John Curry


Episode 45.

John Curry, CEO of Setanta Development Capital

00:00:00 – 00:02:59

Look, rates are up, but housing starts and mortgage applications would be down regardless. John Curry, CEO of Satanta, the Premier Land Development Capital Group in the whole wide world and one of my favorite humans in the lending space, joins me to talk about land and building in the current market. I’m Dalton Elliott. This is the real estate of things. You’re listening to the real estate of things podcast. John Curry, my favorite Scotsman this side of the Mississippi. How are you doing today, my friend? You know, as as Billy Connley said, Scottish people are just Irish people who thought, yeah, Ireland’s cold and Wet, but I’m sure there’s somewhere that’s colder and wetter. I’m doing good. Adversity builds character, so these are good things. These are good things. And also, since you were last on the PODCAST, Um, you’ve you’ve grown out this wonderful beast and uh, it was in protests of rate hikes and all else that’s going on in the world. Yeah, I don’t know if it’s a coincidence or not, but yeah, a round the time in May when chair peal and thenced the first rate hikes and everybody freaked out. I started growing this and then when he and then the second rate hikes and everyone freaked out even more, I was like, all right, I’m just committed to keeping this as long as as long as people are going to be insane about the market, I’ll be insane about my facial air. Can I get your commitment that you’re gonna keep it until we have rates come down and just keep growing this beast out, whether that’s six months or six years? You, you have. You have my commitment, but people close to me may stage an intervention, so I can’t make any promises. Understood. Understood. We have a lot of interested parties here, so that makes complete sense. So, John, for those of you who don’t know John, John Curry is the CEO of Satanta, Really Land Development Financing Group based in Charlotte, and you wall uh, really cover quite a niche in this space. You do a lot of things that most lenders just don’t have an appetite for. You have an iron stomach and you have, like we talked about in the last episode, just a very different viewpoint of land development and land lending on that compared to kind of the the common sentiment that’s out there yeah, I think we’re. You know, we we came from a development background, myself and my partner, Rob Davenport, and we, you created our platform to address what was missing and, you know, sort of take what we understood about what we believed that the actual risk to be. And you know, I think when we spoke last we were expecting and more competition. We were expecting more people to sort of come into this space as people realize that, you know, the most important thing for getting that new home, whether it’s for sale or for rent, you need to land underneath it. And yet since we last spoke, I would imagine…

00:03:00 – 00:06:02

…our number of competitors have have shrunk or at least stayed stayed stable. We’ve not yet seen an influx of capital. So I guess my my podcast didn’t convince too many people that, you know, land was not as risky as they thought. The third time would be the charm. We have a couple of episodes with the coming up, so we’ll we’ll look to change sentiment there. But but yeah, it’s been it’s been a little squirrelly the last few weeks. You had capital pulling back in a lot of parts of the space. Like you and I were catching up before this episode and some newer entrance and just have decided to pull back a little bit and let’s let’s start off with kind of a broad picture, right. You’re one thing you’re not chatted about is that you know, regardless of the Fed and you think that housing starts and mortgage applications would be down now either way. Right. Yes, certainly, you know it’s and I think you know for for this and I may repeat it again and when we next week is you know understand I’m gonna be giving what looks to be a very bullish outlook. And yet I have probably a more pessimistic outlook on the underlying baseline numbers, starts, home sales, times on the market, et Cetera, than than most. However, I try my best to understand what’s happening sort of behind that or what’s causing it and, as I like to sort of say, with where my team and when our investors is, I may come across as an optimist, I’m a pessimist who’s gone through all the options. Like that’s if if I’m if I’m if I’m standing in front of you, it’s because I’ve I’ve gone through all of the worst case scenarios, and this is why I still I’m comfortable what we’re doing, and I think you know at a very high level. The reason why am I wanted to sort of chat about where the market is is because we, as an industry, view ourselves a big disservice. We just sort of play into these narratives of having been boom and bust and nobody knows what exactly is going to, you know, happen, and you know land is a mystery and you know all of these things, when reality is I’m not I’m not the smartest guy in this space and I’m not the smartest guy in my in my office, but what I try to do is is listen to what people tell us. So when the public builders have earnings calls in January and February and in April and May, and we’ve just started the latest ones now, and in those earnings calls they tell us that their biggest concern is keeping the cost of the materials in lines so that they can deliver homes at the at prices that make sense for them. And when they’re announcing huge margins, which will probably touch on and and when they’re saying that because of cost uncertainty, that they are going to start metering their sales so that they’re going to deliberately hold back, and they’re saying this. Well, before anybody is talking about a half point or three quarters of a point off a rate hike, then we should be able to be grown up and say, oh, he starts are going to be down, home sales are going to…

