Speaker 1: Hello, and welcome to another episode of The Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and Tracy. I'm not sure if you remember,
Speaker 1: but we did an episode recently. In the outro and
Speaker 1: like someone tweeted about this, I think your final line
Speaker 1: was it's pretty good to be a landlord. Like we're
Speaker 1: talking about rant and you're like, it seems good to
Speaker 1: be a landlord. I stand by it. I can't believe
Speaker 1: I'm getting criticized throwing out these truth bombs it's good
Speaker 1: to be a landlord. No, I don't think it's even
Speaker 1: a criticism. It's like, sometimes the truest things are the
Speaker 1: obvious things that no one says directly, and that someone
Speaker 1: just says it's like, it seems pretty good. And like
Speaker 1: rent prices as we've been discussing, like they never seemed
Speaker 1: to go down. They're all kinds of tax advantages. It
Speaker 1: seems like to owning real estate, it's hard to build
Speaker 1: more of. It seems pretty good. It seems good. I
Speaker 1: guess my question is was it always this good? And
Speaker 1: will it always be this good? Because I mean, the
Speaker 1: reason we're talking about it is because it does feel
Speaker 1: like there is a backlash at the moment or more
Speaker 1: of a backlash. I guess landlords are never an especially
Speaker 1: beloved social class, but with prices being what they are
Speaker 1: at the moment, with rents going up, particularly in places
Speaker 1: like New York City, it does feel like there is
Speaker 1: this question of whether or not maybe the government, the
Speaker 1: state could do something to attenuate those higher rent prices.
Speaker 1: I guess there's like two questions to my mind about
Speaker 1: the sort of like whether it's good to be a landlord.
Speaker 1: And one is like, Okay, we do know that like
Speaker 1: probably like rent growth there's going to slow. And we
Speaker 1: talked to the guy from Apartment List, Chris Selvia Obvious,
Speaker 1: several weeks ago, and it's like, Okay, probably like rents
Speaker 1: are going to come down a bit maybe or flat
Speaker 1: or maybe not grow. But like there's just a cycle thing, right.
Speaker 1: And then there's the question of like is there something
Speaker 1: deeper that's not just about like the macroeconomic cycle, but
Speaker 1: is something can like change about the business. And you know,
Speaker 1: like one thing that I sort of still kind of
Speaker 1: believe in markets is that like if there's like elpha somewhere,
Speaker 1: if there's above market returns, it can't stay forever. Eventually,
Speaker 1: like it's got to get arbed away, right. I think
Speaker 1: maybe I'm a little bit more cynical than you. I
Speaker 1: think people will try to hang on to their price
Speaker 1: advantage as long as they possibly can. Yeah, No, I
Speaker 1: mean I agree, it's just like they can't be like
Speaker 1: some business there's just like permanently benefit all the other businesses, right, Like,
Speaker 1: it's not how markets, their capitalism are supposed to work.
Speaker 1: Like capital is supposed to flood in or supply is
Speaker 1: supposed to come on, and eventually the returns from asset
Speaker 1: A on a risk adjusted basis should equal the returns
Speaker 1: from asset B. Also you know, on a vol adjusted
Speaker 1: basis or something that. Well, I guess this is where
Speaker 1: we start talking about real world constraints and policy constraints again.
Speaker 1: But yes, in theory it should change. Right. So we
Speaker 1: have been you know, talking about you know, real estate
Speaker 1: quite a lot. And I do think that in this
Speaker 1: sort of like pandemic slash post pandemic environment, lots of
Speaker 1: anxiety about real estate, not just like high you know,
Speaker 1: high costs are a huge aspect of it. Availability the
Speaker 1: types of real estate that people want, and so it's
Speaker 1: like a good question to like how good has the
Speaker 1: landlord market been, and if we're at a period where
Speaker 1: a lot of things are changing, rates are reversing, it's
Speaker 1: about to say I think interest rates are going to
Speaker 1: be the big factor here, leverage, huge aspect of the
Speaker 1: real estate business reversing. Can the golden age of being
Speaker 1: a landlord persist? If many other macro things in political
Speaker 1: things are changing? Is it still good to be a landlord?
Speaker 1: Is it's still good to be a landlord? All right, Well,
Speaker 1: I'm very excited about about our gift. We're going to
Speaker 1: be speaking with Ben Carlos type in. He is a
Speaker 1: real estate investor and broker in New York City and
Speaker 1: he has a lot of use on this question and
Speaker 1: why maybe the golden age is coming to an end?
Speaker 1: Or will so? Ben, thank you so much for coming
Speaker 1: on odd lots, glad to be here, thanks for having
Speaker 1: me so. Before we can even ask the question is
Speaker 1: the golden age of being a landlord coming to an end?
Speaker 1: We have to first establish was there really a golden age?
Speaker 1: And I guess the question the way I think about that.
Speaker 1: Is it true that real estate owners, landlords, people who
Speaker 1: rented out their units enjoyed a period of unusually high
Speaker 1: and stable returns. Yeah, So I mean, first, I think
Speaker 1: it's important to make a distinction between different types of
Speaker 1: real estate owners, residential rental landlords and commercial landlords, and
Speaker 1: even homeowners. I'm going to talk today mostly about residential
Speaker 1: landlords and homeowners. And you are a residential I am
Speaker 1: a residential landlord in addition to me a commercial landlord,
Speaker 1: and I'm also also a broker that deals with a
Speaker 1: lot of other residential landlords and investors, okay, on daily basis.
