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Speaker 1: Hello, and welcome to the Credit Edge of Weekly Markets Podcasts.

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Speaker 1: My name is James Crombie. I'm a senior editsrot Bloomberg.

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Speaker 2: And I'm Erica Adelberg, a senior strategist at Bloomberg Intelligence

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Speaker 2: and mortgage backed Securities. This week, we're very pleased to

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Speaker 2: welcome John Prusan to the show, who oversees residential credit,

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Speaker 2: including financing to home builders at Pretium. Now, John, how

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Speaker 2: are you.

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Speaker 3: I'm great? Thank you great.

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Speaker 2: John's been in the market for thirty five years. Before Prediam,

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Speaker 2: he was at Morgan Stanley, most recently as the chief

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Speaker 2: operating Officer, and before that he was the CFO. John's

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Speaker 2: also on the board of the Peterson Institute of International

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Speaker 2: Economics and a trustee of the New York Presibent Terry

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Speaker 2: in Hospital. I'm going to flip it back to James

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Speaker 2: for the first question.

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Speaker 1: Thank you very much, Erka being great to have you

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Speaker 1: on the show. John, So, we have talked a lot

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Speaker 1: about private credit on this show, and mostly about the

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Speaker 1: negativity around it, around all the redemptions, around all of

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Speaker 1: the challenges on the marks, around the liquidity issues, and

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Speaker 1: et cetera. So investors globally, though, have a lot of cash,

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Speaker 1: and it's been pretty hard to find value anywhere. Predium,

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Speaker 1: you're a large alternative asset manager focused primarily on US

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Speaker 1: real estate, housing related credit and private debt investments. How

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Speaker 1: does all of this negativity around private credit, around private markets,

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Speaker 1: how does that affect your ability to raise funds and invest?

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Speaker 4: Oh, thank you for having me, and that there's been

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Speaker 4: a lot of discussion about private credit and the nu

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Speaker 4: answers of private credit. When we think about Predium and

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Speaker 4: the private credit that we're generating, we're think of ourselves

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Speaker 4: as sort of private credit arriving at housing. And what

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Speaker 4: I mean by that is we finance houses that being built,

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Speaker 4: being renovated, being upgraded, and so we have a real

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Speaker 4: physical asset and underlying real estate asset that we're secured by.

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Speaker 4: These are loans that are attractive in terms of both

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Speaker 4: the yield and the profile in terms of duration and

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Speaker 4: the risk. And so our private credit looks a little

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Speaker 4: bit different than I think other private credit in the

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Speaker 4: sense that we are secured. We have real good downside

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Speaker 4: protection because we have that security. Our security is not

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Speaker 4: cash flows. Our securities is a physical house. It could

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Speaker 4: be land that's ready for development, and so we have

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Speaker 4: the ability to take that house back or take that

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Speaker 4: land and liquidate that that position. So we have attractive yields,

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Speaker 4: good attachment points. So when we look at LTVs, most

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Speaker 4: of the stuff we do is in that seventy five

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Speaker 4: percent type LTV sixty five percent seventy five percent LTV,

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Speaker 4: and so we have good equity cushion, we have good security,

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Speaker 4: and we have good attachment points. So slightly different than

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Speaker 4: lending to middle market companies.

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Speaker 2: I mean, I have a number of questions. I'm not

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Speaker 2: going to overwhelm, but you know, first of all, when

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Speaker 2: you talk about seventy five LTV, the question is for

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Speaker 2: a lot of these properties, they're in transition. So how

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Speaker 2: do you actually determine what the LTV is?

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Speaker 3: In that case, it's a load of value. Yeah, no,

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Speaker 3: that's loan to value. That's a great question.

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Speaker 4: And obviously the loan to value give you that equity

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Speaker 4: cushion and that protection that you need against your.

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Speaker 3: Senior secure position.

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Speaker 4: And I think one of the advantages of Predium is

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Speaker 4: that we built what we call a residential real estate ecosystem.

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Speaker 4: So within that ecosystem where we manage sixty five billion

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Speaker 4: dollars of assets. We actually own and operate five operating companies.

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Speaker 4: We have two property managers, two loan originators, and a

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Speaker 4: special servicer. So between those five companies we have a

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Speaker 4: tremendous amount of rich data. We have over one hundred

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Speaker 4: and seventy five thousand residents that we collect data on

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Speaker 4: every month. We buy and sell homes, We finance homes,

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Speaker 4: we service mortgages, and so we have millions of data

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Speaker 4: points that are very market specific, not national. So we

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Speaker 4: have very good detailed data at local levels, and we

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Speaker 4: use that data to help inform us on what should

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Speaker 4: the value of that house to be, What should be

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Speaker 4: the value of that you know property in terms of rents,

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Speaker 4: if it's a rental property, what should be the scope

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Speaker 4: around that property? How many properties have we bought and sold,

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Speaker 4: how many have we renovated, how many of we built.

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Speaker 4: We have a really rich data set that helps us

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Speaker 4: make better risk and underwriting decisions. But the LTV is

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Speaker 4: critical in any lending position. Another interesting thing about real estate,

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Speaker 4: particularly residential real estate. I'm not talking office, I'm not

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Speaker 4: talking retail, but residential real estate has been an extraordinarily

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Speaker 4: resilient asset class because they're just not enough housing units

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Speaker 4: in this country. So if you look back over a

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Speaker 4: long period of time, on a national level, there's only

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Speaker 4: been two times where housing prices have gone down double digits.

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Speaker 4: One is the Great Depression and one is the global

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Speaker 4: financial crisis. Those were notable, though they were certainly notable.

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Speaker 2: Yeah, I would say, you know, one of the things

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Speaker 2: that came up at a conference that was at recently

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Speaker 2: on residential securitization was the concern a little bit and

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Speaker 2: this is more about the cash out lending, but the

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Speaker 2: concern that if one particular party is actually the one

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Speaker 2: providing most of the properties for comps, that that might

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Speaker 2: be a little bit of a concern. You know, since

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Speaker 2: you're probably so dominant in certain areas, how do you

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Speaker 2: make sure I guess, I guess you judge it on

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Speaker 2: actual transactions, or how do you make sure that the

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Speaker 2: appraisals aren't just relative to your own properties?

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Speaker 3: Well, I would say all of the above.

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Speaker 4: There have been clearly instances around the country that there

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Speaker 4: has been appraisal fraud, for sure, and so we have

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Speaker 4: a couple of different mechanisms to do that. One is

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Speaker 4: we use appraisals, so we get outside appraisals, but we

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Speaker 4: also have our internal data and internal database, and we

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Speaker 4: compare those appraisals to our own data, and if there's

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Speaker 4: a big anomaly, we'll dig deeper and deeper and deeper

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Speaker 4: into that to try to figure out if we're missing

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Speaker 4: something or we have a situation where maybe something is

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Speaker 4: not as clean as it should be. But most of

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Speaker 4: the time we will rely on our own internal work

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Speaker 4: validated by an external third party appraiser.

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Speaker 2: Now, as long as we're on the topic of risks,

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Speaker 2: not a want to put it down or on everything.

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Speaker 2: I don't think that's why James invited me here. But

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Speaker 2: you know, how is this institutional investor ban type of

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Speaker 2: political environment? Is that affecting you at all? And how

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Speaker 2: do you see that affecting your business plans going forward?

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Speaker 4: Another great question and very focused on the downside. As

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Speaker 4: you know, earlier this year, the President came out with

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Speaker 4: an executive order that looked to kirktail institutional ownership of

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Speaker 4: single family rental homes, which is about half of what

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Speaker 4: we do. The other half is related to credit and

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Speaker 4: private debt. I won't go through the long story of it,

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Speaker 4: but where it sits today is there is a bill

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Speaker 4: that has been passed by the House. That bill was

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Speaker 4: a bill that had been passed by the Senate but modified.

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Speaker 4: That new bill has passed. I think it was three

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Speaker 4: hundred and ninety six to thirteen, so clear support, clear

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Speaker 4: bipartisan support. That bill has to go back to the Senate.

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Speaker 4: Tim Scott, who was responsible for Financial Services and the

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Speaker 4: bill in the Senate, came out this morning and said

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Speaker 4: he thought that was a workable bill. So we hope

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Speaker 4: a bill will get to the floor of the Senate

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Speaker 4: before let's say the end of the month, and maybe

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Speaker 4: even to the President by July fourth.

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Speaker 2: And this Senate bill was much less onerous about yeah.

