- Exposure to suburban areas - for instance the urban core of LA and SF are small as a percentage of NOI for EQR (30%) - this is obvious as LA and SF are incredibly flat ‘cities’ - in truth while LA/SF are considered megacities, this is really just a collection of widely dispersed suburbs/municipalities (find my ESS report here) which explains why traffic in LA is so bad!! Mass transit doesn’t work because population density is low.
- LA is super dead right now (I’ve lived here for quite awhile and never seen it like this) because entertainment production has been halted and tourism is dead (there’s this pandemic everyone is talking about). Does anyone think the NFLX/YouTube/Apple the studios (all HQ’d in CA btw) and AMZN (Seattle) are going to stop making content? Does anyone believe that people from around the world won’t vacation in SoCal looking out 18 months? If they do, we are happy to take the other side of that bet. Like thrilled. Everyone we speak with CAN’T WAIT TO TRAVEL AGAIN (and see some new content on TV).
- Getting beyond California (California is ALIVE), we see the concern being duration of the exodus, does anyone think NYC isn’t a robust megacity looking out 3-5 years? Not us. We’ve written a little and…we’re writing some more.
Sometimes people leave California...but many come back. I started my career in San Diego but had to go back to Chicago for awhile, always knowing I'd return..
What we fail to understand is why anyone with a 5 year horizon who is looking to protect capital from inflation, own companies with solid balance sheets and no real financial risk whatsoever, while generating current income (5%) yield, and have exposure to MATERIAL UPSIDE when the private and public markets converge (the PRIVATE MARKET is THE MARKET for APARTMENTS) does not own these stocks? We’d love to learn the long term bear case. We’ve been listening but haven’t heard it yet.
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