Speaker 1: So what is this goal tell Us established for us?
Speaker 1: The third, in fact, has been a golden age. So
Speaker 1: I think in order to understand there's a golden age,
Speaker 1: you have to understand the history that preceded it. So
Speaker 1: you know, there's this great paper by this professor Katerina
Speaker 1: Nolf from the University of bond that looks at the
Speaker 1: house housing prices over time from eighteen seventy to present,
Speaker 1: and she studies fourteen countries, including the United States, and
Speaker 1: what she found is that up until around nineteen fifty
Speaker 1: depends on the country. In the United States is probably
Speaker 1: the late sixties, housing prices are relatively flat, and then
Speaker 1: after that they've exploded. And that's housing housing data rent
Speaker 1: and otherwise is notoriously difficult to capture because it's a
Speaker 1: such a disparate distributed market. But you know, that backs
Speaker 1: up with qualitative observations as well. So like, there's this
Speaker 1: great book that I recommend everyone read about the history
Speaker 1: of these New York City real estate families called Skyscaper Dreams.
Speaker 1: And there's a recurring theme in this book of sort
Speaker 1: of the residential the families that specialized in department buildings
Speaker 1: complaining about not being at getting as rich as quickly
Speaker 1: as the office developers or the office landlords because you know,
Speaker 1: partly because of rent control. But it was just a
Speaker 1: sleep er business. So what changed in the mid twentieth
Speaker 1: century A couple of different things we were all familiar,
Speaker 1: imagine with the story of like the subsidization of homeowners
Speaker 1: and single family homes and the suburbs. And simultaneously as
Speaker 1: that was occurring, in terms of the public's investment in
Speaker 1: the apartment business, in rental housing, it's shifted from public
Speaker 1: housing to private sextra solutions, whether it's you know, Freddie
Speaker 1: Mack subsidizing multi family developers or even you know, nonprofit developers.
Speaker 1: Simultaneously with that, land news controls were implemented to protect
Speaker 1: the investments of homeowners. That would that's sort of the best,
Speaker 1: the most generous way to describe it. It also did
Speaker 1: things like enforced defective segregation and school segregation and all
Speaker 1: sorts of other less less noble things. So in the
Speaker 1: late seventies, after all this had happened for a decade
Speaker 1: or two, what you had is this coalition form of
Speaker 1: homeowners and conservative interests, both you know, business and otherwise
Speaker 1: teaming up to pair back rent regulations where they existed,
Speaker 1: banned them where they didn't exist, and generally implement set
Speaker 1: of policies that discriminated against renters, either directly via things
Speaker 1: like property tax policy or indirectly because most renters at
Speaker 1: that time were of you know, some sort of marginalized
Speaker 1: status socio economically, so um, you know, they also paired
Speaker 1: back the state's ability to regulate landlords, both in practice
Speaker 1: but um i'd say more usually in terms of state
Speaker 1: capacity to you know, actually effectively punish landlords from misbehavior. So,
Speaker 1: for instance, in the original UM rent stabilization program in
Speaker 1: New York City, there was a way for the buildings
Speaker 1: UM if they were violating certain standards UM to be uh,
Speaker 1: you know, their rents to be you know, paired back,
Speaker 1: and the state could take to take control of these
Speaker 1: buildings in a more assertive way. That that was then
Speaker 1: that was then removed. So let's, you know, before I
Speaker 1: get to like the more specific consequences, let's talk about
Speaker 1: like what that actually created from a markets structure perspective.
Speaker 1: Homeowners become this very powerful political block. Their relative permanence
Speaker 1: increased their propensity to vote. Uh, and they team up
Speaker 1: with conservative interest to weaken the state. The idea that
Speaker 1: everyone becomes a homeowner becomes gospel, and homeowner homes become
Speaker 1: used as investments. But this was always sort of a
Speaker 1: Ponzi scheme because you know, the you're protecting the investments
Speaker 1: by putting up barriers to entry. Uh. So you know,
Speaker 1: one generation buysing rich off of it, and then housing
Speaker 1: prices get too expensive so that the next generation can't
Speaker 1: buy in, or if they do, they're buying in a
Speaker 1: much more vulnerable terms persons. Yeah, you know, they're higher
Speaker 1: higher loaned values. The values themselves are arguably inflated. Um.
Speaker 1: So all this leaves the rental market as a market
Speaker 1: with essentially unlimited demand, a growing pool of um of
Speaker 1: participants on on the demand side. Uh. And you know,
Speaker 1: unlike other utility markets, which is basically what housing is,
Speaker 1: it's vastly and wildly on regulator. So it would be
Speaker 1: like you know, Enron in the in the early two
Speaker 1: thousands and late nineties that was just going wild on
Speaker 1: deregulated energy markets, except we've been doing it all over
Speaker 1: the country for decades. Can I just ask a really
Speaker 1: basic question, but like, if you're a landlord, how are
Speaker 1: you making most of your money? Is it by getting
Speaker 1: the monthly rent? Or is it by building up a
Speaker 1: real estate portfolio and then selling it or flipping it
Speaker 1: at some point in time? Like what is the mix?
