Reflecting on 2024
Gary Carmell
President CWS Capital Partners-Specializing in Acquisition, Development, & Management $7B Apartment Communities | Author | Top 50 Financial Blogger | Skilled Tennis Player/Fan | The Eleven | TheTenniSphere.com Founder |
With 2024 coming to a close, I thought I would step back and reflect on the year. I find this to be a helpful exercise and hope what I communicate in this blog post will inspire you to do the same. I thrive on continuous learning and doing my best to take an objective look at my decisions and actions to produce better outcomes for me as time goes on. I do my best to learn from others and, most importantly, myself. Such year-end reflections can help facilitate this.
Personally, there were some significant milestones with the most monumental being Heather and I getting married in March. We had been together for a number of years, so it was time to formalize our commitment and alliance. We had a very small and beautiful ceremony in the Palm Springs area. It feels great to be married again as my previous marriage to Roneet was very fulfilling so it was something I was hoping I would be able to do if I met the right person. Fortunately I did after meeting Heather. Perhaps my openness and enthusiasm for marriage has something to do with this chart and my corroborative experience.
The second most impactful accomplishment was the completion of The TenniSphere after over three years of planning, design, engineering, approvals, and construction.
I have written about how our goal was to create a Blue Zone that would greatly enhance our lives and wellbeing by bringing people together to play tennis and socialize such that we would improve our health and expand our social network by creating more relationships. The most impactful way we have done this is by hosting live ball sessions on Mondays and Wednesdays during most weeks. Each session typically has between 8 and 12 participants and afterwards most people stay to eat and socialize. I have been doing my best to keep a running list of the people who have played in at least one live ball session and I have come up with 65 names so far. What a delight it’s been to be able to host so many people, have fun while we play, and to have cultivated some wonderful relationships as a result. I’m convinced the best is yet to come.
From a health standpoint the big event for me was having back surgery on August 23rd. I’m glad I had it done and, while I still have some challenging days and weeks, I also have days and weeks when I feel much better which gives me hope for a future that will involve less pain. I’m also so grateful that I can play tennis again without any limitations and while playing my back actually tends to feel better, although afterwards there is often soreness.
Another aspect of my health that I have been monitoring closely is my heart as I had mitral valve repair surgery in early 2021. Fortunately, my follow up visits have been very encouraging as my cardiologist said during the last appointment that one would never know that my valve was surgically repaired. I couldn’t ask for anything better than that. It once again reinforced my late wife’s wise words when she said that if you’re going to get sick you better be healthy.
2024 also enabled us to have some nice travel experiences to London and New York (multiple times) as well as Sun Valley, ID, and respites to our place in the Palm Springs area.
Four babies were born this year which has been a great joy to behold. My niece got married as well so there have been a lot of joyous occasions, including my mom’s 89th birthday and Roneet’s parents turning 89 as well just around the corner.
My kids are doing well with Jacob starting a new career in the insurance industry and learning a lot about financial services as he has had to take a couple of securities-related exams with more to come.
Ariella continues to write in Brooklyn and is enjoying her life and friends in NYC. It’s also been nice for them to have more interactions with Heather’s two kids and niece as we slowly do our best to formulate a deeper connection between our two families.
On the pet front we lost our beloved cat Beans to a coyote which was so sad. Not too long after this, however, the void of his absence led us to look for another cat and we found Ace at the local animal shelter. What a joy he has been. It’s been great to see how well he and Harry get along so well.
Here are a few photos of Ace.
2024 was another year of numerous concerts that were such a pleasure.
Philanthropy
On the charitable front I have helped support various causes in Roneet’s memory. Dr. Akbari at UCI continues to do some groundbreaking research into cardiac arrest and coma to help improve outcomes for what have often been hopeless situations in terms of recovery potential.
He is such a kind and brilliant man. I am so grateful we have developed a relationship over the years and he has been so helpful to my family and I whenever we ever have any health concerns.
