Welcome to the Last Cast Letter

Hi Everyone — welcome to the inaugural Last Cast Letter, a monthly digest from Last Cast Capital.

This is a small, intimate list at the moment, and that's how I intend to keep it. In fact, this is just a more formal version of the emails I've been sending some of you already.

I figured, why not apply what I'm learning from building Walk-On Holdings to what I want to build in the real estate space. Because, as I've mentioned to a few of you already, a large part of my investment philosophy revolves around "clicks and bricks."

Said differently, I really enjoy investing my time working on digital properties. I also love the world of real estate and working on physical properties. While there are absolutely differences between the two, there is much more overlap than I originally anticipated.

For now, I've included a brief background on why you're getting this newsletter and what to expect in the future. If you don't want this in your inbox, please unsubscribe here.

Who am I?

Brooks Dyroff. I graduated from Boston College in 2013, worked at JPMorgan for two years, Blackstone for three years, and left in 2018 to start Walk-On Holdings, which has become a diversified media company.

Why are you getting this?

You've either invested alongside me already or you are interested in investing in future deals. There's a good chance we've talked about real estate over text, email, or in person. You may have asked me for my thoughts on market trends, legislation, location, and more. I've probably asked you similar questions about the industry because there are some very sharp minds on this list. This letter is a way for me to stay in touch with all of you at least once a month. I intend to keep you updated on everything I mentioned above (market trends, legislation, etc) and investment opportunities.

What is Last Cast Capital?

Last Cast Capital will be the vehicle through which I and other interested parties invest in real estate. The primary focus will be affordable housing in Miami, Florida, and even more specifically, Miami Beach. More on that later. Eventually, Last Cast may look to invest in other areas and asset classes, but for now, I want to focus on being a local operator.

What does Last Cast mean?

One of my favorite hobbies is fishing, especially with my dad. Nothing beats being on a boat, with my cell phone locked away, chasing birds, analyzing the environment, and trying different bait. More often than not, you strike out. But it's hard to beat the fleeting feeling of the line going tight, negotiating with the fish as you reel it closer, and finally landing it in the boat.

In fact, it's similar to the chase that's involved in the property market. Both involve a healthy mix of timing, preparedness, skill, and luck. To that end, whenever we're on the water and we're about to turn in for the day, we throw out our "Last Cast" to see if we can catch one more. Over the years, we've landed a few big ones on this final effort.

Last Cast is meant to combine the ideas of work ethic and luck. Sometimes when you make that final effort the universe rewards you.

So what's next?

Since the introduction for this month's email was so long, I'm going to keep the section below shorter. This week I'm going to zoom out and start with one question: Why Miami? In subsequent editions I plan to slowly work down from this 30,000-foot view, zooming in on specific neighborhoods, asset classes, and remarks from people with boots on the ground: realtors, property managers, insurance agents, etc.

These monthly updates will include any news clippings that I find relevant, even if they're repeating the same ideas. On that note, the answer to the question, "Why Miami?" is probably one that most of you have heard already. Regardless, let's dive in.

Why Miami?

There are two answers to this question and they're both related.

1. I live here

2. Supply and demand

The first point is important because when I think about my own experience with the city and personal migration, it's really not that unique. I'm simply part of a larger trend that speaks to the second part of the second point: the demand.

In fact, this past weekend the Associated Press just published another article outlining what most of us already know: Americans are moving South. Mike Schneider writes:

Now, to be fair, "experts aren’t sure at this point if the dramatic pull of the South is a short-term change spurred by the COVID-19 pandemic or a long-term trend." I don't have a crystal ball either, but there are a few macro tailwinds that might perpetuate the trend:

Working From Home is Still Here: I think hybrid work is here to stay. Here are a few stats that stood out, including office vacancies, subway ridership, and general polling.

• Between 2019 and 2021, the number of people primarily working from home tripled from 5.7% (roughly 9 million people) to 17.9% (27.6 million people), according to a 2021 American Community Survey. (Census Bureau)

• As of this past November office vacancy rates across the country still stood at a record 19.1 percent, with Chicago, Houston, and San Francisco running above 20 percent. (New York Times)

• "In traditional U.S. office, for example, secular challenges have been exacerbated in a post-pandemic world. We've written down the equity value of traditional U.S. office assets dramatically since 2018." (Blackstone Q4 2022 Earnings Call Transcript)

• On December 14, 2022, NYC subway ridership hit 3.9 million. This is up significantly since the depths of the pandemic, but still well below pre-pandemic averages of ~5.5 million.

• 82% of U.S. employees want to work remotely at least once a week when the pandemic is over. Only 8% do not want to work from home at any frequency. 19% said they would like to telecommute full-time. The balance would prefer to work a hybrid-remote schedule (Global Workplace Analytics).

• More than a third of workers would take a pay cut of up to 5% in exchange for the option to work remotely at least some of the time; a quarter would take a 10% pay cut; 20% would take an even greater cut (Owl Labs)

• 1 in 2 people won’t return to jobs that don’t offer remote work after COVID-19 (Owl Labs).

Americans Are Getting Older: By 2034, older adults will outnumber children for the first time ever, according to the US Census Bureau.

• According to Investopedia: Florida and South Carolina represented the top two retirement relocation destinations.

