1 00:00:02,200 --> 00:00:06,800 Speaker 1: This is Masters in Business with Very Ridholts on Bloomberg Radio. 2 00:00:07,240 --> 00:00:09,960 Speaker 1: This week on the podcast, I have a special guest 3 00:00:10,240 --> 00:00:13,720 Speaker 1: and really quite fascinating. His name is John Litt. He 4 00:00:14,080 --> 00:00:18,680 Speaker 1: is founder and chief investment officer of a firm that 5 00:00:18,800 --> 00:00:24,360 Speaker 1: invests in public reads called land and Buildings. And there 6 00:00:24,400 --> 00:00:28,360 Speaker 1: aren't a lot of companies that have this sort of 7 00:00:28,560 --> 00:00:33,639 Speaker 1: unique ability to express their views on real estate and 8 00:00:33,840 --> 00:00:36,839 Speaker 1: interest rates, in the state of the economy and where 9 00:00:36,880 --> 00:00:42,839 Speaker 1: people are living, working, shopping, etcetera. By purchasing companies and 10 00:00:42,920 --> 00:00:46,720 Speaker 1: reads in the public space. It's it's really kind of 11 00:00:46,960 --> 00:00:49,760 Speaker 1: unique and interesting. We see a lot of private equity 12 00:00:49,800 --> 00:00:54,160 Speaker 1: making investments into either individual houses or multi family or whatever. 13 00:00:55,040 --> 00:00:58,520 Speaker 1: But to see a public company to specifically look to 14 00:00:58,600 --> 00:01:03,959 Speaker 1: identify under priced reads because of their underlying assets being 15 00:01:04,040 --> 00:01:08,080 Speaker 1: undervalued kind of interesting, quite fascinating. If you are at 16 00:01:08,080 --> 00:01:11,720 Speaker 1: all interested in real estate or reads or anything related 17 00:01:11,760 --> 00:01:14,760 Speaker 1: to the topics, you're gonna find this to be a 18 00:01:14,880 --> 00:01:19,760 Speaker 1: very interesting conversation. So, with no further ado, my conversation 19 00:01:20,040 --> 00:01:24,959 Speaker 1: with John Litt. This is Masters in Business with Barry 20 00:01:25,080 --> 00:01:29,000 Speaker 1: Ridholts on Bloomberg Radio. My special guest this week is 21 00:01:29,080 --> 00:01:32,760 Speaker 1: John Litt. He is the founder and chief investment officer 22 00:01:32,880 --> 00:01:36,600 Speaker 1: of Land and Buildings. Institutional Investor ranked him as the 23 00:01:36,720 --> 00:01:40,319 Speaker 1: number one real estate analyst for eight years running. He 24 00:01:40,440 --> 00:01:43,600 Speaker 1: comes to us with a background undergraduated at Columbia. He 25 00:01:43,680 --> 00:01:47,400 Speaker 1: got his NBA from n y U. Stern John Litt. 26 00:01:47,760 --> 00:01:52,000 Speaker 1: Welcome to Masters in Business. Thank you, Barry. So, like 27 00:01:52,120 --> 00:01:56,320 Speaker 1: so many uh in Wall Street, you began your career 28 00:01:56,640 --> 00:02:01,440 Speaker 1: as an analyst, but you started in Oman. What was 29 00:02:01,560 --> 00:02:05,000 Speaker 1: that like? So? I always wanted to be in real estate, 30 00:02:05,520 --> 00:02:07,880 Speaker 1: And first I thought I was going to be an architect, 31 00:02:08,440 --> 00:02:11,600 Speaker 1: and along the way I realized I was probably better 32 00:02:11,680 --> 00:02:15,480 Speaker 1: on the investor side. If you remember, there was a 33 00:02:15,520 --> 00:02:20,160 Speaker 1: minor stock market crash on a cable eighteen stat about 34 00:02:21,720 --> 00:02:23,960 Speaker 1: and I always wanted to be in real estate. I 35 00:02:24,000 --> 00:02:28,400 Speaker 1: got into it. I worked for a private buyer syndicator 36 00:02:28,639 --> 00:02:31,919 Speaker 1: of real estate. And when I started my career, and 37 00:02:32,360 --> 00:02:37,080 Speaker 1: we went right into the recession of the early nineteen 38 00:02:37,160 --> 00:02:42,720 Speaker 1: nineties and the and what I learned very quickly was 39 00:02:43,800 --> 00:02:48,760 Speaker 1: that as a private sponsor of real estate transactions, we 40 00:02:48,840 --> 00:02:52,320 Speaker 1: always made money, whether our investors made money or not. 41 00:02:53,000 --> 00:02:56,840 Speaker 1: And we went from buying shopping centers to doing workouts 42 00:02:56,840 --> 00:03:01,920 Speaker 1: and bankruptcies and round that time, in the early nineteen nineties, 43 00:03:02,400 --> 00:03:07,160 Speaker 1: the legislation that governed the reeds was changed and it 44 00:03:07,280 --> 00:03:13,000 Speaker 1: allowed reads to be internally managed and internally advised UM. 45 00:03:13,080 --> 00:03:16,360 Speaker 1: And so there was a real alignment of interest in 46 00:03:16,480 --> 00:03:22,639 Speaker 1: the public market where management's interests were alignment at a shareholders. 