Annual Letter to our Clients and Colleagues | December 2020
Dear Friends,
This is my first annual letter to our broad client and fellow real estate agent community. I’ve thought hard about the tone and direction to take as I write to you at the close of 2020. And while I am humbled by our team’s successes and the launch of our new company, SERHANT., I am sobered by the suffering and hardships of so many in our great country. It is my belief that from crisis comes opportunity and from endurance comes a path forward. While the path forward now feels quite uncertain, I do believe that cautious optimism is the most positive one we should now take.
“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you have to keep moving forward.”
-Martin Luther King Jr.
It was this past April that I delivered a message to you on the uncertainty and unknown COVID-19 had created. Now, 8 months later, we are still trying to coexist with this new reality. This year end, I would like to acknowledge and thank all of the front-line workers whose determination and selflessness have reminded us all what heroes really look like. I promise to you, that my company and I will remain steadfast in bringing you the best experiences and utility the new SERHANT. platform can offer. We will work hard to earn our client and partner’s business while growing our market-leading brand and services. We want YOU to WIN with us.
When I think back to April of this year, my letter to you served to demonstrate that we must remain optimistic, and if possible, to look for personal and professional opportunities from any COVID-19 related setbacks. Could you master a hobby, or finally spend more time with your children? Could you care for a loved one, or say thank you to loved ones in new and meaningful ways? Could you finally start a new career, or drum up the courage to write that business plan sitting on your shelf? If you were forced to move or relocate, could you be hopeful that fate may be directing you to new and even higher levels of success and happiness? This all will take time and I understand that the data and complications in these redirections is very uncomfortable and unsettling. But we must move forward, creatively, and opportunistically in order to land graciously through this turbulence.
Throughout much of my time here in New York, I’ve been blessed with the opportunity to give back to the city that has given me so much. Watching the fallout from COVID-19 has made me realize me and my team can always do more. We have always supported hospitals, the homeless, and underprivileged, hungry, and/or sick children. This year we reverently gave money and time to organizations like Project Sunshine and City Harvest to help and support children in hospitals who cannot see family due to the pandemic, and the millions of hungry New Yorkers. So many of our partners and clients are giving back to their communities in this time of need and it provides us with a most worthy common ground.
Small businesses including restaurants and their employees continue to have their survival tested. Congress struggles to pass legislation for additional measures of stimulus and support. With extraordinary steps from the Federal Reserve combined with historically low borrowing costs from lenders, business conditions should continue to improve. Pfizer and Moderna have now both received FDA approval for their vaccines which are being distributed as quickly as logistics will permit. The medical community continues to make advancements in treatments and therapeutics. Facing great uncertainty, America continues to show profound resolve.
“The greatest glory in living lies not in never falling, but in rising every time we fall.”
-Nelson Mandela
Economic Update
McKinsey & Company surveyed over 2,000 respondents globally on their 6-month forward outlook for economic conditions. The number of respondents who believed conditions would be better increased 26 pts to 51% from March 2020 vs. October 2020. The number expecting conditions to worsen has nearly halved since March 2020, from 58% to just 29% (-29 pts).
In a survey of roughly 2,000 executives of private companies, respondents saw both expected 6-month forward profits and customer demand rebounding, up 13 and 17 pts respectively in the period from March 2020 to October 2020.
The Fed has also stepped up with continued historic levels of stimulus and support. The latest $2.3 trillion in lending supports employers, households, financial markets and state and local governments through programs like the TALF (enhances demand for ABS), MLF (buys municipals), MSLP (Main Street – issues loans to SMEs), PPP (supports paychecks), and PMCCF (buys corporate bonds). Repo transactions help dealers and investors fund long asset positions by lending securities for cash – a market most critical to the functioning of the global capital markets. Prior to COVID-19, the Fed was lending $120BB a day in overnight – 2-week repo. It is now offering $2TT with tenors out to 3-months to mitigate re-funding instabilities. This facility will run through March 2021.
