Real estate, the stock market, what I learned in 1987… and what’s changed

In 1981, at 19 my career took off like a rocket ship. I was picked to renovate the old Walt Disney Studio building at 52nd and Broadway, then 181 Hudson Street in Tribeca, my first workout as developer and contractor, and getting my first development off the ground in the Throgs Neck section of the Bronx; all was good.

In 1985 the City of New York selected me to rebuild a huge area in the South Bronx for affordable, “for-sale” housing, catering to Black and Hispanic cops, fire fighters, teachers, nurses, sanitation workers, and the rest of the middle class. In the 80’s, most white folks didn’t even know there was a Black and Hispanic middle class. At the same time, I embarked on my first custom home development in Morris County – a 40 home project called Rock Ridge Estates in Lincoln Park, NJ.

So here’s the story, how I lived through it and why I believe “the more things change, the more they remain the same”

We started pre-sales and pre-construction on both projects. Salters Square in the South Bronx was price fixed by the City of New York at $99,000 and all pre-sold.

Rock Ridge had a starting price of $325,000 that no one thought we would get because the average home price was $225,000. Yet the prices at Rock Ridge quickly skyrocketed into the $450,000 range in just 6 months, with about 3/4 sold out, all to yuppies.

At the time I didn’t know, because I didn’t follow it, the stock market was roaring. I also didn’t know, like subprime in ’08, that all my buyers – “yuppies “– were heavily in debt, borrowing against their stock accounts.

As 1987 started I was golden; both projects pre-sold and construction commenced.

Then on Black Monday, October 19, 1987, I woke up, went to work, everything was great. By 5:00 pm the stock market crashed, and my world changed quickly. The following day every buyer for Rock Ridge called saying they were wiped out in the stock market and needed their deposit back to cover their margin calls. I didn’t even know what a margin call was but quickly learned.

Luckily the buyers in Salters Square were not invested in the stock market, so they were unaffected. Salters Square quickly went into phases 2, 3, & 4, and were all selling out, while Rock Ridge couldn’t sell a home at a price that would just break even in all of 1988, 1989 & 1990. Eventually, by the early 1990’s Rock Ridge started selling again at the pre-1987 values which now sell for double that!

The moral of the story… The stock market dropped 22.6% in one day and collapsed the for-sale suburban housing market and loan market. Yet, the South Bronx for sale market flourished. Who’da thought!

The recent daily up and down of the stock market makes no sense. Frankly the run up since April 2020 makes no sense. And in 2019 I warned the world when the market was at 25,000 that it was overvalued. No one wanted to listen.

Real estate has an intrinsic value based on cash flow, square feet, number of bedrooms and market demand. You can sleep in it, work in it and shop in it!

The way a stock fluctuates is baffling. It’s not based on cash flow analysis, it’s not based on profit and loss statement analysis, nor anything more than emotion. No one can underwrite the value of a company by the hour, or even the week, so emotion would be the only thing that moves the market, and, like the past, it will have a major correction or crash.

What’s different now and a little concerning is most of the Black and Hispanic populations, particularly government and union employees, are now invested in the stock market via their pensions.

Fortunately, the middle class tends to tack on less debt and stock market risk and live within their means.

Your stockbroker or 401K manager, or financial advisor will always tell you “Since the beginning of time the stock market always goes up” what they often leave out is that every 7 or 8 years it crashes and then takes several years to recover. The question is where will the stock market be the day or the year you need the money.