[00:00:00] Speaker A: Welcome to Moneysense. I'm Julie Ellen Becker, president of Ellenbecker Investment Group. EIG believes in the importance of education, allowing people to gain the knowledge to feel confident in their personal decisions. This show highlights the unique financial perspectives of its many guests, including economists, attorneys, book authors, business owners, and tax professionals. It is provided for general information purposes only and does not consider your particular investment objectives or or financial situation and is not intended as recommendations appropriate for you. Before acting on information on this show, strongly consider seeking advice from your own financial advisor. The opinions expressed on Moneysense do not necessarily reflect the opinions of Ellenbecker Investment Group employees and leaders. Please enjoy today's show.
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Welcome to Moneysense. I'm Jamie Williams, wealth advisor for the Ellen Becker Investment Group. Ellen Becker Investment Group is located in Pewaukee, just north of I 94 between highway 164 and Highway F. We're located in Ridgeview Corporate park and also in the village of Whitefish Bay and the Equitable bank building across from winkies. We also serve as clients in Bonita Springs, Florida. Visit ellenbecker.com for more details. Today our special guest is Doctor Glenn Miller. Doctor Miller is joining us from a host of really great educational background I'd like to share. He's a professor at Franklin L. Burns School of Real Estate and Construction Management in Denver and internationally known for his work in market cycles in the public and private markets, and also academic director for Family Office Real Estate Institute, also known as for F O R E. So Glenn, thank you so much for joining us today on MoneySense. Welcome back.
[00:02:16] Speaker C: Thank you.
[00:02:17] Speaker B: Excellent. So we got together about a year ago and it's been, it's gone by so quickly, by the way. And hopefully you're enjoying your summer. And I'm sure things are gearing up for the fall, getting back to school, right.
So I thought today we would start off with you maybe sharing an overview of some of your work going back in the past and maybe kind of some focus on your studies and focus on what you're working on. Projects related right now.
[00:02:51] Speaker C: Sure. So I've been in the real estate business for 48 years.
Originally from Oshkosh, Wisconsin, lots of family in Milwaukee, my great grandfather was Gettleman beer, have been researching real estate market cycles since the early nineties to help investors look at obviously the ups and downs. And for me, real estate really has two parts to the cycle, the physical cycle, which is demand and supply. And the combination of demand and supply and economics creates a occupancy level in properties. And if occupancy is going up, rents are going up. If occupancies are going down, rents are going down. So the income side of real estate really comes from that and is very local in nature. What's happening in Milwaukee is very different from what's happening in Chicago, in any of the major property types.
And then the second part of a real estate cycle would be the financial cycle, or capital flowing in. If money's flowing in, prices go up. If money's flowing out, prices go down. Same thing with the stock and bond market. So as I do that, I help institutional investors and reits and other companies decide what property types and what markets they should be investing in. And it is useful in, when people are doing large portfolios of properties, they want to diversify and be in different markets and potentially in different property types. So that's where my focus is on the income property side. Many people say, why don't you do that for housing? And I go, because housing is a use asset. You buy it, you live in it, you use it just like your car, it isn't producing income for you. It's a, it's a use asset. So I take home ownership from income producing and separate them.
[00:04:57] Speaker B: So that would be one of the major asset classes, or I would say one of the five, right, which would be the occupancy office, industrial, retail and hotel.
[00:05:12] Speaker C: Right, exactly.
[00:05:13] Speaker B: Yeah, that's the main focus. And I was looking back at the last year, and specifically with your market cycle report, which, by the way, is a wonderful report, extremely comprehensive and very insightful, where your report tends to identify the trend and seek to capture a forecast of these five major property types.
Just curious, right before our last show a year ago, the Federal Reserve had stopped the rate hike cycle, if you will, where they had raised rates eleven times, essentially taking fed funds rates to 5.5% from zero, essentially.
Have you seen any significant changes in the past twelve months in your market cycle report, Steven?
[00:06:05] Speaker C: So again, the federal reserve's goal is to supposedly help control inflation. And they do that by setting the Fed's fund rate and have held it where it is for a year, waiting for inflation to come back down. And inflation has slowed now, as you well know.
Is it to their target?
