Home » Archives for Josh

Author: Josh

Albany’s Next Bright Idea: Commercial Rent Control

Albany’s Next Bright Idea: Commercial Rent Control

Published on March 3, 2026

Legislators in Albany are at it again, and their newest target is commercial rents in New York City.

The proposal isn’t new, but rather a recycled, tired version of ideas that have already decimated segments of the city’s commercial real estate market. If passed, expect higher vacancy rates, declining asset values, and owners forced to choose between economic ruin and deferring much-needed maintenance. Not quite a “Sophie’s Choice,” but still the proverbial choice between a punch in the stomach and a roundhouse kick to the face. And yet, here we are.

The Small Business Rent Stabilization Act—Innocent Name, Ugly Consequences

Two state legislators, Julia Salazar and Emily Gallagher, want to restrict increases on commercial rents and grant retail tenants automatic 10-year lease renewals. The bill would create a nine-member Rent Guidelines Board—similar to the one governing stabilized apartments—responsible for setting rent increases for commercial properties.

It sounds benign. Who doesn’t support small businesses? It isn’t. What could go wrong with politically appointed individuals dictating commercial rents in the country’s most complex retail market—or allowing underperforming tenants misaligned with neighborhood trends, to remain in place in perpetuity?

Then there’s the matter of lenders. Many loan covenants impose requirements tied to retail rental income and tenant quality. This proposal appears to overlook the tension between regulated rents and private lending agreements.

Vacancy Rates Are the Rationale

According to Salazar, the justification is the “very high…storefront vacancy rate in New York City,” and the “need to level the playing field for both commercial and residential tenants.” But how would controlling commercial rents solve high vacancy rates? Quite the opposite may occur. The further regulated rents drift from market rates, the greater the incentive for landlords to keep storefronts vacant rather than lock in unfavorable long-term leases.

Sound familiar? It should. New York City is sitting on more than 50,000 vacant rent stabilized units following the 2019 changes to rent laws. There is little reason to believe commercial space would behave differently.

Do Retail Tenants Need Protecting?

Unlike residential tenants, commercial tenants tend to be more sophisticated. They retain legal and professional counsel. They analyze foot traffic, demographics and neighborhood trends before signing leases. They are not similarly situated to residential tenants and do not require the same level of statutory protection.

Commercial Rent Control Isn’t a New Idea—Just a Bad One

Commercial rent regulation proposals in NYC date back to the 1980s, but they have consistently failed to gain traction. Perhaps the only encouraging aspect of the current proposal is that it, too, appears unlikely to pass. In the State Senate, it has just one co-sponsor of the bill, and Assembly support remains limited.

That’s the good news. There is, however, reason for caution.

Like Salazar and Gallagher, NYC’s Mayor Zohran Mamdani is a Democratic Socialist who campaigned on and supports similar proposals. Commercial rent control may not advance, but the broader appetite for price regulation persists. Mamdani recently floated a 9.5% property tax hike to address anticipated budget shortfalls—a reminder that interventionist policy proposals remain firmly in play.

Price controls are not the answer. Let the law of supply and demand dictate pricing. It works.

Sources:

https://www.cityandstateny.com/policy/2026/02/socialists-take-aim-commercial-rent/411572/

https://en.wikipedia.org/wiki/Julia_Salazar#cite_note-14

https://www.reaganlibrary.gov/archives/speech/inaugural-address-1981

https://www.city-journal.org/article/vacant-new-york-city-apartments-rent-control-housing#:~:text=New%20York%20City%20has%20nearly%2050%2C000%20vacant,improvements%20profitably%20*%20Reset%20the%20stabilized%20rent

Leave a Comment

AI, Rising Rates, and Rents: What 2025 Has in Store

AI, Rising Rates, and Rents: What 2025 Has in Store

Published on January 13, 2025

AI is Coming For You, Are you Ready?