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Speaker 4: Yeah, so the Senate bill. So if the bills passed

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Speaker 4: as written, A couple of things I think people have

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Speaker 4: lost sight of. This is a very large bill that

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Speaker 4: tries to address some of the major issues around the

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Speaker 4: under supply of houses in this and I think that

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Speaker 4: is the underlying theme and the thematic around what most

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Speaker 4: of our investing is. So there is a four or

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Speaker 4: five or six million housing unit shortage in this country,

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Speaker 4: depending on what research you look at. This bill was

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Speaker 4: to address it, to make it easier to build houses

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Speaker 4: in this country, so permitting zoning, environmental requirements. There was

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Speaker 4: even or even some very good legislation around manufactured housing

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Speaker 4: and what is required and what is not required. So

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Speaker 4: this is sort of a supply side bill to help

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Speaker 4: build more houses in this country. A small piece of

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Speaker 4: this bill is the bill is the reference that you

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Speaker 4: just made and what the president executive order was, and

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Speaker 4: that they have made a clear delineation between large institutional

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Speaker 4: owners owning single family rentals. They have come up with

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Speaker 4: a series of permittable activities I would call them or exceptions.

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Speaker 4: And within those exceptions there are we're allowed to buy

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Speaker 4: homes that are originally built to rent or have been

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Speaker 4: purposely built to rent, and another several other layers of

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Speaker 4: permittable activities that will allow us to continue to supply

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Speaker 4: capital to the housing shortage, to continue to support more

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Speaker 4: housing in this country, and to continue to support an

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Speaker 4: alternative to ownership with a clean, safe and a home

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Speaker 4: in a nice neighborhood, with a better school and lower

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Speaker 4: poverty rates for renters. And so I think the bill

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Speaker 4: as it's currently written comes with some incremental regulation and

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Speaker 4: incremental reporting requirements, but I think we can continue to

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Speaker 4: support our key mission of supporting home building in this

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Speaker 4: country and supporting renters in this country.

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Speaker 2: So overall you see it as a positive.

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Speaker 4: Actually, I would say it's in net positive, and I

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Speaker 4: think it's in net positive because it elevated the discussion

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Speaker 4: around housing and affordability in this country. It also highlighted

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Speaker 4: that private capital is part of the solution, not part

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Speaker 4: of the problem. And it also identified renters as important

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Speaker 4: constituents in the country, as forty five million of the

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Speaker 4: housing units, so about a third of all housing units

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Speaker 4: in this country are renters. Fifteen million homes and thirty

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Speaker 4: million apartments. So I think all in all, we would

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Speaker 4: say the bill is important, and we would say it's

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Speaker 4: a positive for housing and renters in general.

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Speaker 1: I do want to come back to the politics, which

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Speaker 1: is such a huge issue, but just to zoom out

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Speaker 1: for a second for our listeners, just looking at, you know,

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Speaker 1: the actual housing market in the United States. I'm probably

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Speaker 1: very biased by the fact that I live in New York.

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Speaker 1: Prices are way too high, funding costs are way too high.

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Speaker 1: It's not a great market. So why is it a

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Speaker 1: good investment.

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Speaker 4: It's a good investment for a couple of reasons, and

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Speaker 4: it depends on which part of the capital structure you

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Speaker 4: want to invest in. As I mentioned before, half of

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Speaker 4: our businesses were we own and operate approximately ninety thousand

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Speaker 4: homes for rent. Those are both scattered homes and build

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Speaker 4: to rent, so communities of homes that were built to rent.

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Speaker 4: And based on what you just said, one of the

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Speaker 4: dynamics that we're seeing today is in the housing markets

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Speaker 4: in general, we have very low vacancy rates.

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Speaker 3: We have very.

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Speaker 4: High retention so turnover, so people are re upping their

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Speaker 4: leases as opposed to moving out. And we have this

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Speaker 4: cohort called millennials who are sort of reaching household formation

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Speaker 4: age and they're coming of that age and they can't

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Speaker 4: afford a house, so they want to rent the house

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Speaker 4: because they want the housing experience. As I mentioned, our

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Speaker 4: houses are generally in better communities with better school systems,

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Speaker 4: they're commutable to employment hubs, lower poverty rates, lower crime rates.

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Speaker 4: So giving people an opportunity to move out of apartments

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Speaker 4: which are generally smaller, move out of sort of city

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Speaker 4: environments and get to a more of an urban or

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Speaker 4: rural environment is something that a lot of people want

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Speaker 4: to do. So every day we're creating more renters, because

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Speaker 4: when these people get to the point where they want

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Speaker 4: to buy a house, average house thirty five thousand dollars

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Speaker 4: down payment. Biggest impediment for people owning a house in

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Speaker 4: this country is the down payment, but today it's also

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Speaker 4: probably forty percent or about one thousand dollars more to

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Speaker 4: own a house and to rent a house. So as

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Speaker 4: a as a rental house matter, again, we're in a

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Speaker 4: position where unfortunately there is a lot of housing that

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Speaker 4: is unaffordable. You mentioned all the reasons, including high mortgage rates,

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Speaker 4: and we're providing basically a product, a rental product, for

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Speaker 4: that consumer base, and that consumer base is growing, so

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Speaker 4: that is a good sort of tailwind, if you will.

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Speaker 4: And then on the credit part of the equation, as

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Speaker 4: we just discussed, we are financing homebuilders. Home builders need

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Speaker 4: to build homes, they want to build homes, and the

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Speaker 4: banks have stepped away from that as a category generally.

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Speaker 4: And it wasn't just the global financial crisis, it started

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Speaker 4: even a little bit, but for that in terms of

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Speaker 4: how banks look at customers and look at returns on

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Speaker 4: investment or returns on equity of a customer, and customer

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Speaker 4: selection around homebuilders is tricky because it's a complicated asset class.

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Speaker 4: It requires significant number of draws, inspections, a lot of

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Speaker 4: people to service and asset management. That on top of

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Speaker 4: historically onerous capital rules inside of the banking system. So

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Speaker 4: if you go back twenty thirty years, probably eight percent

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Speaker 4: of a bank's loan book was construction loans. Today it's

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Speaker 4: four And if you look within that residential number is

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Speaker 4: less than one percent of the loan portfolio of all

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Speaker 4: the banks in this country finance residential homebuilders.

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Speaker 1: So you are one of the largest owner operators of

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Speaker 1: single family rental homes in the US.

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Speaker 3: Right, that is correct?

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Speaker 1: And so can you just talk us through a deal, like,

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Speaker 1: how does it work? You borrow money or you get

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Speaker 1: invested money, then you buy homes or you lend to

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Speaker 1: home builders. What is that like currently look like in

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Speaker 1: terms of your opportunity set?

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Speaker 4: Yes, So the answer is yes to all those but

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Speaker 4: I'll break them down for you. So everything we do

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Speaker 4: is based on our LPs, our limited partners. So we

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Speaker 4: go out and we raise money, whether that's in fun

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Speaker 4: form or in SMAs, which are individual vehicles.

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Speaker 3: We raise money from third parties.

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Speaker 4: Those third parties are predominantly pension funds, high net worth investors,

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Speaker 4: sovereign wealth funds all around the world, and then we

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Speaker 4: take that money in depending on the strategy, we invest

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Speaker 4: for them on their behalf. And so for an traditional

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Speaker 4: equity investment, we have a fund that is s FR six,

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Speaker 4: which is a six fund in a series of single

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Speaker 4: family rental funds, which is predominantly or is for build

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Speaker 4: to rent. So our team looks at goes around the

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Speaker 4: home build bilders around this country. We have relationships and

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Speaker 4: as they build build to rent communities, we provide liquidity

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Speaker 4: and capital for those opportunities, and we buy generally directly

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Speaker 4: from the homebuilders either partially built communities, fully built communities,

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Speaker 4: not even ground broken community and our ability to give

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Speaker 4: that home builder capital allows them to recycle and build

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Speaker 4: more and more homes.

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Speaker 3: So we are a very.

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Speaker 4: Important provider of capital and liquidity for homebuilders, and that

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Speaker 4: is in the build to rent situation.

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Speaker 1: Why don't we just go to the capital markets, the

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Speaker 1: bond market, the loanmark.

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Speaker 4: When did you go to the banks, Because the top

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Speaker 4: ten or fifteen, maybe the top twenty home builders in

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Speaker 4: this country have access to the capital markets. I would

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Speaker 4: say when you get to number twenty or twenty five

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Speaker 4: or thirty, those homebuilders are probably building a couple thousand homes.

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Speaker 4: When you get to number one hundred or two hundred,

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Speaker 4: they're building a couple hundred homes. So half of the

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Speaker 4: homes in this country get built by what we would

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Speaker 4: call sort of mid market homebuilders. Those people don't have

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Speaker 4: access to.

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Speaker 3: The capital markets.