47 00:03:22,680 --> 00:03:24,799 Speaker 1: And I looked at my position on the private side, 48 00:03:25,560 --> 00:03:28,239 Speaker 1: where there clearly was not on alignment. When I was 49 00:03:28,280 --> 00:03:31,720 Speaker 1: a young analyst at time on the acquisitions team, and 50 00:03:31,960 --> 00:03:35,040 Speaker 1: I looked at the reds UH in two and I said, 51 00:03:35,360 --> 00:03:37,680 Speaker 1: that's a better mass trap. That's a better mass trap 52 00:03:37,720 --> 00:03:41,160 Speaker 1: as an investor to make money in real estate. UH. 53 00:03:41,200 --> 00:03:43,760 Speaker 1: And I switched and went to work for one of 54 00:03:43,760 --> 00:03:46,640 Speaker 1: the leading buyers of reeds. At the time, the industry 55 00:03:46,680 --> 00:03:50,480 Speaker 1: was all a fifteen billion and I went to work 56 00:03:50,520 --> 00:03:54,240 Speaker 1: for them. UH. And it ended up being that that 57 00:03:54,360 --> 00:03:57,920 Speaker 1: changed in the legislation in the early nineteen nineties opened 58 00:03:57,960 --> 00:04:02,840 Speaker 1: the doors to today with a one trillion dollar industry 59 00:04:02,880 --> 00:04:05,600 Speaker 1: of public companies. And I got a great front row 60 00:04:05,600 --> 00:04:08,960 Speaker 1: seat right UH in ninety two as the I P 61 00:04:09,080 --> 00:04:13,320 Speaker 1: O machine started in earnest So how significant were the 62 00:04:14,000 --> 00:04:16,200 Speaker 1: I don't know if you were. You can recall the 63 00:04:16,320 --> 00:04:20,800 Speaker 1: era in the nineteen eighties when there were all these 64 00:04:21,160 --> 00:04:25,599 Speaker 1: huge tax incentives to use real estate as a write off. 65 00:04:25,720 --> 00:04:30,880 Speaker 1: When did that change? And the move towards public reads 66 00:04:31,080 --> 00:04:34,599 Speaker 1: was that related to taxes that everyone always had a 67 00:04:34,600 --> 00:04:37,679 Speaker 1: headache with the K one filings? How has the legal 68 00:04:37,720 --> 00:04:40,839 Speaker 1: structure made it easier to be a public investor in 69 00:04:41,120 --> 00:04:44,280 Speaker 1: real estate? Right? So now I'm going to really date myself. 70 00:04:44,600 --> 00:04:48,240 Speaker 1: So Ronald Reagan was president and he put through him 71 00:04:48,240 --> 00:04:52,320 Speaker 1: a tax Reform Act eliminating many of the benefits of 72 00:04:52,320 --> 00:04:57,320 Speaker 1: owning real estate in a private structure through the as 73 00:04:57,360 --> 00:05:00,920 Speaker 1: you mentioned, through the tax benefits. And so you went 74 00:05:00,960 --> 00:05:04,120 Speaker 1: into a bit of a real estate depression because the 75 00:05:04,200 --> 00:05:06,920 Speaker 1: valuations of real estate and the leverage on real estate 76 00:05:07,000 --> 00:05:10,479 Speaker 1: no longer made sense. And in part the firm that 77 00:05:10,600 --> 00:05:15,520 Speaker 1: I started my career at was impacted by that. They 78 00:05:15,560 --> 00:05:18,680 Speaker 1: were still able to continue to raise money and invest, 79 00:05:19,440 --> 00:05:22,120 Speaker 1: but that was a real sea change. And of course 80 00:05:22,160 --> 00:05:25,800 Speaker 1: we then went into the recession in the early early nineties, 81 00:05:25,839 --> 00:05:29,159 Speaker 1: which was quite painful real estate. I would say we 82 00:05:29,200 --> 00:05:33,200 Speaker 1: had the recession I recall calling the early nineties of 83 00:05:33,279 --> 00:05:36,840 Speaker 1: depression uh for real estate, and it took a long 84 00:05:36,920 --> 00:05:40,520 Speaker 1: time to recover, and frankly, many companies that went public 85 00:05:41,160 --> 00:05:43,240 Speaker 1: really didn't have a choice. It was go broke or 86 00:05:43,240 --> 00:05:46,039 Speaker 1: go public. And it coincided with the time when this 87 00:05:46,160 --> 00:05:48,960 Speaker 1: legislation was changed, and that really opened up the doors 88 00:05:49,800 --> 00:05:52,200 Speaker 1: to what I believe is a much better masstraft for 89 00:05:52,200 --> 00:05:55,280 Speaker 1: investing in real estate by investing in the public reads. 90 00:05:55,600 --> 00:05:59,280 Speaker 1: I have a vivid recollection of graduating grad school and 91 00:05:59,440 --> 00:06:04,240 Speaker 1: eight nine and all my colleagues who ran out and 92 00:06:04,279 --> 00:06:06,920 Speaker 1: bought condos or co ops in New York City that year. 93 00:06:07,560 --> 00:06:10,000 Speaker 1: It took them almost a decade to get back to 94 00:06:10,080 --> 00:06:15,080 Speaker 1: break even. That real estate depression you you reference was very, 95 00:06:15,200 --> 00:06:19,160 Speaker 1: very significant in the nineties and it was almost like 96 00:06:19,279 --> 00:06:22,080 Speaker 1: the boom in the early two thousands was making up 97 00:06:22,080 --> 00:06:24,880 Speaker 1: for lost time. How do you look at that era 98 00:06:25,200 --> 00:06:29,360 Speaker 1: of the nineties to the two thousand's, How significant was 99 00:06:29,440 --> 00:06:33,520 Speaker 1: that prior lost decade? You know, it's interesting and you know, 100 00:06:33,720 --> 00:06:36,120 Speaker 1: if you read the papers today about how long is 101 00:06:36,160 --> 00:06:39,120 Speaker 1: it going to take us to recover from the Corona 102 00:06:39,320 --> 00:06:41,839 Speaker 1: COVID nineteens, how long has he let to get the 103 00:06:41,920 --> 00:06:45,120 Speaker 1: jobs back, et