WEBVTT - Francis Greenburger Discusses Real-Estate Development (Podcast) 0:00:02.240 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.400 --> 0:00:10.360 This week on the podcast, I have an extra special guest. 0:00:10.920 --> 0:00:15.200 His name is Francis Greenburger. He is perhaps best known 0:00:15.880 --> 0:00:20.560 for popularizing the idea of the cooperative as opposed to 0:00:20.600 --> 0:00:26.520 the condominium in residential real estate development. This is a 0:00:26.720 --> 0:00:30.960 really fascinating conversation if you're all interested in um real 0:00:31.120 --> 0:00:35.200 estate development, how projects move forward, some of the challenges 0:00:35.280 --> 0:00:39.760 in dealing with the market cycle and credit availability, and 0:00:39.880 --> 0:00:45.000 pretty much anything related to what could throw plans off 0:00:45.080 --> 0:00:49.400 for for building a a big building, You're gonna find 0:00:49.560 --> 0:00:54.360 this conversation to be absolutely fascinating. So, with no further ado, 0:00:54.760 --> 0:01:02.400 my conversation with Francis Greenburger. My special guest today is 0:01:02.480 --> 0:01:07.240 Francis Greenberger. He is a real estate developer, an author, 0:01:07.360 --> 0:01:11.160 a former literary agent, and a philanthropist. He is the 0:01:11.200 --> 0:01:15.080 founder of Time Equities, one of the larger real estate 0:01:15.120 --> 0:01:19.160 developers here in Manhattan and New York City. Perhaps he 0:01:19.280 --> 0:01:23.679 is best known as the creator of the residential co op. 0:01:24.000 --> 0:01:28.320 His autobiography is Risk Game Self Portrait of an Entrepreneur. 0:01:28.920 --> 0:01:33.680 Francis Greenberger. Welcome to Bloomberg. Thanks Berry, So I'm kind 0:01:33.680 --> 0:01:36.920 of fascinated by your background and your history, and we're 0:01:36.920 --> 0:01:40.520 gonna get into a lot of the details, but the 0:01:40.600 --> 0:01:45.040 obvious question, what sparked your interest in in real estate 0:01:45.200 --> 0:01:49.680 coming from a background working in the book business. It 0:01:49.800 --> 0:01:53.760 was pretty intuitive. I remember to this day, I was 0:01:53.840 --> 0:01:57.600 walking down the streets looking at buildings, looking at architecture, 0:01:58.680 --> 0:02:01.960 thinking about built environs, and thinking about real estate and 0:02:02.000 --> 0:02:04.640 New York and realized that I had some sort of 0:02:04.960 --> 0:02:09.760 visceral connection with it that defied my background or any 0:02:09.960 --> 0:02:15.239 particular particularly logical connection with my past. So in your 0:02:15.240 --> 0:02:18.400 book Risk Game, you wrote something that stayed with me. 0:02:18.919 --> 0:02:23.440 Quote the real estate industry has created far more bankruptcies 0:02:23.520 --> 0:02:29.840 than billionaires unquote. Explain that well, I think, uh, um, 0:02:29.880 --> 0:02:32.040 if if you look around New York and I was 0:02:32.080 --> 0:02:37.720 walking here or past, for instance, Harry Macklowe's gallery on 0:02:38.240 --> 0:02:41.360 Park Avenue, you know Harry, who I know is how 0:02:41.800 --> 0:02:45.000 has had a mixed career. He's had some incredible successes, 0:02:45.919 --> 0:02:49.880 but he's had some incredible failures, all in New York 0:02:49.919 --> 0:02:55.520 City real estate. So, uh, it's about timing, it's about risks, uh, 0:02:55.560 --> 0:02:57.679 and it's about what you choose to do or not do. 0:02:58.360 --> 0:03:01.120 So let's talk a little bit about timing and risks. 0:03:01.800 --> 0:03:05.120 You bought a piece of lands down at fifty West 0:03:05.160 --> 0:03:09.160 Street back in the eighties with the plan to either 0:03:09.240 --> 0:03:12.079 develop it or redevelop it in the future, and then 0:03:12.160 --> 0:03:15.160 that piece of property lived through September eleven and the 0:03:15.240 --> 0:03:18.240 Great Financial Crisis. Tell us a little bit about your 0:03:18.320 --> 0:03:22.040 history with fifty West. Okay, Actually, when I bought it, 0:03:22.120 --> 0:03:24.880 I wasn't thinking of redeveloping it. I was thinking of 0:03:24.919 --> 0:03:27.239 it more as an income property. And it was fully 0:03:27.360 --> 0:03:30.360 leased and I think it made about a ten percent return, 0:03:30.919 --> 0:03:33.880 So it looked like something I could just hold on 0:03:34.040 --> 0:03:38.440 to and over time watch rents go up and hopefully 0:03:38.600 --> 0:03:42.440 expenses keep stable and have growing income and growing value. 