Boom or Bust?

 

This week’s Padkos will be the last of the year, so I’ll share my thoughts on the real estate industry’s top 4 booms, busts, and takeaways of 2022.

 

But first, I’d like to thank you for taking 2 to 5 minutes every week to read Padkos. When I started this newsletter, I did it cathartically to discuss topics that I thought were thought-provoking and important for our industry. Two years later, I am grateful that many people read it and subscribed to Padkos. I’m happy that my “food for thought along the way” resonates with many of you.

 

As always, I love your feedback and encourage you to continue to share your thoughts with me (and this newsletter with your friends).

 

Boom: It seemed like yesterday when we were holding our collective breath to see what would happen on New Year’s Eve of Y2K. Remember that? Now, some short years later, we have Generative Artificial Intelligence. Synthetic reality. We have come so far in such a short amount of time. A.I. took a giant leap forward this year, accelerating at warp speed. The masses got to experience the potential of Generative A.I. in marketing and selling. DALL-E images can help us market and sell multi-million dollar homes, and Chat GPT is more skillful at writing our listing copy than most real estate agents.

 

Bust: Anything real estate related. Contrary to some claims by traditional residential real estate brokerages, there has been no new groundbreaking technology in the real estate industry in the past five years. Much of the brokerage industry still operates on similar platforms offering buyers, sellers, and agents the same tools. The industry is still primarily reliant on the agent. Zillow continues to dominate the sector with subpar tools and still generates the most revenue from the same real estate agents they are determined to undermine. Real estate companies that positioned themselves as tech companies (without much tech) tanked this year.

 

My Takeaway: There won’t be an industry that will be immune from the impact of A.I., and real estate will be no exception. A.I. will bring about more innovative ways of valuing, identifying, creating, building, engineering, marketing, and selling real estate. I look forward to this. These are exciting times. Yes, some human roles will be eliminated with more innovative products and synthetic services, but creative and intelligent people will benefit. Mediocrity will be the greatest threat to our industry, not Artificial Intelligence.

 

Boom: Venture Capitalists and Private Equity invested $120 billion in the metaverse between January and May 2022. With the average cost of a home in the US at $348k, we could have instead built 350,000 brand-new homes or approximately 2,000,000 new housing units in the real world for people who desperately need them in real life.

 

Bust: The Metaverse has been an embarrassment and is overvalued. It is widely considered Web3’s equivalent of the Dot-com bubble as investors lost big. The Sandbox, Decentraland, Cryptovexels, and Somnium Space values have fallen up to 80% this year.

 

My Takeaway: The Metaverse will improve in time and become a viable medium for entertainment. Its moment will arrive only when the right people get involved with its development and marketing. Not Mark Zuckerberg. Not Real Estate agents are trying to sell something they know nothing about or celebrities looking to make a quick buck on a shiny new penny.

 

Boom: New York saw several projects achieve record prices. The Upper East Side and West Chelsea were two standout neighborhoods for successful projects. On the Upper East Side, 109 West 79th Street, developed by Legion, The Belmont, and The Benson, developed by Naftali and his collaboration at 200 East 83rd Street with Rockefeller Group, all broke price and absorption records for the neighborhood. In West Chelsea, the same holds for The Cortland, developed by Related and Mitsui.

 

Bust: Even after the market rebounded and witnessed one of the strongest condo sales markets in recent history, many projects did not sell well. Some struggled to achieve effectiveness (15% of sales) after being on the market for more than a year and millions spent on advertising. Some projects saw even worse sales after changing agents and adjusting prices.

 

My Takeaway: 2022 started with a resilient and robust housing market. In the second half, the interest rate environment and inflation put a slight damper on it, but people are still buying homes across every price point. There is a market and demand for a well-conceived product in a good location, and people will pay a premium for it, regardless of market conditions. Beautiful homes sell well in good and bad markets. Bad buildings don’t sell well in any market.

 

Boom: We are back! All those naysayers who fled to Florida were wrong, and some are coming back. New York City didn’t die with Covid. Restaurants are packed, people are moving back, and the energy on the street feels good again. New retail stores are opening, and jazz is playing in the clubs. There’s a reason why New York City is the greatest city on the planet, and people have started to embrace it again.

 

Bust: The office market is still limping, and buildings are only 46.5% occupied. That means that more than half of the workforce is still WFH. Most of the force remains uninterested or unwilling to go into the office five days a week.

 

My Takeaway: Covid thrust us into the future. For many people, commuting 2 hours a day to go into an office cubicle to work was dumb. Especially when they could be much happier and more productive at home. I don’t understand why a company would care where you sit your ass down and do your job as long as you do the right job for them. Company culture is more than the four walls of a cubby in a skyscraper. The companies that realize this and adapt will attract top talent and thrive. Those stuck in the dark ages will find it hard to retain their talent.

 

One of my favorite New Year memories is from 1995. I had finished playing a New Years’ Eve gig and was on my way home, waiting for my subway at 2 am. The platform was full of New Yorkers on their way home after work or from a party. The man standing next to me asked me to play a song, so I took out my horn and started playing Auld Lang Syne. The crowd of over 100 people began singing along as I played. Our train came, stopped on the platform, and everyone on the train joined in. We were all on our way home, but for that moment in time, we all stopped and celebrated. It was a human moment I’ll remember forever.

 

I’m looking forward to experiencing and sharing more human moments next year.

 

I don’t consider myself much of a writer, but I will continue to hone my skills to make these newsletters more worthy of your time. And who knows, maybe next year, I’ll get started on the book I’ve always wanted to write. Not one about “how to sell” or “how to be a billionaire broker,” but one that would open a window into some of the things I’ve witnessed and experienced in my daily travels in this incredible city.

 

Side Bar:

 

Here is my list of the top 10 books I read this year, in no particular order:

 

1. “The Tiger” A True Story of Vengeance and Survival by John Vaillant

 

2. “The Tender Bar” by by J.R. Moehringer

 

3. “How The World Really Works” a Scientists Guide to Our Past, Present, and Future by Vaclav Smil

 

4. “The 48 Laws Of Power” by Robert Greene

 

5. “Ode To A Tenor Titan” The Life and Times and Music of Michael Brecker by Bill Milkowski

 

6. “Meditations” by Marcus Aurelius

 

7. “The Man Who Broke Capitalism,” How Jack Welch Gutted The Heartland and Crushed the Soul of Corporate America by David Gelles

 

8. “How The Word Is Passed” A Reckoning with the History of Slavery A Ross America by Clint Smith.

 

9. “Hero of The Empire,” The Boer War, A Daring Escape, and the Making of Winston Churchill by Candice Millard

 

10. “Say Nothing” A True Story of Murder and Memory in Northern Ireland by Patrick Madden Keefe

 

I’ll be back on January 6th, 2023. Happy Holidays!

 

Let’s do this.

 

-Shaun