cetera. You know, once you have the reset, 104 00:06:45,839 --> 00:06:48,840 Speaker 1: which we've now had with the thirty million people unemployed 105 00:06:49,000 --> 00:06:51,799 Speaker 1: or with the bottom in real estate, which was probably 106 00:06:53,640 --> 00:06:57,760 Speaker 1: um you then had growth, uh, And you then looked 107 00:06:57,760 --> 00:06:59,520 Speaker 1: at not when do we get back to peak, but 108 00:06:59,760 --> 00:07:01,640 Speaker 1: what are gonna look like in the next twelve months, 109 00:07:01,839 --> 00:07:04,560 Speaker 1: twenty four months, thirty six months. And that's really what 110 00:07:04,680 --> 00:07:08,440 Speaker 1: we were focused on at the time. Supply got largely 111 00:07:08,480 --> 00:07:11,400 Speaker 1: shut off, and you were able to see the economy 112 00:07:11,480 --> 00:07:14,920 Speaker 1: slowly coming out of the recession and demand building. And 113 00:07:14,960 --> 00:07:18,800 Speaker 1: I remember the hotel business, which was fairly decimated during 114 00:07:18,800 --> 00:07:21,520 Speaker 1: that period, was really the first to come back if 115 00:07:21,560 --> 00:07:24,200 Speaker 1: people got back out on the road. Uh. And we 116 00:07:24,240 --> 00:07:28,080 Speaker 1: started to see healthy increases and occupancies and and and 117 00:07:28,160 --> 00:07:32,720 Speaker 1: rents a nightly rates. And then's gradually built over the 118 00:07:32,760 --> 00:07:36,240 Speaker 1: balance of the decade, not without its bumps, but we 119 00:07:36,320 --> 00:07:39,160 Speaker 1: saw steady growth. And in fact, I when you look 120 00:07:39,200 --> 00:07:41,800 Speaker 1: back at thirty years, there's been steady growth with a 121 00:07:41,840 --> 00:07:44,840 Speaker 1: few major interruptions, but there's been pretty steady growth in 122 00:07:44,880 --> 00:07:48,320 Speaker 1: demand for real estate. Quite fascinating. So, John, you had 123 00:07:48,360 --> 00:07:51,800 Speaker 1: a really fascinating quote. I have to ask you about quote. 124 00:07:52,320 --> 00:07:55,160 Speaker 1: There's a big pile of private capital that wants to 125 00:07:55,200 --> 00:07:58,360 Speaker 1: own real estate, and a big pile of real estate 126 00:07:58,440 --> 00:08:01,840 Speaker 1: trading at a discount. You said that to the Wall 127 00:08:01,920 --> 00:08:07,800 Speaker 1: Street Journal in has real estate really been trading at 128 00:08:07,920 --> 00:08:13,200 Speaker 1: that much of a discount for that long pre pandemic lockdown? Oh, 129 00:08:13,280 --> 00:08:17,840 Speaker 1: you know, it's an interesting question. What we specialize at 130 00:08:17,920 --> 00:08:21,600 Speaker 1: landing buildings is buying heavily discanded real estate in the 131 00:08:21,640 --> 00:08:27,080 Speaker 1: private market. Uh. And that exists almost all the time, 132 00:08:27,760 --> 00:08:31,720 Speaker 1: not reads as a group, but there's always a stock 133 00:08:31,960 --> 00:08:34,960 Speaker 1: or a sector where you could buy it at very 134 00:08:34,960 --> 00:08:39,840 Speaker 1: substantial discounts to private market values. What's always fascinated me 135 00:08:40,760 --> 00:08:45,480 Speaker 1: is the private capital uh that is piling up on 136 00:08:45,520 --> 00:08:49,880 Speaker 1: the sidelines, is putting the money out at the private pricing, 137 00:08:50,480 --> 00:08:53,679 Speaker 1: which is often uh in the relatives the stocks are 138 00:08:53,679 --> 00:08:57,719 Speaker 1: buying materially higher valuation than what we're buying it for 139 00:08:58,000 --> 00:09:00,480 Speaker 1: in the public markets. And I think some of that 140 00:09:00,600 --> 00:09:05,920 Speaker 1: private capital in eighteen was looking at the valuations on 141 00:09:06,000 --> 00:09:09,520 Speaker 1: some property types and saying, you know what, we can't 142 00:09:09,520 --> 00:09:11,920 Speaker 1: put this money out right now because the returns are 143 00:09:11,920 --> 00:09:15,320 Speaker 1: not attractive enough. And you know, our argument is, you know, 144 00:09:15,400 --> 00:09:17,600 Speaker 1: you should be buying the public company is a big discount, 145 00:09:18,040 --> 00:09:20,680 Speaker 1: rather than going out and buying it in the private 146 00:09:20,720 --> 00:09:24,520 Speaker 1: market where you're paying essentially net asset value where the 147 00:09:24,600 --> 00:09:27,600 Speaker 1: assets will trade. So here we are where I don't know. 148 00:09:27,679 --> 00:09:32,560 Speaker 1: This is daye of it feels like of lockdown. You 149 00:09:32,600 --> 00:09:35,000 Speaker 1: have more than forty one million people who have applied 150 00:09:35,080 --> 00:09:39,440 Speaker 1: for first time unemployment benefits. The GDP feels like it's 151 00:09:39,440 --> 00:09:43,480 Speaker 1: been cut in half. What has this done to the 152 00:09:43,559 --> 00:09:47,720 Speaker 1: price of both real estate in the private market as 153 00:09:47,760 --> 00:09:52,480 Speaker 1: well as the public markets. So the COVID nineteen really 154 00:09:52,520 --> 00:09:57,160 Speaker 1: turned real estate on its head in certain property types. 