The transcript from this week’s, MiB: Jonathan Miller on Post-Pandemic Residential Real Estate, is below.
You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
This week on the podcast, our returning champion for the sixth time, my friend Jonathan Miller. He is founder and CEO of Miller Samuel, where he has been covering the real estate market for the better part of 40 years. Not only is he an appraiser, he’s pretty much been in every single penthouse in Manhattan, some of the stories he tells. I couldn’t get him to coax out stories about David Bowie and other celebrities, but I’ve heard them all over a beer and they’re amazing.
There are few people more knowledgeable about what’s going on in the state of real estate, why it got to where it is today, how it’s changing, and what you should know about prices and supply in the near future than Jonathan. He is just simply the go-to guy when it comes to residential real estate.
I found this conversation to be a lot of fun and I think you will also.
With no further ado, my conversation with Miller Samuels’ Jonathan Miller.
Jonathan Miller, welcome to Bloomberg.
JONATHAN MILLER, FOUNDER AND CEO, MILLER SAMUEL: Oh, great to be here. It feels like I’ve been here before.
RITHOLTZ: You are a returning champion. I think this is your fourth, fifth, something like that?
MILLER: Sixth.
RITHOLTZ: Sixth.
MILLER: Right.
RITHOLTZ: So every time there is tumult in the real estate market, my instinct is always to say, “Let’s get Jonathan in here and talk about what’s going on in the real estate world.” To talk about what’s going on in real estate, before we get to that, for the people who might not have listened to the previous five conversations we’ve had, why don’t we just delve a little bit into your background, starting with you said you stumbled into appraising and real estate.
Tell us what that means.
MILLER: Well, actually I moved to New York in the mid-80s, because my parents had moved here and my sister had moved here, and they’re saying this is incredible. I grew up in the DC area and was living in the Midwest, and my wife and I came to a wedding here and were completely hooked. Within three weeks, we sold our cars and moved and slept in my parents’ apartment, one bedroom apartment floor within three weeks of our visit here. We just wanted to be here and there’s no regrets. We love it.
RITHOLTZ: The 1980s New York area was kind of transitioning from the really dumpy ’70s to hey, the ’80s and the ’90s were kind of a boomy area.
MILLER: Yeah, yeah.
RITHOLTZ: What was that transition like?
MILLER: Well, when we moved and we went through, we basically got the idea as a family to start a real estate appraisal business. We actually raised money from Japanese investors through an attorney to start a real estate brokerage firm and got to the bottom of the form where you had to sign the dotted line and said, no, let’s do appraisal.
It was just like, it was just this sort of odd moment where we really didn’t want to become real estate brokers And we had real estate expertise. We had a lot of technology that we were playing with. I used to sell units in an onsite sales condo new development on the Upper East Side. And I literally put the entire Schedule A, which is the pricing square footage unit numbers in a Hewlett Packard 41B using bit mapping. And we could walk around and instead of having, you know, when people would ask me, what are the common charges? What are the, you know, I’d literally have it in my handheld. And we’d sort of turn that into a valuation business. And it’s been since ’86 that we’ve been appraising property about five billion a year in Manhattan.
RITHOLTZ: Wow, that’s amazing.
So before we get to the pandemic, which obviously had an enormous outsized effect on real estate, let’s talk a little bit about the financial crisis in the mid-2000s, a lot of real estate companies crashed and burned then. How did you manage through the GFC and what sort of world were we existing in back then?
MILLER: Well actually I thought, leading up to the great financial crisis, I thought to myself, we’re going to be out of business within a couple of years because nobody wanted an independent valuation. Everybody knew the number but the appraiser. And so the system incentivized mortgage brokers to hire the appraisers that made the numbers for them because they wouldn’t get paid until the deal closed. And we weren’t morally flexible. So that was really a lean period. And I remember I was interviewed and some national TV program interviewed me and said, what’s the, what do we not know? And I said, most of the appraisals being done through mortgage brokers aren’t worth the paper they’re written on, and I’d say 75% of them.
RITHOLTZ: Wow.
MILLER: And then I was sort of attacked by my industry, at least the local competitors, who were very morally flexible and were really doing well. And in 2008, that same journalist came to me and said, this is the guy who told us three years ago that this was going to happen.
RITHOLTZ: (LAUGHTER)
MILLER: And I, ever since then, apparently, I got a lot smarter.
RITHOLTZ: Right.
MILLER: I was saying the same thing, but I was right.
RITHOLTZ: It just sometimes takes a while for people to realize that the painful thing they’re hearing, you know, when there’s a lot of pushback, it’s because you’re telling people things they don’t want to hear.
MILLER: Don’t want to hear, and they’re invested in the old way, and in fact, when I started going negative on the market, I remember being in a “New York Times” front page story about prices dropping X percent, and I remember a real estate brokerage CEO to remain nameless called me and said, “What are you doing?” You know, and, you know, “This is wrong. You can’t talk.” And I said-
RITHOLTZ: Tell ’em the truth.
MILLER: You got to be transparent. And what’s really interesting to the industry’s credit is there’s a lot of market studies out like we publish, but the brokerage community has, compared to what it was in the 80s and 90s, is dramatically more transparent, even though not perfect, about what’s happening, as opposed to in the dark days of Lehman collapsing and brokers at panels I was on were saying, this is just going to last a couple weeks, everything’s great.
RITHOLTZ: It’s always a great time to buy or sell. Do you remember that ad, the National Association of Real Estate?
MILLER: Yeah, I think you wrote a piece about-
RITHOLTZ: I might have.
MILLER: Yeah, where there was like one month out of like the last 20 years that it wasn’t a good time to buy.
RITHOLTZ: It was great. Listen, it’s always a good time to generate a commission if you’re a commission real estate agent.
MILLER: Of course.
RITHOLTZ: And my mom was a real estate agent, so this was always dinner table conversation. Like you, she wasn’t afraid to call people out. The fascinating thing is, we’ll talk a little more about the appraisal industry in a bit, but back then appraisers were not really helping the buyers. They were just helping the brokers get a bank loan through the process.
MILLER: Well, yeah, sort of. I mean, essentially what no one understood in the industry and still don’t understand today in the real estate industry is that when appraisers doing an appraisal for the buyer that’s getting a mortgage, their client is actually the bank.
RITHOLTZ: Right, that’s right.
MILLER: And so now there’s all kinds of restrictions post Dodd-Frank introduction to the process where people can’t talk to you like they could.
RITHOLTZ: Back in the day. Hey, I have, we’re paying this and here’s how much my mortgage is.
MILLER: This is what I need.
RITHOLTZ: Right, keep it fair. It’s like Rodney and Caddyshack. Just keep it fair.
MILLER: The term back then was, here’s a good appraiser, good in air quotes and good translated into making the number.
RITHOLTZ: So I was always shocked at the idea of quote unquote “comparables.” If you’re in an upward price spiral that is essentially a mortgage driven bubble, what good are comparables? Hey, this house down the street is overpriced 30%. Give these people a mortgage for a house that they pay 30% too much. Doesn’t make a lot of sense.
MILLER: Yeah, the challenge is that when we’re looking at valuation of a property, we’re looking more than price. Price is sort of the caboose at the end of the train. Leading indicators would be contract activity and listing inventory, sort of transaction-based rather than price-based.
RITHOLTZ: I would imagine that would tell a bank, “Hey, if this buyer defaults on this mortgage down the road, here’s what it looks like.
MILLER: The collateral won’t be adequate in our view. Or could, would, or wouldn’t be. A perfect example of that is sort of the, when you apply like the greater fool theory to South Florida real estate in the 80s, where it was all about carpenters and nurses flipping, quitting their jobs and flipping real estate and becoming, making a lot of money, and then they would turn around and sell it to somebody else for double and double and double and double.
And if you actually stood back and looked at a chart of what was happening, prices were going straight up and sales were going straight down. And you could see it because sales actually lead price direction by a year in many cases.
RITHOLTZ: In fact, in ’05 and ’06, people were not familiar with the history of the financial crisis. Prices peaked in, I want to say-
MILLER: Summer of ’06.
RITHOLTZ: ’06 and volume peaked in ’05.
MILLER: Correct.
RITHOLTZ: The market didn’t start to stumble. Market peaked in October ’07.
MILLER: Correct.
RITHOLTZ: So you still had a full, the stock market. So you had a full year or two after housing topped before it started to shine. Really the heavy stuff didn’t start until ’08.
MILLER: The answer to that question is always, consumers, when they’re uncertain, they pause. And so you see the transaction volume drop, but the pricing, that’s the greater fool theory, right?
RITHOLTZ: Right.
MILLER: Continue until there’s no more buyers, and then the price is correct.
RITHOLTZ: So now let’s flip that question and talk about the sellers, because we’re currently in a little bit of a challenging market for both buyers and sellers, not enough inventory, mortgage rates are much higher.
It seems like sellers are always operating at a six to 12 month lag, maybe even longer.
MILLER: One to two years.
RITHOLTZ: One to two years, so they’re always a year or two behind the price, which when things start to slow down and prices start to roll over-
MILLER: They don’t adjust quickly.
RITHOLTZ: They really don’t, and I’m genuinely shocked that when I look at some prices, I’m like, “Hey, that was the right price in December 2021.”
MILLER: Right.
RITHOLTZ: But that ship has sailed.”
MILLER: Well, it’s funny you say that, because in the beginning of this year, when people said, “What do you think 2023’s going to be like?” I dubbed 2023 the year of disappointment. because people weren’t going to get their 2021 price, the sellers weren’t, but the buyers weren’t going to see a substantial savings in pricing, that prices weren’t going to correct.
RITHOLTZ: Too little inventory.
MILLER: And we have this collapse of inventory that is now sort of, when you think about the home valuation or just market trends, typically when there’s a negative external event like a spike in interest rates. So if you saw interest rates, the 30-year fix is more than double what it was a little over a year ago. You expect sales to slow down, they did, and you expect inventory to pile high to the sky, and that didn’t happen. And in fact, right now, new inventory is falling. New inventory, meaning inventory that’s coming in right now is actually going negative, and it should be just-
RITHOLTZ: Year over year comparison.
MILLER: Yeah, it should be going negative, and it should be rising and it’s not. So what that does, you’re not seeing prices fall because we’re actually seeing right now in the second quarter, just looking at the suburbs around New York City, like Westchester, Nassau County, Fairfield County, the market share of properties that closed in this recently completed quarter, the market share of all closed sales was, depending on the location, typically about 45% of the transactions went to a bidding war, meaning that they closed higher than the last asking price of the transaction. And that doesn’t happen when mortgage rates double, right? It makes your brain crack thinking about it because it’s so contrary, and that’s because the inventory factor is what is throwing all the modeling off.
RITHOLTZ: How many of those transactions were cash transactions where mortgage rates are irrelevant?
MILLER: Right, so in Manhattan, the second quarter had the highest market share of cash transactions in history, two thirds of the transactions, about 65%.
RITHOLTZ: Amazing.
