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1:16

As all of you

1:16

know, I love charts. I make a

1:23

make decisions after looking at

1:23

charts, and I was, this was

1:28

going to be a longer

1:28

presentation but I really

1:30

decided not to do that because

1:30

of the panelists that we have. I

1:34

wanted to save most of the time

1:34

for them. But I'm going to talk

1:39

about some of this because this

1:39

is an original creation of mine,

1:47

it's called the moodometer I

1:47

don't know if I need this or

1:52

not. Can you hear me without it?

1:52

Yeah. Okay, moodometer is an

1:57

interesting invention. The, the

1:57

affordability charge is

2:02

something that I always paid

2:02

attention to but what I what I

2:05

couldn't do is I couldn't I

2:05

couldn't play with it. It was

2:09

just there and I didn't know

2:09

what what I could do to improve

2:13

what it told me. And so I

2:13

started looking at this chart,

2:17

and I realized that it played an

2:17

important role. So, this is a,

2:21

this basically says that any

2:21

given year, this is the

2:25

percentage of your median income

2:25

that you have to pay to real

2:30

estate with a 20% down, okay?

2:30

So, this is the journey every

2:36

once in a while the peak hits.

2:36

And that's typically euphoria.

2:43

What's interesting about this

2:43

chart is it doesn't, it doesn't

2:49

chart capacity. It charts

2:49

willingness and willingness is

2:54

the mood. So, if, if it was just

2:54

capacity, and it was completely

2:59

always 100%, all we'd have is

2:59

gold lines. But we don't. But we

3:05

know it's possible. But that's

3:05

the peak. So, how do you get to

3:07

the peak? We just experienced it

3:07

on 2021, maybe the beginning of

3:13

2022, you had anything for sale?

3:13

Wasn't it exciting? So, we had a

3:20

we had a property that we had

3:20

put up for sale. And we were

3:25

going to ask when we started the

3:25

construction 425. When we got

3:31

done with the house, we thought

3:31

it's 525. So, that was a nice

3:36

bonus right of 100 grand and a

3:36

pretty good percentage. And then

3:40

a bidding war, war ensued it

3:40

within 45 minutes 11 cash offers

3:50

and one VA offer. So, this is

3:50

what happens at the peak. So,

3:57

the peak, you get competitive

3:57

bids, but maybe the finance one

4:02

drives all the other cash buyers

4:02

to another number. And that's

4:06

exactly what happened. So, the

4:06

bidding continued, you're going

4:10

to fix, the bidding continued

4:10

and got to 577. The winning bid

4:19

was the VA that had the

4:19

financing. But everyone that

4:23

went along with that journey to

4:23

577 decided they wanted one too.

4:28

So, we had three other houses

4:28

under construction that was that

4:31

house. And so they got it for

4:31

577 as well. That's crazy. Well

4:37

that's, that's euphoria. It

4:37

doesn't always happen but isn't

4:42

it interesting that we're always

4:42

the most interested when it's at

4:44

the peak? See ,what I really

4:44

liked this as a cheat sheet. So,

4:48

take a look at where it's at the

4:48

bottom. That, the charts your

4:53

mood is, it's your mood stinks.

4:53

You hate real estate. Okay

4:58

instead of in the 60s it's 28.

4:58

Then look at the year 2008, 09,

5:06

what did we have to do to get

5:06

somebody to buy a house in 2009,

5:11

that was already 60% off of the

5:11

peak, we had to bribe them with

5:15

eight grand, please buy one of

5:15

these. That's why I liked this

5:20

chart, it doesn't take a genius,

5:20

I think I'll buy when it's at

5:24

its low when everyone else hates

5:24

it. And I think you can have it

5:27

one approaches 60. How's that?

5:27

Now, what it also does is tell

5:34

you that if something changes in

5:34

the formula, and for, by the

5:39

way, it hasn't, has the mood

5:39

change now? Okay. So, that means

5:45

you're really not at 60. Now,

5:45

we're not sure where we are. So,

5:50

what we're, what we're going to

5:50

do here is we're going to plug

5:52

in some numbers, to see if the

5:52

mood changes what happens to the

5:58

median price, it's possible. So,

5:58

when you get into like, 850

6:03

grand, and you're at 60% mood,

6:03

and your interest rate changes,

6:08

and your mood changes at the

6:08

same time, you may, you may end

6:11

up with a very different median,

6:11

I'm gonna go backwards, if I'm

6:15

allowed to do that. One of the

6:15

things that you can also take a

6:20

look at is, this is a span of 42

6:20

years, you visited over 60%,

6:26

five times. That's it. So, 12%

6:26

of the time, you're only over

6:32

50, maybe 20% of the time where

6:32

you normally are, and it's and

6:39

it's sort of like if you're in a

6:39

decent mood toward real estate,

6:41

you're at 45. An average you're

6:41

at 40. And you're not happy

6:48

you're at 35. And if you hate

6:48

real estate, you're below 30.

