Tag: real estate

‘I can’t afford to keep paying for two households’: My adult sons live rent-free in my house, while I pay for 50% of utilities in my second husband’s condo

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In 2007, my now ex-husband and I bought a home, where we lived as a family with our two boys for just a few years before we divorced in 2009. I refinanced the house in my name, and have paid the mortgage and utilities as a single parent ever since. 

In 2016, I met and started dating a man. We lived apart, only about 10 to 15 minutes from each other. In 2021, after I battled cancer, he proposed and I accepted. Since we only lived a few minutes apart, I stayed at my husband’s two-bedroom condo Thursday through Sunday, and spent Sunday through Thursday at my house, where I worked from home. I did this for years. 

My oldest son moved back in with me in 2021. He graduated high school in 2017 and I gave him a gap year living at my house to decide on his next move, after which he moved out and started his career. He lived on his own for a year, then lived with my parents for a year. He met a girl; they signed a lease and then the pandemic hit. After their lease was up, they broke up, and he decided to go back to college full time. I agreed that he could live in my home while he attended college. His tuition is covered by grants and a 529 fund his grandmother set up.

In 2022, my then boyfriend and I married. However, we still didn’t move in together full time, as I still had my house, and my youngest son had not yet graduated high school. I wanted to be home with him. 

Helping to support two households

My youngest son, 19, graduated high school in 2023. Later that summer, I moved out of my house to stay with my husband full time. I pay 50% of the expenses living with my husband and 100% of the expenses for my house, where the boys live. 

I kept both households going so my youngest could have a gap year of his own, and to cushion my oldest, whom I really didn’t think would go to college, while he attended to his studies. They are young and finding their way, and I wanted to give them the support I felt like they needed. But here we are in 2024, and I can’t afford to keep both households running without impacting my ability to save for retirement.

Here’s my dilemma: I don’t know how to get my boys out of my house so I can clean it up, stage it and list it for sale. We live in an area where the average two-bedroom apartment rents for $1,800 a month. My youngest works full time following his passion for BMWs and makes about $2,400 a month. My oldest, 25, works part time in retail and makes about $1,000 a month while he attends college. They both work within 3 miles of my home. They simply can’t afford to move out, and I can’t afford to keep paying for two households.

To complicate matters, I have about $100,000 in equity in the house, and I’d like to use it to pay off some small debts and buy a car, as well as put the rest in retirement.  But my mother, who has had a long and successful career in real estate, thinks I should wait it out and let my equity continue to build, giving the boys some cushion while they are still finding their way. 

Do I shop around and find them an apartment, help them set up utilities and help them with movers? Do we build a project plan with a deadline, or just keep looking for places in the hope that we eventually find one we like? Do I subsidize their monthly expenses and give them each $400 a month for utilities, if they cover their rent? 

I know this is probably easy for other people, but I am at a loss as to how and when to do this. We all feel stuck, scared and anxious. Any advice is appreciated.

Wife & Mother

Related: My cousin left his estate to 6 relatives, but only one cousin, worth $30 million, received the inheritance — due to an ‘unexpected surprise’

“On the subject of mothers, listen to your own. If you can rent out your home, pay the mortgage and wait for the value to increase, do that.”


MarketWatch illustration

Dear Wife & Mother,

The longer you support your two adult sons, the longer they will lean on you and need you as their personal ATM. You’ve brought them over the finish line, and then some. You raised them, educated them, and fed and clothed and housed them. Now you are paying for their electricity and other bills. It’s time for your sons to stand on their own two feet and, as my Irish mother would say, cut their cloth according to its measure.

On the subject of mothers, listen to your own. If you can rent out your home, pay the mortgage and wait for the value to increase, do that. Your mother works in real estate and knows what she’s talking about. Real estate, in an ideal world, is a long-term game. It’s time for your sons to downsize to a small apartment, and experience the joys of paying their own way and standing on their own two feet. You need to cut the cord.

Act with integrity and intention. The best way to make a big move — and this is probably as big a move emotionally as it is financially — is to prepare. Sit down with your sons and an independent financial adviser, and do a forensic accounting of their income and expenditure and where they spend their money. I can almost guarantee you that their subsidized lifestyle lends itself to spending money in areas where they could easily cut back.

There is an underlying feeling of guilt in your letter. Have you done enough? Yes. Should you do more? No, you have done plenty, and you’re now putting your sons before your own financial peace of mind and retirement. Does it make you a bad person, or an unfeeling one, if you decide to cut them off? Of course not. Quite the contrary: You can lead by example by showing them what it means to make tough decisions and stick to them.

When you have accounted for your sons’ income and expenditure, look at rentals in your neighborhood or adjoining neighborhoods, if need be. The aim is for them to start taking responsibility for themselves. They don’t need a two-bedroom apartment. They can live in a one-bedroom condo and take turns sleeping on the sofa bed. This is a rite of passage, and it teaches young people the value of money and what it means to take accountability for oneself.

The share of adult children in the U.S. living with their parents has steadily risen since the 1960s. In 2020, during the pandemic, one-third of children ages 18 to 34 lived with their parents as non-caregivers. Men and 18- to 24-year-olds, respectively, were more likely to live at home than women and 25- to 34-year-olds, according to a study distributed by the National Bureau of Economic Research. Parents get support at home; kids get to experience a low-cost lifestyle.

But while the NBER found social benefits to living with adult children and that it does not necessarily delay, retirement, the benefits of providing your children with a head start by giving them somewhere to live start to decline when your ability to save for retirement is impeded, and you’re burning money supporting two households. This is also money you can put towards vacations and new cars, and building a future with your husband. You deserve to enjoy life and put yourself first for a change. Tell your sons, “You’re ready. I’m ready. I love you. Let’s do this.””

You can email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on X, the platform formerly known as Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

‘She’s obsessed’: My mom moved into my house and refuses to move out. She has paid for repairs and appliances. What should I do?

My parents want to pay off my $200,000 mortgage, and move into my rental. They say I’ll owe my sister $100,000. Is this fair?

‘I hate the 9-to-5 grind’: I want more time with my newborn son. Should I give up my job and dip into my six-figure trust fund?



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Sage Investment Advice From Exhausted Real Estate Billionaire Jeff Greene

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Jeff Greene started investing in real estate as a side hustle in college and survived a downturn in the 1990s before making his first billion betting against the housing market in 2008. He spoke with Forbes about how he’s managing his investments ahead of a potential recession.

By Giacomo Tognini, Forbes Staff

As a child growing up in Worcester, Massachusetts, Jeff Greene shoveled snow and worked an 86-house paper route for the local newspaper. In college at Johns Hopkins, he worked part-time jobs ranging from teaching Hebrew to checking IDs outside the library. To pay his way through Harvard Business School, he traveled the country as a circus promoter—money that he later invested into three-bedroom houses in a town near Boston, his first foray into real estate.

Disaster struck with the real estate crash in the early 1990s, but Greene managed to scrape by. Then, in 2006, he made an audacious bet against the housing market, buying credit default swaps on subprime mortgage-backed bonds. The ensuing collapse earned him a windfall of $800 million, which he plowed into prime property in Palm Beach. It also made him a billionaire: Forbes now estimates his fortune at $7.5 billion, much of it concentrated in South Florida, Los Angeles and New York.

Forbes spoke with Greene about his knack for surviving crises and his risk-averse approach to investing.

Forbes: How did you get your first start in investing?

Jeff Greene: The way I got into real estate was kind of by accident. I was accepted to Harvard Business School in the spring of 1977, and then I needed a place to live and I wanted to move into Soldiers Field apartments, which was a beautiful modern complex. I’d already been out of college almost three years, I didn’t want to live in a dorm and I didn’t get into that apartment, it was full. So a guy who I’d gone to Johns Hopkins with, I asked him, “what do you do?” He’d gone to Harvard a year before me. He said, “Well, what I did is I bought an old three-family house out in Somerville, the next town to Cambridge. And you can buy one and you can live in one of those, rent out the other two and it’ll probably cover all your costs. You get a mortgage for 80%, so you’ll live rent free for two years and get your money back so you won’t have any rent.”

So I did that. I bought one of these three family houses, and I had worked after college and made $100,000 as a circus promoter. So this house was $37,000 with $7,000 down. I got accepted to the apartment complex, but I thought, “I already bought the house, so maybe I’ll rent out all three.” So I ended up thinking, “Wow, I’m making a 30% return, I’ve got to get more of these.” By the time I finished at Harvard Business School, I had 18 properties in this little town, Somerville, and the markets went way up. And my $100,000 cash was already a $1 million net worth. I was not even 25 and I was suddenly in real estate.