First it came for the call centers, and I did not speak out—because I wasn’t impacted. Then it came for the executives, and I did not speak out—because I wasn’t impacted. Then it came for the coders, programmers, doctors, lawyers and finance bros, and I did not speak out—because I wasn’t impacted. Then it came for me—and there was no one left to speak for me. In 2025, the power of AI and its multitude of applications will manifest itself—are you safe? Probably not, but it’s not personal, it’s just capitalism at work.

Interest Rates Elevated and Here to Stay

The Fed reduced the overnight lending rate in 2024, but unfortunately the 10-year yield didn’t get the memo. It spiked and remains high in 2025. For troubled landlords, refinancing is a luxury afforded to those with the ability to infuse new capital. With banks all but done with the “pretend and extend” charade, expect more distress in the commercial real estate space. Any unforeseen inflation resulting in the Fed responding with increased rates could prove apocalyptic for certain asset classes.

Housing Supply Constraints = Higher Rents

With vacancy rates under 2% in NYC and housing supply severely constrained, expect rents to continue to creep higher. Yes, good cause eviction caps those increases but expect landlords to extract every dollar available to them. The City of Yes may—to some extent—mitigate the lack of supply but developers can’t build fast enough in the short term. And don’t expect any legislative changes to the rent regulatory regime to save the day. Looks like mom and dad will need to continue bankrolling junior’s rent until they too break.

Leave a Comment

Peter Hungerford Zigs When Everyone Else Zags: Today’s Ultimate Contrarian Investor of Rent Stabilized Properties

Peter Hungerford Zigs When Everyone Else Zags: Today’s Ultimate Contrarian Investor of Rent Stabilized Properties

Published on October 15, 2024

When top players in any field bet against the trend, it’s always worth paying attention.

The Struggling Market for Rent-Stabilized Properties

In the current NYC real estate market, rent-stabilized properties are widely seen as a distressed asset class. Some of the largest owners are net sellers, and it’s easy to see why. Rent rolls have stagnated, while expenses, notably property taxes and insurance, are climbing at an alarming rate—reportedly 1.5 times faster than rents. This trend, if left unchecked, suggests a grim outlook, where rent-stabilized properties could theoretically reach a terminal value of zero.

Hungerford’s $180 Million Contrarian Bet

Enter Peter Hungerford of PH Realty, who is taking a starkly different view of the market with his recent $180 million acquisition of a 1,300-unit portfolio, 85% of which are rent-stabilized. While the 40% discount to the previous owner’s purchase price is noteworthy, it’s tough to say whether the portfolio was acquired at a favorable basis without knowing more.

With around 10% of the portfolio’s units currently vacant—split between market-rate and rent-stabilized apartments—there’s a potential opportunity to renovate and boost revenue, particularly with respect to the market-rate units. However, the rent-stabilized units present much more limited upside due to the unfavorable rules related to individual apartment improvements. The question remains and no doubt Hungerford is well aware of the answer: is there enough room to make these units profitable under the current rules?

Hungerford himself has remarked that this acquisition isn’t “really about increasing revenue, as much as operating the properties as a responsible local landlord.” A noble position for sure, but one has to wonder whether his investors are hoping this is simply politically necessary lip service or a quote taken out of context. As an acquisition of this magnitude must have a value-add component to it.

Betting on Property Tax and Insurance Reform: A Risky Wager?

Hungerford points to two of the largest expense items where he believes change may be afoot: property taxes and insurance. Industry-backed groups are lobbying and even litigating for a change to the tax assessment process (link here), but success if far from guaranteed. As for insurance, Hungerford speculates that rising premiums could push the federal government to intervene. Whilst this is an interesting take, it hinges on factors beyond his control. Can this really be the cornerstone of his strategy?

Other Potential Changes Beneficial to Landlords

Looking ahead, there is some optimism that interest rates may have peaked. If borrowing costs decrease, this could drive down cap rates and boost property values. Additionally, the Rent Guidelines Board could opt to align rent increases with inflation, providing some relief to offset rising expenses. There’s even been a proposal in Albany—though not passed and in legislative limbo—that would allow landlords to charge a “first rent” upon tenant turnover if the previous tenant had lived in the unit continuously for more than ten years (link here) These potential changes, while hopeful, are still speculative at best.

