On Friday, September 27, the Norris Group proudly presents its 12th annual award-winning black tie event I Survived Real Estate. An incredible lineup of industry experts will join Bruce and Aaron Norris to discuss perplexing industry trends, head-scratching legislation, massive tech disruption, and opportunities emerging for real estate professionals. All proceeds from the event benefit Make A Wish and St. Jude Children’s Research Hospital. This event is not possible without the generous help of the following platinum partners: the San Diego Creative Real Estate Investors Association, InvestClub, ThinkRealty, Coach Fullerton, Keller Williams Corona, PropertyRadar, the Apartment Owners Association, MVT Productions, and Realty411. Visit isurvivedrealestate.com for event information.
This week’s radio guests are Bruce and Aaron Norris of The Norris Group. By the time you’re listening to this, it will be I Survived Real Estate. This is the show that airs while they’re getting the video ready to post on YouTube, Amazon Prime, and a bunch of other places. Right now they’re in preparation mode. Aaron developed a huge list, which he will only have at max a half an hour to cover, and it’s two pages. He sent it to the panel that he’s working with, and it’s crazy.
Bruce said this is a very unique meeting, and they have some very strange charts as well as some very strange things that are happening outside of the world of real estate that are impacting interest rates. They just interviewed Christopher Thornberg, and about three-quarters of the way through the interview, he asked him this question: He said: “You know you haven’t asked me one question about real estate yet.” Bruce thought real estate is actually doing okay. It’s all these other things that are the issue. For some of the questions for people that have an economic viewpoint, like Doug Duncan, who has a bigger view than just the real estate world and a lot of experience with what’s going on, it’s important to get his perspective. We have a 1.7% ten-year T-Bill with full employment. That’s never happened remotely. The questions are what’s going on and will whatever the outside cause is to continue or go negative. How’s that going to impact since we could be the beneficiary.
Sean O’Toole sent Bruce an email with an interesting question. They had both said some outrageous things two or three years ago about interest rates getting very low. In an email he sent back, he said it looks like we’re going to be correct. This is probably the one prediction Bruce would’ve rather not been correct on. That ominous and that’s telling you a story that’s not positive. Bruce is very interested to hear his take on this and will ask him this live in front of the audience at I Survived Real Estate. He knows there’s something in his mind that there is a reason this is occurring that isn’t pleasant.
If you’re not familiar with I Survived Real Estate, check out www.isurvivedrealestate.com. This is their 12th year, and they have raised almost $1 million. They pay for the event, so one 100% goes to charity and the beneficiaries are Make a Wish and in St. Jude Children’s Research Hospital. A couple of weeks ago, they featured St. Jude talking about their mission and what they do. They are really great causes. In real life, 100% goes to them. They bring together thought leaders from all over the industry. What’s unique is that a lot of us have gone to conferences where it’s mortgage-related or realtor related. Typically, you see categories on stage together talking about the same thing. What’s unique about what is covered at this event is you have a lot of interesting thought leaders from different segments of the real estate industry who are beating up topics to which real estate investors don’t typically have access.
There are about 400 people in the audience for this black-tie event at the Nixon Library. When they started this back in 2008, they called it I Survived Real Estate because at the time they were in freefall and were just excited to get people to show up. It was pretty amazing. The genesis of it was some of the best conversations they heard when they started taping the radio show twelve years ago happened after they stopped recording. They heard ideas from people like Tommy Williams saying they wish there were certain things they could discuss. Others like Leslie Appleton-Young from CAR would hear you say one thing and vice versa. This was how they got the idea; and many years later, here we are.
What’s been really great about it is that they have always been able to get the most appropriate topics covered by the highest level people. This year, they have some new people. One is Simon Chen. Within the last 30 days, he has been moved from the Executive Vice President of innovation for Realogy. Realogy is like an alphabet to Google. Realogy is to companies like ERA, Coldwell Banker, and Home and Gardens, so they own a few different real estate brands as well as others. He is now moving from being the CEO of ERA into this role of innovation. He has an engineering background. Aaron had been working very hard for the last year and a half to get an iBuyer, and they’re all playing it very close to the vest. They have been moving and working on partnerships. It’s been really hard to follow.
