Podcast

How Macroeconomic Trends Impact Investor Returns

3Q20

Understanding the importance of global macroeconomic trends in the context of passive Commercial Real Estate Investing.

Read The Transcript

In this week’s episode of Real Wealth Real Health, we welcome Mo Bina, Founder & Managing Principal of High-Rise Capital. As a unique complement to his academic background in Civil Engineering, Mo has been an attentive observer of financial markets and macroeconomic trends. He translated his own passion for financial self-empowerment to founding his own family business, focused on helping others take control of and transform their financial futures through passive investing. In addition to the value he provides to clients, we discuss some of the public good that can be generated through Commercial Real Estate Investing, and why many find it to be a more meaningful way of generating passive income, compared to traditional paper investments.

In addition to the respective advantages offered by Commercial Real Estate (CRE), our wide-ranging discussion explores current macroeconomic trends in the global economy, and their implications for CRE investing activity. Mo’s experience interpreting financial markets and reading into macroeconomic trends offers spectacular insights into the possible futures of the global economy, and where best to invest capital. Throughout the discussion, we pick his brain about the most important statistics to monitor, where best to research relevant information, & how it should be interpreted, painting a great roadmap for how to start the path to becoming an educated CRE investor.

Key Insights

  • Key metrics to digest & monitor when evaluating an investment, and what they imply for investing decisions
  • Why the global downturn leads to a widespread search for yield, and why that typically leads to long-term appreciation in Commercial Real Estate
  • Predicting the future movement of interest rates, and their impact on Commercial Real Estate property values
  • Understanding why US-based real estate stands out as a safe haven for foreign (and domestic) investment, even as the economy slows
  • How passive real estate investing can lead or complement a meaningful life of community contribution

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Guest Bio

Mo Bina is the Managing Principal and Founder of High-Rise Capital. He has two bachelor’s degrees in civil and environmental engineering from UC Irvine and a master’s degree in environmental engineering from Stanford University. He has been an avid follower and student of the financial markets for over 20 years.

He has been a passive investor in diverse opportunities in real estate assets such as multifamily, senior living, office, and single-family residential in various geographic markets in the U.S. In addition, he has investment experience in alternative assets, hard money lending, and notes. His knowledge also includes asset protection and tax strategies, and their applications to real estate.

Mo founded High-Rise Capital as a family owned business that has a passion to help others learn how to passively invest in high-quality commercial real estate assets that have historically generated higher returns and lower volatility as compared to the traditional paper assets of stocks, bonds, and mutual funds. High-Rise Capital’s mission is not only to assist investors to build generational wealth and gain financial freedom, but to positively impact the world through commercial real estate.

Resources:

Real Wealth Real Health

Alpha Investing

[email protected]

https://www.high-risecapital.com/resources-index

Aspen Institute Articles regarding estimated renter evictions:

https://www.aspeninstitute.org/blog-posts/20-million-renters-are-at-risk-of-eviction/

https://www.aspeninstitute.org/blog-posts/the-covid-19-eviction-crisis-an-estimated-30-40-million-people-in-america-are-at-risk/

Links to the some basic RE books:

Millionaire Real Estate Investor

Tax Free Wealth

Loopholes of Real Estate

The ABCs of Real Estate Investing

Podcast Transcript

Speaker 1:

Welcome to Real Wealth Real Health, the show that empowers you with insights, information, and inspiration to achieve your version of financial wellness. Learn how to balance living a full life today with planning for the future. This podcast is brought to you by Alpha Investing, a real estate centric private capital network that provides exclusive investment opportunities to its members. And now here are your hosts, AdaPia d’Errico and Daniel Cocca.

AdaPia d’Errico:

Welcome, Mo, to the podcast.

Mo Bina:

AdaPia and Daniel, thank you for having me on today. It’s an honor to be on your show and to be here with you today.

AdaPia d’Errico:

Yeah. We’re really looking forward to what we know will be a really in depth conversation and to quote Bill and Ted, to hear from your most excellent insights on economics. So why don’t we start by having you introduce yourself and High-Rise Capital and what you’re up to?

Mo Bina:

Yeah, thank you. My name is Mo Bina. I founded my company, High-Rise Capital. This was really the culmination of a path that I’ve been on for a number of years that started, first of all, with being a passive investor and then from there really getting into and becoming more immersed in the commercial real estate space and also within syndicated commercial real estate opportunities. And while I was on that path, I saw a lot of other people who were at a place where I used to be, where they didn’t quite understand that there were opportunities available to them to invest in commercial real estate, invest in alternative assets. A lot of people are still caught up in thinking that paper assets and Wall Street is how they need to basically build a portfolio and rely upon going into retirement.

Mo Bina:

And I had this kind of tiffany that started after the last global financial crisis, a little over 10 years ago, back in 2008, 2009, and led me down this path to reevaluate and to better understand the financial system and then also to better understand the opportunities that are out there and those people that separates themselves as the wealthy and the 1% or whatever you want to call them or classify them. What are they doing? Because they’re not doing a lot of the same things that the average person is being told to do or that’s been indoctrinated to do. So it led me down that path and I founded High-Rise Capital to bring the same investment opportunities to other investors as well too and also to provide education and to help them in understanding the things that… financial education and financial consciousness that a lot of people don’t have.

AdaPia d’Errico:

Yeah. And actually that’s exactly why we wanted to have you on the podcast today is that educational piece. You wrote an ebook and it is so well done and so rich and so full of great insights. Tell us a little bit about the ebook.

Mo Bina:

Yeah, thank you. The ebook, actually, I spent a few months writing it. It was something that when I first started out I was planning on maybe just writing about 10 full pages. And as I started writing it, I kept thinking about all the things that I wished that I knew when I first started investing as a passive investor in commercial real estate. But even before that, just being a better investor because I think people talk about, “I want to be a real estate investor.” But in order to be a good real estate investor, I think you just have to be a good investor all around.

