Time lapse video taken from the top of one of the Hutton Center office buildings in Santa Ana, California. The two towers mirror each other, along the 55 freeway. Video from YouTube.
In late 1993, in 5 Hutton Center, in Santa Ana, in the video above, I told my boss I thought interest rates were about to go higher. He disagreed, bcause he was an experienced mortgage broker. Rates did go up, and he was out of business two or three months later. Nearly 30 years later, that same big office building, and the mirror image one next to it, just got sold by Blackstone, the world's largest, and best connected real estate company... at a 34% discount. When the supposedly smartest real estate investors in the world start defaulting on huge loans, and selling large properties at 30% off, things are about to get crazier for the rest of us before too long. More crazy times are coming in the worlds of money, investing, and real estate.
If you have read this blog much, you know I have this geeky fascination with economics, recessions, and futurist thinking. For some reason, I actually found the semester of economics we took during my senior year in high school to be really interesting. That was way back in 1983-84. There was something about the dynamics of the financial markets that piqued my interest. It wasn't just, "Damn, I could get rich if I figure this stuff out," I just found the dynamics of many interwoven trends really interesting. I started reading the business pages of the Boise paper that sememster, a little bit, and following some of the markets. Nothing serious, just as a casual interest. That spring, my mom won a contest at the company she was telemarketing for, and got a one ounce gold coin, worth about $400, as a prize. I told her, "Don't sell it yet, it's going to go up in price." That was based on what I'd seen happening in a few months. Much to my surprise, she listened, and sold it about a month later for $440, making an extra 10% just for waiting a bit. That was my first call on the future price of an investment.
A couple years later, when I got the job at the FREESTYLIN' magazine in Southern California, I'd make a big plate of pancakes every Saturday morning, and flip on the TV while I chowed down. Then I'd go ride my freestyle bike all day. Many of those mornings I watched the real estate infomercials, with guys like Dave Del Dotto and that little Asian guy with the hot women on the yacht, who seemed really cheesy, even then. Real estate was booming in Southern California, and I got interested in it, and started to read a book now and then on the subject. Later, in 1987 and 1988, two people I worked with each made $100,000 in one year on their houses, which got me more interested. I learned more about real estate, and thought about maybe trying to become an agent. I wasn't to serious, but I took an interest in it. My life revolved around BMX freestyle, but I definitely wanted to make more money than I was at the time, if I could figure out how.
Later on, while visiting my parents, who had moved to North Carolina, during Christmas of 1989, I picked up a book called The Great Depression of 1990, by economist Ravi Batra. He talked about these really long term cycles in economics most people were not aware of. I got even more interested, and actually began to price houses. I could have possibly bought a house out in Lake Elsinore or Perris, California, inland of Orange County. I was making more money then, and actually looked at a few houses. But, like Batra predicted, we headed into a recession in 1990. It wasn't as deep and crazy as he forecast in his book, but the real estate market was dtoast for about six years in Southern California from 1990 to late 1996. That book got me really interested in the dynamics of economic and financial market trends. And yes, I was in my early 20's, and thought, "Hey, if I can figure this stuff out, I could make a ton of money, and then go ride my bike all the time." Instead, I wound up living in a series of low budget BMXer houses and apartments, with lots of roommates, as we slogged through the long recession. During those years, we all learned how to make about 10 different meals from a pack of ramen. Money was tight for most everyone I knew.
I began to watch the financial markets in the newspaper every day for several months, trying to figure out what made the markets move up and down, and to see of there were long term trends in them I could get a grasp. I also started reading business books and the annual Forbes 400 magazine, trying to figure out how the super rich became super rich. I was just scraping by, BMX and skateboarding had "died" in 1989-1990, and I worked a bunch of odd jobs during that time. At one point I was living in the P.O.W. BMX House, with 8-11 other guys, paying about $110 a month in rent, yet watching CNBC business news every morning before the other guys woke up. I also started reading dozens of books a year, on business, real estate, personal development, philosophy, religion, and a few novels as well. I even bought a $300 speed reading course so I could devour more books and get through them faster.
Bit by bit, I learned about aspects of business, market dynamics, relationships between different markets, and began to get some sense of how things were playing out over time. One of the odd jobs I got was in late 1993, telemarketing for a mortgage broker. The job was in a nice office building in Santa Ana, called 5 Hutton Center. There were a few women, and myself, in a really big office in the evenings, callling people to set appointments for mortgage brokers to talk to them about refinancing. Interest rates were low, and a lot of refi's were happening. Most smart homeowners had already refinanced, but we still could get two or three leads a night, usually. It wasn't a great job, but better than most telemarketing jobs at the time.