00:06:02 – 00:09:01

…be down. If there’s less homes for sale out in the resale in the new market, applications for mortgages by definition will have to be somewhat down. And then the other part of it is we’re comparing it to one which is one of the most insane years in housing that we’ve ever had. So so when you know, I’m looking at things happening perhaps a little bit worse than we anticipate it, and yet people acting as if somehow, you know, home sales were supposed to always go upwards and there was never supposed to be any return to normal, it can be quite frustrating. Yeah, that’s interesting. So as you look at one of the issues and trying to read the tea leaves right now, over the next six, twelve, eighteen months, is that I feel like you know and you have more experience than I do, Um, right, in this space. I’ve seven years here, uh, but it feels like we have way more variables shifting and a much more rapid pace, um, than any time in the recent past. Right. And so whenever you say you know just generally the housing outlook tied up with, you know, the big R word going around, recession, I’m what you know this time around. Like you said, housing is not, Um, a systemic issue and underlying problem like it was in the o eight crash, where that was that was the bad rock issue. Um. So is is this pullback on the builder side, spacing out cells? M. Is that a good thing or a bad thing as we look to the medium term for housing? So it’s a it’s a complicated issue, but it really comes down to like, it’s it’s a bad it’s a bad thing for having affordability. Having affordability has never been worse. And we’re not we’re not a serious people. Were not serious about addressing that. But because if we were, we would actually be able to have common sense conversations about what is necessary to make housing affordable. And we can. Again, we can touch on that sort of later, but let’s let’s talk about what a recession, you know, would do. Um and I said, I said uh it that should not be named Um. But you know, if, if, if, there is that, or even just with the fear of it and tidening up. Well, what do we think that that will lead to? Well, the hope is that it will curb inflation and the other part of it is, and this is again a necessary evil, and it will make more people available for work. And if you talk to most home builders and land developers, they’re two biggest concerns is cost of materials and cost of labor. And so if that makes those things better, then it would be foolish to think that that, by definition, is going to deal with the underlying demand issue. Now why we talk about where demand is is and why using one is…

00:09:01 – 00:12:03

…a very poor benchmark. You know, it’s sort of important to understand that. You know where we’re what we’re looking to achieve a sort of a return to normal where homes get built to beat to meet the underlying demand. In twee, you know, you were looking at new homes coming on the market and fifteen to twenty people and going for each home, traffic at unbelievable levels. Boat in person and off the charge when it comes to web traffic. Now you know people are reporting that there’s five to six for everyone home. Well, I’ll let you in on a secret. You only need two people for each home to be feel good, and really you only need one. So you know we have a long ways to come. But the other part of it is that you know that demand isn’t going anywhere and may get delayed and make it put off. You may see sort of people you know slowing down their household formations, but we still have a huge dem graphic push that has to make its way through the system and I think a good bell weather for what we believe is going to happen is to just ask your friends and family and talk to people you know and see who, right now, in this market where all of the headlines, with mortgage rates unbelievably high, who’s still buying a house? And you’ll be surprised to find that people are still buying a house because the underlying demand is so high. So what we would like to think that is if costs become under control, if labor costs come under control and rates, you know, ease or people at least get used to them, that will return to to normal and again normal for us numbers, and I think you know, using that as a baseline will will surprise people as to where the housing market currently is. Do you think, or rather what do you think, the risk is of kind of this normalization causing a spook and a snap back right being looked at as a precipitous drop off as opposed to just the true normalization that it is? Do you think there’s any chance for a spiral? Oh No, absolutely, but the thing is we’re already seeing it. We’ve already seen capital withdrawal. Capital has withdrawn in our space, in your space and all all spaces. There’s a lot of capital that’s now sitting on the sidelines. And again that’s why we as an industry just do a very poor job of explaining what is actually happening. And you know, there’s there’s always the risk of the spiral. But the interesting part is, I made this comment over the weekend. The darned homebuyers just refused to play ball. You know, like in March and April of twenty everybody was convinced of course housing is about to fall off the cliff and then people were driving from New York to buy homes and Myrtle beach side unseen. And Right now, of course, housing is about to take a hit and mortgage rates have doubled. The Fed is indicating there’s more price hikes to come.

