Monday Morning Quarterback

Written by Lloyd Segal Posted On Monday, 08 August 2022 00:00

State: Alabama
SOLD: 2

Monday Morning Quarterback
(Monday, August 8, 2022)

Its summer and time for kayaking, fishing, and walking on the L.A. River. You won’t think you could do those activities on the L.A. River, but think again! In recent years, the Memorial Day opening of the Los Angeles River Recreation Zones has become an unofficial marker of summer. Folks can walk, fish, birdwatch, and kayak down parts of the Elysian Valley (east of the 5 Freeway), and the Sepulveda Basin (in the west San Fernando Valley). This summer you can also use the new pedestrian and bicycle bridge, Taylor Yard Pedestrian and Bicycle Bridge, which connects the Elysian Valley and Cypress Park neighborhoods. It opened as part of the L.A. River revitalization project in March. Councilmember Mitch O'Farrell says that the river zones aim to connect L.A. residents "back" to the river, which served as "the original foundation of our city." One caveat (if you do venture out kayaking), watch out for the quality of the water. Solar-powered water quality lights stationed at the kayaking entry points show green, yellow and red, warning folks when to avoid the river entirely. Fernando Gomez with the Mountains Recreation and Conservation Authority says as a general rule, people shouldn't touch or drink the water. If water comes in contact with your eyes or mouth, he advises washing it out. But its summer, so let’s get down into the weeds…

Unemployment Falls to Pre-Pandemic Levels. The U.S. added a sizzling 528,000 new jobs in July and the unemployment rate fell to pre-pandemic levels in an amazing muscle-flexing display for our economy. Yet the robust report could add to inflation worries and push interest rates even higher. The increase in hiring blew past Wall Street estimates. Economists polled by The Wall Street Journal had forecast 258,000 new jobs. Hiring was broad-based as businesses created the most new jobs in five months. The number of people working finally returned to February 2020 levels (the last month before the pandemic). The unemployment rate, meanwhile, slipped to 3.5% from 3.6%, Department of Labor reported Friday (matching the lowest level since the late 1960s). The shockingly strong jobs report is likely to persuade the Fed that even tougher medicine is needed, analysts say. The central bank worries the tight labor market is driving wages sharply higher and making it harder to get inflation under control. Although some businesses have cut back on hiring or even resorted to layoffs, many companies are still filling open jobs. Most are offering higher pay for new workers or raising wages for current employees to keep them from leaving. Hourly pay jumped 0.5% in July to $32.27. The increase in pay over the past year was flat at 5.2%, but it’s still one of the fastest increases since the early 1980s. Hotels, bars, restaurants and other companies in the hospitality business added 96,000 jobs, reflecting a busy summer as Americans get out more often. Professional businesses created 89,000 jobs, health-care employment rose by 70,000 and government payrolls increased by 57,000. Manufacturers also added 30,000 jobs while construction firms hired 32,000 people.

California Rents Skyrocket 10%. Blame inflation. Some California landlords can now bump up rent demands by as much as 10%, the maximum annual increase under a law passed three years ago. The tenant protection and rent control law (enacted in 2019) allows landlords to raise rents by 5% annually, plus the rate of inflation in their metropolitan area, with a maximum of a 10% hike. In previous years, the total increase has hovered between 5.7% and 9%. But the 10% limit applies only to complexes built before 2007 and those not subjected to rent-control restrictions, meaning that landlords of buildings that fall outside those parameters can raise their rents even higher. And because inflation is so high across the board right now, every region in the state meets the requirement for the cap to be set at a 10% increase. In Los Angeles however, units built before October 1978 are forbidden from increasing rents until a year after the COVID-19 emergency period is over. The city banned evictions for nonpayment of rent for tenants who have endured financial hardships because of the pandemic, including lost jobs and higher medical bills and child-care costs. But many parts of the rest of the state have no such protections. A 10% rent hike would make up for an increase in expenses in most cases, but not in Los Angeles. Los Angeles extended the eviction moratorium for qualifying tenants through the end of the year.

