industrial in the southeast and the Midwest. And I'm just delighted to have you here. And as I mentioned, Sarah Sullivan is my amazing business partner. Sarah, would love for you to introduce yourself as well.

Yeah. Hi everyone. Lots of familiar faces. Good to see you all again. So I'm the founder of Sugo Capital and we have 21 now apartment buildings under management and I am solely focused in multifamily. I am a huge fan, but anything that's passive, anything that's passive investing, I'm a huge fan because my core values are freedom of time, freedom of choice, freedom of location, where I live, freedom of when I go on vacation. And that's what multifamily and passive investing has brought to my life. So I'm really happy to do these continuing education time type events with all of you to share what's changed my life, to see how we can improve your life and get you better to the core, you know, closer to the core values for yourself and your family and Neil Bawa. So I believe this is correct, Neil, that you took your original kind of introductory into multifamily syndication from Rementor, is that correct?

I've been to a number of their events, but I wasn't a student. So I've, I've kind of studied a lot of different programs. They're all terrific at what they're doing, but I learned by doing so. In my case, you know, I learned over six years when I was not a real estate guy, I was a technologist. I was, you know, running a tech company with 400 employees. And I learned by tinkering in various ways and blowing things up.

But not blowing up investments.

Hopefully not. Yeah, so haven't done one of those yet. But the goal really has always, always been to continue learning and find uniquenesses, find, you know, find, find things that are not commonly known. And that's why a lot of people bring me in to talk about, you know, real estate and trends and things like that because I tend to obsess over these a great deal. We have, we have a dozen slack channels in my company that are just dedicated to various kinds of research. And so there's. There isn't a single day that goes by, including weekends, when people are not posting content that they found and the conversation gets very interesting and sometimes goes on until 2 o' clock in the morning.

You and Amy have that in common. She's like always researching.

So much fun. Well, I'm going to do Neal's formal introduction. I know it's not necessarily needed, but I think it's important because for anyone who doesn't know Neil and hasn't been exposed to his amazing talks and research, he is the CEO and founder at UGrow and and GrowCapitas, two commercial real estate investment companies. And this goes without saying, but it's worth repeating. Neil's companies are cutting edge. Real estate analytics technology uses cutting edge, excuse me, real estate analytics technology to source and acquire or build large commercial properties across the US for nearly 800 investors. His current portfolio is over 4800 units with assets under management upon completion of over $1 billion. And as we alluded to, I've learned so much from Neil over the years. I think we all have and we are so curious to hear. You may have heard Neil say this. He's never seen or experienced a time like this. So what are we all to think about commercial real estate right now? As passive investors, as active investors? I think a lot of us look to Neal to understand what he's been thinking about. So, Neil, thank you so much for joining us. We really appreciate your time. We know how busy you are and it's really a gift to have you here.