He couldn’t land any of them this year, but they just signed on with a partnership with Amazon. If you buy a piece of real estate through the turnkey program through Amazon, it’s working with Realogy brands to get into real estate. You get a bunch of free stuff. Aaron has been teaching for years and thinks Amazon will be the first to launch free stuff. It’s just interesting that this is their way to do it. They’re giving you free hardware, and then the services piece is going to allow somebody to install it professionally and teach you how to use it so the adoption rate will go up. He’s very fascinated to speak with Realogy about their innovation approach since as of now it doesn’t seem like they’re going to tip their toe into the iBuyer space. Doesn’t mean that they won’t, but Simon said he’s prepared to say why they don’t plan on doing so, which is interesting. You have companies like Keller Williams going all-in on innovation, spending $1 billion in a variety of ways. They’ve just recently partnered with OfferPad, which is in Southern California. They have been here since 2017.
What’s also interesting is John Burns is a consultant for a lot of these companies. He’s up to his eyeballs in the national builders and the hedge funds. That would be a natural for somebody to ask you what you think about a particular thing. They have never paid their speakers. These companies are all donating their time because of the cause. It’s really special, and they really appreciate it. To get some of these names is a little bit of a coup. They get asked all the time how they get their speakers. Part of it is that this is a unique event because the panelists have very often been repetitive because the audience has their favorites, and they really enjoy it. They trust each other too. Sometimes they bat around some pretty heavy stuff with the smartest minds in the country, and it’s fun.
Aaron preps the people on the panel. He works with their PR team and tells them this is not the crew, but a very sophisticated crowd. These are real estate investors, and they want candor. They don’t need PR to speak, it’s okay to be completely forthright and candid. They are a very data-driven audience. Typically, the first year they go in a little bit shy, but by the end of the night, they’re saying this is one of the best events. This is been some of the greatest feedback The Norris Group has gotten. Some of these speakers speak at so many hundreds of events every year, so to come out to say this is one of their favorites pretty cool.
Next up is Jim Park. He is the CEO and co-founder of the Mortgage Collaborative. It’s going to be interesting to talk to him about what negative interest rates look like for these smaller collaborative that he’s working with and their membership in the mortgage space. What does that look like? That’s the first time that he’ll be on, but they have had David Kittle and Gary Acosta talk on this. The Mortgage Bankers Association recommended this group, and it is very appropriate. A lot of the banks that are part of this collaborative are probably on a smaller scale. These are the banks that really invest in the communities as well. Bank of America and Chase are not so much a target market for real estate investors as some of the local banks. The Norris Group uses Pacific Premier Bank, who has been one of their sponsors. He would never be able to get Bank of America to sponsor I Survived Real Estate. They work with a lot of real estate investors and are willing to do more creative things in their backyard because that’s where they invest. They’re not a publicly traded huge outfit nationwide footprint. They’re really investing locally.
One of the questions Bruce will probably pose is that if you have interest rates get to an extremely low level, which there must be some expectation of in that sense. John Burns sent him a question asking if he would borrow mortgage money if you could borrow it at negative interest rates. He almost thought it was tongue in cheek, but then he realized there’s a country already, Denmark, that has a minus half a percent mortgage rate for 10 years. Bruce started wondering if interest rates could get so low you wouldn’t have 30-year mortgages. Aaron said there’s a 20-year one at zero percent., although it’s not Denmark. Bruce said they can ask where the profit spread is. So they must have a source at a minus interest commitment for a long time.
Aaron gave Sean O’Toole his list and asked him what he was missing. One of his things for the mortgage industry was vertical integration. You have companies like Zillow that has opened up a mortgage division this year. Once a consumer touches the Zillow brand, they’re in the ecosystem and never have to touch another real estate brand as part of the process. Jim Park and the Mortgage Collaborative are looking at somebody trying to control the entire pipeline of real estate, from the buy-sell experience to mortgages to closings. The question then is how they are competing.
Next up is Mark Lesswing. He is now the Senior Vice President of T3 Sixty. He’s been 17 years at the National Association of Realtors. He was on the panel last year, but things got shaken up and he couldn’t be there. He has been at the forefront of blockchain technology, so Aaron specifically wants him there. T3 Sixty is very well known for producing an annual report of the real estate industry, technology, and innovation in the space. He’s there writing for things on blockchain and some of these advanced technologies that he’s been watching and studying for the last numerous years. Bruce won’t be asking him the questions. Aaron also has to be careful since that is a bit of a dry topic and he does not want to lose people. However, it’s a really important one.