The SoCal Housing Market is Definitely Cooling. Southern California home prices and sales edged lower in June from the month before, adding to the pile of evidence that the housing slowdown is starting to pull home values lower. The data, released last week by DQNews, mark the first month since January that Southern California’s ultra-competitive housing market saw a decline in the median home price. The median is the price at which half the homes sold for more and half sold for less. The region’s six-county median sale price is now $750,000, down from $760,000 in May. However, a broader view shows that prices are still soaring compared with last June, when the median price was $679,000. Still, the drop comes as no surprise to investors. Although median prices tend to peak in the summer, the average increase from May to June was 1.78% over the last decade. The last time prices fell from May to June was in 2010. Home sales, meanwhile, slipped on a month-over-month basis but plunged compared with a year earlier. A total of 20,289 homes were sold in June compared with 27,143 the previous June — a decline of 25.3%. That follows a slew of other evidence that the housing market has sharply slowed since mortgage rates jumped this year, rising from the low 3% range to the mid-5% range, where they are now. Real estate agents say bidding wars have become less frequent and inventory is rising. A growing share of home sellers are also being forced to lower their asking prices to find a buyer. Redfin indicates that 29.6% of all homes on the market in the Los Angeles metro area had price cuts in June. That’s more than double the 12.6% rate of June 2021 and higher than in dozens of other cities, including San Francisco, Boston, Detroit and St. Louis. As the market becomes less frenetic and more rational, you can expect gradual price declines over the next 12 to 18 months. But before home values truly fall, they must first slow. And that slowdown appears to be starting.

In Los Angeles County, the median sales price was $860,000. That’s 8.9% higher than in June 2021 but unchanged compared with May.
In Orange County, the median sales price was $1.025 million. That’s 2.8% lower than in May.
In Riverside County, the median sales price was $594,500. That’s 0.7% lower than in May.
In San Bernardino County, the median sales price was $517,750. That’s 1% lower than in May.
In San Diego County, the median sales price was $825,000. That’s 2.9% lower than in May.
Ventura County was the only county where prices increased from May to June. The median sales price was $810,000. That’s 2.2% higher than in May.

Store-In-A-Store Concept Part Of Retail's “Grand Experiment.” There’s safety in numbers, as the old adage goes. The concept of banding together to avoid harm is well-worn and logical, which is perhaps why a growing cadre of big-name American retailers are joining forces to better weather an unfavorable economic climate characterized by rapid growth in e-commerce, historic inflation and flagging consumer spending. The most recent example is the move by WHP Global, which owns the Toys R Us brand following the toy giant’s collapse in 2018, to open locations within Macy’s department stores across the U.S. The openings began this month and will continue through October, getting new rows of toy offerings into stores just in time for holiday shopping. The move gives Toys R Us physical stores in prominent locations and diversifies Macy’s offerings by adding between 1K SF and 10K SF of toys and collectibles to the store’s racks of clothing and stacks of housewares. While Macy’s managed to stave off bankruptcy in 2022, it is still troubled financially and has announced store closures and a three-year plan to restructure its finances. During the company's Q1 earnings call, Chief Financial Officer Adrian Mitchell said Macy's has made strides with less bad debt and higher credit card sales, but it expects inflation to serve as a negative counterbalance to those recent improvements. The company’s partnership with Toys R Us, announced in 2021, has given Macy’s a much-needed boost in the toy department according to company leadership. Toys R Us products have been available through Macy’s website since last year. Macy’s and Toys R Us aren’t alone. Others that have gotten in on the store-within-a-store trend include Ulta and Target, Sephora and Kohl’s, and Claire’s and Walmart. And while the store-in-a-store trend pre-dates the pandemic, the new realities forced on retailers since 2020 clearly play a part in how companies think about their real estate strategies. For the smaller chains posting up in a larger store, one of the biggest benefits comes in the form of lower operating costs compared to a standalone retail space, without losing coveted brand awareness. That the evolving nature of brick-and-mortar in retail is going to lead to a lot more experimentation as retailers re-evaluate their respective needs. I n a sense, the store-in-a-store concept is almost a return to the larger department store formats of yesteryear, with the actual retail space becoming less of a concern, and the overall branding and consumer experience becoming what retailers prioritize. Of course, Bloomingdales has been doing this for years.