Thank you. I'll give you some yardsticks to think about. Right. So in 2010, when I was making offers on multifamily properties, I was making offers at 45 to $50,000 a door. And you know, today the same property that was making an offer at 55,000 a door is about 220,000 a door. Some are 300,000 a door. So 4 times, 6 times. Obviously, the population of the US hasn't increased by 4x during that decade, and neither has inflation been very high. In fact, with the exception of the last year, inflation has been below the Fed's 2% guideline for nine out of those 10 years. So only the last year it's been above that line. So why these prices have gone up 4x or 5x. Right. So obviously there's a give here. There's a. Okay, does this even make sense? Does it make sense for us to continue going forward with multifamily. And the answer is yes, because we've been lucky. So we've had resets happen. So Covid was a reset. And when that happened, it basically gave us two years of extraordinarily, ridiculously cheap capital. Right. I like to say we basically had free money for about 18 months. And so that massively boosted multifamily because a lot of people that had loans were able to refinance them. Now we have another reset going on which may actually be the best yet. So let me sort of break down some numbers that are not very commonly known, but I think these are very powerful numbers. So very often you hear words in articles which are. A lot of these articles basically are very heavily biased, but they say things like, we are 5 million homes short in this country, or we are 4 million homes short in this country. Right. So very commonly you see that kind of information. The caveat is that that's a. That's only ever half. Correct. We're only 4 or 5 million homes short in this country if we do not have a recession. So demand and supply in the United States are actually dynamic. They go up and down, they shrink, and they grow. So when the economy is at three and a half percent, we have roughly five million homes short. When the economy is in a recession, we're actually down to a million short. And sometimes, depending upon the severity of the recession, we might have no shortage whatsoever. Why? Because household formation in the US Is what really drives shortages. And household formation in the US is dynamic. So you go below 4% unemployment, there's a huge spike in household formation, which we saw in the last 18 months. And that's why that 5 million number sort of is okay Right now, though my personal number is closer to 3 million home short. But then you go into a recession and you have negative household formation. So people go live with, you know, in dad's basement, or they go live in their car, or they go live with their friends. You know, people. But, you know, they kind of, you know, work with their. They live with their friends. All kinds of things happen when you get negative household formation. So you get an increase and a decrease in the shortage of housing in the United States. So that's the first thing that I don't hear enough people say that this is actually a dynamic number. Second, this number is actually shrinking, which is unfortunate, but it is true. And the reason for that is the United States is not producing a lot of babies anymore. So, you know, 2019 was already a bad year for. For new babies to be born. 2020 was pretty disastrous and so is 2021. Now luckily that doesn't actually affect anything over the next three or four years. What the impact usually is of adults because adults are the ones making decisions to buy homes and rent homes and things like that. So in about 15 or 20 years, we expect that number to basically go down to zero. We will have a surplus of shortages of housing in the United states in about 15, 14, maybe even 13 years. So understand that this concept of multifamily is a great place to be in. Housing is a great place to be in, is not forever. I've told people this, that I want to exit every single multifamily asset I have in 10 years, maybe even in eight. Right. So eight, seven to eight years. And what will I be doing then? Well, there'll be another opportunity, right? And it'll come back. These things all go in waves, but I'm not worried about what is going to happen in the next two to three years, three to four years. Because even if the United States doesn't produce a single baby for the year 2023, even if they don't, there's still all Those people that are 8, 17 year old that are going to turn to 18, there's all those 30 year olds that are going to turn 31 and they're all going to need a place to live. So we've got a very robust need for the next 10 years. Now here's the good part of this. Any recession that you look at, and we're certainly going to go into a recession within the next six months. So if you don't believe that we're going to go into a recession in the next six months, maybe we should have that conversation at the end of this. But I believe that there's an extraordinarily high likelihood, 95 plus percent that we're going to go into a recession in the next six months, we may be able to push it out another three months. So it might be nine instead of six. So in a recession, the best thing that could ever happen for multifamily and for any kind of real estate rentals is builders get hit the hardest. So Today in the U.S. home prices have only declined by 2%. 1% was August and 1% was July. Before that, there wasn't a decline in home prices. There was simply a decline in sales volume, which is a precursor to actual decline. So we've had a 2% decline overall in home prices in the US and the vast majority of those have been the top 50 metros, the bubbly metros like Phoenix or Boise, some of these really need to adjust because that's necessary for a CYC to function, for home prices to adjust. It's a good thing, not a bad thing. So you've had a 2% adjustment in home prices. You might be wondering, so does that mean that builders in the United States that were building single family homes, they're building 2% less? No, they're building 32% less. So starts in the United States because of the beginning of the year. What happens with builders is they're building the most expensive product in the marketplace. Right. And as prices start to decline or people start talking about a pricing decline, the people don't want to buy brand new homes anymore because they know that those are the most expensive homes. Just like used cars, a lot of people want to buy used cars during a recession, they don't want to buy new cars. Same thing happens with single family homes. So we've seen a 32% decline with builders. And that 32% happened before the last six weeks of extraordinary