Not quite.
And many economists now think that the target of 2% is actually a little bit unrealistically low. Many of the people that I cover say they really should be thinking more like three, which is really where it's at now.
And while it has definitely slowed the economy down, which eventually will slow inflation down, we still are uniquely at a very high employment level with very little unemployment, people still having a hard time finding people to work for their companies.
So that has really pushed wages up and kind of, I think, slowed the reduction in inflation rates. And by the way, when you break down what is made up in the consumer price index, I believe it's 30% to 35% of that is housing, and that's both rental apartments or single family home ownership. And as you know, prices on housing have held very strong and post Covid apartment rents have pushed up as well. So when you have 40% of an index being driven by something where there's a lot of demand, and by the way, the National association of Realtors say their estimate is that we are 6.5 million housing units short in this country.
[00:08:05] Speaker B: Wow.
[00:08:06] Speaker C: Which is incredible, right? And a lot of that comes from the fact that during the great Recession of 0809, a lot of production builders, they were caught with a lot of inventory that they couldn't sell. And when I was a custom home builder myself back in the seventies and eighties, we had a saying, carry kills. If I finished a house and I didn't sell it within nine months, all my profit was gone because it was eaten up in my construction loan interest. So most major national home builders and other any builders said, okay, I'm not going to build so many spec homes anymore to sell. I'm going to build a few. When one sells, I'll start another one. And we cut our production in half from 2 million a year to 1 million a year.
And 2 million a year was about the right rate, the right level of production. So do that for the last decade, hence why we're short six and a half million housing units in this country.
[00:09:08] Speaker B: Right?
[00:09:10] Speaker C: So that part of the inflation equation, I think, stays high for a while. Many people say, well, shouldn't I just wait till interest rates come down before I buy a house? And I go, absolutely not. If you do that, what happens? The prices go right back up. Because when interest rates go down, I can afford a larger mortgage, therefore I can afford a higher price. Better off to pay the price now with a higher interest rate. And you can refinance your home at a lower interest rate, six months, a year, two years down the road, home ownership is going to be, I think, strong. We got an easy ten year run there. So the demand side is great.
The supply side has been low in single family homes. It's been a little bit high in luxury downtown apartments, but completely missing in affordable housing from both a homeownership and a apartment standpoint. Hence, one of the reasons that I have joined a charity called Sharing Connection, where we help to finance and promote the development of affordable housing. The nice thing is once an affordable place is built, the government will easily finance it, but getting that development loan at a higher interest rate makes it impossible.
[00:10:30] Speaker B: That sounds wonderful. I certainly interested to hear more about that as we go through our show today. We're meeting with doctor Glenn Miller, professor of construction and real estate management from the University of Denver, and also want to just circle back on a comment that we started to talk about the Fed and interest rates and inflation, which has had such a profound effect on the economy and housing in general. But also, I imagine, other areas of these five different major classes of real estate that we're talking about. At the beginning of this year, I remember the market had priced in several rate cuts just in anticipation of possibly lowering rates. And then that narrative changed quite a bit as we entered further into this year.
We're standing at a point now where the Fed is essentially said they're probably going to lower rates soon.
When we come back from our break, I kind of want to talk about what type of effect that might have on at least, you know, the behavioral side of real estate, but also how it might translate into helping real estate investors and or homeowners with making a confident decision in their move. We'll be right back after this break. You're listening to Moneysense.
Welcome back to Moneysense. This is Jamie Williams, wealth advisor with Ellen Becker Investment Group. Today we're meeting with doctor Glenn Miller, professor of real estate with the University of Denver. Before the break, we were talking about interest rates and the inflationary stance that we've been in, in terms of how that's affected the demand side.
But Glenn, do you have any thoughts on when the fed starts to lower interest rates, what that might do in terms of providing some level of confidence to people? And, or specifically, what I look at is on the commercial lending side of things, because we have so many of these people that they're not on 30 year fixed mortgages, they're on three year, five year balloons. Maybe they're on arms.
I know that we've had some people that had our arms reset, and we're very surprised at what happened when they got that first payment after the restructure of their loan.
