The Real Estate Espresso Podcast

Nathaniel Kiger is based in Seattle Washington. He specializes in affordable housing using government subsidies. On today's show we are talking about the criteria that make for a viable project versus one that meets demand, but loses money. Ton connect with Nathaniel, visit https://www.lee-associates.com/northwest/nate-kiger/ ------------ **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com](http://www.victorjm.com) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) Email: [[email protected]](mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

On today’s episode, we’re peeling back the layers on the latest U.S. Nonfarm Payroll report. If you turn on the news or listen to government officials at the podium, the narrative remains steadfast: the economy is robust, the labor market is resilient, and the elusive "soft landing" has been achieved. But as real estate investors and market operators, we know that headline figures are written for optics, while the truth is buried in the revisions. When you dig into the hard numbers from the Bureau of Labor Statistics, a starkly different economic picture comes into focus—one marked by underlying contraction, vanishing jobs, and a sharp deceleration in consumer-facing sectors. July’s payroll numbers were quietly revised downward by 31,000 positions. That single adjustment flipped July from a previously reported gain of +21,000 jobs into a net loss of 10,000 jobs. August wasn’t spared either—it was revised down by 29,000 jobs, bringing its total down from +162,000 to +133,000. In total, 60,000 jobs that were previously announced to great fanfare were erased retroactively. Throughout the summer, official initial estimates painted a picture of an unbroken consumer spending spree at restaurants, bars, and resorts. But remember the FIFA World Cup was hosted in June and July. Does it make sense that hiring in hospitality would accelerate after the World Cup was over? Does it make sense that hospitality is growing at the same time that arlines like American Airlines and United Airlines reduce capacity and cuts flight? Airlines do not cut flights or trim seat capacity on a whim. They do so because forward bookings are softening and corporate travel budgets are being tightened. Airline capacity is a premier leading indicator for hospitality performance. Expect more revisions. ------------ **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com](http://www.victorjm.com) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) Email: [[email protected]](mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

Our book this month is The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz. Ben co-founded Loudcloud, a cloud computing company launched during the technology boom of the late 1990s. Soon afterward, the dot-com crash created an extremely difficult operating environment. The company faced declining markets, financial pressure, layoffs, strategic changes, and the constant possibility of failure. Loudcloud was eventually transformed into Opsware and later sold to Hewlett-Packard for approximately $1.6 billion. His book is a practical, candid examination of what it really means to lead a company through uncertainty, crisis, rapid growth, and difficult decisions. Unlike many business books that focus on formulas for success, Horowitz concentrates on the situations where formulas stop working. His central message is simple but powerful: the hardest problems in business usually do not have obvious solutions, and leadership is often defined by how a person responds when every available choice carries risk. ---------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com](http://www.victorjm.com) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) Email: [[email protected]](mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

I’m seeing some scary parallels between the dot com era and today. I was part of the dot com era and there were some powerful lessons from that time. It’s tempting to say this time is different. But even if there is demonstrable customer demand and revenue, there are still some what where the same troubling trends are showing up. When I was at Nortel we had numerous strategy meetings about how we could compete more effectively on a global basis. Back then, companies like Alcatel and Ericsson were doing much better globally than we were at Nortel. The folks at Ericsson would show up with their banker in the meetings who could offer them favourable financing terms. The folks at Nortel didn’t have any such offer. So both Nortel and Lucent went out and borrowed money in the bond market on the strength of their balance sheet and income statement. They in turn provided financing to their customers on terms that were much better than those customers could secure on their own. When the dot com bubble burst, those bonds became a problem and ultimately resulted in the failure of Nortel and the merger of Lucent with Alcatel. So here we are in 2026, there is a massive build-out of AI infrastructure. So when I draw a comparison to the dot com bubble, this is where I am seeing the strongest correlation. If Anthropic and OpenAI were to stumble along the way, all of these companies, Amazon, Microsoft, Google, AMD, XAI, Broadcom, Nvidia, would all be negatively affected. These companies have assumed debt on behalf of their customers. The hyperscalers together represent about $3T of off-balance sheet risk. The debt in 2000 was 1T but the collateral had much more durable value than the collateral backing today’s debt. Therein lies an extreme level of risk in my opinion. If these companies don’t earn nearly 1T per year in real operating margin for the next 3 years they stand a very high chance of defaulting on that debt. ---------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com](http://www.victorjm.com) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) Email: [[email protected]](mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

On today’s show we’re examining a form of apartment distress that can hide in plain sight. One of our team members recently visited , a 500-unit apartment complex in Pflugerville, Texas, just north of Austin. It is relatively new. Construction began in 2021 and the completed project was turned over in May of 2023. This isn’t a tired 1970s apartment complex suffering from decades of deferred maintenance. Let’s follow the property through the tax records. In 2021, while the project was getting underway, the assessed value was about $5.3 million. In 2022, it increased to $6.8 million. By 2023, with construction well underway, the assessment had reached $34.8 million. Then the project was completed. The following year, the assessed value jumped to $114.4 million. Think about that. In a single year, the taxable value increased by nearly $80 million. The resulting 2024 property tax bill was approximately $2.53 million. For 2025, the assessment was reduced to $105 million and the tax bill fell to roughly $2.36 million. Austin experienced extraordinary population and rent growth during the pandemic years. Interest rates were low, cap rates were compressed and developers responded to the demand by building thousands of new apartments. Eventually that new supply arrived. Rents softened. Concessions increased. Occupancy became more competitive. At the same time, interest rates increased and multifamily cap rates expanded. Today, It is advertising one-bedroom apartments starting around $1,100 per month. More importantly, the property has been advertising concessions of up to ten weeks free. Ten weeks free on a twelve-month lease is nearly a 19% concession. So we have two very different things happening at the same property. The tax records say the property was worth $114 million in 2024 and $105 million in 2025. The rental market is simultaneously forcing ownership to compete for residents using lower rents and substantial concessions. That raises a simple question. If you were buying It today using today’s rents, today’s concessions, today’s expenses and today’s cap rates, would the income support a $105 million valuation? -------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com](http://www.victorjm.com) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) Email: [[email protected]](mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com](http://www.ystreetcapital.com) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)