Forbes: How would you say your investment strategy has changed or evolved over the years? What’s your strategy like today?

Greene: Well, it changes as you go through the cycle of life. Starting out, I made my first $100,000 and then my first million. Then you think, “I’d like to make another million or $10 million, then $100 million.” You want to keep buying and building and growing. Now I’m 68 years old, so [my goal is] preservation of capital. The more the better, but I don’t really need to make more money. I was very careful when rates were low to lock in my rates, so I don’t have too much debt. Even the debt I have, it’s 90% locked in at lower rates.

I have five projects going on, but it’s really too much for me. I’m exhausted and I don’t like the workload, even though I know they’re good projects. Where you are in your life, more than anything, dictates how much risk you’re willing to take, how much work you want to have, and everyone’s different. I got married later and I have three young kids, so I want to spend time with my kids while they’re still young enough to enjoy it. Coming out of the financial crisis, honestly, I could have had a net worth three times what I have, because I didn’t leverage myself. I bought all these properties, I didn’t build on them. I just kept the land. I could have gone crazy. And I knew that I was giving up a lot of opportunities, but I just wasn’t that motivated for the workload or to build a bigger organization or to take the financial risk. When I was in my thirties, I wanted to conquer the world. Now I’m in my sixties, and I want to still be active and productive and make money, but I’m not willing to take risks like I was.

I had a big crash in the early ‘90s. My net worth became negative and it was a real eye-opener for me. Truthfully, from my first newspaper delivery route and shoveling snow and mowing lawns to where I was in 1991, it was a straight ride up. And then all of a sudden I wake up and my net worth is negative, and I’m fighting lawsuits. So I learned in that period, don’t be leveraged. Be prepared for slowdowns.

Forbes: We’ve talked about your strategy in the context of real estate. When you’re looking at your stock portfolio, bonds, alternative investments, is your strategy also conservative at the moment?

Greene: I’ve got a fair amount of treasuries. I’ve staggered one month and three month and six months treasuries, and I’m making five percent-ish. We’re in the Giving Pledge with Warren Buffett and Bill Gates, and you listen to [Buffett]. I’ve spent some time with him and I like a lot of the things he says. He’s very wise, that’s why he’s considered such a sage. Things like, “I’d rather buy a great company at a fair price than a fair company at a great price.”

And it’s the same thing [with real estate.] What do I want to own? I want to own great buildings, great companies. A great building is one that has stable, predictable cash flow, not a lot of volatility, that has good long-term prospects because of where it’s located, how it’s built, what it is, and it’s the same with stocks. I own some core stocks, Google and Apple and Meta. And they’ve had their ups and downs, but generally I have core holdings that I own, and you don’t pay attention to the noise of the markets. Those are the kinds of long-term assets. It’s the same with some of the properties that we own. We own some amazing properties around the country, some I’ve had for 30-plus years.

Forbes: Are there any investments that you consider your greatest triumphs? And others that were disappointments, or that you would rather have done differently?

Greene: I’m building these two towers that I’m finishing in West Palm Beach, [called] One West Palm. The market exploded out from under me. I never would’ve predicted that South Florida, during the pandemic, would have had this enormous inward migration. Rents doubled in the last five years, and demand for everything has gone through the roof and everyone’s moving here. It’s slowing a little bit now, but it’s been a big boom. That will be a successful project.

One thing I learned long ago is—and I unfortunately have not followed it as well as I could—but whenever you make a decision, if more than 50% of the reason you’re doing it is for your ego, the odds are you’ll regret it. Why did I build the two tallest buildings in Palm Beach County, over a million square feet? I’d say more than 50% for my ego. In the end, I do regret it because at the end of the day, when I’m building 200-unit apartment buildings, I could do it with my eyes closed. They’re easy. Some projects you do for the wrong reasons. So far, it looks like the market’s really going to make it successful, but not because I did such a great job as a developer.

Being a real estate developer, you’re kind of buying lottery tickets on the economic cycles. If you look at some of the big condo kings around, they make a billion dollars, they lose a billion dollars. How do you know, when you’re conceiving a project, what the market’s going to be two years later, three years later, five years later, when you’re really out trying to monetize it? You can guess. And oftentimes people are most aggressive when things are at the peak—when you should probably be pulling in—and the least aggressive when the world’s coming to an end, when you probably want to be in there, gearing up for the next up cycle.

Forbes: What advice would you give to your 20-year-old self?

Greene: Do things that make sense for you and the way you want to live your life, not for what other people will think about what you’re doing. You only have one life and you only have so much time on the planet. Whether you’re trying to build a net worth or a business, keep your eye on the ball and stay focused on the goals, whatever they may be. If your goal is to make as much money as you can, and you don’t care about anything else, then go work real hard and do everything you can.It’s important that whatever age you are, try to step back, take a deep breath and think, “Hey, is this what I wanted in my life?” Most people are just trying to make ends meet. Most people don’t have the luxury. You get a job, you pay your bills, hopefully you can get a little bit ahead and not be behind the eight ball. That’s most people’s life. But if you do have the luxury of choices, then sit back, think carefully, and make the right choices.

Forbes: What are some of the biggest risks you think investors are facing today?

Greene: We’ve had a very unusual time with this extraordinary amount of liquidity pumped into all the advanced economies. We don’t really know where it’s going to end up. We ended the pandemic with $2.1 trillion of excess savings above average levels. It was excess everything. It was excess construction projects because there was so much liquidity. More apartments were built in the last two years than any time in history.

But now I think we’re at the point where the excess savings are gone. The extraordinary amount of new wealth that people got from the liquidity, that caused housing prices to go up, and stock prices to go up and everything else, that’s dropping a little bit, so people don’t have the same wealth and the same savings. Now’s the time where these high rates could really rear their ugly head. I just had lunch with my banker and they said they haven’t made any construction loans in the last year. So everything we see out here is from the extraordinary liquidity period we had.

But now what happens when one of my properties finishes, where are these guys going to go work? Nobody’s starting any new ones. There’s no financing. There’s nobody buying houses, nobody’s buying condos, no one’s building office buildings. It was a long runoff from the excess period, and it’s now coming to an end. That’s why a lot of people are thinking we could have a significant economic downturn, starting now or early next year, as people run out of excess savings and don’t feel as wealthy.

Forbes: Given that environment, what are the particular micro or macro factors that people should pay attention to when they’re deciding how to invest their money?

Greene: If you think that we’re coming into a slowdown, then you certainly want to have as much liquidity as possible because you’ve got to be ready. You’ve got to be prepared to start making less money. If you’re a real estate investor, maybe if things slow down, your rents are not going to go up, they’re going to go down. If you’re a waiter, you’re not going to be making as many tips. If you’re a construction worker who is making $50 an hour plus overtime, maybe you’re going to be making $25 an hour with no overtime.

Be as liquid as possible. On a long-term basis, for most people, it pays to just have a diverse pool of investments because you want to be ready for anything to happen. Have diversity in your investment portfolio, so if one thing goes up, the other thing goes down.

Forbes: You mentioned Warren Buffett as someone you look to for advice. Do you have any investing mentors?

Greene: His investing style works for almost everyone. Spend all the time you have to make sure that you’re making prudent, good investments in great businesses, great real estate, and then keep your eye on them and be patient.

The other thing that he said, which I thought was very good advice, was wait for the big fat pitch. A mistake I made is too many deals. As soon as I feel like I’ve been pitched, I feel like I’m in a batting cage and I’m just swinging at everything just coming at me so fast. But sometimes, [you have to] let them go by, and that’s what he does. He lets his cash get up to billions of dollars. But then when Goldman Sachs needs money in the financial crisis, he steps up and he just waits for that big fat pitch.

All these expressions are very valuable. You want to be greedy when people are fearful, and fearful when people are greedy. And it’s hard when everyone’s greedy, and all your friends are buying and flipping houses, right? But that’s the time when you probably want to sit back and let that crazy, greedy excess pass and wait until things calm down. And then when everybody’s panicked, like is happening now in real estate to some extent, that’s the time when no one wants to touch it because it’s going to go down forever. That’s the time you want to start being greedy.

Forbes: Are there any books that you’d recommend every investor should read?