MILLER: Now, what’s interesting if you dig a little deeper is that it’s not that the whole world is just paying cash, it’s that the number of transactions for cash buyers and financed buyers, both fell sharply year over year. The aggregate total was about 40% year over year.
RITHOLTZ: Wow.
MILLER: But, and I’m sort of making this simplistic, but cash buyers fell 20% and financed buyers fell 50%.
RITHOLTZ: Right.
MILLER: And so what it meant was there’s a lot less resistance to your point of cash buyers. The other thing it says is that cash buyers skew higher in the sort of price strata. So one of the stories before the pandemic was Manhattan had almost eight and a half years of unsold supply. And that’s including active inventory for new development, unsold condominiums, whether actively listed for sale or in shadow inventory that the developer could sort of dip into when they ran low of sales.
After the pandemic, and because of this, sort of the pandemic sort of introduced strength to the high-end market, the share of, or the activity continued to favor the high end of the market. So instead of being a market that was sort of the low end was where all the action was, it became a market where the high end was strong because the share of unsold condos fell from 8.3 years to about just over three years, meaning it fell by more than half in terms of what it would take to sell off the supply in New York. It was dramatic.
RITHOLTZ: So there’s normally a chain of sales. The starter home, the move up, right? There’s a whole run of this. But during the pandemic, a lot of people just said, I’m going to go buy a second home or a third home, a vacation property, so I’m not stuck in a city where I can’t do anything in a tiny apartment, and that really sucked up a lot of supply.
MILLER: Yeah, the way I look at it is in the city itself, in Manhattan and most urban centers, sales activity fell by half, and it fell by half because during a global pandemic in a multifamily building, are you going to let strangers into your apartment, right?
The thinking was, no.
RITHOLTZ: (LAUGHTER)
MILLER: But in reality, the buyers that zoomed out to the suburbs were largely from the rental market because they weren’t anchored to another asset.
RITHOLTZ: They didn’t have to sell.
MILLER: The affluent, yeah, they bought in the Hamptons, a second primary home, I called it co-primary at the time. And high-end markets in the county surrounding New York definitely did better, and people moved farther. I mean, my wife and I moved a half an hour farther from the city because we figured we weren’t going to be going into the city five days a week.
RITHOLTZ: Right. And you get a lot more bang for your buck the further away you are.
MILLER: Correct.
RITHOLTZ: So more property, you live on a compound with how many different buildings on that property in Connecticut?
MILLER: Three.
RITHOLTZ: That’s a lot of buildings. So you couldn’t get that in Darien, right?
You couldn’t get that near the water or near a commuter line into the city, at least not for a reasonable price. So we’ll come back to a lot of what’s going on in New York and the rest of the real estate market. I just want to touch on one more aspect of your background. You’re a professor at Columbia Business School teaching a course on commercial real estate. Tell us a little bit about that experience. What’s the course like and what are the students like at Columbia Business School?
MILLER: Well, it’s their architecture school. It’s the master’s in real estate development.
RITHOLTZ: So not business school, architecture school.
MILLER: Architecture school. It’s a master’s in real estate development. And so my students are mostly in their 23 to 29, super smart and very eager to get into the business. And so what it has allowed me as a venue, I teach every summer, it’s not year round. I usually have about 150 students. When we were Zooming during the pandemic, I had like 190, which there’s a lot of icons in your Zoom screen, right?
RITHOLTZ: Right, you’ve got five or six panels in.
MILLER: But the program is fantastic, and I’m one of those people that run up and down the aisles, asking questions.
RITHOLTZ: High-fiving the students.
MILLER: Yeah, talking, and the other sort of secret passion is I get to tell the same dad jokes every year because they haven’t heard ’em before, or they have, but not from me.
RITHOLTZ: It’s a whole new crop of new audience.
MILLER: Victims, well, students, right.
RITHOLTZ: Right, that’s hilarious.
MILLER: And there’s nothing better than talking about a topic that you’re really comfortable with and really smart people ask you questions that cause you to maybe think a little bit differently about the solution or whatever. I just love the experience. Columbia’s been very good to me and I appreciate it. And the thing that I like most about it is, by the end of the class and you’re asking questions, they’ll answer in unison, 150 students, like it’s locked into their brain. And it’s totally satisfying.
RITHOLTZ: That sounds like a lot.
MILLER: I’ve been doing it for about five years. And my ritual was, and they wooed me for like, they spent like a year and a half taking me out to lunch and say, “You’d be perfect.” And I’d say, “Are you sure you have the right Jonathan Miller?”
RITHOLTZ: (LAUGHTER)
MILLER: And then I did it, and I remember I used to call my father when he was alive, I’d call him at the beginning of the class and say, “Hey dad, I just taught my class.” And he said, “Jonathan, you’re so respectable.” And I’m like, what do you mean? Wasn’t I respectable before? Like does this like it put me over the top?
RITHOLTZ: The official imprimatur of society is, oh, a professor in an Ivy League school. You have to be respectable. Fun stuff.
So what’s the state of real estate in the United States? What’s going on?
MILLER: Well, what I wanted to, sort of comes to mind is something that hasn’t really happened in a significant way in the real estate industry, but there is multiple listing systems across the United States, which are essentially a database for real estate agents and for managing listings.
RITHOLTZ: Who controls that monopoly?
MILLER: Real estate brokerage community.
RITHOLTZ: National Association of Realtors?
MILLER: They control about 50% of them. There’s also a contingent that are anti, but it is a product of the brokerage community and it is an essential tool to them. And so this recently, there’s three or four major software companies that drive the MLS systems. CoreLogic is one of them with Matrix. There’s FlexMLS. And a big one is also Rappatoni. And Rapattoni just had a ransomware attack.
RITHOLTZ: Oh, really?
MILLER: And they power MLS systems like in the Midwest, like Cincinnati and San Francisco and a few other markets. And they can’t, you know, they’re stuck. Sort of like what happened in, I think it was Suffolk County, the ransomware attack on public records, where these people make a living out of using MLS systems and they don’t have access or there’s lots of problems. And I just thought about big data and the real estate community, and then you start seeing the, as more things go online, you’re more vulnerable to attack, and that’s a real problem for the housing market.
RITHOLTZ: So I imagine things like Zillow and Redfin are all powered by MLS? Is that their data source?
MILLER: Yes, they get their data at various ways, but yeah, it could create, who knows how long this will go on. The MLS looks bad because, hey, you got shut down.
RITHOLTZ: But anybody could get hacked.
MILLER: But anybody could get hacked, right? So there’s no real answer yet on what they’re going to do. And I’ve never heard of a situation where that’s going to really impact the transactional volume in these markets.
RITHOLTZ: Amazing.
We’re talking with Jonathan Miller about the state of US real estate. So Jonathan, tell us what’s going on in the United States with residential real estate.
MILLER: Right now, the focus has been the inventory challenge and the doubling of mortgage rates. I remember in the beginning of the Fed pivot, a little over a year ago now, where we started to see rates go up, there was this thinking within the real estate community or just people that sort of tracked real estate, weren’t necessarily brokers, that we were going to see when rates fall again, then everything’s just going to go back to normal.
And it’s like, that doesn’t seem to be on the horizon. Goldman Sachs just came out and said, maybe we’ll see rate cuts by the second quarter of next year but they’re not rate cuts that bring it from seven to three, they’re rate cuts that bring it from seven to maybe six or high fives.
RITHOLTZ: That’s assuming Goldman is right.
MILLER: Correct.
RITHOLTZ: Everybody’s been forecasting incorrectly about recessions, about rate cuts. So let’s talk a bit about, I want to talk about rates and I want to talk about supply. Let’s start with rates. So two years ago, not even a year and a half ago, mortgages, 30-year fixed, you could get as low as 2.75. Now they’re about 7.5%. How big of an impact has this had on prices, on transaction volume, and on inventory for sale?
MILLER: So the idea that a rapid slowdown in sales – that’s the first sales generally, depending on the markets are down 20 to 40% year over year.
RITHOLTZ: Transaction volume.
MILLER: Units that sold, but it’s important to remember that a year ago was a rocket ship. It was an historical anomaly. It wasn’t-
RITHOLTZ: In anticipation of rising rates, a lot of people bought and sold property.
MILLER: In a significantly higher volume that would be considered a normal volume.
RITHOLTZ: Right.
MILLER: …in every market. And so we’re coming off of that high. So year-over-year comparisons make it look like, you know, you’re down 40%, but you were up 50, 80% a year ago over the prior year.
RITHOLTZ: So what does this look like compared to the pre-pandemic average? Where are we?
MILLER: Depending on the market, we’re generally about, compared to say second quarter ’19, compared to second quarter of this year, We’re down about in the 20 to 30% range from normal. What’s really interesting and what is so different is yes, you have sales drop, so normally you’d expect inventory to rise. If you look across Florida, inventory compared to pre-pandemic, which became my alternative metric to year over year…
RITHOLTZ: Right. Right.
MILLER: because the distortion that has occurred in 2021 too, in early, well really early 23 has been significant. So in Florida, in almost every market, inventory is more than 60% less than pre-pandemic.
RITHOLTZ: Amazing.
MILLER: And as a result, you can argue, well sales are down 25%, so you say, hey, it’s mortgage rates have doubled. Well, it’s also because you have dramatically less product. And then on an anecdotal level, just in sort of ground level chatter in various markets that I connect with, that the product that’s coming in, back to your like how long does it take a seller to capitulate to market conditions? The product that’s coming in is priced like it’s still the boom.
And so, you know, and it takes one to two years for a seller typically or a developer to capitulate to the current market. You know, because what do they do? They just don’t sell. They wait, hey, it’s going to get better.
RITHOLTZ: There are no signs of capitulation out there, are there?
MILLER: We’re starting to see a little bit, but not in any significant way. I’d say, you know, we’re a year in, so I’d say we’re going to start seeing it in terms of better pricing over this next year, but nothing dramatic would be my guess.
RITHOLTZ: So let’s come back to this inventory question. There are two issues there I want to go over. One is the footprint of people with golden handcuffed mortgages, the data point I read recently, 61% of homeowners with a house with a mortgage have a rate that’s at 4% or under.
MILLER: Correct.
RITHOLTZ: Does that mean these people just aren’t putting their houses up for sale any time soon?
MILLER: Well, I think, first of all, the first thing it tells you is that if mortgage rates drift meaningfully lower, and by meaningful I mean in the high fives, certainly I’m not talking about fours or 3% range, then you’re going to see inventory enter the market.
RITHOLTZ: Right. Which would be good for inflation and good for prices.
MILLER: Good for inflation, good for pricing for new homeowners because there’ll be more competition.
RITHOLTZ: Right.
MILLER: And frankly, at this time, the only thing I see of bringing rates down, besides a recession, which we’ve been forecasting a recession in the next six months for the last couple of years, is the idea that we’re going to see the Fed at some point, perhaps soon, is going to stop pushing rates higher.