6:51

So, think about that, wherever

6:51

you are in the moods he that's

6:54

going to dictate perhaps what

6:54

somebody's going to be willing

6:57

to buy the next house for. So,

6:57

let's take a look at what

7:00

interest rates do to this, and

7:00

it's one of the one of the

7:04

things that you can chart to a

7:04

45% mood reading is a pretty

7:11

decent reading. It's, it's not

7:11

euphoric, it's not completely

7:19

giddy, but it's okay. It's

7:19

matter of fact, it's more likely

7:23

the 40 and the 45 category

7:23

really is the dominant specter

7:27

of where you end up. So, if, if

7:27

you have a 5% interest rate, but

7:34

you're in a mood of 45%, instead

7:34

of 60, your median price goes

7:38

down to 650 grand just because

7:38

your mood changed. And if you

7:44

have a 7% interest what happens

7:44

to it? It goes to 520. So, we we

7:52

got to almost 900 grand in

7:52

California, complete euphoria

7:56

all the double bids. Well, this

7:56

is, this is a math formula that

7:59

saying you're at 7%. And if you

7:59

go back to historically where

8:04

you are most of the time, your

8:04

median price is not going to

8:07

survive it 800 or 700, it's

8:07

going to get the six, is going

8:12

to get below 600. What if your

8:12

mood is worse? What if it's 40?

8:20

Now, your median price is 7% is

8:20

465. And what if it's 35? You

8:25

really, really don't like real

8:25

estate. Now it's 410. So, what

8:33

this is basically saying if it's

8:33

just a math function, you've got

8:37

a 35 to 50% price hit. That's

8:37

locked and loaded. Are you glad

8:43

you came tonight? But it's

8:43

really interesting that it may

8:49

not happen. And so that's what

8:49

we're going to look at. Are

8:52

there mitigating factors in

8:52

place that may make that not

8:56

happen? First of all, you've got

8:56

in place, the most amazing set

9:02

of interest rates on existing

9:02

mortgages, right? And thank you

9:06

for John John Burns provided

9:06

this chart, as he did. When I

9:11

did my seminar a few months ago,

9:11

he was very generous and allowed

9:14

us to use some of these charts.

9:14

So, look at the interest rate

9:17

below 3%, 13% of the group that

9:17

had loans, three to 3.9 is 38.

9:24

Four to 4.9 is 30. That's a big

9:24

percentage. It's 80% of the

9:30

mortgage is, not seven, not six

9:30

under five. So, what's going to

9:36

induce them to put their house

9:36

up for sale? Okay, yeah, there's

9:43

there could be motivation, but

9:43

is that going to, is, are you

9:45

going to see the majority of

9:45

that inventory show up for sale?

9:49

Or you could see them going,

9:49

'You know what, I'm good.' What

9:53

is it actually got upside down

9:53

and you had a two or 3% mortgage

9:56

on it. Would it possibly

9:56

cashflow as a rental? So, the

10:02

reason we we put the title on

10:02

that report that I just wrote

10:05

Uncharted Territory, we've never

10:05

had these set of charts, ever.

10:10

We've never enjoyed an in place

10:10

interest rate of 2 or 3%. And so

10:15

what's going to be interesting

10:15

is to see if this prevents price

10:18

damage, because the math is

10:18

locked and loaded, your mood is

10:21

going to come down and you

10:21

should take a price hit. But

10:24

what if your demand, I think

10:24

sales are going to go down maybe

10:27

by half? But what if that's all

10:27

the all the inventory that shows

10:32

up? What if the demand is met

10:32

with supply that's pretty

10:36

meager, also, you know, it's

10:36

going to go up as cash sales.

10:41

Whatever percentage they are,

10:41

they're probably going to

10:43

double. So, you're really

10:43

talking about maybe a small part

10:46

of the market doesn't mean you're going to make a good living as a realtor, because