Greene: I really don’t. I can’t say I’ve got a lot of people’s books, because most books on investing really can be summed up in a couple of pages. You could read all these how to make money in real estate books, and there’ll be 100, 200 pages on it but the general gist of it is: buy quickly, put as much debt on it as possible, use the money to go buy another one, sell it, buy another one, refinance, try to turn your money quickly.

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I’m a 61-year-old single librarian and ‘proud’ Democrat from Maine. Should I move to Florida like Jeff Bezos?

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I finally have something in common with Jeff Bezos. He is moving to Miami. I too am thinking of moving to Florida in the next year or so. My parents retired there 25 years ago; my father passed away in 2019, but my mom is still alive. I am also nearing retirement, and thought I would follow in their footsteps. I have a house in Maine, which I intend to sell when I finally make the move. I’ve lived here for 11 glorious years, and made a lot of friends. I’m a librarian, but don’t believe anything or everything you have heard about librarians, we are a social lot. 

I’m 61 and earn $85,000 a year, and have a lot of friends. But I reckon my mom has only a few good years yet, and she is slowing down. I bought my house for $160,000 and it’s now worth $350,000 or thereabouts, if I can sell it with the way interest rates are going. If not, I could rent it out. So my question is: Should I retire to Florida like Jeff Bezos? I’ve been window shopping for properties around Sarasota and Tampa, but I’m flexible. I am proud to live in a blue state, but I also want to be within an hour or so of my mom, so I can see her as often as possible. 

I’ve been feeling restless and, frankly, glum lately. And I thought this change would do me good. Am I mad? Is this a good move?

Florida Bound

Related: My ex-husband is suing for half of our children’s 529 plans — eight years after our divorce. Is he entitled to plunder these accounts?

“No matter how many billions of dollars you have in the bank, there’s one thing that money can’t buy — time.”


MarketWatch illustration

Dear Florida Bound,

You and Jeff Bezos do share that one concern about wanting to be near your aging parents. No matter how many billions of dollars you have in the bank, there’s one thing that money can’t buy — time. The Cape Canaveral operations of his space company, Blue Origin, are also in Florida, so it’s a convenient business move and a tax-savvy one. Maine has a capital gains and income tax; but Florida, like Washington, has no state income tax; unlike Washington, it has no capital-gains tax. You and Bezos will be following in the footsteps of former president Donald Trump, who lived in New York before he tax domiciled at his Mar-a-Lago Palm Beach estate. 

Billionaires — not unlike retirees — tend to move out of states with estate taxes, according to a recent study by researchers at the University of California, Berkeley and the Federal Reserve Bank of San Francisco. The trend grows stronger as billionaires grow older. But whether you’re a billionaire or a mild-mannered librarian, when you move, you should move. If you spend more than 183 days in Maine per year and/or still have a home there, and you do not spend a similar amount of time in Florida, the tax folks in Maine could ask you to pay Maine income tax. You may have to keep records of your comings and goings (airline tickets and credit-card receipts etc.), but tax agencies can also subpoena your cell-phone records.

Should you move to Florida? Be prepared for the humidity — and the culture shock. You may be used to those lovely 78°F/26°C summers in Maine. Try swapping that for 95°F/35°C. Florida is a very different place to Maine, both culturally and politically. You may find yourself living next-door to an equally proud Trump supporter. If you enjoy living in a blue state, assuming you are a supporter of President Joe Biden, how would that make you feel? Or are you living in a Democratic blue cocoon (or lagoon)? Do you have friends across the political divide? We have a presidential election in November 2024. Expect nerves to be frayed.

The good news — yes, I have good news too — house prices in Maine and Florida are almost identical. The average price hovers at $390,000 in both states, according to Zillow
Z,
-1.58%.
Just be aware of the rising cost of flood and home insurance in the Sunshine State. You are also likely to be surrounded by people your own age: Florida is the top state for retirees, per a report released this year by SmartAsset, which analyzed U.S. Census Bureau migration data. A warm climate and zero state income taxes consistently prove to be a double winner: Florida netted 78,000 senior residents from other U.S. states in 2021 — the latest year for which data available — three times as many as Arizona, No. 2 on the list.

I spoke to friends who have retired to Florida and they say it’s not a homogenous, one-size-fits-all state. “It’s not all beaches, hurricanes, stifling year-round temperatures, and condos,” one says. “It’s possible to escape northern winters without committing to these conditions.” One retiree cited Gainesville in north-central Florida, the home of the University of Florida, as “diverse and stimulating,” but noted that the nearest airports are in Jacksonville (72 miles), Orlando (124 miles), and Tampa (140 miles). Another Sarasota retiree was more circumspect, and told me: “Be careful how you advertise your political affiliation.”

Perhaps where you belong for now is close to your mother. Spending time with her is a top priority, but brace yourself for a new living experience in Florida (and, while we’re at it, alligators). The siren call of home grows stronger as we get older, but “home” also means different things to different people. For some, it’s a place where they can live comfortably, and within their means. For others, it’s where they have a strong sense of community, be that friends, family, or like-minded individuals, or those with whom we can respectfully disagree. People who have a support system around them tend to live longer, so keep that in mind too. 

We can change so much about our circumstances: buy a new car, try a new hairstyle, even go to a plastic surgeon for a new face. There are all sorts of remedies at our fingertips. If all else fails, there’s a pill for that. Or an app that will change our life, or at the very least lull us to sleep with the sound of whales or waves. We may be tempted to believe that if we could change our circumstances, our house, our job, our bank account, or even the town, city, state or country where we live, that we could reinvent ourselves in our own eyes and the eyes of others, and turn our frowns upside down.

There’s just one, not insubstantial problem: we take ourselves — and all of our neuroses — with us.

You can email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on X, the platform formerly known as Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

If I buy a home with an inheritance and only put my name on the deed, does my husband have any rights? 

I cosigned my boyfriend’s mortgage, but I’m not on the deed. I didn’t want to marry again after a costly divorce. How do I protect myself?

My mother claims I’m in her will but refuses to show it to me. Should she put my name on the deed to her home?



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As the market enters correction territory, don’t blame the American consumer

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An Amazon.com Inc worker prepares an order in which the buyer asked for an item to be gift wrapped at a fulfillment center in Shakopee, Minnesota, U.S., November 12, 2020.

Amazon.com Inc | Reuters

The initial third-quarter report on gross domestic product showed consumer spending zooming higher by 4% percent a year, after inflation, the best in almost two years. September’s retail sales report showed spending climbing almost twice as fast as the average for the last year. And yet, bears like hedge-fund trader Bill Ackman argue that a recession is coming as soon as this quarter and the market has entered correction territory.

For an economy that rises or falls on the state of the consumer, third-quarter earnings data supports a view of spending that remains mostly good. S&P 500 consumer-discretionary companies that have reported through Oct. 25 saw an average profit gain of 15%, according to CFRA — the biggest revenue gain of the stock market’s 11 sectors.

“People are kind of scratching their heads and saying, ‘The consumer is holding up better than expected,'” said CFRA Research strategist Sam Stovall said. “Consumers are employed. They continue to buy goods as well as pursue experiences. And they don’t seem worried about debt levels.” 

How is this possible with interest rates on everything from credit cards to cars and homes soaring?

It’s the anecdotes from bellwether companies across key industries that tell the real story: Delta Air Lines and United Airlines sharing how their most expensive seats are selling fastest. Homeowners using high-interest-rate-fighting mortgage buydowns. Amazon saying it’s hiring 250,000 seasonal workers. A Thursday report from Deckers Outdoor blew some minds — in what has been a tepid clothing sales environment — by disclosing that embedded in a 79% profit gain that sent shares up 19% was sales of Uggs, a mature line anchored by fuzzy boots, rising 28%.

The picture they paint largely matches the economic data — generally positive, but with some warts. Here is some of the key evidence from from the biggest company earnings reports across the market that help explain how companies and the American consumer are making the best of a tough rate environment.

How homebuilders are solving for mortgages rates

No industry is more central to the market’s notion that the consumer is falling from the sky than housing, because the number of existing home sales have dropped almost 40% from Covid-era peaks. But while Coldwell Banker owner Anywhere Real Estate saw profit fall by half, news from builders of new homes has been pretty good.