0:03:43.400 --> 0:03:48.720 Um around uh uh in the nineties, we lost some 0:03:48.840 --> 0:03:53.240 tenants and uh New York was just beginning to think 0:03:53.240 --> 0:03:56.600 about downtown as a mixed use environment. I mean that 0:03:56.720 --> 0:04:00.040 was very non residential back in the day, right, a 0:04:00.160 --> 0:04:05.880 non residential, although Battery Park already existed. And um there 0:04:05.920 --> 0:04:09.320 was something called the Giuliani Plan which offered tax benefits 0:04:09.320 --> 0:04:13.920 if you converted commercial properties to residential. So we were 0:04:13.960 --> 0:04:17.800 actually started to convert part of the building and was 0:04:18.120 --> 0:04:22.960 I think one of the first properties to qualify under 0:04:23.000 --> 0:04:27.880 that plan UM by nineteen. By two thousand and five, 0:04:28.000 --> 0:04:31.719 we had maybe converted half the building, but there was 0:04:31.760 --> 0:04:35.040 a lot of major work that we needed to consider, 0:04:35.560 --> 0:04:38.800 and we realized that the sighting of the building was 0:04:38.839 --> 0:04:43.039 such that if, if, ah, if we demolished it and 0:04:43.040 --> 0:04:46.720 build a new building, there would be extraordinary views available 0:04:46.760 --> 0:04:49.719 from the apartments. So we began to study that as 0:04:49.800 --> 0:04:51.960 an option. And you spend a lot of money on 0:04:52.240 --> 0:04:56.240 architects just even thinking about this, right, we spent you know, 0:04:56.320 --> 0:04:59.160 one of the surprises when you go into development is 0:04:59.560 --> 0:05:03.919 land as a expensive well, preparing plans is very expensive. 0:05:04.320 --> 0:05:07.159 And we developed full plans for the building, which at 0:05:07.240 --> 0:05:11.120 that point was to be a hotel and uh condominium 0:05:11.160 --> 0:05:16.719 apartment complex um, but our plans got interrupted by the 0:05:16.760 --> 0:05:20.680 course of events in the financial world. So let's talk 0:05:20.720 --> 0:05:23.080 a little bit about that. Here's a building that you're 0:05:23.200 --> 0:05:27.880 racing to meet the deadline for certain tax advantages. You've 0:05:27.880 --> 0:05:30.960 already built the foundation, you've sunk a lot of the 0:05:31.040 --> 0:05:34.839 main support beams, but you haven't started building the building itself. 0:05:35.160 --> 0:05:41.000 And then September eight, Lehman Brothers collapses into bankruptcy, and 0:05:41.040 --> 0:05:43.719 I think you were talking about a five million dollar 0:05:44.040 --> 0:05:47.200 financing for the whole project from start to finish. What 0:05:47.360 --> 0:05:50.719 did the collapse of Lehman Brothers due to that development? Well? 0:05:50.839 --> 0:05:57.359 I recognized almost immediately that building into that kind of 0:05:57.360 --> 0:06:02.760 financial environment would be a disastrous So I made the 0:06:02.839 --> 0:06:08.320 decision very quickly to pull the plug, halt development and 0:06:08.360 --> 0:06:11.839 wait for a better day. In other words, not actually 0:06:12.600 --> 0:06:15.760 give up the property, but hey, let's postpone this project 0:06:15.839 --> 0:06:19.279 until credit freeze up a bit. Credit freeze up, and 0:06:19.760 --> 0:06:22.280 credit is only one part of the equation. If it's 0:06:22.320 --> 0:06:25.840 for sale housing the way this was condominiums, there had 0:06:25.880 --> 0:06:28.200 to be a willing market to buy it, because otherwise 0:06:28.600 --> 0:06:31.039 you might have the financing, but you haven't wouldn't have 0:06:31.040 --> 0:06:34.520 a way to pay it back. Makes sense. So but 0:06:34.600 --> 0:06:38.080 that ran into a problem almost immediately, didn't it. Yes, 0:06:38.320 --> 0:06:43.560 I had a little misunderstanding with with the bank who 0:06:43.560 --> 0:06:49.920 had financed the foundation