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Speaker 4: Additionally, what I said before, they generally don't have access

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Speaker 4: to the banks because the banks want not only the

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Speaker 4: lending product, i e. Here's money to go build the home,

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Speaker 4: but they also want ancillary products. They want to be

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Speaker 4: your treasury services or asset management. They want more services

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Speaker 4: so that the quote unquote relationship is more profitable. And

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Speaker 4: so from a client selection standpoint, we've seen the bank

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Speaker 4: step away from that mid market builder and that through

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Speaker 4: our subsidiary, our company called Anchor Loans. That company makes

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Speaker 4: loans to those number twenty to two hundred home builder

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Speaker 4: all across the country to build you know, communities or

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Speaker 4: sub communities of homes.

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Speaker 1: Okay, I guess this is all secured lending. You know,

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Speaker 1: it's not software. It's like hot assets, which is everyone

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Speaker 1: wants to be in hard tangible stuff right now. But

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Speaker 1: as an investor, do you necessarily want to end up

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Speaker 1: with a bunch of real estate in the event that

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Speaker 1: you know they can't pay.

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Speaker 4: No, So we when we make loans, we hope the

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Speaker 4: primary source of repayment is that community either get sold

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Speaker 4: or refinanced. And when we make a loan, our expectation

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Speaker 4: is to get our money back. In a last resort situation,

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Speaker 4: we will take over that project or that property. So

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Speaker 4: our goal is never to end up with the end

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Speaker 4: real estate. And again, we are dealing with home builders

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Speaker 4: that are mostly regional home builders. They have long track records,

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Speaker 4: they have significant balance sheets. They used to get financed

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Speaker 4: by the banks. They no longer get financed by the banks,

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Speaker 4: and this we're trying to fill that capital gap. These

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Speaker 4: are sophisticated. We have guarantees on completion, we have all

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Speaker 4: sorts of protections within our loan documentation, and we're providing

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Speaker 4: a much more flexible source of financing.

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Speaker 3: And we're really good at what we do.

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Speaker 4: And so when they call for a d all, we

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Speaker 4: get the inspection done and we get them their money

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Speaker 4: within generally two to three days. And that's the type

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Speaker 4: of service that they want, and we're able to provide that,

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Speaker 4: and I don't think the banks are really able to

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Speaker 4: provide that type of service.

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Speaker 1: So it's a direct learn from you. For a fixed term,

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Speaker 1: fixed rate of flirting rates.

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Speaker 3: Generally a sofa plus. Yes. If you look at.

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Speaker 4: Anchor, they do a couple of different things. They do

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Speaker 4: what we call residential transition loans, so loan a lot

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Speaker 4: of houses when they get sold today or twenty thirty

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Speaker 4: forty years old. End buyers don't want to buy that

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Speaker 4: home because it needs to be renovated. So a developer

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Speaker 4: will buy that home, renovate it, and then sell it

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Speaker 4: to an end consumer.

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Speaker 3: So we finance that type of business.

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Speaker 4: We also have an individual where you have a developer

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Speaker 4: or a builder who wants to build.

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Speaker 3: One or two homes. Will finance that type of business.

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Speaker 4: And then what we call the home builder finance business

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Speaker 4: for both residential and multi family. We will provide lending

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Speaker 4: for the bigger projects, and the bigger the bigger barrow,

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Speaker 4: and that generally, as I said, depending on the product,

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Speaker 4: the home builder finance product today is a sofur blended.

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Speaker 4: We do both horizontal which is entitled land that needs

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Speaker 4: to get roads and power and all that stuff, and

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Speaker 4: vertical which is once a land is shovel ready, you

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Speaker 4: can build vertically. Those loans that we've been making over

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Speaker 4: the last twelve to eighteen months are generally so for

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Speaker 4: plus six hundred or six fifty, So you're talking about

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Speaker 4: unlevered yields that are in the low teens. And then

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Speaker 4: obviously with the leverage that we can that we get

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Speaker 4: from our lenders, we're able to generate sort of mid

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Speaker 4: teens type of returns on that.

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Speaker 3: Type of product.

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Speaker 2: Are you focused in a particular region yourself?

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Speaker 4: We are a national all the things that I just

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Speaker 4: talked about, both lending and our single family rental business

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Speaker 4: is a national business. We are a lot of what

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Speaker 4: we have done is where a lot of the building

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Speaker 4: and a lot of the migration and a lot of

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Speaker 4: the people growth is been so a lot of the

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Speaker 4: markets in the Southwest, Southeast sort of the bottom half

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Speaker 4: of the United States.

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Speaker 3: But we lend.

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Speaker 4: Nationally, and I think this is one of the important things,

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Speaker 4: which is market selection is really important today. So you know,

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Speaker 4: the Northeast is a very attractive market today, the Midwest

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Speaker 4: is a very attractive market. Interestingly, San Francisco is attractive

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Speaker 4: again because of the AI boom, and everyone who needs

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Speaker 4: housing in San Francisco, right, So there are there are

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Speaker 4: certain markets that are more attractive than other markets, and

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Speaker 4: there's also micro markets. So a lot of people talk

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Speaker 4: about Austin Texas and how prices have you know, went

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Speaker 4: up dramatically and now have come down fifteen twenty twenty

378
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Speaker 4: five percent. They're starting to stabilize a little bit. But

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Speaker 4: there are parts of Austin Texas that we will still

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Speaker 4: lend money to home builders because they're in attractive markets

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Speaker 4: with attractive school systems that we believe would have significant

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Speaker 4: demand from either renters or owners. And so again, one

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Speaker 4: of the things that makes you Predium so unique, I

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Speaker 4: think is this data rich environment that we've created on

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Speaker 4: top of our proprietary sourcing. So we have five companies

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Speaker 4: that support everything we do, and I think that gives

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Speaker 4: us a sort of a unique insight into this market. Nationally,

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Speaker 4: we would love for there to be more opportunities in

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Speaker 4: the Midwest and the Northeast. We're just not seeing that

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Speaker 4: level of building just yet, and hopefully we'll see that.

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Speaker 3: We'll see that in your turn did.

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Speaker 1: Just in your assessment of the returns, John, you know

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Speaker 1: I mentioned six one hundred and six to fifty EPISO

394
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Speaker 1: for the loans. You're talking about unleavered returns in the

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Speaker 1: mid teens. That's pretty good when you're talking about your

396
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Speaker 1: liquid junk bones at seven percent.

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Speaker 3: Use the word junk bond.

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Speaker 4: Still the the I said unlevered unlevered returns in the

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Speaker 4: low teens.

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Speaker 3: With leverage, we can get to the MIDI.

401
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Speaker 4: And again, there certain products and I think that's why

402
00:21:56,840 --> 00:22:00,000
Speaker 4: you've also seen a little bit. I think again we're

403
00:22:00,080 --> 00:22:02,880
Speaker 4: pretty balanced in terms of our ecosystem, with about half

404
00:22:02,880 --> 00:22:05,240
Speaker 4: of our business in the in the equity side, the

405
00:22:05,280 --> 00:22:07,480
Speaker 4: single family rental, and then half of our business in

406
00:22:07,600 --> 00:22:11,359
Speaker 4: sort of mortgage credit and debt. But certainly over the

407
00:22:11,400 --> 00:22:13,800
Speaker 4: last year or two, we've seen a lot more people

408
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Speaker 4: attracted to the debt side of the equation because you're

409
00:22:17,040 --> 00:22:20,800
Speaker 4: getting sort of attractive returns in a senior secured position, right,

410
00:22:20,880 --> 00:22:22,720
Speaker 4: So we've seen a lot of the allocators that we

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Speaker 4: talked to interested in that side of the business. We

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Speaker 4: are starting to see again some positive momentum around the

413
00:22:30,359 --> 00:22:34,040
Speaker 4: equity side of the business as we've seen the oversupply

414
00:22:34,119 --> 00:22:37,439
Speaker 4: get absorbed. So again you know there are cycles, but

415
00:22:37,560 --> 00:22:41,479
Speaker 4: supply and demand dynamic is really one of the key

416
00:22:41,600 --> 00:22:43,399
Speaker 4: drivers of what we do, and we're in a pretty

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Speaker 4: good spot from that perspective.

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Speaker 1: Compassing the private credit side, you know, the culporate threat lending,

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Speaker 1: the returns expectations have gone right down and the default

420
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Speaker 1: expectations have gone up, and that's led people to move

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Speaker 1: away from that and into i'll use hih yield not

422
00:22:58,359 --> 00:23:01,720
Speaker 1: junk bones insteads and the leverage loans and other parts

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Speaker 1: of liquid so called liquid credit markets. Do you expect

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Speaker 1: this level of return to be sustainable in real estate

425
00:23:09,080 --> 00:23:09,919
Speaker 1: and how.