Optimism has gripped the US equity markets. As Congress nears a $900BB stimulus bill that would again include direct to consumer payments and supplemental unemployment support, the S&P 500 continues to reach all-time highs. Even with little to no current profits, Tesla, Zoom, The Trade Desk, Square, Zscaler and Virgin Galactic have soared on strong expectations for forward growth multiples. Tesla is set to be added to the S&P 500 today and will be the biggest company ever added – shares have risen 700% this year as its market cap soared to $620BB.
Airbnb and Door Dash IPOs were blowouts (115% and 78% next day price increases) despite many analysts warning of “new issue euphoria”. Easy monetary policy from the Fed may be stoking asset inflation and it will be critical for investors to remain nimble. There is clearly an appetite for risk – even if tempered by caution. Time will tell if surging US equity valuations are truly grounded on sound fundamentals or bid up against anemic returns of more conservative assets classes.
The US 5-yr note yields 0.37%, the 10-yr note just 0.93%. You’ll earn just 12 bps (0.12%) on the 2-yr note. Yet, Bitcoin has tripled to ~$22,500 from January 1st. In my opinion, the changing composition of ownership is the most interesting. Massive stimulus (weaker dollar) and inflation are promoting the exploration of higher return asset classes. Now, companies like PayPal, Square, Blackrock, JPM, Citi, Mass Mutual, Guggenheim, DBS Bank, and several large hedge funds have become active in this first wave of early institutional adoption. The $420BB market cap is larger than any single global bank but is just 5% of gold’s $9TT of value. Investors are being tested in their creativity and risk tolerances to generate alpha.
Why shouldn’t the players in the luxury real estate market be challenged, and rewarded too?
Global stock performance, central bank stimulus and historically low interest rates will create opportunity in real estate assets. “Work-from-home” (can increase turnover), employment conditions (governs optimism/fear), down-payment availability and consumer confidence are all variable technicals that will shape both short-term and long-term performance. Globally, share-prices of residential realtor firms have recovered, and G7 home prices are approaching +5% y/o/y. Mortgage delinquencies in the US are at their lowest level since 1984.
Interestingly, Zillow reported that year-over-year prices for suburban homes are rising, but not at the loss of urban properties. In fact, declines in rural properties, those furthest from our urban centers, have shown the most decline.
Per ABCData, sales data trends (rolling 28 days) in NYC favor larger properties. SERHANT. has seen this trend firsthand, with over $100M in transactions done by our firm alone in the last 60 days through our SERHANT. Signature division (which solely focuses on properties north of $10M).
And to note, sales activity across price points in NYC has actually been fairly resilient.
And in Manhattan, after a steep decline, sales of residences $1mm> are steadily recovering.
And list to sale price reduction spreads have thus far, peaked in the summer at ~2.7%, now retracing below 1.0%.
In the $4mm+ Manhattan luxury residential market since Sept. 1, there have been 227 contracts signed at $4 million and above, compared to 219 during the same period last year. And of note, the average size of condos purchased over the last 14-weeks was 5.5% larger than a year ago. Similar to city-to-suburban transplants looking for more space, intra-Manhattan buyers are faced with compelling “upsizing” opportunities.
The backdrop for residential real estate is still fundamentally strong in luxury markets. Interest rates are at historic lows with Freddie Mac publishing a 2.67% 30-year fixed rate last week (an aggregate of 80 lenders), the lowest since 1971. At the start of this century (2000), the 30-year average was 8.15%. As long as employment remains soft and target inflation rates unmet, favorable lending conditions are likely to persist (over the past 90 days the 10yr UST has increased over 30 bps, with 30-year mortgage rates unchanged). This is great for home buyers, sellers, and real estate agents.
Where SERHANT.
Stands Today:
I have spent years working to consolidate my successes and experiences into a new and exciting operating company that not only “sells” a product, but “sells” an experience – an amplification of stories and brands our clients and agents create. Developer Extell has championed our first new project, Brooklyn Point, a 720-foot-tall, 458-unit tower, the largest project in my career and a true industry “disruptor”. We have launched LISTED through our in-house film-studio as the first-of-its-kind real estate media network for the digital space, and I’d like to thank YouTube for this opportunity. Our first two shows, 3 in a Million and Borough Brokers, performed incredibly well at over 100% of subscribers. Our next two shows, Meals in Mansions and Staged, will premiere over the next 30 days and I couldn’t be more excited for our agents who star in them. No other real estate firm provides such a unique branding opportunity for agents.