10:48

you're going to have maybe half

10:51

the sales, but it could prevent

10:51

price damage, okay? For for a

10:59

long time now, we haven't used

10:59

adjustable mortgages, because we

11:02

haven't needed to so there's no

11:02

time bombs waiting in the wings

11:06

that are going to adjust

11:06

tomorrow. If you get a five, one

11:09

arm or something like that, now

11:09

that's five years away from an

11:12

adjustment. So, that's, that's a

11:12

safe pile of loans we've got

11:16

most of them are fixed. And we

11:16

have huge equity positions. So,

11:21

somebody loses their job,

11:21

there's a very good chance

11:23

they're selling that property

11:23

for a profit. And they can move

11:27

on. Okay. Something I thought

11:27

of, because I'm because I happen

11:32

to live in Florida is that let's

11:32

say you have a home in New York,

11:35

we get a lot of migration from

11:35

New York. So, if you owe 50% on

11:39

a home in New York, and it's a

11:39

3%, but you decide you want to

11:43

move to Florida, can you buy,

11:43

can you sell that home in New

11:46

York and buy at cash, buy

11:46

Florida House for cash? No

11:50

problem. You've just solved your

11:50

problem. I don't need that loan

11:54

back, I'm going to a place where

11:54

real estate's half. And I'll buy

11:58

there, which is why I like being

11:58

in Florida because it attracts

12:01

migration. And I think that's

12:01

probably going to continue. This

12:07

is equity cashed out. So, we got

12:07

a little aggressive in 2021, but

12:11

nothing compared to where we

12:11

were in the last cycle. Every

12:17

once in a while I kind of talked

12:17

to my tax preparer, because

12:21

she's got a bird's eye view on

12:21

people's habits constantly. And

12:24

during that cycle, in 2003, and

12:24

four and five people were just

12:29

refunding their house every

12:29

year, maybe twice, pulling money

12:32

out, having fun buying toys.

12:32

That did not happen this time.

12:39

New home construction, this is a

12:39

national chart. So, after we

12:43

went crazy with building all the

12:43

homes, there was a big gap, and

12:47

why was that? Well, they were

12:47

below replacement costs, the

12:50

prices crashed so much you

12:50

couldn't pencil a new house. So,

12:53

you had a big hole, and then it

12:53

gradually built back up. So,

12:57

what typically happens at the

12:57

end of a price cycle where

13:01

prices go down, builders usually

13:01

are building crazy amounts of

13:05

houses. And and they can end up

13:05

getting to an auction. And we'll

13:11

look in a minute at the

13:11

California chart. So, this is

13:15

the existing inventory for sale.

13:15

If you go back to the like the

13:19

worst time where big prices

13:19

happened, we had almost 4

13:23

million houses for sale. And now

13:23

we have less than about a

13:27

million? About a million. So,

13:27

there's not a there's not a lot

13:31

of inventory for sale. And so it

13:31

depends, I guess on the demand,

13:35

if the demand is kind of equal

13:35

to that supply, we may get

13:39

through this fairly unscathed.

13:39

This is job demand. And I know

13:45

that's down some maybe by a

13:45

million or so but 12 million

13:49

jobs. This is showing I think

13:49

it's down to 11 or below. And

13:54

this is the amount of unemployed

13:54

persons per job opening. So, you

14:01

got two job openings for every

14:01

person looking that's unusual.

14:05

Okay, that's very supportive of

14:05

price. So, unemployment really

14:12

very healthy. So, it'll be

14:12

really interesting to see as

14:15

they try to raise rates and see

14:15

if we end up having a recession.

14:21

If, if this if that changes. So,

14:21

this is California construction,

14:25

new homes,and this is really

14:25

interesting to me. So typically

14:29

what happens is builders, that's

14:29

why they need John Burns so much

14:33

because they're the worst timing

14:33

experts ever. Because so late in

14:37

the cycle, they have such

14:37

unusual demand, right? So, that

14:42

just had happened in Rosamond,

14:42

when we build 93 houses. We

14:46

gradually built momentum to the

14:46

end of say 2005 where people

14:50

were camping out in Rosamond to

14:50

buy a new house. Do you know

14:53

where Rosamond is? It's in the

14:53

middle of nowhere, after

14:56

Rosamond there's nothing. And

14:56

so, people were lined up and we

15:00

had fistfights to get to buy a

15:00

house in Rosemont. And so, the

15:06

one of them, five of them sold

15:06

for about 280 In the last phase

15:09

and two of them fell out. And

15:09

then the market changed, the

15:14

mood changed. Capacity didn't,

15:14

but they didn't want it anymore.

15:19

And you know, this home sold

15:19

for? 205. So, what happened to

15:23

the guy who just bought it for

15:23

280? It was 75 grand down.

15:30

Maybe, I maybe I'll walk away.

15:30

Anybody know Tony Alvarez is?

15:34

Yeah, Tony Alvarez bought those

15:34

homes and that track for 40

15:37

grand or less, three years

15:37

later. Guess the mood wasn't so

15:42

good. So, that's why I like

15:42

understanding. But so what's

15:46

what's going to happen now? We

15:46

didn't build 150,000 houses,

15:51

like we have every other peak

15:51

cycle, we built 60. There's not

15:56

going to be a bunch of auctions

15:56

in California that say, Okay,

15:58

well, we're gonna sell that for

15:58

a discount. And if you just

16:02

bought one, you're gonna lose

16:02

out, I don't know what happened.

16:05

So, that's, it's interesting

16:05

that this did not be, this is

16:08

not a big participant. So, think

16:08

about the inventory, that's not

16:11

going to show up, you got

16:11

literally 100,000 new homes that

16:14

were never built, and you've got

16:14

a bunch of people with two and

16:17

3% mortgages and say, I'm good.

16:17

I'll just stay. California

16:24

trustee sales. So, we've got to

16:24

have Sean on the panel and talk

16:27

about trustee sales. And one of

16:27

the things the news media can do

16:31

is, you know, they gotta, they

16:31

gotta create excitement. So,

16:34

what would happen if you said,

16:34

now, Trustee sales have doubled?