Speaker 1: And I know you made the point about the difference
Speaker 1: between mom and pop landlords versus the big corporations. Can
Speaker 1: you just talk a little bit more about the different
Speaker 1: business models? Sure? So, Partly that depends on the business
Speaker 1: model of the landlord, but also depends on the market.
Speaker 1: So in New York City is much more of an
Speaker 1: appreciation based market than a than a rent than a
Speaker 1: yield market, Whereas you know someplace in you know, the
Speaker 1: Sound Belt might be more yield focused than appreciation focus.
Speaker 1: So in New York City. You typically make your money
Speaker 1: selling or refinancing or by generating scale. Scale obviously helps
Speaker 1: in every market, whereas uh, you know, in other less
Speaker 1: core markets, the more of the return is in the yield.
Speaker 1: And this is a good segue into sort of the
Speaker 1: other dynamic that that produced this situation is that, you know,
Speaker 1: we have this vast unregulated rental market and simultaneously we
Speaker 1: have an institutionalization of the business a multifamily and this
Speaker 1: is kind of a you know, this is a broader
Speaker 1: economic trend. You know that happened with with corporations in
Speaker 1: the latter half of the twentieth century, and even with
Speaker 1: other sectors of real estate. So like twenty years ago
Speaker 1: or thirty years ago, the self storage business was a
Speaker 1: very mom and pop business, but now it's this usually
Speaker 1: institutionalized business. So this has happened in a particular acute
Speaker 1: way in multifamily because of just how big of a
Speaker 1: market it is, how long standing of a business it is,
Speaker 1: and how relatively homogeneous the product is. Well, I was
Speaker 1: gonna say too, I mean, I know, like if there
Speaker 1: is this inherent challenge of creating new units and everyone
Speaker 1: and we talked about like the you know, the sort
Speaker 1: of barrier is to enter. I have to imagine that
Speaker 1: scale becomes a very big advantage in knowing how to
Speaker 1: navigate these permitting certain like how do you do construction
Speaker 1: in New York City? The entities that have done it
Speaker 1: over and over and over again have to have a
Speaker 1: pretty significant advantage over a smaller or less institutionalized I mean,
Speaker 1: I guess there's a difference between developer and yeah, landlord,
Speaker 1: but it just feels like, well, all of these things,
Speaker 1: there must be quite quite a few advantages to scale
Speaker 1: on this type of stuff. Yeah, I mean, there's definitely
Speaker 1: a difference between landlords and developers. But I think to
Speaker 1: your your broader point is correct, which is this has
Speaker 1: been particularly enabled by by technology. This used to be
Speaker 1: a very inefficient business, and the institutionalization has sucked all
Speaker 1: of the inefficiency out of this business through you know,
Speaker 1: technology that has been implemented to you know, price rents
Speaker 1: more efficiently, the disaggregation of functions. So you know, historically, um,
Speaker 1: you know, the apartment owners where you know, everyone's sort
Speaker 1: of in the same company, and now all these different
Speaker 1: roles have been distributed into other companies. They're specialists that
Speaker 1: provide third party services. It's it's become a business where
Speaker 1: everyone is getting their cut. Uh. And scale UM puts
Speaker 1: you in the best position to um, you know, reap
Speaker 1: the benefits of economies of scale. So your argument is that, um,
Speaker 1: you know, a process beginning I guess in the nineteen
Speaker 1: fifties of deregul deregulation combined with institutionalization of the rental
Speaker 1: market starts to change the profit dynamics for landlords. Can
Speaker 1: you talk a little bit more about exactly how that
Speaker 1: happens and how it sort of develops up until UM,
Speaker 1: I guess today it's really demographic driven. Uh. You know,
Speaker 1: it's designed to serve UM. This you know, growing class
Speaker 1: of homeowners, UM, A growing class of college graduates enters
Speaker 1: the real estate business. UM. You know historically was you know,
Speaker 1: a business that a lot of people without that much
Speaker 1: education could get into. And they start applying modern business
Speaker 1: processes to pricing units more effect efficiently, to operating the
Speaker 1: buildings more efficiently, just picking it every possible part of
Speaker 1: the business to extract a profit out of it. That
Speaker 1: has served the industry very well, but it has not
Speaker 1: served I arguably the greater public very well. And I
Speaker 1: think that's sort of where these dynamics that these twin
Speaker 1: dynamics of demographic change prompting policy and technology prompting institutionalization
Speaker 1: are now going to flip back the other way. And
Speaker 1: we're starting to see the beginnings of that. So I
Speaker 1: want to obviously like talk about this flip and some
Speaker 1: of the demographics and all that. But before you do,
Speaker 1: can you just expand you made one point about disperse
Speaker 1: property tax treatment that you said like put renters at
Speaker 1: a disadvantage? Can you clarify, like what is in the
Speaker 1: code that is so advantage or advantageous to landlords? Sure? So,
Speaker 1: as a general matter, around the United States, homeowners are
Speaker 1: viewed as the most important political block in any jurisdiction,
Speaker 1: and their property taxes are kept low, and particularly the
Speaker 1: increases in their property taxes. So municipalities really have very
Speaker 1: few levers for generating revenue in this country, so they
Speaker 1: typically they need someplace to make up the revenue. So
Speaker 1: as a result, apartment buildings start taking on a larger
Speaker 1: and larger share of the bird. This works different ways
Speaker 1: in different jurisdictions, but in New York City, for instance,
Speaker 1: buildings over eleven units make up and increasing share of
Speaker 1: the revenue for taxes. This also applies to commercial properties,
Speaker 1: whereas buildings of one to three units have artificial or
Speaker 1: caps on the amount that their assessment can grow every year,
Speaker 1: and even buildings of four to eleven units excuse me,
Speaker 1: four to ten units also have caps, although albeit not
Speaker 1: as good as the one to three families, which is
Speaker 1: sort of a reflection of the same political dynamic in
Speaker 1: that the people that at least policymakers believed own these
Speaker 1: small apartment buildings are closer to a voter. It's sort
Speaker 1: of your your yeoman, your landlord, not the big bad landlord.