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Speaker 3: Do you keep it up? Yeah, I mean it's a

427
00:23:11,440 --> 00:23:11,920
Speaker 3: great question.

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Speaker 4: I mean, obviously there's a lot of inputs to that

429
00:23:14,040 --> 00:23:19,760
Speaker 4: in terms of both absolute rates, funding rates, and spreads.

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Speaker 4: But I want to just make one clean distinction. What

431
00:23:25,040 --> 00:23:28,400
Speaker 4: we do today is predominantly in a closed end fund,

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Speaker 4: so we don't have the traditional monthly monthly subscriptions and

433
00:23:33,160 --> 00:23:38,119
Speaker 4: quarterly redemption. So these are not liquid positions. These funds

434
00:23:38,160 --> 00:23:40,520
Speaker 4: are generally five year funds. They have a two year

435
00:23:40,560 --> 00:23:43,000
Speaker 4: investment period and a three year harvest periit and that

436
00:23:43,080 --> 00:23:45,080
Speaker 4: money is locked up, so that allows us to put

437
00:23:45,119 --> 00:23:49,640
Speaker 4: more leverage on probably what you're seeing in other other

438
00:23:49,800 --> 00:23:54,440
Speaker 4: more evergreen or liquid vehicles. But again, I think from

439
00:23:54,520 --> 00:23:59,480
Speaker 4: our perspective, one of the primary drivers of those types

440
00:23:59,480 --> 00:24:03,320
Speaker 4: of returns are two things. One, there is an undersupply

441
00:24:03,440 --> 00:24:05,800
Speaker 4: of houses in this country, and therefore people need to

442
00:24:05,840 --> 00:24:09,159
Speaker 4: build houses, and the most of those people don't have

443
00:24:09,240 --> 00:24:12,520
Speaker 4: access to bank capital, so they will come to us

444
00:24:12,840 --> 00:24:14,639
Speaker 4: and anchor loans to get that capital.

445
00:24:14,720 --> 00:24:16,640
Speaker 3: So that's in that positive and.

446
00:24:16,560 --> 00:24:22,480
Speaker 4: Today, certainly the coupons versus our funding costs is a

447
00:24:22,480 --> 00:24:25,880
Speaker 4: pretty healthy nim which gets us to those levels of returns.

448
00:24:26,280 --> 00:24:29,480
Speaker 4: They're both floating rates, so if we can lock in

449
00:24:30,240 --> 00:24:32,840
Speaker 4: that spread, we're in a we think in a very

450
00:24:32,960 --> 00:24:36,840
Speaker 4: attractive position. And again we'll have cycles and we'll have

451
00:24:37,280 --> 00:24:41,000
Speaker 4: different periods of time over the next three to five years.

452
00:24:41,000 --> 00:24:43,159
Speaker 4: But we think that the fact that we have a

453
00:24:43,160 --> 00:24:45,240
Speaker 4: lot of people who want capital and not a lot

454
00:24:45,240 --> 00:24:49,520
Speaker 4: of people providing capital, that puts us an opportunity to

455
00:24:49,560 --> 00:24:51,560
Speaker 4: continue to generate attractive returns.

456
00:24:51,920 --> 00:24:56,160
Speaker 2: It makes me think that despite tariffs and other higher

457
00:24:56,240 --> 00:24:59,720
Speaker 2: costs that are associated with home building these days and renovations,

458
00:25:00,440 --> 00:25:03,000
Speaker 2: it must still be a pretty attractive business to be

459
00:25:03,080 --> 00:25:06,320
Speaker 2: in because if they can afford to pay those types

460
00:25:06,359 --> 00:25:12,120
Speaker 2: of loan rates and still have a positive return, I guess.

461
00:25:11,920 --> 00:25:15,399
Speaker 4: But I mean yes, but there is a lot of

462
00:25:15,400 --> 00:25:19,720
Speaker 4: pressure on home builders don't. Certainly, if you look at

463
00:25:19,760 --> 00:25:23,280
Speaker 4: the public numbers, right, the margins are under pressure, Inventories

464
00:25:23,320 --> 00:25:27,200
Speaker 4: are still pretty high, and so and cost of building

465
00:25:27,320 --> 00:25:31,399
Speaker 4: continues to either go up or stay elevated. Right, So

466
00:25:31,440 --> 00:25:35,840
Speaker 4: it's really important to finance the right homebuilders. And homebuilders

467
00:25:35,880 --> 00:25:38,280
Speaker 4: who've been in this business for ten, fifteen, twenty thirty

468
00:25:38,359 --> 00:25:41,560
Speaker 4: years they do something that we all when we do

469
00:25:41,600 --> 00:25:45,120
Speaker 4: our own renovations, we call value engineer. They're constantly trying

470
00:25:45,160 --> 00:25:50,280
Speaker 4: to figure out ways to build product that meets the

471
00:25:51,440 --> 00:25:55,560
Speaker 4: demand criteria of the buyer and yet generates an appropriate

472
00:25:55,560 --> 00:25:59,040
Speaker 4: return and margin for them. And they've been able to

473
00:25:59,080 --> 00:26:02,119
Speaker 4: do that through different It is getting certainly more challenging,

474
00:26:02,520 --> 00:26:05,600
Speaker 4: but we think that there's still going to be plenty

475
00:26:05,600 --> 00:26:11,480
Speaker 4: of opportunity to finance strong home builders to build attractive

476
00:26:11,520 --> 00:26:16,439
Speaker 4: product in attractive markets. We did call it three billion

477
00:26:16,480 --> 00:26:19,200
Speaker 4: dollars of home builder finance, so again this sort of

478
00:26:19,280 --> 00:26:22,840
Speaker 4: number twenty to two hundred. Last year in twenty twenty five,

479
00:26:22,880 --> 00:26:26,479
Speaker 4: we looked at over thirty billion dollars of loans, so

480
00:26:26,520 --> 00:26:30,120
Speaker 4: there's a significant amount of sort of need for capital

481
00:26:30,480 --> 00:26:32,080
Speaker 4: to help build homes in this country.

482
00:26:32,880 --> 00:26:34,600
Speaker 1: I was just looking at the last headline we wrote

483
00:26:34,640 --> 00:26:37,240
Speaker 1: around earnings and it was a US home builders set

484
00:26:37,280 --> 00:26:41,080
Speaker 1: for another quote lost earnings season, which didn't look good

485
00:26:41,119 --> 00:26:42,400
Speaker 1: to me. And then you know, on the other hand,

486
00:26:42,400 --> 00:26:45,160
Speaker 1: we've got rates you potentially going up this year. We've

487
00:26:45,160 --> 00:26:47,320
Speaker 1: got the consumer under a lot of pressure from inflation.

488
00:26:48,440 --> 00:26:50,320
Speaker 1: You know obviously that the last thing that they will

489
00:26:50,359 --> 00:26:53,280
Speaker 1: not pay is their home mortgage or their rent because

490
00:26:53,280 --> 00:26:56,240
Speaker 1: they want to live somewhere. But what risk is there

491
00:26:56,240 --> 00:26:59,440
Speaker 1: out there? You know, the stackflationary environment, you'll funding costs

492
00:26:59,480 --> 00:27:01,199
Speaker 1: go up, and you know, you start to see some

493
00:27:01,240 --> 00:27:02,919
Speaker 1: defaults on the on the actual housing.

494
00:27:03,119 --> 00:27:05,320
Speaker 4: Yeah, I mean I think, you know, I think it's

495
00:27:05,440 --> 00:27:09,800
Speaker 4: very hard to predict rates. If you if you look

496
00:27:09,840 --> 00:27:11,359
Speaker 4: at the data, and if you look at some of

497
00:27:11,359 --> 00:27:15,840
Speaker 4: the inflation data and PPI data, and you mentioned I'm

498
00:27:15,840 --> 00:27:19,680
Speaker 4: involved in the Peterson Institute and that is a bipartisan

499
00:27:19,800 --> 00:27:25,080
Speaker 4: data driven research institution in Washington. All of the data

500
00:27:26,040 --> 00:27:31,879
Speaker 4: suggests rising rates, right, and it certainly the market if

501
00:27:31,920 --> 00:27:33,720
Speaker 4: you look at the forward curve, now thinks we're going

502
00:27:33,720 --> 00:27:35,960
Speaker 4: to get into rising rate environment, probably towards the end

503
00:27:36,000 --> 00:27:38,399
Speaker 4: of the year. It's sort of hard to see something

504
00:27:38,440 --> 00:27:44,080
Speaker 4: happening before the elections, and I think the majority of

505
00:27:44,119 --> 00:27:47,320
Speaker 4: the f f O MC is probably now more towards

506
00:27:47,320 --> 00:27:49,000
Speaker 4: a bias of a rising rate environment.

