From a small northwestern observatory…

Finance and economics generally focused on real estate

Meet my new neighbors!

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The Puget Sound Business Journal just revealed that Facebook is about to lease 1.3 million square feet in Seattle’s exploding South Lake Union neighborhood.  I might add that Expedia is moving from nearby Bellevue into a new campus in the Interbay Neighborhood (to the northwest of the map below).  They will occupy the 750,000 SF waterfront site formerly used by Amgen, but will add about 200,000 SF of new space to house up to 9,500 staff.  These announcement would be huge for any other top-20 market, but Seattle has it’s 1000 pound gorilla in the form of Amazon, which occupies a stunning 8,100,000 square feet, almost 20% of the downtown office space.  By the beginning of the next decade (that’s in about a year, folks), Amazon will employ about 55,000 people in my immediate neighborhood.

Facebook and Amazon

The attached map is courtesy the folks at the Seattle Times.  It’s about a year old (I’m too lazy to spend anymore time on this — journalists do great work.) but still more-or-less valid.  It is simply astonishing how much space Amazon occupies in one city.  For reference, in NYC, the biggest single private sector tenant is Citi, with only 3.7 million SF.  As for dominating a percentage of the skyline, Amazon’s 19.2% is also in first place, with the next highest being Nationwide Insurance which occupies 16% of downtown Columbus, OH.

This is even more stunning when you think of how many brand names are in Seattle or the Seattle suburbs — Microsoft, Boeing, Costco, Paccar (they make Peterbilt and Kenworth trucks), the Russell Group, Starbucks, Weyerhaeuser, Holland America, and T-Mobile, to name a few.  Add to that the Port of Seattle, which provides thru-put for Washington’s huge agriculture industry, and the associated expeditors, and hopefully you get the point.

I try to keep this blog from being too parochial, but it’s hard not to admit that Seattle is a pretty cool place to do business.  However, this comes with some drawbacks.  Morning commutes can be brutal — we have some of the worst traffic in America, and it’s getting worse by the day.  Rents are going thru the roof.  We are geographically constrained and the soil conditions make construction astronomically expensive.  Eight or nine months of the year, the weather is retched (but truth be told, it’s the most beautiful place in the world in the summer time).   The cost of living here is awful.  That said, the Creative Class, as the urban economist Richard Florida would call them, flock here by the bus load.  There is a lot to be learned from how we do things here.

 

Written by johnkilpatrick

November 29, 2018 at 9:27 am

Posted in Uncategorized

Happy Thanksgiving, everyone!

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All of us at the Kilpatrick family, and from our extended family at Greenfield, wish you and yours the best of holidays and a great holiday season.

With that, I want to take one minute for business — here is a post from yesterday on my sister-site, ACCRE.COM.  I hope some of you find this useful.  Best wishes —

Written by johnkilpatrick

November 22, 2018 at 10:09 am

Posted in Uncategorized

Homebuilder Confidence Slides

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The NAHB / Wells Fargo Homebuilder Confidence Index slid from 68 to 60 in a report  just released this morning.  This index is a composite of current builder expectations, buyer traffic, and 6-month sales expectations.   While a reading about 50 is considered positive, this drop — to its lowest level since 2016 — is widely considered a bearish indicator.  The monthly drop is the greatest since 2014.

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This announcement contributed to a down stock market open this morning, and with good reason.  Most investors do not appreciate the degree to which homebuilding permeates the broader economy, in terms of both direct expenditures (building supplies, equipment) and secondary and tertiary effects (payrolls, land investments, permitting and fees, insurance — the list goes on). Economists estimate that homebuilding contributes about 15% to 18% to overall GDP.

New home construction tends to be skewed toward first time buyers, and the shortages of such buyers has plagued the market for some time now.  This signal suggests demand is seriously worsening.

On the positive front, commercial real estate looks pretty good this morning.  My sister blog, ACCRE.COM, will have some commentary on that later this week.

Written by johnkilpatrick

November 19, 2018 at 7:33 am

Posted in Uncategorized

Political picture of America

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I tend to avoid political commentary on this blog, save for issues concerning the economy.  However, this morning I stumbled on some data — or more specifically, data presentation — which will be of interest whether you are a republican, democrat, or something else entirely.