16:39

Wouldn't it be terrible? Like

16:39

you can barely, this, we didn't

16:43

even get to 2022. But there's so

16:43

few trustee sales, that if it

16:47

doubles, it's, it's nothing? So,

16:47

you can you can just look at

16:52

this chart and go okay, that,

16:52

that's not going to make a

16:55

significant impact unless it

16:55

gets unless it gets crazy. Well,

17:00

that requires lenders thinking

17:00

that's a good idea to foreclose

17:04

on stuff. And last time, they

17:04

didn't do too well. So, this is

17:08

what happened when the lenders

17:08

decided to foreclose on all the

17:11

stuff they could. If you were if

17:11

you were involved in that market

17:15

at the time, I can tell you what

17:15

happened in Moreno Valley. And

17:20

let's see if I have the chart

17:20

that I want. No? Okay. So, in

17:29

California, seven out of 10

17:29

sales was a trust was a REO. And

17:35

what happened when you like

17:35

we're talking in the

17:38

neighborhood that was 365,000,

17:38

at the peak in 2005, and six,

17:43

these REOs started get listed at

17:43

85 or 285. And then they never

17:47

sold and never sold. Finally,

17:47

these lenders, by the way, they

17:50

were getting fined $1,000 a day

17:50

because their home had broken

17:54

window, or had a lawn that

17:54

wasn't good. And they just said,

17:57

forget it. We're out of here for

17:57

65 grand. Okay, 20 cents on the

18:04

dollar. Trouble is most of the

18:04

sales for that. So, I go, I buy

18:07

one for 20 grand into fix it. I

18:07

have 25 offers at 125 to take it

18:12

off my hands. And the appraisal

18:12

comes in at 95. Because seven of

18:18

the 10 comps are 65 grand and it

18:18

dominated the market. And it

18:22

literally froze the market below

18:22

replacement cost. You couldn't

18:25

be at a permit and a building

18:25

lot for that. But that was the

18:29

real estate value. So, that's,

18:29

that's what the lenders

18:32

experienced. Do you think

18:32

they're going to do that again?

18:35

Intentionally? I don't think so.

18:35

I think, I think they may work

18:41

out something, if they're gonna

18:41

foreclose on a bunch of people,

18:44

but I'm not sure they're gonna

18:44

even have that opportunity

18:46

because again, low interest rate

18:46

loans in place. Manageable

18:51

payment, probably just say, 'You

18:51

know what, I'm good.' And

18:54

another thing that's really kind

18:54

of helpful, how many of you guys

18:57

have experienced rent increases

18:57

for what you own? Okay, well,

19:02

rent increases all of a sudden

19:02

starts supporting a price and an

19:06

interest rate that it never did

19:06

before. So, I think we have that

19:10

here. So, our affordability

19:10

number is repetitive. When it

19:14

gets to the bottom, it gets 17%

19:14

or so. This is significant. And

19:19

what happened here was different

19:19

than before. So, we're now in

19:22

2022. We're at 16%

19:22

affordability. How long did it

19:27

take to get to 16% affordability

19:27

in 2022 versus 2021? It took

19:35

three months? How many people

19:35

were buried in an affordability

19:39

number that's terrible? Almost

19:39

nobody. Well, what happened in

19:43

2005, 06,and 07 was very

19:43

different. You had those boom

19:47

years, where oh my gosh, we're

19:47

doing 500,000 plus transactions.

19:52

And we're learning people that

19:52

shouldn't own a property because

19:55

they're gonna do it after they

19:55

fill out an application really,

19:57

or have a job. We buried a

19:57

million in a half purchasers at

20:01

the lowest affordability number.

20:01

And this time we buried almost

20:06

nobody. So, that's, what I'm

20:06

trying to say is that math

20:11

formula, that moodometer is

20:11

saying you're going to have a

20:14

big price hit if things were

20:14

normal. But all of these things

20:18

are mitigating factors that may

20:18

in fact, prevent that. So, you

20:24

know, what's the outcome? That's

20:24

why I'm glad we have the panel

20:27

of smart people to say, what do

20:27

you think? Okay. So, that was

20:32

what we just said, there. This

20:32

is a kind of a Florida case

20:35

study, and I did this at a 5.7%

20:35

interest rate, now it's probably

20:38

seven. Can you get an A five,

20:38

one arm and 5.7? Probably? Okay,

20:44

so this still holds true. So,

20:44

this is a Florida house with a

20:47

pool on the left and excuse me?

20:47

No, this is just this is one

20:51

that Craig Evans builds for us

20:51

basically, house price worth 400

20:57

grand, if you put 20% down,

20:57

let's say you wanted to live in

21:00

it, you got to balance it 320,

21:00

your PMI payment is 1840 57. And

21:06

so forth goes to 2457 and the

21:06

rental value is 2400 bucks. So,

21:12

what I like about this is okay,

21:12

my payments 2457. But I also get

21:16

principal pay down to 337. And

21:16

I'm renting and throwing away

21:20

2400 bucks. If that was my

21:20

scenario, would I be a buyer or

21:24

renter? You know, it might make

21:24

all the sense in the world to be

21:31

a buyer. Doesn't matter that

21:31

it's worse than it was before.