Speaker 1: So these groups have been given preferential property tax treatment
Speaker 1: and the apartment buildings, and in turn their residents have
Speaker 1: been getting increasingly unfavorable property tex treatment. So the landlord business,
Speaker 1: what exactly are the risks that landlords are taking on
Speaker 1: and how should they be compensated for that? Because when
Speaker 1: I think of a landlord, it's like, Okay, maybe you
Speaker 1: have a bad tenant who doesn't pay their rent on time.
Speaker 1: That's a little bit of a risk. But in general,
Speaker 1: it feels like there are a lot of protections around
Speaker 1: the business, and it also feels like there's a tendency
Speaker 1: for real estate prices to mostly go up, especially in
Speaker 1: New York, right, So UM, dealing with you know, problematic
Speaker 1: tenants UM. And also you know, operational increases. So let's
Speaker 1: talk about the tenant side. The tenant side that varies
Speaker 1: widely um from landlord to landlord. So you know, our
Speaker 1: our tenants generally speaking, are pretty wealthy. UM. I have
Speaker 1: never had to evict someone um and uh, you know
Speaker 1: we we rarely have issues, UM, whereas there's lots of
Speaker 1: landlords that have uh you know, tenants that are have
Speaker 1: a more marginalized UM, so its economic status uh and
Speaker 1: UM that's trickier. However, the demand for that is is
Speaker 1: UM very high, and the yields that those properties trade
Speaker 1: for are generally higher, so their landlords are are compensated
Speaker 1: for that risk. Furthermore, UM, with the institution and the
Speaker 1: growth of Section eight rental subsidies, a lot of these UM,
Speaker 1: the rents being marginal being paid by marginal tenants are
Speaker 1: effectively underwritten by the government. So you know, how much
Speaker 1: risk is a landlord really taking on a Section eight
Speaker 1: building UM. From from a tendency perspective, from the respective
Speaker 1: of operating expenses US as we talked about property taxes.
Speaker 1: UM you know, are are being constrained in some cases,
Speaker 1: but in other cases they are not. Uh, And that's
Speaker 1: you know, where operational efficiency comes in. So you know,
Speaker 1: operational costs are the most important costs for landlords to
Speaker 1: UM control, and in some ways they are in their
Speaker 1: least amount of control. So at least with finance and costs,
Speaker 1: you have some decision over when you make that when
Speaker 1: you incur that costs. But for you know, fuel maintenance,
Speaker 1: like you really don't, I mean maintenance to a lesser too,
Speaker 1: a bit fuel and another more recurring costs, you don't
Speaker 1: have as much control. I was just so I want
Speaker 1: to ask about financing because of course, you know, we
Speaker 1: sort of talked about in the intro, lots of things
Speaker 1: are shifting. And one thing that seems to be shifting
Speaker 1: is like maybe this forty year steady decline in interest rates.
Speaker 1: Can you talk a little bit about from your experience,
Speaker 1: like your mix of like equity borrowing, etc. And if
Speaker 1: there is you know, there's like sustain reversal, what does
Speaker 1: that do to your economics? Well, it doesn't do that
Speaker 1: much or won't do that much to buy economics because
Speaker 1: I'm gonna get out of this business, but you're gonna
Speaker 1: stop being a landlord altogether. I'm gonna stop that bad.
Speaker 1: It's not so much it's bad. We can get into
Speaker 1: the reasons why further. But like I think, going forward,
Speaker 1: certain types of players in this business are gonna make money,
Speaker 1: are going to make sort of above average returns and
Speaker 1: the rest will make you know, utility or bond like returns.
Speaker 1: And if I'm going to buy a bond, I'd rather
Speaker 1: buy tips. And if I'm gonna invest, you know, I'd
Speaker 1: rather invest in real estate that is less management intensive
Speaker 1: than residential. Well, okay, just before we get because this
Speaker 1: is the heart of the question why you want to
Speaker 1: get out, but before we get today. Yeah, were you staying? Yeah?
Speaker 1: And can you talk so I'm financing I think you know,
Speaker 1: as you pointed out, we've been coming out of this
Speaker 1: you know, forty year period where interesting it's been very
Speaker 1: low UM and a lot of business models have been
Speaker 1: built on UM, you know, very cheap capital UH and UM.