The Roneet Carmell Center for Jewish Life in Tustin, CA has made great progress in terms of finalizing the design of the beautiful building and campus and nearing receipt of final approvals to start construction. Now all that is needed is the substantial amount of money to be able to break ground and complete construction as well as fund building reserves. Raising money now is much more palatable than when I first made my donation to purchase the land. Back then there was no certainty that we would obtain the zoning change and approval to build. Thus, funding was a lot more risky and speculative. Today, however, the situation is much different as the zoning change was granted along with a very high degree of certainty that approval to build will be obtained. Given this, prospective funders will be able to contribute to a project without concerns about it being approved.
The Roneet Carmell Training Center in Zambia is doing quite well with Tevel, the non-profit leading the charge in helping communities in Zambia obtain food self-sufficiency, is having great results such that it is attracting more funding and government support. I’m excited to see the project scale with a corresponding impact on many lives via the attainment of food security and self-sufficiency.
I made a donation to a community in Israel where Roneet’s parents grew up that helps with the construction of community amenities. Part of what is being built will honor Roneet’s memory. Construction was scheduled to commence in late 2023 but then the October 7, 2023 pogrom occurred and unleashed the full might of the Israeli military. The all consuming nature of the existential fight against Hamas, Hezbollah, Iran, and now the Houtis, led to understandable delays. With more stability in place after the decimation of Israel’s enemies, hopefully the project will be done by the end of 2025.
Roneet’s memory is also honored at The Pardes Institute in Jerusalem where each year the events they hold during independence and memorial days are in her memory. It’s always nice to hear from students who participate in Pardes’ programs honoring Roneet expressing their gratitude and how meaningful the experience was.
CWS
Turning to the business front it was another challenging year in 2024. We had to play defense for a number of our properties by having to bring in capital to support operations as a result of our floating rate loans having higher debt service and cap costs than initially projected. With the Fed having cut rates by 1% and cap costs having come down and most of our lender cap escrows being more than fully funded, our financial position across the more challenged assets in our portfolio has improved. 2025 should be a year in which we can be more on offense and try to take advantage of opportunities that should present themselves with interest rates having come back up to the year’s highs and making it more difficult for borrowers to refinance maturing loans.
We purchased one student housing property and we have two other properties under contract that are scheduled to close in the first quarter. We are selling one property that will close escrow in late January. We also completed 11 refinances which were big wins as we extended maturities, lowered our interest rates as we exited floating rate loans, and no longer needed to fund cap purchases. We have 10 more loans maturing in 2025, which unfortunately given the run up in rates, if they were to close today would not be nearly as advantageous as the ones we have completed. As I wrote about recently, given the spike in long rates of over 1% from the September lows, it now makes more sense for us to stay variable for many of our loans than refinance into fixed rates. This also means that it may even make sense for us to refinance some or all of our maturing loans into floaters as well.
We communicated to our investors in late 2022 that we saw more challenging times on the horizon with an expectation that we would have at least two years of a more competitive apartment market with a large amount of supply on the horizon and interest rates remaining elevated. And while we have seen record demand in the face of record supply we still think that 2025 will be another challenging year operationally as there have been nearly 1 million units delivered nationally since 2023.
Some markets should see some light at the end of the tunnel towards the latter half of 2025 while for markets with a tremendous amount of supply to absorb (e.g. Austin), I think daylight will occur in late 2026 or early 2027.
And while it now appears that the Fed is on hold in terms of cutting rates again, with the yield curve now officially de-inverted with the 10-year Treasury yield higher than the 3-month T-Bill yield, we are very much on recession watch as all modern recessions have commenced after the yield curve has de-inverted. If this does transpire in 2025 then presumably the Fed will start cutting rates again. With that being said, my current thinking is that short-term rates will go down to 3.00% to 3.50% a far cry from the Long Emergency in which rates were less than 1% for approximately 10 of the 13 years between 2009 and mid-2022.
What we are optimistic about, however, is the significant drop in apartment construction. This chart shows how 2024’s starts for 5+ units, a good proxy for rental housing construction, is below every year since 2017 with some occasional exceptions. The trend of lower starts is clear however.
Rents are too low in many markets to justify funding new developments. This is why apartment starts have slowed dramatically and will enable apartment owners to regain pricing power after this wave of supply is absorbed.
Overall I feel like 2024 was a very good year as summarized by the following:
I hope that as you reflect on 2024 you gain insight into how your year was in terms of growth and setbacks and help position you for a more prosperous 2025.