155 00:09:57,720 --> 00:10:01,920 Speaker 1: And we've been spending very intense period March and April 156 00:10:02,320 --> 00:10:05,720 Speaker 1: trying to figure out what the landscape is gonna look like. 157 00:10:06,080 --> 00:10:08,680 Speaker 1: The last time I remember this type of an intense 158 00:10:08,760 --> 00:10:12,480 Speaker 1: impact on real estate was was after nine eleven. And 159 00:10:12,559 --> 00:10:15,720 Speaker 1: of course, the predictions that occur in the days and 160 00:10:15,800 --> 00:10:19,439 Speaker 1: weeks after a crisis like this, and some some are 161 00:10:19,440 --> 00:10:21,800 Speaker 1: going to pan out and some aren't, And so it's 162 00:10:21,800 --> 00:10:25,800 Speaker 1: important to use that period as a lesson for some 163 00:10:25,960 --> 00:10:29,240 Speaker 1: of the things that might occur in the future. I 164 00:10:29,280 --> 00:10:32,920 Speaker 1: would say, we're not seeing a lot of price discovery 165 00:10:33,080 --> 00:10:38,439 Speaker 1: in the private markets on real estate because it's too soon, uh, 166 00:10:38,480 --> 00:10:40,280 Speaker 1: and it's hard to close real estate. You know, we're 167 00:10:40,360 --> 00:10:43,160 Speaker 1: talking to the private equity guys and getting a deal 168 00:10:43,240 --> 00:10:47,040 Speaker 1: closed if you need government approvals and notaries with the 169 00:10:47,080 --> 00:10:50,359 Speaker 1: stay at home orders is quite difficult. But I suspect 170 00:10:50,679 --> 00:10:53,120 Speaker 1: we're going to start getting price discovery in the next 171 00:10:53,640 --> 00:10:56,920 Speaker 1: three to six months, where the private equity guys are 172 00:10:56,960 --> 00:10:59,760 Speaker 1: going to be buying real estate. You know, as John 173 00:10:59,760 --> 00:11:03,360 Speaker 1: Gray said of Blackstone following March, you know, they could 174 00:11:03,400 --> 00:11:05,320 Speaker 1: buy on the screen, but they couldn't buy in the 175 00:11:05,360 --> 00:11:08,920 Speaker 1: private markets, And they bought eleven billion dollars worth of 176 00:11:09,360 --> 00:11:13,040 Speaker 1: securities on the screen, so they clearly were opportunistic and 177 00:11:13,400 --> 00:11:17,839 Speaker 1: buying at that time. The big changes that occurred were 178 00:11:18,200 --> 00:11:22,040 Speaker 1: the work from home were competitive people thought, uh, and 179 00:11:22,160 --> 00:11:24,960 Speaker 1: the bosses of the big companies saw that it worked 180 00:11:24,960 --> 00:11:27,400 Speaker 1: better than people thought. And many of them lived through 181 00:11:27,480 --> 00:11:31,040 Speaker 1: nine eleven and it was very poor the work from 182 00:11:31,040 --> 00:11:34,360 Speaker 1: home to the week or so. After this time, it's 183 00:11:34,440 --> 00:11:37,920 Speaker 1: really working smoothly. And whether it's Gorman at Morgan Stanley 184 00:11:38,000 --> 00:11:41,600 Speaker 1: or Think at black Rock. Uh. Commenting, particularly as it 185 00:11:41,640 --> 00:11:44,600 Speaker 1: relates to New York, at how the productivity is quite 186 00:11:44,679 --> 00:11:48,480 Speaker 1: high and the office used is likely to decline in 187 00:11:48,559 --> 00:11:53,840 Speaker 1: the future, and so office was already soft in New York. 188 00:11:54,400 --> 00:11:57,439 Speaker 1: And I think this is going to really accelerate a 189 00:11:57,559 --> 00:12:01,240 Speaker 1: downturn in office in New York, and it's gonna accelerated 190 00:12:01,280 --> 00:12:06,880 Speaker 1: downturn in major urban office markets and major urban residential 191 00:12:06,920 --> 00:12:11,280 Speaker 1: markets because I think as people discover that they can 192 00:12:11,320 --> 00:12:13,880 Speaker 1: work from home and maybe go to the office one 193 00:12:14,000 --> 00:12:16,040 Speaker 1: or two days a week, they're going to move to 194 00:12:16,120 --> 00:12:18,160 Speaker 1: the burbs. UH. And as they moved to the burbs, 195 00:12:18,160 --> 00:12:21,360 Speaker 1: they're going to move further out UH. And so this 196 00:12:21,520 --> 00:12:27,760 Speaker 1: dichotomy of urban cores being adversely impacted and suburban markets 197 00:12:27,840 --> 00:12:30,600 Speaker 1: being positively impacted, I think it's with us for the 198 00:12:30,640 --> 00:12:33,640 Speaker 1: next three to five years. Some of it was already 199 00:12:33,760 --> 00:12:37,840 Speaker 1: in place because she had the millennials getting to the 200 00:12:37,880 --> 00:12:40,520 Speaker 1: age where they were starting families and wanted to move 201 00:12:40,559 --> 00:12:43,080 Speaker 1: to the burbs. And we already saw the population declined 202 00:12:43,080 --> 00:12:46,199 Speaker 1: in the past three years in Manhattan UH, and this 203 00:12:46,280 --> 00:12:49,079 Speaker 1: is this is going to accelerate it. UM. I think 204 00:12:49,160 --> 00:12:52,560 Speaker 1: single family, whether it's for rent or to buy UH, 205 00:12:52,880 --> 00:12:55,719 Speaker 1: is going to be a strong place in the real 206 00:12:55,840 --> 00:12:58,560 Speaker 1: estate market. I think New York City office is going 207 00:12:58,600 --> 00:13:02,560 Speaker 1: to be very difficult over the next several years. So 208 00:13:02,640 --> 00:13:05,120 Speaker 1: let me push back against that, because you're not the 209 00:13:05,160 --> 00:13:09,520 Speaker 1: only person making that suggestion, and here's the counter argument. 