Is this another bubble?

Listen to the segment "Am I the only one worried about real estate?" from the April 7, 2018 episode

Let's take a quick look at three unrelated stories:

Story #1: A reporter at the Chicago Tribune tweeted a link to a story in their paper saying, "Landlord booting Chicago Tribune out of Tribune Tower to make way for condos now suing the paper to stop it from removing 'Chicago Tribune' sign on the building when we leave this spring. Sign is 'special' and they want to use it for marketing. Amazing." The Tribune's lease on the building expires at the end of June. Per the Tribune story, "CIM and Golub plan to redevelop the tower, which was completed in 1925, and build a skyscraper on a parking lot just east of it. The joint venture bought the property from broadcast company Tribune Media for $240 million in September 2016. The developers have not publicly disclosed their plans, which are expected to include a mix of residential, hotel and retail space just north of the Chicago River."

Story #2: Mutual of Omaha has a hotel next to its headquarters in, well, Omaha. And the Omaha World-Herald reports that the insurance company put the hotel on the market a month ago, and "more than 100 potential buyers have signed agreements allowing them to look at the hotel's finances and consider bids".

Story #3: When the new Hilton attached to the Iowa Events Center opened a couple of weeks ago, the Des Moines Register did a story about a building boom in hotel rooms downtown -- noting that in addition to the new Hilton and other recent projects, another four big hotel projects are underway.

I hope for the best when it comes to real estate. I really do.

But I have my concerns. Borrowing has been super-cheap for a decade. The stock market is short on attractive opportunities. There's epic uncertainty about the short-term economic future, with tariffs and trade wars and a President who likes to pick fights with individual companies like Amazon.

Real estate might have been benefiting from environmental factors that aren't guaranteed to last forever.

But consider this: It's really easy to spend $100 or $150 on a night in a hotel, even if it's not the fanciest luxury suite or the busiest travel time of year.

The regular rate for a room at the new Hilton with two queen beds for the first weekend of the Iowa State Fair is almost $250 a night before taxes.

What else can you buy with $150 to $250? A laptop computer.

When the same amount of money buys either a place to put your head for one night -- or a powerful device that could be all you need to start a business -- something seems instinctively out of whack.

When a single property in a town a lot like ours attracts more than 100 interested buyers in a month? That seems artificially hot.

When a newspaper's name is valuable enough as a marketing tool for a developer to start a court fight to keep the sign even after it boots out the newspaper itself, something's not fully rational.

This isn't investment advice, and it's not a recommendation that you do anything...other than take a step back and look at the big picture, and ask whether what's going on really makes sense.

Things could be just fine for years to come. I'm not saying there's a definitive bubble out there, nor that it's about to pop if there is one. And I know that the one thing real estate always has going for it is that they aren't making any more of it. But something seems out of balance about this bonanza, and I wouldn't feel right if I didn't make public note of it.

 
Brian Gongol

Brian Gongol

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