507
00:27:49,680 --> 00:27:51,840
Speaker 3: That's what the data would suggest.

508
00:27:51,520 --> 00:27:55,439
Speaker 4: But obviously the political overlay makes that quite challenging. And

509
00:27:55,440 --> 00:27:57,520
Speaker 4: I think to raise rates there's going to be a

510
00:27:57,680 --> 00:27:59,800
Speaker 4: very very high bar. I think rates are going to

511
00:27:59,800 --> 00:28:02,159
Speaker 4: stay elevated. And you've seen the ten year and the

512
00:28:02,200 --> 00:28:04,199
Speaker 4: thirty year back up, and the tenure at sort of

513
00:28:04,200 --> 00:28:06,680
Speaker 4: four and a half plus or minus feels like it's

514
00:28:06,680 --> 00:28:09,640
Speaker 4: going to stay there for a while. But I think

515
00:28:10,680 --> 00:28:15,760
Speaker 4: you know the potential. We don't necessarily see recession risk today,

516
00:28:15,760 --> 00:28:19,280
Speaker 4: and if you look at all the the market research,

517
00:28:19,320 --> 00:28:21,720
Speaker 4: it's sort of twenty twenty five percent recession risks. There

518
00:28:21,800 --> 00:28:25,879
Speaker 4: is this total interesting disconnect between what the data shows

519
00:28:25,880 --> 00:28:29,159
Speaker 4: and what sentiment is. Sentiment is actually quite bad, but

520
00:28:29,280 --> 00:28:31,280
Speaker 4: the data we haven't seen it in the data yet.

521
00:28:31,280 --> 00:28:34,359
Speaker 4: So at some point, either sentiment improves or the data

522
00:28:34,359 --> 00:28:35,080
Speaker 4: gets worse.

523
00:28:34,880 --> 00:28:36,960
Speaker 1: And maybe maybe conceive it's just dipping into savings to

524
00:28:37,000 --> 00:28:38,200
Speaker 1: try and keep themself going.

525
00:28:39,040 --> 00:28:42,000
Speaker 4: Or that there obviously has been a lot of stimulus

526
00:28:42,080 --> 00:28:44,000
Speaker 4: over the last three, four or five years, and maybe

527
00:28:44,000 --> 00:28:47,959
Speaker 4: that's what's including you know, tax refunds this year, so

528
00:28:48,000 --> 00:28:54,480
Speaker 4: there continues to be sort of stimulus behavior. But listen

529
00:28:55,880 --> 00:29:02,800
Speaker 4: for US, supply demand dynamics, the fault rates, those are

530
00:29:02,840 --> 00:29:05,160
Speaker 4: critically important concentration.

531
00:29:04,680 --> 00:29:05,600
Speaker 3: Risk, right.

532
00:29:05,640 --> 00:29:09,760
Speaker 4: We look at a very diversified portfolio, both nationally by sponsor,

533
00:29:09,840 --> 00:29:13,680
Speaker 4: by builder, but also we're not in the five hundred

534
00:29:13,680 --> 00:29:15,720
Speaker 4: million dollar loan. One of the things that we do

535
00:29:16,400 --> 00:29:19,280
Speaker 4: is we're very focused on this mid market. So virtually

536
00:29:19,360 --> 00:29:22,440
Speaker 4: everything we do is very small in terms of size,

537
00:29:23,280 --> 00:29:27,760
Speaker 4: and it's very operationally intense and complicated, which is why

538
00:29:27,800 --> 00:29:30,200
Speaker 4: again we own these five operating companies, because we think

539
00:29:30,240 --> 00:29:33,360
Speaker 4: it's critically important to be able to deliver value for

540
00:29:33,440 --> 00:29:37,560
Speaker 4: our end investors, to be responsible for the asset and

541
00:29:37,600 --> 00:29:41,520
Speaker 4: through its entire life cycle, so from origination or sourcing,

542
00:29:42,000 --> 00:29:44,920
Speaker 4: through servicing, asset management, disposition, and all of the companies

543
00:29:44,960 --> 00:29:49,280
Speaker 4: we own that do that for us. So again we

544
00:29:49,320 --> 00:29:52,960
Speaker 4: feel very good about sort of where we're positioned. We're

545
00:29:53,000 --> 00:29:55,360
Speaker 4: sort of in this middle market, which is again a

546
00:29:55,440 --> 00:29:59,200
Speaker 4: much more granular market. We're also widely diversified in terms

547
00:29:59,240 --> 00:30:04,719
Speaker 4: of both what I said, geography, product capital structure, and

548
00:30:04,760 --> 00:30:08,479
Speaker 4: so again we would expect bumps in the road, but

549
00:30:08,520 --> 00:30:11,640
Speaker 4: we feel very good about sort of the overall macro

550
00:30:11,760 --> 00:30:14,040
Speaker 4: position and sort of the direction.

551
00:30:13,800 --> 00:30:14,480
Speaker 3: Of the economy.

552
00:30:15,160 --> 00:30:17,239
Speaker 1: How much our home build is affected by what's going

553
00:30:17,280 --> 00:30:19,360
Speaker 1: on in the Middle East, and not just in terms

554
00:30:19,360 --> 00:30:22,840
Speaker 1: of fuel cost input being much higher. Middle says supply

555
00:30:22,960 --> 00:30:25,360
Speaker 1: chains and raw materials, all that stuff that they need

556
00:30:25,400 --> 00:30:27,160
Speaker 1: to do their business. Is that going to be a fact.

557
00:30:27,160 --> 00:30:28,360
Speaker 1: So you think that this goes on.

558
00:30:30,600 --> 00:30:32,680
Speaker 4: Yes, I think a lot of it is going to

559
00:30:32,680 --> 00:30:37,080
Speaker 4: be just driven by energy costs and general cost and inflation.

560
00:30:37,240 --> 00:30:41,800
Speaker 4: I'm not sure what's going on with supply chains. Certainly

561
00:30:42,200 --> 00:30:44,520
Speaker 4: oversee supply chains, but a lot of the home builders

562
00:30:44,520 --> 00:30:47,840
Speaker 4: are getting stuff obviously a little closer to home, but

563
00:30:47,920 --> 00:30:52,360
Speaker 4: certainly inflation and cost pressure is problematic. And then James,

564
00:30:52,400 --> 00:30:54,440
Speaker 4: as you said that dynamic of trying to build a

565
00:30:54,480 --> 00:30:57,320
Speaker 4: house that someone can either afford to buy or to

566
00:30:57,400 --> 00:31:00,200
Speaker 4: afford to rent is critically important, and how the those

567
00:31:00,880 --> 00:31:05,000
Speaker 4: to intersect is going to be critically important going forward.

568
00:31:05,560 --> 00:31:08,800
Speaker 4: The one other thing I would say about some of

569
00:31:08,800 --> 00:31:11,440
Speaker 4: the things if I could, about what Predium does. Another

570
00:31:11,480 --> 00:31:13,360
Speaker 4: business that we have is actually we're a buyer of

571
00:31:13,440 --> 00:31:17,440
Speaker 4: non performing loans. So we buy non performing loans from

572
00:31:18,080 --> 00:31:22,239
Speaker 4: actually last year almost over thirty five different counterparties, and

573
00:31:22,320 --> 00:31:24,200
Speaker 4: we own one of the companies that we own as

574
00:31:24,200 --> 00:31:27,400
Speaker 4: a special servicer called Seline out of Dallas, and we

575
00:31:27,440 --> 00:31:30,479
Speaker 4: work with borrowers to try to stay keep those folks

576
00:31:30,520 --> 00:31:35,280
Speaker 4: in their homes, modify mortgages, restructure mortgages, and so you know,

577
00:31:35,400 --> 00:31:38,080
Speaker 4: in some ways, what we've been seeing is there has

578
00:31:38,120 --> 00:31:41,239
Speaker 4: been a little bit of increase in delinquency rates that

579
00:31:41,320 --> 00:31:44,400
Speaker 4: has provided some more opportunity for that part of our business,

580
00:31:44,440 --> 00:31:48,640
Speaker 4: or residential mortgage credit business to participate. And that strategy

581
00:31:48,720 --> 00:31:50,240
Speaker 4: again is around.

582
00:31:49,880 --> 00:31:51,360
Speaker 3: A low LTV loan.