Most consumers have mortgages below 5%, but for new homebuyers, one reason that rates are not biting quite as sharply as they should is that builders have figured out ways around the 8% interest rates that are bedeviling existing home sellers. That helps explains why new home sales are up this year. Homebuilders are dipping into money that previously paid for other incentives to pay for offering mortgages at 5.75% rather than the 8% level other mortgages have hit. At PulteGroup, the nation’s third-biggest builder, that helped drive an 8% third-quarter profit jump and 43% climb in new home orders for delivery later, much better than the government-reported 4.5% gain in new home sales year-to-date.

“What we’ve done is simply redistribute incentives we’ve historically offered toward cabinets and countertops, and redirected those to interest rate incentives,” PulteGroup CEO Ryan Marshall said. “And that has been the most powerful thing.”

The mechanics are complex, but work out to this: Pulte sets aside about $35,000 for incentives to get each home to sell, or about 6% of its price, the company said on its earnings conference call. Part of that is paying for a mortgage buydown. About 80% to 85% of buyers are taking advantage of the buydown offer. But many are splitting the funds, mixing a smaller rate buydown and keeping some goodies for the house, the company said.

Wells Fargo economist Jackie Benson said in a report that builders may struggle to keep this strategy going if mortgage rates stay near 8%, but new-home prices have dropped 12% in the last year. In her view, incentives plus bigger price cuts than most existing homes’ owners will offer is giving builders an edge. 

At auto companies, price cuts are in, and more are coming

Car sales picked up notably in September, rising 24% year-over-year, more than twice the year-to-date gain in unit sales. But they were below expectations at electric-vehicle leader Tesla, which blamed high interest rates, and at Ford. 

“I just can’t emphasize this enough, that for the vast majority of people buying a car it’s about the monthly payment,” Tesla CEO Elon Musk said on its earnings call. “And as interest rates rise, the proportion of that monthly payment that is interest increases.” 

Maybe, but that’s not what’s happening at General Motors, even if investor reaction to good numbers at GM was muted because of the strike by the United Auto Workers union. 

GM tops Q3 expectations but pulls full-year guidance due to mounting UAW strike costs

GM beat earnings expectations by 40 cents a share, but shares fell 3% because of investor worries about the strike, which forced GM to withdraw its fourth-quarter earnings forecast on Oct. 24. Ford, which settled with the UAW on Oct. 25, said the next day it had a “mixed” quarter, as profit missed Wall Street targets due to the strike. Consumers came through, as unit sales rose 7.7% for the quarter, with truck and EV sales both up 15%. GM CEO Mary Barra said on GM’s analyst call that the company gained market share, posting a 21% gain in unit sales despite offering incentives below the industry average.

“While we hear reports out there in the macro that consumer sentiment might be weakening, etc., we haven’t seen that in demand for our vehicles,” GM CFO Paul Jacobson told analysts. But Ford CFO John Lawler said car prices need to decline by about $1,800 to be as affordable as they were before Covid. “We think it’s going to happen over 12 to 18 months,” he said. 

Tesla’s turnaround plan turns on continuing to lower its cost of producing cars, which came down by about $2,000 per vehicle in last year, the company said. Along with federal tax credits for electric vehicles, a Model Y crossover can be had for about $36,490, or as little as $31,500 in states with local tax incentives for EVs. That’s way below the average for all cars, which Cox Automotive puts at more than $50,000. But Musk says some consumers still aren’t convincible. .

“When you look at the price reductions we’ve made in, say, the Model Y, and you compare that to how much people’s monthly payment has risen due to interest rates, the price of the Model Y is almost unchanged,” Musk said. “They can’t afford it.”

Most banks say the consumer still has cash, but not Discover

To know how consumers are doing, ask the banks, which disclose consumer balances quarterly. To know if they’re confident, ask the credit card companies (often the same companies) how much they are spending. 

In most cases, financial services firms say consumers are doing well.

At Bank of America, consumer balances are still about one-third higher than before Covid, CEO Brian Moynihan said on the company’s conference call. At JPMorgan Chase, balances have eroded 3% in the last year, but consumer loan delinquencies declined during the quarter, the company said.

“Where am I seeing softness in [consumer] credit?” said chief financial officer Jeremy Barnum, repeating an analyst’s question on the earnings call. “I think the answer to that is actually nowhere.”

Among credit card companies, the “resilient” is still the main story. MasterCard, in fact, used that word or “resilience” eight times to describe U.S. consumers in its Oct. 26 call.

“I mean, the reality is, unemployment levels are [near] all-time record lows,” MasterCard chief financial officer Sachin Mehra said.

At American Express, which saw U.S. consumer spending rise 9%, the mild surprise was the company’s disclosure that young consumers are adding Amex cards faster than any other group. Millennials and Gen Zers saw their U.S. spending via Amex rise 18%, the company said.

“Guess they’re not bothered by the resumption of student loan payments,” Stovall said.

Consumer data is more positive than sentiment, says Bankrate's Ted Rossman

The major fly in the ointment came from Discover Financial Services, one of the few banks to make big additions to its loan loss reserves for consumer debt, driving a 33% drop in profit as Discover’s loan chargeoffs doubled.  

Despite the fact that U.S. household debt burdens are almost exactly the same as in late 2019, and declined during the quarter, according to government data, Discover chief financial officer John Greene said on its call, “Our macro assumptions reflect a relatively strong labor market but also consumer headwinds from a declining savings rate and increasing debt burdens.”

At airlines, still no sign of a travel recession

It’s good to be Delta Air Lines right now, sitting on a 59% third-quarter profit gain driven by the most expensive products on their virtual shelves: First-class seats and international vacations. Also good to be United, where higher-margin international travel rose almost 25% and the company is planning to add seven first-class seats per departure by 2027. Not so good to be discounter Spirit, which saw shares fall after reporting a $157 million loss.

“With the market continuing to seemingly will a travel recession into existence despite evidence to the contrary from daily [government] data and our consumer surveys, Delta’s third-quarter beat and solid fourth-quarter guide and commentary should finally put the group at ease about a consumer “cliff,” allow them to unfasten their seatbelts and walk about the cabin,” Morgan Stanley analyst Ravi Shanker said in a note to clients.

One tangible impact: United is adding 20 planes this quarter, though it is pushing 12 more deliveries into 2024, while Spirit said it’s delaying plane deliveries, and focusing on its proposed merger with JetBlue and cost-cutting to regain competitiveness as soft demand for its product persists into the holiday season.

As has been the case throughout much of 2023, richer consumers — who contribute the greater share of spending — are doing better than moderate-income families, Sundaram said.

The goods recession is for real

Whirlpool, Ethan Allen and mattress maker Sleep Number all saw their stocks tumble after reporting bad earnings, all of them experiencing sales struggles consistent with the macro data.

This follows a trend now well-entrenched in the economy: people stocked up on hard goods, especially for the house, during the pandemic, when they were stuck at home more. All three companies saw shares surge during Covid, and growth has slacked off since as they found their markets at least partly saturated and consumers moved spending to travel and other services.

“All of the stimulus money went to the furniture industry,” Sundaram said, exaggerating for effect. “Now they’ve been falling apart for the last year.”

Ethan Allen sales dropped 24%, as the company said a flood in a Vermont factory and softer demand were among the causes. At Whirlpool, which said in second-quarter earnings that it was moving to make up slowing sales to consumers by selling more appliances to home builders, “discretionary purchases have been even softer than anticipated, as a result of increased mortgage rates and low consumer confidence,” CEO Marc Bitzer said during Thursday’s earnings call. Its shares fell more than 20%. 

Amazon’s $1.3 billion holiday hiring spree

Amazon is making its biggest-ever commitment to holiday hiring, spending $1.3 billion to add the workers, mostly in fulfillment centers. 

That’s possible because Amazon has reorganized its warehouse network to speed up deliveries and lower costs, sparking 11% sales gains the last two quarters as consumers turn to the online giant for more everyday repeat purchases. Amazon also tends to serve a more affluent consumer who is proving more resilient in the face of interest rate hikes and inflation than audiences for Target or dollar stores, according to CFRA retailing analyst Arun Sundaram said.

“Their retail sales are performing really well,” Sundaram said. “There’s still headwinds affecting discretionary sales, but everyday essentials are doing really well.

All of this sets the stage for a high-stakes holiday season.

PNC still thinks there will be a recession in early 2024, thanks partly to the Federal Reserve’ rate hikes, and thinks investors will focus on sales of goods looking for more signs of weakness. “There’s a lot of strength for the late innings” of an expansion, said PNC Asset Management chief investment officer Amanda Agati.