Contrarian or Misguided? Sometimes the Wisdom of the Crowd is Simply Wisdom

As much as NYC landlords may hope for favorable changes in property tax laws or federal intervention to backstop insurance premiums, wishing it doesn’t make it so. Contrarian thinking is appealing, but it doesn’t always lead to success. Though hard to say, Hungerford’s basis in these properties and cost of capital may provide a significant margin of safety. Still, he is betting against market sentiment that has led many seasoned landlords to exit rent-stabilized properties at significant discounts. Sometimes, the wisdom of the crowd isn’t flawed or irrational—it’s simply wisdom.

Sources:

PH Realty Takes Massive Rent-Stabilized Portfolio at 60% Discount (therealdeal.com)

Landlords Say New Law No Help For Vacant Units (therealdeal.com)

Leave a Comment

Linda Rosenthal: Hypocrite, Incompetent or Housing Crusader for the Poor? You Decide.

Linda Rosenthal: Hypocrite, Incompetent or Housing Crusader for the Poor? You Decide.

Published on October 9, 2024

Few outside District 67 likely know Linda Rosenthal, the State assemblywoman who represents constituents on the Upper West Side and Hell’s Kitchen, and recent appointee to Chair of the Housing Committee in Albany. When it comes to NYC’s housing policies, her views matter…a lot.

To some, she is a noble crusader zealously fighting for affordable housing rights for New Yorkers; and, to others, she is a much more sinister character with an axe to grind against real estate developers and the well-off residents of NYC. Which is it…maybe a bit of both?

To her credit, she recognizes that “skyrocketing rents…have left far too many New Yorkers behind,” but beyond that, she is at a loss on how to effectively fix the issue. At every turn, she has made it more challenging for developers to build and was a vocal critic of the now defunct 421-a program. Furthermore, she opposes any form of “means testing” for rent stabilized units—a policy that would free up much needed apartments for low income families and prevent well-off New Yorkers from being afforded the benefits of rent stabilization.

It gets worse: Rosenthal has been living in a five-room rent stabilized apartment on the Upper West Side since 1984 and currently pays $1,573 a month. For context, a similar unit in the building rents for $5,200. When questioned about the overt conflict of interest, she brushed off the concerns noting “everybody has to live somewhere.” True, but few of us are in a position to control our own rent in perpetuity. As Housing Committee Chair, Rosenthal isn’t New York City rich but the $154,000 a year puts her in the top 20% of all earners in the United States so it’s no wonder a “means testing” approach is off the table under her leadership. It all smells, and not good.

Most disconcerting is Rosenthal’s failure to acknowledge or inability to comprehend the real issue: the lack of sufficient housing (it’s the supply side Linda). Last December, she quipped that she isn’t “worried about non-affordable housing” because “people who have means can buy, rent anything they need in this city.” That may be true for the uber wealthy but ironically not for many average New Yorkers and even an upper middle class assemblywoman making $154,000. The cavalier “let them eat cake” attitude coupled with a mindset of “as long as I get mines” and a smattering of incompetence makes Linda Rosenthal one of the more ill-informed and dangerous-for-the-city legislators to surface in some time.

Sources: https://www.wsj.com/articles/wealthy-older-tenants-in-manhattan-get-biggest-boost-from-rent-regulations-11560344400

Exclusive | Linda Rosenthal paying just $1,573 for five room rent stabilized apartment (nypost.com)

Rent-control deal poses conflict of interest for Linda Rosenthal (nypost.com)

Housing ‘have’ Linda Rosenthal won’t let have-nots have a chance (nypost.com)

Linda Rosenthal: 421-a doesn’t create enough affordable housing – City & State New York (cityandstateny.com)

Linda Rosenthal, New State Assembly Housing Chair, on Solving New York’s Housing Crises (westsiderag.com)

Linda Rosenthal – Wikipedia

Leave a Comment

Don’t Cry for Argentina, It’s NYC We Should Worry About

Don’t Cry for Argentina, It’s NYC We Should Worry About

Published on October 7, 2024

Argentina isn’t the United States and Buenos Aires isn’t New York City but when it comes to rent regulation, we could learn a thing or two from newly elected President Javier Milei.