210 00:13:10,280 --> 00:13:15,000 Speaker 1: Cities and urban centers have been the dominant source of 211 00:13:15,200 --> 00:13:20,080 Speaker 1: economic growth and cultural creativity and entertainment and and go 212 00:13:20,160 --> 00:13:24,679 Speaker 1: down the list for five years. Once we have some 213 00:13:24,760 --> 00:13:29,160 Speaker 1: form of treatment and some form of vaccine for COVID nineteen, 214 00:13:29,640 --> 00:13:34,719 Speaker 1: why wouldn't we just return to that five century long trends. 215 00:13:34,920 --> 00:13:38,079 Speaker 1: I think the reason why New York works and New 216 00:13:38,120 --> 00:13:42,320 Speaker 1: York will always be a major UH market is you 217 00:13:42,400 --> 00:13:45,480 Speaker 1: have a brain trust people in Manhattan and the Tri 218 00:13:45,640 --> 00:13:48,280 Speaker 1: state area. So if you want to be an employer, 219 00:13:48,400 --> 00:13:51,000 Speaker 1: you can come here and you can access that brain trust. 220 00:13:51,320 --> 00:13:53,160 Speaker 1: I don't think that's going the way. And we're not 221 00:13:53,200 --> 00:13:56,559 Speaker 1: saying New York is going to see a population to client. 222 00:13:56,880 --> 00:13:59,800 Speaker 1: We've been seeing the populations fall about one percent of 223 00:14:00,040 --> 00:14:03,120 Speaker 1: year for the past three years. We think that accelerates 224 00:14:03,200 --> 00:14:07,520 Speaker 1: a couple of percent um naturally. Then if you just 225 00:14:07,520 --> 00:14:09,960 Speaker 1: look at demographics and a lot of investing in real estate, 226 00:14:10,200 --> 00:14:13,600 Speaker 1: he's just looking at demographics. Where is the pig and 227 00:14:13,600 --> 00:14:17,000 Speaker 1: the python gonna be um? And right now, the millennials 228 00:14:17,000 --> 00:14:20,440 Speaker 1: are that prime age to start families, and they're moving 229 00:14:20,440 --> 00:14:22,880 Speaker 1: out of urban corps and they're moving to the Burbs. 230 00:14:22,920 --> 00:14:25,520 Speaker 1: And that's going to happen with or without COVID. It's 231 00:14:25,520 --> 00:14:29,320 Speaker 1: been accelerated because of COVID. I think New York like myself, 232 00:14:29,360 --> 00:14:33,480 Speaker 1: I've been working in Connecticut for twelve years, UH, and 233 00:14:34,120 --> 00:14:35,840 Speaker 1: you know, I make sure I'm in the city one 234 00:14:35,920 --> 00:14:39,239 Speaker 1: or two days a week, and I set up external meetings, 235 00:14:39,240 --> 00:14:45,120 Speaker 1: set up internal meetings UH with UH colleagues, and the 236 00:14:45,200 --> 00:14:48,160 Speaker 1: excitement and the energy in New York will always be there. 237 00:14:48,200 --> 00:14:51,280 Speaker 1: But I think what's going to happen, UH, there's gonna 238 00:14:51,320 --> 00:14:54,320 Speaker 1: be a hybrid model that's going to develop. And that is, 239 00:14:54,880 --> 00:14:58,680 Speaker 1: if you had a thousand people that worked in an 240 00:14:58,720 --> 00:15:03,880 Speaker 1: office every day, you'll probably go to seven and fifty 241 00:15:03,920 --> 00:15:08,720 Speaker 1: people UH with that other peace being there in two days, 242 00:15:08,920 --> 00:15:12,040 Speaker 1: somebody else's in two days UH. And that's not going 243 00:15:12,080 --> 00:15:15,440 Speaker 1: to go to fifer zero in my mind. But you're 244 00:15:15,440 --> 00:15:18,880 Speaker 1: gonna have that UM hoteling of office space. You have 245 00:15:18,920 --> 00:15:21,120 Speaker 1: your laptop, you come in, you grab a office, you 246 00:15:21,160 --> 00:15:24,200 Speaker 1: grab a desk, whatever your pay grade is UH, and 247 00:15:24,320 --> 00:15:26,440 Speaker 1: you set up your appointments and you have conference rooms 248 00:15:26,440 --> 00:15:29,840 Speaker 1: and you have UH meetings, lunches and other colleagues come 249 00:15:29,880 --> 00:15:32,800 Speaker 1: in on those days. I think that's likely how it's 250 00:15:32,840 --> 00:15:36,040 Speaker 1: going to play out. And I think that's facilitated by technology. 