Speaker 1: As a result, yields have become very low in certain markets,
Speaker 1: really most markets, UM. And I think that's a particular
Speaker 1: challenge in markets that UM we're depending on one of
Speaker 1: two things, regulatory arbitrage and appreciation. So in you know,
Speaker 1: we talked about the difference between markets in which the
Speaker 1: main component of the return is yield versus the versus appreciation.
Speaker 1: The yield markets they're going to not be as challenged
Speaker 1: from a sort of you know, being able to sell
Speaker 1: for the right price perspective. Certainly some people will, but
Speaker 1: a market like New York City that's a little more
Speaker 1: challenging because if you buy at a five percent return,
Speaker 1: and you financed that at a three and a half
Speaker 1: percent return, and you're assuming that you're gonna be able
Speaker 1: to sell that at a four and a half or
Speaker 1: you were when you bought it four years ago, that's
Speaker 1: not a realistic assumption anymore. So, you know, depending on
Speaker 1: your leverage level, you have a different set of options
Speaker 1: to either continue on or extricate yourself in that suittion.
Speaker 1: Can you talk a little bit more about what you
Speaker 1: see changing now other than the higher interest rates, Like
Speaker 1: what is the mix that is going to pressure the
Speaker 1: rental business? Sure, so you know, we have this the
Speaker 1: demographic decisions, a demographic driven policy decisions that were made
Speaker 1: in the mid to late twentieth century are now coming
Speaker 1: home to roost. You have this growing class or renters um.
Speaker 1: You know, you have increasing rent Burton's evictions or destroying
Speaker 1: lives just like foreclosures are. And I think most crucially
Speaker 1: this crisis is now including people from that very powerful
Speaker 1: political block in so far as you know, people of
Speaker 1: my generation, in our generation really who would have been
Speaker 1: homeowners thirty years ago, are now not going to be homeowners,
Speaker 1: or if they are, they're going to pay much more
Speaker 1: for it and by become homeowners much later in life
Speaker 1: and view it more as a as a housing cost
Speaker 1: stability vehicle. You know, there's this there's this joke about
Speaker 1: the thirty year mortgage being a homeowner rent control, and
Speaker 1: I think that sort of logic is now seeping into
Speaker 1: the homeownership market and it's becoming less of a um,
Speaker 1: slowly becoming a less of a gambling market. So you
Speaker 1: now have this big demographic of people that are concerned
Speaker 1: with rental costs. So this seems really key, which is
Speaker 1: that politicians have this idea of like what a good voter,
Speaker 1: what a good citizen is like, and for years that
Speaker 1: person was a homeowner, right, And now the basic idea
Speaker 1: is that there is becoming a meaningful, voting, politically influential
Speaker 1: block that is much more likely today to be a
Speaker 1: tenant than a homeowner than they were thirty years ago.
Speaker 1: And so the political wins are over timed. It's like, oh,
Speaker 1: the voters these like day's ideal voter is not necessarily
Speaker 1: a homeowner, right And and it's also, um, you know
Speaker 1: that that sort of new rent or block is teaming
Speaker 1: up with the old renter block, because it's not like
Speaker 1: we didn't have renters and they weren't organized before. It's
Speaker 1: just that, you know, politicians could sort of ignore them
Speaker 1: because they are because they're of a marginalized background, or
Speaker 1: because they are perceived not vote as much, or whatever
Speaker 1: reasons they come up with. So this is manifesting itself
Speaker 1: in two and a half different ways. One is the
Speaker 1: yendi movement, which for those are who are not familiar
Speaker 1: as the Yes in my Backyard movement, which advocates for
Speaker 1: building more housing, particularly in high demand areas. Arguably it's
Speaker 1: a successor movement to the fair housing movement from from
Speaker 1: late twentieth century. I was one of the founders of
Speaker 1: the biggest group that does is in New York City
Speaker 1: called Open New York, and in parallel, we have a
Speaker 1: resurgence of the rent regulation movement and sort of brought
Speaker 1: tenant protection movement brought broadly. And I think it's important
Speaker 1: to keep in mind that like America is pretty unique
Speaker 1: in being a developed country and having vastly unregulated rental market,
Speaker 1: like we have, you know, an unusually low home ownership
Speaker 1: rate contrary to what people think, but unlike countries with
Speaker 1: similarly low homeownership rates, we typically don't have rent controls.
Speaker 1: So like Germany has comparably low homeownership rates, they have
Speaker 1: rent controls. France as comparably low homeownership rates, they just
Speaker 1: parishes re institute of them. So um, you know, we've
Speaker 1: seen these resurgence of um, you know, rent regulation and
Speaker 1: even not just in places like New York and California,
Speaker 1: but um in Minnesota, in even in Orlando they had
Speaker 1: something on the ballot this last year. Uh and UM.