And when they do, and if they stay still for three, four months, I think you’re going to mortgage rates drift lower, but not correct, not drop sharply. And I think that’s going to bring more inventory into the market, but still it’ll be far inadequate.
The interesting thing about the state of inventory today is normally new construction accounts for 10 to 15 percent of total inventory. That’s true for Manhattan. It’s true for the nation. And now you have submarkets where new construction is like 50% of inventory, and 50% existing, because the existing has collapsed, right? It’s not commuting.
RITHOLTZ: So let’s talk about new inventory, because that’s something I’ve been railing about for a while. Post-Great Financial Crisis, home builders felt burnt, because they were building a lot of houses, they were speculating. A lot of them got caught leaning the wrong way. And they kind of pivoted away from single-family homes towards multifamily and apartments. And if you look at a chart on new home sales going back to the 2000s, it’s pretty apparent new home construction collapsed for the better part of the decade that followed the financial crisis, which raises the question, how short are we of new homes relative to where we would have been without all the craziness in the 2000s following the financial crisis. What is the shortfall of homes that should have been built in the 2010s?
MILLER: Yeah, millions.
RITHOLTZ: Millions. And so the National Association of Realtors have a number, the National Association of Home Builders, they’re like four or five, the architectural group, I forget the name, they all have thrown out numbers, two, three, four, five million home shortfall.
MILLER: Correct.
RITHOLTZ: That seems huge.
MILLER: But it’s actually probably worse than that.
RITHOLTZ: Because of population growth?
MILLER: Yes, well, no, it’s more because if you look at the product that is being built in all the national home builders, in the last 10 years, there’s been a lot of pivoting to higher-end homes.
RITHOLTZ: Luxury homes.
MILLER: And so when you look at just raw units, they’re skewed higher-end. So I’d say there’s a much more severe inventory challenge for starter homes, first-time buyers than we really give credit for. That it’s the product mix has skewed higher end. Why has that happened? Because primarily land sales, right? I mean, land appreciates and improvements depreciate, right, the way you should think of it. Land is what appreciates. And I think we’re now seeing a lot of home builders gobble up land to sort of anticipate the next wave.
RITHOLTZ: I’m shocked when I play around with Zillow, everybody loves the Zillow Surf, and the percentage of homes for sales are essentially lots with new construction on it. And it’s not, you know, and they’ll build it to suit, but you’re not buying a house, you’re buying a piece of land and a builder. And that seems to be, especially in parts of Florida, the Hamptons, that seems to be a wildly disproportionate amount of inventory.
MILLER: It’s not conducive for a first time home buyer environment to do that because of lending challenges. The other thing I thought was, the numbers that have come out, I don’t know if I have this exactly right, but that the number of homeowners in the US without a mortgage is like 35%.
RITHOLTZ: Pretty big. So it’s everybody who does cash purchase and everybody who’s paid off their mortgage.
MILLER: Which would be heavily weighted towards investors.
RITHOLTZ: Right.
MILLER: And then long-term homeowners where they’ve paid down the mortgage.
RITHOLTZ: Right.
MILLER: But so you think about transactional volume as being restrained by high mortgage rates, but you do have a large cohort of the housing inventory that is, or a potential inventory that doesn’t have a mortgage issue with it, which I think is something that’s probably not understood.
RITHOLTZ: So how many new homes have to be built to sort of stabilize demand for both starter homes and move up homes versus the inventory that’s out there?
MILLER: Well, it’s funny, I interface a lot with the affordable housing industry here in New York, because our research is open market. It’s not — we’re not looking at subsidized housing or anything along that line. And the mantra, when you talk about how many more to build, the answer across the board is I don’t know, but a ton more.
RITHOLTZ: Literally millions of new homes.
MILLER: Yes, that this is the problem.
RITHOLTZ: So let’s talk about a specific new home building problem. how difficult are zoning regulations, health department, Department of Environmental Conservation, just general nimby to the ability to put up a decent number of houses?
MILLER: It’s significantly challenging. What I find just maybe as a sidebar to this is on top of that, when you think of things like flood insurance and the cost of flood insurance, FEMA prices flood insurance basically at a level that the private market can’t compete. And so in many ways, the federal government is encouraging development in …
RITHOLTZ: …In flood zones.
MILLER: In flood zones, and flood zones are not just on the coastline. You know, we’re seeing dramatic-
RITHOLTZ: All the rivers, yeah.
MILLER: We’re seeing dramatic flooding problems in the Northeast, inland.
RITHOLTZ: Look what just happened in Vermont and New Hampshire.
MILLER: Correct.
RITHOLTZ: They got slaughtered up there.
MILLER: Yeah, so I see ads on TV for FEMA and it’s cheap, and I’m like, that seems counter to sort of public safety. You know, a dozen, or almost a dozen years ago when we had Superstorm Sandy hit, you know, one of the byproducts, I know I’m going off on a tangent, but-
RITHOLTZ: Well, a decade ago, that destroyed huge swaths of New Jersey and New York and just up and down the whole…
MILLER: Yeah, Long Island, the South Shore, and what came out of that is a lot of product that was destroyed was middle class housing. And so the resulting product on the waterline, and they rewrote the FEMA maps for the New York City metro area, making them much bigger coverage area.
And politically it was shot down because it would make it more expensive. And what we saw in parallel to that is that, say you had two modest houses on the shore, south shore of Long Island that were destroyed, investors would come in and buy both lots and build one big house. And that’s been, after significant flooding events like in Fort Myers, that’s what you’re seeing come back. It’s the existing sort of middle class, modest housing is destroyed and those homeowners can’t build.
RITHOLTZ: What I’ve noticed on the south shore of Long Island, both in Nassau County and out in the Hamptons, is when you are rebuilding a destroyed house, seems the rules are you have to elevate that house 10 or 13, like substantial, like a whole flight of stairs up and everything that’s underneath that is just outdoor storage essentially. With breakaway walls but cement pilings holding the house up on the assumption that there’s going to be another storm that will raise water levels five, 10, 15 feet.
MILLER: And that’s how they can continue to get flood insurance. So a neighborhood where I used to live, the neighborhood next to me in the next town over was on the water. We kept our boat there and you’d see a house that was normally just sitting where it was sitting before, Sandy. And then you saw the houses on either side were like on 10 foot pilings. Imagine the garage now on the second floor.
RITHOLTZ: Right, well a lot of these houses, no basements, no garages, but there’s like a carport. The assumption that if your car gets washed away, hey, it’s State Farm’s problem.
MILLER: But it was almost comical to see all these garages on the second floor and you can’t really get your car up there, so it’s obviously going to be redesigned and made into some other-
RITHOLTZ: Oh, so these are existing houses that were lifted, not new construction.
MILLER: Yeah, like think of a raised ranch with a two-car garage on the side. Now the whole thing gets raised up to the second floor. So it’s a three story structure, right? Pilings and place to park your car. The first floor, which is now the second floor, which is where the garage was. And so you got to think, the data is not definitive yet, but the house that’s in between these two properties is going to be punished in value because the buyer, If they want to have flood coverage, they have to elevate or raise the house.
RITHOLTZ: That’s amazing. There’s a house nearby where my in-laws live out in the Hamptons, and I’m like, I’d like to take a look at that house. So Saturday morning, I call the agent, or I do an online request, I’d like to see the house, and the text comes back, the seller requires 24 hours’ notice and I just remember my mom saying, “Hey, a buyer wants to come look at your house. “I don’t care if you’re having a wedding. “Send everybody next door.”
MILLER: I don’t care if it’s three in the morning.
RITHOLTZ: Open the house, show, because you don’t know if that’s the right buyer for your house.
MILLER: Correct.
RITHOLTZ: And I was like, “Well, we could try tomorrow, but let us know.” They get back to us on Wednesday, and I’m like, “We already have an offer in on another house, but thanks for the call.”
MILLER: Yeah, because really, especially even more so today than a year or two ago, you have to be bend over backwards in accommodation. As a seller to be accommodating. You don’t control, well, I shouldn’t say that. Because it’s a short of listings, you still have control of the transaction in that sense, but you don’t have the same level of control you had a year, year and a half ago. But not only that, as your mother was very, very accurate in her assessment, you shouldn’t think that way.
RITHOLTZ: Right.
MILLER: Unless you’re not-
RITHOLTZ: It evinces the wrong attitude for a seller. Listen, I’ve owned a bunch of property in and about New York over the years. I’ve had some terrible sellers we’ve purchased from walked away from deals. There are other sellers that, but for my wife, the deal never would have gone through.
MILLER: Right.
RITHOLTZ: And there have been other sellers who’ve been, and buyers, who’ve been a pleasure to deal with. Like, I wish I had another house to sell you. You’ve been a delight.
MILLER: Right. (LAUGHTER)
RITHOLTZ: And the first, like it just rubbed me the wrong way. They require 24 hours’ notice to show a house on a weekend? Hey, tell you what, let’s have this conversation again in six months and maybe I’m wrong and you’ll get more than the three million ask, which is crazy for this house. Or maybe you’ll realize you made a mistake. But the process is just like, oh, from right out of the gate you’re going to be difficult? I don’t have time to sell it.
MILLER: Well it’s funny, in this market, we sold right as the market pivoted.
RITHOLTZ: I remember.
MILLER: And my wife always kids me about being overly eager to pay full retail. And so we went into the house that we ended up buying, we ended up paying, we beat 30 people.
RITHOLTZ: You paid way over ask.
MILLER: Only 36%.
RITHOLTZ: Now did they price it low to cause a spending frenzy? And you gave it a straight up appraisal.
MILLER: Yeah, I thought it was about 15% underpriced.
RITHOLTZ: And you overpaid by 15%.
MILLER: Right, right. But I don’t really care.
RITHOLTZ: Right. This is the house you’re going to live in for the rest of your life, you’re done shopping for real estate.
MILLER: It’s going to be a long time. And also too, we just absolutely love it. And I’ve never looked at it as an investment vehicle. Housing itself, it’s just a slow moving asset. In fact, the last three houses, I haven’t paid under the ask. We haven’t paid under the ask.
RITHOLTZ: That’s really interesting.
MILLER: Yeah, yeah, because of the timing that it came on and it was like, I always seem to, we’re ready to move, like we became empty nesters, that’s why we moved this last time. Our four kids are all gainfully employed and-
RITHOLTZ: Out of the house.
MILLER: And out of the house and we wanted to live a little bit more in the country. And so it was just perfect. But it was like, for shock value, I always own it and say, “Hey, we overpaid.”
RITHOLTZ: And here’s the crazy thing, especially if you’re rolling out of a similarly priced house and I’ve had this argument with my kid brother who he just looks at the transaction, he looks at it very transactionally, dollars and cents. And I’m like, “Think about it, “if you’re in that house for 20 years and you overpaid 20% in the grand scheme of things.
MILLER: Does it matter?
RITHOLTZ: It’s really not significant. People have a very hard time wrapping their head around that. Nobody wants to overpay for anything, but this isn’t a car or a piece of furniture.
