Coffee with Bill: Harnessing Opportunities of Change in the Quest for Excellence

Good morning, good afternoon and good evening. Welcome to my corner of the world where I like to share my perspective about what’s going on in today’s real estate world – the global world, the human race, earth, etc.

It’s meant to be a bit educational, a bit inspirational, a bit occupational.

I’m excited to introduce a new series on the Real Estate Lowdown podcast called Coffee with Bill designed to blend personal reflections with professional insights. You can listen to the podcast that partners this blog post on Apple or Spotify.

It’s the beginning of August in 2024 and today I want to talk a bit about what’s going on in my life and the world. My introspection on personal and global transformations. This is particularly poignant as it intertwines the deeply personal experience of a family adventure with broader discussions on significant political and economic upheavals.

Recently, I had the incredible opportunity to spend 18 days in Europe with my 18-year-old daughter, who is preparing to embark on her college journey. This father-daughter adventure underscored the inevitability and benefits of change.

This father-daughter adventure underscored the inevitability and benefits of change.

You hear me say good morning, good afternoon and good evening a lot.

I believe that to be my new saying, because we are truly a global human race and we communicate with information, videos, audio, words, from around the globe in seconds or minutes. So when I speak and share my views, it is really meant for a global audience.

I consider myself a man of the world in that regard. While I am a citizen of the United States and a proud American and so honored and grateful for the opportunities that I’ve had growing up in middle America in the 1980s and the opportunities I’ve had since then, I also really value humanity on a global scale and appreciate all cultures and new perspectives.

Those of you that are friends of mine know this. You’ve known this to be my way since I could barely rub two nickels together. I wholeheartedly believe in world travel, and just got back from a 18-day trip to Europe with my young adult daughter.  While many folks like to spend money on expensive material things, I like to blow it on travel and food, the kind of stuff that doesn’t sit on a countertop unless it’s in the form of a picture or memory.

And so, that being said, I am also approaching a big change in my life, perhaps another reason for the context of me sharing today being about how change is okay. Change is inevitable.

My daughter just recently turned 18 years old. She’s an adult now. I have two adult step sons, who I raised since they were nine and five, and I consider myself a parent to many children, having coached dozens over the years and mentored many as a guardian ad litem.

So the big change is that my 18-year-old daughter heads off to college in a few weeks and I planned that we would have this father-daughter summer vacation in Europe. So I shut everything off as much as I could. 

For a guy like myself who’s a workaholic, turning on an autoresponder on my email was a very difficult task, because for years I’ve traveled with my family and still check email. I realized that that really didn’t create a lot of authenticity in my desire to be with my family. So I’ve gotten really good in recent years at turning off completely. But the one thing that I always held off until this year was turning an email autoresponder on.

I never really told anyone I was gone because, frankly, I just didn’t want some deal or some opportunity to pass by me if someone got an autoresponder saying he’s out of the country until August 5th.

I’ve always just been such a believer in being open to opportunity and maybe that comes from having lived through multiple real estate cycles, finding opportunity and new beginnings within monumental changes that come my way. I say the word changes but many times I don’t mean change, I mean catastrophe, I mean failure, I mean the death of loved ones.

Now this summer, I’m fortunate not to be celebrating any of those sad affairs. This summer I’m celebrating new beginnings, and that my daughter has graduated high school. She spent four years at Beverly High 90210. It was nothing like the show for her, her but it was nonetheless a great experience.

I’m proud to say, it proved that I’ve raised resilient kids. Biz picked a college to study criminal justice, and I’m so proud of who she is in the world.

There is a little bit of an end in all of this that has brought me some emotion and some tears, and that is the end of being liable, being really legally liable for my children. Unfortunately, I think I’m still financially liable for quite some time.  But I’m not going to complain about it, because if it keeps me close to my kids, then what else could I ask for?

Maybe I haven’t been the best parent, maybe I haven’t taught them complete financial independence or how to balance a checkbook, but my kids are really strong, individual, kind human beings and I’m proud of that.

I know that I’m still their parent and they’ll still come to me for advice, money and whatever, and I’m so proud of the fact that they love me and that they respect me and that they want to spend time with me.

The fact that my 18 year old wanted to spend two weeks with me in Europe, rather than go on the high school trip with friends, which, by the way, was almost the same trip we did, I’m really really lucky in that regard.

And still it’s a huge change coming!

As you know in Europe you can drink legally, so that was probably the best part of the trip for her, being able to order drinks herself, and it was quite the experience being able to wine and dine with her.

We made our way through Northern Italy. A friend of mine has a condo in a town called Campione d’Italia, which is on the shore of Lake Lugano, Italian province in the Swiss Alps. We spent a weekend there.

We drove down to the south of France, my first time in Monte Carlo. We drove on to towns along what they call the Cote d’Azur, the French Riviera. Enjoyed lunch at a Michelin star restaurant on the mountain side, overlooking the Mediterranean. Spent two nights in a town called Saint Paul de Vence, a medieval village that had been transformed into a place for artists and there’s over 100 art galleries, including originals by Marc Chagall. It’s actually the town where Marc Chagall died and is buried.

We drove on to Marseille to watch the US women’s and men’s national teams play soccer at the Olympics in Marseille Stadium. We drove back to Piedmont and drank wines and then, after a few days in the north of Italy, we headed back to Milan, rode the train to Rome. A few nights in Rome was hot as heck and we were sweating the whole time.

I highlight all of this because throughout this period of time, my daughter and I had great food, creating great memories and unforgettable experiences. We argued at times, but we mostly had a really, really pleasant, memorable experience, and she had been to a lot of these places as a young child, but maybe it was different for her experiencing Rome as an adult.