Speaker 1: I think this is a good segue for both of
Speaker 1: these into how the consequences of institutionalization, because institutionalization has
Speaker 1: created um, real estate entities that are much better targets
Speaker 1: of organizing from political perspectives, you know, they might not
Speaker 1: be you know, Blackstone might not be as vulnerable as
Speaker 1: your mom pop landlord for organizing individual building, but in
Speaker 1: terms of like getting policy passed and creating a political coalition,
Speaker 1: it's much more compelling. This is interesting, you know, like
Speaker 1: you hear like labor people talk about like, actually, it's
Speaker 1: kind of good that Amazon is becoming a huge employer,
Speaker 1: because if you can get unions into Amazon warehouse, you've
Speaker 1: radically like change the American labor market, or at least
Speaker 1: you have one identifiable identity to target, right. And so
Speaker 1: then if you have these big institutional landlords, then like
Speaker 1: you have a right. I hadn't thought about that, which
Speaker 1: if you have a thing to organize. Again, it's also
Speaker 1: already sort of happening because you hear so much nowadays
Speaker 1: about institutional investors buying up single family houses for rent
Speaker 1: or for flipping purposes. Right, And it's not like single
Speaker 1: family landlords didn't exist before, but now we're talking about
Speaker 1: it because it's Wall Street. Yeah, and the third I'll
Speaker 1: get into the third one in a moment. But this
Speaker 1: is also a function of technology, because the same similar
Speaker 1: technologies that made it easier for institutions to be created
Speaker 1: and organize themselves are now making it easier to organize
Speaker 1: among tenants. And historically, if you if a bunch of
Speaker 1: people in different buildings all over the city had under
Speaker 1: different or we're living under the same landlord, how are
Speaker 1: they going to find each other? But now you know,
Speaker 1: there's all this public data, there's the you know, the Internet,
Speaker 1: there's all different ways for people to get together and
Speaker 1: build coalitions that didn't exist before. Can I ask you,
Speaker 1: you know, you mentioned the MBA movement. We talked about
Speaker 1: some of this on a recent episode. And you're a
Speaker 1: part of an organization, you know, I see all the
Speaker 1: tweets and the stuff. Can you talk specifically about like
Speaker 1: how it's moving the dial, like beyond the tweets, that
Speaker 1: it actually is affecting the economics of the business. Sure,
Speaker 1: I'll first talk about how it's affecting the politics. Like
Speaker 1: in California, you know, they've passed a bunch of huge laws.
Speaker 1: You know, they've banned single family zoning, They've up zoned
Speaker 1: you know, commercial quarters all over the state. In New
Speaker 1: York State, the governor recently came out with prosals to
Speaker 1: build eight hundred thousand new homes over the next decade,
Speaker 1: which is over double the amount that was built the
Speaker 1: last decade, and in terms of the economics of the business,
Speaker 1: I think what it's mainly changed so far is where
Speaker 1: developers are willing to take chances on trying to rezone.
Speaker 1: It hasn't so much changed the economics of the um
Speaker 1: of your sort of your as of right typical day
Speaker 1: to day development, because there hasn't you know, the Indian
Speaker 1: was very young and hasn't been that much built yet.
Speaker 1: But now a developer might be more likely to take
Speaker 1: a take a chance on a on a rezoning in
Speaker 1: a rich neighborhood which actually is going to be much
Speaker 1: more profitable that for them, but would have than than
Speaker 1: doing a poor neighborhood, but was seen as very politically
Speaker 1: challenging because like Open New York got the got Soho
Speaker 1: and NoHo rezoned for housing which people thought never would have.
Speaker 1: So it's it's mainly changing the sort of political environment
Speaker 1: for participants in the real estate industry that are involved
Speaker 1: in development, and the actual economics of being a landlord
Speaker 1: haven't changed in a direct way. It's been more disparate.
Speaker 1: Like you saw on the Journal recently came up with
Speaker 1: this big story that everyone was reading about how rents
Speaker 1: have fallen over the country because supplies, someone's supplies coming
Speaker 1: inlin You know, the NBA movement can take some credit
Speaker 1: for that, but you know it's also just for these
Speaker 1: developers are responding to market signals that you know, there's
Speaker 1: not enough supply. It feels to me like there's still
Speaker 1: a lot of institutional capital flowing into this business. I mean,
Speaker 1: certainly we've talked about, you know, the big players who
Speaker 1: are snapping up single family homes, and that's been a
Speaker 1: major talking point for a couple of years now. But
Speaker 1: why is it Why does the industry presumably still see
Speaker 1: the rental market as a profitable one, Like there still
Speaker 1: seems to be a lot of interest and money flowing
Speaker 1: into the space, and presumably it's coming in at you know,
Speaker 1: the type of yields and values that we've seen in
Speaker 1: previous decades. I think the industry sees the industry, excuse me,
Speaker 1: the multi family market for as a profitable opportunity for
Speaker 1: all the reasons we've been talking about. The demand is insatiable,
Speaker 1: there are controls on how much supply can be added,
Speaker 1: and it's a very capital intensive business, so it's a
Speaker 1: good way to deploy capital. I'm not suggesting that there's
Speaker 1: going to be some sort of crash. In fact, I
Speaker 1: think institutionalization will continue apace because institutions have a lower
Speaker 1: cost of capital than your mom and pops, and they
Speaker 1: have the ex economies of scale and ability to execute
Speaker 1: so that they can make money in this environment. And
Speaker 1: I are in this sort of new environment that I'm positing,
Speaker 1: and they are one of groups and I think just
Speaker 1: representative of the big group more broadly that's going to
Speaker 1: make money in this environment, which is that people that
Speaker 1: can actually add value. So institutions are adding value from
Speaker 1: scale operational effic industry developers are adding value from actually
Speaker 1: producing housing. What I'm the people that I think are
Speaker 1: going to be the losers in this scenario, or relative losers,
Speaker 1: are landlords, um you know, of which there are many,
Speaker 1: uh that are really have really just been riding rents
Speaker 1: and not really like the purest rentiers in the market.
