6/14/22 – Detroit Mastermind Group

Detroit June 2022 Key Take Aways

• Steve Sallen – Maddin Hauser – The interest rate market is very volatile right now and it is affecting all the real estate deals that are in the hopper and assume it is affecting the ones that are not getting in the hopper as well.  It is making a lot of people nervous as it is putting a drag on the market.
• Nick Maloof – Associated Environmental Services – Spoke at the State Bar at the Law Section Summer Conference last week. Was on the Vapor Intrusion Panel with Arthur Segal. We were bemoaning the state of the Eagle enforcement and handling of vapor intrusion. This vapor intrusion issue is starting to have an impact on some of the Brownfield development properties. Eagle and EDC staff are going to start requiring sampling for VI and development sites that are brownfields.
• Dave Dismondy – District Capital – Things are a bit crazy now. There is no shortage of cash or land. You just have to make the deal work. Sellers and buyers must be on the same page, that takes time.  This is Dave’s focus for now and the next few months.  Some companies are still doing four-rate boxes, which is now looking pretty appealing. Don’t know why they are willing and able to do that, but closing alone this month, the 15-year fixed rate is 3.25%; it is lower than the 10-year treasury, which is kind of interesting.
• Matt Fenster – Etkin Real Estate Solutions – 20 years ago or so, there were a lot of REITs that were in the market for general office space. They were all gobbling up products. Then when there wasn’t so much property to gobble up, they started to gobble up each other. The big guys were gobbling up the smaller guys.  On the healthcare side of things, I’m starting to see that happen now. A lot of the class A medical buildings have been acquired.  We are starting to see mergers and acquisitions of healthcare REITs buying each other out. The big one is Healthcare Trust of America which is being acquired by HCA. We’re also seeing larger portfolio sales.
• Martin Lavelle – Federal Reserve Bank of Chicago – Follows a group of blue chip economic forecasters that have become more pessimistic about 2022 and 2023 economic growth. They’re now looking at 2022 GDP growth to be 1.5%.  We all saw how Walmart, Target, Best Buy got stuck with too much inventory coming in late. They couldn’t sell it, so they’ve marked it all down and hit their margin in the first quarter. If the economy slows down enough through a combination of many things, but mostly inflation, more money will be going toward food and energy, and not toward discretionary items.  It seems people still feel like we want to get out and travel and spend and do other things they couldn’t do for so long.  Once that pent up demand slows down, maybe it slows down enough to where it impacts current production, inventory catches up a lot faster, backlogs work through quicker, and production demands aren’t as strong as what may have been before. That gets you into the potential impact of unemployment, which then would hurt economic activity more if production is impacted.
• Ron Sollish – Maddin Hauser – Had a client a few years ago who had a portfolio of manufactured houses which they disposed of for a nice amount, and that allowed them to become liquid. Then they started buying up single-family homes and doing rent-to-own transactions across the country. Thought it was going to be a flash in the pan, but what we’re seeing is this market is expanding dramatically. A few articles that suggest that with the increase in mortgage rates, and the amount of debt that many young people are carrying, they don’t have a down payment to bring into this space, these rent-to-own transactions are going to become more prevalent.
• David Hart – Maddin Hauser – Courts are now open and moving on real estate disputes.  The pandemic has spawned a lot of property disputes. During the pandemic, people actually went to check to see exactly where their property lines are. Perhaps they were trying to sell it or get a survey or drawings done for additions.
• Seth Horan – Marcus Millichap – There are no changes in the cap rates, except for medical and retail. The “non-trophy” quality products are seeing the most cap rate movement.
• Mike Sabrosky – Oliver Hatcher Construction – They have been very busy and are currently looking for more project managers. Difficult to take any more work for 2022 because of worker constraint. Work has been very steady. Where it used to take approximately 3 months to sign contracts, now it is routinely taking 6 to 9 months because the pricing is moving so much. Lumber prices have dropped recently. Steel pricing has stabilized, and HVAC has so much backlogged work that they are not dropping their pricing.
• Tom Barrett – State Bank – Starting to see margins increase and 10 years of historical interest rates which created a comfort zone for us. Interest rates will continue to go up. Very busy at the bank, but storm clouds are gathering.