Rent Control by Any Other Name Still Doesn’t Work

In 2022—before Milei was elected President, there were approximately 200,000 empty apartments in Buenos Aires due to its strict rent control laws. The so-called warehousing of rent regulated apartments is a natural response from landlords—whether in Caballito or Chelsea—who prefer receiving no rent rather than a nominal amount with disproportionate counterparty risk.

To circumvent the strict rent laws in Argentina, a black market flourished where landlords tried to rent to individuals in their social circles who would agree to pay rents above the restricted amount. Others rented to tourists in US dollars but otherwise kept their apartments unavailable for long term residents. For residents, it was all but impossible to find an apartment.

Does all of this sound familiar, it should as NYC has an estimated 100,000 empty apartments. Turns out economic principles like supply and demand can’t be contained: they cross borders and are multilingual.

Laissez-Faire: Let Supply and Demand Do Its Thing

Since scrapping the rent-control regulations in Argentina, landlords are rushing to put their apartments back on the market, increasing supply by more than 170%. President Milei is also allowing rents to be priced in US dollars further protecting the rental market against runaway inflation which still stands at 237% (Milei is projecting 18% in 2025).

Still, housing prices in Buenos Aires are stabilizing and at their lowest rate of increase since 2021 as more apartments flood the market. Supply is up, rents are declining, and people can now find apartments in what was once a frozen rental market.

First, There Must Be Pain

Bold measures—akin to the shock therapy enacted by the Russian government in the early 90s—don’t come without unfavorable consequences, at least in the short term. For some, the increased housing costs have made life difficult when coupled with higher food and utility prices resulting from the unwinding of price controls across the Argentinian economy.

Since the elimination of price controls, many are having trouble getting “to the end of the month.” Milei’s popularity has diminished as well, falling from a 60% approval rating earlier this year to 45% in August. But the right path isn’t always the easiest one; it can be lonely and bumpy along the way.

Eliminate Rent Control and Everyone Wins?

Is it that simple, eliminate rent controls and the markets will do their job? Some say yes, while others claim in the short term there will be an unacceptable level of soaring prices and homelessness. It is difficult to test the hypothesis as rent controls are politically popular to those who benefit from it, and they tend to become entrenched.

But Massachusetts is one such example: the state nixed rent control in 1994 and neither rents nor homelessness jumped especially in those places where the fear was most warranted such as Cambridge. But, in areas of NYC just as in Buenos Aires, prices will go up for many tenants whose rents are absurdly low relative to the free market rent in those neighborhoods. Just ask Congresswoman Linda Rosenthal—who is fiercely opposed to the elimination of rent regulation and, at the same time, developer incentives to increase housing supply—who lives in a three bedroom on Manhattan’s Upper West Side for $1,573. If ever there was a more conflicted politician directing housing policy.

Is NYC Likely to Follow Milei’s Lead in Argentina?

Perhaps the “tear off the band-aid” approach employed by President Milei would be too much of a shock for New Yorkers who would be adversely impacted but an incremental approach could set us on the right course. Replacing rent stabilization across the city and implementing good cause eviction universally would create a uniform regulatory regime across the city and allow for healthier rent increases that better account for inflation. An increase of nearly one million free market apartments on the market would force landlords to compete on price and quality further improving the housing stock and reducing rents for many middle-income folks.