construction for me, uh even though 0:06:49.960 --> 0:06:51.680 I had told them what I was doing, and they 0:06:51.720 --> 0:06:54.960 seemed to concur all of a sudden. In January, they 0:06:55.000 --> 0:06:57.880 sent me a letter saying I was in default because 0:06:57.920 --> 0:07:03.240 my loan required me to continue building no matter what 0:07:04.120 --> 0:07:08.640 And of course I called him and crazy anyway, I 0:07:08.680 --> 0:07:10.640 don't really know what was going on. Within a couple 0:07:10.680 --> 0:07:16.520 of weeks they backed off and we renegotiated the agreement 0:07:16.600 --> 0:07:21.120 to allow for the interim period that would be needed 0:07:21.320 --> 0:07:25.360 until the market was was suitable and both from a 0:07:25.400 --> 0:07:28.880 financing point of view as well as a buying point 0:07:29.000 --> 0:07:32.200 And how did the building ultimately turn out? Well, it 0:07:32.280 --> 0:07:34.800 turned out very, very well. One of the things that 0:07:34.840 --> 0:07:38.520 I found so fascinating in your book Risk Game was 0:07:38.560 --> 0:07:43.040 how razor thin the margins were for building properties and 0:07:43.080 --> 0:07:48.560 the constant search for cash and financing. Is that a 0:07:48.600 --> 0:07:51.760 fair description of commercial real estate in the nineties seventies 0:07:51.920 --> 0:08:00.240 or generally, Well, I would say generally. And it also 0:08:00.440 --> 0:08:05.280 depends on the nature of what you're developing. So if 0:08:05.360 --> 0:08:13.200 you are in a generic kind of marketplace with generic ideas, uh, 0:08:14.200 --> 0:08:19.040 not surprisingly, competition is fierce and the margins are highly compressed. 0:08:19.240 --> 0:08:24.800 When you say generic marketplace, what are you referring to, Well, 0:08:24.960 --> 0:08:29.800 for example, New York City, which for the last ten 0:08:29.880 --> 0:08:34.720 or fifteen years has been considered or one of the 0:08:34.760 --> 0:08:38.640 best investment markets in the world. So capital from everywhere, 0:08:38.840 --> 0:08:41.120 every corner of the world wants to be here, so 0:08:41.160 --> 0:08:46.920 there's fierce competition and cap rates get compressed. However, at 0:08:46.920 --> 0:08:49.800 the same time, if you go to other regions of 0:08:50.040 --> 0:08:54.160 of of the United States or internationally, you'll find a 0:08:54.200 --> 0:08:59.960 different picture, market by market, submarket by submarket. Very very interesting. 0:09:00.000 --> 0:09:04.040 In one of the things I thought was fascinating heading 0:09:04.080 --> 0:09:08.240 into the financial crisis was a similar situation where a 0:09:08.240 --> 0:09:12.520 lot of global money was looking for returns. Much of 0:09:12.520 --> 0:09:15.280 it found its way to New York real estate development, 0:09:15.800 --> 0:09:20.920 and I heard a lot of real estate deal lawyers complain, Gee, 0:09:20.960 --> 0:09:23.360 the r O I s, the return on investments on 0:09:23.400 --> 0:09:26.960 all these projects seem to be getting more and more compressed. 0:09:27.840 --> 0:09:30.520 Is that a fair description of what was what you 0:09:30.559 --> 0:09:35.320 saw leading up to the O eight collapse? Uh? Very 0:09:35.400 --> 0:09:38.760 much so, although I have to say that it's not 0:09:38.920 --> 0:09:43.199 only leading up to the two thousand and eight collapse. Uh. 0:09:43.920 --> 0:09:48.679 It's prevalent in markets that are in great favor. Um. 0:09:49.320 --> 0:09:54.679 Uh really on a continuous basis. So um it's just 0:09:54.720 --> 0:09:57.440 that competitive. You know, if you go to Toronto today, 0:09:57.520 --> 0:10:02.080 which is one of the uh one one of the 0:10:02.120 --> 0:10:05.719 biggest development markets in North America has been probably for 0:10:05.800 --> 0:10:10.959 fifteen or twenty years, you'll find that um. The profit 0:10:11.040 --> 0:10:16.240 margins on development are around twelve that's probably half of 0:10:16.280 --> 0:10:20.200 what it would be even in New York. Really it's 0:10:20.200 --> 0:10:23.320 that tight. So one of the things that was so 0:10:23.480 --> 0:10:28.120 surprising about the financial crisis from a