Sundaram, whose firm has predicted that interest rates will soon drop as inflation wanes, thinks retailers are in better shape, with stronger supply chains that will allow strategic discounting more than last year to pump sales. The Uggs sales outperformance was attributed to improved supply chains and shorter shipping times as the lingering effects of the pandemic recede.

“Though there are headwinds for the consumer, there’s a chance for a decent holiday season,” he said, albeit one hampered still by the inflation of the last two years. “The 2022 holiday season may have been the low point.” 

Deloitte predicts soft holiday sales

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Trump attacks judge in NY fraud case who fined him $15,000

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Former U.S. President Donald Trump attends the Trump Organization civil fraud trial, in New York State Supreme Court in the Manhattan borough of New York City, U.S., October 25, 2023. 

Jeenah Moon | Reuters

Former President Donald Trump on Thursday railed against the judge who will deliver verdicts in his $250 million New York fraud trial, one day after storming out of the courtroom in the middle of witness testimony.

Trump’s fusillade on Truth Social followed a dramatic trial day in which Manhattan Supreme Court Judge Arthur Engoron put Trump on the witness stand, fined him $10,000 for violating his gag order and shot down a request for a sweeping verdict in his favor.

The latest attacks show Trump, a prolific social media user who is running for president again in the 2024 election, turning to the court of public opinion to fight his mounting legal challenges.

But his efforts are constrained by gag orders in two separate cases, including special counsel Jack Smith’s federal case charging Trump with conspiring to subvert his loss to President Joe Biden in the 2020 presidential election.

In that case, Trump is prohibited from publicly targeting Smith or potential witnesses, both of whom he has frequently referenced online and on the campaign trail. When those restrictions were temporarily paused last week, Trump fired off attacks against both the special counsel and his former White House chief of staff, Mark Meadows, a witness in Smith’s case.

In the New York civil fraud case, meanwhile, Engoron has already ruled twice that Trump violated his narrow gag order, which merely bars him from attacking the judge’s staff.

Former U.S. President Donald Trump is questioned by Judge Arthur F. Engoron before being fined $10,000 for violating a gag order for a second time, during the Trump Organization civil fraud trial in New York State Supreme Court in the Manhattan borough of New York City, U.S., October 25, 2023 in this courtroom sketch. 

Jane Rosenberg | Reuters

Upon finding that Trump’s testimony rang “hollow and untrue,” Engoron has now fined him a total of $15,000. The judge has warned Trump that additional violations will yield much more severe sanctions — including possible imprisonment.

With his targets narrowing, Trump’s attacks appear to be intensifying.

In at least four lengthy social media posts on Thursday, Trump ripped Engoron as a “tyrannical and unhinged” and “fully biased Trump Hater” who “should be ashamed of himself” for his handling of the case.

“HE HAS GONE CRAZY IN HIS HATRED OF ‘TRUMP,'” wrote the former president, who also railed against New York Attorney General Letitia James, his ex-attorney Michael Cohen and a New York Times reporter.

Trump’s 2024 presidential campaign, meanwhile, sought to capitalize on the case by criticizing it in multiple fundraising pleas as a “sham trial” led by a “Democrat judge” who “continues to harass” Trump.

Engoron has already found Trump and other defendants liable for fraudulently inflating the values of real estate properties and key assets on years of financial statements. James, who brought the case, accuses Trump, his two adult sons, the Trump Organization and top executives of falsifying those asset values for a host of financial perks, including tax benefits and more favorable loan terms.

The trial, which is scheduled to last until late December, will resolve six other claims in James’ lawsuit. Engoron himself will deliver verdicts in the trial, which is being conducted without a jury — a fact Trump frequently protests on social media and at the courthouse.

CNBC Politics

Read more of CNBC’s politics coverage:

“He is a judge that found me GUILTY before the trial even started,” Trump said of Engoron in his social media screed Thursday.

The posts also called Engoron a “Radical Left Judge” and claimed that he is ignoring a prior appeals court ruling “overturning” his decisions. A New York appeals court panel last month had cleared the trial to begin, denying Trump’s request to delay it.

Engoron had imposed a narrow gag order on Trump on the second day of the trial, after Trump sent a Truth Social post attacking the judge’s law clerk, Allison Greenfield, who sits next to him in court.

About two weeks later, the judge found that Trump violated that gag order by failing to remove the post from his campaign website. Engoron fined Trump $5,000 in that instance and warned him that future violations would yield more severe sanctions, potentially including imprisonment.

During a break in the trial Wednesday, Trump complained to reporters outside the courtroom, “This judge is a very partisan judge with a person who’s very partisan sitting alongside him, perhaps even more partisan than he is.”

Former U.S. President Donald Trump attends the Trump Organization civil fraud trial, in New York State Supreme Court in the Manhattan borough of New York City, October 25, 2023.

Jeenah Moon | Reuters

After hearing about those remarks, Engoron briefly called Trump to the witness stand to explain himself.

Trump said that he was referring to Michael Cohen, Trump’s former personal lawyer, who had been testifying throughout the trial day. But Engoron found that answer unconvincing, and he fined Trump $10,000.

“Don’t do it again or it will be worse,” Engoron warned in court.

In his written order Thursday morning, Engoron ruled that Trump intentionally violated the gag order. He noted that Cohen was sitting in the witness box, not alongside him, and said that Trump’s past attacks on Cohen have been less ambiguous.

“Using imprecise language as an excuse to create plausible ambiguity about whether defendant violated this Court’s unequivocal gag order is not a defense; the subject of Donald Trump’s public statement to the press was unmistakably clear,” the judge wrote.

The clash over the gag order was not the only contentious moment in the trial on Wednesday.

Defense lawyer Cliff Robert had asked for a directed verdict after Cohen, Trump’s once-loyal aide who is now a key witness against him, testified that he did not recall if Trump had asked him to inflate the values of his assets. Engoron denied the request, prompting Trump to get up and leave.

Cohen later clarified that while Trump speaks in indirect ways like a “mob boss,” he did communicate the outcome he wanted, according to NBC News.

Engoron rejected another request for a directed verdict later in the day, telling Robert, “there’s enough evidence in this case to fill the courtroom.”

On social media, Trump complained, “The unhinged Judge, a highly political and fully biased Trump Hater, refused to dismiss this HOAX of a case, and has lost all CREDIBILITY.”

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Getting to 2% inflation won’t be easy. This is what will need to happen, and it might not be pretty

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A construction in a multifamily and single family residential housing complex is shown in the Rancho Penasquitos neighborhood, in San Diego, California, September 19, 2023.

Mike Blake | Reuters

In theory, getting inflation closer to the Federal Reserve’s 2% target doesn’t sound terribly difficult.

The main culprits are related to services and shelter costs, with many of the other components showing noticeable signs of easing. So targeting just two areas of the economy doesn’t seem like a gargantuan task compared to, say, the summer of 2022 when basically everything was going up.

In practice, though, it could be harder than it looks.

Prices in those two pivotal components have proven to be stickier than food and gas or even used and new cars, all of which tend to be cyclical as they rise and fall with the ebbs and flows of the broader economy.

Instead, getting better control of rents, medical care services and the like could take … well, you might not want to know.

“You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “You’re not going to magically get down to 2%.”

Annual inflation as measured by the consumer price index fell to 3.7% in September, or 4.1% if you kick out volatile food and energy costs, the latter of which has been rising steadily of late. While both numbers are still well ahead of the Fed’s goal, they represent progress from the days when headline inflation was running north of 9%.

The CPI components, though, told of uneven progress, helped along by an easing in items such as used-vehicle prices and medical care services but hampered by sharp increases in shelter (7.2%) and services (5.7% excluding energy services).

Drilling down further, rent of shelter also rose 7.2%, rent of primary residence was up 7.4%, and owners’ equivalent rent, pivotal figures in the CPI computation that indicates what homeowners think they could get for their properties, increased 7.1%, including a 0.6% gain in September.

Without progress on those fronts, there’s little chance of the Fed achieving its goal anytime soon.

Uncertainty ahead

“The forces that are driving the disinflation among the various bits and micro pieces of the index eventually give way to the broader macro force, which is rising, which is above-trend growth and low unemployment,” Blitz said. “Eventually that will prevail until a recession comes in, and that’s it, there’s nothing really much more to say than that.”

On the bright side, Blitz is among those in the consensus view that see any recession being fairly shallow and short. And on the even brighter side, many Wall Street economists, Goldman Sachs among them, are coming around to the view that the much-anticipated recession may not even happen.

In the interim, though, uncertainty reigns.