One night, the owner of the company came in and hung out while we were calling, and we all talked a bit. I asked him if he was worried, since it looked to me like interest rates would be going up soon. The question surprised him, and he told me that interest rates were going to stay low, and the business would be busy for a long time to come. He said he'd been in the mortgage business for over 30 years, and he knew how these things worked. But he appreciated my interest, and said to keep at it, and maybe they could turn me into a mortgage broker sometime.
I had been watching the markets pretty steadily through the four years of recession from 1990 into late 1993. The Federal Reserve, aka The Fed, had lowered interest rates months earlier. To me, it looked like interest rates were being held way too low, and they would have to raise them soon. That's exactly what happened. The Fed raised their Fed Funds rate from about 3% up to 6% in 1994. Two or three months after that conversation with the veteran mortgage broker, he was out of business. That same interest rate rise also sent Orange County, California into bankruptcy, because of some shady stuff one county official had been doing. That was the first time I made a forcast to somebody I didn't really know about where I thought the financial markets were heading, that night, as a telemarketer, in 5 Hutton Center.
It's been about 29 1/2 years since that night as a telemarketer at the mortgage company. I've been learning about business and economic trends, and keeping a casual eye, or more, on the markets the whole time since. I've made several calls on inflaection points, some good, some less so, to people I know, and in this blog over the last six years. I've been writing about a huge recession, or depression, that I believed was coming, since 2019. It looks like we are finally heading into the deepest part of this economic crisis now, though many are still doubting it, as always happens. I was looking at ultra long term cycles, that few people have even heard of, let alone believe in, including two concepts from Ravi Batra's 1989 book. Those cycles led me to think we were in for a depression or great depression, starting around 2020. Technically, we went through a short depression, by definition, in the Spring of 2020. Now comes an even bigger mess, which is happening behind the scenes now, and will become obvious to everyone over the next 4 to 6 months.
Those ultra long term cycles seem to still be playing out, not caring if today's traders believe in them or not. But this time around, we have a whole host of really smart people digging through data on YouTube channels, on Twitter, and looking at many aspects of today's markets and trends. One analyst said recently that this is the most anticipated recession in history. That sure seems to be true. Lately, I've been watching hours and hours of Financial YouTube, diving into all the ideas and information about the crazy economic times coming our way, from several different source. It feels like I'm on the Titanic, and have drone footage of the huge iceberg the ship's about to hit, but no one wants to hear about it. There's so much information about what's happening in the economy right now, but very few people who are interested in it, until the crisis crashes over them, and everyone else. Again, I'm a geek on economics and futurist thinking, and most people are not.
You may have heard about troubles in commercial real estate world recently. Most of you don't geek out on this stuff like I do, and I know this post is really "in the weeds" of the financial world that most people avoid. But a recent event caught my attention, the discount sale of the exact office building I worked in, and made that interest rate prediction in, nearly 30 years ago. Blackstone, the world's biggest asset manager, has defaulted on several commerical properties in the last few months. One of those was a sale of the Griffin Towers, as they are now called, known . Blackstone just sold 5 and 6 Hutton Center at a 36% loss.
The office building I was sitting in way back in 1993, when I told my boss that I thought mortgage rates were about to go up, has just been sold at a 34% deiscount, by the biggest landlord in the world. That's just weird. They own thousands of properties, it's just a weird coincidence, from my perspective, as I was looking into the crsis, still trying to figure out where things are headed in the future.
The world's largest, and presumably one of the smartest, commercial real estate landlords, Blackstone, along with Brookfield, and others, are now struggling with the effects of the huge rise in interest rates, and the work from home movement, which has hit office building owners hard. This is a big issue right now, because a huge chunk of commercial real estate loans are held by regional banks, much like the three that collapsed last month. The work-from-home trend, the steep and quick rise in interest rates, and the after effects of the whole pandemic period, are conspiring to send several parts of the commercial real estate world into huge drops in value. This is putting more stress on many of those smaller, regional banks, already nervous after the Silicon Valley Bank collapse. There's a lot more crazy times ahead, it seems.
From the 1980's into the 2000's, we saw the closing of hundreds, maybe thousands of factories in the U.S.. In the 2010's and into the 2020's, we've seen the closing of over 30,000 retail stores, and a bunch of shopping malls, Now the evil lord Bankruptcy is coming for the office buildings. Will we be able to find new uses for most of these properties? Or will they sit vacant and become new places for UrbEx exploring, like the crumbling factories and malls? Time will tell.
However it plays out, my personal research and view is that we have a lot more of crazy economic turbulence coming, probably several years worth. But with all the negative effects of recessions and depressions, these periods are also when many of the best opportunities come along, and when lots of new businesses, new business models, and entire new industries rise up from the ashes.
Thirty years after that night of telemarketing, I'm a broke and homeless artist and blogger. But I've seen this next recession coming from miles away, and I know there will be all kinds of great opportunities in the next few years. Maybe I, too, can finally rise from the ashes, as well.
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