21:34

It means I'm going to write a

21:34

$2,400 rent check, or I'm going

21:36

to write a $2,400 payment check

21:36

and get credit for it every

21:40

month, you can see where people

21:40

will still make that decision.

21:43

The more expensive homes got a

21:43

pool, downpayment 20%. And that

21:48

rents for 3900, and the payments

21:48

after the principal pay down

21:52

3965. So, even with the interest

21:52

rate hikes, some of these

22:00

things, some of these things can

22:00

make sense to own. So, so how

22:04

does this play out going

22:04

forward? I mean, that's what

22:07

we're here tonight is to ask

22:07

some of the people their

22:10

opinion, because I'm not

22:10

absolutely sure. But I know the

22:15

math is scary. But I know the,

22:15

what might prevent the math from

22:20

actually being enacted could

22:20

actually win the day. So, it'd

22:25

be very interesting. All right,

22:25

what time do we 8:10, 8:11? And

22:35

we're supposed to go to a 30.

22:35

All right, well, let's do this.

22:39

I'm going to have Craig Evans

22:39

come up. Craig is the builder

22:45

that's building a rental homes

22:45

for us in, in Florida. He's done

22:50

a great job. And it's probably

22:50

been the toughest two years, you

22:54

could build anything, just

22:54

because of all the things that

22:57

have occurred in the meantime.

22:57

Have a seat wherever you wish.

23:04

Well, you look a lot better than

23:04

I've seen you before. Craig

23:08

Evans is a third generation

23:08

contractor, and has been

23:11

involved in many facets of

23:11

construction. To his family

23:14

background, he started at the

23:14

bottom and worked up, sorry, his

23:19

way up of learning all aspects

23:19

of the job from labor to

23:21

management. Craig has had major

23:21

roles in residential commercial

23:24

municipal. You miss, you miss

23:24

it, you miss a. I can't even say

23:30

the word an agricultural

23:30

construction. Through the years

23:33

Craig has developed an ability

23:33

to grow and scale businesses is

23:36

now setting Douglas Brooke homes

23:36

in building in Florida, Georgia,

23:41

and expanding to Tennessee first

23:41

quarter 2022. He believes in

23:46

teamwork, as well as having

23:46

valued and trusted trade

23:48

partners. Craig has put together

23:48

a quality team in house as well

23:52

as some of the most trusted

23:52

trade partners in the industry

23:56

to build Douglas Brooke Homes.

23:56

When when I met Craig, it was

24:01

kind of crazy circumstances. We

24:01

had a builder that had sort of

24:06

disappeared with a couple

24:06

million dollars. And I was

24:08

writing checks to settle with

24:08

the subcontractors and half the

24:12

ones I was paying. I'm sorry, I

24:12

don't want to, can I move this?

24:19

I don't want to, I don't want to

24:19

miss it. I'm gonna stay on.

24:21

Sorry about that. Okay, as I was

24:21

paying the people that were

24:29

taking a discount, so they could

24:29

get paid something instead of

24:31

what the built the general

24:31

contractor had done. As I'm

24:37

paying the subs, they're going,

24:37

"why don't you just use Craig

24:39

Evans." He's paid his great for

24:39

10 years and so okay, maybe I

24:44

should do that. And he got a

24:44

call too. And so we met and then

24:47

we've hit it off. And so he's

24:47

probably been in the ground and

24:51

above the ground with 100 houses

24:51

right now. And we're constantly

24:54

dreaming up the next thing to

24:54

do. So, thank you for helping

24:59

bail us out and now we're on

24:59

some good things. So, one of the

25:04

things that just happened is a

25:04

hurricane in Florida. How many

25:08

of you own anything in Florida?

25:08

Okay, so there's a lot of our

25:14

clients that own stuff in

25:14

Florida. And this is the text

25:18

somewhere in the mid morning

25:18

like 2 in the morning. Winds 140

25:25

miles an hour sustained 178 mile

25:25

an hour gusts at your house.

25:31

So, we ended up at

25:31

162 mile an hour sustained.

25:35

Oh.

25:36

Final, and the

25:36

final gusts were 298 miles an

25:39

hour. For over three hours.

25:41

Is that, is that a

25:41

category seven and a half or

25:44

what? It, I thought 155 was like

25:44

five or six? Five? Yeah, that's

25:50

it right? Holy cow. Okay. You've

25:50

been in Florida a long time. Can

25:56

you compare this hurricane with,

25:56

with the others?

25:59

So, many of you

25:59

that have followed Florida you

26:02

know, there was a big hurricane

26:02

in 2005 Hurricane Charlie did a

26:06

lot of damage on the West Coast.