“Sticky-price” inflation, a measure of things such as rents, various services and insurance costs, ran at a 5.1% pace in September, down a full percentage point from May, according to the Atlanta Fed. Flexible CPI, including food, energy, vehicle costs and apparel, ran at just a 1% rate. Both represent progress, but still not a goal achieved.

Markets are puzzling over what the central bank’s next step will be: Do policymakers slap on another rate hike for good measure before year-end, or do they simply stick to the relatively new higher-for-longer script as they watch the inflation dynamics unfold?

“Inflation that is stuck at 3.7%, coupled with the strong September employment report, could be enough to prompt the Fed to indeed go for one more rate hike this year,” said Lisa Sturtevant, chief economist for Bright MLS, a Maryland-based real estate services firm. “Housing is the key driver of the elevated inflation numbers.”

Higher interest rates’ biggest impact has been on the housing market in terms of sales and financing costs. Yet prices are still elevated, with concern that the high rates will deter construction of new apartments and keep supply constrained.

Those factors “will only lead to higher rental prices and worsening affordability conditions in the long run,” wrote Christopher Bruen, senior director of research at the National Multifamily Housing Council. “Rising rates threaten the strength of the broader job market and economy, which has not yet fully digested the rate hikes already enacted.”

Longer-run concerns

The notion that rate increases totaling 5.25 percentage points have yet to wind their way through the economy is one factor that could keep the Fed on hold.

That, however, goes back to the idea that the economy still needs to cool before the central bank can complete the final mile of its race to bring down inflation to the 2% target.

One positive in the Fed’s favor is that pandemic-related factors largely have washed out of the economy. But other factors linger.

“Pandemic-era effects have a natural gravitational pull and we’ve seen that take place over the course of the year,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth. “However, bringing inflation the remainder of the distance to the 2% target requires economic cooling, no easy feat, given fiscal easing, the strength of the consumer and the general financial health in the corporate sector.”

Fed officials expect the economy to slow this year, though they have backed off an earlier call for a mild recession.

Policymakers have been banking on the notion that when existing rental leases expire, they will be renegotiated at lower prices, bringing down shelter inflation. However, the rising shelter and owners’ equivalent rent numbers are running counter to that thinking even though so-called asking rent inflation is easing, said Stephen Juneau, U.S. economist at Bank of America.

“Therefore, we must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” Juneau said in a note to clients Thursday. He added that the CPI report “is a reminder that we do not have good historic examples to lean on” for long-term patterns in rent inflation.

Core service numbers show inflation is still relatively elevated, says Nationwide's Kathy Bostjancic

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The big AI and robotics concept that has attracted both Walmart and Softbank

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Symbotic technology in use at a Walmart facility.

Courtesy: Walmart

Venture-capital giant Softbank notched a $15 billion-plus gain on its 2016 deal to buy Arm Holdings when the artificial intelligence-enabling semiconductor firm went public last month. But not as many investors know about Softbank’s “other” big AI investment, Wilmington, Mass.-based software and robotics maker Symbotic, which Walmart has taken a big stake in itself.

That may soon change.

Symbotic, a company that has already generated market heat selling AI-powered robotic warehouse management systems to clients including Walmart, Target and Albertson’s, is partnering with Softbank to play in a potentially giant and transformative market. The two are teaming up in a joint venture called GreenBox Systems which promises to deliver AI-powered logistics and warehousing to much smaller companies, delivering it as a service in facilities different companies share. They say it’s a $500 billion market, and an example of the kind of change AI can bring to the economy at large.

If it works, GreenBox will reach companies that could never afford the multi-million dollar required investment, in the same way cloud computing puts high-end information tech within reach, said Dwight Klappich, an analyst at technology research firm Gartner.

“I’ve seen a lot of robotics tech and I’ve never seen anything like it in my life,” TD Cowen analyst Joseph Giordano said. “Compared to what it replaces, it’s like day and night.” 

Erasing memories of a big WeWork real estate blunder

It might even mute the memory of Softbank’s most disastrous commercial real estate management investment ever, the notorious office-sharing company WeWork. 

Like WeWork, GreenBox is a promise to fuse technology and real estate. Indeed, its  sales pitch of “warehouse as a service” recalls the “space as a service” slogan in WeWork’s 2019 IPO prospectus almost exactly. The big difference: with WeWork, outside analysts struggled to identify what technological advantage WeWork ever offered clients over working at home or in traditional offices, let alone one that justified its peak valuation of $47 billion. WeWork today is worth under $150 million and is now under bankruptcy watch as it warned in August of its potential inability to remain “a going concern,” and more recently stopped making interest payments on debt, asking lenders to negotiate.

At GreenBox, the technology is the whole point, Giordano said. And unlike WeWork, which wanted people to change the way they used offices, Symbotic and GreenBox are out to let companies that already run warehouses boost efficiency and profits, he said. 

“Contract warehousing exists today – but those operations are mostly manual,” said Robert W. Baird analyst Rob Mason.

Softbank, perhaps not surprisingly, doesn’t like the WeWork analogy even being mentioned, with spokesperson Kristin Schwarz declining an interview request for Vikas Parekh, Softbank’s representative on Symbotic’s board (Parekh is also on WeWork’s board), after the firm learned CNBC would ask about it.

“If we are to put Vikas on the record for this, the interview would need to stay focused on GreenBox, and not on any other SoftBank topics,” Schwarz wrote in an e-mail. 

Softbank owns more than 8% of Symbotic, according to data from Robert W. Baird, and took it public through a special purpose acquisition company last year. Softbank also owns 65% of the GreenBox venture, which launched with $100 million in investment by the two companies. Walmart owns another 11% of Symbotic, according to a proxy statement from the robotics company, and is by far its biggest customer until the GreenBox venture ramps up, accounting for almost 90% of revenue.

“We share the same vision of going big and going fast,” Symbotic CEO Rick Cohen said. “We believe this market is massive.”

Symbotic has generated stock-market excitement even before the GreenBox deal. Its shares are up 190% this year. Sales in its most recent quarter climbed 77%, and orders for its existing warehouse-management systems jumped to $12 billion – a backlog it would take the company years to fulfill  Add in the $11 billion of Symbotic software and follow-on services GreenBox committed to buy over six years in July, and that backlog soars to $23 billion for a company that expects its first billion-dollar revenue year in fiscal 2023, and to break even on an EBITDA basis for the first time as a public company in the fourth quarter.

The best indication of the future may be from Walmart, which bought its Symbotic stake as part of the companies’ deal to automate the retailer’s 42 U.S. regional distribution centers for packaged consumer goods.

The product is the reason why, analysts say. 

At prices of $25 million to hundreds of millions, according to a conference call Symbotic held with analysts in July, a Symbotic system blends as many as dozens of autonomous robots that scoot around warehouses at speeds up to 25 mph, moving and unloading boxes from pallets and picking orders with AI software that optimizes where in a warehouse to put individual cases of goods, and lets boxes be packed to the warehouse’s ceiling, Giordano said, wasting much less space in the building. 

The system works something like a disk drive that uses intelligence to store data efficiently and retrieve the right data on demand – but with boxes of stuff. And a large warehouse can use several different systems, piling up the required investment to get moving.

Because Symbotic’s system can track inventory down to the case easily, where stuff is put can be matched much more easily to incoming orders, making it possible to more fully automate order picking. It can also match the design of outgoing pallets to the layout of the store the pallet is headed to, speeding up unloading and shelf stocking, Klappich said. 

But the biggest innovation the tech allows is in business models, rather than in technology itself. That hasn’t spread outside of giant companies yet, but Giordano and Mason say they think it will.

The AI’s precision will let multiple companies share the same warehouse, and even commingle their goods for efficient shipping without confusion, much as cloud computing lets multiple clients share the same computer servers, Mason said. 

“Through sharing infrastructure, you can get out of the infrastructure business and focus on what’s important to you,” Klappich said. “Larger-scale automation without the capital expense has been a challenge.”

Born out of stealth work with Walmart, minting a multi-billionaire

The idea grew out of a vision Cohen had when running his family’s grocery distribution company, C&S Wholesale Grocery, which he has grown to $33 billion in annual revenue from $14 million since 1974.  Symbotic was founded in 2006, and worked in stealth mode for years while refining its prototypes with Walmart. 

“I’ve spent my whole life in the outsourcing and [logistics] business with C&S, so, this — the ability to run warehouses for people — has always been on the plate, Cohen said in the July analyst call. “We said we’re going to take care of Walmart first. …We are now starting to say, I think we can do more.”