increases in interest rates. Right. So we've seen a shocking increase in interest rates. We've now hit 7%. And all of that 32% was pre that. So when interest rates went up to 5.6%, we'd already seen a 32% decline. Now, what does that 32% decline really mean for you as an investor and profits for you? Well, the answer is today it means absolutely nothing. But what it means is that 24 months from now, roughly half a million homes that would have been built don't exist. They're not built. Right. And that half a million homes is a massive increase in future rentals and future occupancy. So half a million roughly is about a 1 1/2% increase in occupancy nationwide for all multifamily. So if you were going to be at 94.5%, well, now we're going to be at 96. One and a half percent is a big, big number. And you might say, why? Well, because once occupancy in the US falls to about 93%, we don't have a lot of pricing power. We're fighting with a bunch of people that are just trying to keep their properties occupied. So we tend not to raise rents much. But the moment we hit 96%, all of us, including me, become very greedy. When our property is 96% occupied, all of us, including Amy and Sarah, guess what they are saying to their asset managers? Raise rents. Your occupancy is too high, right? I want to be at 95%. You're at 96 and a half. Raise your rents. And all of us say that. So when the US hits 96%, we get this crazy increase in rents because every landlord is trying to increase their rents all at the same time. And there's almost a guarantee at this point of time, as guaranteed as a forward looking projection can possibly be, that 18 months from today, the U.S. will be at close to 97% occupancy. Why? Because we're not building those goddamn brand new homes. And it is about to get a lot worse. 32% when we were at five and a half percent. Interest rates. Today, interest rates are close to 7%. The builders sentiment is the lowest it has been since 2008. In fact, it is now lower than it was in 2008, which was a real estate depression. Sentiment matters a lot because builders who are not feeling confident build a lot less. Yesterday I was in Texas, so I had some conversations with builders there, actually with landowners. These are people that basically create parcels and they sell them to builders, the large builders. And they're saying, we think that markets in the U.S. many of the big markets in the U.S. including Texas, are going to see a 60% decline in new starts for single family. 60%. If that happens, I'm projecting that 18 to 24 months from today we will be at 98% occupancy in the United States for all. Multifamily, 98%. What's interesting is you're thinking, but he's not talking about multifamily construction, he's talking about single family. The answer is multifamily is simply a small piece of housing. The larger piece is single family. So single family, if the supply there is going to drop, it is going to have a ridiculously overwhelming effect on the smaller piece, the multifamily piece. And we are absolutely 100% going to see a massive, massive dent in incoming supply for single family. Now let's talk about multifamily. Because loans are more expensive and loans are harder to get, projects don't pencil out or projects that, you know where the construction loan at 4% was fine, 5, 6, 7, some of those might go up to 8 or even 9%. So those projects are not penciling out now. They're not necessarily getting canceled. I haven't seen a lot of cancellations on the multifamily side, but I've seen delays. So projects that were going to be funded this year are delayed next year. So now you have this delay where almost 40% of new multifamily construction is basically seeing a one year pushback. Now what is that? 40% of what? Last year we built 330,000 multifamily units in the United States. So if you take a 40% reduction for a year now, you build another 120,000 unit multifamily whole. So now you're building holds on both sides, 500,000 or more on the single family side, 130,000 on the multifamily side. Truth be told, I think we're building a two year hold on the multifamily side. So it might be 130,000 and 130,000. So now the total hole that we built, and this is a brand new hole that didn't exist at all in 2021. Right. We're not talking about the 5 million shortage that was there. It's not magically going to be solved because we're going to go into a recession. Yes, we will see a decline in household formation as we go into a recession and then it evens out because most of these Federal Reserve driven recessions, that's what we're going into, not a real recession, but a forced one, they tend to be pretty shallow. So you don't get any long term damage to household formation, you get short term damage. So household formation goes down, rents flatten out and then household formation picks up 6, 912 months later when you come out of the recession. But the damage done to supply is permanent because you can't go back into the past just because the economy has recovered and build those homes. So somewhere between 700,000 total units and 800,000 total units will be missing in action in the next 18 months. And that's why I believe it'll be extremely difficult for our multifamily world to have anything under 96, 97% occupancy 18 to 24 months from now. So everything that you're doing today, and you're afraid, I'm afraid because of everything that's happening in the marketplace, you have to look at that 24 month mark and say, I'm going to have this awesome occupancy. Now, if you want proof of that, it's very simple. Go back and look at occupancy in the United States six, nine months ago. So let's say at the beginning of this year it was around 97%, it was the highest ever, breaking records, blah, blah, blah. Even though rents had increased by 10 plus percent in a year, occupancy was an all time high. Why? Because the moment Covid hit in March 2020, builders in the United States cut their forward looking their starts by roughly 35 to 40%. 35 to 40%. Now it was pretty short actually. But once again, remember the 18 month. So if you were not building something in April, May, June of 2020, what's 18 months from there? It's the end of 2021. And didn't you see an all time high in occupancy in the multifamily industry? Eighteen months later, the same thing is now going to repeat. And that's why, even though I'm anxious and that's why I'm worried about the cash flow and the fact that we were going to have less cash flow than ever in the multifamily side, I'm happy because I know that if I can get through the next 18 months, then I come out on the other side and I get a significant, significant profit on the rent side.