[00:13:02] Speaker C: Again, interest rates historically go up and down. We're expecting them to start to come down a little bit here. Going forward, with a single family home, you can refinance anytime.
And I say that because the law allows you to pay off a loan without any problem.
In commercial income producing real estate, the maximum loan you're ever going to see is about ten years.
And so one of the things that's happened in the commercial side is a lot of 6810 year loans that have been financed in the really low two to 3%, 4% interest rate environment are now resetting. And commercial is typically one to 2% higher than residential. And so all of a sudden it's like, oh, my payment's going to double and the income coming in off the property. Property doesn't make that possible. So I guess I'm going to have to hand the property back to the bank.
So that has created a difficult situation in the commercial marketplace for homeowners.
Unless they somehow were able to finance a very, very large portion, 80 95% of their home, and all of a sudden their mortgage goes up and they can't afford it. Hence they're ready to walk away from whatever equity they put down.
That's one thing. Right now, it's actually less expensive to rent an apartment than it is to own a home in most cities around the country.
So I assume that may happen a little bit, but also remember that prices have gone up. When interest rates started to go up, you would expect home prices to go down, but with the low amount of supply that we have in the marketplace, that hasn't happened. In addition, all those people that did refinance and locked in a ten to a 30 year fixed rate mortgage at, let's call it 3%, they can't sell that, go buy another house and afford the mortgage at six. So that's why we have such low housing inventory know available in the resale market as well. Unless someone's being relocated by their company or something like that.
Most people have stayed where they are from that standpoint.
[00:15:30] Speaker B: So yeah, I think I was watching some of the financial reports this morning, just in the morning news, with some of the large home retailers that provide a lot of product services, things of that nature, the Lowes, the home depots of the world and so forth. And it's very interesting based on their outlook, because there is a bit of a gridlock out there in the housing market just based on people not wanting to leave their current home at the low rate they have. There's a little bit of disincentive for lenders out there, too. They're certainly trying to borrow, but they have some road bumps and speed blocks, if you will.
But nonetheless, I would say that back to your earlier point, the fact that someone who might be considering to purchase a home right now probably shouldn't hesitate because it's not likely that home values are going to go down. I mean, we might see that it's very unlikely.
But when I also kind of think about what we saw in 2008, there was kind of a lagging effect when it came to valuations, and now we kind of have a front running effect with valuations on at least residential real estate. So when it comes to rising interest rates in the current rate environment and cap rates on commercial properties, whether it's owner occupied or investor, what type of effect does that have on commercial valuations?
[00:17:08] Speaker C: Well, and now we really have to go kind of property type by property type. So what happened was when interest rates started to go up, property values basically went pretty much flat in apartments. In other words, the appreciation that we had had all of a sudden kind of went to zero. And if you looked long term at a combined index of all the commercial property types, prices go up, then they flatten out of, then they go back up. Flatten out. Except during the great Recession when they actually came down.
Post Covid, they also came down. But there is Moody's, the big bond rating company, they have the CPPI, the commercial property price index.
[00:17:54] Speaker B: Sure.
[00:17:55] Speaker C: And that property price index peaked out just about, you know, kind of into the COVID period, if you will. Around 2020.
It declined about 17% over the next couple of years. And just in the past quarter, it has ticked back up by 1%. And I think that's because of the expectation of interest rates coming down. So now we may have seen that kind of bottom and then things picking back up. So from that standpoint, I think that fundamentally things are going well. And again, let's go by property type. So great demand for apartments other than class a downtown being a little bit overbuilt.
Supply is moderate.
So kind of number one, property type there. Number two, industrial has been doing extremely well for the last decade. I call it the Amazon effect.
[00:18:58] Speaker B: Sure.
[00:18:58] Speaker C: And that got just a little bit overbuilt, kind of starting in just pre Covid, but the demand is still there and growing. So that looks good.
Next. The real surprise is retail. Retail was hurt by the Amazon effect, if you will, and things closing well over the last decade that has slowed new supply and retail substantially. We have converted retail into other property types over the past, over the past decade. And so with low supply, there's still been positive demand and we've obviously changed what happens in retail over time. But retail has actually got the highest occupancy I've ever seen in 40 years.
And last year, 80% of all new retail built was pre leased.
