Opening the Door to '24

It’s always good to reflect as a year comes to a close and a new one begins. Professionally, 2023 was extremely challenging (and humbling). Our beautiful hedge capping most of our variable rate loans at 1.25% for 30-day LIBOR, when it was still in existence, came to an end in December 2022. This resulted in many of our properties having to pay a much higher rate of interest and to reserve for, and ultimately purchase much more expensive interest rate caps. 

It was the worst of times, and it was the worst of times. I’m struggling to find where the best of times may have been in 2023. It’s never fun to have to suspend distributions and call for capital to fund negative cash flow. And despite benefitting immensely between 2011 through 2021 from our use of variable rate debt, most people understandably forget the good times when the situation reverses, and it’s never fun to disappoint investors, even after having had many years of consistent success. 

Fortunately, we have been prudent in structuring our debt so that we are fairly well off, particularly compared to some of our more aggressive competitors. We estimate that we currently anticipate needing capital equal to approximately 1% of our portfolio equity. Of course, this isn’t uniform for every investor, but it gives one a rough indication that our challenges are not existential, and we should be able to continue to play offense to take advantage of opportunities that should be available over the next couple of years.

If I were to shine a light on one bright spot, and it’s a big one, it finally looks like the Fed is in agreement with the bond market about the future trajectory of interest rates, which is lower. This has flowed through to the forward curve and correspondingly, the cost of interest rate caps, which have dropped significantly. This should take a lot of cash flow pressure off of us as the amounts we will need to impound with our lenders to reserve for the purchase of new caps after the existing ones expire should drop materially. I don’t want to say we’re completely out of the woods, but it sure feels like we now know where we are and can identify a path out.

Personally, I’m happy with how my life unfolded in 2023

I stayed consistent with my typical habits of working out with my trainer two days a week, playing tennis two to three days a week, and continuing to improve, having my daily smoothie, putting ice on my face each morning, adding 30 seconds of cold water to my shower, flossing regularly, and doing my weekly blog and quarterly investor letters. 

I’m still in a lot of periodic pain related to my sciatica, so that is a big priority for me in 2024. I really want to see improvement in this area or have a plan to increase the odds of it happening. I’m pleased that after my heart surgery in 2021, all indications are that it was a big success. This will be something I will be monitoring every year with my cardiologist but so far, so good.

2023 was also a big year for Heather and I as we announced our engagement publicly, although we had kept it private for a while prior to telling others in October. We have grown together since we met, and I look forward to many more years of solidifying our bond and enjoying the roller coaster of life together. We have been through a lot and proven to each other that our connection and commitment is deep while still having the capacity for continued growth.

Without question, the biggest leap into the unknown and what turned out to be jumping into the deepest of the deep ends financially was breaking ground on building a tennis court, casita, entertainment and viewing deck, and expansive landscaping. I was once told by someone when doing a remodeling/construction project that the rule of thumb is to get three bids and add them together to come up with a realistic cost estimate. I would say, in this case, five bids would have been better advice.

 I am spending way more than I ever anticipated and probably more than I should have spent. This is at a time when I have been draining a great deal of my liquidity when risk-free rates are in the 5% range, and our business has been challenged by the impact of these higher rates. I did what most financial advisors would tell me not to do, which is to significantly reduce my asset base, which would benefit from higher rates (cash) when our underlying CWS business can be negatively impacted by higher rates. In other words, distribution reductions on the CWS side of the ledger could have been cushioned somewhat by interest income on my personal side of the ledger. I dramatically reduced a great hedge against a downturn in our CWS business. Oh well. The things we do for the love of tennis. 

And yet, in spite of all of the financial costs, every time I look at the progress of the construction and see how the vision Heather, the builder, and I have for the project come to life, I get so excited about the possibilities. Early on in the project, I wanted the court to be a magnet for excellence and to bring people together who love tennis and want to bring their best selves to my home, either as players or passionate spectators. I now firmly believe this will be the case. 

In The Power of Myth, Joseph Campbell wrote the following, which sums up how I feel about what I have experienced through this building process and what I firmly believe I will feel after it comes to life.