Bruce had just listened to Kyle Bass talking about a couple of things with Mark Cuban. Both of them are computer geniuses, and the subject was talking about how unemployment is going to get very aggressive in number because of all the innovation. They were talking about blockchain, and they both understood it. That’s like the future. Bruce doesn’t have any knowledge of that, so he’s interested to get a piece of that.
If you’re not familiar with blockchain, you should definitely try out LinkedIn Learning. They are owned by Microsoft, but before Microsoft purchased them they bought a company called Linda.com, and now they have some really great people producing awesome content. There are some very inexpensive ways to do some learning on an ongoing basis, and they have some information on blockchain. Definitely check it out; it will help you understand it more. There are a lot of finance companies spending millions of dollars in the space and doing research because of the security issues.
Things on Aaron’s list of topics that he hopes to discuss but doesn’t know if he is going to get to is iBuyers, 3D printed housing, and prefab construction. He also wants to cover the mortgage industry, artificial intelligence, blockchain, and disruptors in the space. Why did Purple Bricks back out at this point in time in our economy? This blew Aaron’s mind. He was still surprised even though he didn’t like their business model. They got made fun of a lot, but he did not expect this year that they would be going back to the UK and pulling out of the US market for sure.
Some of John Burns’ clients are building tracks of rentals for the first time in their life. Aaron wondered if they are holding them or flipping them to these Wall Street companies. Bruce thinks it is some of each. Aaron and Bruce hope to ask him if there will be an update on mergers and acquisitions in these Wall Street companies that owned or rented. There’s been lots of those. Aaron wondered how this was going and if they like being a landlord as much as they thought.
Bruce said during their discussions over the years, their biggest concern is that there will be a day where they all simultaneously exit and become market makers in a negative way. They aren’t a positive force stopping price damage because they had a new model, and they were buying everything in sight because it cash flowed. In addition, they had a certain number that they had to reach. As long as they could reach it, they didn’t really care what the comp was. They didn’t mind paying a little more to accomplish what they wanted, and they did it by the thousands. They were really the bottom of the market. When you’re that big of a player, if you were in a concentrated area you could put a lot for sale quickly. He doesn’t think they’ve really hold the title that way. Most of them are in long term investments that are like REITs, and they’re really just getting cash flow from them. That’s an acceptable number.
Aaron wondered if he knows how much have taken on a lot of leverage too and how long that leverage is. He doesn’t suspect that they’re getting 30-year loans on the properties that they hold. One of the things Bruce was thinking about when trying to decide what to ask people on the panel is they have clients that are the smartest people in the world in the industry. It’s great that this is a consultant for them, but this also has to be quite a learning experience when you collectively have every top brain in the industry together. You’re learning what they’re doing. You’re giving them a piece of advice, and then you watch their business model and thinking “wow.” It’s got to be quite an education.
Aaron was very interested to ask if they are here to stay if there is a recession. He has been at different events before where hard money was very crowded. Space has gotten very popular, and you definitely have Wall Street playing in the space. Over the last 24 months, it has gotten progressively worse. Aaron asked how many of these companies would be left standing if we hit a recession. It went from 50% to only 20% who said they would stay. There is an expectation that a lot of them will fold because the business model is heavily leveraged. They don’t have any expertise, they’re just really good at spending other people’s money. Whether it’s an iBuyer concept or hard money lenders, is Wall Street here to stay in the space? Is this permanent disruption, or is it going to hit a downturn, have to morph, and really have an expectation of having a solid business model?
Bruce did a presentation in Orange County a little over a year ago, and there was a lender that stood up and he was presenting the loans that he had just funded. Bruce said he would not have funded any of them. They were terrible opportunities. At one meeting where Bruce was a speaker, there were people in other meetings. As he was walking out, somebody asked him if he would be interested in buying a portfolio of multimillion-dollar loans that were going to be discounted. They were being offered at a big discount. They were supposedly written at 60% of the value, and there was a pool of $20 million of loans that could be had for $12. So somebody was going to take a $10 million hit they get out of the loans that they had supposedly at 60%.
When Aaron was at UC Irvine in the middle of getting his MBA, there was somebody who was in the finance industry that he was in class with, and he was talking about this awesome opportunity he had to buy seconds at 90% discount. Aaron told him that’s not the price, and he looked at Aaron like he was crazy. He told him it would only get worse. This conversation happened back in 2007. It’s just gonna be really interesting to watch how this unfolds in the next couple of years.