Symbotic and C&S have made the 71-year old Cohen one of America’s richest men, with a net worth hovering around $15.9 billion, according to Forbes. 

Symbotic teamed up with Softbank to build GreenBox in order to preserve its own capital, Cohen told analysts. The joint venture was initially capitalized 65% by Softbank and 35% by Symbotic, for a total of $100 million. Analysts say the venture will require much more capital, possibly raised by having GreenBox itself borrow money in the bond market. Symbotic said it will use its share of the profits from sales to GreenBox to keep its equity stake in the joint venture around 35%.

“The question has been, who has the capital to set it all up?” Klappich said. “Softbank could be the key because they have deep pockets.”

The joint venture will buy software from Symbotic, then turn around and sell the warehouse space, equipment and related services as a package to tenants. 

Many questions remain, and potential threats from Amazon, private equity

Much else about the new company remains unknown, beginning with the identity of its not-yet-announced chief executive, Mason said. The venture could either develop warehouses or rent them, though Symbotic said it will probably mostly rent them. Pricing for the warehouse-as-a-service is undisclosed. 

But the rise of Greenbox more than doubles Symbotic’s potential market, and nearly doubles its backlog. Symbotic has said that its total market is about $432 billion, a figure chief strategy officer Bill Boyd repeated on the conference call when the GreenBox alliance was announced.  Early adopters will be in businesses like grocery and packaged goods, with Symbotic expanding into pharmaceuticals and electronics over time, according to Symbotic’s annual federal regulatory filing this year.

The GreenBox market for smaller companies shapes up as another $500 billion of possible demand, Gartner’s Klappich said. The estimates are based on the number of warehouses in those industries, the likely percentage of warehouses in each whose owners can afford the technology, either independently or through GreenBox, and the average price of Symbotic-like systems. 

The third quarter of the company’s fiscal year, which ends in October, illustrates how the company’s profits might scale. Revenue jumped 77% to $312 million, and its loss before interest, taxes and non-cash depreciation and amortization expenses shrank to $3 million. Mason says the company will turn profitable on an EBITDA basis in the fiscal year that begins this fall, before orders from GreenBox begin, and EBITDA will be “in the mid-teens” as a percent of sales by the following year.

Clients stand to save money all the way through the warehouse, Klappich said.

Giordano estimated the savings at eight hours of labor per outgoing truck. The technology can also cut space rental costs by allowing goods to be packed closer together and stacked higher. 

Using the facility as a service will let seasonal companies cut back on the space and robot time they use during slow periods, rather than carry them all year. The warehouse should run with many fewer workers, Giordano said. And GreenBox will pay for upgrades to robots and software every few years, rather than making tenants invest more, he said.

Walmart led investors on a tour of its Brooksville, Fla. warehouse in April, and said technology investments like the Symbotic alliance will let profits grow faster than sales. More than half of distribution volume will move through automated centers within three years, improving unit costs by about 20% as two-thirds of stores are served by automated systems. The company has said little about the impact on jobs, but CEO Doug McMillon said overall employment should stay about the same size but shift toward delivery from warehouse roles. 

Competition will be arriving soon enough, analysts say. Building something like Symbotic, and especially moving it down into the realm where companies other than global giants can afford it, takes a combination of technology, money and vision, Klappich said. 

Amazon could expand into the space, using its warehousing expertise in a service that resembles its Web hosting business model, or private-equity firms awash in investable cash might acquire combinations of companies to produce competing products and business models, Klappich said.

For Softbank, the payoff if GreenBox works is potentially huge. Analysts on average project Symbotic shares to rise another 53% in the next year after pulling back amid recent recession fears, according to ratings aggregator TipRanks. With post-IPO estimates arguing that Arm shares will stagnate, and taking into account that Softbank paid a reported $36 billion for Arm in 2016, it’s possible Symbotic will be the bigger win in the end, at least on a percentage basis, as the 65% share of GreenBox rises in value.

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What a stressed commercial real estate market means for these exposed bank stocks

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Collin Madden, founding partner of GEM Real Estate Partners, walks through empty office space in a building they own that is up for sale in the South Lake Union neighborhood in Seattle, Washington, May 14, 2021.

Karen Ducey | Reuters

Banks are facing mounting uncertainty as the commercial real estate (CRE) sector continues to struggle. But, tailwinds in our financial names should help safeguard their bottom lines.

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Retire Right With These 6 Billionaire Stocks That Pay Dividends Monthly

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Here are six real estate investment trusts owned by billionaires like Ken Griffin and Jim Simons that pay dividends monthly.

By John Dobosz, Forbes Staff

It’s no secret that dividends are highly prized by investors because they provide reliable income and a source of investment returns, even when stock prices are falling. Most dividend-paying stocks kick out cash dividends every three months, but a much smaller subset of a few dozen stocks pay on a monthly basis, providing a faster flow of income, or a quickened pace of compounding if investors reinvest dividends into additional shares of stock.

Most U.S.-listed stocks paying monthly dividends are either real estate investment trusts (REITs), business development companies, or oil and gas royalty trusts. These so-called “pass-through” entities do not pay tax on the corporate level because they distribute nearly all their income as dividends, which are taxed as ordinary income for shareholders who receive them, if the REITs are not held within an individual retirement account.

Like rent checks earned every month from rental properties, several of the worlds’ top billionaire investors have been scooping up monthly dividends from REITs that specialize in different niches of the property market, including shopping centers, office buildings, distribution centers and warehouses, recreational facilities, and nursing homes.

Sharply higher borrowing costs are not a friend of REITs. They increase interest cost on new debt and could adversely impact the ability to refinance existing debt, sell assets, and limit acquisition and development activities. Nonetheless, even as rising interest rates present headwinds for real estate, REITs remain ideal securities for income-oriented investors and for anyone interested in generating total return from dividends and long-term capital appreciation potential.

Regarding the importance of dividends in total return, pioneering female income investor Geraldine Weiss, longtime editor of Investment Quality Trends, was fond of saying, “We all hope for capital gains, but the only thing we can really count on is the dividend.”

The six REITs presented below are all monthly dividend-payers with annual yields ranging from 3.3% to 7.6%, making them good candidates for those looking for steady retirement income. All have payouts comfortably below their cash flow and are trading at discounted valuations relative to history. In addition, the most recent U.S. Securities and Exchange Commission filings show significant ownership by highly skilled billionaire investors.

Agree Realty (ADC)

Dividend Yield: 4.8%

Market Capitalization: $5.9 billion

Billionaire Ownership: Ken Fisher, Bruce Flatt, Ken Griffin, Ray Dalio, Steven Cohen, Jim Simons, Israel Englander, Clifford Asness

Bloomfield Hills, Mich.-based Agree Realty (ADC) is focused squarely on retail. It owns, acquires, develops, and manages net-lease properties rented to national retail tenants that include Walmart, Dollar General, Tractor Supply, Best Buy, Dollar Tree, and Kroger. Revenue is on the rise, expected to grow 20% this year to $517.2 million, with funds from operations up 2% to $3.95 per share. REITs are traditionally valued as a multiple of funds from operations (FFO), which differ from earnings in that they do not include the impact of interest, taxes, depreciation, or gains/losses on the sale of properties. Agree Realty trades at 15.1 times expected FFO, which is a 21% discount to its five-year average price/FFO ratio of 19.2. With a debt-to-equity ratio of 0.43, Agree is not stressed financially.

With ADC shares down 18% from their February high, it’s a clear sign of bullishness that company insiders are buying the stock hand-over-fist. Five different officers and directors, including the chief financial officer, purchased a total of $4.56 million worth of stock in the month of August. Executive Chairman Richard Agree personally ponied up $1.9 million to buy 30,000 shares. Billionaire investors have also shown a strong appetite for Agree. Israel Englander’s Millennium Management hedge fund reported new buys in the first and second quarters of 2023 and now owns 1.02 million shares of ADC, representing 1.1% of outstanding shares.

Phillips Edison & Co. (PECO)

Dividend Yield: 3.3%

Market Capitalization: $4.0 billion

Billionaire Ownership: Jim Simons, Clifford Asness, Ken Griffin, Ken Fisher

Phillips Edison & Co. (PECO), a midcap REIT out of Cincinnati, Ohio, specializes in ownership of shopping centers anchored by grocery stores. This REIT was founded in 1991 by Jeffrey Edison and Michael Phillips. Mr. Edison is the current chairman and chief executive officer of Phillips Edison, which went public in July 2021, and he owns 335,000 of the 117.3 million shares outstanding.