583
00:31:51,560 --> 00:31:55,160
Speaker 4: So the loans that we bought last year typically had

584
00:31:55,160 --> 00:31:58,600
Speaker 4: an LTV about sixty percent sixty sixty five. And so

585
00:31:59,480 --> 00:32:02,280
Speaker 4: we are very aligned with the borrower because we want

586
00:32:02,360 --> 00:32:04,680
Speaker 4: to protect the equity in their homes and the borrower

587
00:32:04,800 --> 00:32:06,680
Speaker 4: wants to protect the equity in their homes. So we

588
00:32:06,720 --> 00:32:09,520
Speaker 4: want to restructure the loan or modify the loan or

589
00:32:09,520 --> 00:32:12,320
Speaker 4: work out a a payment plan so that they can

590
00:32:12,360 --> 00:32:14,040
Speaker 4: stay in those homes. And that has been a very

591
00:32:14,080 --> 00:32:16,880
Speaker 4: successful business for us as well. And that's another thing

592
00:32:16,920 --> 00:32:20,560
Speaker 4: that helps I think in general the overall housing market,

593
00:32:20,560 --> 00:32:23,280
Speaker 4: because a lot of the sellers of these non performing

594
00:32:23,320 --> 00:32:25,680
Speaker 4: loans need the capital that we provide when we buy

595
00:32:25,720 --> 00:32:29,760
Speaker 4: those loans, and they're not properly positioned to service us

596
00:32:29,840 --> 00:32:33,040
Speaker 4: those loans. Again, we have a special loss mitigation servicer

597
00:32:33,520 --> 00:32:36,719
Speaker 4: or one of the very few companies in the country

598
00:32:36,720 --> 00:32:39,400
Speaker 4: that still does this type of work, and that also

599
00:32:39,440 --> 00:32:42,360
Speaker 4: gives us a nice advantage in the sense that a

600
00:32:42,360 --> 00:32:45,040
Speaker 4: lot of what we do is either not in competition

601
00:32:45,160 --> 00:32:47,800
Speaker 4: or limited competition because not that many people do. Again,

602
00:32:47,880 --> 00:32:51,880
Speaker 4: these operationally complex things that we've sort of embraced, and.

603
00:32:51,840 --> 00:32:54,320
Speaker 2: Those are a residential those those are barros. So is

604
00:32:54,320 --> 00:32:56,000
Speaker 2: that agency loans or.

605
00:32:56,080 --> 00:32:58,960
Speaker 4: Those are mostly mostly agency loans, although there could be

606
00:32:59,000 --> 00:33:02,400
Speaker 4: non agency loans on QM mortgages also obviously go delinquent,

607
00:33:03,200 --> 00:33:07,560
Speaker 4: but most of what we've been buying is agency agency loans.

608
00:33:08,040 --> 00:33:10,320
Speaker 1: And the bid from other regions Europe, Asia, I mean,

609
00:33:10,440 --> 00:33:14,800
Speaker 1: they seem to be very keen now on culprit bones

610
00:33:15,080 --> 00:33:17,680
Speaker 1: and loans has a strong baby days of hell. They

611
00:33:17,720 --> 00:33:18,440
Speaker 1: on real estate.

612
00:33:19,320 --> 00:33:23,080
Speaker 4: I would say, again, one of the things about America

613
00:33:23,120 --> 00:33:26,360
Speaker 4: which is quite fascinating and amazing is we are the largest,

614
00:33:26,360 --> 00:33:29,080
Speaker 4: most liquid market in the world. And so if people

615
00:33:29,240 --> 00:33:31,080
Speaker 4: like real estate and they want to be in real

616
00:33:31,160 --> 00:33:34,400
Speaker 4: estate in size, you're generally looking at the United States.

617
00:33:34,440 --> 00:33:37,440
Speaker 4: There are other countries and other parts of the world

618
00:33:37,440 --> 00:33:40,920
Speaker 4: that have interesting dynamics, but it's generally very hard to

619
00:33:41,000 --> 00:33:45,080
Speaker 4: get very big, certainly and I'm talking residential now, to

620
00:33:45,560 --> 00:33:48,800
Speaker 4: get that type of exposure in size and scale in

621
00:33:48,880 --> 00:33:51,760
Speaker 4: other parts of the world. You know, real estate has

622
00:33:51,760 --> 00:33:58,400
Speaker 4: been a core allocation in basically every allocation model for

623
00:33:58,520 --> 00:34:02,000
Speaker 4: the longest period of time. And again we are seeing

624
00:34:02,040 --> 00:34:04,640
Speaker 4: some people shifting some of that equity allocation in real

625
00:34:04,720 --> 00:34:08,080
Speaker 4: estate to more credit allocation in real estate. But you know,

626
00:34:08,360 --> 00:34:12,279
Speaker 4: between the resiliency of the asset class again residential and

627
00:34:12,280 --> 00:34:15,960
Speaker 4: it's sort of the sort of the inflationary diversifier, if

628
00:34:16,000 --> 00:34:19,000
Speaker 4: you will. It's been a very core holdings of most

629
00:34:19,000 --> 00:34:21,480
Speaker 4: of our institutional clients for a very long period of time.

630
00:34:21,560 --> 00:34:24,600
Speaker 1: We started by talking about the private credit still maybe

631
00:34:24,640 --> 00:34:27,439
Speaker 1: benefiting real estate in some sense. What evidence, what real

632
00:34:27,480 --> 00:34:31,240
Speaker 1: evidence you've seen of you know, reallocation from one bucket

633
00:34:31,280 --> 00:34:36,480
Speaker 1: to real estate because of problems in other private markets, just.

634
00:34:36,520 --> 00:34:40,759
Speaker 4: Experience, right, and talking again, we have a significant Again

635
00:34:40,880 --> 00:34:43,680
Speaker 4: we're most of virtually all of our stuff has closed

636
00:34:43,680 --> 00:34:45,680
Speaker 4: down funds, but we have a significant number of high

637
00:34:45,680 --> 00:34:49,040
Speaker 4: net worth clients, so we have great relationships with warehouses.

638
00:34:50,040 --> 00:34:52,800
Speaker 4: And we're seeing that shift when we talk to those

639
00:34:53,400 --> 00:34:57,239
Speaker 4: financial advisors who service those types of clients, saying they're

640
00:34:57,280 --> 00:35:00,560
Speaker 4: still looking for reliable cash flows. Right, you go into

641
00:35:00,600 --> 00:35:04,120
Speaker 4: a private equity fund, You're not getting a lot of distributions.

642
00:35:04,200 --> 00:35:06,640
Speaker 4: It's a five seven nine year process before you get

643
00:35:06,640 --> 00:35:09,799
Speaker 4: any real dividends. So people are looking for cash flow.

644
00:35:09,920 --> 00:35:12,600
Speaker 4: They want to be in secure positions to your point,

645
00:35:13,040 --> 00:35:17,440
Speaker 4: right or wrong, more concerned about other private credit vehicles

646
00:35:17,480 --> 00:35:21,600
Speaker 4: and asset classes, and we're seeing those more inbounds to us,

647
00:35:21,600 --> 00:35:24,960
Speaker 4: saying this real estate credit product is an interesting one.

648
00:35:24,960 --> 00:35:26,279
Speaker 3: Can he come spend some time with us?

649
00:35:26,320 --> 00:35:28,000
Speaker 1: And it's more residential than commercial.

650
00:35:28,200 --> 00:35:31,560
Speaker 3: It's a one hundred for us, one hundred percent resident.

651
00:35:32,120 --> 00:35:35,399
Speaker 2: Do you retain a first lost piece? How does that work?

652
00:35:35,440 --> 00:35:36,880
Speaker 3: I just don't really know what the structure is.

653
00:35:37,040 --> 00:35:40,880
Speaker 4: Well, again, in our in our equity portfolio, we have

654
00:35:41,719 --> 00:35:45,920
Speaker 4: we're the owner of the underlying asset in our in

655
00:35:46,040 --> 00:35:50,640
Speaker 4: our in our other businesses, again we are secured. We

656
00:35:50,680 --> 00:35:54,120
Speaker 4: are the senior secured position. Occasionally we have a little

657
00:35:54,160 --> 00:35:56,879
Speaker 4: mes or some pref depending on what the requirements are.

658
00:35:57,320 --> 00:35:59,680
Speaker 4: And then a lot of what we do is we

659
00:36:00,000 --> 00:36:05,719
Speaker 4: accumulate assets and then we securitize those assets and so

660
00:36:05,760 --> 00:36:09,440
Speaker 4: then we are putting those into fixed rate vehicles and

661
00:36:09,480 --> 00:36:11,840
Speaker 4: we are retaining the equity, So we are retaining the

662
00:36:11,880 --> 00:36:16,000
Speaker 4: equity in our securitizations. We're one of the largest securitizers.