251 00:15:36,200 --> 00:15:39,480 Speaker 1: The technology didn't exist ten years ago uh where that 252 00:15:39,600 --> 00:15:43,280 Speaker 1: was really feasible, But the technology exists today and people 253 00:15:43,360 --> 00:15:47,280 Speaker 1: want to Yeah. In fact, the SEC after nine eleven 254 00:15:48,040 --> 00:15:52,480 Speaker 1: mandated that every UH security firm and every st management 255 00:15:52,520 --> 00:15:55,640 Speaker 1: firm not only had a backup plan, but had an 256 00:15:55,680 --> 00:15:59,120 Speaker 1: ability to flick a switch and relocate if they were 257 00:15:59,160 --> 00:16:03,000 Speaker 1: to have lost are headquarters. So the one of the 258 00:16:03,120 --> 00:16:06,480 Speaker 1: end results of none eleven is that the work from home, 259 00:16:06,560 --> 00:16:11,040 Speaker 1: the work remotely is much more easy to perform these 260 00:16:11,120 --> 00:16:14,240 Speaker 1: days than pre No eleven days. Not just go to 261 00:16:14,320 --> 00:16:19,520 Speaker 1: the technology, but because people have thought this through in advance. Absolutely. 262 00:16:19,560 --> 00:16:23,400 Speaker 1: I mean, we flicked our disaster recovery plan on immediately, 263 00:16:23,640 --> 00:16:26,760 Speaker 1: and you know, because we were one required to by 264 00:16:26,760 --> 00:16:29,240 Speaker 1: the SEC have a plan, but we were regularly testing 265 00:16:29,280 --> 00:16:31,560 Speaker 1: it and you were up and running the next day. 266 00:16:31,600 --> 00:16:34,360 Speaker 1: We didn't have to buy anything that really was wouldn't go. 267 00:16:34,840 --> 00:16:39,840 Speaker 1: Quite fascinating. So, John, you picked quite the auspicious year 268 00:16:39,960 --> 00:16:45,200 Speaker 1: to launch a real estate investment company. You you launched 269 00:16:45,200 --> 00:16:47,360 Speaker 1: the firm in two thousand and eight, Is that is 270 00:16:47,360 --> 00:16:52,040 Speaker 1: that correct? Correct? So you start your career in eighty seven. 271 00:16:52,040 --> 00:16:55,200 Speaker 1: You launch your business in oh eight, you have to 272 00:16:55,280 --> 00:16:58,360 Speaker 1: let us know the next time you're gonna do something significant, 273 00:16:58,440 --> 00:17:02,360 Speaker 1: so we could all hide our death. What was it 274 00:17:02,440 --> 00:17:05,280 Speaker 1: like launching the firm right into the teeth of the crisis. 275 00:17:06,160 --> 00:17:08,840 Speaker 1: So you know, it's it's it's funny. I guess when 276 00:17:08,840 --> 00:17:10,880 Speaker 1: you look at it in the hindsight. You know, at 277 00:17:10,880 --> 00:17:13,879 Speaker 1: the time I got into the real estate business to 278 00:17:14,600 --> 00:17:17,760 Speaker 1: buy real estate. UH. And I did it privately, and 279 00:17:17,760 --> 00:17:20,800 Speaker 1: then I did it publicly, and then um, the Wall 280 00:17:20,840 --> 00:17:24,920 Speaker 1: Street firms became I was very aggressive as a by 281 00:17:25,040 --> 00:17:28,520 Speaker 1: side investor when these companies were going in public and 282 00:17:28,600 --> 00:17:32,679 Speaker 1: reviewing the prospectuses UM, and challenging the c e O 283 00:17:32,880 --> 00:17:34,919 Speaker 1: s on why they were structuring the deal is a 284 00:17:34,960 --> 00:17:37,439 Speaker 1: certain way. Uh. And the Wall Street firms that were 285 00:17:37,440 --> 00:17:39,760 Speaker 1: taking the company's public said, hey, we'd rather have you 286 00:17:39,800 --> 00:17:42,880 Speaker 1: in the tent pissing out than outside the tent pissing in. UH. 287 00:17:42,920 --> 00:17:45,720 Speaker 1: And so I accidentally became an analyst and went to 288 00:17:45,800 --> 00:17:49,000 Speaker 1: Solomon Brothers. UM. Although I'll just kind of digress for 289 00:17:49,000 --> 00:17:52,560 Speaker 1: a second. So Sam's l was taking his first republic 290 00:17:52,600 --> 00:17:54,520 Speaker 1: and he came to the office, and you know, I 291 00:17:54,560 --> 00:17:57,000 Speaker 1: was a young guy, and I had my legal yellow 292 00:17:57,080 --> 00:17:59,159 Speaker 1: legal pad and I had like four pages worth of 293 00:17:59,280 --> 00:18:01,960 Speaker 1: questions and I sat down with Sam and Sam comes 294 00:18:01,960 --> 00:18:04,639 Speaker 1: in with his motorcycle. How many slaps it down on 295 00:18:04,760 --> 00:18:07,760 Speaker 1: the conference room table. Uh. And he introduces himself and 296 00:18:07,760 --> 00:18:10,520 Speaker 1: I said, say, I, you know, look, I apologize in advance, 297 00:18:10,600 --> 00:18:13,399 Speaker 1: but I've read this perspectives cover to cover and I 298 00:18:13,440 --> 00:18:16,320 Speaker 1: have like four uh legal pages worth of questions and 299 00:18:16,359 --> 00:18:18,000 Speaker 1: some of them are gonna be a little tough and 300 00:18:18,040 --> 00:18:20,720 Speaker 1: a little probing. And he looks at me and he goes, John, 301 00:18:21,040 --> 00:18:26,920 Speaker 1: I was shaking in my boots, fire away, very classic Sam. 302 00:18:27,000 --> 00:18:29,320 Speaker 1: And he and I, you know, stayed in touch ever since, 303 00:18:29,320 --> 00:18:31,679 Speaker 1: and he has been a great mentor to me throughout 304 00:18:31,680 --> 00:18:34,720 Speaker 1: my career. UM. But so I did that, and then 305 00:18:34,720 --> 00:18:38,639 Speaker 1: I accidentally became a Southside analyst UH and I built 306 00:18:38,640 --> 00:18:40,840 Speaker 1: a great franchise. We were the number one rank group 307 00:18:40,920 --> 00:18:43,640 Speaker 