At the same time, city and state officials should continue to create incentives for affordable housing and avoid the disaster that befell the Harlem One45 Project which was voted down by an overzealous rookie City Council member, Kristin, Richardson Jordan, who, it would seem, preferred no affordable apartments to the 458 new ones that would have been created. We all define victory to our constituents differently.

Sources: Harlem Project One45 Withdrawn as Jordan Rejects Last Offer (therealdeal.com)

Argentina Scrapped Its Rent Controls. Now the Market Is Thriving. – WSJ

Argentina Ditched Rent Control. What if NYC did too? (therealdeal.com)

Leave a Comment

DHCR Deadbeats Now Pay Hefty Fines – Lawmakers Take A Victory Lap!

Published on September 10, 2024

NY state lawmakers are patting themselves on the back for a job well done after creating a legislative framework that created one million additional and much-needed apartments in under twelve months. Ok, the bit about newly created apartments is not true, but lawmakers are still patting themselves on the back. Governor Hochul signed into law last year a bill that created heavy new penalties on those landlords who fail to register their rent-stabilized apartments with the Division of Housing and Community Renewal (DHCR) starting with the July 31, 2024 deadline.

The penalty increased from the rarely enforced one-time $10 surcharge to $500 per month per apartment. Now, the failure to register 45 rent stabilized apartments, for example, would result in a whopping penalty of $22,500 per month. What about the rent stabilized tenant who fails to pay rent for nine months? Well, they are provided complimentary legal services from attorneys adept at lawfully delaying their clients’ rental obligations.

“Massive Increase in Rental Registrations…”

And the new measure seems to be “working” as more than 919,000 apartments have been registered in the 2024 cycle which is up by more than 100,000 units from recent annual filings. The problem with DHCR filings, however, runs much deeper than owners failing to register the units in a timely manner. The real issue is that there is no formal acknowledgment by any government agency that the filings are correct. Missed and incorrect filings over several decades across multiple owners makes a correct accounting of the registered rents nearly impossible.

Few cared about this issue prior to June 2019 and rarely focused on it when properties traded hands. Today, the situation is different, and investors are acutely aware of flawed DHCR filings and often back away from deals so afflicted.

Amnesty for Owners?

I’d love to hear proposals from owners, investors and astute observers alike on how to fix the DHCR debacle that has further frozen trades in an already troubled asset class. One idea that comes to mind would be an amnesty for the current owner on all prior DHCR filings before his or her time of ownership. Another may be a formal acknowledgment by DHCR that the filings are correct and if not, how so, and within a reasonable period of time post-filing? If there is no response within six months of the filing, then ownership has the legal presumption that the registered rents are correct.

These agencies are funded by the taxpayer and we should demand more of them.

Source: Landlords Register Tens of Thousands More Rent-Regulated Apartments Under Threat of Fines | THE CITY — NYC News

Leave a Comment

The Looming April 1 Budget Deadline Sets the Stage for an Albany-Hochul Showdown

Published on March 20, 2024

Few New Yorkers pay attention to the inner workings of the legislature in Albany but they probably should as it impacts everything from housing, school budgets, Medicaid and whether prisons will remain open. And there are billions of dollars at play.

Last month, Governor Hochul proposed a $233 billion budget for 2024 and both the Senate and Assembly countered with plans of their own to the tune of $246 billion. For a breakdown of the Governor, Senate and Assembly’s budget proposal, click here. Between now and April 1 (the budget deadline), lawmakers will negotiate—largely in secret and with little to no transparency—how the state’s billions will be spent.