00:12:03 – 00:15:01

How home starts are down. We have more homes under construction than any time in history, which is a point I do want to come back to. Um and yet if you were to look last week, and nate from your office shared this, and purchase applications were up five percent last week and refis understandably have tanked, but mortgage applications for purchased for new homes and for home purchases are up. So there is a risk of a spiral. However, that’s we’re lucky that the demand is so high, even though that’s a symptom of a failing market that demand is that high. But we’re lucky it is so high so that it can actually quickly address and arrest, you know, false narratives from taking hold. Yeah, very fair, and I I’m come owner, but have been poking around look in the last few months and we’ve had our eye on one place in April, didn’t pull the trigger, went on vacation and got distracted. Shows you how serious we are about it. Uh, and then started looking at some other stuff the last few really the last week, and I just had a uh, you know, running a mortgage cow, looking at April versus July, and it just makes you sick to your stomach. You’re like, I mean, you know, I wish I would have been a little more hairpin trigger back in April, but Um, yeah, just the the underlying, underlying health seems to be there. Well, as as you know, I I am aiming to be the second smartest Irish person in this space, but as the smartest Irish person in this space has been reiterating Margaret wheeland and she keeps reminding everybody, you know that you you marry the house and you date the rate. You know. So you you know, you will lock in at this rate and then you’ll go in and you’ll refight at a different rate when you can, or you’ll you’ll make things work, and that’s that’s what we’re seeing. But I think what’s important to realize is when we talk about a return to normal, and yes, that’s going to freak people out and definitely we’re very irresponsible. The media will will pant on things because it’s easier to get clicks than to actually be nuanced. Because again, who wants to read a new nuanced article about anything? It’s like, yeah, it could be a bit of this and it could be a bit of that, but who knows? You know far better to just, you know, take a definitive line. But I’ll give you my own personal example. We, we um put our home on the market just because the prices were insane. We just couldn’t justify not looking at that. And you know we’re going to, you know, explore doing something else. We weren’t we weren’t planning on buying something else anyway. So we’re just going to sort of take ourselves out of the market for a little bit. We put the House on the market on Friday. We got an offer on Saturday more than we um listed it for and it’s old. Um. The praisal came back fine. They the Morria Drake didn’t smoit them and they…

00:15:01 – 00:18:03

…purchased it. That’s not normal. It is not normal for a home to sell in one day. It is not normal for builders to sell out their new allotments of lots and homes within one weekend. and think about how detrimental that is to Charlotte’s. If you’re you, which is where I’m, which is where we’re headquartered, if you’re a young professional moving to Charlotte’s and homes are snapping up in a day or two, how are you supposed to find a place to live? How are you supposed to be able to attract really good workers if they can’t find, you know, a place to buy and they also can’t find a place to rent or they don’t want to be in an apartment but bill for rent. Communities are not yet at the despite what the Wall Street Journal may may tell you. They’re not yet, you know, ubiquitous enough to be, you know, a real option for people. So that’s not healthy and I think the you know, the inventory that we have across the country will tell you the story. And it’s all about something I will keep hammering on, which is just the narrative when you use one as a benchmark. So, for example, there’s a really good blog called calculated risk and a couple of a week or so ago they were talking about inventory and it’s all about how you measure it. So, compared to one, there is twenty percent more inventory in the market today than there was a year ago and that’s that’s worth considering. However, compared to twenty twenty, there’s thirty less and compared to which is when we think it’s a normal, healthy market, there’s fifty five percent less inventory today than there was in twenty en. Nobody was talking about an over supply of houses, because there clearly wasn’t, and nobody was talking about the end of of housing. And yet we had, you know, basically, you know, almost double the amount of inventory available that we have now. But you know what was nice about you could buy a home, you could find a home, you could look and and you actually do inspections and you aren’t being forced to buy something. And when I’m doing a property inspection or buy something, you know for more than the asking price, because you know you have to. You know you have to calculate how much more than they’re asking for. Do I have to offer to beat at everybody else? It’s not normal, it’s not healthy and I’m not going to be sad to see the back of that. No, very true. Same sentiment from my end. It’s time for some normalization there. You mentioned one thing you want to come back to, and that it escapes me a little bit. Was It um just a pace of building now. So what we have is we have more homes under construction than any time before. Now, let me preface by saying that that is true. We do have we do have an uptick in starts and we do have a Um you know, definitely the builders have been trying to Um, you know, meet the demand and and get somewhat ahead of it. There’s two very important things to understand that there’s nuance that is that has missed. First of all, the time it’s taking to build a home has has extended. Now I’m…