1: for the majority of the time I was there, and 308 00:18:44,160 --> 00:18:47,800 Speaker 1: we were very focused on making sure we were advocates 309 00:18:47,800 --> 00:18:51,320 Speaker 1: for the investors and reads, not a shill for the 310 00:18:51,359 --> 00:18:56,959 Speaker 1: investment bank. UH. And so we pursued our research quite aggressively, 311 00:18:57,040 --> 00:19:00,520 Speaker 1: picking stocks and calling out miss so on the part 312 00:19:00,520 --> 00:19:03,080 Speaker 1: of management UM, and I loved that. I had a 313 00:19:03,119 --> 00:19:05,119 Speaker 1: blast doing it, and I had a great group of 314 00:19:05,160 --> 00:19:09,560 Speaker 1: folks that I worked with UH and a great team UH. 315 00:19:09,600 --> 00:19:12,119 Speaker 1: And I ended up running not just the US but 316 00:19:12,200 --> 00:19:15,399 Speaker 1: I was the global Property Strategy City Group and it 317 00:19:15,440 --> 00:19:18,320 Speaker 1: was it was great fun. But around two thousand and five, 318 00:19:19,280 --> 00:19:21,920 Speaker 1: I wanted to get back to the investing side. UH. 319 00:19:22,160 --> 00:19:24,760 Speaker 1: But at that time we also send bubble gum machines 320 00:19:24,800 --> 00:19:28,400 Speaker 1: out to our clients, suggesting there was a bubble forming 321 00:19:28,400 --> 00:19:32,840 Speaker 1: in commercial real estate. Prices were flying higher, interest rates 322 00:19:32,840 --> 00:19:36,119 Speaker 1: were low. And I said, you know, this isn't the 323 00:19:36,200 --> 00:19:39,320 Speaker 1: time for me to go out and start a firm 324 00:19:39,600 --> 00:19:42,920 Speaker 1: because I think there's a bubble and it's going to break. UM. 325 00:19:42,960 --> 00:19:45,439 Speaker 1: I'd rather wait for the bubble to break, UH, and 326 00:19:45,480 --> 00:19:50,680 Speaker 1: then get out and start a businesses investing in these stocks. UM. 327 00:19:50,920 --> 00:19:54,240 Speaker 1: And so UH we send the bubble gum machines out 328 00:19:54,880 --> 00:19:58,200 Speaker 1: by June or two thousand and seven is actually this week. 329 00:19:58,240 --> 00:20:01,360 Speaker 1: In two thousand and seven, I was at a ReConference 330 00:20:01,359 --> 00:20:04,720 Speaker 1: and we met with fifty c e O s UH 331 00:20:04,760 --> 00:20:06,840 Speaker 1: and at the end of the conference, we were debriefing 332 00:20:06,880 --> 00:20:11,480 Speaker 1: with my team and there was a common theme that 333 00:20:11,600 --> 00:20:16,720 Speaker 1: we found from every company. UH. Demand was slow, supply 334 00:20:16,960 --> 00:20:21,160 Speaker 1: was high, and financing was difficult. And I was of 335 00:20:21,200 --> 00:20:23,359 Speaker 1: the opinion and our view was it was over, the 336 00:20:23,359 --> 00:20:28,080 Speaker 1: bubble was breaking. UH and UM it was that was 337 00:20:28,119 --> 00:20:29,960 Speaker 1: our view on the real estate market. But it was 338 00:20:30,000 --> 00:20:35,040 Speaker 1: also at at that time my view that, UM, there's 339 00:20:35,040 --> 00:20:38,000 Speaker 1: gonna be an opportunity for me to start the investment 340 00:20:38,040 --> 00:20:41,359 Speaker 1: firm that I wanted to start back in O five UH. 341 00:20:41,400 --> 00:20:45,760 Speaker 1: And by the first quarter of oh eight, UM. You know, 342 00:20:45,800 --> 00:20:48,800 Speaker 1: I spoke with the folks at City UH told them 343 00:20:48,840 --> 00:20:51,680 Speaker 1: what I was looking to do. UH, and they were 344 00:20:51,760 --> 00:20:55,200 Speaker 1: very supportive and they gave the she did our funds. 345 00:20:55,840 --> 00:20:58,879 Speaker 1: They allowed some of my folks to join me, and 346 00:20:58,920 --> 00:21:02,920 Speaker 1: we launched the business of August of two thousand and eight. UM. 347 00:21:03,080 --> 00:21:06,240 Speaker 1: Fortunately we were quite barished and we were able to 348 00:21:06,240 --> 00:21:09,480 Speaker 1: make some money in two thousand and eight on on 349 00:21:09,520 --> 00:21:12,359 Speaker 1: the market. But it was wild. I remember there was 350 00:21:12,440 --> 00:21:17,280 Speaker 1: one day when our group of stocks reads traded a 351 00:21:18,400 --> 00:21:21,280 Speaker 1: range uh in one day. It was just mind boggling. 352 00:21:21,280 --> 00:21:24,200 Speaker 1: And the key was really to have a low nets 353 00:21:24,320 --> 00:21:29,320 Speaker 1: and UH and and tight risk controls UH. During that period. UH. 354 00:21:29,840 --> 00:21:32,440 Speaker 1: I'll never forget that song, the R. E. M Song 355 00:21:32,520 --> 00:21:33,800 Speaker 1: and to the end of the world as we know 356 00:21:33,880 --> 00:21:38,280 Speaker 1: it kept flying around in email boxes. UM and of 357 00:21:38,320 --> 00:21:40,600 Speaker 1: course we all got through it and real estates going 358 00:21:40,680 --> 00:21:43,800 Speaker 1: on to be a great place to be. I remember 359 00:21:43,880 --> 00:21:47,159 Speaker 1: that song and I remember Tom Petty's free falling also 360 00:21:47,320 --> 00:21:50,919 Speaker 1: being