So Neil, are you saying that it's actually while everyone's pulling back from being a developer, that it's a good time to jump in and be a developer?

I think so. And anytime supply reduces in a, in a asset class that, you know, has demand and has significant demand, it's a good place to be in. Right. Because people are getting forced out. They don't have enough investors, so they don't have enough equity, they don't have lending relationships, so they're faltering on that side. And then remember all these, I call them taxi driver and IT investors. Right. So you have all these taxi driver investors that are driving an Uber during the day and in the evening they were putting pieces of land on contract and trying to raise money. Well, that game's over. Right? At least it is for the next 18 months because those people don't have a track record. And so people that were willing to give them money, basically gamblers rolling the dice are not going to do that. So those people are backing off. So the taxi driver and IT people, so places like Texas, there's all these IT professionals, nine to five, they work in it. And then the evening, they're basically real estate speculators. All those people are backing off. And Sarah, as those people back off, tens, maybe hundreds of thousands of units don't get billed. So it's a great time to be a developer. I want to point you back to was it a great time to be a developer in 2012, 2013? Absolutely. Because back then you could build an apartment complex at $110,000 a door. Today, that brand new apartment, it's not brand new, but close to new, maybe like 9 years old, would easily sell for about 350,000 a door. So you would have made an absolute killing. Right. When you sell something for 3x, when you include the benefits of leverage, you're making 6x 7x 8x equity multiples. That's what you would have had. But you have to be brave. You have to understand the background of what happens every time the economy goes into a recession. So for me, the Federal Reserve's reset has now given us another five or six amazing years. But we have to suffer through the next 18 months.

Suffer in the form of cash flow.

You mean cash flow, that's really it. We are not seeing any increase. So today delinquencies and defaults in the multifamily industry are practically non existent. They don't exist. And we don't expect that to change. But we do expect to see significant dents in overall cash flow for multifamily investors in the US because you're giving more of that, you know, into your interest payment.

Yeah, we've definitely felt that on a bunch of our properties that either had variable rates, bridge loans or we got them under contract. And then by the time we closed, you know, just in the last four months, things shifted. It's like, well, we can still count on the, the capital gains, it'll still come out well for longer term investors. But for cash flow investors, yeah, it's definitely a shift right now.

It is. And what I would suggest is that, you know, obviously a lot of the people listening here are looking to make multifamily investments. I think February may actually be a good time to make further investments because I believe that prices of multifamily properties are about to adjust again. So we've only had a massive increase in interest rates about six or seven weeks ago. So the market thought that somehow the Fed would hold back. They wouldn't, you know, do a 75 basis point increase, which they just did a couple of weeks ago. So there was this feeling of well, well, the Fed might just settle at two and a half quarter percent, which is where they were now that they've raised the fed funds rate to 3% and they're telling us that they're going to raise it to four and a half. The market, the mortgage market capitulated and mortgage interest rates went up at least by one, one and a half percent. So when that happens, you're going to see some decline in multifamily pricing, that's good. You know, you're buying the dip. They tell you as stock market investors, don't focus on buying the dip. Look at the five year term frame. And it's true. And I say that as well, don't focus on the dips. But you are going to get a dip here, so might as well benefit from it from a pricing perspective.

Yeah. And have you seen also among sellers, those that did make purchases in the last year or two and they didn't expect the rates to go up, but they're on those variable rates. And so it's not just they can't perform cash flow for their investors, but they're actually in a tight pinch and they have to offload like, like they're in a dangerous place and they need to offload. And so maybe there's a lot more motivated sellers out there.

We haven't seen them yet. And I want to just give you some more numbers. Right. So you know, Sarah and Amy and me, we're part of the industry known as the syndication industry, Right. And the largest portion of the syndication industry is in multifamily, even though there's people doing industrial and, you know, other things as well. But the big, big, big chunk is in multifamily. It might surprise you to know, Sarah, that only 5% of all multifamily assets in the United states are syndicated. 95% of the market is individual rich people holding buildings and they usually hold them for very long or institutional buyers that usually hold for 10 years or greater. So of that 5%, we are going to see some distress, but it is not a meaningful number when you look at the overall market. So I don't think it moves the markets. I think that there are going to be people that are going to sell. I don't know if the word distress applies because for distress you really need a 20% reduction in price. They might get 5, 6, 7, 8% reduction in price. So you'll see some sales there that you're going to get a deal there, but nothing of the sort that we saw in 2011-2012-2013-2014. I think that's unlikely to happen.

We also did see a big dip in the beginning of when Covid hit and the shutdown happened. And there were a lot of those individual rich people who'd owned it for long term and then they got scared because a lot of things were actually affecting their net operating income that they were not in control of and they'd owned it a long time and it had been Easy. And then it wasn't easy. And so again, not calling that distress, but it was a very. There was a large pool of motivated sellers and we were able to pick up a bunch at that time at a very reasonable price.