A few takeaways from the Senate budget regarding important housing issues include:

A willingness on the part of the Senate to remain “open to further discussing” a new tax exemption for multifamily construction, which would replace the expired 421-a abatement. Not much can be made of this language as it suggests a perfunctory commitment in line with something as mundane as upgrading the bathrooms at the Capitol Building. Unfortunately, there is much more at stake.
The plan to replace 421-a would involve stricter income requirements for those affordable units and tie developer incentives to, among other things, a housing package that includes the core principles of good cause eviction. Good cause eviction, however, is likely a deal breaker for more moderate lawmakers as it effectively creates caps on rental increases for free market apartments. And that is downright un-American.
Localities would be allowed to legalize basement apartments to generate additional housing. A step in the right direction albeit a small measure that doesn’t move the needle much.
The bill includes a $40 million fund to rehabilitate vacant rent stabilized apartments and an increase on the $15,000 cap for individual apartment improvements (IAI) but it was not clear by how much that cap would increase. The $40 million sum is laughable and here’s why: assuming an average renovation cost of $50,000 per apartment (a very conservative estimate as the costs can easily exceed $100,000), the fund would provide funding for approximately 800 units. Recent estimates put the number of vacant rent stabilized apartments in NYC in the tens of thousands. Both of these proposals, like the 421-a replacement, are tied to the implementation of a housing package that includes some sort of good cause eviction.

Website Source:
Jones, S. (2024, March 12). New York Senate Includes 421-a Replacement, Good Cause In Budget Proposal. Bisnow. https://www.bisnow.com/new-york/news/affordable-housing/421a-senate-proposal-2024-123286#:~:text=The%20New%20York%20Senate%20revealed,new%20housing%20in%20the%20state.

Leave a Comment

Are Double Digit Cap Rates on the Horizon in NYC for Rent Stabilized Owners Choosing to Sell?

Published on January 29, 2024

It finally happened—a nearly double digit capitalization rate on a recent multi-family trade in NYC. Two contiguous Upper Manhattan properties recently traded for $5.8 million (or $8.3 million less than the $14.1 million purchase price in 2017) representing a 9% cap rate, according to press reports. The other metrics are equally astonishing: $120 price per sq. ft., 5.7x gross rent multiple and approximately $95,000 per unit.

The reason for the heavy discount is clear to anyone following the space as the June 2019 rent laws (a.k.a. HSTPA) radically turned valuations both upside-down and inside-out for rent stabilized properties. Still, these metrics are disconcerting and potentially signal more trouble ahead for rent stabilized property owners. Don’t blame it on poor management either: ownership was no neophyte. The seller is a third generation owner/operator with a career that spans more than 30 years and includes the purchase, development and management of more than 150 properties in NYC, New Jersey and Florida, according to his website.

Of course, there could be more to the story that neither press reports nor public records are picking up, but what are your thoughts, do you expect cap rates to continue to climb for this asset class? What about the location of the assets, how much would it have mattered from a cap rate perspective if the buildings were south of 96^th Street in Manhattan or in a lesser Bronx location?

Website Source:
Wexcor Capital pays $5.8M to Barberry Rose for two walkups in Washington Heights. (2024, January 11). PincusCo. https://www.pincusco.com/wexcor-capital-pays-5-8m-to-barberry-rose-for-two-walkups-in-washington-heights/

Wexcor Capital Purchases Washington Heights Apartment Building For $5.8M – Mann Report. (2024, January 3). https://www.mannpublications.com/mannreport/2024/01/03/wexcor-capital-purchases-washington-heights-apartment-building-for-5-8m/

Leave a Comment

The Future of Macy’s is in Question

Published on January 4, 2024

Department stores have been under threat for some time now as shoppers shift to discount stores, fast-fashion retailers, and buying directly from brands that have opened their own retail stores or newly launched websites. Several household names are struggling including Kohl’s, JC Penney, Saks Fifth Avenue, and Neiman Marcus, among others. But it is Macy’s that recently made the headlines.

Investors are Circling Macy’s and Its Assets

Macy’s (and Bloomingdales which it owns) may be the next major department store to disappear as two investor groups, Arkhouse Management and Brigade Capital Management, submitted a buyout proposal of approximately $5.8 billion or $21 per share, a 32% premium at the time of the offer. It isn’t clear what the investment groups, if successful, intend to do with the company i.e., keep it as a going concern or sell off all or some of the real estate assets. The question is meaningful as Macy’s remains among the world’s largest department-store chains with more than 94,000 employees and countless suppliers—all of whom would be impacted by store closures. With 783 stores, the malls that house these stores would also be affected by any major change to its operations.

