Happy Ground Hog Day! As I’m writing this, Punxsutawney Phil has yet to come out of his den to predict what the next six weeks will bring: more winter ⛄ or an early spring 🌷. But whichever it may be, Bill Murray’s old movie 🍿 today will be everywhere to see. If you — like Bill — find your day repeating, just ask Phil what he’s been eating.

Situation Awareness: Lots to do and see in Orlando this Groundhog Day Weekend:

1 big thing: An idea with momentum - Converting hotels to apartments

Housing costs are outstripping wage growth, and underperforming hotels contribute to urban blight. One solution: Convert old hotels into affordable apartment complexes.

Why it matters: For private investors going for market-rate apartments, the ROI is promising. Philanthropic organizations trying to get people off the streets by renting at a fraction of market rates can draw on public funding and private donations for the work.

Two birds: Converting decaying old hotels into affordable multifamily rental housing properties revitalizes properties and neighborhoods — and puts roofs over heads.

  • More than 650,000 people experienced homelessness in 2023. One prevailing cause was the lack of affordable housing.

  • In many cities, older hotels located far from attractions or the business district struggle to fill rooms. Some say dilapidated like these are an invitation to crime.

In Tacoma, WA: Mortgage broker Frances Nguyen and her partners are turning a run-down American Lodge into a 145-unit studio apartment building. Monthly rents, including utilities, will run $1500.

  • The ROI on hotel conversions is better than on apartment building rehabs, Nguyen notes. “We can get cash flow, we can get appreciation, and we can also get the tax benefits with projects like this.”

  • She adds: “What we’re trying to do is bring the community together, create homes for the workforce, and make the space a better environment for the community here.”

In Osceola County, where the unhoused population has increased 67% since 2018, Hope Partnership is converting Kissimmee’s Crown Hotel into 30 low-cost studios with kitchenettes.

And in Orlando, One Stop Housing is putting in full kitchens and refashioning the Ambassador Hotel as Palm Gardens.

  • Monthly rent for the 150 one-bedroom and studio apartments will start at $750, utilities included. (The median rent in Orlando for a studio is $1700.) To qualify, residents must earn less than 80% of the city’s median income.

  • Funding for the project comes from a city initiative that disburses $58 million from the Biden administration’s American Rescue Plan Act.

  • Studios coupled with expandable all-in-one furniture make for a pretty nice living space.

The bottom line: At a time when housing prices put ownership out of reach for many, rental rates continue to outstrip wages, and empty hotels in cities everywhere threaten blight, hotel conversions are looking like an eminently practical solution.

2. Homebuilders’ construction costs easing

An uptick in supply chain volume means lower costs for homebuilders and more inventory to choose from for home buyers.

Why it matters: The tight housing market should loosen up as construction materials become less scarce and expensive.

  • Builders with lower upfront costs can look forward to bigger profit margins without raising prices, an incentive to increase production.

  • This is also good news for buyers who’ve spent years stymied by low inventory.

Overall, most construction costs for single-family homes have either stayed flat or declined for the last twelve months — though they’re still higher than they were before the pandemic, says HousingWire.

By the numbers: According to the Bureau of Labor Statistics’ Producer Price Index:

  • Trade services stayed close to steady over the last six months, with a low of 150 in July and a high of 153 in December. By contrast, figures between June 2021 and March 2023 ranged from 174 to 182.

  • Energy stood at 121 in December, the latest stop in its years-long wild ride: the spring of 2020 saw a low of 49.5, while June 2022 topped out at 206.

  • Transportation and warehousing ended last year at 130, falling off twenty points from the summer of 2022.

What’s next: The Price Index tells us where we are, not where we’re going. Association of Builders and Contractors Chief Economist Anirban Basu points out at least one new challenge for 2024:

  • So far this year, cargo ships have been rounding the Cape of Good Hope rather than taking the shorter route through the Suez Canal, thanks to Red Sea pirates.

  • The detour caused global freight costs to almost double in January.

  • Attacks on cargo ships by Houthi rebels in the Red Sea have stepped up, causing even more detours around Africa for goods and oil.

The bottom line: We can expect more new builds in 2024, but how much more depends on several factors:

  • Will construction costs continue their slow but steady decline, or will unforeseen events disrupt the industry again?

