We Were Hiring a New Director of Operations/Controller

Year To Date Activity

Properties Sold (single and multifamily): 47

Sales Volume: $70,768,452

Cumulative Value of Fund Properties Sold: $4,634,500

Homes/Units Managed: 275

Properties Leased: 73

Gross Collected Rent: $7,631,116.91

Brokerage Listings

Property Management Rental Listings

Last month I teased that we were hiring a new Director of Operations/Controller. She started Monday, so I can officially "introduce" Ashley Guy to you all. Ashley is a long-time friend and is joining us from Capital Group, the large investment management firm responsible for American Funds Mutual Funds (they manage our company's 401ks, too).

If you'd like to connect with us to discuss real estate, finance, or tax strategy, please let us know. (Just give Ashley a few weeks to settle in!)

On the local Costa Mesa front, there has been a lot going on lately, most notably, "Chickengate". A few weeks back, my youngest daughter (Kate) and I stopped by Feed Barn, which has been in business since the 19040s, to buy some chicken feed and to see all the animals (mainly the chickens) running around.

Turns out the City forced the owner to get rid of his chickens because the City passed a livestock ordinance in 2007, which apparently includes chickens, despite the fact that the ordinance very clearly has an exemption for stores that sell animals.

Anyways, Kate was pretty upset so we made a quick Instagram video and started a petition to save the chickens at the Feed Barn. You can see the video below, and please consider signing the petition.

Instagram Video

Save The Chickens Petition

Unfortunately, Chickengate is just one of many examples of what is happening in our City.

Below is a post from Lander's, a small bar on Harbor Blvd that was known for fun music and delicious food, that just decided to shut it's doors.

"Illegal Dancing" what is this Bomont?

Yes, that is a Footloose reference, and yes I had to look it up.

Landers and Chickengate are just two examples of the types of things that encouraged me to run for City Council. It seems that each week I learn about another instance of a resident or small business being overwhelmed by the challenges of getting anything done in the City.

To run a successful campaign, I will need to raise a substantial amount of money. This is the icky part where I ask you to partner with me in my run for City Council to help make an impact in our City. If that is something you are open/able to participate in, below you can find my campaign donation link.

Campaign Donation Link

Single-Family Transactional Market: In case you live under a rock and missed it, the big news in the residential real estate world is Compass, the nation's largest brokerage, is buying the second largest brokerage, Anywhere (who owns Coldwell Banker, Century 21, Sotheby and several other brands).

I've had a few people ask my opinion on it. Here is my quick take.

It honestly does not matter. Consolidation is nothing new in this industry. When brokerages stop innovating, they turn to consolidation for growth. That is literally how Anywhere became what it is today. When brokerages get really big, they become complacent and slowly die.

Here is a chart of Anywhere's stock. It essentially trended down from 2012 until COVID when it got a little bump, and then it trended back down again.

You are what you eat. And if Compass eats Anywhere, it will become Anywhere 2.0.

I ran 3 Twitter polls on the subject. 40% of consumers and 60% of agents involved don't care.

My favorite description of what Compass has become is from the San Francisco Standard.

Mortgage Market/Interest Rates: Counterintuitively, mortgage rates do not move in lockstep with the Fed Funds Rate. They follow the bond market, especially the 10-year Treasury yield, which is driven by investor expectations for inflation, growth, and fiscal risk. When the Fed cuts rates, markets sometimes read it as a sign of future inflation or instability, which pushes long-term yields higher, and in turn, lifts mortgage rates.

Sustained declines in inflation, slower job growth and reduced Treasury issuance would likely bring yields, and therefore mortgage rates down. Our base case is for rates to gradually ease over the next 12 months, although volatility will remain high.

If you purchased or financed a home between September and December 2024 and February 2025, you likely locked in at peak levels. You should strongly consider refinancing as rates come down, and we are happy to help you evaluate your options.

Commercial Real Estate (CRE): Alcohol consumption has reached its lowest rate in modern history. Great for folks' health. Bad for companies that sell alcohol and also bad for retail real estate.

Restaurants are in the upper middle echelon of retail uses in terms of dollars per square foot, and alcohol is usually the highest-margin item on a restaurant menu. While I don't think this will be a tectonic shift, it is a notable headwind that I believe many people are not yet considering for the already under pressure retail sector.