MILLER: Toaster.
RITHOLTZ: Right? This is where you’re going to live, where your homestead is going to be, where your hearth is for the next couple of decades, a couple of bucks one way or another. and I know that sounds flippant, but it isn’t.
MILLER: No, I mean, that’s how we thought about it. It was perfect. And we were joking because our old house was built in 1825 and this one’s built in 1755.
RITHOLTZ: You’re running out of centuries to buy houses in. Next one is 1600s.
MILLER: We really wanted to get something that was built before the US was a country.
RITHOLTZ: Right. So let’s talk a little bit about the rethink that the pandemic caused, how it changed our relationship with real estate, work, prices, where do you even begin? It’s just such a giant topic. Is it safe to say the pandemic caused us to rethink everything about real estate?
MILLER: I think that’s a fair description. In fact, I think the easiest way to sort of start talking about the subject is the idea that Zoom became ubiquitous within 24 hours after the lockdown.
RITHOLTZ: Right.
MILLER: Suddenly, everybody in the world knew what Zooming was and you’d probably never heard of the software beforehand. While there had certainly been, there’s other video products, this was far easier to navigate and it became part of our culture almost overnight.
And so as a result, it changed what I call, I described as the tether between work and home that normally when people, majority of people that are buying homes and aren’t retired are thinking about the commute and how far away and that all got thrown out and we’re rethinking it to the point where we’ve seen people move farther from the city. I’m one of those people where I don’t go into the city as much as I did. There are people that love still working five days a week and there’s people that don’t want to work at all in the office.
RITHOLTZ: It’s not the work and it’s not even the office. It seems to be the commute is the biggest problem. And I think the pandemic kind of made us realize a lot of us have a too long commute and an uncomfortable commute. And when you’re shopping for a house, you kind of imagine, well, I’m 47 minutes away from door to, then you actually do it day to day, and there are delays, and there are misconnections, there are this, and what was supposed to be a 47 minute commute is really an hour and 10 minutes, and that adds up 10 times a week.
MILLER: That’s time out of your life that you can’t get back.
RITHOLTZ: Right, that’s gone.
MILLER: The other thing, I think, right away, the sort of stereotypical description of work from home was suburb to city. You know, people moved out of the city, they bought, you know, they lived with relatives or they, you know, bought houses or rented and then commuted via Zoom into their job in the city. The problem with that, first of all, it’s completely misleading. There’s, I contend there’s just as many people on the Upper East Side of Manhattan that were doing work from home as people that live in Westchester. I mean, you know, that the city, people are commuting in the city the same way. So it wasn’t about like the driving in or taking the train into the city so much as it was just physically not going to work and working in your pajamas or just totally …
RITHOLTZ: A lot more flexibility, a lot easier. You feel, and at least in the beginning of the pandemic, it felt like, and maybe I’m projecting my own experience, it felt like I was working more hours than I normally would because I gave up, I gave up the commute, I gave up bathing, I gave up getting dressed. Like, you roll out of bed, you sit at your desk, and my wife would say, “Hey, you’ve been there “for 14 hours, time for dinner.”
And it’s like we used to joke, we shower Saturday night whether we need one or not.
MILLER: (LAUGHTER)
RITHOLTZ: And at a certain point, she would come into the office, the office upstairs and say, listen, you got to open some windows and air this room out because it’s getting rank in here. I just picture that replayed all across the country.
MILLER: Absolutely.
RITHOLTZ: So listen, I love going into, I love being in the office. I like work, but everything that takes you to, listen, I know people who commute from the Upper East Side down to Wall Street and it takes them about as long to get to work as it does me coming in from the burbs.
MILLER: Yeah.
RITHOLTZ: And it’s just, we don’t have the sort of mass transit they have in Europe.
MILLER: Yeah, and I think there’s people that have the opinion that we’re going to revert back to, let’s call it four and a half days a week, where like weekend schedules, people work half days on Friday, but just call it four and a half days a week. And I contend that we’re probably, if I had to make up a number, I’d say we’re at two and a half to three days a week as an average. That’s what we are in our company and most of the people I interact with, you know, it’s like a little less than three days.
And the argument is, first of all, that can vary by, you know, industries that are more collaborative. You know, the challenge is you can’t, it’s harder to build corporate culture and to train new talent.
RITHOLTZ: How do you mentor young kids who haven’t?
MILLER: So that’s the challenge.
RITHOLTZ You can’t do that over Zoom.
MILLER: You can’t. And so that is what’s going to be figured out over the next five to 10 years. I don’t think there’s a quick solution. And you definitely have some industries or some companies that want five days a week right now. And so the idea is that, what I’ve heard is like, hey, we’re going into a recession or a weak economic period so therefore everybody’s going to go into work four and a half days a week because they want face time with their boss. And I just don’t think that’s-
RITHOLTZ: It’s not realistic.
MILLER: It’s not realistic in my mind. I don’t care whether the economy is strong or weak, it’s not going to be the same. But again, I think probably we’re at a period of time right now where the default is going to be more time in the office than we have right now, but not much more.
RITHOLTZ: So let’s talk about some other impacts of the pandemic. You were one of the first people who wrote about, hey, the death of New York City has been greatly exaggerated. And every time there’s a sale, I actually just shared a silly article with you from the “New York Post” earlier. All right, so there’s a town adjacent to where I live called Centre Island.
MILLER: Yes.
RITHOLTZ: Small town, a couple of, you know, there’s a few hundred houses on it. And the “New York Post” and Billy Joel lives there, just listed his house for sale for $49 million and it says just mass sales of houses on Centre Island. Who are they selling this to? Isn’t this a mass purchase of homes? Like every time I see that sort of argument and we have a similar argument in the stock market, all this cash on the sidelines, what do you mean? I sold the stock for $100, somebody had to buy the stock for $100.
MILLER: For $100.
RITHOLTZ: It was this exact same amount of cash as it was beforehand. So how could there be massive selling if there isn’t a match of massive buying?
MILLER: Well, that New York Post is the one that had that article that was just a brilliant move for getting attention because it was so, you have a nightclub owner saying, not only saying New York is dead, they added New York is dead forever. Like a proclamation.
RITHOLTZ: You could say his name, James Altucher, which ultimately led to Jerry Seinfeld’s counter-argument, and between Altucher and Seinfeld, I’m in Seinfeld’s camp.
MILLER: Absolutely.
RITHOLTZ: But now let’s talk specifics and let’s put some meat on the bone. You discussed how there’s been a huge influx of purchasers and renters of young people coming from other parts of the country, other cities, what’s going on in the New York City real estate market?
MILLER: Well, what’s really interesting if you look at the census data, because I think the term migration can take all kinds of connotations. In the context of New York City, the concept of net migration, what’s the difference between inbound and outbound? And in 2022, according to census, Manhattan had a net inbound.
RITHOLTZ: Manhattan, not necessarily Brooklyn, the Bronx and Queens.
MILLER: The other boroughs had a sharp drop in the outbounds, meaning that everything got a lot better. The narrative is, and I remember in the early days of the lockdown, where if I read and took every headline to heart, because the key words, like you had told me years ago, like if you put gold in your post title, you’re going to get a lot of traffic, right? And the words during the pandemic were “exodus” and the phrase “fleeing the city.”
RITHOLTZ: Fleeing, right.
MILLER: And so I took it as, you know, this was in the spring of 2020, I was thinking, boy, if all this is true, there’s going to be 11 people left in Manhattan by the fall, which of course was not the story. And we’ve seen it, and it creates this really confusing narrative because we have office buildings that are 50% or less than 50% used, according to Castle card swipe data, as sort of a proxy for that. And then we have record rental prices, right, where people are…
RITHOLTZ: If only there was a solution to be worked out.
MILLER: Right, right, so the solution that’s talked about a lot is this idea of converting unused office space to rentals.
RITHOLTZ: Which post 9/11, down in the Wall Street area of New York, it took a couple of years, but there was a massive conversion from office to, now those were older buildings.
MILLER: Right, class B or C.
RITHOLTZ: Right. Now you have, so you have Midtown South, you have Hudson Yards, you have the High Line, you have Midtown Proper, there’s a ton of new office buildings that have been put up in the past decade.
MILLER: But the numbers don’t work. Like to convert them to residential, any developer will pretty much say that’s not possible. But on the margin-
RITHOLTZ: Talk to me after the bankruptcy sale, see if it makes more sense.
MILLER: Okay, so that’s the next stage.
So when you think about it, and you know, my company was looking for new office space, We ended up staying in the same space, got a great deal, build out and all that. But what we found when we were looking at, we were looking at class B, there’s A, B and C for those who aren’t familiar. And really the upper half of class A isn’t going to be impacted in a significant way. It’s the bottom half of A and B and C, it’s all bets are off, right?
And the one thing that I didn’t fully appreciate until I went through sort of looking for space is that many, we were talking about sellers capitulating to the weakened market conditions. In the office environment, landlords, many landlords can’t capitulate because the debt service, they can’t cover the debt service.
So I think the way this is going to play out, and it’s already starting, you can read about, you read in San Francisco, you can read in New York City what’s happening, is that we’re going to see a lot of, a tremendous amount of office space moved from weak hands to strong hands.
RITHOLTZ: And to keep in mind, people are concerned about this being a systemic threat. I keep seeing these clickbait headlines. Every one of these buildings is its own LLC, its own corporation. So if you’re a giant real estate trust and you own a thousand buildings and one building is in trouble, well, if that building goes belly up, it’s like, oops, sorry, and on to the next. So now you’re down to 999 buildings and you don’t have the troublesome building. This can take place in a very managed process where one building after another moves from weak hands to strong hands.
MILLER: And that’s where you could see more creative, adaptive reuse where the new owner is able because they don’t have the same level of debt service.
RITHOLTZ: So prices can come down or …
MILLER: Coming down to market and you can think of other reuses of the property. What I, also, a lot of people don’t think of it when they think of this challenge, is especially in Midtown Manhattan, where you have these very big office buildings, the floor plates-
RITHOLTZ: Too far from the windows to be-
MILLER: Right.
RITHOLTZ: Unless they replace all those elevators with like an interior courtyard.
MILLER: Right, right, or they create a sort of like an alley or a center, they cut through the floors, but that’s very expensive, right? So there’s ways around it, but it is not like one of these, hey, let’s flip the switch. Because of the debt service, this is going to take four or five years at a minimum to sort of see it.
RITHOLTZ: But it’ll eventually, one assumes market forces will eventually rebalance the demand for office space, which is falling, and the demand for residential, which seems to be maintaining.
MILLER: Yeah, actually the joke during the pandemic is Manhattan’s just becoming all residential, right? Everything’s going to convert to residential. That was sort of the thinking.
RITHOLTZ: Think about how crazy it is how much new office space hit the New York market right before the pandemic. Hudson Yard, yards is millions and millions of square feet. And by the way, if you haven’t been there, it’s spectacular.
MILLER: It’s beautiful.