Yeah, I was telling people this is a time to be brave. You basically have money for free. Right. And obviously people were worried about the fact that you basically couldn't collect rent, you couldn't evict people. But beyond the first three months, it became clear that the overwhelming majority of people were paying. And so, yeah, we did the same thing as you guys. You basically did both new construction projects during that timeframe, new construction projects that benefited from these ridiculously low interest rates that we locked in for the construction process. And then we also did a bunch of value adds that we bought and then we waited for about 18 months and sold those assets. Remember this, that if you create supply issues in the marketplace, the price of the asset also goes up. So far I've been talking about the fact that 18 to 24 months from now you can see a significant boost in rent because of lack of supply. But the same lack of supply also increases the price at which you can sell your asset. There's just less assets to sell. There's all these assets that would have existed that don't exist anymore. And that gives you a floor under pricing. We do expect pricing to drop. We are already seeing multifamily prices drop, but I'd say probably dropping 1% a month for the next six months, maybe even one and a half percent a month. That's good. These kinds of adjustments are signs of a functioning market. You know what I'm really afraid of is a single family market because it is so emotion driven. Multifamily is not emotion driven because you mentioned this, Sarah. Right. So you put a property in contract. By the time you closed, the lenders were willing to give you less of a loan. Right. So they basically asked you to put more equity and you raised more equity, you put that equity in. So it's a functioning common sense market where the lenders just backed off and said, you know, we're not going to give you as big of a loan. The problem with single family is it takes a long time for it to adjust. So by now single family should have. Prices should have dropped 12 to 13%, but they've dropped 2% because it's a emotion driven market. It's not underwriting driven. And so I'm a little bit afraid of that market dropping and going further below where it should be. As long as it drops 10%, it's healthy. 15% is okay. If it drops 20%, then that's the point at which multifamily starts to suffer. So look for that. If you start seeing a price from peak for single family that drops more than 20%, it's not good for the multifamily industry because we start to see distress in that market roll over into distress on the multifamily side as well. And you basically just start seeing prices go down for all sorts of assets. So I'm hoping that stops at 10 to 15%.

What I love about that analysis, Neil, is we see so much in the media. Media, they're not real estate experts, they're media and they want to scare people and get an emotional response. So there's a lot of stuff saying like, oh, the real estate market, blah blah, blah. And so I get on the phone with a lot of investors right now and they're like, yeah, but what about the real estate market crash? Yeah, but what about the real estate market crash? And so I hope you guys all crash.

1.9% reduction in prices. Do you know that it actually occurs every year? So last year home prices were going crazy, but There was a 1 1/2% reduction around this time of the year because it's seasonal. Every year home prices actually go down and then they go back up. That's normal. If you look at home prices over the last 10 or 15 years, you'll see that dip every single year. Right? So this happens all the time. There's no crash to speak of. All that's happened is sales volume have fallen. So there's a ridiculously large amount of click baiting going on. And I think the one thing that people don't point out that's holding up the single family market is this, unlike 2007, the investors that have bought single family homes, they don't have these adjustable rate mortgages. So of the homes in the US that are currently owned by investors, less than 1% have arms or adjustable rate mortgages. So they all have fixed mortgages. And a humongous percentage of those investors refinance them. Like me, I refinance all of my single family homes in 2020 and 2021. So they have ridiculously small mortgages. So if it's not selling, a lot of people are just holding. The other thing that's happened is that people do not want to move from their existing property that has a 3% mortgage to a new property that has a 7 and a half percent mortgage. And taxes, property taxes that are 40% higher. So we're seeing sales volume drop. But that's okay. Sales volume has nothing to do with pricing in these kinds of weird environments where everyone's got a really cheap loan. And if they're in places like California, their property taxes also haven't gone up. Now, Texas is more challenging because property taxes have gone up by 20 or 30%. So there's going to be some distress there for people that didn't refinance in the last two years. So there's going to be some subset of people that are going to have to sell their investment properties. But these numbers are very small. So when I look at the media, the first thing I look at it is this is not data driven, this is clickbait driven. They're just trying to get attention. Look at the actual numbers and react to them and then you'll feel empowered. And that doesn't mean that there won't be deals. I think if you wait until March next year, you'll see some very interesting single family deals.

Yeah, exactly. And I think if you have cash, if you hold it, it's going to go drop in value by a larger percent than if you invest in real estate.

Right.

Or other things like the stock market. Take a look at. It's all relative, what your money's making. Right. So there's all that to look at as well.