  • Will interest rates continue to drop, loosening the purse strings of builders and buyers?

  • Will the cost of land in the US continue to skyrocket?

The bottom line: Coming into 2024, the housing sector (and most other economic sectors) was expected to be boring. But world events can change the calculus in the blink of an eye.

Coming Monday, February 5 to our YouTube channel:

Tom Lehmann jumped into real estate after leaving the health food industry. He has quickly moved from renovating and wholesaling to manufactured home construction and development. He shares how resilience and not letting perfect become the enemy of good enough has helped him to start scaling his business in ways he’d never dreamed in our Master Series of “Trust This.” on YouTube.

Advertisement

3. Catch up fast

Graphic: Ed Nava, Tenor.com

“Work-life balance” is an unattainable and distracting goal.

Why it matters: Many people become entrepreneurs, leaving a W-2 job, in search of this goal. They would be better off looking for Big Foot or the Loch Ness Monster than the work-life balance they seek.

The most successful entrepreneurs I know have confided that they too seek a work-life balance, but have learned that — when you try to do two or more things equally well — you end up doing neither. You find mediocrity instead of excellence.

Balancing work and life (health, family, self-improvement, etc.) is more like spinning plates on the ends of poles.

  • At least one plate will fall now and then.

  • But you have to catch it, put it back up, and start spinning again.

Yes, but: There’s more than one way to spin a plate.

  • If your business is a mess, getting it in order will create more time for focusing on family, health, and your life.

  • Focusing on “who” rather than “how” will things get done each day frees you to focus on what you love and do best.

  • Having core, repeatable processes written down, simplified, and followed by all creates momentum to hire and scale.

  • Developing key performance indicator data points that are tracked and reviewed helps you feel more comfortable relinquishing control over the daily work grind.

  • Having a spouse or life partner who understands that the business will often take precedence over family time and provides space and support to do that is like rocket fuel for the entrepreneur.

The bottom line: Letting go of the myth of “work-life balance” is the first step to clarity for an entrepreneur to focus on getting the “work” in a healthy enough position so that she can focus on spinning the plate of “life” as intensely as she did the business.

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

Be on the lookout for our next issue! 👋

  • Our mailing address: PO Box 547945, Orlando, FL 32854-7945

  • Our physical address: 1901 West Colonial Drive, First Floor, Orlando, FL 32804

Newsletter

February 2024

January 2024

Title

👋 Happy Friday! Today is World AIDS Day, which started in 1988 as a global movement to unite people in the fight against HIV and AIDS. Approximately 39 million people are currently living with HIV. More than 35 million people have died of HIV or AIDS-related illnesses over the past 40 years, making it one of the most destructive pandemics in history. While there is medication to prevent infection, and those with HIV (with access to the appropriate medication) can expect to live as long as their non-infected peers — there is still no cure; but research of the virus has yielded dividends across the medical spectrum.

1 big thing: Verdict in NAR Lawsuit

The jury in Burnett v. NAR et. al. found that real estate brokerages colluded to force home sellers to pay inflated fees via the Multiple Listing Service (MLS), violating federal antitrust laws. It’s an industry-rocking verdict.

What happened: As a condition of gaining access to the MLS, plaintiffs alleged, NAR’s Participation Rule required sellers to pay buyers’ agent fees.

  • Jurors in the case agreed with plaintiffs that the Rule facilitated a “you scratch my back, I’ll scratch yours”-style arrangement between buyers’ and sellers’ agents at the sellers’ expense—and in violation of antitrust statutes.

Why it matters: If appellate courts uphold the verdict, the ruling could materially impact the distribution of fees and brokerages’ revenues. Brokerages will no longer be able to predetermine buying agents’ fee payment and value.

  • Furthermore: Defendants in the suit would be responsible for $1.78 billion in damages (which the court could triple) and damages awarded in any number of subsequent lawsuits. One has already been filed.

What the defendants say: None of the defendants agree with the allegation that they intentionally passed inflated commissions onto sellers.

  • NAR specifically denies it engaged in anti-competitive practices and vows to continue to “support market-driven pricing and promote business competition.”

  • “Agent compensation is set between brokers and their clients and has always been negotiable at any point in the transaction,” NAR maintains.