RITHOLTZ: It’s fantastic. It’s like the new version of Rockefeller Center. And every time I see a new building going up somewhere, you’re like, wow, that’s huge. I walk by the JPMorgan Chase building all the time, and they seem to not care about the excess office space. They’re putting up a giant building on Park Avenue.
MILLER: Right, right, I think part of that though too is that there’s like a four year, five year lead time.
RITHOLTZ: That started in 2018.
MILLER: Exactly, right, so, but that’s part of it, but yeah, like the long term view, but I look at it as when, so the big problem or big challenge is New York City’s budget. Over 50% of revenues are real estate related.
RITHOLTZ: Really, that’s giant.
MILLER: So I don’t know what the division is, the breakout is for commercial specifically, but it is inherent in our revenue structure for real estate to succeed. And even before the pandemic, we had changes in laws like the mansion tax, the rent law changed so that conversions of existing buildings are almost impossible.
So those sort of large scale revenues from residential real estate are severely challenged going forward to the city and it’s in the city’s interest. The city’s sort of caught, the state is the one that’s driving these new laws, but the revenue is critical to the city for the city not to rely on the state. So it’s sort of this catch-22.
RITHOLTZ: Right, back when we had de Blasio and Cuomo, They both despised each other and there was no cooperation. One would hope that the new mayors and the new governor get along a little better and would allow us to make some rule changes.
So let’s talk about, you mentioned migration. There has been a general shift lasting decades towards the Sun Belt. I think it was Steve Johnson wrote about how air conditioning made this possible. Like people don’t want to live in Louisiana without AC, or at least a lot of people don’t. But this has been going on for quite a while. What’s it look like now? I recall, so we looked in Florida in 2019 on the West Coast, and I didn’t know, did I want a house, did I want a condo? You don’t have to worry about maintenance on the condo, but then you have neighbors and a house, you have a little more, and between then and two years later, like these little-
MILLER: Prices are up 40%.
RITHOLTZ: More than that, double, and it’s no bargain in terms of real estate taxes. Florida real estate taxes are like New York real estate taxes.
MILLER: Yeah, the way to think of Florida, the way I think of it, without sounding like I work for the Tourism Board of Florida, is the real estate industry down there, because of work from home, is undergoing restructuring. That it’s sort of evolving from a place you go to vacation or visit to a place that you live. And what is remarkable about some of the towns or cities in Florida is they now hire employees specifically to recruit CEOs from the Northeast who then will bring their companies to Florida.
And they’ve had, I’d say, there’s been some standout results. I wouldn’t say it’s over the top successful, but it’s certainly, their population growth since the pandemic, Florida’s up about 7%. I mean-
RITHOLTZ: Substantial.
MILLER: Substantial, and so, you know, New York State and the New York metro area has to think of themselves in competition with other areas.
RITHOLTZ: Absolutely.
MILLER: Which is, it is seemingly unable to do.
RITHOLTZ: I had a buddy who runs a bond shop, and about 15 years ago, he relocated to Sarasota, Florida, and he said John Corzine, then governor of New Jersey, he said, “John Corzine bought me a house in Florida,” meaning his taxes had gone up so much, moving there was a painless transaction. Although that said, that 7% boost isn’t evenly distributed, and there’s lots of stories about these areas in Florida, particularly on the East Coast, but parts of the Southern West Coast that have just been overrun. The infrastructure can’t handle it. You bring all the Northeast problems, so there’s a lot of traffic, the schools lack capacity, even the water and electrical grid and sewage grid can’t handle it.
MILLER: Right, flooding.
RITHOLTZ: Are these areas ready for this influx of migrants?
MILLER: It’s a tough balancing act. You can certainly see in housing prices that there’s, even with all the building that’s going on, there’s inadequate supply. The focus seems to be on other institutions that create employment like healthcare, medical, tech, medical type services. There’s been a lot of emphasis on sort of competing with New York, bringing financial services there. There’s been a lot of marquee announcements like Citadel and others that have-
RITHOLTZ: Arc is another one.
MILLER: That they’re going to move their location.
RITHOLTZ: So there’s been chatter about, you had this big surge down to Florida, and now some of that’s begun to reverse and people have come back. There was a hilarious article in Bloomberg where they were quoting a trader who had relocated temporarily to Florida, and the line that stood out was, “The only problem with living in Florida is all the Floridians.” And I thought that was hilarious. And some of these folks have been coming back to New York. How exaggerated is the migration to, away from California into Texas, away from New York and Massachusetts into Florida?
I mean it looks like it’s real, but are the numbers hyped up?
MILLER: No, I don’t. I think it is real. It’s probably exaggerated, well it is exaggerated a bit, but it’s clearly something that changed during the pandemic. And the reason why I say that is, in 2000, January 1st of 2018, the federal SALT tax was initiated. I used to think SALT stood for state, this would be like one of my
RITHOLTZ: State and local tax.
MILLER: My Columbia student jokes. I used to think SALT stood for State and Strategic Arms Limitation Treaty. But state and local tax where the deduction on the combination of your state and local taxes and your property taxes, the deduction was only, it was capped at $10,000. When you have houses in Westchester with annual real estate taxes of $175,000, that’s a tremendous cost hit. So I don’t know what my point was.
RITHOLTZ: Well, the takeaway about what does that do to the so-called high-tax blue states?
MILLER: Yeah.
RITHOLTZ: And is this a jujitsu that benefits the low-tax red states?
MILLER: Right, so the thinking was when that law went into effect January 1st of 2018, that it was going to be like the Beverly Hillbillies packing up and going to Florida. And the brokerage community was all telling me, you know, we’re sitting there, we’re waiting.
RITHOLTZ: Didn’t happen.
MILLER: And it didn’t happen at scale. It was definitely noticeable, but it wasn’t this mad gold rush. When the pandemic hit, that was what really stimulated the migration, whether it was temporary or full-time.
RITHOLTZ: So where are prices stabilizing? I look around, I see Florida isn’t the bargain it once was. Cheaper than New York, but not as cheap as it once was. And when you look at, so Florida loves Homeowners Association fees. Between the state real estate tax and HOAs, Florida doesn’t seem like much of a bargain. Where are prices stabilizing and where’s some value left?
MILLER: So I would, what’s a little different and why I call Florida undergoing this restructure rather than it being some sort of fluke or high moment in price and then it’s going to go down is because of work from home, as I said. And part of what’s happening is the market is maturing. It’s pivoted into, there’s a lot more high end. So one of the things that I noticed, like as a hobby I collect, because I’m a dull and boring numbers guy, I collect 50 million plus closings across the US.
RITHOLTZ: Right, you used to put out a chart tracking the number of $50 million closings.
MILLER: Yeah, yeah, yeah. And I put it into my newsletter periodically. And it used to be something over $50 million was like LA and Manhattan and the Hamptons, and maybe an occasional sale in Palm Beach.
And now, dozens of markets in Florida in general are seeing these transactions. It’s much more, I’m just thinking of that as a proxy for sort of this discovery of Florida is much more broad-based than, hey, Miami and Palm Beach, that’s it.
It’s a lot more spread out than it was, and I think that says a lot about how the economy is expanding into this sort of year-round living.
RITHOLTZ: Although if you’ve ever been in Florida in July, you would question that.
MILLER: I do have a, one of my oldest son got a great job offer and he works in Fort Lauderdale coming from Connecticut and he likes the heat.
RITHOLTZ: Right.
MILLER: So.
RITHOLTZ: It’s August, what is he saying now? Did you realize that photons have so much mass when they hit you? It beats you, that sun.
MILLER: You can feel it.
RITHOLTZ: Right.
MILLER: Yeah, yeah.
RITHOLTZ: It has weight.
MILLER: Yeah. an enthusiast so I guess.
RITHOLTZ: You know I used to jokingly say Florida in the summer you run from air-conditioned house to air-conditioned car like New York in the winter you run from heated house to heated car.
MILLER: It’s just the opposite. Texas too, same idea.
RITHOLTZ: Right it’s just but it hasn’t been getting much colder here but you know parts of the southwest.
MILLER: A lot hotter.
RITHOLTZ: Texas and now parts of Florida you see what’s going on in the ocean off of.
So that I wasn’t planning on asking you a climate change question, but it certainly raises a question, at what point does these like wildfires and persistent heat and water shortages, and I’m not asking this as a left or right argument, at what point does this affect property values? Does it become harder to get insurance? Like what are the economic costs of what’s going on with all of these climate-related disasters we keep seeing.
MILLER: Yeah, and actually, we’re seeing climate change, I think of it as just bringing a higher frequency of disasters and larger scale disasters into the mix.
RITHOLTZ: So bigger and more, other than that, no.
MILLER: Other than that, nothing to worry about.
RITHOLTZ: Other than that, it’s a hoax.
MILLER: It’s, exactly. But what’s interesting, so first of all, A, it adds to your cost of home ownership. B, you have the insurance industry sort of grappling with can they continue at the premium, even close to the premiums that they’re with when you think of there’s already insurance crisis in Florida.
RITHOLTZ: I mean, it’s crazy what’s going on there. It’s very hard to get insurance.
MILLER: And that was my point before is that FEMA, a federal program, is basically cutting out by having such low pricing relative to private markets, is cutting out the private markets. So it’s just bringing on more risk onto the taxpayer for these locations. Yeah, wildfires in California. All this just means a higher cost of home ownership and eventually some markets not being suitable for occupancy. I mean, that’s really what it comes down to.
RITHOLTZ: What has Phoenix been, triple digits for like 21 days in a row? I mean, that’s hot. But at least it’s a dry oven, right? It’s a dry 112 degrees.
MILLER: Exactly.
RITHOLTZ: I mean, they’ve had crazy, crazy numbers.
MILLER: Yeah, it’s interesting because I just, as a kid and as an adult with kids, I always went north for vacation, like skiing or cold weather, and the idea of that heat, my relatives that have moved to Florida, you adjust to it. I guess I’m just not willing to.
RITHOLTZ: It’s certainly an unusual thing. So if Florida isn’t a bargain anymore, what parts of the country still are? I know people look in the Carolinas and Virginia. There are parts of the West, Montana and Utah and Colorado, that seem to be interesting.
MILLER: You know, it’s funny, we have good friends in Montana and I look at the housing prices of things they’re appraising.
RITHOLTZ: Right.
MILLER: And it’s-
RITHOLTZ: I don’t mean the 5,000 acre ranch.
MILLER: No, no, no, I mean single family houses.
RITHOLTZ: Have they gone up also?
MILLER: Absolutely.
RITHOLTZ: That’s all California exodus?
MILLER: Yes, that’s part of it, more Idaho, but yeah, absolutely. The way I think that we should look at housing prices in the US during this pandemic is virtually every housing market was impacted and we saw dramatic price growth in a very short period of time because the Fed, I believe, kept rates too low for too long, and now have to undo the damage by making rates a lot higher. But prices aren’t really falling because the rapid change in rates has basically kept inventory frozen.
