On Friday, October 24, the Norris Group proudly presented its 7th annual award-winning black-tie event I Survived Real Estate. An incredible lineup of industry experts joined Bruce Norris to discuss perplexing industry trends, head-scratching legislation, and opportunities emerging for real estate professionals. Proceeds for the event benefited Make a Wish and St. Jude Children’s Research Hospital. This event could not have been possible without the generous help of the following platinum partners: Auction.com, HousingWire, PropertyRadar, the Apartment Owners Association, the San Diego Creative Real Estate Investors Association and President Bill Tan, The North San Diego Real Estate Investors Association, InvestClub for Women and Iris Veneracion, Wholesale Capital Corp, New Western Acquisition, MVT Productions, and White House Catering. For event video and information, visit isurvivedrealestate.com.
Bruce told a story to illustrate how some days you can start with the worst business day of your life. A few months ago he received a phone call out of the blue from somebody who told him they were the listing agent of a house he sold to his investor about ten months prior. He asked Bruce if he was aware that there was a violent death on the property. Bruce said he was not. The agent said the gentleman who bought it had been told, and it was confirmed to him it had happened. Bruce had been slipped the property by somebody else. He called the person up asking if he was aware of this, and he said yes. He told Bruce he disclosed it to him in writing, and his heart sank. It was the worst minute of his business life. His first thought was that there was a gentleman living in this house that wishes he did not own it and living in a circumstance that bothers him. There is a real estate agent that is a listing agent, a sales agent in harm’s way because Bruce did not notice a disclosure he should have read. He was sick about this.
The first thing Bruce did was get in his car and drive over to the house. Very fortunately Gustavo Ortiz was there. Bruce got out of his car, walked up to him, and he told him his name was Bruce Norris, and Gustavo recognized his name. Bruce told him he was the one who bought the house, sold it to the person who fixed it, and sold it to him. He wanted to tell him man to man that he did not know there had been a violent death, or he would have told him. He told him how it had been disclosed to him, and he wanted him to know the other realtors who followed in the transaction had no idea this was true. He took full responsibility. Gustavo looked at Bruce completely amazed and told him he never thought he would ever see anybody do this. He invited him inside to talk.
When they sat down to talk, Bruce said what bothered him most was that the gentleman who lived there before him was in the military, and he just had a lot of trouble with what went on and ultimately killed himself. Gustavo said he was going through the same thing. He now had Bruce’s emotion. Bruce got up, hugged him, and told him he was very sorry. Bruce offered to buy the house from him and pay off his VA loan. Gustavo was shocked he would do this for him, and Bruce told him it was the only right thing he could think of to do. He cried, excused himself, then came back with two medals in his hand. He told Bruce the story of how he received the medals. At the end of it, he told Bruce he was so grateful for his bravery he wanted him to have one of the medals. It was the most amazing day Bruce had ever had as a person in real estate.
The next day he received an email from him saying, “Good morning Bruce. My mornings used to be filled with depression and worry about my future. Today begins a new day for me filled with hope and ambition for my future. You courage changed my life. God bless you.” Two minutes later he received an email from Gustavo’s sister that said, “Mr. Norris, my brother Gustavo told me of your meeting yesterday. All I can say is a big heartfelt thank you. I think you may have just saved his life.” There will be a day you sit across from a Gustavo Ortiz, having the guts to do what is right. You may end up with the most amazing story of your career.
In 1981, Bruce had a unique experience attending his first Jim Roane seminar. He did not want to go to the seminar and had never been to one prior to this. He was told it would be three hours long, which he calculated to be six sermons. In a three hour time period, Jim Roane managed to turn his entire life upside-down. He set a series of goals for the first time in his life. Little did he know that in that audience was a gentleman named Jack Fullerton, who was affected in a very similar way. They spoke about Jack Fullerton that night because he was receiving an award Bruce received permission from the Jim Roane Foundation to give called the Roaney Award. He interviewed Jack and had known him for a long time.
Jack was an entrepreneur when he was eight years old. He went around and took in trash cans around his neighborhood. He got the account, did the work, collected the bill, invested the money, and opened the savings account. Some of those habits apparently fed his ambition to be an Eagle Scout, which he became. By his own admission he was not a great swimmer, but he became an All-American swimmer anyway. He coached All-American teams. During that stretch of being a coach, was introduced to the world of real estate investing. Even though he had very little time, he managed to work on the side. He and his wife decided they would create wealth by being frugal over a five-year plan. This is what they set out to do, and they did this.