Mo Bina:

And the ebook gets into a lot of details, but it provides a really solid foundation on what are syndications, what’s commercial real estate, what are the benefits, what are the advantages, what are the asset classes out there, or what are the investment strategies? The macro economic chapter, which I know we’re going to focus in on today, was one that I was particularly proud about because it allowed me to help to explain things from a perspective of, what are the longterm trends? Why are things happening the way they are?

Mo Bina:

As investors and especially real estate investors, when we invest, we take positions that last for multiple years. And when we do that, we have to understand what the trends are, because if we’re not investing with the trend, we could potentially get caught in an investment that may not pan out. And of course, these are investments, there’s risk involved, but we mitigate and we reduced quite a bit of that risk when we’re… and when we understand the trends and we invest alongside what those trends are.

Daniel Cocca:

Yeah. The one thing I’ve always found really interesting when we’re talking to new investors joining our network is people like to joke about this, no nickel ball, crystal ball. Nobody has it. No one knows what the future’s going to look like. But when I hear people say that I actually think almost the exact opposite, which is, there’s this whole baseline of economic data that was really providing clear and consistent conclusion over the course of time, and we do have the crystal ball except people just either don’t want to look at it or don’t know how to look at it. And so it’d be interesting to hear from you just thoughts that you have for the everyday investor, how can they do their own economic research? What are the things they should really get comfortable with that could help them look at things on a forward looking basis?

Mo Bina:

Yeah, that’s a great question. And it’s one that involves homework. Unfortunately it involves education and it’s one that really involves having to take control and to be proactive of one’s investment strategy, and so forth. Unfortunately, and I say unfortunately but I don’t say it in a bad way. It’s in a way in which people have to basically take control and empower themselves.

Mo Bina:

It’s easy when we relinquish that control to a fund manager or to an ETF and we say, “Okay, fine. I just want to get the market return.” But inherently, you’re not even going to get the market return when you take into consideration the fees and commissions and all that. You’re going to get something below the market. And so in order to become fully empowered, people have to really take some time to understand, first of all, what they don’t know. And those are the blind spots. And those are the ones that I encountered years ago. You don’t know what you don’t know.

Mo Bina:

And the blind spots are the hardest ones to deal with because when you start reading and when you start understanding how the financial system works, how money works, when you start to understand real estate and how real estate transactions take place, when you start to understand taxes, taxes are a big component and a big benefit to why we invest in real estate, asset protection as well too is another component. And so there’s a lot to really learn and understand. But on the other hand, it’s not overwhelming at all either. It’s just because it’s something new, it’s something that people have to take the time.

Mo Bina:

And for me, it was about like… I’ve always had this mentality of being a lifelong learner, and I think for anyone who wants to really become empowered, they have to take that same philosophy and that same mindset, and to say that, “I’m going to learn as much as I possibly can.” And it’s not like you have to understand everything inside and out. It’s that you just have to have this general foundation.

Mo Bina:

And there are a lot of people out there, like Robert Kiyosaki talks about this all the time if you’ve ever read any of his books where he talks about the lack of financial education out there. They don’t teach you a lot of this stuff in schools. I went through two bachelor’s degrees and a master’s degree, and a lot of what I know now I had to learn on my own. I didn’t learn any of it in school. So it really takes a lot of understanding and going down that path. And I know I spoke in generalities without getting into specifics and we can cover that if you like, but it really all starts with mindset, I really believe. And when people are ready to learn and they’re going to be proactive, this whole world will then appear that they never knew existed.

AdaPia d’Errico:

Right. So when you go down the path of, I need to learn something, you start maybe with one resource and then it’ll take you to the next one based on what you need to find or find out. Do you have like two or three starting places for somebody that might not know where to start?

Mo Bina:

Yeah. There’s some great books out there, for example. And that’s just how I started a few years back. If I’m able to give specific recommendations, there’s some great books, for example, that are written by like the Rich Dad Advisors Team, like Ken McElroy, Tom Wheelwright, Garrett Sutton, they’ve written books on real estate, on taxation, on asset protection. And they give a really good foundation. And in fact, these are books that I have on my shelf that I read years ago. And they give you that foundation. And they pieced together a lot of this stuff. Because real estate doesn’t really just exist on its own. You have to understand the other components as well, too.

Mo Bina:

And I think from there, depending on what the specific investor has in mind, they can then go through and they can find other topics and other areas of discussion that they find more meaningful or that their intellectual curiosity leads them to. But those are like good starting places. And I know that there’s probably a lot of other books too that people would recommend. There’s one as well too that’s a great one. I’m kind of drawing a blank, but I think it’s The Millionaire Investor or The Millionaire Real Estate Investor Next Door, something like that, which is also a great resource as well too.

AdaPia d’Errico:

Right. Yeah. It comes to mind as you were speaking, there are so many resources. Like your ebook is a resource. It’s a compilation of multiple different things. So let’s actually dive into the macro economics because that is something that I know, especially for me, more and more becomes so important as we have so much uncertainty. And obviously the past is never a predictor of the future, but there are past trends and there are cycles, and there are things that have happened that predict, to some degree, the future. And then you have behavior, which is a lot of times today going in the opposite direction of what has been in the past. So you have these multiple different forces at work, but I would love to hear your thoughts, generally speaking, on the current macro economic situation and how one would go about viewing it today to feel comfortable in making investments, because we all believe, obviously, that it’s still a good time to make investments, especially in the asset classes that we both look at, which is multifamily.

Mo Bina:

Yes. Yes. I think the number one thing that people have to understand is interest rates. The entire world runs on where interest rates are and where they’re headed. And I think that’s the basis for everything that drives all markets, real estate, the Forex markets, stocks, commodities. Everything’s all driven by interest rates and interest rate differentials between various currencies that the US and the Euro… the US dollar and the pound. Everything’s all based off of interest rates and interest rate differentials. And I think in order… when you see the world like that, then you kind of then see, “Okay, well, then who controls interest rates?” Interest rates are controlled by central banks, and central banks around the world. The Bank of Japan, the Federal Reserve in the US, the European Central Bank.