Architects Are Getting Ready for Abortion-Clinic Building Spike. Hey contractors and architects, here’s a building strategy you probably haven’t considered. “We knew it was coming,” says Lori Brown, an architect who has worked with reproductive-justice organizations and abortion clinics for two decades, about the Supreme Court overturning Roe v. Wade. Brown, who wrote the book Contested Spaces: Abortion Clinics, Women’s Shelters, and Hospitals. But there’s one thing she is certain of: Abortion services will expand in states where abortion is legal, and providers will need help building their clinics. So six weeks ago, Brown and her colleague Jordan Kravitz, an architect in Arizona, began to compile a list of architects and designers who are willing to help. Clinics have already asked her for assistance with building new locations. In addition, architects can aid in permitting, design services, liaising with contractors, and navigating code and zoning requirements for clinic expansions and renovations. Some clinics have already started to build for a post-Roe landscape. For example, Diane Derzis, the owner of Jackson Women’s Health Organization, Mississippi's only abortion clinic, had to close after Roe was overturned. She is now planning to build a new clinic in Las Cruces, New Mexico, that will be equipped to perform surgical abortions. In states where abortion is legal, a clinic’s capacity to effectively and comfortably provide the service depends on a number of spatial factors: a city’s land-use policies that either restrict or permit clinics, policies that define where anti-abortion protesters are able to gather in relation to the clinics, and the physical design of a clinic itself. There are over 70 architects from 16 states currently on the growing list of those willing to help expand or build new clinics. The list will not be publicly published, and will be shared only with clinics that are looking for architectural services, as a way to protect the architects’ and clinics’ privacy and help guard against retaliation Some of the architects work for large firms whose “work receives design awards on a regular basis,” Brown says. Others work for smaller boutique practices. A number have experience designing for health care, while others don’t.

6th Street Bridge: A Civic Wonder That Reflects L.A.'s Promise Or Its Simmering Problems. I drove across the 6^th Street Bridge the other day. It was stunning. But it made me wonder; is it an architectural wonder or a symbol of what is wrong with Los Angeles? The more-than-half-mile, $588-million span connecting the Arts District to the historic Eastside has already become a new totem for the city’s fissures over transit, policing, housing, equity, culture and land use. Eastsiders are worried about gentrification creeping in from downtown, transit advocates are upset over the unprotected bicycle lanes, and lowriders don’t want the racers on the bridge. In other words, everyone wants to enjoy it in their own way. Perhaps never has a bridge (at its core designed to carry cars and trucks across a concrete river channel and withstand earthquakes) been required to accommodate so many different interests, most notably from the overcrowded neighborhoods to the east. Predominantly Latino Boyle Heights is considered park-poor and in “very high need” of more open space, according to an assessment from the Los Angeles County Department of Parks and Recreation. Last week, Eastside Councilman Kevin De León introduced a motion that would calculate the cost of occasionally shutting down the bridge to cars and opening it to only bicyclists and pedestrians. The effort, he hopes, could lead to regularly closing the bridge to traffic. Over the last three weeks, it’s been closed several nights (including a four-night stretch) as the Los Angeles Police Department cracked down lowrider takeovers and rowdy bystanders. But the bridge’s allure keeps drawing crowds, as shots from the picturesque span flood TikTok and Instagram. Worse, costs for caring for Los Angeles’ latest star are starting to rise. The LAPD has ramped up patrols and assigned extra officers. And last week, city officials estimated it would cost $704,000 to clean up graffiti on the bridge for a year. The graffiti-cleaning resources rankled City Council members from the San Fernando Valley, who say it was coming at the cost of their constituents. Many fear the bridge will be an entree for wealthier people moving into the neighborhoods around it, raising rents and pushing longtime residents out. Like I said; architectural wonder or a symbol of what’s wrong with LA?

Ellen DeGeneres Flips a Midcentury Gem for $8.8 Million. My favorite flippers are at it again. Less than a year after buying a Midcentury home in Beverly Crest for $8.5 million, prolific house-flippers Ellen DeGeneres and Portia de Rossi have sold the property in an off-market deal for $8.757 million. The $257,000 profit margin is a bit slimmer than their usual projects. In contrast, they made $6.3 million flipping a Montecito compound for $33.3 million in 2020, and last year, they earned a quick $4.5 million by selling a Beverly Hills mansion for $47 million. Built in 1961, this single-story home features Midcentury charms such as a courtyard entry, sky-lit hallways and warm wood-and-glass living spaces. Tucked away in Hidden Valley Estates, the Midcentury gem has been tied to some notable names over the years. It was built in 1961 by L.A. architect Robert Skinner, and the chic post-and-beam design was later featured in Julius Schulman’s book “Modernism Rediscovered.” In 2021, DeGeneres and de Rossi bought it from talent agent Greg Cavic. The 3,500-square-foot floor plan also holds four bedrooms and five bathrooms, including a primary suite with a free-standing fireplace. It opens directly outside, where a dining patio leads to a fire pit, swimming pool and bar. DeGeneres, 64, has won multiple Emmys for “The Ellen DeGeneres Show,” which premiered in 2003 and is coming to an end. She’s also hosted the Grammys, the Academy Awards and the NBC game show “Ellen’s Game of Games.” De Rossi, 49, has appeared on the legal drama “Ally McBeal” and the sitcoms “Arrested Development” and “Better Off Ted.” More recently, she played Chairwoman Elizabeth North on the ABC show “Scandal.”