He started an investment club called the Common Wealth. Bruce attended one of the meetings in 1986. The first thing he heard him say in front of an audience was, “Anybody who says they can buy properties below market enough to resell them immediately in California is not telling the truth.” Bruce thought Jack would probably be happy to know this is not true and can be done. Bruce wanted until the very end to say something. When you are a speaker, the last person is always the problem. Bruce told Jack he does this very thing in Riverside. He buys, resells right away, and makes a living. In the parking lot was a problem in the form of a brand new ’86 420 SEL, and it was not Jack Fullerton’s. It was Bruce’s. Jack could have owned 20 of these, but he was smart enough not to own one. Bruce, on the other hand, was not. Jack wrote him off fairly quickly, so Bruce took a lot of pictures of properties he had done and sent them to him. Like something Jack Fullerton would do, he researched them and called Bruce back after a couple months. He told him he would like to talk to him; and in that meeting they found out they had a mutual mentor named Jim Roane.
Jack asked Bruce to speak at his club, which was not his intention. Bruce had not spoken to an audience about real estate before this, but he decided he would do it. Jack offered to have a dinner with him, which he did not eat having been so nervous. Jack realized this was a big deal to him since this was the first time he had spoken in front of an audience about real estate. It went okay because in that audience there was someone named Aidee Kessler, who asked Bruce if he wanted to write for her magazine. He did, and all of a sudden at another speaking engagement he took it and did not think there may be a difference in clubs. He went to go speak at the club, and the owner did not show up. Bruce finally got up and told everyone he was going to go ahead and teach since the person was not there.
As he got done with his talk, he showed up and the whole audience turned aggression, calling him a cheat and yelling at him about where their money was. It was awful, and Bruce wondered what he was doing there. He called Mr. Kessler and told him the experience. Bruce told him before he spoke in front of another group, you have to let him know. Bruce thought it would turn out like the other experience, and Mr. Kessler said something that turned out to be very true. He told him you will find there are very few Jack Fullertons. Something Jack Fullerton has always impressed Bruce with is similar to the note he took the first night being in front of Jim Roan’s speaking event. The first note he wrote on top of his page was to his brothers, and he did not need anything from them. This was important to Bruce because he was very sensitive to agendas, which Jack Fullerton does not have.
When he had a club, if he had a speaker there he had earned the right to stand there. It was not about selling you anything, but rather about education. There was a filter system people went through; and when you were a speaker you respected that. When you spoke in front of their club, you had an audience that was very substantial and knew to expect education. He always continued to learn himself, and what was neat about this is he brought mentors to California who may have never shown up here without his help because the Jack Millers of the world may not have known expect that these were the people who taught him. He never stopped teaching himself. He has had a permanent impact on many people’s lives, and he has begun a speaking career for both Bruce and Ward Hannigan. With a great deal of honor, Bruce presented a lifetime achievement award, the first Roaney Award ever, to Jack Fullerton.
Following this, Bruce invited up the first two panelists for the night. The first two panelists were economists, and Bruce likes to get the big picture of how they see things. Christopher Thornberg is an expert in the study of regional economies and real estate dynamics, labor markets, and business forecasting. He has been involved in a number of special studies measuring the impact of important events on the economy, including the NAFTA Treaty, California Power Crisis, port security, and the September 11 terrorist attacks. Prior to launching Beacon he worked with UCLA Anderson Forecast, where he regularly authored the outlooks for California. He was one of the first economists to say in advance that real estate market was in trouble. He is one of Bruce’s favorite guests because he can ask him things to which he does not know the answer. He knows Christopher is good with it, and it makes it a safe interview.
Doug Duncan is Fannie Mae’s Vice President and Chief Economist. He is responsible for managing Fannie Mae’s strategy division, economics, and mortgage market analysis groups. Prior to joining Fannie Mae he was senior vice president and Chief Economist at the Mortgage Bankers Association. He was recently named one of the country’s top four most accurate economists in 2010 by the Wall Street Journal. He was also named one of Bloomberg’s 50 most powerful people in real estate. Doug is a frequent speaker on national and state economics, housing, and mortgage market conditions. He enjoys interviewing Doug; and one of the things he notices is sometimes when you interview somebody from Fannie Mae or FHA there is a filter where you actually have to submit questions. This has never been the case with Doug, so he must have a get-out-of-jail free card for some of that.
Bruce asked each of them where they see the national economy as far as GDP growth in 2015 and how it will affect real estate. Christopher started off by pointing out how long he has known Bruce and how his bio is from the first year he met him. He has done a lot more since then. Regarding economic growth, a couple years ago we were the black coal in the economy, and today we are the shining star. We had a rough first part of the year in the first quarter, but since then the machine is running on all cylinders. Consumer spending is moving forward nicely, and it will continue to improve. People are starting to borrow and consumer credit is expanding. You have a situation where the labor market is beginning to improve, and indeed right now over the last three months the job openings rates got to pre-recession levels. High skilled workers are starting to hear words like signing bonus, and this will start contributing to things. Businesses are investing well, and industrial production is at an all-time high level. Even government spending, which has been a huge drag on the economy, is finally starting to bottom out.