26:06

As some of you may have seen the

26:09

stat, the entire storm of

26:09

Charlie fit inside the eye of

26:14

hurricane Ian, you know, it was

26:14

expected to make landfall as a

26:19

category 1 that's that's an

26:19

afternoon Thursday storm for us.

26:23

We just we go play in the

26:23

backyard, you know, just tell

26:26

the kids don't cross the street

26:26

but but you know, it ended up

26:30

staying and it greatly slowed

26:30

down to what should have with,

26:34

with Charlie was a matter of a

26:34

few hours. This, this storm

26:37

literally lasted for 11 hours,

26:37

just torrential beatings.

26:44

What areas were

26:44

particularly hard hit?

26:47

So the coastal

26:47

areas, it literally turned in

26:49

came straight in over top of us

26:49

on Sanibel Island, Fort Myers

26:54

Beach, they had about 21 feet of

26:54

storm surge that came through.

26:58

So, most of those houses just,

26:58

they're not there anymore. You

27:02

know, we are, one of our

27:02

commercial, one of my companies,

27:05

we do a lot of commercial

27:05

building as well. And we've got

27:08

a big remodel on a hotel there.

27:08

And the bottom three floors just

27:12

aren't there. They're, their

27:12

walls are missing. There's a lot

27:16

of structural integrity going

27:16

on. It's an interesting time.

27:20

What was the

27:20

typical age of the properties

27:23

that were there that area?

27:25

Most of the stuff

27:25

on Fort Myers Beach, I mean,

27:28

there's the new stuff stood

27:28

well.

27:30

Right.

27:31

The new stuffs did

27:31

well. But you've got a lot of

27:34

houses on Fort Myers Beach that

27:34

are built as far back as the

27:36

50s. So, there's a lot of things

27:36

that were built two feet above

27:41

flood level. And so you know, at

27:41

that point, their roof is 12

27:45

feet underwater. So, it that was

27:45

two people talking about that

27:52

100 year storm. I was talking to

27:52

a gentleman earlier that this

27:54

was really the 500 year storm

27:54

for our state.

27:59

Wow. So, I'm just

27:59

curious, it says structurally

28:03

different. So, no one's going to

28:03

be able to build the same house

28:06

there.

28:06

No, no, everything

28:06

has to be brought up to code and

28:09

floodplain and that whole

28:09

process.

28:11

Okay. What's the

28:11

timeframe to think, let's say I

28:17

still want to keep my lot but I

28:17

want to build a new house?When's

28:19

the new house gonna be done.

28:22

So, pre storm we

28:22

weren't about to get through

28:25

permitting entitlements, we were

28:25

roughly seven months just to get

28:30

through permitting is an average

28:30

and then depending on the

28:34

builder, and their efficiencies,

28:34

it could be anywhere from five

28:38

months to 20 months to

28:38

physically build the house, so.

28:44

Okay, so your

28:44

opinion, the flood was more

28:46

damaging than the wind, even

28:46

though the wind was crazy?

28:49

Absolutely. Most of

28:49

the especially like the homes

28:52

that we built, you know, you go

28:52

through that and you don't know

28:56

you don't know what to expect. I

28:56

mean, I, I was raised on

29:00

structure. You know, my father

29:00

and my grandfather built 50

29:03

storey buildings in Chicago. And

29:03

so I'm raised to know how to

29:07

build stuff that lasts till

29:07

Jesus comes back, you know, but

29:11

you come out and you're like,

29:11

man, this we don't know what's

29:14

going to happen here. So, we go

29:14

out and all of our homes, except

29:19

one that we had just laid block

29:19

on hadn't poured the beam

29:21

through so structurally, it

29:21

wasn't there yet. Everything

29:25

else we lost a few shingles last

29:25

piece of gutter, just very

29:29

minor, minor stuff, the majority

29:29

of the damage was primarily all

29:33

storm surge unless it was an older home.

29:35

What number of

29:35

homes are we talking about in

29:38

Lee County that got taken out?

29:41

So, as of this

29:41

morning, then, the we're still

29:45

in the initial damage phase

29:45

right now trying to assess

29:48

what's going on. As of this

29:48

morning. There was about 56,000

29:52

homes in Lee County, that single

29:52

family residences that have had

29:56

anywhere from complete

29:56

destruction to, they have

30:00

complete destruction, major

30:00

damage, minor damage. And then

30:03

affected which they're affected

30:03

is basically classified as you

30:07

know, you had some roof that you

30:07

need to have shingles put on or

30:10

tiles or things like that

30:10

they're minor damage,

30:14

surprisingly, is actually still

30:14

classified as two feet of water

30:17

or less inside the home is

30:17

considered minor damage, so.

30:22

If you own an

30:22

insurance company, that's your

30:24

description of as minor.

30:27

So, we've got a

30:27

little over about 22% of SFRs

30:32

have been tragically affected in

30:32

Lee County.

30:35

And okay, the

30:35

number that you just gave me how

30:38

many new homes are constructed

30:38

in that county?