[00:19:50] Speaker B: Amazing.
[00:19:52] Speaker C: So the demand supply balance there is great hotels. With the economy going all the way into 2019, things look great. Covid obviously just slammed the door shut.
Coming back.
We've had a year or two of what we call revenge travel. Hey, I need to go on a trip. I couldn't because of COVID so I got twice as much money to go on my vacations and things. The resort has done extremely well. The highway hotels have done well. Downtown business hotels. Cause people are doing Zoom meetings instead is still hurting in many cities.
And some really high cost cities like San Francisco are still really hurting from that. But a hotel has bounced back in three of its four subsectors, if you will, and done well. And then finally, office obviously is the big problem.
Big demand drop.
A lot of, lot of properties being given back. We've seen anywhere from a 60 to an 80% decline in office prices.
[00:20:57] Speaker B: Sure.
[00:20:57] Speaker C: Except in the premium class a. Like, you're in very nice space there and that's doing well. The best a plus. Billings in major cities are doing just fine. Other things are hurting. They're talking about converting it to apartments, all kinds of other things. So office has been, you know, and I think we got a couple of years to figure that out. To me, office is a jump ball.
[00:21:19] Speaker B: That's a tough one because you need to convert it to apartments or housing. You need to have certain characteristics that I understand doesn't always exist in that type of structure. So very fascinating.
Well, we're going to take another quick break. And again, we're meeting with Doctor Glenn Miller, professor of construction management and real estate at the University of Denver, amongst others. I know you also teach at Harvard and have had a host of different programs that you've been involved in, so we'll love to hear more about that after this brief break. Thank you.
Welcome back to MoneySense. This is Jamie Williams, wealth advisor with Ellen Becker Investment Group. And today we're resuming our conversation with Doctor Glenn Miller, professor of real estate and construction management at the University of Denver. Before the break, we were talking a lot about the effects of COVID and interest rates and different market cycles that pertain to the five very significant areas that real estate has a presence in.
I wanted to circle back on that conversation because we talked about the banking side and what interest rates might do from a standpoint of valuations and how with certain real estate investors, cash flow is key, right? Cash is king. It's the first thing they teach you in commercial lending school, which I used to be a commercial lender years ago, but I just thought I'd weigh in Doctor Miller, on the underwriting guidelines that may have shifted. And if you've seen any differences between now and before the great financial crisis of zero eight.
[00:23:14] Speaker C: Oh, sure. So basically it came down to kind of the standard in the industry. Used to be a 75% loan to value on income producing real estate.
And I use the term income producing instead of commercial because that then also brings in apartments. So the five major property types we talked about in the last segment.
[00:23:34] Speaker B: Yep.
[00:23:35] Speaker C: And afterwards the federal government came in and said, okay, we gotta have better underwriting standards here. And they cut that from 75% to 60. And in doing so, that meant more cash had to go into buying the property. Hence the amount of money spent on the mortgage dropped some. And so a building could actually have its cash flow decline some and still be able to pay the mortgage. So covering the mortgage became the key. Key to that. Key to that. Okay, so banks were taking, so banks are taking less risk, but it required more equity coming in when you're doing a property, but with really low interest rates, that actually worked. That worked just fine because you had more cash flow to pay to the investors.
When it used to be a 5% mortgage versus a 4% mortgage, that's a 20% decline in the amount of income being paid in the mortgage and going to the investors.
That tightening has kept us from going through a crash like we've done in the past. And people that in previous cycles might have said, oh, I'm going to walk away from the property, let the bank foreclose, let them sell it at the discount.
They go, hey, it's cash flowing enough to pay the mortgage. I'll just wait it up because I know eventually prices will move back up. So that has helped stabilize the income producing commercial real estate marketplace over time. And we haven't seen as great a drop in prices in the price index. If someone's forced to sell, they're forced to sell. But most places have held saying, hey, I'm going to hold and wait kind of thing. So the market's less volatile than it used to be from that standpoint.
[00:25:44] Speaker B: Sure, of course. And I think fundamentals on the underwriting side have strengthened and remain stronger across most of the major financial lending institutions out there.