real estate perspective 0:10:29.480 --> 0:10:33.760 I had I have always thought of developers as being 0:10:34.400 --> 0:10:39.360 somewhat countercyclical and somewhat opportunistic. After a crash, they love 0:10:39.440 --> 0:10:43.640 to go looking for um high quality buildings and high 0:10:43.720 --> 0:10:47.640 quality plots for development that have fallen on hard times 0:10:47.679 --> 0:10:51.840 and are much less expensive than they normally would would be. 0:10:52.040 --> 0:10:55.440 And there seems to be a tendency of them throttling 0:10:55.480 --> 0:10:59.800 back as the economy begins to overheat and interest rates rise. 0:11:00.240 --> 0:11:02.040 I don't know if we really saw a lot of 0:11:02.040 --> 0:11:05.400 that in that oh let's call it oh one to 0:11:05.520 --> 0:11:09.280 oh eight cycle. Am I looking at it with a 0:11:09.480 --> 0:11:13.240 that with a biased perspective? Or was that unusual versus 0:11:13.360 --> 0:11:18.560 prior cycles where developers seem to be savvier, they seem 0:11:18.600 --> 0:11:24.400 to be the smart money. Well, I think that it's 0:11:24.600 --> 0:11:29.800 not all developers, or I think I think the world 0:11:29.800 --> 0:11:35.560 divides itself, and there is a tendency when the sun shines, 0:11:35.720 --> 0:11:39.720 when money is available for many developers to move forward. 0:11:40.320 --> 0:11:44.000 There are other UH developers, and I can think of 0:11:44.040 --> 0:11:47.440 a couple in New York, for example, the Durst family, 0:11:48.280 --> 0:11:54.000 who were intergenerational and used to thinking over long periods 0:11:54.000 --> 0:11:59.560 of time. And I remember that in post the collapse 0:11:59.600 --> 0:12:03.120 of TOO as in eight they started looking around and 0:12:03.160 --> 0:12:07.600 buying when nobody else was. So of course, you also 0:12:07.640 --> 0:12:12.160 have to have very deep pockets because in these countercyclical 0:12:12.280 --> 0:12:18.040 times banks are not necessarily willing participants. So often you 0:12:18.160 --> 0:12:22.760 either have to have very very good banking relationships or 0:12:23.280 --> 0:12:25.880 you have to be able to buy with your own 0:12:25.920 --> 0:12:29.760 resources on all cash basis and then hope to finance 0:12:29.800 --> 0:12:34.600 at a later time. So uh, I think the vast 0:12:34.640 --> 0:12:41.040 part of the development crowd sort of follows the money UH. 0:12:41.160 --> 0:12:46.080 And then there's a group that's UH exceptional who are 0:12:46.120 --> 0:12:50.280 more countercyclical. Hmm. Interesting. Let's talk a little bit about 0:12:50.320 --> 0:12:55.120 the innovation that is the cooperative. How did you come 0:12:55.200 --> 0:13:00.600 to recognize this legal structure as superior to others and 0:13:00.600 --> 0:13:04.439 and tell us a little bit about that development. So 0:13:04.480 --> 0:13:07.600 you mentioned that I invented the co op, which isn't true. Okay, 0:13:08.200 --> 0:13:14.000 co op existed long before popularized the co op. I 0:13:14.080 --> 0:13:18.680 did what what co ops? Prior to when I got involved, 0:13:18.760 --> 0:13:24.240 which was in the late seventies, were really familiar at 0:13:24.320 --> 0:13:28.400 two ends of the spectrum. Either park Avenue very expensive 0:13:28.440 --> 0:13:34.439 apartments were many of those were co op buildings, or interestingly, 0:13:34.880 --> 0:13:39.080 there were some low income or limited profit UH co 0:13:39.200 --> 0:13:43.400 ops that were created for UH people who could only 0:13:43.440 --> 0:13:49.280 afford minimum really really affordable housing UH done in co 0:13:49.400 --> 0:13:52.720 op form. Those were done some some unions created those 0:13:52.960 --> 0:13:56.160 that housing. Some some were government UH and some were 0:13:56.200 --> 0:14:00.240 other not for profit groups. But in between or of 0:14:00.240 --> 0:14:04.720 middle class housing UH. It was not yet popular, and 0:14:04.920 --> 0:14:12.360 I recognized that both UH buildings in the boroughs, for instance, 0:14:12.440 --> 0:14:15.080 a large complex that I undertook in Brooklyn and elsewhere 0:14:15.880 --> 0:14:20.600 UH would be suitable for home