Yeah. And one thing that most people don't look at is the dollar. Look at what's happened to the dollar. Your value relative to the rest of the world of every dollar you hold has actually gone up by 20% since the beginning of this year. Because as you most everything from Mexico and China and all other places in Asia, our ability to buy has increased spectacularly. So keep in mind that this will not stay this way. The dollar will eventually weaken a year, year and a half from now. So when you're actually purchasing today, you're purchasing at a higher value for each dollar than you would be 12 or 18 months from now when the dollar goes back down.

Almost at parity with the euro. I can't believe what we've seen with the pound, Neil.

Oh, my God. What's happening in the pound is pretty insane. The pound hit 103 for a brief time last week, which was, I was like, I'm going to go out and buy pounds. I'm just going to go to my. Walk over to my bank and buy a pound sterling. And should have done that because it bounced back up to 110, 111 but there was a day when I was talking with my partner about it and saying, let's just go to the bank and convert all of our dollars into pounds. What's happening is pretty crazy. The dollar has become, at this point, the only reserve currency in the world. No one wants to hold sterling, no one wants to hold the euro, and no one wants to hold the yen. And that, if you really understand how the world economy works, is extraordinarily good for asset prices. Because if you are the only currency in the world that anybody wants to hold, it puts a fantastic floor under your asset prices and it basically tanks everyone else's asset prices.

So, Neil, I saw the United nations come out a few days ago begging the United States Federal Reserve to start cutting interest rates, if not end the hike. I know obviously, as you alluded to, we've seen a massive increase in the Fed funds rate in a very short period of time. What do you see in 2023? Do you think the Fed's hand is going to be forced to cut? Do you think we'll hold steady?

So I'll give you two scenarios. So one is that the Fed breaks something in the world economy. I'm seeing more evidence that what our Federal Reserve is doing by raising our interest rates and basically making the dollar very strong is beginning to break things in the world economy now. Things break in the world economy all the time. Sri Lanka basically has now become an impoverished nation. Pakistan, Bangladesh are on the way, Argentina is very close to default. And all of these don't matter. And I hate saying that because obviously there's incredible pain in these countries. But if the Fed breaks a major world economy. So let's say Italy, Ireland, the UK which, I mean, it's shocking for me to even say that the UK could be broken. But if the Fed breaks a major world economy, I think it will have to at that point pull back because that creates contagion in the world markets. And contagion can turn into something really much worse than inflation. But other than that, other than a massive break in a major world economy, a first world economy, a Western economy, I see no reason why the Fed would slow down. I see a lot of these clickbait articles again about we are already in a recession, we're going into a depression. Where is that information? I mean, when I am looking at, at actual raw data, I'm not seeing that information. I'm going to give you an example of just how people spin articles. Right. For whatever political reason. Left. Right. You've heard that Americans are horribly Horribly indebted. They're putting everything on credit cards, right? Who's heard that, right? You've read stuff like that, right? All right, here's the funny thing. The bottom 20% of Americans constitute 4% of the U.S. economy. So I'll say this. And those bottom 4% have become very heavily indebted in the last 12 months. They're putting lots of money on credit cards. Their debt ratios are up. But the remaining 80% of Americans, which are 96% of the economy as of last week, have more money in the bank than they've ever had in history. So while I feel that, I feel terrible about that last 20% of the economy, they are only 4% of the U.S. economy. The other 96% is extraordinarily cash rich. If anyone wants numbers on this, if you actually want charts, feel free, put it in chat. I'll send you a chart. We are extraordinarily cash rich in the United States right now. No one's feeling it. That actually moves the market, right? So that's the first piece of it. The second piece of it is unemployment is not declining. The economy is actually fighting the Fed at an extraordinarily level, just mind boggling level. So when you raise interest rates this fast, and the Fed has raised interest rates at a ridiculous speed, so Normally it takes three years to raise interest rates as much. So from 2015 to 2018, the Fed raised rates by 2.25%, the Fed funds rate. Right. Three years. We've now raised 2.25% in four and a half months. When this happens, you should see the U.S. economy start to react. It's not reacting. We've gone from 3.5% unemployment to 3.7% unemployment. And yes, I'm seeing some signs of future layoffs and things like that, but really everyone expected it to react much faster. So I do not see the Fed slowing. The fundamental US Economy is not the stock market. To be honest, the Fed couldn't care less about the stock market because the stock market represents about 12% of the total activity of the United states. The remaining 88% is Main Street. And Main Street's doing well, with the exception of those bottom 20% who obviously are suffering.