There’s a lot of moving parts to this. That’s what makes us so interesting because you really are looking at some changes in technology that will be game-changers. Five years ago, Bruce and Sean O’Toole were riding in the limo to I Survived Real Estate, and he said the biggest problem America is going to confront is how to have society when 40% of the people don’t have to have a job. When he said it, that was a long time ago. At the same time, he said you were going to have driverless cars and 3-D printers were going to build houses. Sure enough, that is happening. Bruce can’t wait to see what he comes up with this time, but all of those concepts that he talked about are maturing and getting closer. Now, when you go to Vegas, you can see a robot making drinks for people or making pizzas for people. Pretty soon, you’ll be picked up by a driverless Uber.
Aaron lands in the middle and thinks we will innovate. We’re going to have to get better at being human and being purple people. Aaron visited that bar at CES at the hotel, and it was the worst experience. There is no there is a robot in the corner, and everybody was just looking at the robot. There was no music. Aaron took a video of it and put it on his Instagram. What’s funny is that there were more people at the bar on the other opposite side of the room, and everyone was just sipping their drinks talking about the robot on the corner. It was the only reason they had the business. It was just so unengaging and unfun. It was a novelty, but that was about it. When he goes to the restaurant, he thinks about how there are things that can be automated like asking for his ticket in the dinner. You go to be served, it’s a process, and you engage.
Bruce, on the other hand, did not think this is going to disappear. Some of it’s going to get changed, and there’s going to be disruption. However, at the end of that, there will likely be tons of innovation too. I hope so. Aaron is more on the positive angle and believes in American innovation and people. We can definitely improve the service. Aaron used to work out with a woman who and her husband who owned a lot of McDonald’s restaurants. Five years ago, they weren’t allowed to install kiosks. Now, the McDonald’s that they just built has a kiosk. There are not fewer human beings behind the counter. They’re just doing different things in the restaurant, including making sure things are clean, delivering food, and creating a better experience overall. There are too many co-bots helping automate the dangerous, dirty, and dull. That’s how they spend it. There’s a lot of opportunities to augment the human experience, but we can still have humans involved.
One of the things Bruce is going to try and figure out how to bring up is the climate change idea and the economics of it. If we pursued that and go down the path of trying to improve, what’s the cost of that? Aaron was just reading an article about the head of the Coastal Commission in California. There are several cities that are spending millions upon millions of dollars preparing for wild water inundation. This includes seawalls and upgrade of infrastructure, very much like Miami has had to do. Miami is spending around $100 million. They’ve had water inundation forever, but it’s based on lunar events and solar cycles. Being in the PR business, and Aaron knows how media the works, and you have both sides. It’s hard to weed through what’s real and what’s not.
Bruce has listened to hours and hours of climatologists and scientists on both sides. He doesn’t even know if he is capable of comprehending everything he nees to make it a rational decision. However, he would like to know what would happen if we pursue this. For example, our goal is to get rid of fossil fuels in 12 years. What will that look like on paper? Will it land on property-owners, or will it be a tax everyone is paying?
By the time you hear this, it will most likely be the day after I Survived Real Estate. As always, they use this time of year to recoup and take a break. They will air the entire I Survived Real Estate on the radio, and then within a few weeks, they have it up on YouTube, Facebook, and Amazon Prime for you to enjoy the entire thing. And if you enjoy what they did, please consider giving The Norris Group a grade on your preferred social media. Leave some good comments, and also consider donating. If you go to I Survived Real Estate on the video tab, there will be a link to where you can give to Make a Wish. They really appreciate your support. Twelve years ago when they started, they did not think this was where they were going to be. However, they survived, and the audience is a group of survivors too.
The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.
The Norris Group would like to thank its gold sponsors for supporting I Survived Real Estate: Coldwell Banker Town and Country, In A Day Development, Inland Valley Association of Realtors, Keystone CPA, Las Brisas Escrow, LA South REIA, Michael Ryan and Associates, NorcalREIA, NSDREI, Orange County Investment Club, Pacific Premier Bank, Pasadena FIBI, Shenbaum Group, SJREI, Spinnaker Loans, South Orange County Real Estate Investment Club, uDirect IRA Services, White House Catering, Wilson Investment Properties. See isurvivedrealestate.com for event information.