663
00:36:16,239 --> 00:36:19,960
Speaker 4: We are certainly the largest secure tires tizers of single

664
00:36:19,960 --> 00:36:24,240
Speaker 4: family rental equity. We're the largest securitizers of non performing loans,

665
00:36:24,520 --> 00:36:28,200
Speaker 4: We're one of the largest securitizers of reperforming loans. We

666
00:36:28,280 --> 00:36:32,160
Speaker 4: securitize investor loans, we securitize second mortgages, so we are

667
00:36:32,160 --> 00:36:35,759
Speaker 4: a very big securitizer. We have relationships, to your point,

668
00:36:35,800 --> 00:36:40,719
Speaker 4: with over three hundred bondholders who buy our securitizations, and

669
00:36:40,800 --> 00:36:44,000
Speaker 4: so we're accumulating generally on warehouse and then we're when

670
00:36:44,040 --> 00:36:47,400
Speaker 4: we get to the appropriate size, we're securitizing into again,

671
00:36:47,440 --> 00:36:50,919
Speaker 4: depending on the product, it's generally anywhere from a three

672
00:36:51,000 --> 00:36:53,680
Speaker 4: year to or five year with a one year call

673
00:36:53,800 --> 00:36:56,040
Speaker 4: or a three year call, but different sort of fixed terms.

674
00:36:56,040 --> 00:36:58,120
Speaker 3: So we don't have a lot of marked and market volatility.

675
00:36:58,280 --> 00:37:01,120
Speaker 1: But is that your pitch now that has residential that

676
00:37:01,320 --> 00:37:04,000
Speaker 1: is the best all terms of in this environment, given

677
00:37:04,040 --> 00:37:06,440
Speaker 1: that it is secure, given the what you're saying is

678
00:37:06,480 --> 00:37:09,200
Speaker 1: a quite positive fundamental outlook and the good returns.

679
00:37:09,400 --> 00:37:14,520
Speaker 4: Yeah, I mean that that is for a segment of

680
00:37:14,560 --> 00:37:18,840
Speaker 4: our institutional investors are high net worth investors. All the

681
00:37:18,840 --> 00:37:22,560
Speaker 4: people that invest with us, that is a profile that

682
00:37:22,600 --> 00:37:24,440
Speaker 4: some of them are attracted to. Some of them are

683
00:37:24,440 --> 00:37:27,239
Speaker 4: not looking for that type of return. Some people want

684
00:37:28,040 --> 00:37:31,080
Speaker 4: lower returns with more liquidity, some people want longer duration,

685
00:37:31,239 --> 00:37:33,840
Speaker 4: some people want more versus IRR. But we think we

686
00:37:33,920 --> 00:37:39,200
Speaker 4: have a very attractive investment opportunity and there is clearly

687
00:37:39,239 --> 00:37:41,520
Speaker 4: a segment of the allocators that is resonating with.

688
00:37:42,160 --> 00:37:45,279
Speaker 1: I want to ask you about the more the politics.

689
00:37:46,200 --> 00:37:48,120
Speaker 1: We have a midterm elections coming up in this country.

690
00:37:48,200 --> 00:37:50,840
Speaker 1: Housing of affordability is on the ballot, as Erekas says,

691
00:37:51,600 --> 00:37:55,000
Speaker 1: but Pressium has also faced criticism from some housing advocates

692
00:37:55,040 --> 00:37:57,520
Speaker 1: and state officials because of its large scale ownership of

693
00:37:57,600 --> 00:38:01,840
Speaker 1: single family rental homes. Critics of argue the institutional landlords

694
00:38:01,840 --> 00:38:04,560
Speaker 1: can contribute to affordability issues, and there have been some

695
00:38:04,640 --> 00:38:08,839
Speaker 1: concerns around maintenance and eviction practice. I mean, I work

696
00:38:08,880 --> 00:38:11,480
Speaker 1: on a condo board, so I get people hate management

697
00:38:11,480 --> 00:38:15,600
Speaker 1: of any building. But how do you respond to those criticisms.

698
00:38:15,600 --> 00:38:17,200
Speaker 1: I mean, you're in a tough spot in terms of

699
00:38:17,280 --> 00:38:18,399
Speaker 1: you know, the politics right now.

700
00:38:18,600 --> 00:38:22,640
Speaker 4: Yeah, I mean we try to the best of our

701
00:38:22,680 --> 00:38:26,520
Speaker 4: ability to deliver a good resident experience. Do we get

702
00:38:26,560 --> 00:38:28,120
Speaker 4: it right one hundred percent of the time.

703
00:38:28,960 --> 00:38:29,040
Speaker 2: No.

704
00:38:30,040 --> 00:38:33,440
Speaker 4: Does a maintenance job take two days instead of one

705
00:38:33,520 --> 00:38:34,160
Speaker 4: day sometime?

706
00:38:34,440 --> 00:38:34,800
Speaker 3: Sure?

707
00:38:35,280 --> 00:38:40,640
Speaker 4: But we think there is significant benefit to both the

708
00:38:40,719 --> 00:38:45,680
Speaker 4: renter and broadly speaking, housing and society to have large

709
00:38:45,719 --> 00:38:48,200
Speaker 4: scale operators. And what I mean by that is we

710
00:38:48,440 --> 00:38:51,359
Speaker 4: as an institution, as I said, we own roughly ninety

711
00:38:51,400 --> 00:38:54,480
Speaker 4: thousand homes. We invest a significant amount of dollars in

712
00:38:54,560 --> 00:38:58,239
Speaker 4: those homes. Every time someone leaves, we go in there,

713
00:38:58,360 --> 00:39:00,399
Speaker 4: we paint it, we clean it up, maybe we changed

714
00:39:00,400 --> 00:39:04,920
Speaker 4: some appliances. We refurbish it for the next renter. So

715
00:39:05,000 --> 00:39:08,719
Speaker 4: we're making significant investments in the housing stock in this

716
00:39:08,800 --> 00:39:16,200
Speaker 4: country right. Also, when a storm hits, right, ninety three

717
00:39:16,360 --> 00:39:20,640
Speaker 4: percent of all rental houses and they are about fifteen

718
00:39:20,719 --> 00:39:23,080
Speaker 4: or sixteen million rental houses in this country are owned

719
00:39:23,080 --> 00:39:27,719
Speaker 4: by sort of the expression is mom and pop operators,

720
00:39:27,719 --> 00:39:31,480
Speaker 4: people that don't own that many homes. When the last

721
00:39:31,600 --> 00:39:35,520
Speaker 4: name storm came through, we ended up taking seven families

722
00:39:35,520 --> 00:39:38,160
Speaker 4: and putting them in a hotel for ten days. We

723
00:39:38,680 --> 00:39:40,640
Speaker 4: took families out of their homes and put them in

724
00:39:40,719 --> 00:39:43,600
Speaker 4: vacant homes that we had somewhere else that didn't sustain damage.

725
00:39:44,040 --> 00:39:47,680
Speaker 4: We have the ability to from a maintenance perspective, from

726
00:39:48,280 --> 00:39:54,120
Speaker 4: a care perspective, to significantly take lots of resources to

727
00:39:54,200 --> 00:39:57,640
Speaker 4: address issues that I think smaller operators cannot do.

728
00:39:57,760 --> 00:40:00,880
Speaker 3: So. I think there is real benefit to having that.

729
00:40:00,760 --> 00:40:04,200
Speaker 4: Scale, and we try to use that scale and give

730
00:40:04,239 --> 00:40:06,680
Speaker 4: the resident a better experience.

731
00:40:07,480 --> 00:40:09,640
Speaker 1: I've got to us, I'm surprised you didn't bring this up, Eric,

732
00:40:09,719 --> 00:40:12,520
Speaker 1: but what is the future of Fannie May and Freddie Mac?

733
00:40:12,800 --> 00:40:14,360
Speaker 4: I knew you're going to ask you that question I have.

734
00:40:15,880 --> 00:40:18,240
Speaker 4: I think you're going to see Fanny May and Freddie

735
00:40:18,239 --> 00:40:20,839
Speaker 4: Mac the way you've seen Fanny May and Freddie Mac

736
00:40:21,400 --> 00:40:21,600
Speaker 4: for the.

737
00:40:21,640 --> 00:40:25,440
Speaker 3: Last five or ten years. No change. I think it's

738
00:40:25,560 --> 00:40:26,360
Speaker 3: very hard to predict.

739
00:40:26,360 --> 00:40:28,680
Speaker 4: There was obviously a lot of momentum about taking those

740
00:40:28,800 --> 00:40:31,680
Speaker 4: things out of conservativeship and taking them public again. That

741
00:40:31,800 --> 00:40:33,759
Speaker 4: seems to have quieted down a little bit. I think

742
00:40:33,760 --> 00:40:38,520
Speaker 4: there are other priorities that are taking precedent. I am

743
00:40:38,560 --> 00:40:42,120
Speaker 4: not very good at reading political tea leaves even ten

744
00:40:42,200 --> 00:40:45,120
Speaker 4: years ago, and certainly not in the last fifteen sixteen months.