Wow, those are very, really powerful statistics, Neil. I wish more people or God forbid the media talked a bit about that. But I guess good news doesn't always get eyeballs or motivation.

There's no eyeballs. I mean, I hate to say that, you know, I blame the media. So what I'd like to do is that I have a bunch of economists, like actual economists, not people who consider them to be economists. And I go and listen to their presentations, I follow them across the web. One that's very visible is Mark Zandi. So if you go to YouTube, there's a recent, very recent, like one week ago, YouTube, one hour session with Mark Zandi. He's an economist. No, it's Z A N D I Sarah. So Z A N D. I listen to this guy because he doesn't have an ax to grind, right? He's not representing some group. He's basically just saying, here's what the numbers look like. And he's saying, other than the Fed breaking the economy, there's zero reasons for the Fed to slow down because. And again, this is the way things work, right? When we cut interest rates, we cut them too much. When we raise interest rates, we have to raise them too much. We get the economy to the point where it's suffering and then we bring the interest rates down. So the one part that all of these economists keep pointing out is this, that there's investors who now believe that the rates will stay high for two years. There's no evidence that the Fed will ever keep rates high for years on end. The last 61 years, the Federal Reserve has raised interest rates nine times. In the last 61 years. They've had nine hiking cycles. All of those hiking cycles look like this. Sharp up, sharp down. Everyone forgets the sharp down part. Thank you. I think. Looks like in chat you already found the, the Zandi piece. Look at that. When someone is not trying to get clickbait, when he's basically presenting data, you get both sides. And obviously he's not super bullish on the economy. He thinks it will go into a recession. So there's bad stuff there. But you're not getting any of this nonsense leftist or far right clickbait stuff that you see all the time. Unfortunately, I try to stay very far away from it. One suggestion that I had for everyone that really loves to read is allsides.com a l l s I-e s.com so what I do is I remove everyone that is far right or far left from my Flipbook feed. Because what happens is, because I'm saying, you know, I'm interested in real estate, my Flickbook feed will fill up with this nonsense clickbait. So I go to allsides.com and they have a very beautiful chart, a very colorful chart. I remove all the left people, all the right people from the chart because they're the ones that are basically trying to push me in some political direction. And I mostly make sure that my flipboard feed is filled with the people that are in the middle. And then I go into my flipboard and I plug in every economist that I can find. There's about two dozen of them. I plug those economists in. Which means my flipboard feed now actually has good data from people that are just trying to analyze things as opposed to grind some acts.

Right. Super important when you're dealing with money, your own money for everyone here and then other people's money, like we do.

Oh my God, you know, we have $258 million of other people's money that we're managing. And these articles are so crazy that when somebody sells sends them to me, the first thing I do is pop up the all sides chart to see what kind of, you know, organization this is. Yeah. And if, if it's, if it's, you know, not in the middle, I just delete the article because I know it's going to bias me.

Yeah, well, I know we were only scheduled for 30 minutes. It's been 45 minutes. Neil, do you have maybe an extra five to take a question or two or. I don't want to take advantage of your time. Yeah, you're good.

Go ahead, Go ahead.

Fantastic. So, Joe, I know you had a question about build to rent developments. Do you want to, do you want me to read that to you or do you want to say, Come on, audio Joe?

Yeah, well, I mean, my simple question was when you were just describing that early on in your presentation and you were talking about the builders and the impacts to multifamily. And I was just questioning about these build to rent communities and how that weaves into that, you know, prognostic that you were talking through. So we would have seen a sharper decline in starts. But a number of the builders, traditional builders like KB Homes Paltry, are actually pivoting to doing build to rent. So they have all these pieces of land that they've spent the last 18 months and they're doing build to rent projects. So the supply shock is not going to be as bad as it was previously. Now, having said that, there's only a certain number of homes that you can pivot to make it built to rent. If you were planning on building a four bedroom, 2,600 square foot, you cannot convert that into a build to rent because obviously for built to Rent, you're trying to get somewhere between 10001400 square feet. And so they would have to go back and restart the entire design process. So the starter homes that they were planning on building, they've pivoted those to build to rent because built to rent has become hotter since the start of this interest rate hike simply because everyone realizes there's going to be a supply shock. And so they're like, I want to build more of the build to rent pieces as well. So I think it's helpful to think of build to rent as simply a portion of multifamily. We built 330,000 multifamily units not two or three years from now. We might still build 330,000 units, but 130 of those may be build to rent units, but they're generally pretty small. 13, 1200. You know, I build both 1000 square foot build to rent and I also build 1400. I just look at them as multifamily and that's really what you should do. And that's the best way to look at it. It's not a new asset class. It's really multifamily. Got it. Thanks.