ownership. And I also 0:14:20.640 --> 0:14:25.080 recognized that there were secondary buildings, some non elevated in 0:14:25.200 --> 0:14:28.320 very good locations in Manhattan, for instance in Greenwich Village 0:14:28.880 --> 0:14:32.560 that would be very desirable and people would be interested 0:14:32.600 --> 0:14:36.720 in owning. So it was really seeing a broader market 0:14:37.240 --> 0:14:41.200 for co ops as opposed to actually UH inventing the 0:14:41.640 --> 0:14:45.640 first one. Your dad was a literary agent and worked 0:14:45.640 --> 0:14:50.000 with quite a few very famous authors. How did you 0:14:50.040 --> 0:14:54.840 find UH that business? What was that like? Well? It was. 0:14:55.280 --> 0:14:58.200 It was very much in my family and in my blood. 0:14:58.280 --> 0:15:02.480 So I grew up among publishers writers UM and some 0:15:02.600 --> 0:15:06.440 pretty famous writers and some pretty famous writers Stephen King, 0:15:06.680 --> 0:15:11.040 James Patterson, Dan Brown. These are household names, aren't they. Yeah, 0:15:11.080 --> 0:15:14.560 some of the some of those came well after my 0:15:14.640 --> 0:15:21.600 father died, more during my tenure. UM, but yeah, they were, 0:15:21.640 --> 0:15:24.480 they were. They were very much part of my growing 0:15:24.600 --> 0:15:27.640 up and and and my consciousness. How long did you 0:15:27.680 --> 0:15:32.600 actually work as an as an agent? Well, I worked 0:15:32.640 --> 0:15:37.600 actively for about a decade UM and uh, um, sort 0:15:37.600 --> 0:15:41.160 of fifty fifty with my real estate activities, and then 0:15:41.200 --> 0:15:45.000 I then I cut back the agency work. It's probably 0:15:45.280 --> 0:15:48.440 I still own the agency today. It's probably five percent 0:15:48.520 --> 0:15:51.800 or less of my time. So back then it seemed 0:15:51.840 --> 0:15:56.600 that authors did not really get a great deal out 0:15:56.600 --> 0:15:59.960 of out of the publishers. UM. Was the business really 0:16:00.040 --> 0:16:04.160 all that lopsided back then? What was it like? Well, 0:16:04.200 --> 0:16:13.640 I think UM publishing was evolving, Distribution of paperbacks was 0:16:13.680 --> 0:16:19.200 getting wider, book club distribution was strengthening. So the revenues 0:16:19.360 --> 0:16:23.360 that a very successful author could command were growing, and 0:16:23.480 --> 0:16:27.440 you saw a leap frogging of the value of brand 0:16:27.520 --> 0:16:31.960 name authors during that period. So so let me give 0:16:31.960 --> 0:16:34.080 you an example of something from your book that I 0:16:34.520 --> 0:16:40.880 found astonishing. Uh, your office represented Stephen King and his 0:16:41.120 --> 0:16:45.080 prior deals when you first brought him on limited his 0:16:45.240 --> 0:16:50.160 annual royalties to ten thousand dollars a year. So even 0:16:50.200 --> 0:16:53.000 if he owned earned much more than that, it would 0:16:53.000 --> 0:16:58.240 get spread out over time. That seems like a terrible deal. Well, 0:16:59.080 --> 0:17:01.320 I have to correct a couple of things. We only 0:17:01.880 --> 0:17:06.600 work with Stephen for a moment in time because uh, 0:17:06.720 --> 0:17:12.000 certain issues that came up in his mind regarding conflicts 0:17:12.000 --> 0:17:15.919 that he felt we had with other clients. But before 0:17:15.960 --> 0:17:19.480 we represented and he was working directly with Double Day 0:17:20.280 --> 0:17:25.560 and in the UH in the seventies, theoretically in a 0:17:25.600 --> 0:17:31.679 way to help authors, because we didn't have income averaging. 0:17:32.160 --> 0:17:33.880 So if you earned a lot of money one year, 0:17:33.920 --> 0:17:36.600 you'd pay a very high rate of income tax, and 0:17:36.680 --> 0:17:40.720 if you owed earn less the next year, Um, you 0:17:40.760 --> 0:17:43.359 couldn't balance the two years. I think later on in 0:17:43.440 --> 0:17:47.119 tax legislation you could do that, but anyway at that time, 0:17:47.160 --> 0:17:51.800 so publishers and authors created this sort of maximum earning 0:17:52.600 --> 0:17:56.320 concept that they put in contracts purportedly to help the authors. 