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An insider confided to a friend that all he is doing right now is transaction work for real estate holders who are selling now before the market crashes. His clients, members of Sin City’s illuminati, once bitten by the ‘08 crash, believe they’ll beat the crowd to the sales window before the local retail and office market collapses.
Tiny capitalization rates translating into unsustainable values are being dangled in front of these folks and they are willing to absorb the tax consequences to cash out and be ready to repurchase their properties back at a discount in a couple years.
With the country just emerging from lockdown, where’s the crash already? The original grave dancer, Sam Zell, has left the cemetery and is “following the pack and spending big on something safer,” Peter Grant wrote in the Wall Street Journal.
One of Zell’s companies paid $3.4 billion for Monmouth Real Estate Investment Corp. Not all distressed, Monmouth “owns 120 industrial properties in 31 states,” Grant reported. “The sector is one of the most profitable because of high demand for fulfillment centers from e-commerce companies such as Amazon.com Inc.”
Bloomberg reported a year ago that Amazon-leased buildings could sell for a capitalization rate of 4 percent, the equivalent of twenty-five times earnings. A Las Vegas real estate broker and developer who is also doing business in red-hot Reno said recently, “Amazon buildings will start selling for three CAPs soon.”
Back in the days of quasi-laissez-faire, a pandemic would have created plenty of opportunities for the Zells of the world, but, as Grant explains, “Hotels, malls and other properties have suffered enormous declines in revenue. But few owners have been forced to sell at steep discounts thanks to government stimulus programs and the Federal Reserve’s easy money policy which kept a lid on foreclosure.”
Tenants bellied up to the Paycheck Protection Program (PPP) bar and while having trouble operating due to labor shortages, with staff staying home on the taxpayer’s dime, they are paying rent. As for Amazon and other fulfillment tenants, covid was a colossus.
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“From both a monetary and fiscal perspective, authorities have made sure that distress would be extremely limited in all walks of life,” Cedrik Lachance, Green Street Advisors’ head of global real estate investment trusts (REIT) research told the WSJ.
Zell does think retail properties are a “falling knife.” Zell said, “There obviously is going to be an opportunity in retail. I just don’t think it’s here yet.” He added that hotels also look expensive: “I can’t relate … pricing to the way I see opportunity.”
Billionaire Charles Koch can relate. His Koch Real Estate Investments took over the unfinished multibillion-dollar hotel and casino Fountainbleau development on the Las Vegas Strip after the previous owner defaulted on the mortgage.
Florida developer Jeffrey Soffer bankrupted the sixty-three-story, four thousand–room project in the 2008 crash, before the doors were ever opened. In 2010, an opportunistic Carl Ichan bought it for $150 million (essentially the trade liens on the property), “sold the furniture, and flipped it to New York developer Steven Witkoff for $600 million seven years later,” Konrad Putzier reported earlier this year.
Witkoff couldn’t obtain a construction loan to finish and defaulted on loans from JPMorgan Chase and Deutsche Bank AG, as well as more than $200 million in subordinate debt held by South Korean investors.
Koch appeared, bought the JPMorgan note for $350 million, and waved goodbye to the South Koreans and Witkoff. Koch has brought back Mr. Soffer to restart the project. Putzier wrote in March that the project was far from a sure bet.
However, the opening of Resorts World on the former Stardust site on the Strip’s north end recently has the town abuzz. The Fountainbleau is nearby.
Further south on the Strip, where gaming has taken a backseat to real estate dealing, MGM announced it was buying its 50 percent partner Dubai World out of the sprawling CityCenter project for more than $2.1 billion, providing MGM full ownership of the Aria and Vdara resorts. Not missing a beat, the company then sold the Aria and Vdara real estate to Blackstone for $3.9 billion and will lease the properties back for $215 million a year in rent to start, or a 5.5 percent cap rate.
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Once upon a time, the casino was king of the Strip’s income department. Not so much anymore. Hotel casinos might as well be shopping malls with some slots and table games attached. During the boom years the casino accounted for only 30 to 40 percent of revenues. And while the floor space, with the odds stacked in the houses’, favor has crept upward in recent years, it’s still not half a property’s revenue.
Ludwig von Mises explained, “Interventionism means that the government not only fails to protect the smooth functioning of the market economy, but that it interferes with the various market phenomena; it interferes with prices, with wage rates, interest rates, and profits.”
Mr. Zell’s goal was always to reinvest that cash. “What it tells you about the Covid era is that they just couldn’t find true distress,” Mr. Lachance said. No distress means a manipulated market that economic actors cannot assess properly.
In the end, “as the government goes farther and farther,” Mises wrote, “it will finally arrive at a point where all prices, all wage rates, all interest rates, in short everything in the whole economic system, is determined by the government. And this, clearly, is socialism.”
Las Vegas was once a city driven by odds. No more. Now government has loaded the dice.
New Conservative Network Seeks Crowdfunding Help
They say we have to go big or go home. We’re trying to go big and bring the patriotic truth the the nation, but we need help.
Readers may or may not realize that over the past year, we’ve been bringing more conservative news and opinion outlets under our wing. Don’t take our expansion as a sign of riches; all of the “acquisitions” have been through sweat and promises of greater things to come for all involved. As a result, we’ve been able to bring together several independent media sites under a unified vision of preventing America from succumbing to the progressive, “woke,” Neo-Marxist ideologies that are spreading like wildfire across America.
The slow and steady reopening of America is revealing there was a lot more economic hardship brought about from the Covd-19 lockdowns than most realize. While we continue to hope advertising dollars on the sites go up, it’s simply not enough to do things the right way. We are currently experiencing a gap between revenue and expenses that cannot be overcome by click-ads and MyPillow promos alone (promo code “NOQ” by the way).
To overcome our revenue gap and keep these sites running, our needs fluctuate between $3000-$7000 per month. In other words, we’re in the red and hemorrhaging.
The best way you can help us grow and continue to bring the truth to the people is by donating. We appreciate everything, whether a dollar or $10,000. Anything brings us closer to a point of stability when we can hire writers, editors, and support staff to make the America First message louder. Our Giving Fuel page makes it easy to donate one-time or monthly. Alternatively, you can donate through PayPal as well.
As the world spirals towards radical progressivism, the need for truthful journalism has never been greater. But in these times, we need as many conservative media voices as possible. Please help keep NOQ Report and the other sites in the network going.
Thank you and God Bless,
We Often Feel Like David Taking on Giants
Today’s Goliath is the Mainstream Media Industrial Complex that brainwashes the masses.
Our mission is very straightforward: To counter the false narratives and nefarious agendas destroying America today. It isn’t easy for obvious reasons; despite incredible growth over the last year we are still a very tiny fish in a huge media pond. But we’re fighting and we will continue to do so, Lord willing, for as long as we possibly can. The battle for America’s present and future is too important for us to back down to the giants that stand in our way.
We need help. I don’t want to say “desperately,” but the need is definitely great. If you have the means, please donate through our GivingFuel page, PayPal, or our brand new GiveSendGo page. Your generosity is what keeps these sites running and allows us to get the truth to the masses. We’ve had great success in growing but we know we can do more with your assistance.
Thank you, and God Bless!