30:42

2021, as you've

30:42

seen the charts from Bruce,

30:44

2021, we had a fantastic year,

30:44

and of all the residential

30:50

permits pulled that were either

30:50

new construction or major

30:53

renovations not not going to put

30:53

a new roof on or put it in

30:57

replacing an AC, there was only

30:57

8000 permits built. So, at the

31:02

rate of construction, we're

31:02

looking we've got somewhere

31:04

between seven and eight years if

31:04

we don't do anything else other

31:07

than repair homes.

31:10

When people, when

31:10

people go through Hurricane like

31:13

that, what percentage of them

31:13

say I'm out of Florida, I'm

31:17

going somewhere else.

31:21

You really don't

31:21

get a ton of people that want to

31:24

just pack up and leave, I

31:24

wouldn't want to put a number on

31:28

it, I'd just be pulling it out

31:28

of a backside there. But the

31:31

reality is you don't get a lot

31:31

of people. It is a little

31:34

interesting, this time, we're

31:34

starting to see some of the

31:36

people that are in their 70s and

31:36

80s. Because of famous new rule

31:41

of 50%, you anything that has

31:41

50% more damage according to an

31:45

assessed value than then it has

31:45

to be brought up to code well,

31:49

so for the people that are in

31:49

their 70s or 80s, we're starting

31:52

to find some of them are just

31:52

saying that it's not worth it.

31:55

Now, the difference, which you

31:55

and I spoke about a little bit

31:57

this morning is, you know, we're

31:57

seeing some of the people that

32:00

are on a more of a limited fixed

32:00

income. They just physically

32:04

can't afford to rebuild. So,

32:04

that's a little bit of a

32:06

different scenario, depending on

32:06

insurance. What we're seeing is

32:11

a week before the storm, the

32:11

Luxury RV market was tanking.

32:16

Four days after the storm,

32:16

they'd already sold 127 half

32:22

million 2 million a half dollar

32:22

RVs to sit in their driveway

32:25

while they wait two and a half years to have their house rebuilt.

32:29

Now, what's the

32:29

reason? I mean? So, Hurricane

32:32

Andrew was in '92. That was that

32:32

was my experience with

32:35

hurricanes. So, how long would

32:35

it take for people like from the

32:40

city to go look at this these

32:40

damage homes and say it's red

32:43

tagged or whatever? Do they even

32:43

have the capacity? Or they use

32:47

an everybody that's breathing to

32:47

do that job?

32:50

That's that's part of the process. And again, because it's changed since since

32:52

Andrew, you know, FEMA has the

32:55

50% rule now. So, it's not only

32:55

is it is it going to be

33:00

demolished or things like that,

33:00

it has to pass the 50% rule to

33:03

see if they're gonna even allow

33:03

you to pull a permit. So, you've

33:06

got that problem along with

33:06

insurance that only has 90 days

33:10

to come up with an evaluation. I

33:10

mean, they're bringing they're

33:13

literally bringing adjusters in

33:13

from all over the state they're

33:16

having people call to, to do a

33:16

video assessment of your house,

33:21

because they physically can't

33:21

get everywhere fast enough.

33:23

Okay. So, the

33:23

system gets completely

33:25

overloaded. And that's big

33:25

mistakes are made at that at

33:30

that point.

33:31

Oh, yes.

33:31

Yeah.

33:32

The, a lot of the

33:32

if and just this week, they've

33:36

come up with some new topics for

33:36

new guidelines for what they're

33:39

going to allow them to pass as

33:39

emergency permitting. But even a

33:43

couple of municipalities will

33:43

give you emergency permitting

33:46

over the counter. But some of

33:46

them are still a week to a week

33:49

and a half out the whole time

33:49

that clock's ticking for them to

33:53

make decisions with insurance

33:53

and everything else that has to

33:56

happen.

33:57

And is there a

33:57

special permit process for

34:00

damaged homes versus the months

34:00

and months of the other?

34:06

Again, just, just

34:06

finalize this week as far as

34:09

basically, you know, what is

34:09

that going to look like? What's

34:12

the determination of how much

34:12

damage it received, if it's

34:17

classifying into a minor and

34:17

they've done a pretty good job

34:20

of outlining what that is now so it's going to take a lot of the guesswork out of it. But you

34:22

know, that will speed that up.

34:27

But once you get, start getting

34:27

near that number to at that

34:31

point, you'd have to have people

34:31

come out and physically assess

34:35

the location which is going to

34:35

create a massive logjam.

34:40

So, let me just

34:40

paint your picture as I see it

34:43

as it playing out which is why

34:43

I'm really glad I'm in Florida.

34:48

Would you say you have a lot

34:48

more demand and supplier at this

34:51

point? Okay, for rent and for

34:51

purchases.