RITHOLTZ: Really fascinating. So let’s talk a little bit about what’s going on in the world of appraisal. You’ve been an appraiser for decades. The space seems to be going through a little bit of turmoil these days. What’s going on in appraiserville?
MILLER: Appraiserville is what it is. Yeah, so in the residential appraisal world where you buy a house or refinance your house, your mortgage on your house, appraiser comes out, values the property, and then gives the appraisal to the bank, and then the bank decides how much money they’re going to give you, and then you close. This industry is, if you think about the numbers of people, there’s about 75,000 appraisers nationwide. There’s organizations and trade groups that are active, but really the whole industry has been asleep at the switch for the changes that have been coming.
I have been publicly highly critical of an organization called the Appraisal Foundation.
RITHOLTZ: And let me just annotate that. You have been humiliating those guys on a regular basis, just embarrassing them for not doing their jobs. Am I overstating that? You’ve called them on the carpet repeatedly.
MILLER: Yeah, it began during the pandemic, and it’s just an endless array of problems which I’ll sort of explain in a second, but what it led to is this idea, and it’s one of the platforms of Biden’s White House in terms of removing racial bias from the appraisal industry, residential and commercial.
And for context, the Bureau of Labor Statistics tracks 400 industries in the US, And on the matter of diversity, in 2021, the appraisal industry was 400th out of 400 in diversity. We were less diverse than farmers and ranchers.
RITHOLTZ: Wow.
MILLER: And this, it fluctuates a couple percentage points up and down every year, but the structure of the industry and how new people to get in was created by the Appraisal Foundation and they have basically refused to take any action. They set up committees and councils as if that is action, but they don’t actually do anything.
And so it’s become more and more heated to the point where the appraisal subcommittee, which is allowed to monitor and review the appraisal foundation, the appraisal foundation is basically to maintain the verbiage of our license, our certification, what we’re supposed to do. Like the appraisal subcommittee, which basically provides no oversight. This appraisal foundation, not-for-profit, literally has no oversight. They figured out a workaround, which I’ve exposed. And they’re flying to Dubai first class, and they’re going to, you know, having meetings in Palm Springs and, you know-
RITHOLTZ: Living the high life.
MILLER: Which all could be on Zoom, and it’s a very sort of, it’s a monarchy.
RITHOLTZ: To be fair, Dubai is where all the best appraisers go for, you know, continuing education.
MILLER: All their training, yeah. Especially from like Iowa and, you know, Montana.
RITHOLTZ: So let’s put some flesh on these bones so people understand what you’re referring to.
MILLER: Yeah. and there have been not one but multiple stories about a black family in America owns a house, they want to refinance, they want to take advantage of low rates, they have an appraiser come in, the appraisal comes in not only too low for them to do the refinance, but too low compared to the neighbor’s house, so they request another appraiser, only this time all the photos of the black family and the indicia of African American home ownership goes away, they literally hang photos of the smiling white family, they have their neighbor greet the appraiser, the white woman from next door, so she greets them and lo and behold the appraisal comes in pretty much as expected.
That sounds like either a ridiculous sitcom or a made up story, but this is a real thing, isn’t it?
MILLER: Largely, yes, that’s largely the way we’ve seen dozen or so of these stories and they get recirculated and over and over again. What we’re actually seeing now is, so the logic is that, hey, I think my home is worth 500,000, you appraised it for 400,000, so you’re a racist.
RITHOLTZ: Well, that’s a little over the top in the other direction.
MILLER: Correct, but that is a big part of the narrative. So you have like two parts of the appraisal world. Now you have a whole swath of people saying, “Hey, I’m not a racist. “I’m just assessing the value.” And then you have people like me that are saying, let’s not, we don’t have a leg to stand on as an industry to say, hey-
RITHOLTZ: You’re 100% white, and lo and behold, you’re appraising black-owned homes in white neighborhoods for less than the white-owned.
MILLER: Correct.
RITHOLTZ: It’s raising some questions.
MILLER: So you’re sort of preaching to the choir when you say, hey, we don’t have this problem, even though, and listen, is there unconscious bias in everyday life? Of course there is, right?
RITHOLTZ: Sure.
MILLER: So the other side is my focus is to force the foundation or remove the leadership of the foundation so that the regulatory world, or sort of the government side of the story, that there’s a representative membership, not zero, of people of color, right? That’s the first step, because this other step is just not effective, right?
So I’ve been talking about this for a couple of years, And then the appraisal subcommittee, which is made up of the heads of various organizations like FDIC and the GSEs and-
RITHOLTZ: Fannie Mae, Freddie Mac.
MILLER: The alphabet soup of Washington, sort of anybody that really, CFPB, anybody that touches on the mortgage process. And I was invited-
RITHOLTZ: You testified, right?
MILLER: Testified for three hours and it was my first time on C-SPAN but it was three hours.
RITHOLTZ: Right. So anybody could go to YouTube or C-SPAN and find your testimony.
MILLER: Yeah, absolutely. And I was highly critical of the foundation which there were five experts and two of them were from the foundation. One of them attacked me, not to sort of named names, because of the massive conflict this person has in her job with what her husband does for a living.
RITHOLTZ: Which is what?
MILLER: Runs like the biggest online sort of continuing ed credit thing and they have an-
RITHOLTZ:: So this is incestuous, corrupt.
MILLER: Right, but they don’t see it that way.
RITHOLTZ: Right, just because you’re giving the gig to your husband’s business doesn’t mean it’s corrupt. Perhaps they’re the best person for this.
MILLER: Absolutely, then you shouldn’t be the chairman of the committee that changes the regulations that causes changes that go into the, anyway, it’s convoluted, but that’s what we’re dealing with.
RITHOLTZ: Right.
MILLER: And-
RITHOLTZ: It’s a little fiefdom.
MILLER: Yeah, and I remember after it, I’m only in this to try to make it right and to make it fair. I don’t get anything out of it other than not tainting our industry.
RITHOLTZ: How dare you, sir?
MILLER: I know, but anyway, it’s sort of, that’s the kind of stuff I talk about.
RITHOLTZ: You know, we talked earlier about the National Association of Realtors and I used to be so infuriated by their monthly releases back in ’06, ’07, ’08, because the first paragraph would be the data and then the next six paragraphs were just endless spin. And it’s like, I understand you’re a trade group, but if you’re a trade group, maybe the government shouldn’t rely on your data because you’re not fair actors in this space. You’re biased and self-interested. I don’t care what the data is, I just need it to be accurate so I could do my job.
MILLER: That’s exactly right. And actually, if you look at the timeline, so NAR was like what the Fed used, all the NAR data for understanding the housing market. And you had the, I can’t remember, David Lereah was the economist and then it’s been Lawrence Yun ever since. And I remember in the beginning it was like when Lehman happened, the Lehman Collapse, it was like it’s a bubble with a slow leak. The housing bubble. And there are all kinds of housing bubble blogs, just huge, like it’s a black hole and we’re all going to die, we’re going to fall on the edge of the abyss. So you get the extremes.
And then what was interesting, the Fed pivoted to Case-Shiller, so academia, for looking at the state of the housing market. But the problem with Case-Shiller is it’s the equivalent of — and I’ve joked with you before about this, highly respected, Nobel laureate. But it’s not really suitable for everyday use because it reflects the housing market five to seven months ago.
So like when you got up this morning, did you take the average temperature of five to seven months ago to decide what you’re going to wear today, right? It was made for trading to hedge housing and there was no adoption of it. And then they went from there and then they went to CoreLogic which is more sort of-
RITHOLTZ: Little more real time.
MILLER: Little more, more harder data. more data, probably better.
RITHOLTZ: So you brought up David-
MILLER: Lereah.
RITHOLTZ: Lereah, I have a couple of blog posts on him.
MILLER: Yes.
RITHOLTZ: But my favorite was the one that took the book he wrote and then just revised it each year. Just revised the cover. And it’s literally, “Are You Missing the Real Estate Boom” was 2005, and then the 2006 edition, Same book, different cover, “Why the Real Estate Boom Will Not Bust” and “How You Can Profit From It Now” and then the 2007 version of the exact same book, “All Real Estate Is Local.”
MILLER: Yeah. (LAUGHTER) That’s called repurposing.
RITHOLTZ: Right? And then he left in 2009.
MILLER: Yeah.
RITHOLTZ: And I had to change my title from one expletive to a more tolerable expletive, which I simply just called it, former NAR economist David Lereah is a (EXPLETIVE DELETED) but it’s just about, it was just about an article, I don’t remember if it was “The Times” or “The Journal” that “Working for realtors, David Larea was famously optimistic, not so much anymore” was the headline. So wait, you switch jobs and suddenly your entire belief system changes?
MILLER: Change.
RITHOLTZ: That’s a little, And we all do it, but not 180 degrees.
MILLER: No, no. It was one of my favorite moments during the run up to the housing bubble was I was in the green room on a national TV special, something, it was about housing and it was a town hall. And I was literally in the green room with David Lereah, Robert Shiller, Susie Ormond,
MILLER: And-
RITHOLTZ:: Dottie Herman.
MILLER: No.
RITHOLTZ: Okay.
MILLER: Some other, I don’t remember what he, he wasn’t a housing person. And I got to listen to them, I was listening to him talk and I remember, this is really surreal because-
RITHOLTZ: Wait, Lereah and Shiller, that’s hilarious.
MILLER: Shiller, yeah, yeah.
RITHOLTZ: Because he was pretty bearish.
MILLER: Yeah, he actually was really calling for, I did a thing with him like two years later at Lincoln Center and he was predicting like a 50% correction in housing prices.
RITHOLTZ: Which is a little aggressive.
MILLER: A little aggressive but not like a single digit decline. It was more in the scope of what happened.
RITHOLTZ: I did a panel with him. So it was Shiller, myself, maybe it was Dottie Herman and somebody else. So it was like real estate, real estate, stock market, and then Shiller being the academic. And I referenced the, who are the guys who wrote “This Time is Different,” I’m drawing a blank, Reinhart and Rogoff.
MILLER: Yes.
RITHOLTZ: So Reinhart and Rogoff had this wonderful paper, I want to say it was like 2006, and they looked at five financial crises. It was Sweden, Mexico, Japan, the US in ’29, I never remember what the fifth one was. And they found on average, when you have a crisis that originates in the finance sector due to too much leverage, too much speculation, on average markets get cut in half and real estate loses about 30% of its value. Sometimes it’s less, sometimes it’s more, but when you look across the universe-
MILLER: Yeah, it straddles 30%.
RITHOLTZ:: Right? And so that, by the way, that paper, which was I don’t know, 15 pages long, became the basis for, “This Time It’s Different, 800 Years Of Financial Folly.” And the numbers stayed the same. It’s when you have a speculative bubble built on easy money and excess lending, assume at the peak it’s going to be a 30% drop in real estate prices, which goes to your statement, what we’re seeing today, is probably not going to have the same sort of drop as then because this isn’t based on easy money. This is based on where we’ve locked in easy money and we don’t want to sell.