Appeal pending: NAR plans to appeal the jury’s verdict, hoping to reverse a ruling that could have far-reaching financial implications for brokerages, agents, buyers, and sellers.

The bottom line: Pending the outcome of NAR’s appeal, the Burnett v. NAR ruling could catalyze a material change in MLS listing rules and the agency compensation model. While several real-estate stocks took losses after the jury verdict, the erosion of fee-derived revenues could deal a far heavier blow to brokerages over the long term.

2. Commission Lawsuit: What Florida Realty Pros Need to Know

A Missouri jury said NAR’s Participation Rule broke federal antitrust laws. Still, the question remains open until the appeals process concludes, and how it affects Florida’s real estate industry is up in the air.

While we wait: The leadership team at Florida Realtors says brokers are not obligated to change their business practices while NAR appeals the Burnett verdict.

There is no change in the way we do business today [with respect to the Burnett decision]. — FAR President G. Mike McGraw.

  • Why it matters: Burnett v. NAR et al. is a precedent-setting case—and will likely inspire copycat lawsuits in other states, including Florida.

Citing Burnett v. NAR et al. verdict as precedent, Florida lawsuits could:

  • Prevent brokerages in the state from any arrangement resembling the NAR’s Participation Rule

  • Affect the cost and value of conducting real estate transactions in Florida for agents, brokerages, buyers, and sellers

If the appeal fails: Florida realtors and investors can expect monumental changes. Industry experts note the potential ramifications of an upheld verdict:

  • More variance in fees for buyer’s agents: If courts maintain that NAR’s Participation Rule violates antitrust statutes, buyer’s agents in Florida may lose their guaranteed commissions. They’ll need to brush up on their negotiating skills.

  • A possible race to the bottom: At a time when buyers and sellers are looking to save money, real estate brokers throughout Florida may differentiate themselves by offering lower fees than their competitors. This competition could be a downward force on commissions.

  • Creativity in how brokerages charge for their services: Hoping to avoid such a downward spiral, brokerages in the Sunshine State may test new fee structures, such as flat fees, for their services. Expect innovative approaches among brokerages not content to accept ever-lower percentages on transactions.

A boon or a bust for investors? How the elimination of NAR’s Participation Rule might affect investors remains to be seen.

  • If they can negotiate lower agent fees when buying or selling property, they’ll likely view it as a win.

The bottom line: If you’re a Florida Realtor or real estate investor, don’t dismiss the ruling. Depending on the outcome of the appeal, all players in Florida’s real-estate industry should prepare for the short- and long-term financial implications.

3. Catch up fast

  1. Fidelity National Financial, the world’s largest title insurance company, was hit by cyber attack before Thanksgiving, causing it to shut down systems that — in turn — delayed or prevented closings nationwide. The Record

  2. FHFA is increasing conforming loan limits for 2024, opening up more expensive home purchases to conventional mortgage loans. ALTA

  3. Research shows that banning AirBnB’s lowers rent prices for long-term rentals. Bigger Pockets

  4. Mortgage rates declined to 7.22%, the fifth decline in as many weeks. Bloomberg

  5. What it would take for the Fed to start slashing rates in 2024. CNBC

4. Thought of the day

Yesterday, I attended the funeral of my second cousin, who was like a big brother to my dad and more like a fun, great uncle to my brother and myself.

The preacher, who also happens to be our hometown insurance agent and the husband of my 7th-grade English teacher, was also my cousin’s friend. So his eulogy was peppered with personal anecdotes and memories that made everyone chuckle and sigh as their own memories were triggered through his words.

  • In 15 minutes, he hit the highlights of my cousin’s life as a high school senior, marrying the love of his life at 17 years old; then as a Naval Korean War vet; and then as a very successful business owner.

As he moved through the vignettes of my cousin’s life, I started wondering what my 15-minute “highlight reel” will sound like. What will they say about me when I’m gone?

The bottom line: Many of us seek 15 minutes of fame, but wouldn’t it be better to focus on “writing” our 15-minute summary instead?

  • If we focus on making memories for others and ourselves, our highlight reel of a lifetime will indeed be rich.

We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.

Be on the lookout for our next issue! 👋

  • Our mailing address: PO Box 547945, Orlando, FL 32854-7945

  • Our physical address: 1901 West Colonial Drive, Orlando, FL 32804

Go to Top