• According to AARP: Florida was the most popular destination, followed by North Carolina, Michigan, Arizona and Georgia.

• More from the AP article above: "... Experts say the Southern allure has to do with a mix of housing affordability, lower taxes, the popularity of remote work during the pandemic era, and baby boomers retiring."

Millennials, Specifically, Are Getting Older: This trend hits home for me. New York City in my 20s was amazing, and it's still one of my favorite places in the world. My family is growing, however, and my wife and I would like more space. This is part of the reason we packed up and moved South.

• Bloomberg's Conor Sen wrote a really interesting article titled, "Why Millennials Are Following Boomers to the South. He pops the hood on why the "life stages" of America's two largest generations are major drivers of continued migration. We mentioned the aging boomer cohort above, but Millennials' tastes are also changing, he writes:

• "New York City and San Francisco are great places to live for a certain type of ambitious young person who doesn’t need a lot of space to live. The Atlanta and Charlotte suburbs are great for 30- and 40-year-olds with kids who value living with lots of living space over nightlife. And Florida’s mild weather is an attractive destination for many retirees from colder climes."

• "And while these place-based dynamics may not have changed significantly over the past decade, the life stages of America’s two largest generational cohorts have changed. In 2010, there were many 20-year-olds in the US and not many 30-year-olds or 60-year-olds. That was good news for cities, but less so for traditional suburban and retirement destinations."

• "In 2022 this will no longer be the case. Yesterday’s 20-year-olds have become today’s 30-year-olds, making suburban living more appealing. That’s friendlier terrain for the South to compete in than it was when the largest group of young millennials were looking for housing to start their careers."

• "The shift from under 26s to 35-44s shows a clear tilt away from New York, Illinois, and California towards Texas, Florida and other states in the Southeast."

Immigrants Are Moving South: Here's something that I think gets overlooked, but is really important.

• According to a new study by the Bush Institute, immigrants already in the U.S. who decide to move are disproportionately heading for Sun Belt metros.

• More from Axios: "Of the top 25 metro areas for this kind of secondary migration, 15 are in the Sun Belt. Six are in Florida and three are in South Carolina, with two each in Texas, Pennsylvania, and Tennessee."

• Important to note: "Major city metro areas still have some of the highest rates of people immigrating from abroad. But places like New York, Los Angeles, Chicago and Miami have seen more immigrants moving out than in from other parts of the U.S. since 2010, according to the report." This is because there is a shortage of affordable housing in these cities, which actually supports my investment thesis.

Ultimately, for the reasons above, I believe this secular trend is here to stay. Maybe not at the same pace that played out during the pandemic, but I do think we are going to continue to see more people move south.

Pushback: One way this trend might stall or reverse is if economic conditions worsen and power shifts from employees to their employers. If we hit a major recession and people lose their jobs, many won't have the luxury of working from home. Essentially, they'll lose any leverage they had to say they don't want to go into the office. As a result, they might be forced to go back to the workplace which could benefit metros like New York City. This is something I will be following in 2023.

Now, everything above outlines the demand side of the equation. Let's take a look at the supply side.

For starters, Deirdra Funcheon of the Washington Post sums up the problem pretty succinctly:

In terms of hard numbers, RentCafe found that 97.6 percent of apartments in Miami-Dade County are occupied, and every vacant one has 31 prospective renters competing for it.

In fact, on a national level, Miami-Dade County was thee most “competitive” residential-rental market in the United States in 2022. It was "another reminder of the lingering housing crisis plaguing the community," the Miami Herald wrote on January 6th, 2023.

• The Herald attributes the issue to everything we explored above. "Leading the combination of factors were no state or local income tax in Florida, the business-friendly climate and burgeoning technology scene. Those things, according to the report, attracted droves of millennials, born in the early 1980s, and Gen Zers, born between 1996 and early 2000s, looking to work and live in the Sunshine State."

Meanwhile, buying is out of the question for many. In December 2022, Miami home prices were up 8.5% compared to last year, selling for a median price of $510K.

• Note: homes in Miami are taking slightly longer to sell. Last year homes were on the market for 62 days on average. That figure is now sitting at 70, which makes sense based on my unhealthy addiction to Zillow.

Zooming out, the demand is there, but the supply isn't. More people keep moving south, and many end up in Miami. However, due to geographical constraints, international appeal from foreign investors, and domestic migration trends, there are fewer places to live. This caused what some are calling the perfect storm. In April, Miami-Dade's mayor even declared a state of emergency over housing affordability.

Next month, I plan to zoom in and talk a little bit more about Miami Beach and the topic of affordable housing. With that said, I found this quote from Ken H. Johnson, a finance professor specializing in real estate at Florida Atlantic University, to be especially pertinent:

Given the combination of factors above, this is why Miami seems to make sense. As Johnson mentions, the problem of affordable housing is not going away overnight. To me, this means it's not too late to keep looking for interesting opportunities and being ready to cast the line.

Final Thoughts:

• If you are interested in investing in any future opportunities, please don't hesitate to contact me. I can explain my thoughts more broadly and where we are in the process.

• If you know of anyone else who might be interested in investing, please feel free to make a connection. I can add them to this list and schedule a time to speak with them.

— Brooks