MILLER: Right, but also I would differ a little bit and say that we’re not locked in on easy money. Banks during the, called the pandemic or a housing boom, never lost their mind.
RITHOLTZ: Right, this time as opposed to last time.
MILLER: Right, so-
RITHOLTZ: And there is no, there isn’t the same amount of non-bank lenders as we saw in ’06, ’05, ’07.
MILLER: Right, right.
RITHOLTZ: That where it was outside of Fannie Mae and outside of…
MILLER: Right, outside their purview.
But in this cycle, credit got easier during the boom, but it was still well below long-term norms. And so even with this inventory sort of distortion, we’re not looking at the banking world collapsing at the end of this, because on the lending itself, because the lending standards never really got crazy.
RITHOLTZ: If anything, they got tighter.
MILLER: Yeah, especially after the last year after rates, they really clamped down. So lending is much tighter now than it was a year ago, but a year ago, it was significantly tighter than the last three decades, excluding the housing bubble, going back in time.
It was banks just never lost their mind, which I think is a huge difference in the two eras.
RITHOLTZ: So before we get to our favorite questions, let me throw you a couple of curveball questions. The first, I should really just throw this one away. The article that described you as the most quotable, trusted man in New York real estate also said you look like a middle-aged Tom Hanks. I have to admit, I don’t see that.
MILLER: Well, it’s funny because, no, I don’t see that. But in the early days of my blogging, I think I started in ’05, and you were several years ahead of me. You were my first interview on my podcast, by the way.
RITHOLTZ: I recall that, in your old office, before it was renovated.
MILLER: Yep.
RITHOLTZ: You know, I’ve never walked into an office where every square inch of the walls is covered with newspaper clippings and framed.
How many times have you been in the front page of “The Times”?
MILLER: 19.
RITHOLTZ: That’s insane.
MILLER: Yeah, yeah, about once a year of the last two decades. But yeah, I, what were you?
RITHOLTZ: Tom Hanks.
MILLER: Oh yeah, Tom Hanks. So a long time ago, a blogger in the Midwest said that I was a lookalike of Bobby Flay.
RITHOLTZ: I’ve had Bobby Flay on the show. I could see some, much more than Tom Hanks.
MILLER: They compared two pictures side by side and they did look pretty similar. But that was like 20 years ago.
RITHOLTZ: Right, oh that’s hilarious.
MILLER: I haven’t been able to generate any PR out of that.
RITHOLTZ: No more celebrity. And then the other curveball, which I’m fascinated by, I think you’ve been into pretty much every penthouse in Manhattan. I mean, maybe that’s a slight exaggeration, but not much.
MILLER: A lot, yeah.
RITHOLTZ: What’s the favorite apartment you’ve been into in your history of appraising these apartments? What’s the one that really stands out? And they could be two different.
MILLER: Yeah, yeah, yeah. So I thought, you know, forgetting the, like, the condition it was in and just like the look was, one of my favorites was in the Sherry Netherland, which is a hotel co-op on the corner of, the southeast corner of the park. It was just spectacular, the view. You know, the thing that I don’t get to do very much in my business is see these apartments at night.
RITHOLTZ: Right.
MILLER: And the night, you know, with all the lights, although, you know, we used to live in, when we lived in Manhattan, we could see the park. But I have to say, and I have a picture of myself standing on the, there’s a, I think it’s 50 Central Park South, it’s not the penthouse, it was a penthouse that was going to be created inside the giant green roof that was, you know, looks like copper, even though it was fake, it was painted green to look like it was copper. But I literally climbed through like a porthole and stood on the roof, I have a picture of it.
RITHOLTZ: So you’re outdoors.
MILLER: I’m outdoors and you’re in the center of Central Park South looking north and you see Fifth and Central Park West on either side and it’s just spectacular and many people don’t get that opportunity and that was an amazing experience.
It may end up being, hopefully I’ll be able to use it in my book someday as a cover.
RITHOLTZ: All right, so let’s jump to our favorite questions, starting with what are you streaming these days? What’s keeping you entertained?
MILLER: So, every time you ask me this, because I know you’re a big fan of, you know, you call this the golden age of television.
RITHOLTZ: Is it not?
MILLER: I don’t disagree.
RITHOLTZ: I mean, it’s just, I was never, never watched television as a kid, and I’m making up for lost time.
MILLER: It is the strangest thing, but I hardly watch any TV.
RITHOLTZ: I know that.
MILLER: And I don’t stream anything regularly.
RITHOLTZ: Podcasts?
MILLER: I listen to Masters in Business.
RITHOLTZ: Sucking up, not necessary.
MILLER: But it’s true. I listen to, one of my favorite new podcasts is called “Hard Fork.”
RITHOLTZ: “Hard Fork.”
MILLER: It’s a “New York Times” podcast about technology. And the guys laugh throughout the whole show. They’re serious writers. It’s highly entertaining, especially following the Elon Musk. and Twitter escapades over the last six months. It’s been incredible, but really good stuff. I listen to, I really like Professor Galloway, his stuff, he does a podcast called “Pivot.”
RITHOLTZ: He also is locked out of his Twitter account as am I. And it’s just, now I have a couple hundred thousand, he’s got half a million followers. They’re like, yeah, we don’t care.
Just like the incompetency is mind-blowing. It’s next level.
MILLER: Right, it’s like how to devalue an asset without even trying.
RITHOLTZ: And normally no one’s around to pick up the pieces and take advantage. It looks like Threads might have a shot, considering that that was built with a dozen or so engineers very quickly.
MILLER: And leveraging off of the technology, the platform for Instagram.
RITHOLTZ: But if Facebook, which is a giant company, which is an $800 billion company, if they threw 100 people at it, they could, to me, wait, you wouldn’t hire 100 people to steal a $40 billion business?
MILLER: Yeah.
RITHOLTZ: 44, I mean, it’s there for the taking.
MILLER: Right.
RITHOLTZ: Just, I’m not a big Instagram fan, and I’m certainly not a Facebook fan, but I’m on Threads waiting for compliance to give me approval to start threading, tweeting, I don’t even know what you would call it.
MILLER: I call it, yeah, I call it threading. But yeah, I’m on it every day just playing around and-
RITHOLTZ: Not quite Twitter yet.
MILLER: No, there’s not enough engagement yet.
RITHOLTZ: But that-
MILLER: But the engagement on Twitter has collapsed.
RITHOLTZ: Yeah, no, it’s completely collapsed.
MILLER: Like there’s hardly any engagement.
RITHOLTZ: Now I thought that’s because I have 200 followers in my backup account.
MILLER: Right, right.
RITHOLTZ: As opposed to 200,000.
MILLER: Right.
RITHOLTZ: But my buddy Dave Nadig has said They, he has, he, he has a friend who tracks thin twit activity and he said, if you look at the top 500 or thousand accounts, everything’s just falling off a cliff.
MILLER: Yeah. Yeah. It’s a, it’s, it’s sad. That was my social media of choice for years.
RITHOLTZ: Yes, same. And the, the DM side of it was really interesting to like, I could slip into a DM with Dick Thaler and say, Hey, have you seen this paper? And I’m not going to bother him on his phone with that.
MILLER: Right.
RITHOLTZ: And an email seems too formal, so I miss that. And I’ve kicked it up the chain at Bloomberg to try and figure out, hey, they’re a big client, and there’s like 11 people left there, and it’s the same phone number that I set the account up with years ago. All right, I’m going to stop whining about my and Scott Galloway’s Twitter accounts and ask you, tell us about your mentors who helped to shape your career.
MILLER: Yeah, the first one was, before I got into real estate, actually was the food service director of a hospital in Chicago.
RITHOLTZ: I kind of knew that, didn’t I?
MILLER: Yeah, I ended up, and my first boss out of college, a gentleman named John Nelson, really just taught me how to navigate the politics and how to get stuff done.
He was fascinated with Post-it notes. But I always felt a really good, I always had a really good feeling. I’d have to say, in sort of the modern era, was Dottie Herman, who was basically the person that put Douglas Ellman together. She’s not active with the company these days, but she saw what I did with market studies, what I could do, and she embraced it and encouraged me, pushed me to expand my footprint out of the side of New York City.
RITHOLTZ: She was wildly successful in real estate. I’ve met her a couple of times. She kind of reminded me of my mom, who was one of these like just-
MILLER: Outgoing broker.
RITHOLTZ: Right, classic real estate agent, but knew the area, knew the neighborhood, no BS. Hey, we’ll find you a house that’ll fit you and we’ll do whatever we have. We’ll show you a million houses if that’s what it takes. She sort of like tough broad, grew up in the Bronx, my mom. Dottie Herman kind of reminded me of that in the same way.
MILLER: Yeah, I always felt like she recognized what I could do and she pushed and protected and nurtured and made it happen so I’m forever appreciative of that.
RITHOLTZ: And you’ve been doing these reports for Douglas Elliman for a long time.
MILLER: 1994 is when it began.
RITHOLTZ: So you’re coming up on your 30th year, that’s amazing.
MILLER: It’s a lot. But it’s, I don’t know, it’s fascinating because on one hand, you’re looking at all these different markets, but they, you know, you can look at very similar metrics and tell different stories by the sort of combination of the metrics, and guess what? There’s median price trends in Orange County, California, just like there are in Manhattan. What do they say? And actually, I think what has really established the report series for Douglas Elliman is that anybody can spit out numbers. It’s sort of capturing what’s actually happening.
RITHOLTZ: Your reports are about putting them into context.
MILLER: The right context.
RITHOLTZ: So it’s usable.
MILLER: Right, so I interact with a lot of media. I probably get six interactions by email or phone call every day. I don’t have any PR. And it’s just because I’m accessible. That’s the biggest thing about media.
RITHOLTZ: That’s really interesting.
Let’s talk about everybody’s favorite question, which is what are you reading? Tell us about your favorite books and what you’re reading right now.
MILLER: So I just finished two books. One was “Billionaire’s Row”, which was written by a friend of mine, a reporter named Kathy Clarke. And if you ever want to know how insane the development world is, this is the book.
RITHOLTZ: This is about these pencil-thin-
MILLER: Right, super tall.
RITHOLTZ: 120-story buildings, taller than the Empire State Building.
MILLER: Right.
RITHOLTZ: But on like a smaller…
MILLER: A smaller footprint that wouldn’t have been possible 15 years ago.
RITHOLTZ: It’s all the material science.
MILLER: The materials and the engineering has changed dramatically, but they’re more expensive to build, right? And yeah, and to see, you know, you have a condo that’s 1,550 feet tall, tallest condo in the world.
RITHOLTZ: $100 million, some crazy number.
MILLER: Well, the penthouse is for sale for $250 million.
RITHOLTZ: Good, aspirational pricing, term that you coined.
MILLER: Yes, actually on the air during a Bloomberg interview, a TV interview, I don’t remember, like 2015 or ’16. But you have 111 West 57th on Billionaire’s Row is really sort of West and East 57th Street to Park Avenue on the East and probably 8th Avenue on the West. But then in the book she includes 220 Central Park South, which has the $239 million sale by this Ken Griffin.