Mo Bina:

And so then you look at where rates are and where rates are going, we’ve been on this trajectory for hundreds of years now where rates are continuing to go lower, and lower, and lower. And when you look at where it’s been going trajectory wise over the last few centuries, and then you look more closely at where we’ve even gone just in the last like 15 to 20 years, interest rates continue to go lower.

Mo Bina:

And when I wrote my ebook at the end of last year, I had said that when the next recession comes about that we could expect to see even lower rates, perhaps even negative interest rates in the US. Now, we haven’t hit negative rates in the US yet. The Federal Reserve is so targeting between zero and a quarter percent, but Trump has made comments, and a number of other pretty influential people have made comments about wanting to potentially see negative rates. And someone will ask, “Well, why are they pushing rates so low?” Well, because they’re trying to, one, dis incentivize people to save. And two, they’re also trying to stimulate because if people aren’t saving, then what are they going to be doing with their capital and their money? They’re going to be spending it, right?

Mo Bina:

And so they’re really trying to push people to spend and consume. Our economy is 70% based on consumption, but I kind of pose the question to people sometimes like, is that the way it should be though? Savings and investments is a much better alternative, I would say, than constantly consuming and driving yourself into debt. And so when you look at where interest rates are going, it’s causing this really search for yield globally. And especially with that yield is investors, especially deep-pocketed investors and those institutions, and those individuals that have access to this cheap money that’s out there and what are they doing with it?

Mo Bina:

They don’t keep their money in the bank and continue to lose their purchasing power. They’re going to want to go out and find income producing assets, especially like ones in commercial real estate, like the ones we invest in, and also that provide other benefits too, like an inflation hedge, because we’ve already seen trillions of dollars injected into the system just in the last several months, which is unheard of. And this money is going to cause further asset appreciation. You’ll see the stock market hitting an all time high. And yeah, there may be a short term correction. There may be some other things taking place within commercial real estate, but these are all short term. Over the longterm, we’re going to see more and more capital come in for this yield. And also the fact that real estate is a tangible asset, it’ll provide that hedge as well too against inflation.

Mo Bina:

It may not be a problem now. By problem I mean like in the single digits or in the low single digits, but at some point when you have trillions of dollars being injected into a system one by monetary policy by the federal reserve and central banks, and then you also have fiscal policy in terms of governments worldwide essentially giving money and sending money freely to people by way of enhanced unemployment benefits and other programs that are being done. And some people may say that that is necessary, that’s warranted based on what’s happened. And regardless of what someone’s views are on that issue, the real takeaway is what effect is that going to have on assets and asset prices, and where are you going to get yield, where people are going to get yield from?

Daniel Cocca:

Yeah. When we have this conversation about where are investors finding yield, it ultimately leads to this discussion of, well, that’s why the stock market, despite all of this economic uncertainty, is still moving in a positive direction, because there are very few places that investors have to park their money and generate yields, given where interest rates are.

Daniel Cocca:

I think you mentioned this earlier is the difference between the 1% and the rest of the world and where they’re deploying their capital. Real estate, in theory, becomes cheaper capital for a buyer of a new property as interest rates decrease. And then you see, oftentimes, what follows is this offset of decreasing cap rates as sellers then realize, “Hey, investors are getting more bang for their buck. And so I can get more money.” And then you have this more aggressive capital that’s out there hunting for deals. Like you mentioned, the folks who are borrowing at the absolutely lowest rates, and all of a sudden you have this environment where you’ve got 15, 20 bidders for a deal, and winner’s cursed if you end up ultimately acquiring a property. And so my question, in this current interest rate environment, how should investors be thinking about what’s a good investment today?

Mo Bina:

Yeah, that’s a good question. In my ebook, I covered not just the interest rates, but I also covered a lot of other phenomenon taking place as well too. For example, what are the longterm trends in our nation, for example, with underemployment and stagnant wage growth, the loss of purchasing power that people are experiencing, the heavy debt loads that people are also experiencing as well. A lot of students coming out of college with what I call, they have a mortgage without the home because their student loan burden is so high. And these are all unfortunate circumstances. And when you take all this culmination together, you combine that also with the decreasing home ownership as well, and where things are headed in that direction.

Mo Bina:

And for example, my ebook focuses on multifamily investments, but a lot of these bullish indicators and all of these longterm trends bode well for other asset classes as well too. For example, like mobile home parks, the supply mobile home parks decreases every single year, senior living is another one that’s correlated or closely related to what’s going on in multifamily. We have an aging population so it’s important to keep track of the demographics and what the demographics are with an aging population. And the fact that a lot of these elderly are going to need advanced care with memory care and skilled nursing. And those are other asset classes as well that investors would want to look at.

Mo Bina:

But as far as making investment decisions, it’s important that, I think, investors understand that they have a number of choices out there. And although multifamily is one that fulfills a basic human need… we all need shelter and that’s never going to go away. Building a portfolio that has other asset classes within commercial real estate can also provide some benefit of diversification across different asset classes and also geographically as well too, and also trying to mitigate any risk. And you’re right. There’s a lot of people out there that are fiercely bidding up the prices of these assets. And I think over the longer term, you’re going to see even more cap rate compression than we’ve even seen up to this point. I think we do have some challenges kind of like in the near to midterm, for example with these enhanced benefits that have been given out to people. When those enhanced benefits run out, how are people going to be able to meet their rental obligations?

Mo Bina:

And I do expect, it could be wrong, but I do expect that there should be… if all that eventually plays out that there will be some type of repricing that takes place within commercial real estate, specifically within multifamily, I would say. We’re already seeing that repricing take place, for example like in hospitality, and retail, and office. And so I think there’ll be some nice discounted opportunities in the next six to 12, maybe 18 months, down the road. It really all depends on what goes on with these enhanced benefits not to go off on a tangent, but I read a pretty interesting research report by the Aspen Institute.