0:17:57.080 --> 0:18:00.280 But um, what happened in Stephen King's case is that 0:18:00.359 --> 0:18:05.879 his earnings were so enormous that what seemed like a 0:18:05.920 --> 0:18:12.119 reasonable annual amount initially became a hundred year payout for 0:18:12.119 --> 0:18:14.679 for what what what what? The earnings were as a 0:18:14.720 --> 0:18:17.520 result of the success of his books. And you did 0:18:17.560 --> 0:18:20.080 a couple of other very big books. I remember Bronx 0:18:20.119 --> 0:18:24.240 Zoo about the New York Yankees, and the G Spot 0:18:24.320 --> 0:18:29.080 book just went berserk, that became a global bestseller. To 0:18:29.080 --> 0:18:34.840 tell us about that, well, I represented a psychologist, popular 0:18:34.880 --> 0:18:39.640 psychologist from California, man named George Bach, and he had 0:18:40.040 --> 0:18:41.800 he often stayed with me in New York when he 0:18:41.840 --> 0:18:43.320 was here, and he had just come back from a 0:18:43.320 --> 0:18:49.000 sexology conference where the author of The G Spot, Beverly Whipple, 0:18:49.920 --> 0:18:53.440 had made a presentation about her research and theories. And 0:18:53.480 --> 0:18:55.560 he said to me, look, Francis, you should get a 0:18:55.560 --> 0:18:58.879 hold of her and uh um, she should write a book. 0:18:59.800 --> 0:19:04.399 So I said, uh, okay, I've never heard of the 0:19:04.440 --> 0:19:08.280 G Spot. Uh. I decided that I felt it was 0:19:08.320 --> 0:19:10.680 more appropriate to have a woman and a woman agent 0:19:10.720 --> 0:19:14.040 in my office pursue it with her, which she did, 0:19:14.119 --> 0:19:17.840 and we signed her up and the rest is history, 0:19:18.040 --> 0:19:21.720 and that's sold just huge amounts in all around the world, 0:19:21.840 --> 0:19:24.080 all around the world. I have to go back to 0:19:24.160 --> 0:19:27.560 the nineteen seventies really where you cut your teeth in 0:19:27.640 --> 0:19:30.920 real estate. What was it like trying to develop real 0:19:31.040 --> 0:19:35.879 estate when interest rates were double digit and there seemed 0:19:35.880 --> 0:19:39.040 to be a lot of impediments to getting anything done 0:19:39.160 --> 0:19:41.800 In New York City. Well, in the early eighties, I 0:19:41.880 --> 0:19:46.639 was undertaking my first renovation. It was a building in 0:19:46.760 --> 0:19:51.400 Brooklyn Heights actually, and uh, I watched the prime rate 0:19:52.000 --> 0:19:55.080 soar all the way. I remember it hit eighteen or 0:19:55.160 --> 0:19:59.560 nineteen percent, but it was astronomic and actually it was 0:19:59.600 --> 0:20:02.800 an invert he did yield curve. So the long rates 0:20:02.840 --> 0:20:06.800 were lower. You could borrow five year money at about 0:20:06.840 --> 0:20:11.919 fourteen point seven five mortgage money um. And what we 0:20:11.960 --> 0:20:13.960 did in those days the bank had a way that 0:20:14.040 --> 0:20:15.840 you could buy the rate down. You paid them a 0:20:15.880 --> 0:20:20.359 certain amount up front, so the homeowner would get a 0:20:20.440 --> 0:20:23.600 mortgage at twelve and three quarters percent, which in that 0:20:24.040 --> 0:20:28.240 crazy environment seemed like a good rate. And so that 0:20:28.320 --> 0:20:31.760 was how we went about selling some of our units. 0:20:32.160 --> 0:20:35.120 The rest we ended up renting and selling a few 0:20:35.200 --> 0:20:41.600 years later when the market stabilized. So the regulatory environment, 0:20:41.840 --> 0:20:45.000 the sort of nimby thing that we still see today. 0:20:45.040 --> 0:20:48.080 The not in my backyard issue was that a big 0:20:48.080 --> 0:20:50.320 problem in the seventies or eight and eighties, or were 0:20:50.359 --> 0:20:54.679 people sort of open minded about development is good, it's 0:20:54.720 --> 0:20:58.040 an economic increase and it creates more housing. Well, I 0:20:58.080 --> 0:21:03.280 think the people are are flexible, but there is an 0:21:03.359 --> 0:21:08.159 mbie kind of mentality, particularly depending on the type of 0:21:08.200 --> 0:21:12.480 housing that's being created. We undertook to build a major 0:21:12.520 --> 0:21:17.240 project in in Brooklyn, in downtown