I know that at one point in time, it was hard for banks to try to get a handle on exactly how some of these real estate developers, maybe they were doing apartment condo conversions in major metropolitan areas and they were partnering up with multiple different partners and they had a 10% stake. And I think they've kind of really pulled out their fine tooth coma and understanding the players, the liquidity, and like I said, the fundamentals of debt service and cash flow for these organizations. So if anything, that should hopefully help as interest rates start to decline and bank underwriting continues to hopefully be strong out there, creating good credit quality for individuals and borrowers alike, or investors. So I did want to talk a little bit about some of the other real estate that's come on the scene that is newer in terms of the last, say, decade or so. We've got a lot of people investing in Airbnb, Vrbo, some of those things.
Have you seen that fundamentally shift any direct real estate investment for people?
[00:27:18] Speaker C: So buying a house or a condo to use as an Airbnb VRbo has become fairly popular.
And if you're in a place that's very attractive, obviously you can make some good money doing that. The problem has been that the properties end up getting rented sometimes by some young yahoos who have big parties and a lot of people, and the neighbors start complaining. So the amount of regulation that has come into play has just exploded. My winter home is in the mountains of Colorado, and one of my neighbors renting his $3 million home had a bunch of young people show up and partying until late at night, you know, naked people out in the hot tub. Oh, boy. And the neighborhood started complaining. So the hoa got together and said, hey, we're going to restrict this. Sure, right? Yeah.
And the town hearing from other neighborhoods, same kind of thing. So now you have to register with the town, get a license to do Airbnb.
It's like 400, $500 a year to have a license. After two complaints, your license gets pulled. So you got to be very careful with who you rent to. You also, the hotel industry said, hey, this isn't fair. You're taking people that used to rent my hotel room, giving a place to stay. So now most towns will collect the hotel tax, too. So the renter is not getting away with not paying the hotel night tax and that kind of stuff. So towns have gotten a lot of extra money coming in from that. So it's become very popular. I think it can work very well, but you got to be careful with, am I buying in a neighborhood where it's allowed if there's no hoa, you're typically okay, am I buying in a town where it's, where I, you know, is it being regulated or not? Is, you know, part of, part of what you have to be concerned about these days?
[00:29:33] Speaker B: Yeah, that's something that I imagine not a lot of people put much thought into when it comes to, you know, tightening, you know, local municipal regulations, additional tax, you know, not to mention you're running a business and the structure and tax side of things as well, so.
[00:29:52] Speaker C: Right. Well, and what you have is, you know, real estate is it's, you know, every building is its own little business. You've got clients, tenants, you've got expenses. You got to have somebody. Either you're managing it or they're managing it. And if you're not there locally, you've got to find a company who's going to run that for you. Basically a property management company. And it's going to do the cleaning on the turnover and all it is you're basically renting a hotel room.
[00:30:19] Speaker B: Absolutely.
[00:30:20] Speaker C: There's a lot going on with it. And by the way, many of the major brands, Marriott, Hilton, et cetera, have started companies saying, hey, we'll manage your property for you.
[00:30:30] Speaker B: So they're innovating. Interesting. Wow, that's, that is fascinating. So, well, we're coming up on our next break here in a minute. But before we jump in, I know this, I don't want to put you on the spot here, Doctor Miller, but I know we're heading into an election year here and we've got, you know, a few months or probably less than three months before the election. Do you have any thoughts on how that might affect the real estate market? I mean, is there anything policy driven that might have an effect on the way things go or just probably not an issue?
[00:31:05] Speaker C: Well, I think one of the things that happens is the government already is interested in affordable housing and doing something. There it is. I think one of the biggest problems in our country and with all the spending that has been going on here in the past four years and our debt's higher, etcetera, you can expect taxes to continue to go up, I think, no matter who wins. And in a lot of cases, and I don't know if you've seen this in the Milwaukee area, but in a lot of places property taxes have gone up substantially and in some cases even doubled. My home in Colorado, that happened. And it's not supposed to be that way.