But with “years of chronic underperformance,” according to one industry insider, Macy’s real estate may be worth more than its retail business. Net sales for the first nine months of 2023 declined by approximately 8% compared to the same period in 2019 (pre-pandemic) and profit has declined by 22%. To state the obvious, this is not good and directionally not where the retailer wants to be going.

The Crown Jewel is the Real Estate Portfolio

Many national retail chains rent—and don’t own—the stores where they operate. Macy’s, on the other hand, owns more than 300 of its locations and investors believe the stores are as valuable as the retail business and perhaps even more so.

Certain estimates put the real estate portfolio at $6 billion with the managing director of the research firm, GlobalData, saying its “real estate is the jewel.” But real estate values like these where the end-user occupant is also the owner are never easy to underwrite. Typically an end user pays a premium above and beyond what a traditional investor would pay who looks at value based solely on the current or potential income. It is also worth noting that capitalization rates—the standard metric for valuing income producing properties—have increased substantially since the Fed began increasing rates but are expected to decline as the Fed begins cutting rates in 2024. Lower capitalization rates mean high asset values. That said, this may arguably be the ideal time to acquire Macy’s for its real estate portfolio.

Things are never so simple, however. Each Macy’s-owned property requires thorough due diligence as certain locations have deed restrictions that could hinder the development or re-purposing of these assets. Zoning issues as well could impact value. Another critical issue is understanding the value of Macy’s flagship New York store in Herald Square which is estimated to account for about a fifth of the value of the total real-estate portfolio, or $1.2 billion. Do you sell off all the other assets and keep the flagship store or do the opposite?

In short, Macy’s real estate assets are unquestionably quite valuable but how much specifically requires a deep dive by attorneys and other specialists to ascertain the impact of deed restrictions and zoning issues. No doubt something Arkhouse Management and Brigade Capital Management took into account.

Past Acquisitions by Activist Investors Didn’t Bode Well for the Targets

A quick revisit of similar transactions from the past should worry Macy’s executives and equity investors may want to make use of the few remaining lifeboats and get out with the recent increase in the stock price in case the deal ultimately sours along with the stock price.

One approach the prospective Macy’s investors may pursue is a sale-leaseback where they sell off the real estate but keep Macy’s as the tenant. A higher rent paid by Macy’s would be good for the sale of the real estate but more burdensome for the retail business. Private-equity firms that bought Mervyn’s, a now defunct department-store chain, split the business into an operating company and a property company and pursued a sale-leaseback structure. The economy teetered into recession and the company went out of business in 2008.

The hedge-fund manager Eddie Lampert bought Sears and sold off its real estate and invested very little into the retail operations. Today, Sears is a shell of its former self with just a handful of stores, down from thousands at its peak.

Is it the End of Macy’s

The fate of Macy’s is still up in the air but its demise would be disheartening especially if the perennial Thanksgiving Day Parade disappears. The first parade took place in 1924 (this year would mark the 100^th anniversary) and it was first televised on NBC in 1953 and my mother was in attendance. But perhaps like a good Nick Cave murder ballad, “all beauty must die.”

Website Source:
Kapner, S. (2023, December 12). Macy’s $5.8 Billion Question: What’s More Valuable, Real Estate or the Business? WSJ. https://www.wsj.com/business/retail/macys-billion-dollar-question-whats-more-valuable-real-estate-or-the-business-e6477c8e?mod=hp_listb_pos1

Leave a Comment

Charlie Munger: The Man Who Consistently Beat Alpha and Not Just in the Market

Published on December 19, 2023

Most of us go through life wallowing in our own mediocrity. Not Charlie Munger.