Brooklyn, and when I 0:21:17.320 --> 0:21:20.840 proudly told the borough president that we were including a 0:21:20.880 --> 0:21:24.960 major component of affordable housing, he said, no way, not 0:21:25.080 --> 0:21:30.000 in that neighborhood. I couldn't believe my ears that UM 0:21:30.160 --> 0:21:36.720 that this UH, this politician, politician was was not favoring 0:21:37.240 --> 0:21:44.320 affordable housing. UM eventually overcame that because I explained that 0:21:44.359 --> 0:21:51.880 it was being co sponsored by the Actors Fund UH 0:21:51.920 --> 0:21:53.880 and that some of the people, some of the people 0:21:53.920 --> 0:21:57.159 there would be formally homeless people, but some of the 0:21:57.160 --> 0:22:00.280 other people were going to be retired actors who or 0:22:00.680 --> 0:22:04.280 UH needed needed housing, and that somehow made it more 0:22:04.320 --> 0:22:09.520 politically acceptable. Quite quite interesting. So in New York we've 0:22:09.520 --> 0:22:14.440 seen a huge number of these very tall buildings going up. 0:22:14.520 --> 0:22:17.360 What do you think about the state of of real 0:22:17.480 --> 0:22:22.960 estate commercial real estate development today. Well, I think in 0:22:22.960 --> 0:22:26.840 in in terms of for sale for sale housing, the 0:22:26.920 --> 0:22:33.879 market is bifurcreated. Um. If it's housing that is at 0:22:33.920 --> 0:22:36.480 a low price point, which for New York City means 0:22:36.840 --> 0:22:43.639 below three million, there's still a reasonably active market. The 0:22:43.640 --> 0:22:48.480 super luxury market has cooled off dramatically, and I would 0:22:48.520 --> 0:22:51.960 say that this is not a time that I would 0:22:52.000 --> 0:22:55.080 want to be building super luxury housing. And I think 0:22:55.160 --> 0:22:58.359 some of the projects that are sort of caught in 0:22:58.400 --> 0:23:00.840 the middle right now that are being built are going 0:23:00.880 --> 0:23:04.199 to have trouble selling their selling their units. So that 0:23:04.400 --> 0:23:08.320 space very much boomed for a while during the post 0:23:08.359 --> 0:23:11.960 credit crisis recovery. It seemed it was scraping along and 0:23:12.000 --> 0:23:15.800 then it just exploded. Did we over build? Did the 0:23:15.840 --> 0:23:18.199 prices just get too silly? What what seems to be 0:23:18.280 --> 0:23:21.120 the issue there? And those tend to be cash purchases, 0:23:21.240 --> 0:23:25.359 not mortgage properties. Well, I think, especially in the higher end, 0:23:25.400 --> 0:23:28.000 is that fair. I don't think that that's necessarily true. 0:23:28.000 --> 0:23:32.920 I think it's mixed, uh problem, maybe half cash and 0:23:33.000 --> 0:23:36.480 half financing. Uh, you know. I think it was a 0:23:36.600 --> 0:23:40.640 confluence of events which are often what occurs, and those 0:23:40.720 --> 0:23:45.879 events or a combination of increased supply a misperception of 0:23:45.920 --> 0:23:49.520 the depth of demand. So you know, people see a 0:23:49.560 --> 0:23:52.920 few apartments or you know, a hundred apartments being sold 0:23:53.200 --> 0:23:57.160 at a certain price point, and developers extrapolate that into 0:23:57.240 --> 0:23:59.800 being a market for a thousand or two thousand. So 0:24:00.080 --> 0:24:03.520 often under the market system, we really don't know when 0:24:03.560 --> 0:24:07.119 we've oversupplied the market until we still thinks stopped selling. 0:24:08.560 --> 0:24:12.960 And the other factor, which I think is coming into 0:24:13.000 --> 0:24:17.000 play now, is that as a result of the tax 0:24:17.119 --> 0:24:23.280 legislation that was recently passed UH, New York and some 0:24:23.400 --> 0:24:27.159 other UH states that may be high service states but 0:24:27.280 --> 0:24:30.520 have to have high taxes to support them are in 0:24:30.600 --> 0:24:34.640 disfavor UH. And I'm sure that's in the minds of 0:24:34.640 --> 0:24:38.160 of some wealthy people who are thinking of locating here. 0:24:38.000 --> 0:24:41.520 We're talking about salt state and local tax deductions which 0:24:41.600 --> 0:24:44.960 got capped UM at a pretty low level, which is 0:24:45.000 --> 0:24:50.119 heard in New York, California. I would guess Chicago and Boston. UH. 0:24:50.280 --> 0:24:52.320 I think those are all on the list, and there 0:24:52.320 --> 0:24:57.040 are others UM. I also recall reading you you would 0:24:57.119 --> 0:25:02.439 referenced LLCs more easily by condos versus co ops in 0:25:02.520 --> 0:25:06.119 order to UM in many ways provide some degree of 0:25:06.160 --> 0:25:10.160 privacy for whoever the owner is. UM. Are we still 0:25:10.200 --> 0:25:14.000 seeing a lot of LLC purchases of of along those 0:25:14.000 --> 0:25:17.159 ways for for those purposes? Or has there was a 0:25:17.240 --> 0:25:19.320 giant New York Times article a couple of years ago 0:25:19.320 --> 0:25:23.200 about this, or has that trend kind of eased off? Well? 0:25:23.240 --> 0:25:26.920 I think ll c's exists for two reasons. In some 0:25:27.000 --> 0:25:30.320 cases it may be anonymity, but in other cases it's 0:25:30.320 --> 0:25:36.400 a simple legal protection against personal liability. UH. And many 0:25:36.480 --> 0:25:40.600 lawyers would advise their clients, regardless of of whether they're 0:25:40.640 --> 0:25:44.200 concerned about their identity or not, to purchase through what's 0:25:44.200 --> 0:25:49.119 called a single purpose ll C UM so liability to 0:25:49.200 --> 0:25:52.600 protect the household, or liability to protect the owner. In 0:25:52.640 --> 0:25:56.800 cases to protect the owner, I mean normally you have insurance, etcetera. 0:25:56.920 --> 0:26:02.640 But you know, God forbid some very very unexpected event occurs. UM, 0:26:03.080 --> 0:26:06.399 if it's owned by an LLC, you would be protected, 0:26:06.560 --> 0:26:08.679 Whereas if you owned it in your own name, you 0:26:08.680 --> 0:26:11.439 would be totally reliant on your insurance, which may be 0:26:11.760 --> 0:26:16.359 fully adequate. But UM, a very cautious lawyer would would 0:26:16.359 --> 0:26:20.640 recommend an LLC time Equities. Um, I know you focus 0:26:20.720 --> 0:26:23.720 a lot in Brooklyn and Manhattan. Are you outside of 0:26:23.720 --> 0:26:25.760 the New York area? Where else do you do you 0:26:26.000 --> 0:26:29.920 look to, uh do some construction and renovation? Well, actually, 0:26:29.960 --> 0:26:33.480 Time Equities is a very national and international company. We 0:26:33.560 --> 0:26:37.440 own property in thirty states. We own property in six 0:26:37.480 --> 0:26:43.399 countries US, Canada, Germany, Holland, Italy and one property in 0:26:43.440 --> 0:26:46.280 the Caribbean. And let's talk a little bit about the 0:26:46.320 --> 0:26:49.960 real estate cycle. Where are we here? Is this late 0:26:50.000 --> 0:26:53.280 cycle early cycle? It seems like there hasn't been a 0:26:53.280 --> 0:26:55.840 lot of supply coming to the market. That doesn't seem 0:26:55.880 --> 0:26:58.840 like a lot of existing homes have come up. How 0:26:59.000 --> 0:27:01.240 how are you looking at where we are in that 0:27:02.000 --> 0:27:05.520 in in that season? Well, I think real estate is 0:27:05.560 --> 0:27:09.480 always in two cycles. One is its own cycles supply 0:27:09.560 --> 0:27:14.680 and demand in a particular sub market, and the other is, uh, 0:27:14.720 --> 0:27:18.439 what's the financing market look like and what what is 0:27:18.440 --> 0:27:24.240 the ability of purchasers or renters to consume additional real estate? 0:27:25.080 --> 0:27:28.399 I think the economy generally bankers say we're in the 0:27:28.760 --> 0:27:32.360 tenth now eleventh inning of a nine inning game. Uh, 0:27:32.400 --> 0:27:35.480 and so we all sort of know that intuitively. Um, 0:27:35.520 --> 0:27:40.040 and that's of course a concern um UH. Different sub 0:27:40.080 --> 0:27:47.000 markets have different characteristics. We tend to be opportunistic and 0:27:47.080 --> 0:27:52.920 we look for properties that are underperforming in a given market. UH, 0:27:52.960 --> 0:27:56.760 and real estate tends to exist over long periods of time, 0:27:56.840 --> 0:28:00.639 so we don't think in twelve twenty four month segments. 0:28:00.680 --> 0:28:03.240 We think in five and ten years segments, so we 0:28:03.280 --> 0:28:05.520