A town or a county or whatever has a budget and you have a bunch of people and you have the valuation of all the properties, right? And so you just do that. So if the property values go up and the budget doesn't change, my price per thousand goes down and pays it. But what they've said is, hey, your property doubled in value and so your taxes are doubling. That means the town's budget just doubled and they just are spending that money like crazy. Post Covid, what did the government do? They went out and just gave away a ton of free money to put in park playgrounds at parks and stuff like that. I drive around here in Minnesota and parks that had nothing before now have these gorgeous multi $10,000 playgrounds in them and stuff like that. So government spending is a problem.
[00:32:45] Speaker B: Yeah, and that's something I want to explore further in our last segment here as we come up. But with that, we're going to take a brief break. We've been meeting with Doctor Glenn Miller, professor of real estate and construction management at the University of Denver.
Welcome back to Moneysense. This is Jamie Williams. We've been meeting with doctor Glenn Miller, who is a professor at the Burns School of Real Estate and Construction Management. Hope I got that right this time. Thank you. And we've been having a very intriguing conversation about real estate. You know, kind of where things have been over the past couple decades, where things may be headed. But I did want to also kind of pick up here where we left off, and you were talking about the national debt a little bit on the elections. And it is fascinating to think that we are currently at a $35 trillion and counting level since the late seventies and eighties, where we crossed the trillion dollar mark in the national debt.
Again, when it comes to real estate investing and some of the things that are important, I believe that's something that was a policy item that you had referenced that could have a profound impact on real estate markets in the future, right?
[00:34:09] Speaker C: Yeah. So all that extra debt should actually demand for money is there, should keep interest rates high.
It's funny, the government should want lower interest rates because then the cost of paying the interest on the debt for them goes down substantially.
The amount of budget to pay interest has basically doubled during the last three to four years with these interest rates increasing.
And yet the government hasn't slowed down that spending at all.
That's the big problem. If you can drop, just dropping interest rates lowers the government budget and therefore the amount of taxes they need to collect on us.
[00:34:57] Speaker B: Yeah. When you think about it, fundamentally, it just absolutely makes sense. So thank you. So with the rest of our time, I think it would make sense for us to talk a little bit about real estate investing. There's a number of different ways to have either a direct or passive way to invest.
I know that you've written a lot about this. In fact, you wrote a book called Educated REIT investing. You want to share a little bit about your book, and then maybe we could transition into some ideas for people on how to invest.
[00:35:30] Speaker C: Sure. Great. So, yes, the REIT concept was put into play in 1960, so it's been around for over 60 years. And the easy way to describe it REIT is it's just like a mutual fund. You take a bunch of investors, pool their money together under professional management with a particular focus. And in mutual funds, it might be growth value, small cap, large cap, or whatever. With reits, it's a property type, and it might even be a sub property type. Like I can do a mall retail REIT or a retail REIT that focuses only on grocery anchored shopping centers. So that's. So reits are a great way for investors who don't want to run their own business of owning a direct property, managing it, financing it. The companies do that, and they are the biggest and the best and the most sophisticated real estate investors on the planet earth.
And my book, educated Real Estate Investing, which is actually the first textbook to ever come out, there's a number of other textbooks out there on how to invest in real estate. I did mine with a good friend.
That really is a good, easy, step by step to understand the three main things that you look at. So when I look at a REIT, I look at what real estate do they own and what markets do they own it in. So that's step one. Step two is financial analysis. How much debt do they have and how is that work, and at what interest rates do they have it, and when does that come due? If I've got a REIT that's got a lot coming due this year, that means they're going to be financing at much higher rates. Or did they finance just before COVID came along? And they've got nine, eight, seven years left of low interest rates. Reits also have something unique that individual investors don't get. If I buy a building, I can get a loan on that building. In commercial real estate, I have covenants. I can't pay that loan off early. So if interest rates go down and I just finance my building at 6%, I can't refinance it at five without paying a penalty to do so. Okay, sure, reits, and I may have a rule that says I can't pay it off for the first seven years, so I'm stuck with it.
Reits, because they're publicly traded companies, they go and issue corporate debt. So they'll issue a corporate bond and they'll place the properties as collateral for those bonds, but they have the right of substitution. So if I want to sell one property to buy another, I can say, okay, I'm taking this out of the collateral pool, selling it, buying another one to put back in. No charge, no difference, no change.