There were times when both of us really got the momentous change that was happening for us – the fact that I am now an empty nester and she’s now got to be an adult. And what does all that mean? You know the gargantuan changes that go on for young adults when they leave the home, whether it’s to go on to college or go on to become an adult, or simply the huge changes that 20-somethings go through.

My 27-year-old son just got out of the army, looking for a career, looking for friends, a new life. What’s he going to do with the rest of his world? My 31-year-old who recently moved here to California as well and got married two years ago. And all of us experienced a huge change in COVID four years ago in life and the world and the way we see the world.

While Elizabeth and I drank our way through Italy, France, and Switzerland, getting really present to all of the changes going on in our personal lives. There were some huge, momentous changes going on in the world around us in that time since we left the US.

Two and a half weeks ago, Joe Biden stepped down as president. A couple days before we left, someone tried to assassinate former President Trump. Kamala Harris stepped up to become the new potential president on the Democratic side, and then Israel and the Middle East flared up.

Israel drew some major blows to leaders of the Palestinian movement and the Hezbollah movement, all of these folks that are tied to Iran, and they did so blatantly in killing one of the leaders of Hamas inside the country of Iran, in Tehran. So, basically, in one fell swoop, escalating the Middle East conflict.

This is kind of ironic because for those that live in Israel, this has been going on for 50 years in some form or fashion.

So let’s talk about financial markets and the changes that are now going on in finance.

If you go back and listen to my podcast episode, Commercial Real Estate Could Trigger Next Economic Recession  with William Erbey, President, Salt Pond Holdings, LLC, Bill Moreland, Partner, BankRegData.com and Chris Whalen, Chairman, Whalen Global Advisors LLC from the June 12, 2024 Win-Win Webinar or any of the interviews that I’ve held or the commentary I’ve made about this, you would hear that I had predicted a shift in markets, that markets are cyclical, and that a change would be coming.

Guess what? It’s here now.

I don’t want to give myself too much credit. It’s not like I called it perfectly, because a broken clock is always right twice a day. So if I continue to call for a change and for a shift in markets for the last 12 months, then eventually I was bound to be right. But it is proof that markets are cyclical, that change is inevitable.

And guess what folks? Change is okay. It’s not only okay, it’s how new opportunities become.  It’s how we get ourselves out of our comfort zone and really open ourselves up to new beginnings. Change is not only inevitable, it’s necessary. It’s necessary to move the needle forward and it’s also okay to not have seen it coming.

Change is a coming and it’s okay. What does that mean?

Well, unfortunately, when we talk about financial markets and when we talk about the coming 6-12 months, we’ve seen a huge volatility increase in the first week of this month of August 2024. Stock markets have seen huge swings. We saw Intel lose 25% of its stock value in one day last week. We saw multiple double-digit loss days in global markets. We saw Japan with their biggest loss ever, and then they recouped the next business trading day. They brought back 50% of the losses that they suffered the previous day, and I will probably predict that we will see more and more of this volatility.

August, September, and October are traditionally the most volatile months in equities markets. Not that I consider myself an equity guru, but we do know that there’s a lot of pain in real estate. There’s a pain in real estate mortgage finance. If you’re someone that is a highly levered investor or someone who’s got any kind of debt you took on, maybe a few years ago that was adjustable – those adjustments are coming.

The change in interest rates from 0% to 5%, from a mathematical perspective, is the largest single movement in the cost of capital in recorded history. If you’re a history buff and you’ve done a little economics research, you may ask, how can that be, Bill? Wasn’t there a time, during the Volcker era, where he raised interest rates like 8% over a few year period?

Yes, that’s true, but when you look at it from a mathematical point of view, moving the cost of capital from 8% to 18% or from 7% to 15% or from 8% to 16%, swings at that level is not nearly as mathematically impactful as a move from 0% to 4% or a move from 0% to 5%, which is the move that we experienced in the last two and a half years.

We still have interest rates on 30-year mortgages in the high sixes and low sevens and that is still, by historical standards, lower than the national average over time.

But to most Americans and to most people who look at those rates today, especially young people who want to buy their first homes now, probably couldn’t do that today. The lending standards have increased so significantly. The cost is so high, not just the cost of real estate but the cost of capital.

It’s okay to not have seen this coming. It’s okay not to know what the future lies in store. But I will promise you this, and it’s meant for the younger generation that thought they knew what was going on. That thought their investments in stocks were going to carry them. That thought this Airbnb thing was really going to work. It’s okay for you to realize that you got it wrong because you just didn’t have the context before.

Over the course of future blog posts and podcasts, I’ll dig a little bit more into what to expect and how to protect yourself for the new era, for this new cost of capital, because a move from 0% to 5% interest rate is basically an infinite rise in the cost of capital from a mathematical perspective and there’s a lot of people hurting.

We just haven’t fully experienced it, but you’re starting to get the glimpse in some of the reporting that’s coming on. Inflation is coming down, but it was already way higher than it reported it to begin with. Unemployment is going to pick up. Companies are going to file bankruptcy. People are going to lose their jobs.

But it’s okay too, because when you stand back and look at a mountain from far away, it’s still a beautiful mountain. That is the mountain of life that we are. That is the world and the society that we live in as global human race. We will figure it out together, but we’re about to go through some rocky roads.

Change is coming.

Stay tuned for more discussions about this – we’re going to talk about ways to invest, ways to look at the world a little different, the types of investments that are speculative versus secure, and how to differentiate a real estate investment that may now be upside down versus a real estate investment that is opportunistic and poised for the new turn in the markets ahead.

Real estate values are going to reset. Asset values of things are going to reset the cost of capital.

A lot of people are begging for an emergency meeting. I don’t think it’s going to happen and it shouldn’t.

Markets need to be cyclical.

Change is coming. It will strengthen the US dollar long term. 

It’s okay to not have seen it coming.

We’re here to navigate it together.

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