San Bernardino Real Estate Honcho Urges County to Leave California. Here’s a story for our Inland Empire fans. After deciding that he didn’t want to be just another San Bernardino resident who would “sit around on a country club patio and complain about the way things are,” real estate investor Jeff Burum took bold action at last Tuesday night’s meeting of the county’s Board of Supervisors: he proposed that San Bernardino County (the largest county in the US geographically) secede from the state of California, and become its own state. A local developer, Burum even has a name in mind for this 51^st state: “Empire.” However, he has offered little guidance on its potential government, structure, organization, or civic institutions, SiliconValley reports. Burum points to a state-level lack of concern for the needs of Inland Empire, which he says the state treats “like a slum.” In particular, he’d like to see fewer regulations on building new properties in the county. Local officials at the meeting endorsed the general sentiments Burum shared. “We cannot continue to beg, and crawl and (grovel)… to get resources for our county,” said Fontana Mayor Acquanetta Warren. If the measure passes, the nation would have a confusingly-named new addition to its current 50 states. At the very least, New York would want to have a few words with this putative Empire state. But Burum expressed hope that, were voters to approve his ballot measure, likeminded secessionists would be inspired, saying, “I’m sure that other counties left behind in terms of entitlements might want to join in.” Exactly what such counties would be joining, or how individual statehood would ease their pain, were among the issues unaddressed at Tuesday night’s meeting. For the record, the last state to enter the union was Hawaii, established way back in 1959 (63 years ago).

New “LARealEstateInvestors.com” Podcast. We are so very excited to announce our new podcast, "LARealEstateInvestors.com" (named after our domain) hosted by our very own Bill Gross. Bill has been a Realtor, broker and real estate investor forever! No one is more experienced in local Southern California real estate than Bill Gross. Plus he is an expert on probates and so many other strategies. Each week, Bill interviews real estate professionals sharing their insights and advice. Every Tuesday at 3:00 pm, and thereafter anytime on YouTube, Facebook, and Google.

“How to Fix & Flip Houses.” Our special guest speaker at our August meeting will be the incomparable Joe Arias. Joe is an experienced house flipper and will be showing us how to get started finding, financing, fixing and flipping houses. Joe and his team have flipped more than 100 houses in Southern California and has just written a book about his experiences, “Flipped for Real Success.” Don’t miss Joe’s presentation on August 11, 2022, 6:30 to 9:30 pm. Location: Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, 90034 (Culver City adjacent). FREE Admission. Metered and free street parking. (But don’t come “fashionably late” or you’ll be forced to park in Long Beach and taking an Uber!) RSVP: LARealEstateInvestors.com.

Vendors Expo Returns! Our carbon-neutral, bio-degradable, gluten-free, super-duper "Vendors Expo" returns on Thursday night, August 11, 2022. The Vendor Expo opens starting at 6:30 pm. We'll have 40+ of the finest vendors featuring real estate products and services you will want to utilize as a successful investor. Our Vendor Expo will be held at the Iman Cultural Center, 3376 Motor Avenue (between National and Palms), Los Angeles, CA 90034 (Culver City adjacent). FREE Admission. Metered and free street parking. Please RSVP at www.LARealEstateInvestors.com.

This Week. Looking ahead, investors will watch for additional Fed guidance on the pace of future rate hikes and bond portfolio reduction. Beyond that, the focus will be on the inflation data. The Consumer Price Index (“CPI”) will be released by the Bureau of Labor Statistics on Wednesday (8/10). CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services. The Producer Price Index (“PPI”), measuring price changes for intermediate goods used to make finished products, will come out by the BLS on Thursday (8/11). Finally, the University of Michigan reports its Consumer Sentiment Index on Friday (8/12).

Weekly Changes:

10-year Treasuries: Rose 015 bps

Dow Jones Average: Fell 200 points

NASDAQ: Rose 300 points

Calendar:

Wednesday (8/10): Consumer Price Index

Thursday (8/11): Producers Price Index

Friday (8/12): Import Prices