Tuesday, June 14, 2022, Naxos, Greece


Building Wealth

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A Change of Plans 

Two years ago, I got clearance from my town to tear down my current office space in Delray Beach, an 11,000-square-foot storage building, and replace it with a 40,000-square-foot Class-A office building. The plan was to rent it to one or several of my businesses. That has been a very good investing strategy since I started building businesses 40 years ago.

Then the pandemic hit. Which brought on remote working. Which felt like it was going to be at least partially permanent. Which sated my appetite for acquiring more office space since I wouldn’t be needing more, even if the businesses continued to grow. So, I put the project on hold.

The same thing happened with the office buildings my partners and I have in Baltimore and London and Paris and other cities. The pandemic made us realize that the old model of centralized office locations, and the bedroom suburbs they spawned, may continue to exist, but as fractions of their former selves.

Notwithstanding the recent uptick from the bottoms hit early last year, I’m not bullish on office space right now. In Delray Beach or elsewhere.

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News & Views

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The rise in local rental prices (see above) reflects a larger trend: two years of growth in the US housing market. That includes house prices, rental prices, remodeling expenditures, brokerage fees, etc.

From March 2021 to March 2022, the average home price as measured by the S&P CoreLogic Case-Shiller National Index rose by a stout +20.6%. That’s the highest rate of growth ever recorded for the index.

In a recent issue of Zacks, Mitch Zacks explains the factors driving this:

  1. Low Inventory of Housing 

Following the 2008 Global Financial Crisis – spurred in part by a collapse in the housing market – new-home construction in the US plateaued. As a result, Freddie Mac estimates that the US is about 3 million homes short of what’s needed. At the end of April 2022, there were only 1.03 million homes for sale in the US. That’s about a two-month supply – about 50% less than historical averages.

  1. Low Interest Rates 

Part of the Federal Reserve’s plan to boost the economy during the pandemic involved becoming a large-scale purchaser of bonds backed by agency mortgage loans from Fannie Mae and Freddie Mac. The Fed created a massive demand for mortgage securities, which pushed yields down and generated the lowest mortgage interest rates in history by the end of 2020.

  1. A Surge of Millennial Buyers 

In 2019, millennials surpassed the baby boomers as the largest living adult generation in the US. But many were not buying houses. They were living with their parents. COVID-19 changed that. In 2020, millennials accounted for more than 50% of all home-purchase loan applications for the first time ever. By 2021, millennials made up 67% of first-time mortgage applications and 37% of repeat-purchase applications. A rising trend that appears likely to continue.

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Arts & Letters

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Another great essay by the great Theodore Dalrymple in Taki’s Magazine, this one on junk art. Here’s an excerpt:

            “Empty Frames”

“Only a couple of weeks after the draping of the Arc de Triomphe in Paris, a Danish self-designated artist called Jens Haaning has exhibited a work, or possibly two works (depending on how you look at it, or them), called Take the Money and Run. They consisted of two empty frames, one larger than the other.

“Haaning had previously exhibited two works, An Average Danish Annual Income, which consisted of Danish currency notes (lent by a bank) in a frame, and An Average Austrian Annual Income (likewise in Euros). The Aalborg Kunsten Museum of Modern Art asked him to reproduce these great works for an exhibition at the museum to be called “Working It Out” and paid him $85,000 to do so.

“The artist, however, thought it would be more interesting – for whom he did not say – to create a new work rather than copy or repeat the old, hence the two empty frames. The museum asked for its money back, but the artist refused. I must say that in the dispute between them, my sympathies are with the artist. He was like one of those highly colored insects that proclaims its poisonousness to all would-be predators; no one who gave him $85,000 could have thought that he was going to get a Velasquez or a Vermeer in exchange. And in fact, Mr. Haaning, wittingly or unwittingly (I suspect the former), performed a useful social service by exposing the fatuity of the way in which, in our contemporary conditions, money for the arts is doled out by the supposed keepers of the flame….

“It then occurred to me that the episode suggests a way forward for Western art.”

To read the entire essay, click here. 

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Worth Quoting

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“The greater danger for most of us lies not in setting our aim too high and falling short, but in setting our aim too low and achieving our mark.” – Michelangelo

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A Word to the Wise

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Fatuity is another way of saying stupidity or foolishness. As used by Theodore Dalrymple in “Empty Frames,” above: “Mr. Haaning, wittingly or unwittingly (I suspect the former), performed a useful social service by exposing the fatuity of the way in which, in our contemporary conditions, money for the arts is doled out by the supposed keepers of the flame.”

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Postscript

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An amazing guitar solo…

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