How under pressure? Brookfield just sold the Shoppes at Carlsbad for $71.5 M.

To put that in perspective, Brookfield purchased the property in 2015 for $170 million and invested significant capital in renovations over the following two years.

Macro Observations: Fed officials are openly debating aggressive cuts. Vice Chair Bowman and Governor Miran both argued last week that labor market weakness demands faster action, with Miran suggesting 50 bps cuts at every meeting until Fed Funds hits 2–2.5%, a full 200 bps below today’s level. If I'm being honest, it feels like people are jockeying for Powell's chairmanship, which ends January 31, 2026.

That would bring the interest rate on my HELOC down to 5.15%, at which point, I'm going to be buying properties like 👇

Last week’s inflation print was benign, with Core PCE up just 0.2% month over month, giving the Fed cover to shift focus from inflation to jobs. Payroll growth is now stalling, with Non-Farm Payrolls expected to be around 50k, and unemployment steady at 4.3%. This suggests that companies have largely ceased hiring but have not yet begun reducing staff. Markets are now pricing an 88% chance of a cut on October 29 and a 65% chance of a second by year's end.

We don't talk about The Cass Freight Index much, but it is sending some interesting signals. The Cass Freight Index measures shipping volumes and expenditures across the U.S. freight network. It serves as a real-time indicator of the volume of physical goods circulating through the economy. The latest reading shows shipments at their lowest level since 2020, marking the 28th consecutive monthly decline. That steady contraction is an early warning sign that demand is softening beneath the surface, even while GDP headlines look strong.

I mention this because, as much as real estate people love to cheer on lower rates, it is important to remember that generally the reason for lower rates is a weaker economy. If you were around in for the aftermath of the GFC, you will remember it doesn't matter how low rates are if no one has a job.

What's The Good Word: I really try to avoid politics (except for hyperlocal stuff) in this newsletter. Today, I am going to take the liberty to break that self-imposed rule to spend a few minutes on Prop 50.

First, I completely understand the reaction that people have to the gerrymandering in Texas. I am not going to argue for it or against it, I just want to acknowledge it and state that I am opposed to mid-census gerrymandering. I also do not concern myself with state and local politics for geographies where I am not a constituent

With that caveat, here we go:

I am opposed to Prop 50. Before I got involved with local politics, I would have been opposed for the reasons listed above with regard to Texas. However, as I have entered into the realm of local politics, and I have been given a look under the hood, the level of conviction I have for my opposition is meaningfully stronger.

Here are my main concerns (again, in addition to the above).

House races help bring money to state and local races. Without competitive house races, down-ballot competitiveness will suffer, further exacerbating California's one-party rule. If Prop 50 passes, I think we can kiss goodbye to any chance of moderating our state and local governments. In Orange County, we are fortunate to have a pretty moderate government. Hopefully, we are able to maintain it.

Competition often pulls candidates to the center. I know a lot of my friends in LA and the Bay would love to see some moderate candidates elected to their local governments.

Project Updates: We have several active projects; here is a quick update on a few of them.

Lillian, Costa Mesa: It took us a while, but we landed on an elevation that we love. The architect is now working on the structural engineering, and we hope to submit to the City within the month.

Front:

Back - the big blank wall is where the primary shower is; we are adding an additional window.

Alley view of the garage, carport (the City requires 4 sports) and the flex space above.

Lucero, Tustin: Not sharing pictures of this one.

We expect it to be on the market in mid-October. You will have to wait to see the final result.

The team really did an excellent job on this project.

Thanks again for reading, and I would like to thank our agents and property managers who provide valuable insights from their day-to-day in the field. Without them, this email wouldn't be very useful or interesting.

If there is anything you need: vendors, lenders, or others, please let me know. We have an extensive network of the best and brightest in the industry.

I geek off this stuff; if you want to grab a coffee or chat about anything related to real estate, the market, or investing, please do not hesitate to reach out.

If you don't want to receive these updates in the future, please smash the unsubscribe button below. No hard feelings; I do it ruthlessly. Lastly, if you found the above informative, please share it with a friend or drop me a line.