00:18:03 – 00:20:59

…going to use because I’m a I’m a word guy, not a numbers guys. So I’m going to use a very simple understanding. Anyone who’s in the building industry who’s listening to this, we’ll be screaming that I’m you know, about underestimating and overstaying how long things taken. It’s not this Clean Cup, but let’s just pretend it is. Right. Let’s say that it used to take five months to build a home and let’s say that today and now it takes ten months and it is close to double. And it’s not exactly double, what’s close to double, right. So what does that mean? Well, in that scenario, you will automatically have twice as many homes under construction then you had just a year ago, without any increase in supply. Right. So if you used to have, over a five month period, you had two thousand homes under construction, now over a ten month period you have four thousand homes under construction. So is it accurate to say that we have more homes under construction than ever? Yeah, US, but does that actually tell you how we are from a supply perspective? No, it doesn’t. You’re you’re deliberately or or, more likely and ignorantly m parodying something that doesn’t have any true value. But here’s the second important fact again that gets left out, and this is where my space and my industry is useful, and the we don’t have enough land. We don’t have enough finished lots, the lots that are being built one were lots of the builders were expecting to build. In twenty two, they’re cannibalizing tree and twenty four. And here’s a true fact, and again we’re going to be broadcasting, and loudly, because I encouraging others in our spaces to also be sharing this. Since the federate hike kicked in in May, our builders have taken between twenty two to thirty seven percent more lots in their contractor. To take, for example, in Greenville, where you’re you guys are based. I won’t mention the developer or the or the public builder, but they were contracted to take thirty lots. The Fed had just raised rates by three quarters or present. Yeah, as optimistic as I am, you’re still you know what, what? What’s going to happen? Ye Know, they’re supposed to take these lots. Are they going to take them? We were worried about whether or not they’re going to take thirty. Where they’re gonna push them out? So we’re looking and waiting for them to come back. They took forty seven. They took more than above what they were contracted to take. That tells you something and it should tell us that. You know two things. One, that demand is still there, but also understand from my perspective, what that’s also telling me is they’re building lots today that they had planned on building a quarter or two quarters into the future. So where are they going to find the lots to actually…

00:21:00 – 00:23:11

…meet the demand or increase the supply? And that’s sort of where we we come in. But that’s why, when people say we’ve got more homes under construction, yes, we definitely have seen an uptick in supply, but we also know that we have not really seen a corresponding uptick in finished lots coming to market. And so what that tells us is that the builders are making hey now and but that they still are unable to over supply the market. And that’s really the only thing that keeps me up at night is are, you know, is the market going to get over supplied? Because if that happens, as in o seven a ways, you know that’s not an easy fix. No, not at all. And on that note, will end on kind of a happy issue note and then we’ll start next week when I chat with you over supply. I’M gonna drop that down so I don’t forget. We’ll get into the the choppy waters there. UH, John Curry, CEO of Satanta, thank you so much for joining me, my friend, and we’ll be back next week. Always a pleasure. Thanks. Thanks everybody for listening. Take care. Are you a real estate investor looking for the right lender that can finance all your deals and help you scale Lima? One capital has the best suite of loan products in the industry bar none. Whether that’s fix and flips, fix and holds, building new construction or buying rental properties, they have incredible financing solutions for it all. A reliable, common sense lender is one of the most important parts of your investment team, and that’s exactly what you get with Lima one. Let Lima one capital show you how they’ve helped thousands of real estate investors scale and increase their wealth. CHECK OUT LIMA ONE DOT COM or call eight hundred to five nine zero five, nine five to speak with the consultant and preparation for your next project. Thank you for joining us today on the real estate of things podcast. Subscribe and tune in weekly for new content from the industries best while we continue to unpack the nuances of this dynamic market. Follow US across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review and share the show.

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