RITHOLTZ: A bargain compared to 250.
MILLER: Right exactly.
RITHOLTZ: Save yourself $11 million. Is it true these buildings are essentially half sold?
MILLER: I think the numbers now is that they’re about in aggregate about 60% sold. But there are buildings that have sold out, like 432 Park, and then buildings that are having trouble. I mean, the miscalculation of Billionaire’s Row was that the global market wasn’t as wide and as deep as everybody thought.
I used to joke that these buildings or the high-end buildings in New York were like the world’s most expensive bank safety deposit boxes, where you put your valuables in and then you don’t go there very often. And that’s mainly what these are. There was a New York Magazine article years ago, one of these buildings where it’s dark at night. There’s like one or two lights on because nobody’s there, right?
RITHOLTZ: They’re just self-storage.
MILLER: Right, right. And anyway, but I can’t say enough about this book. The other book I just read-
RITHOLTZ: Wait, before you go off of Billionaire’s Row, I have to ask. So I’ve seen people try and extrapolate these sales and listings quarter billion dollars as if it’s an actual marketplace. It’s almost like, oh, there’s one of 11 Rembrandts around for sale, and it comes up for sale every generation, and the other 10 have already been grabbed by museums. How much can you really read into it, considering there’s a few dozen of these and maybe a few dozen potential purchasers, this isn’t like a true real estate market.
MILLER: It is a, so I think of it as a market of outliers. And so I told you earlier that I track, I started in 2014 tracking any sales that actually closed for 50 million or higher. And I went back in time, back to like 2000, and really that world began in about 2014, where there were maybe 17 or 18 nationally sales, 50 million or higher.
RITHOLTZ: And now?
MILLER: And now, so 2021 was the record, and it was in the low 40s, I want to say there were 43 sales. They were somewhere in the mid-30s and 22, and then this year looks like it’s on track to be probably in the mid-20s. And you look at this, and there’s like a transaction like a week, or every other week. But in 2021, there was like a transaction every, it felt like every day, it wasn’t. It became a market that is detached from the local market that it sits within.
RITHOLTZ: That makes sense.
MILLER: In many ways, these transactions have nothing, you know, they get so many more eyeballs through article coverage on high-end transactions and titans of industry buying these places, but they really are this market, a national or international market, that’s not like, “Hey, these are New York City sales.” No, these are not that well connected to New York.
RITHOLTZ: In the spring of 2022, I was speaking at the International Luxury Real Estate Alliance’s annual conference. And at night we’re having dinner and one of the people there is a real estate agent in Palm Beach and she gets the confirm from her assistant, hey, the $100 million house is now in contract. The deal went through.
And I said, “Wow, that has to be a hell of a house.” And I’ll never forget her response was, “Eh, don’t really like it. “It has a seawall, it doesn’t have a beach, “not the ideal part of Palm Beach.” I’m like, “Oh, ho, ho, roll that back. If I’m spending 100 large, you’re telling me it’s not the perfect house? Even $100 million is a bunch of compromises?” And her answer was, “There’s not a lot of inventory around if you want that type of house in that part of the world, you’re going to have to make some compromises.” And my answer would be, then I guess I’m going to skip that part of the world.
MILLER: Right, right, exactly.
RITHOLTZ: For $100 million, I want exactly what I want, and I don’t want the seawall, I want the white sandy beach.
MILLER: Right, right. No, and what’s interesting in New York is it’s building by building. So you have 157, which was, I call, Extell Development, which I think they were originally, I read this in the “Billionaire’s Row” book, they were originally called Intel Development, but they got sued for the name. So they changed their name to Extell.
RITHOLTZ: Right, and there you go.
MILLER: Because, but sales that closed from the sponsor, the developer in 2016, by 2017, 2018, their values were 50% less.
RITHOLTZ: Really?
MILLER: They were selling for 50% less. that seems to be about the marker. So you say, oh, that applies to all billionaires row. No.
RITHOLTZ: The penthouse is a lot more than everything else.
MILLER: Right, well also too, yeah, the penthouse there sold for 100 million, Michael Dell bought it. That was the, at the time, that was the highest for a short period of time. But my point is that you look at other buildings during the same era, like 432 Park, or you look at 220 Central Park South, they didn’t see 50% discounts. In fact, 220 Central Park South, a Vornado Realty development, the resales, after they were bought from the sponsor, we’ve had a resale sell for double what they bought from the sponsor.
RITHOLTZ: Wow.
MILLER: Which is sort of crazy, and it’s only two blocks away.
RITHOLTZ: So the building itself matters, not just the building, the size, the amenities, everything about it really makes a big difference.
MILLER: Absolutely.
RITHOLTZ: All right, so besides “Billionaires Row” what else are you reading?
MILLER: I just read a sort of fast and easy book just out of the blue called “Easy Money” and it’s basically a throttling of cryptocurrency.
RITHOLTZ: Who wrote it?
MILLER: I don’t remember his name, but it’s very, very clear in how he’s going through it, and basically there’s no, he contends there’s no value to crypto, it’s just basically, it’s a rife with people, nefarious sort of types that most people lose money. Who knows?
RITHOLTZ: Kind of interesting though.
MILLER: But it was an interesting take, and then the one I just, I’ve actually just started two books, sometimes I read books in parallel, is a book called “The Slip” which is, about Coenties, I think that’s how you pronounce it, Slip in Downtown Manhattan, was one of the first sort of artist enclaves, like you would think of Soho or Tribeca in the 70s. This was more like in the 40s and 50s. And I had no idea, I’d never heard of this. But it looks really good, I’ve read a little bit of it. And the other book is that Gretchen Morgenson…
RITHOLTZ: “The Plunderers.”
MILLER: “These Are The Plunderers” or something about…
RITHOLTZ: I had her on the show, I read the book. She’s really interesting.
But by the way, we went to the Hopper exhibit down at the New Whitney at the end of the High Line and apparently off of Washington Square Park was another one of those artists enclave where Hopper and a bunch of his colleagues-
MILLER: You mean like East Village? Like St. Mark’s Place?
RITHOLTZ: No, this is right off of West Fourth, off of Washington Square Park.
MILLER: Okay.
RITHOLTZ: And at the show there’s a series of letters printed about him arguing with his landlord and him arguing with-
MILLER: Really?
RITHOLTZ: He testified at the local zoning board because they wanted, it was sort of zoned the way eventually Soho was.
MILLER: Right.
RITHOLTZ: That gave a good advantage to artists and before anyone really understood who he was, he was complaining and saying you’re going to change the whole character of the neighborhood from an artist’s enclave to just a commercial district.
MILLER: When I first moved to New York, the East Village or Alphabet City, the Avenue ABC as you go further east, I remember there was a condo conversion right on the park there that the neighborhood centers around and it was spray painted on the front door of this conversion, “Die Yuppie Scum.”
RITHOLTZ: I remember that.
MILLER: That became the battle cry.
RITHOLTZ: That picture was in New York Magazine or somewhere. I mean, that became a famous image.
MILLER: Yeah, yeah, yeah, I was there. It was a pretty rough neighborhood in terms of a lot of elevated crime and all that, but now you’d never know it.
RITHOLTZ: Totally gentrified.
MILLER: Yeah, totally gentrified.
RITHOLTZ: Amazing. Down to our last two questions. What sort of advice would you give to a recent college grad interested in a career in either real estate or data analytics or appraisal?
MILLER: Yeah, so I’m sort of, I think of it as, I’ve seen my various, I have four sons, going through interview processes. And first of all, it’s so different than when I began. So I don’t know how relevant my advice would be, but we had, it’s all through Zoom, they winnow it down, and then you finally meet in person. You go through multiple layers of interviews on Zoom. So it’s very detached. There’s not a lot of sort of personal connecting.
So the first sort of base level advice is really think about your appearance on Zoom. It sounds really-
RITHOLTZ: Huh, that’s interesting.
MILLER: Because I find Zoom to be sort of soul sucking. You know, after you do quite a, you know, during the pandemic I think I was doing like eight hours of Zoom a day.
RITHOLTZ: Oh, that is soul sucking.
MILLER: Yeah, and you’re just completely drained. But I think that that’s-
RITHOLTZ: You know the secret to Zoom, right?
Turn your camera off and just surf through “Bring a Trailer”
MILLER: (LAUGHTER)
RITHOLTZ: And just, you know, uh-huh, just say frequently, yup, yup.
MILLER: Right, right, right.
RITHOLTZ: Yeah, it’s a bad connection, I got no video.
MILLER: Well, what I have on-
RITHOLTZ: That got me through the pandemic.
MILLER: When I do Zoom, you know, because I always found it challenging to look up at like the top of the monitor.
RITHOLTZ: I hate that.
MILLER: So I-
RITHOLTZ: They have the cameras that hang down.
MILLER: Yeah, I got the camera that hangs down in the center of the screen, It’s very small so it doesn’t block anything. That was like, during the pandemic, I bought them, one for home and one for the office through a Kickstarter startup. Now there’s a bunch more of them. But it’s the greatest thing ever for that because you can check emails and look at, you know, if you’re not-
RITHOLTZ: And nobody knows.
MILLER: Nobody can tell. It’s a great invention.
RITHOLTZ: That’s hilarious. And our final question, what do you know about the world of real estate today? you wish you knew 40 years or so ago when you were first getting started?
MILLER: You know, I think to do everything I could to buy something earlier on. I didn’t buy a house till my mid-30s because I was trying to grow my business. And I think if I had started, you know, the idea of starting a little bit earlier is, you know, when I think of the prices, even relative to my income at the time, there wasn’t such a stretch, such a multiplier effect, even though mortgage rates are much higher.
RITHOLTZ: So let me flip that answer on you and say, would you give your kids, who are now in their late 20s, early 30s, right, more or less, would you give them the same advice? Hey, buy a house sooner rather than later?
MILLER: Yeah, three of my four sons are all homeowners or multiple homeowners. And have set up, it’s worked out great. I advised them in the negotiation a little bit and all that, but they really did it on their own and got the homes that they love.
My youngest, who just turned 25, is living his best life in Manhattan as a renter. But he’s got a completely different lifestyle than his brothers in the suburbs.
RITHOLTZ: They’re all married and getting ready for kids.
MILLER: Married and four grandkids and it’s very odd.
RITHOLTZ: Jonathan, thank you for being so generous with your time.
Cheryl, thank you for coming in. I appreciate this. We have been speaking with Jonathan Miller. He is CEO of Miller Samuel, one of the most respected appraisal and data analytics firm covering the world of residential real estate.
If you enjoy this conversation, well, be sure and check out any of our previous 500 episodes we’ve had over the past nine years.
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I would be remiss if I did not thank the crack team that helps with these conversations together each week. Atika Valbrun is my project manager. Paris Wald is my producer. Justin Milner is my audio engineer. Sean Russo is my head of research.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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