Anyone else? Questions? Amazing opportunity to pick the brilliant brain of Neil Bawa.

Yeah, go ahead, Go ahead. You talked about the, you know, looking forward six, six months from now. I don't think you touched, did you touch on the fact that shipping rates have come down and the fact that these supply chain issues are simply going to go away in the next six months because builders are pulling back or pulling the reins on these new developments. They were spending the last year trying to catch up. Unfortunately they caught up when interest rates have spiked. And so there's an oversupply of materials out there. There's going to be a pullback on construction projects. So going looking forward six months ahead, there should be lower materials, lesser supply chain issues and there should be more manpower out there available looking for work because. Very good point, Very good point. Projects. Yeah. So I would like, I actually want to respond to that because this is something I obsess about a great deal. If either Sarah or Amy can give me access to share screen. I wonder if 15 seconds share a site that I obsess about that you've never heard of. No one that's here knows about this site, perhaps not even Amy and Sarah. But I obsess over this site a lot because it allows me to predict the future of inflation and the future of construction costs. The company is called freightos F R E I G G H T o s Freight Freightos. It might actually be Freightos.com you know, operating system. So Let me share with you. This is what my friend is talking about. So this was the buildup in container costs. And container costs peaked here on the 10th of September. So one year ago they peaked at $11,000 a container. And now you see this massive decline, especially in the last three months. So container costs have gone from a peak of 11,000 today or yesterday to $4,060 now. This 4060 is still elevated because as you can see here, construction cost, you still see container costs all the way to the end of 2020 being under $2,000. So we're still at 4, but it's falling at such a rapid rate that once it hits 2000, that will show us that inflation is going to moderate. Right. But keep in mind that inflation is affecting us in many different ways. Everything on this page, nothing on this page has anything to do with wage inflation. The biggest piece of inflation is labor inflation. So simply because construction, you know, container costs are dropping doesn't mean that wage inflation is going to moderate. So my feedback is I'm paying great amount of attention to this. I obsess, obviously, as a, as a developer myself, this is something I care about a great deal. So it's good to see those trends going downwards. But wage inflation will take a lot longer. So it doesn't change my overall analysis that the Fed will keep raising. The Fed is watching this very carefully, trust me. This is a site, they've got data from this site all the time. So Freightos.com is a fantastic indicator of future pricing at Walmart 90 days from today. Neil, do you look at PMI or any other data sites, data sources like pmi, to take a look at that kind of stuff? Problem with the PMI is in the past, our job is really to be predictive in nature. PMI is useful for somebody that wants to write news articles because it shows them what happened in the economy in the last 90 days. Freightos shows me what is going to happen in the next 90 days because it basically is a 90 day cycle to buy a shipping container in China and deliver it to the east or west coast of the United States. So I find that when I look at pmi, it actually biases me.

Well, this has been an absolutely incredible past 51 minutes. Neal, I cannot thank you enough for taking the time out of your busy schedule to join Sarah and I. We have a ton of people that have been watching us on LinkedIn Live. The great thing about LinkedIn is it'll continue to share so other people can continue to benefit from this amazing information. We are so grateful for all of your insight and knowledge. And I don't know about you all, but I feel, you know, I've already felt very confident about the multifamily space, but I feel like all of this knowledge has really empowered me to understand how I can best invest my own money and make really wise decisions in the future moving forward. So, Sarah, do you have any closing comments you'd like to make?

My closing comments are always be data driven in your analysis when making investments, no matter what you're investing in. And like Neil said, be on focused forward looking. So what is predictive? What is data driven? Don't look at the past, don't look at the media, don't look at what people are afraid of. Look at how you can dive in and take advantage of opportunities when other people are afraid.

Absolutely. I feel the same ways. And thank you everyone for listening to me and thank you Amy and Sarah for bringing me on.

Of course.

Thank you.

Thank you. I put your website in the comments. Neil. If there's another way you'd like folks to reach out to you other than growcapitis.com let me know.

No, just Google my name. I happen to be the only Neil Bawa on the world wide web.

That's a plex, the opposite of me.

There's like 5,000 of me.

Thank you all for joining. Have an amazing day.

Thank you, Neil. Thank you. Thank you Amy and Sarah. Thank you.