The title says it all. A lot of troubles and this is also why I skipped my Spring Bulletin.
At the end of February, I rushed back from New York to Israel to be with my mother during her last moments. She died in March. Thankfully I was able to be by her side before she passed away. It was difficult and sad, and I still find it painful to even write about it. It was hard to see my mother suffer, but it was harder to say goodbye forever.
While in Israel I witnessed the irreversible rift and the growing conflict in Israeli society. I actually saw it coming. Israel quickly became one of the world’s most enlightened, homogeneous, and advanced nations. It is now disintegrating just as quickly. There can be no agreement between the parties. The Jewish Magic Glue that united the various tribes of Israel has dried up and crumbled and the future looks bleak.
To top off my personal and political issues, I had more trouble at work. We’ve encountered problems with the fire safety system and had to comply with a new code. We had to fix the sprinkler system, added wired smoke detectors, new fire extinguishers, new meters, new exchange, etc.
I returned to the US in May directly to Carrollton Georgia to make sure that this project is moving forward. As they say here, 'the system refused to play ball'. I had problems in every respect. The new code was not compatible with the old sprinkler heads, and we had to replace almost all of them, some pipes that were drained during the winter burst when reconnected. And just when we finished replacing and preparing the system, and just 10 minutes before the final inspection, one of the smoke detectors broke and the alarm went off. The State and city Marshals beside me were nervous watching the fire engines arrive. It was a nightmare.
In addition, our property manager had to leave, the regional manager resigned to a higher paid job without giving notice, and the general contractor left the site and would not return for minor repairs. There certainly was more. It was hard and I felt like I was being tested on how to function under pressure.
The photo above shows a happy moment and was taken right after the property passed the inspection. Since I’m by myself in the Deep South coping with the troubles, the old song 'Nobody Knows' popped into mind. It’s about the sorrowful life of black slaves in the South. Obviously they were true sufferers and without any comparison to my situation. But because it’s about the South and I'm here now, it clicked. There are many versions, you may want to listen to my favorite version here.
- Mortgage refinance, Hannah Apartments funded by Freddie Mac.
- Loan refinance, French Quarter funded by a consortium of local banks.
- Loan recycling, Meadow Creek financed by a local lender.
The wall is of course the wall that President Trump promised to build to stop the infiltration of illegal immigrants from Latin America into the USA. But to put the bricks in the wall you need Mexicans...
Everyone knows that the real estate industry is full of Hispanic workers. The Mexicans are the most (60%), but workers come from all corners of the American continent. Nicaragua, Bolivia, Venezuela, Honduras, Guatemala, Dominicans, Colombians, etc. The vast majority are good and honest people. Those who were naturalized move up the social and professional ladder, and the illegal ones settle for occasional menial jobs.
Everyone obviously opposes illegal migration across the border. But let’s be clear: the day workers stop crossing the border, the US cost of construction will shoot up immediately. Since the construction industry is a significant component of inflation, one can assume that this would cause the US inflation rate to jump causing an adverse impact to the economy. When the American economy suffers, the rest of the world goes out of balance. Therefore, I believe that it doesn’t matter if Democrats or Republicans control Congress, the Latino influx will continue because the US economy needs them; unless more Americans start working in construction or workers from Canada find it attractive to cross the border and work in the USA.
Source: (c) Columbia Daily Tribune
This picture was circulated as a joke. It probably represents the workers’ situation everywhere in the world. Only the name changes. In the UK it’s Jan, in Australia it's Hong, in Israel it’s Mohammad, and in the USA, it’s Jose.
Hispanics account for about 30% of the American real estate industry. In the South and in California it’s over 50%.
The map above illustrates the figures. But it’s somewhat deceiving. It shows the percentage of Hispanics in the real estate industry. If we examine the branch of construction workers, they already make up 80% of the workforce. Remember Jose? Below is the actual graph published by the US Department of Labor. Most Hispanics are construction workers or painters.
It is interesting to understand how the system works here. Here’s a small example: Michael, an operations manager in an investment fund would like to commission construction/renovation work from Jack, a general contractor who charges $20,000 + materials for this work because Jack puts nice presentations together with proper corporate forms and has previously done a few jobs for the firm. Jack asks Salim to do the job. Salim is a local southern contractor who charges Jack for the same job at only $10,000 because Salim grew up locally, he knows the County people, knows how to smooth things with the city, speaks a few words in Spanish and knows exactly what Jack needs. Salim contracts Carlos, who charges $5,000 for the job, because Carlos is a professional contractor who knows a little English but mostly Spanish. He lives in the Hispanic part of town and knows everyone. They call him Patron and he has no sense of humor. Carlos pays Jose $2,500 for the same job and buys the materials for Jose, because Jose is an illegal Mexican who does not speak a word of English and is completely dependent on Carlos and some odd jobs for his livelihood…
Why doesn’t Michael approach Jose directly? Well, firstly, Michael doesn’t know Jose and has no idea how the system works. He needs a middleman like Jack. Secondly, even if Michael wanted to save money, Jose does not have insurance. If something detrimental happens, Michael is in trouble. Jack the contractor has onsite general coverage and Salim also has insurance and he is a licensed contractor. Certain jobs require a signoff by a licensed contractor, like electricity, plumbing, etc. In addition, Michael requires invoices and receipts because there’s a large financial system that demands expense breakdown and paperwork. But Jose works for cash, and this won’t fly with the firm’s accountants. Jose also expects to get paid daily. At 5PM sharp he collects his pay and drives home. He will not wait for the accounting department to send him a check.
By the way, I have not made up the price differences. Many times, especially when dealing with non-professional work, I compared the quotes from contractors with verbal quotes obtained from the guys I met in the Cantina, and the difference was 50% to 90% for the same job!
In addition, there is the language barrier. Many of the unprofessional Hispanic workers simply do not speak a word of English. It is hard to communicate with them. I can speak basic Italian and can communicate with Spanish speakers on a low level. I have also learned a few words of Spanish along the way. But to discuss more than a few sentences you must quickly get help from Google Translate.
And finally, there is the safety aspect. The standard construction worker comes with no gear, without suitable clothing and with very little attention to safety. The contractors make sure that nothing bad happens and would gives him the necessary equipment so that he will not hurt himself or others. Because if God forbid something does happen, it gets complicated and expensive. Therefore, everyone is comfortable working with a licensed subcontractor who will take responsibility if that day comes.
So when you enter your new home, remember that the person who built your bathroom, laid the tiles, painted the walls, mounted the accessories, and installed the sink, tub and toilets was Jose. Sometimes Jose brings an assistant that doesn’t even get paid: his wife Maria…
In this edition, I haven't written about the real estate industry in general. It’s because there hasn't been anything to write about. At present, in my field of multifamily, if one isn’t forced to sell, then he won't sell. The buyers on the other hand, won’t pay the asking price. The market hasn't moved much. We haven't bought or sold any property for over 6 months.
Instead, we refinanced properties that went up in value and could generate cash. The FED also did not give any indication that interest rate hikes are over, which has left everyone uncertain and 'on the fence'. Some markets gained momentum (for example Austin, Texas) and some segments are in trouble, like the office and the commercial sector. The situation is still fluid, and it is too early to discuss. We'll leave that for some other time.
Happy 4th of July!
I wish everyone happiness, optimism, and a warm summer 😊
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