Mo Bina:

And maybe this… we can reference this in your show notes as well. And they basically put together a study and they’ve actually shown that when the enhanced benefits run out, that there could be as many as 20 million Americans that are evicted. And I think that’s a really… even if it’s only half that number, that is huge. And I think it’s something that people should consider and bear in mind, especially with the markets that they’re looking to invest in.

Mo Bina:

In that recent report from the Aspen Institute, they actually… of that 20 million, up to 4,000,000 of those evictions may take place in California alone. And so we’ve been in a pretty hot market in California. I know that there’s even big rise in demand for single family homes as well too fairly recently. But I think over the short and mid term, there could be a little bit more of a slight correction, I would say, in multifamily, perhaps even in single family homes. But again, for most passive investors who are investing for the longterm, does that really affect their decision? Unless you’re looking at maybe buying multifamily in some of these states like New York and California that may potentially have a lot of evictions playing out. I think that people looking at a lot of these markets with the job growth and also the growth and population. Areas like Arizona and other places where people are going to a lot of the places in the Southwest and the Southeast, they’re experiencing phenomenal growth.

Mo Bina:

I think there’s a lot of great opportunities, especially when an opportunity is pretty well vetted and you have perhaps below market rents, properties being run inefficiently, and so there’s a lot of upside at that point. And a lot of this kind of short to midterm probably is, for the most part, really irrelevant. It just all depends on what types of decisions investors are looking at making, and the markets that they’re looking at, and the asset classes too.

Daniel Cocca:

Yeah. It’s also cheaper rents. Everything else being equal. When you look at in New York or in LA, you’re looking at a minimum $2,500, $3,000 a month for an apartment. But if you head to Phoenix or a market like that, you may have rents that are a thousand, $1,500 a month. And if you think about affordability for those types of properties, it doesn’t require you to make a hundred thousand dollars a year if it’s about $40,000 a year that you need to make in order to afford to live in that apartment. And that’s really been the central species behind workforce housing for a long time is, “Hey, there’s a coming recession. And when it hits, folks in class A apartments are no longer going to be able to afford where they live, particularly in major cities and then they’ll drop down into these class B.”

Daniel Cocca:

Now, it could maybe shape things up a little bit, because you have a lot of blue collar workers who are now in that unemployed category. And so there’s been this lingering question once these federal unemployment benefits run out, what happens to those folks? And as we look back on or chat with the sponsors that we invest with them the data that we have, to date we’ve seen collections have been where they have been historically. And so there’s definitely an open question about what the world’s going to look like going forward. And then I think the followup to that, of course, as well, who should ultimately be stuck at the end of the day holding the bag for COVID and its impact?

Daniel Cocca:

Should it be investors in real estate? Should it be owners? Should it be the government? Should it be lenders? Everyone has an interest in this, and everyone wants things to move forward in a way that makes sense, because the reality is lenders do not want to take over a ton of properties in the next few years. They’re not equipped to do that. A default is not a positive thing for most lenders. And so I’d be interested to get your thoughts on how does this all shake out over the next six to 12 months.

Mo Bina:

Wow. That’s a tough one. I do expect in some markets that there will be a repricing for sure. I can’t see any way around it. Especially in markets where I think there’s not historically been… or from a recent point of view, let’s say, and when I say historically, like job growth and population growth in states where we have kind of an anti business high regulatory barrier, high taxation. These are markets, I think, that are going to suffer even more, but I could be wrong. But when you look at also the migration trends, when you look at one way you hold rentals, just look at where they’re going and look at the pricing.

Mo Bina:

I know that there’s a number of people out there that track this information. And from time to time, they publish their stuff. And you can see that the cost for a one way U-Haul rental out of California is like four to five times coming back into California for over the same distance. And when you look at it from that point of view, you have to wonder like, “Okay, well, do I want to be investing in a market where there’s a net loss of people?” And you also look at some of these areas in California where… and I’ve seen some of these properties even just in the last month or two, really high end coastal areas, one and two bedrooms from high four thousands to $6,000 a month. These are one or two bedroom units. And they’re also in neighborhoods that they are desirable, but you also have to wonder like, “Well, how much more is that sustainable? Just from an affordability standpoint.”

Mo Bina:

So when you talk about markets with lower rents and lower price points of a thousand dollars give or take, I would feel much more comfortable investing in markets like that, especially when I’m investing in multifamily or an asset class that I know is going to be in demand. And the demand fundamentals have gone even better as a result of COVID. I think they’ve solidified the fact that when you look at the money printing that’s been going on, and when you look at the trajectory where rates are, more than likely, I would think are eventually going to hit negative in the United States at some point. And even if they don’t, even if they just hover like for just barely above zero where they are now, that still is going to compress cap rates moving forward, because just think of all these trillions of dollars that are out there and foreign investors and foreign capital, they’ve always seen the United States as a safe haven.

Mo Bina:

They’ve always seen commercial real estate and real estate in general in the United States as something very desirable to have. And that should… it has not changed at all. Maybe how much they allocate in specific asset classes in geographic markets has changed, for sure, but I don’t think that that trend in itself is going to change. I just read that in Manhattan, they’re having an all time high in vacancies now. This is an all time high. People are just fleeing Manhattan. And then this is also part of another trend too that maybe we can briefly touch upon, which is kind of like the flight to suburbs. That’s been going on for a number of years now.

Mo Bina:

So there was this trend that was leading to more centralized business districts, more into downtown areas, if you want to call them that. And now that’s reversed. And it reversed a number of years ago. And so there’s been people going more into the suburbs. And I think as a result of COVID and people wanting to perhaps have more distance away from other people that that is going to continue to accelerate, if anything. And it’s interesting to just also look at maybe like office too because office development and office spaces have actually been increasing in the suburbs. So I’m not sure if people are following or which one is leading the other, or maybe they’re just moving both in tandem, but it’s interesting to track that employers are sensing and also see that trend too. And so they’re also setting up shop in the suburbs. And so office spaces in suburban areas are growing quite a bit.