Our e-learning platform now boasts over 6000 members in 110 countries. I’ve always felt strongly about offering seasoned and aspiring realtors’ access to an educational platform in order to leverage the resources I’ve worked hard to acquire. These agents around the world also act as our international realtor footprint as we build an incredible referral network, and we’ve already completed dozens of deals this way to the benefit of our clients in New York. We also successfully launched our first niche course, “How to Sell with Social Ads”. I am thrilled to report that over 2000 of these courses sold on launch weekend alone.
SERHANT. has now been a legal brokerage for just over 82 days and our launch has been full of energy, determination and several high impact sub-launches. Each day, we smile and roll up our sleeves, grateful for our competitive spirit and creative foresight. I want our clients to interact with SERHANT. in an “experience”, not purely as a transaction, and I can’t wait to show you what we have in store for the future of the company. You may think you know what we are doing to disrupt the marketplace, but you have no idea!
We have already crossed $160M in closed deals – including representing the buyers of the South Penthouse at 565 Broome for $22.5M and the Penthouse at Arte Surfside in Miami for $33M just last week.
Our ADX team is working around the clock, and around the globe, to bring the best and most useful technology to our agents. The revolutionary Future Index, which uses predictive analytics to predict real estate values, will be a real game-changer for our clients. Our cloud operating system and CRM/Deal Transaction platform is working perfectly and we are growing organically without the need for conventional offices. Our House model is surpassing our expectations and we have already outgrown our first House (more on that in the New Year). I have set up our house concierge services so that clients will have peace of mind in a post COVID-19 world, just like our members.
When I think about how exciting SERHANT.'s future plans are, I want to challenge you to reach out and find ways to interact and partner with our growing team. Our future is largely defined by the relationships we develop and I am thankful for the synergies they help to create. There are three core areas that I want to focus on as our brand evolves both in house and into our broader eco-system.
Nurture: All of our agents have been personally invited to join us, and they have a foundation of 5 years of experience in the business with a minimum of $500K in annual GCI. They also all subscribe to the agent-first brokerage model. We want to help them grow their own brands and revenues, and nurture and develop their entrepreneurial spirit. Our agents work from anywhere, on any device, with anyone they want, to best serve their clients.
Growth in our leadership: In the last 80 days, we brought on 15 people to our support team. They span finance, research, new development and operations. Our Studios team is now 10 people, creating content and brands so that our agents are armed with the best tools for promotion and market penetration. Our Ventures team is now 12 people strong, supporting the thousands of agents learning with SERHANT. everyday.
Reliability: I am working tirelessly to ensure that our firm is a household name measured not only by operational metrics, but also one synonymous with trustworthiness and reliability. If our clients have a concern or request that we cannot accommodate, then we’re not doing our job. When you work with us, you will always know what you’re getting – anywhere that you intersect with us. And New York is just the start!
I wanted to close with one plug (BOOK!), and a few personal notes. During quarantine, I had the good fortune of having some much needed time on my side and was able to complete my new book, Big Money Energy. [you can pre-order now through www.BigMoneyEnergy.com] It releases on February 2nd and I really hope you’ll enjoy reading it as much as I did writing it for you!
Our daughter Zena is about to turn two and it’s been amazing to watch her grow this year. She has the size of a Texan (Dad) and the temperament of a Greek Goddess (Mom).
Construction of our dream home in Brooklyn will be completed at the beginning of 2021 and we can’t wait to move in. Sometimes I can’t believe that we’ve been waiting three years for this day! (OMG!).
I’d like to close with Emila, Zena, and all of us at SERHANT. personally offering our best wishes for your health and successes in 2021. I know that we’re all tired, tested and looking forward to a new and healthier year ahead. I would ask you to be kind to yourselves, to be kind to one another, and to feel unified with one another as we all pursue, collectively, all of our own dreams.
Ryan Serhant
Founder and CEO
SERHANT.
December 21st, 2020