CALCAP Connections                           March 2019

Bad News, Good News
Last June, we wrote about the flattening (and potentially inverting) of the yield curve. This happens when the yield on the 2-year treasury gets closer to the yield on the 10-year treasury. Typically, the curve slopes upward as investors demand a premium for risk taken over a longer period of time. An inversion happens when the yield on the 2-year actually exceeds the yield on the 10-year.  This phenomenon has also been the precursor to past recessions. 
As of this writing, the yield spread between the 2 indexes stands at a mere 15 basis points. The yield on the 10-year note fell to its lowest level in more than a year, closing at 2.43%, and a "partial inversion" with the 3-month treasuries at 2.44% as of this writing. Many experts believe the difference between the 3-month yield and the 10-year yield is the most important one. President Donald Trump's chief economic advisor, Larry Kudlow, agreed that the spread between the 3-month yield and the 10-year yield is the most important difference to monitor.
"It's actually not 10s to 2s: it's 10s to 3-month Treasury bills," Kudlow said in May.
All of this comes after the Fed downgraded its economic forecast for the U.S. economy, and held rates steady. Fed Chair Jerome Powell also suggested that rates would remain the same for the rest of the year. The Fed has also said it plans to end its program of reducing the bonds and mortgage back securities it holds on its balance sheet.
 A flattening curve is typically a sign of slowing economic growth. A recent report showed factory output in the eurozone fell in March at the fastest pace in six years, while manufacturing in the U.S. slowed to its lowest level in nearly two years. The German 10-year bond dropped below zero for the first time since 2016. Former Fed Chair, Janet Yellen commented that the inversion may indicate the need to cut interest rates at some point, though she also believed that it didn't assure a recession would occur.
As real estate investors and "users of debt," a lower 10-year treasury yield is welcome news to CALCAP, as borrowing costs are directly tied to the 10-year yield. Lower borrowing costs also benefits CALCAP Lending which provides bridge debt to real estate investors. A lower cost of capital benefits these investors by providing more loan dollars that will ultimately enable them to refinance or sell their property.
Edward M. Aloe   
President and CEO   
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Latest Headlines...

Phoenix apartment rents sets new growth record
"The Phoenixapartment rent growth numbers are fantastic any way you slice and dice the data. It looks like the market's overall performance is hitting a peak. Solid job production is helping fuel substantial demand for housing, and apartments are getting a big share of that, especially as home sales have cooled a bit in the past few months," RealPage Chief Economist Greg Willett said. "However, look out for the near-term apartment delivery volumes in the Valley. New supply is moving back toward the highs recorded in the previous couple of economic cycles. It will get harder to maintain sky-high rent growth in Phoenix as apartment building activity continues at an aggressive pace."
View Article Here  
Is San Francisco the world's most expensive rental market?
Yeah, actually, it is. Are you surprised?

Rent for San Francisco tops out at $3,690 while New York City's rent is $2,870, according to the site. The third most expensive rental market in the world is Hong Kong, with an average rent of $2,350.
View Article Here
RentCafé: Senior renting jumps 43% in 10 years
New data shows seniors are outpacing their younger counterparts when it comes to renting
RentCafĂ©'s analysis notes that older renter households increased at a faster rate than older owner households. Older owner households grew just 31% compared with older renters increasing by 43%. 
The company noted that the rapid growth of the senior age group can be seen across owner households as well. The age group was the only one to see an increase in homeownership in the 10-year period between 2007 and 2017. Those aged 34 and under saw a 19% decrease and owner households between 35 and 59 decreased by 12%, according to the company.
The Madness That is March....

California Capital Real Estate Advisors, Inc. (CALCAP) is a real estate investment and advisory firm.  Partnering with businesses, asset managers, developers and communities we reposition distressed real estate, and provide liquidity, adding value for our stakeholders and the communities we serve.  
We are proud of our ability to identify opportunities and to move quickly in adding value to a diversity of projects. Through our experience, extensive network and creative problem-solving skills we have established a strong record of success.

CALCAP's work includes the acquisition of distressed residential and commercial properties and debt; the repositioning of real estate; asset management; real estate brokerage; consulting; and real estate financing services.

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Pasadena, CA 91106
Edward M. Aloe, President & CEO
(626) 229-9057

Mark A. Mozilo, Principal
(626) 229-9056

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San Diego, CA 92130 
Patrick A. Wakeman, Principal
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Phoenix, AZ 85014
Drew Buccino, COO
(602) 419-3381

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Greg Blix
Director of Investor Relations
(805) 896-8500

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Len Israel

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