AdaPia d’Errico:

Yeah. So, Mo, it’s interesting because I was actually reading a Brookings report from 2019 because it was making this point that COVID has simply accelerated trends that were already in motion. In everything that we’re dealing with. And the migration out of the major metropolitan areas was already happening as far back as when they started tracking in this report 2004. And so from 2004 until 2017, it was like the top cities that were losing migrants would say, well, Los Angeles, New York, Chicago, Miami, those were the top four from 2004 till 2017. So we’ve seen with the boom in technology companies through that time too that as prices in these major cities have been pushed up, they’ve also been migrating their businesses to these other markets in America that have been booming for years.

AdaPia d’Errico:

So there is so much data out there and research that shows it’s not that COVID made something happen, COVID is just highlighting things that were already in place. And then a really interesting number that I was reading about regarding New York, Manhattan, is I want to say it’s like they’ve lost 450,000 people was the number. And that number is basically the equivalent of all of the people that had been gained since the ’50s. And they’ve lost that same amount of people, almost half a million, in six months. That it took 50, 20, almost 70 years to gain in.

AdaPia d’Errico:

And then on the other hand of this, because there’s nothing as one directional, you have Amazon who just decided to buy the Lord & Taylor building that WeWork had bought. So they bought it off WeWork. And they’re going to add 3,500 jobs with an opening date of this new Amazon New York headquarters, 2023.

AdaPia d’Errico:

So at the same time as Amazon is doing this really future oriented, they’ve also been one of the companies that set up hubs all over the country. So I feel like in the work that we’re all doing, and even for an investor listening, it’s good to understand the overall global economic trends, like you were talking about sovereign wealth and money coming to the US because even if it seems like a bit of a circus right now, it’s still in a lot of investors’ eyes the safest bet globally. It’s just like in a rock and a hard place you’re still in the US. That’s one thing.

AdaPia d’Errico:

And then you have so many shifts in behavior and preferences. And I loved what you said in the beginning, which is, do we need to have 70% of GDP based on consumerism? Maybe not. Maybe this is a really good time to change that. So anyway, I said a lot, but just to say the statistics are there, the reports are there, the trends are not new. They’re just highlighted.

Mo Bina:

Yeah, totally. When you look at even in other asset classes too, like in office, there’s been this trend to reduce footprints. Employers want to reduce their corporate footprints. And so that’s given way to, one, people working from home either on a full time or part time basis. And also people… Oh, sorry. And businesses setting up coworking spaces. And that also is even transitioned into multifamily and co living spaces as well too, which is starting to grow. And so these are all trends that we have to keep in mind. And look at the rise of e-commerce, look what that’s done to the retail space and look at the rise of e-commerce and what that’s done for the industrial asset class with warehousing and cold storage and all these other things, last minute delivery centers. And so that’s given rise to industrial. Although retail has been adversely affected, that’s helped to grow the industrial asset class.

Mo Bina:

And although office has been hurting, at least in some of the major metropolitan areas… and that’s what I would expect to continue, but that it’s going to take years to really see how this all plays out, but that trend has also been one that’s been going on for quite a number of years and employers just wanting to reduce their overhead. Why have such a large office footprint with a lot of these leases are really longterm leases as well too. And it’s funny just kind of on a side note, I recently bought a webcam and a microphone and they’re hard to come by because most people are now… they’ve set up shop from home. They’re now interfacing with clients and perhaps their peers via Zoom and whatever platform they want to use.

Mo Bina:

But you can just even see with the fact that it’s hard to even find a decent quality webcam out there without being price gouged, or a microphone. And so that in itself tells you that more people are utilizing these things because they’re not interfacing person to person. And I think a lot of that is going on because people need it as a necessity because of employment and the jobs that they do.

Mo Bina:

And just, I want to touch upon another point too, as well. A lot of people talk… because this kind of circles back with the whole like in foreign investment capital. And I got caught up in this flawed thinking for a while, and I’m sure that there are maybe some people listening to this as well that maybe you could appreciate or identify. There’s a lot that’s made out of the US dollar crashing, that somehow our dollar is going to be worthless and it’s going to zero and whatnot.

Mo Bina:

I think people need to understand the fact that the way things really work is that if someone’s going to say that something is going to crash and burn, there has to be some alternative. There has to be some other currency out there that, let’s say, the world will come to rely on as a reserve currency, and that oil and other goods will be transacted in some standardized currency. And people keep predicting the dollar is going to crash and I’ve heard this for probably 20 years or more. And I’m sure that talk’s been around even further than that. They need to understand that there is no other alternative out there right now. And that maybe at some point, there will be. I’m not saying that the dollar will be the king forever. But until there is an alternative, and even that will take perhaps quite a number of years for it to be fully solidified and for nations and for global economies and commerce to adjust.

Mo Bina:

The dollar is basically the nicest house in probably a very ugly neighborhood. And people need to understand that because foreign investors do. They understand that. And so that’s why they see the US as a safe haven. And you also have to understand too that even if you believe that the dollar is appreciating and you’re losing purchasing power, which there’s no doubt about that, we all are, and if you believe that the CPI and the rate of inflation that the government puts out, if you believe that, which I personally don’t, I think inflation rate at least is almost twice as much if not even higher. And there’s some great platforms out there to actually track what the real rate of inflation is based on historical measurements. And Shadowstats is one of them, for example.

Mo Bina:

And even if you think that we’re losing our purchasing power, what are you going to do about that? Again, more reason to own tangible assets like real estate, and perhaps even have maybe a little bit in precious metals too as an insurance policy against all your dollar denominated assets, but real estate is the best way really to hedge against all that. And especially when you take into consideration the cap rate compression that we’re going to see and all this foreign and even domestic investor capital that’s going to want to find yield somewhere.

AdaPia d’Errico:

Yeah. Mo, I’m so glad you touched on shadow staffs. Because I remember seeing that about what, let’s call it actual inflation is, and they’re actually on like kind of a side note, but sites like Shadowstats and there are other sources of information that are more truth in everything than just what’s put out by, let’s say, like governmental agencies. So it’s kind of shocking because I’ve seen that chart and it looks more like inflation’s 10%, and has been for quite a long time.