“People say that what we’re all seeking is a meaning for life. I don’t think that’s what we’re really seeking. I think that what we’re seeking is an experience of being alive, so that our life experiences on the purely physical plane will have resonances with our own innermost being and reality so that we actually feel the rapture of being alive.”Click To Tweet

And, yes, while having more available liquidity would give me more security and less angst, the cost of this is that there is no way I would feel such a profound and powerful sense of aliveness as I do seeing this project unfold and knowing what will happen when it brings people together in extraordinary ways.

I feel a little like John D. Rockefeller, who was the principal benefactor for the University of Chicago. The financial obligation required of him caused him such anxiety because it was continuous and difficult to put a cap on it because no one could participate to the level he could financially, so the burden was on him to keep it going. It bothered him so much to be continuously asked for more money as he was a frugal person. He didn’t know when the outflow of dollars would end. And, despite his angst, he also loved what the university was trying to accomplish, so he kept funding it. He would later say that it was the best investment he had ever made, and I hope to say this in a few years as well.

My go-to expression in my 2023 blogs has been “Only time will tell,” and it applies to this situation as well. I feel in my deepest parts that extraordinary experiences will take place at my new tennis paradise.

In all health and longevity studies, one of the keys to both is having deep and meaningful relationships. One doesn’t need many people in our lives that fill this need, but we all should have at least one or two. And while the investment in what is being created is quite significant, the payoff could be tremendous in terms of the interpersonal connections, memories created, and relationships formed and solidified. My intention is to bring people together in ways that deepen connection and meaning for not only myself but for many others as well. That will bring me tremendous satisfaction. Finally, I want the court and surrounding environment to be so unique that it will attract world-class players there to train and to compete.

In addition to my aspirations related to the tennis court, I hope to continue working on building healthy habits that expand my productive capacity in terms of strength, endurance, flexibility, and pain minimization. I also want to improve my cognitive capabilities in terms of decision-making, memory, and risk awareness (and avoiding uncompensated risk) while also exercising my muscle of courage to take advantage of opportunities. I hope to continue with my daily sudoku battles as I feel like this is helping me cognitively, as well as being more accepting when things don’t always go my way. It has also helped me become more patient in all areas of my life as I now rarely try to rush and worry far less about what my opponent is doing, as I have very little control over that. Finally, I would like to improve the quality of my sleep, as it has been underwhelming in terms of consistency and restoration.

Financially I want to rebuild my liquidity which is highly correlated to the success of CWS. As a result, I will be focused intently on helping us to get back on track. Of course, the most powerful lever, which is completely out of our control, is Fed policy and the trajectory of future interest rates. As mentioned earlier, it does appear that the trend is becoming more of our friend so this should help us start to get back on track.

In addition to continuing to improve my patience and building my muscle of courage, I intend to have more of the following in my life: 

• Laughter
• Humor
• Gratitude
• Expansiveness
• Serenity
• Vigor
• Vitality
• Order

When I combine all of these together, I hope this positions me to have those powerful insights that lead to clarity. When I have clarity, I can eliminate the non-essential and have great focus. This breeds a deep sense of calm that comes from knowing I’m on the right path and engenders a sense of faith that somehow, some way, it will work out. And with this centered feeling, I am now much more inclined and able to see all of the beauty around me and hopefully create beauty myself in much of what I do.

When all is said and done, this is one of my top intentions for 2024:

To make my presence a gift for others and myself (current and future self).

And when I say presence, I don’t mean just my physical presence, but my full awareness and attention so that those I interact with feel heard and understood such that they experience a sense of expansiveness during our conversations and shortly after. I would hope at their best that these interactions would be memorable, help others gain clarity, and have the potential to do the same for me.

For some people, a picture is worth a thousand words, or almost 2,000 in this case. To convey pictorially what I’ve been trying to communicate through words, here is our new compatriot, Beans, and how he shows a level of focus, intensity, and playfulness that I hope to experience in 2024 and beyond.