745
00:40:45,440 --> 00:40:47,080
Speaker 1: The President's got lots of other stuff going on, But

746
00:40:47,120 --> 00:40:49,440
Speaker 1: what about regulatory changes in the housing Do you expect

747
00:40:50,200 --> 00:40:50,719
Speaker 1: more of that?

748
00:40:51,480 --> 00:40:56,000
Speaker 4: I'm hopeful that we see things like we're seeing in

749
00:40:56,000 --> 00:41:01,320
Speaker 4: the Housing Bill, which is trying to make it easier

750
00:41:01,320 --> 00:41:05,200
Speaker 4: for people to build houses in this country. Real estate

751
00:41:05,320 --> 00:41:09,680
Speaker 4: is super micro. We're not even talking state by state.

752
00:41:09,719 --> 00:41:15,799
Speaker 4: We're talking, you know, community board X versus community board Y,

753
00:41:16,040 --> 00:41:19,200
Speaker 4: and trying to figure out a way to be able

754
00:41:19,239 --> 00:41:22,680
Speaker 4: to efficiently build homes in this country that don't take

755
00:41:23,600 --> 00:41:26,680
Speaker 4: you know, three to five to seven years to build.

756
00:41:27,239 --> 00:41:29,920
Speaker 4: Because one of the things that people don't appreciate. If

757
00:41:29,960 --> 00:41:33,759
Speaker 4: you're a homebuilder and you secure land and then the

758
00:41:33,800 --> 00:41:38,600
Speaker 4: permitting process and the entitlement process and the approval process

759
00:41:39,320 --> 00:41:42,680
Speaker 4: takes three or four years, and then it takes two

760
00:41:42,760 --> 00:41:43,600
Speaker 4: or three years to.

761
00:41:43,560 --> 00:41:44,960
Speaker 3: Build the homes.

762
00:41:45,680 --> 00:41:51,239
Speaker 4: You've probably again, historically in most markets, the value of

763
00:41:52,320 --> 00:41:55,640
Speaker 4: the land and the cost to build has actually gone up,

764
00:41:56,200 --> 00:41:58,280
Speaker 4: and so you're now in a position where you're building

765
00:41:58,320 --> 00:42:03,000
Speaker 4: something that's probably two expensive for people to buy. And

766
00:42:03,040 --> 00:42:06,000
Speaker 4: so if we can anything we can do at a

767
00:42:06,000 --> 00:42:09,240
Speaker 4: local level, a national level, a state level to reduce

768
00:42:09,280 --> 00:42:11,879
Speaker 4: the time it takes to build the house in this country,

769
00:42:12,200 --> 00:42:13,719
Speaker 4: the better this country will be.

770
00:42:14,760 --> 00:42:16,680
Speaker 1: We talked about how regional it is and how many

771
00:42:16,680 --> 00:42:18,680
Speaker 1: different types of products they are, and it seems, you know,

772
00:42:18,719 --> 00:42:20,480
Speaker 1: fairly complex. But if you had to put your finger

773
00:42:20,520 --> 00:42:23,600
Speaker 1: on the best relative value right now in real estate investing,

774
00:42:24,120 --> 00:42:25,560
Speaker 1: what would you point out?

775
00:42:25,600 --> 00:42:26,279
Speaker 3: Where would you look?

776
00:42:26,320 --> 00:42:29,120
Speaker 1: What would you say is this is a real opportunity

777
00:42:29,920 --> 00:42:31,520
Speaker 1: for investors.

778
00:42:33,040 --> 00:42:34,520
Speaker 4: I'm not going to say, like, I love all my

779
00:42:34,600 --> 00:42:36,120
Speaker 4: children equally, because that would.

780
00:42:35,960 --> 00:42:37,520
Speaker 1: Be a yeah, which I would like, which one who

781
00:42:37,600 --> 00:42:38,800
Speaker 1: likes the most exactly?

782
00:42:39,160 --> 00:42:44,839
Speaker 4: But I think today I think the credit side of

783
00:42:45,120 --> 00:42:49,120
Speaker 4: the as a as a risk adjusted return matter, I

784
00:42:49,160 --> 00:42:52,319
Speaker 4: think is a is a really interesting opportunity. I think

785
00:42:52,320 --> 00:42:58,560
Speaker 4: we've got some interesting sort of tailwinds that help we

786
00:42:58,640 --> 00:43:02,360
Speaker 4: have some interesting supply and demand dynamics around lots of

787
00:43:02,400 --> 00:43:04,680
Speaker 4: people wanting to build and needing capital and not a

788
00:43:04,680 --> 00:43:07,560
Speaker 4: lot of providers. And so I think that sort of

789
00:43:07,920 --> 00:43:12,360
Speaker 4: mix of ingredients makes what today the real estate debt product.

790
00:43:12,360 --> 00:43:14,560
Speaker 4: The residential mortgage credit product.

791
00:43:14,480 --> 00:43:16,319
Speaker 3: A very attractive product. But where is it?

792
00:43:16,360 --> 00:43:17,320
Speaker 1: Is it San Francisco?

793
00:43:17,680 --> 00:43:20,600
Speaker 4: You oh, From a regional perspective, you know, I would

794
00:43:20,640 --> 00:43:23,320
Speaker 4: love to you know, I would love to be building

795
00:43:23,320 --> 00:43:25,680
Speaker 4: a lot more houses or owning a lot more houses

796
00:43:25,840 --> 00:43:29,400
Speaker 4: or multi family units in in the Midwest, you know,

797
00:43:29,480 --> 00:43:32,520
Speaker 4: in Ohio. I mean, these are places that, even with

798
00:43:32,600 --> 00:43:37,440
Speaker 4: a little bit of positive population growth, they had been

799
00:43:37,520 --> 00:43:40,439
Speaker 4: under supplied for long periods of time. So I think

800
00:43:40,520 --> 00:43:43,480
Speaker 4: you're going to see hopefully more building in the Midwest,

801
00:43:43,520 --> 00:43:45,719
Speaker 4: as I mentioned, parts of the Northeast.

802
00:43:45,719 --> 00:43:47,279
Speaker 3: But you know, in.

803
00:43:49,120 --> 00:43:53,480
Speaker 4: Nationally, there's clearly a four million housing unit shortage. Is

804
00:43:53,480 --> 00:43:55,239
Speaker 4: it going to be built exactly in the markets where

805
00:43:55,280 --> 00:43:56,120
Speaker 4: everyone wants to live?

806
00:43:56,520 --> 00:43:57,040
Speaker 3: Probably not?

807
00:43:57,480 --> 00:44:00,400
Speaker 4: But right now I would say the Midwest and some

808
00:44:00,520 --> 00:44:03,280
Speaker 4: of the Northeast, and as I mentioned earlier, San Francisco.

809
00:44:03,320 --> 00:44:06,440
Speaker 4: I can pick a couple other micro markets. But again,

810
00:44:06,480 --> 00:44:09,960
Speaker 4: there's a lot of attractive places to invest in real

811
00:44:10,040 --> 00:44:11,000
Speaker 4: estate in this country.

812
00:44:11,520 --> 00:44:14,000
Speaker 1: Great stuff, John Prusama, Pretium, it's been a real pleasure

813
00:44:14,000 --> 00:44:14,759
Speaker 1: having you on the credit edge.

814
00:44:14,760 --> 00:44:17,040
Speaker 3: Manny. Thanks great, Thank you very much. It's been a pleasure.

815
00:44:17,320 --> 00:44:20,080
Speaker 1: Of course, I'm very grateful to Erica Adelberg with Bloomberg Intelligence.

816
00:44:20,120 --> 00:44:21,440
Speaker 1: Thank you so much for joining us today.

817
00:44:21,520 --> 00:44:22,560
Speaker 2: Thank you for having me.

818
00:44:22,719 --> 00:44:25,839
Speaker 1: For even more great market analysis and insight. Read all

819
00:44:25,880 --> 00:44:28,640
Speaker 1: of Erica's great work on the Bloomberg Terminal. Bloomberg Intelligence

820
00:44:28,680 --> 00:44:30,760
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822
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828
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Speaker 1: Jcrombe eight at Bloomberg dot net.

829
00:44:56,400 --> 00:44:57,240
Speaker 3: I'm James Crombie.

830
00:44:57,280 --> 00:44:59,200
Speaker 1: It's been a pleasure having you join us again next

831
00:44:59,239 --> 00:45:16,800
Speaker 1: week on the Credit it Edge