Mo Bina:

Yeah. I think if you asked the average person… sorry, if you asked the average person inherently, when you asked them to consider, especially if they have a family and they have kids let’s say going to college, and when you take into consideration higher education, healthcare, when you take into consideration housing, especially if you’re in some of these markets like California and New York, and you look at the cost of housing. And if someone were to tell you that, “Oh, well, the CPI index is only about like 3% or so,” I think that’s just really awful. Let’s put it that way. And Shadowstats is a good way because people don’t understand that the metric has actually changed a number of times over the years. And they also have things that they can do. Like, for example, I think one’s called substitution, where they can actually remove something out of that index and replace it with something else.

Mo Bina:

And for example, I remember reading one time where one of those substitutions, like if the cost of beef goes up too high, then they replaced it with chicken. Because they say, “Well, if the cost of beef goes up too high, people aren’t going to buy it anyway. They’re going to go buy chicken. So then we would throw the price of chicken in there.” And I’m just giving a crude example. But when you really want to have a historic measurement of what the CPI is, and not just that, but even our purchasing power over the long run, when you look at statistics and when you consider our purchasing power where it used to be in the ’50s and ’60s, in the ’50s you’d have just one head of household that was working and could support an entire family. Now a lot of households have, let’s say the husband and the wife both working, and they actually have less purchasing power now than the single individual working decades ago.

Mo Bina:

And of course that then ties in when we were speaking previously about the stagnant wage growth. People say that, “Oh, wages are growing. Wages are growing.” But at the end of the day, it’s not really that. It’s really purchasing power. What are you able to get for what you’re actually making? And I think that’s how people should be thinking about it. And Shadowstats is a great resource that actually allows you to track that. And you can actually see. And again, that’s another way that people should be investing, because if you think that trend is going to continue, because I don’t see it changing anytime soon, how are you going invest accordingly to take advantage of that?

AdaPia d’Errico:

Right. Yeah. And it really makes me think about how a lot of people, like myself included and you and Dan and all of our investors have two jobs, maybe more, have a side gig and are getting passive income from investments. We can’t actually sustainably rely on just income anymore. And one of the things throughout COVID is that regardless of where you are in the sort of food chain of how much you’re making, if you’re in workforce or in white collar, everyone’s been affected and shaken a little bit because of all this uncertainty. So let’s talk about how we invest and why we invest. And something that I really resonate with your philosophy is this idea of meaningful returns because yes we’re trying to make money, but it’s not because we’re greedy. There’s a necessity to it more than ever. And that, that also comes with a sense of meaning as to why we’re doing it. So can you talk a little bit about that?

Mo Bina:

Yeah. Thank you for bringing that up. It’s one that I really hold true. And it’s something that I really… I’m passionate about. Back in the day when I was, let’s say a traditional asset investor and… I always felt disconnected from everything that was going on. You can own stock in Apple and in Tesla and some of these high flying technology stocks, but do you honestly feel like you get meaning out of that? And some people perhaps do. And I shouldn’t perhaps maybe pose it in that way, but I’m just speaking about how I look at it. Housing, multifamily, we’re fulfilling a basic human need for shelter. And it’s something that… it’s an asset that we can see, we can touch it, we can see it. As an investor if you’re interested, you can even drive by and take a look at as often as you like, just to know that it’s still there and that it’s still providing utility to people.

Mo Bina:

And personally, I’ve been one who lived in… I’ve lived in apartments for most of my life. Growing up, we bounced around quite a while and lived in many apartments. And so I kind of have this… it kind of resonates with me about this whole meaningful returns and it’s something tangible. It’s something that we’re not disconnected from. And it’s something that we’re providing such a great benefit to people.

Mo Bina:

And I don’t know if a lot of people honestly get any meaning out of the other things that they invest in. Maybe they do. Maybe for some people, if it’s just literally what’s on the bottom line of your brokerage statement and that’s all that there is, and that’s fine. That personally has never really been me though. I never really got… I never felt complete. That means it’s a good way of saying that, and investing in real estate, investing in assets that provide a benefit, not just in terms of shelter, but in need to society. How do we function without even industrial assets, for example?

Mo Bina:

Everyone wants to have something that they can buy online and have delivered as soon as possible. And what facilitates that? Warehouses, the location of warehouses, all this logistical stuff has to all come together and it provides a great societal need because people want to have things when they need it. They can’t go shopping, or if they’re basically that there are restrictions in terms of their travel or whatever it may be, or people just prefer you buying online now. They love whatever website they go to to do that, Industrial provides that need. And so Senior Living another one as well too. With memory care and skilled nursing, a lot of these asset classes that provide meaning and provide something that’s really in demand, especially for elderly people. And especially as our demographics are moving in a way where our population is getting older and older, especially within that age group of 70 and above.

Mo Bina:

Anyway, that meaningful returns is really something that I know resonates with you as well too. It’s something that really is important. And I think a lot of other people feel the same way as well. And when you start investing in passive investments and when you start having multiple streams of income, that is a way of diversifying as well too. Diversifying your wealth, diversifying where your wealth is coming from, and when people start to round out and build this base of passive income. And then of course, when you combine it with the tax benefits too, and passive losses, and before you know it, there are people like Robert Kiyosaki that constantly talk about the professional investor and shooting for having passive income and paying very little of any taxes.

Mo Bina:

That is something that’s written into the internal revenue code. And that’s something that’s been there for decades and decades from the very beginning. Because when you provide a societal need, when you facilitate something like real estate to others, which is one of the few areas that government has not gotten involved in when you think about it.

Mo Bina:

So in essence, to me it almost seems like the government’s already said, “We’re going to incentivize people to get involved in real estate. We’re going to provide you benefits like depreciation, and cost segregation, and 1031 exchanges, and all these other benefits to facilitate private industry to get involved in real estate.” Because I guess… and the way I see it is, they’ve already acknowledged the fact that they’re probably not very good at it, so they’re going to stay out of it. And so that allows the rest of us to fill that void and that need that society needs.