Speaker 1: Can you talk about the other prong when you see
Speaker 1: the return of sort of like tenants rights, whether what
Speaker 1: is it rent control? Is it? Oh yeah, fiction restrictors?
Speaker 1: Like what does that look like? You're twenty twenty three?
Speaker 1: Can I tack onto that? Which is you mentioned the
Speaker 1: tax Code, and of course there are a lot of
Speaker 1: tax tax benefits that are meant to incentivize home ownership.
Speaker 1: And I've often this might be a weird question, but
Speaker 1: I've often wondered, like, why don't renters get some tax breaks?
Speaker 1: You know, it's not really optional to pay your rent
Speaker 1: um anyway. No, I completely agree, Tracy. And you know,
Speaker 1: the biggest, the biggest expenditure of the federal government on
Speaker 1: housing is the homeowner's interest induction or a mortgage. And
Speaker 1: you know, there's various ways that that could be replicated, um,
Speaker 1: because I doubt it's going to be paired back uh
Speaker 1: UM for renters. It could be universal Section eight, it
Speaker 1: could be some sort of renters task credit. I don't know,
Speaker 1: but I think you know, as as this um demographic
Speaker 1: shift portends political coalitions and change, UM, that will that's
Speaker 1: certainly on the menu of things. Just like Joe mentioned,
Speaker 1: what happens in where what order is going to vary
Speaker 1: widely based on the state. So UM in New York State,
Speaker 1: the big push right now is for good cause e fiction,
Speaker 1: which is sort of a very light touch rent regulation
Speaker 1: that past in California in twenty eighteen, past in Oregon,
Speaker 1: UM they have it in in DC, a couple other
Speaker 1: places Oitherhood of New Jersey since the nineteen seventies. UM
Speaker 1: And Uh that so I think that sort of thing
Speaker 1: is good. Good cause eviction is basically defense in an
Speaker 1: eviction case that if a landlord, UM, if a tenant
Speaker 1: de faults on the lease A and the landlord has
Speaker 1: raised their rent by this has defined differently in different
Speaker 1: places an unconscionable amount, the tenant can use that as
Speaker 1: a defense for not being a victim. UM. And this
Speaker 1: is um you know, particularly valuable theoretically in instances in
Speaker 1: which um, A, let's say the conditions in the building
Speaker 1: are really bad tenant complaints. Uh, and then the landlords,
Speaker 1: you know, I'm just not going to re release or
Speaker 1: I'm going to give you a huge round increase. So
Speaker 1: that right. So, UM, that sort of soft rent regulationship
Speaker 1: I think is going to become more prevalent. UM. You know,
Speaker 1: the Supreme Court could certainly, um, you know, change some
Speaker 1: of this, but I think in the main there's different
Speaker 1: ways that many different ways that tenants rights can be increased,
Speaker 1: whether it's some form of rank control to UM right
Speaker 1: to counsel, to universal section night UM or or vouchers. Um.
Speaker 1: And the point is that there's a growing political coalition
Speaker 1: to agitate for these measures, whatever they may be in
Speaker 1: a given political environment. So if you're no longer a landlord, UM, well,
Speaker 1: first of all, how how serious are you about that statement?
Speaker 1: And then secondly, what do you do instead? So, um,
Speaker 1: I am still landlords? Is not going to be a
Speaker 1: fire sale, and you know I will always be a
Speaker 1: landlord because we're still commercial landlords. But um, you know
Speaker 1: it's going to be an orderly liquidation because you know,
Speaker 1: I don't. This is really a secular shift. It's not
Speaker 1: It's not going to happen overnight. And plenty of people
Speaker 1: disagree with me. Um, so they're they're walking to buy
Speaker 1: my properties, I think inadvertently, like this episode is just
Speaker 1: Ben you know he has properties for still. But I
Speaker 1: think from a brokerage perspective, you know, I'll continue to
Speaker 1: work with um. You know, players that I think are
Speaker 1: either you know, want to get out as a result
Speaker 1: of this dynamic, or institutions that you know, I think
Speaker 1: will benefit or developers. But what I'm most interested in,
Speaker 1: and I'm working on a lot right now, is trying
Speaker 1: to figure out ways to bet on this dynamic UM
Speaker 1: and short Essentially shorting the real estate business generally and
Speaker 1: apartments in particular, is historically been very challenging because you know,
Speaker 1: maybe you can short read stock, but like it, it's
Speaker 1: not a it's not a liquid of a market. And um,
Speaker 1: we're working on what we think are very creative ways
Speaker 1: to um to bet on this dynamic. Well, let me
Speaker 1: ask you. You know, you said, Okay, you're not really
Speaker 1: necessarily expecting a crash. But on the other hand, like
Speaker 1: you know, and we talked about this in an episode
Speaker 1: several weeks ago at Connersen. This idea that like everyone's
Speaker 1: assumed it's always a winner for some of the reasons
Speaker 1: you described as just like this secular shift people moving
Speaker 1: to the cities, it's always one. Even the great finding
Speaker 1: entral crisis didn't hit rent. Like if you think about, like, well,
Speaker 1: what is the short case, how much of it is
Speaker 1: it that group think essentially within the sort of rentier
Speaker 1: class or the landlord class, just like refusing to see
Speaker 1: the writing on the wall, and is there just sort
Speaker 1: of I don't mean a bubble on the price sense,
Speaker 1: but a bubble in this sort of like thinking through
Speaker 1: that something could actually change in a way that we
Speaker 1: haven't seen in decades. I never want to underestimate the
Speaker 1: ability of flows to impact the market. You're speaking Tracy's
Speaker 1: that said, I think it's a question of whether it's
Speaker 1: a who this is a winner for. And I don't
Speaker 1: mean you know, talent's first landlords. I mean within sort
Speaker 1: of the investment market. So like if you're a you know,
Speaker 1: in the capital allocation business and you want to be
Speaker 1: a bond investor or a fixed income investor. I think
Speaker 1: multi family is going to continue to be a great business.