A Legend Passes

Munger passed away last month at an age few of us will achieve. He was 99 and, as it turns out, roughly one month shy of his planned 100^th birthday extravaganza. What is it that they say, “man plans and god laughs?” But Munger had his share of laughs too, many contributions, and no doubt tears that come with such longevity (he lost a son who died at age 9, his wife in 2010, and his left eye in his 50s from a failed cataract surgery). In the end though, he enjoyed more blessings than one man can stand. And, unlike Buffett who was somewhat fettered by the need to not offend, Munger got to say all the things he truly felt, or at least many of them, and we were better off for it.

To many, Munger will be remembered as the curmudgeonly, not terribly mobile, and slightly pugnacious lieutenant to the better-known Warren Buffet. But he was so much more than that: he was quick-witted, pithy, sagacious, and imbued with a life-long passion for learning. Perhaps the best way to pay homage to one of the greats who leaves behind an enormous legacy of insights and poetic nuggets is to share a few of them with you.

Patience and Delayed Gratification Create Winners

Temperament and patience in investing were, in Munger’s views, more important than brains. Of course, you had to be smart enough but “the big money is not in the buying and selling…but in the waiting.” And he further noted that “it takes character to sit with all that cash and do nothing. I didn’t get to the top where I am by going after mediocre opportunities.”

Knowledge Can Make a Mediocre Mind Magnificent

On the importance of committing to a life of learning, “spend each day trying to be a little wiser than you were when you woke up…if you live long enough…you will get out of life what you deserve.” And the way you do that is through reading as in Munger’s “whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. My children think I’m a book with a couple of legs sticking out.”

Carpe Diem—Knowing and Seizing Opportunities and Passing On Junk

On recognizing wonderful opportunities that only come along a few times in a lifetime, wise investors should “bet heavily when the world offers them that opportunity.” This of course requires capital on hand and the skill set to recognize a great opportunity from a good, mediocre, or even bad one. Are you able to do that?

Of course, nobody knowingly invests in a business that is grossly mismanaged, but when picking businesses to invest in, Munger admonished us to “invest in a business any fool can run, because someday a fool will.” A good business should be able to hold up during the inevitable periods of mismanagement.

On high-flying internet stocks, which he viewed unfavorably, Munger said “if you mix raisins with turds, they’re still turds” and on cryptocurrencies which he abhorred, “Sometimes I call it crypto shit.”

Passion Alone Is Not Enough—Buffett Is No Ballet Dancer

Recognizing that passion is necessary but not sufficient, Munger suggested “You’ll do better if you have passion for something in which you have aptitude. If Warren Buffett had gone into ballet, no one would have heard of him.” Maybe they would have as that would have been quite the spectacle.

Inflation Ain’t No Big Deal

On inflation, he paid little attention when investing saying “If I can be optimistic when I’m nearly dead, surely the rest of you can handle a little inflation.”

There are many books written about Charlie Munger but if you had to pick one, I suggest “Poor Charlie’s Almanack,” which was written by him. You will surely learn about his investing philosophy and approach to life.

Website Sources:
Glanzer, T. (2023, April 30). Munger: "A lot of agony" in CRE loans. The Real Deal. https://therealdeal.com/national/2023/04/30/munger-a-lot-of-agony-in-cre-loans/

Moyer, L., & Cho, J. H. (2023, November 28). Munger’s Advice on Investing, Life Was Often Colorful, and Never Dull. Barrons. https://www.barrons.com/articles/charlie-mungers-quotes-investing-d877ce98?mod=hp_LEAD_3_B_1

Coy, P. (2023, December 6). Opinion | The Timeless Investing Wisdom of Charlie Munger, Buffett’s No. 2. The New York Times. https://www.nytimes.com/2023/12/06/opinion/charlie-munger-warren-buffett.html

Goodkind, N. (2023, November 29). Charlie Munger’s best quotes on investing, life and everything in between. CNN Business. Retrieved December 15, 2023, from https://www.cnn.com/2023/11/29/investing/premarket-stocks-trading-charlie-munger/index.html

Leave a Comment