AdaPia d’Errico:

Yeah. I love what you were saying about some of the asset classes. And it made me think about some of the sponsors that we work with. We’re really proud to work with the sponsors that we work with, especially in the senior living space. And we started working with a new sponsor this year that’s doing affordable housing, and their approach to it is really important. Because even for us, as a company, as people, as a firm is, we don’t want to invest with slumlords. We’re looking to invest with people who put people first.

AdaPia d’Errico:

And so that’s also really important when you’re like, who you’re investing with is that alignment of philosophies and how they’re putting their money to work. Because yes, we’re making returns and that’s great, but it shouldn’t be, let’s say at the expense of someone. Especially not in these categories. They really need to be taken care of. And it almost is like a responsibility that falls on us as investors, whether you’re the GP or even an LP. Like you said to each his own. But I know that that’s definitely important to us as well.

Mo Bina:

Yeah, I totally agree. I totally agree. And I don’t think it’s a matter of having to pick one or the other, like, do I want to do good for society or do I want to build my wealth or diversify where my income is coming from? No, we can have it all. We really can. I think this mentality that you have to pick one or the other, I think is flawed. I think it just… And if someone’s posed with having to make a decision like that, then I think that’s just not the right investment opportunity, honestly. And when you talk about slumlords, I’ve lived in apartments that were run like that. So I know what it’s like on the receiving end. And there are a lot of communities where people come in and will buy a multifamily property and they can totally remake. When I look at that property it’s almost like a micro-community.

Mo Bina:

You add some security fencing, you add maybe some security cameras, a fresh coat of paint, you maybe add other types of amenities or small amenities. And all of a sudden it’s like people feel a much more pride of ownership or rentership, I guess is probably a better way of saying it, in that micro-community. And then what happens? And then they raise rents $50 to $75, very minimal amount, let’s say. Maybe not even that much. And then next thing you know, there’s a property across the street that does the same thing. And then the one adjacent to that does the same thing. I’ve been in communities where it started with just maybe like one or two properties that did basic things like this to improve the lives of the tenants, and then before you know it, the entire street… the level of the entire street has been brought up.

Mo Bina:

And then so all these people in that neighborhood, I’m sure they feel more pride in where they live, they feel more secure, and they feel like it’s a much better place to live. I’ve been to apartment communities where the laundry rooms don’t even work. And imagine how much time it takes to take your laundry and to go to a coin operated place and how much of your time… and people are so strapped for time as it is. How much is the time to really take just to do something as washing clothes? And these are all basic things. So we can totally make a huge difference in the lives of people. And again, like I said, it’s not a matter of picking. Because I don’t think it ever should boil down to that. And I just think that these win-win opportunities, there’s tons of them out there. They’re all over the place. It’s just a matter of aligning things properly to take advantage of it.

Daniel Cocca:

I think that’s a really important point too, because it’s not just about behaving in a way that makes you feel good about where you put your money. That type of activity also spurs a bunch of additional economic activity. And over the course of the medium longterm, you’re actually creating an ecosystem that is much more in line with your economic goals. And then you also have the, “Hey, we feel good about this approach.”

Daniel Cocca:

And as AdaPia mentioned, the group that we work with, in addition to coming in and buying affordable housing units that are some of the worst on the South side of Chicago, they spend a lot of money renovating these properties so that they look substantially better than any other affordable housing property that you would walk into. And that’s really the first time that that tenant is going to get to live in a building that looks and feels like the one that they’re now living in, because those options don’t exist.

Daniel Cocca:

And then they do things like they have a tech platform where they connect all of the local businesses with all of their tenants. And of course this is sprawling across the South side of Chicago. And exactly like you said, over the course of time, they’ve really build up the neighborhood feel and everyone is boosting everyone up. And in addition to feeling really good about helping to revive a community, we’re also creating a ton of economic value as well. And so we really see those types of things as when it seems like you do as well.

Mo Bina:

Yeah, definitely. And like I said, there’s tons of these opportunities out there and it’s just a matter of, like I said, just making sure that everything aligns properly to take advantage of it. And sometimes it means being the first one on the street or in the neighborhood to do this. But then once that happens, then someone else… another land owner, another property owner, would see and do the same thing. And it just has a domino effect. And now you saw what was just a micro-community level or a specific, maybe just one… a multifamily complex, and then now it’s multiple in an area. And all of a sudden that builds up and that really elevates the whole community as a whole.

AdaPia d’Errico:

Yeah. And actually, it makes me think about what you said in the very beginning and which is what I think most people understand about real estate is, it’s a long game. When you make those moves, if you are the first, when you’re investing in real estate, it is a longer term endeavor. And so that it kind of brings that all kind of ties it back in to why that’s important to have that longterm view. So the last thing that I’m wanting to talk about or ask you about actually is, what does wealth mean to you? We talk about like the show is based on building a healthy financial foundation and there’s multiple aspects to that. And so what does wealth mean to you?

Mo Bina:

Yeah, that’s a very deep question. There’s the financial wealth, there’s the health wealth, there’s a lot of components that come into that, also the meaningful returns that we’ve talked about and being… feeling fulfilled and complete that you’ve done something. Ultimately, when we’re gone, what do we leave behind, really? It’s just a legacy.

Mo Bina:

Maybe the Federalists believed otherwise. And so they wanted to be buried with all their stuff. But I don’t believe it works that way. And so all you can leave behind is a legacy and whatever shell that you’ve blazed for others, or alongside with other people. And health is something that I hold really dear. My family and I, we’re really conscious about exercise and making sure that we’re constantly eating well. And that transcends to a lot of things that a lot of people may take for granted. And that’s really, ultimately, their physical health.

Mo Bina:

Being financially free or getting to the point where they’re financially free is great and all, but there’s also that longevity components of it as well too. If you’re financially free and you have the means to help out others and to do the things that make you happy and that improve the lives of those around you and the people that you love, that’s great and all. But in order to do that, you have to be in good health. And you have to be able to sustain a good long life and have a good quality of life too that goes along with that.