Many state governments are finally starting to get back into the game of investing in local economies. The only weak part of the economy Bruce can see right now that continues to be in the global markets are the export fronts. The dollar has been coming up a bit, and we know there are global issues. Pointing to one side domestically, the U.S. economy is doing great. Candidly we are going to look to average over 3% growth this year, and about 3 ½% next year. There are good things to be expected all across the board.
Doug comes from a farm background, so he was saying the economy was the best looking course in the glue factory, although he stopped using this. He agrees with Christopher and thinks we have a little more conservative view of what will happen next year. He is not sure we will get a 3% growth next year, but certainly the last three quarters are very strong. Bruce wondered if things are so hot why we have a 2.2% ten-year T Bill. Christopher said first of all interest rates are offset locally. They are set internationally, so the interest rates are really a global phenomenon. We live in a world today that is awash with capital and candidly does not have a lot of demand for it. In the short run we have a lot of central banks that are very loose right now. We have a lot of economies, Europe specifically, which is still struggling to get out of the recession they are in.
If you look at the other side of the equation, you think about the long-term things. Information technologies, which means you can invest less nominal money and get more real return, means overall demand for nominal capital is down. China, which is growing 7 ½% even now, is the second largest economy in the world and a wealth-producing machine. With an economy that has a 42% savings rate, the globe is awash with capital. If you look at the chunks of land they are building in downtown L.A., this is the formal stuff. If you look at it, the homes they are purchasing and EB 5 programs have matched out for the first time ever last August because of Chinese money. Bruce understands the result is good, but he does not know if this is healthy. Bruce said somebody in his group is very familiar with what happened in Beijing. They bought a house for $50,000 and $100,000 on three houses. He sold them for $500,000, $500,000, and $2 million. They brought the money with the expectation that this would continue somewhere. Christopher said they do not bring the money here for that. From his perspective, he has seen the opposite, and they are bringing it here because they know they can keep their money. It is not about returns, but rather about safety.
Bruce has spoken in front of 400-500 Chinese investors in Northern California, and the Q and A session was very interesting. One of gentlemen said they bought a house in San Jose 2 ½ years prior worth $2 million, and he wanted to hold it until it was worth $7 million. He did not have a context for this until he realized he was from Beijing. Bruce asked Christopher if he was confident their figures are accurate at 7% and not concerned about them having a real estate bubble. He said they have a bubble per se, but there are also a couple things to keep in mind. First, they did not leverage up the degree we had. Household debt was still relatively affordable, and they did not have the financial system that leveraged up on the leverage with all sorts of nonsense. They also do not have the secondary influence of things. You also have to keep in mind the biggest problem with China is not prices since they are relative to incomes and still pretty good. The problem is they have empty buildings, and these came about because they had so much investment money that had to find some place called home that they were building all these empty buildings. Now they are tired of building and would not want to buy things here, and this is why the economy is slowing down a bit. Everyone is flowing out.
This goes back to Thornberg’s point that interest rates are low because that is the fundamental investments position we are in right now. Candidly everyone in the U.S. needs to get used to it because until the Chinese start consuming rather than saving, this will be a permanent feature of our economy. Beijing’s median price is 20 times their gross income. We had a bubble at $60 grand times ten, and they have twice that. Christopher said unfortunately nobody has good data on China. The little bit of data he has seen actually showed the opposite for people in a position to buy a home because you cannot compare that number to the legions of people who may not even have an apartment in which to leave. You have to compare it to the realm of people who actually have a chance to own homes.
The numbers Christopher has seen from both a big study done by the Wells Fargo as well as one done by the economists do not show that particular statistic. It is actually quite the opposite. They show homes still getting more expensive, but never to the point of unaffordability the way we had here in the U.S. When Christopher asked Doug about China’s statistics, he jokingly said 84% of all statistics are made up.
The Norris Group would like to thank its gold sponsors for supporting I Survived Real Estate: Adrenaline Athletics, Coachella Valley Real Estate Investors Association, Coldwell Banker Town and Country, Costa Mesa Marriot, Council of Multiple Listing Services, Elite Auctions, In A Day Development, Inland Valley Association of Realtors, Investor Experts, IRA Services Trust Company, Jennifer Buys Houses, Keystone CPA, Las Brisas Escrow, LA South REIA, Leivas Tax Wealth Management, Personal Real Estate Magazine, Pilot Limousine, Primary Residential Mortgage, Northern California Real Estate Investors Association, Real Wealth Network, Realty 411 Magazine, Resonant Lens Photography, Rick and LeAnne Rossiter, SJREI, SONOCA Corporation, Southpointe Companies, Spinnaker Loans, Tony Alvarez, uDirect IRA Services, Resonant Lens Photography, and SJREI. See isurvivedrealestate.com for a video of the live event and more on our sponsors.
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