Robert Allison, writing on the SAS Learning Post this morning, has a great piece titled, “Building a Better Election Map“.  Allison notes that we are all confronted with a congressional election map that looks something like this:

us_congressional_map_2018

This is misleading on a lot of levels.  From a republican perspective, it implies that they still have control of the vast expanse of America.  For democrats, this map makes them question whether or not they really took control of the House of Representatives.  It’s simply not a good way to combine the population distribution of the U.S. with the data on House representation, which is supposed to be apportioned according to that population distribution.  Allison experimented with a number of formats, and ended up with a great interactive map that divides the U.S. up into 435 equal sized representational images and then color codes them according to the current representation.  Note that this map also shows where “flipped” seats happened this year.

us_congressional_cartogram_2018

Well, ain’t THAT neat!  This immediately lets the reader see where geographic trends are happening.  Several interesting pieces of data come out instantly.  For one, Texas is “bluer” than one might think.  Second, the largest number of republican-to-democrat flips happened in pivotal Pennsylvania (not in California, where one might have thought listening to the newscasts).  Third, the old Confederacy is a lot “bluer” than one might have thought, with democrat-to-republican flips happening in Virginia (2), South Carolina, Florida (2), Georgia, and Texas (2 thusfar).

As noted, Mr. Allison’s work is interactive, and I highly recommend you read his entire piece.  It’s a great article on both politics as well as data representation.

Written by johnkilpatrick

November 15, 2018 at 6:25 am

Back again!

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I’ve been gone for over a month, but hopefully not forgotten!  One of the big stories around Greenfield has been the continues soft-launch of our REIT Fund-of-Funds, ACCRE.  We’re rolling this out as a subscription-based newsletter, rather than an actual managed fund.  However, non-subscribers wishing to follow our progress can simply tune into the blog itself, ACCRE.Com, and follow our periodic posts, but without access to the actual fund itself:

www.accre.com/2018/11/fund-status-for-october-2018/

 

Written by johnkilpatrick

November 7, 2018 at 8:09 am

A picture of America

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This is a great picture.  I wish I had thought of it, but it comes courtesy of the great people at Bloomberg News.

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Full disclosure — I’ve had the pleasure of working with the good folks at Bloomberg as an expert consultant on occasion.  They’re great folks to work with.

Written by johnkilpatrick

September 18, 2018 at 5:03 pm

Posted in Real Estate

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Why things suck, part deux

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The Bureau of Labor Statistics just released the 94th consecutive positive monthly jobs report.  This is nearly a record, and should be great news.  Indeed, the zeitgeist among the workforce should be euphoric.  Should be, anyway….

Of course, the devil’s in the details, and our good friends at Seeking Alpha, normally a bullish lot, took the liberty of dismembering the trends and statistics, and have found some trouble right here in River City (and everywhere else, for that matter).  For sure, there has been nattering from both the learned and les gens ordinaires about things like “underemployment” and “wage growth”.  Indeed, my own earlier column, Why Things Suck, demonstrated that for the last 40+ years, wages in America have not kept up with the cost of living, and the cumulative differential is now huge.  In other words, folks are getting jobs, but those jobs really suck.

The folks at Seeking Alpha did something more interesting, though.  They looked at cycles and trends, and particularly those relative to the onset of recessions.  (Note that I looked at this same trend with respect to the Yield Curve back in late August.)  In an article on Thursday titled “Employment: It’s the Trend That Matters”, Lance Roberts did a great job of dismembering the current news into the key and critical trends.

He starts off with giving the devil his due — the seasonally adjusted trend line in employment is sharply upward.  However, when you take a peek at some of the underlying issues, you come away with some very different information.  Workforce participation stinks, in no small measure due to the fact that over-55 workers are staying in the workforce, to an extent crowding out younger workers.  He notes that for many of these older workers, retirement is simply not an option today.  Many of these folks will simply have to work until they die.

More to the point, though, the actual rate of change in employment is trending downward, both in the long-term and the short-term.  Roberts goes back several decades and finds that the general employment trend in America, as a rate-of-change percentage, is downward.

 

saupload_Employment-Annual-Change-071018
Courtesy Lance Roberts, Real Investment Advice

 

In short, when you take a simple linear trend over the last 3/4 of a century, back as far as we’ve been keeping good data, the suggestion is that our workforce growth is really declining.  This has some broader implications for a maturing economy with a lot of upscale opportunities, a lot of service-oriented jobs, and not much in the middle.

Of more immediate concern, though, the jobs numbers, while positive, are trending in a way that suggests a recession is not far off in the future.  Recall in my article about the Yield Curve I noted that this market looked a lot like some other trends we’d seen before.  Roberts doubles down on that with employment numbers.

 

saupload_Employment-12-month-Average-NSA-091218
Courtesy Lance Roberts, Real Investment Advice

 

In the end, Roberts issues an homage to those of us who watch yields more closely than employment, noting that one or the other — yields or employment — will soon break.  His question is, which first?

Written by johnkilpatrick

September 15, 2018 at 9:06 am

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