Mo Bina:

And it’s something that I think is really important and don’t know how much of it you want to cover. But I do spend a lot of time, my family and I, in terms of what we eat. We eat organic, we owe it, whenever possible we try and buy directly from the farmers. And that is our way of knowing where our food comes from, where it’s sourced from, and at the same time also to build these communities or these decentralized systems as I would also like to term it.

Mo Bina:

And this also ties into what we’ve talked about too, with the whole syndication kind of set up. And one of the things that I really enjoy about it is, we’re all investing with each other, or main street investing in main street, if you want to call it. And so we have the ability not just to invest and to improve the lives of other people, but we’re investing in each other’s deals and in each other’s opportunities. And we don’t have to invest and go through these big financial institutions and be at the winds of how the stock market is trading and how disconnected it may be from the economy right now. And so, when you buy directly from a farmer, someone who grows your food or who raises the animals that you may eat, if you’re a mediator, this also ties into that decentralized kind of philosophy.

Mo Bina:

And when we invest in syndications and syndicated opportunities, these are decentralized systems that we’re taking part in. And that’s another fascination. And what really got me going down this track years ago as well as that we invest in each other’s deals and at the same time we’re building up each other as well. And I love doing the same thing at the community and micro-community level. And it’s kind of, when you look at who’s been doing well recently, it’s the big-box stores. And a lot of that, they’re not a necessity.

Mo Bina:

But I don’t know if that really is at least my personal choice. I would rather give my money to someone who I know is growing my food and who actually is raising the animals that I eat than to go and… even if I’m buying, let’s say grass fed or organically grown meats and fruits and vegetables, I always have this connection to the people that actually have interfaced and worked the land, let’s say.

Mo Bina:

And again, that falls into that meaningful connection that you’re having again with where your food is coming from and what you’re eating. And so it all kind of ties in. It’s all really under the same theme of like I’m connected, I’m connected to where the source is, I’m connected to where it’s coming from, and I’m connected to the individual. And you can always go and do a farm tour as well. The tours where you can actually go and you actually see where the strawberries come from, that you go and buy every Saturday. You see the fields and you see the people who work the land. And again, to me, that’s meaningful. There’s a connection there.

AdaPia d’Errico:

Yeah. I remember picking strawberries when I was a kid. My parents would take me to strawberry picking. I remember the taste of the strawberries. I haven’t had strawberries like that unless I buy them from the farmers market. What you’re saying, too, just to kind of synthesize it and wrap it up, you said a few things that I think are really important keywords, which is the connection and community, and by interacting with each other and not to be like a clique, but when you find a group of people or when you find your suppliers or you find your partners, you create this community, you create these connections and they are more meaningful. At Alpha, we don’t call ourselves a syndication platform. We call ourselves an investor member network. Our investors are our members, they are our community, and we extend not just our deals to them, but our network to them.

AdaPia d’Errico:

And that’s a really important thing because I think my belief is that at the end of the day, bottom line is, do you trust me? Have I earned you trust? Especially because as we know in real estate, everything’s a projection, especially with equity. And so we’re always doing our best. And that level of trust comes with, especially in those times, in those moments, where maybe a distribution isn’t coming through, because the sponsor has to keep it back, to keep up cash reserves or whatever, what have you. And just having a blind pool of investors isn’t conducive to being able to have the level of communication that allows them to feel comfortable and allows us to feel like we’re doing a good job because nobody likes to be yelled at. You know what I mean? And so it kind of comes back as a long winded way of saying this idea of connection and community and direct connection and meaning is built off of these relationships in all areas of life. So I really appreciate what you were saying.

Mo Bina:

I totally agree with everything you said. You said beautifully. Thank you.

AdaPia d’Errico:

Well, Mo, thank you so much for joining us today. This was a fabulous conversation. I loved all the different things that we talked about, and we will include in the show notes for our listeners, your ebook, and some of the sources that we cited so that people can dive into their own research at least to start to get a different sense or understanding of how to do research, where to look for it. And your ebook is a great starting point for that too. So thank you so much for being with us. We really appreciate it.

Mo Bina:

Yeah.

Daniel Cocca:

Awesome. Well, thanks, Mo. That was really great. I think this will be a little bit unique for our investors and that we’re taking a deeper dive into some of these… no, I guess I shouldn’t say deeper dive, but a dive into some of these economic concepts, which I think people want to learn, but they just don’t really know where to start. And so I think this will be a really good material for the folks in our network. So thanks a ton for taking the time.

Mo Bina:

Yeah. No, thank you guys. It was great. And thank you for taking the time to really go through the ebook and you guys really did your homework. Trust me, I’ve done several of these already. This was definitely by far kind of the most in depth and… not to use the word meaningful again, but it was very meaningful in a lot of ways. And it’s a testament to the amount of time that you guys spent, even just preparing.

Mo Bina:

I told you, I’ve done a few of these and literally it’s just like we talked for a couple minutes and then they just want to go record. And it’s like, “Really, do we not want to at least put a basic outline together? Have some talking points.” And so I think definitely I can tell based on the level of homework you guys do that your listeners are definitely going to be more sophisticated than some of the other ones. So thank you for having me on. It was an honor being on your show and I really think you had a PA and Daniel as well. So thank you so much.

AdaPia d’Errico:

Thanks for tuning in to Real Wealth Real Health. We hope that you’ve enjoyed today’s episode and found it both informative and insightful. We welcome all your questions and your feedback about today’s episode and especially we welcome your questions about specific topics that you would like us to cover. So shoot us an email at [email protected] And if you have a moment, we really appreciate ratings and reviews as it helps us grow our online community and our interactions with you. And we’ll also be linking to a number of relevant articles on topics that we might’ve touched on during our conversations. Some of them are broad, some of them are technical, but we’re always aiming to provide information that helps you better understand the mechanics of building this healthy financial foundation. Especially if you’re looking to do this with real estate.