Speaker 1: But if you want to earn these sort of banans
Speaker 1: or turns that you've been earning for the past several
Speaker 1: decades without doing much work, then other sectors of real
Speaker 1: estate might be a better option for your or other
Speaker 1: sectors entirely. I just have one question, and it sort
Speaker 1: of connects this conversation with the one we had with
Speaker 1: Chris Salviati about rents actually moving. What advice do you
Speaker 1: have for people who are trying to negotiate their rent
Speaker 1: with their landlord down Obviously not up. Every situation's is specific,
Speaker 1: so I'll do my best to generalize, but I think
Speaker 1: you have more leverage than you think, generally speaking, if
Speaker 1: only because a landlord, if you if you leave a
Speaker 1: landlord probably loses a month of rent. So at the
Speaker 1: very least you should factor that month of loss and
Speaker 1: rent and maybe even a brography into what you know
Speaker 1: you're negotiating for. All right, Ben Carlos Typen, thank you
Speaker 1: so much for coming on odd Lots, and good luck
Speaker 1: in your new endeavors. And I hope, I hope you
Speaker 1: time the market well of this episode. Thanks wrapping Trazy.
Speaker 1: I thought that was really fascinating, and you know, just
Speaker 1: this idea. It's like, yes, there's obviously certain like market
Speaker 1: changes by and demand, interest rates and all that, but
Speaker 1: also this idea of like political changes seemed really important here. Yeah,
Speaker 1: maybe not something that investors are really thinking about that much. Well,
Speaker 1: a couple of things there. So One, I think it's
Speaker 1: always like it's always a bit difficult to call a
Speaker 1: secular shift in something, but if you're going to do
Speaker 1: it the sort of post pandemic environment, when there does
Speaker 1: seem to be a lot of momentum behind, you know,
Speaker 1: the labor class versus the capitalists, that seems to be
Speaker 1: the time to do it well. And also it's like,
Speaker 1: you know, you and I ran to New York City
Speaker 1: and we probably know a lot of people friends who
Speaker 1: are like professionals and have good salaries, et cetera, and
Speaker 1: who rent and who feel that like buying is very
Speaker 1: risky or unattainable or like put you know, they can't
Speaker 1: haven't saved up for a down payment or for whatever reason.
Speaker 1: And it's like this idea that it's like, well, like
Speaker 1: this is like a very you know, there's the traditional
Speaker 1: like sort of like more marginalized rent or class more professionalized,
Speaker 1: and so like this coming together seems like a very
Speaker 1: like potentially like powerful macro secular trend. Yeah, but the
Speaker 1: key thing I think is always going to be the
Speaker 1: policy and whether or not you do start to see
Speaker 1: those sort of institutional protections renters like you do in
Speaker 1: some other countries. And I know, I think we've spoken
Speaker 1: about Germany. We're gonna have to doy Austria. So why
Speaker 1: the Austrian rental market is so different to the US.
Speaker 1: Let's do that. And also that point about like there
Speaker 1: is a big institutional face of landlords. I thought it
Speaker 1: was like super fascinating. So the way that like Amazon
Speaker 1: becomes a good or Starbucks becomes a target of labor organizing,
Speaker 1: you start to have this similar dynamics with tenant organizing.
Speaker 1: Never underestimate the power of a scapegoat. Yeah, totally, all right,
Speaker 1: shall we leave it there. Let's leave it there. This
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway.
Speaker 1: And I'm Joe Wisntal. You can follow me on Twitter
Speaker 1: at the Stalwart. Follow our guest Ben Carlos typing. He's
Speaker 1: at so Bendito slide into his DMS. Made an offer
Speaker 1: on one of his buildings. Make but if you're listening
Speaker 1: to him making the very case, I don't really know
Speaker 1: why you'd wanted to. Follow our producers Kerman Rodriguez at
Speaker 1: Kerman Arman and Dash Bennett at Dashbot and check out
Speaker 1: all of our podcasts under the handle at Podcasts, and
Speaker 1: for more Oddlots content, go to Bloomberg dot com slash Oddlots,
Speaker 1: where we post transcripts. Tracy and I blog and we
Speaker 1: have a weekly newsletter that comes out of your Thanks
Speaker 1: for listening,