34:57

For rent and

34:57

purchase we physically, we still

35:01

can't build fast enough. And,

35:01

you know, where I had the great

35:06

privilege to sit with some

35:06

gentlemen this evening that are,

35:08

you know, said, I don't know why

35:08

you've got me here, they got

35:10

more degrees than a thermometer.

35:10

So, you know, I'm not sure why.

35:15

But the bottom line is, you

35:15

know, being able to talk through

35:18

one of the things that I'm

35:18

seeing about our specific market

35:21

is, and this was even pre storm

35:21

is the amount of interstate

35:25

migration that was kind of our,

35:25

I guess, out of state migration

35:28

coming in, you know, up until

35:28

just a few months ago, we were

35:31

still having 975 people a day

35:31

moving to the state of Florida,

35:36

almost 60% of those people were

35:36

coming to Southwest Florida,

35:39

there's tons of land already

35:39

entitled that type of process,

35:42

just getting it done, you know.

35:42

And once the interest rates

35:47

started to tick up, okay, we

35:47

started pricing out some of our

35:50

market share from an

35:50

affordability factor. But there

35:53

was still enough cash buyers

35:53

coming in from out of state or

35:56

that could afford to take a

35:56

leverage point. But the reality

36:00

is now that there's no, nobody's

36:00

wanting to sell their, their

36:04

their product from a resale.

36:04

From a building perspective,

36:07

it's a good time to be a builder in Florida.

36:09

Well, it's also

36:09

going to have migration of a lot

36:12

of people to do work. So, you're

36:12

gonna have tons of people

36:15

migrating there that are, that

36:15

are probably going to figure out

36:18

in a couple years, I think I'll stay here.

36:20

Well, you know, that's the interesting thing that you're gonna talk a little

36:22

bit this morning. Again, if we

36:25

just take it last year, in 2021,

36:25

there was already a short supply

36:30

of labor to get houses built in

36:30

a time, you know, aspect when,

36:34

when Bruce and I first met, we

36:34

were building houses in 63 days,

36:38

because of supply chains. And

36:38

because of labor shortages and

36:42

that type process, we had hit a

36:42

point where we were at about 10

36:45

months, and now we're back down

36:45

to about five. Whereas for the

36:49

rest of the market, it's still a

36:49

pretty long build cycle. But in

36:53

that process, there was still I

36:53

could have hired 100 people and

36:56

still not kept up with demand.

36:56

Now, you add on 56,000 more

37:01

houses. And they're still

37:01

estimate, there's about 30

37:04

houses or 30,000 houses they

37:04

haven't been able to review. So,

37:07

that number is only going to go

37:07

up. When you take all of that in

37:11

that has to be done. How's it

37:11

going to be? How are these

37:13

things physically going to get

37:13

done? Well, we got to bring in

37:16

people from out of state. And so

37:16

there's interesting things,

37:20

where are they going to live

37:20

during this process? Because

37:23

there's already we just did 20%

37:23

of the market share of houses

37:26

out of the of the market. So,

37:26

what's that going to do to the

37:30

price relevance of our market,

37:30

the affordability to our market

37:33

and the need for housing in our

37:33

market?

37:36

Yeah, it's it's

37:36

going to be a very different

37:39

experience, I think in that part

37:39

of Florida than it would be

37:42

maybe in California, even though

37:42

the interest rates are going up.

37:45

I think the demand, I'm going to

37:45

I'm going to mention one other

37:48

thing about Craig. So, we were,

37:48

so we have a lot going on. I

37:51

don't know how many houses we

37:51

have, but 80 or something like

37:54

that. So, this is a day or two

37:54

after the hurricane, he said, I

37:59

basically need to just pull away

37:59

from construction right now. And

38:02

he's got a boat. And so this is

38:02

he's texted me says, Coast Guard

38:06

call me yesterday afternoon, I

38:06

ran another 120 people off of

38:09

Pine Island, six or seven at a

38:09

time. So, this guy is making 20

38:15

trips until it's completely

38:15

dark, getting people off an

38:18

island so that you can have

38:18

something to eat after days. So,

38:22

that's why that's why I like

38:22

working this up. And I said do I

38:31

need to bring anything and he

38:31

sent me the longest list I've

38:33

ever seen. So, my wife and I

38:33

went to Costco and loaded up the

38:40

back. It was great. He said one

38:40

thing they need man, the kids,

38:43

they have no kids clothes. Like

38:43

they're they have nothing so all

38:47

the kids have no clothes. So, we

38:47

went to Costco and just took big

38:50

scoops off of the, it's cool.

38:50

Cool. All right.

38:55

We'd also like to

38:55

thank our gold sponsors, Chase

38:59

Leland Photography, Inland

38:59

Valley Association of Realtors,

39:04

Keystone CPA, Inc, LA South

39:04

REIA, Leivas Tax Wealth

39:09

Management, NorCal REIA, NSDREI,

39:09

Pasadena FIBI, Tony Alvarez,

39:18

White House Catering, Wilson

39:18

Investments, Windermere Tower

39:23

Realty. See

39:23

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39:27

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39:27

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