PECO owns and operates a $6.2 billion national portfolio of 291 grocery-anchored shopping centers clustered in Florida, the Eastern Seaboard, the Midwest, and along the Pacific coast. Top tenants as a percentage of total revenue are Kroger (6.2%), Publix (5.8%), Albertsons (4.1%), Koninklijke Ahold Delhaize N.V. (3.9%), and Walmart (2%). Revenue this year is expected to grow 6.6% to $597.5 million, with funds from operations up 6% to $2.28 per share.

Over the past 12 months, Phillips Edison generated free cash flow of $1.29 per share, which is comfortably above $1.12 per share in annual dividends, which are paid at a rate of $0.0933 per month, good for a dividend yield of 3.3% at current prices. Dividend growth is also encouraging. Since its IPO two years ago, PECO has hiked its monthly payout at a 4.8% annual rate.

The appealing fundamentals of PECO are nicely complemented by insider buying and billionaire ownership. On May 16, board member Leslie Chao laid out $292,000 to acquire 10,000 shares of PECO. Billionaire Jim Simons of Renaissance Technologies reports ownership of 187,000 shares, Clifford Asness of AQR Capital holds 14,000 shares, and Ken Griffin’s Citadel reports a stake of 7,000 shares. Ken Fisher owns 9,000 shares.

Realty Income (O)

Dividend Yield: 5.4%

Market Capitalization: $40.4 billion

Billionaire Ownership: Ken Griffin, Ray Dalio, Jim Simons, Israel Englander, Clifford Asness

With a market capitalization north of $40 billion, San Diego, Calif.-based Realty Income (O) is the biggest name in this group of monthly dividend payers. It owns 13,100 retail, industrial, and agricultural properties leased to 1,300 tenants in 85 separate industries, allowing Realty Income to generate stable cash flow and deliver consistent monthly dividends. The current property portfolio includes high-quality real estate in all 50 states, as well as Puerto Rico, the United Kingdom, Spain, Italy, and Ireland.

Realty Income has paid steadily rising dividends over its entire 54-year operating history, and dividend growth has outpaced inflation. Realty Income has hiked its dividend 5.3% annually over the past 10 years, and 4.7% annually since its initial public offering in 1994. Dividends of $3.07 per year are comfortably supported by $4.29 in free cash flow per share and provide investors with a current dividend yield of 5.4%.

Revenue has grown 21.5% annually over the past 10 years and is seen rising 18% to $3.9 billion in 2023. Funds from operations are expected to increase 2% to $4.12 per share. At 13.5 times FFO, Realty Income trades 25% below its five-year average price/FFO multiple of 18.1. Debt is manageable at 63% of equity.

The value of Realty Income was compelling enough for Israel Englander’s Millennium Management to establish a new position of 1.28 million shares at a cost of $60.92 per share in the second quarter of 2023—a cost basis 7% above the current stock price just below $57 per share. Jim Simons of Renaissance Technologies bought 378,000 shares during the same period at similar prices. With smaller stakes, Clifford Asness of AQR owns 97,000 shares, and Ray Dalio’s Bridgewater holds 90,000 shares.

STAG Industrial (STAG)

Dividend Yield: 4.2%

Market Capitalization: $6.3 billion

Billionaire Ownership: Israel Englander, Bruce Flatt, Ken Griffin, Steven Cohen, Clifford Asness

Boston-based STAG Industrial (STAG) was founded in 2010 and specializes in owning and managing huge distribution centers and warehouses along interstate highways. STAG owns 561 buildings in 41 states with approximately 111.6. million rentable square feet. Accounting for 2.8% of $654.4 million in 2022 revenue, Amazon.com is the company’s largest tenant. Other major clients include American Tire Distributors, Hachette Book Group, Tempur Sealy, DHL, FedEx, Penguin Random House, and Ford Motor Company.

Analysts who follow STAG expect this year’s revenue to rise 6.4% to $696.5 million, and FFO to grow 2.3% to $2.26 per share. At 14.9 times current year’s FFO, STAG trades 9.3% below its five-year average price-to-FFO ratio of 16.0. Funds from operations have grown at an 18.8% compound annual rate over the past five years, and free cash flow has increased 18.9% annually over the same stretch of time.

Billionaires are buyers. Israel Englander’s Millennium Management has been the most bullish, taking down 1.1 million shares in the second quarter and now owns 0.62% of STAG’s outstanding shares. Clifford Asness owns 322,000 shares, Ken Fisher holds 303,000 shares, and Ken Griffin’s Citadel owns 90,000 shares. Bruce Flatt’s Brookfield doubled its stake in the second quarter and now owns 48,000 shares.

EPR Properties (EPR)

Dividend Yield: 7.6%

Market Capitalization: $3.3 billion

Billionaire Ownership: Ken Griffin, Jim Simons, Israel Englander, Clifford Asness

Founded in 1997, Kansas City, Mo.-based EPR Properties (EPR) owns a $5.4 billion portfolio of specialty properties concentrated in entertainment, education, and recreation. Properties include 172 movie theaters, 67 charter schools, 41 early childhood centers, 25 golf entertainment complexes, 11 ski parks, and five water parks. EPR also owns one gaming property, Resorts World Catskills casino and resort in Sullivan County, N.Y. Largest tenants as a percentage of 2022 revenue are AMC Theatres (13.8%), Topgolf (13.7%), Regal Entertainment (12.7%), Cinemark (6.1%), and Vail Resorts (5.1%).

EPR’s revenue this year compared to 2022 is expected to jump 18.6% to $586.3 million, and FFO is expected to grow 7.7% to $5.05 per share. Priced at 8.7 times expected 2023 FFO, EPR trades 26.3% lower than itis five-year average price/FFO ratio of 11.8. It also trades 26.5% below its five-year average enterprise value-to-Ebitda ratio of 17.0.

EPR suspended its dividend in July 2020 after the onset of the Covid-19 pandemic but reinstated it one year later in July 2021, and the monthly payout has grown 4.9% annually over the past two years. Yielding 7.6%, EPR trades ex-dividend on August 30 for its next monthly payout of $0.275 per share.

Insiders are nibbling at the stock. On June 13, company director Caixia Ziegler bought 500 shares at $45.14 apiece. Among billionaire investors, Israel Englander and Ken Griffin both reduced their stakes in the second quarter but still own 675,000 and 477,000 shares, respectively. Jim Simons’ Renaissance Technologies holds 344,000 shares, and Clifford Asness of AQR reports owning 322,000 shares.

LTC Properties (LTC)

Dividend Yield: 7.2%

Market Capitalization: $1.3 billion

Billionaire Ownership: Ken Griffin, Jim Simons, Clifford Asness

Westlake Village, Calif.-based LTC Properties (LTC) invests in senior housing and health care properties, primarily through sale-leaseback transactions, mortgage financing, and structured finance deals that include mezzanine lending. Its portfolio includes 213 properties in 29 states with 29 operating partners. Based on gross real estate investments, the portfolio is composed of approximately 50% senior housing and 50% skilled nursing facilities. Based on each tenant’s share of 2022 revenue of $128.2 million, LTC’s largest tenants were Prestige Healthcare (14%), ALG Senior (10.4%), Brookdale Senior Living (8.9%), and Anthem Memory Care (6.2%).

LTC has been paying dividends since its inception in October 1992, and the payout has grown 2.4% annually over the past decade. Even though growth is not overwhelming, LTC’s dividends, currently paid at the rate of $0.19 per month, give the REIT a meaty yield of 7.2%. Annual dividends of $2.28 per share are covered by $2.54 in free cash flow per share over the past 12 months. Revenue this year is expected to creep higher by 1% to $129.1 million, and funds from operations are seen rising 2.7% to $2.63 per share. At 11.9 times current-year FFO, LTC trades 14.4% below its five-year average price/FFO ratio of 13.9.

Clifford Asness’ AQR hedge fund boosted its LTC holdings by 89% to 34,000 shares in the second quarter of 2023, while Jim Simons of Renaissance Technologies acquired 21,000 shares at $35.47 per share in the second quarter, and now owns 68,000 shares of LTC. Ken Griffin’s Citadel reports a small stake of 5,000 shares.

John Dobosz is a senior editor and editor of Forbes Billionaire Investor newsletter.

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