So they've got that extra flexibility out there. And the third thing is the management. What is management doing?
Because it's an operating business, what is management doing to increase earnings per share?
Are they developing new properties? Are they better at rehabbing properties? Are they better at leasing up than an individual would be? So it goes through those three major categories and steps to look at them. The other thing that's very unique about reits is just like any other company, you're going to look at the earnings multiple in the stock market. We call it the PE multiple price to earnings multiple. With reits, we use what we call ffo or cash flow, because reits have a lot of depreciation, and GAAP accounting requires that they take out depreciation. So when I look at Microsoft and its earnings, it has almost nothing in depreciation. When I look at REITs and look at that REIT, its earnings, its NoI is going to look really low because it has a lot of depreciation. So we add the depreciation back to get to a cash flow. We call funds from operation. That makes it more comparable.
But the other hugely unique thing about reits are they own a lot of properties, and if their stock price is low, they could sell a property at a high price and buy back their own shares.
We call it net asset value. So every real estate analyst out there, every sophisticated REIT investor, all the companies managing funds on this, they do a, we call it net asset value analysis, and they say, okay, if tomorrow we know what properties are worth in the private market using a cap rate, if we sold all the properties and paid off all the loans and took whatever cash is left over and gave it to the investors in the marketplace today, the stock is selling at $20 a share.
But if we liquidate the company tomorrow, we could literally distribute $25. That means that the company is trading below Nav or net asset value. I want to buy that company. Right. It gives me protection over time, just like any operating company. If you look at Microsoft, what's its worth? It's worth some multiple of its earnings.
Historically, reits have traded it at around ten to 13% above net asset value because you're expecting them to increase earnings. So when they're trading below, I want in. When they're trading way above, if they're trading at 20% above nav, that's my signal to get out.
[00:41:11] Speaker B: So great. That is very insightful. I know we, I wish we had more time today because there's so many areas that we could go into on that we didn't talk about private equity.
We didn't. Also didn't really talk about non publicly traded reits, but those are also areas that maybe in our next show we can kind of dive into a little bit more. But in our last couple of minutes today, I thought it would be great to just find out more about your sharing connections, nonprofit organization that you're on the board for, and then also find out about how to connect with your materials.
Certainly understand more about the market cycle monitor. So if you wouldn't mind just sharing that, we would really appreciate it.
[00:41:57] Speaker C: So my market cycle monitor is available at the university, at du.edu, under the burn school. And it's also available on sharing connection, which, by the way, is spelled with an x to make a difference. So it's sharingconnection.org. and what sharing connection does is, again, developers have to go get a loan to build something, and we help fund that. As a matter of fact, we have a, if you will, a fund that, that helps do that. And as opposed to asking for your donation, what we ask for is we want you to make a loan to our fund at, that has a high impact because it's going to help with affordable housing, but at a low interest rate. So in other words, many, many people are being philanthropic and they don't necessarily want to give it away, but theyre okay with were basically offering the ten year treasury rate. So youre going to get a four 4.5% interest rate. And its on a development deal where you can say, hey, youre doing a, youre going to help finance some affordable housing in Milwaukee. I went in on that deal and then the next one and say, hey, were doing one in New York City im not interested in that one. So what were looking for is people saying, hey, id be willing to invest in something that comes up. And when it does, itll say this is a one year, a two year, typically the max would be three year deal.
Im willing to help by lending some money at this low rate to help get some good affordable housing done. So its a unique approach to whats going on. I personally have already done one investment with it and we work on all kinds of things. We had some modular home builders who were doing some affordable housing project and they got a really big order and they went, we need a million dollars just to get the materials to build these.
And the bank says we're already near our credit limit. So we made a loan to do that. It lasted for six months.
[00:44:14] Speaker B: Wow, that is fascinating.
[00:44:16] Speaker C: So kind of a new, unique, innovative way to help out with affordable housing.
[00:44:21] Speaker B: We'll definitely have to take a look at that. And we also appreciate you sharing your insight. And we're kind of at the end of our time today. I definitely look forward to our next conversation. It's been very insightful talking with you today, Doctor Miller. We've been meeting with doctor Glenna Miller, professor at the Burns School of Real Estate and Construction Management.
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