heard in various UH trading rooms. So you have 361 00:21:50,960 --> 00:21:56,920 Speaker 1: a reputation as occasionally taking activist positions. How is this 362 00:21:57,160 --> 00:22:00,840 Speaker 1: different with what we think of as tradition sational operating 363 00:22:00,880 --> 00:22:07,480 Speaker 1: companies versus being an activist with reads. So we like 364 00:22:07,560 --> 00:22:11,560 Speaker 1: buying cheap real estate in the public markets, and sometimes 365 00:22:12,119 --> 00:22:15,560 Speaker 1: those stocks are dislocated because people don't like the fundamentals 366 00:22:15,560 --> 00:22:17,959 Speaker 1: and they don't like management or something, but they're not 367 00:22:18,240 --> 00:22:23,200 Speaker 1: fundamentally broken companies. UM. And in those cases where there's 368 00:22:23,240 --> 00:22:26,520 Speaker 1: something that's broken, that can be fixed and you can 369 00:22:26,600 --> 00:22:30,280 Speaker 1: unlock the value and get back to net asset value UM, 370 00:22:30,880 --> 00:22:33,600 Speaker 1: you can work with the boards, you can work with 371 00:22:33,680 --> 00:22:35,760 Speaker 1: the management team, you can work with the other shareholders 372 00:22:36,000 --> 00:22:42,000 Speaker 1: to unlock that value. We've been involved since in UH 373 00:22:42,119 --> 00:22:46,639 Speaker 1: twenty nine activist campaigns UH, and we've seen companies sold, 374 00:22:46,680 --> 00:22:50,400 Speaker 1: We've seen new management teams, new boards, assets spun out, 375 00:22:50,440 --> 00:22:55,440 Speaker 1: companies fixed UM and UH. It's been a terrific way 376 00:22:56,080 --> 00:23:01,240 Speaker 1: to unlock value UM in UH in the public markets 377 00:23:01,240 --> 00:23:04,080 Speaker 1: and realize that net asset value UM. I'll tell you 378 00:23:04,119 --> 00:23:06,480 Speaker 1: just one story from last year, and I was thinking 379 00:23:06,520 --> 00:23:09,840 Speaker 1: about it this morning because this there's a big ReConference 380 00:23:09,880 --> 00:23:13,919 Speaker 1: going on today and tomorrow and UH, as it was 381 00:23:13,960 --> 00:23:17,159 Speaker 1: in two thousand and seven, a seminal event UH for 382 00:23:17,240 --> 00:23:20,120 Speaker 1: me and my deal. We're real estate here. UH. There 383 00:23:20,160 --> 00:23:23,280 Speaker 1: was a major announcement by Blackstone, and Blackstone was acquiring 384 00:23:23,800 --> 00:23:28,280 Speaker 1: a warehouse portfolio for nearly twenty billion dollars at an 385 00:23:28,280 --> 00:23:32,520 Speaker 1: all time high valuation. Now, we had an activist campaign 386 00:23:32,600 --> 00:23:35,880 Speaker 1: going in a warehouse company, and warehouse is a hot 387 00:23:35,920 --> 00:23:40,600 Speaker 1: property type, very strong demand. Rents are going up quickly, 388 00:23:41,400 --> 00:23:44,159 Speaker 1: valuations are going up quickly, as we saw at that 389 00:23:44,160 --> 00:23:49,280 Speaker 1: Blackstone transaction. And we had started an activist campaign about 390 00:23:50,440 --> 00:23:56,720 Speaker 1: nine months before this conference in June of h in 391 00:23:56,960 --> 00:24:00,159 Speaker 1: Liberty Property Trust, which was a warehouse company, and it 392 00:24:00,240 --> 00:24:03,480 Speaker 1: was trading at a substantial discount to the value of 393 00:24:03,480 --> 00:24:07,040 Speaker 1: its real estate, whereas the other publicly traded warehouse companies 394 00:24:07,040 --> 00:24:11,040 Speaker 1: were trading at premiums. And we thought the reason it 395 00:24:11,119 --> 00:24:13,240 Speaker 1: was trading in a discount was because it had an 396 00:24:13,280 --> 00:24:17,560 Speaker 1: office component, which people don't like office. Investors don't like office. 397 00:24:17,840 --> 00:24:20,120 Speaker 1: And because the company and the management team had made 398 00:24:20,160 --> 00:24:23,840 Speaker 1: poor capital allocation decisions. So if people wanted the way warehouses, 399 00:24:23,880 --> 00:24:26,800 Speaker 1: they buy one of the other companies, they wouldn't find Liberty. 400 00:24:26,960 --> 00:24:29,280 Speaker 1: And we began a discussion with the board and the 401 00:24:29,320 --> 00:24:32,199 Speaker 1: management team. UH, and we said, you know, if you 402 00:24:32,560 --> 00:24:35,240 Speaker 1: just sold the rest of your office portfolio, we think 403 00:24:35,280 --> 00:24:37,399 Speaker 1: you could close the gap to n A V. And 404 00:24:37,440 --> 00:24:40,159 Speaker 1: we also think you should develop a succession plan and 405 00:24:40,200 --> 00:24:42,600 Speaker 1: refresh the board. And I got to say in our 406 00:24:42,640 --> 00:24:46,919 Speaker 1: activists my career as an activist, UM, this board was 407 00:24:47,440 --> 00:24:52,560 Speaker 1: very professional. Uh. And UH listened and responded. Uh. They 408 00:24:52,560 --> 00:24:54,879 Speaker 1: announced six weeks later they were going to exit office, 409 00:24:54,880 --> 00:24:57,840 Speaker 1: and the stock moved nicely. We got somebody on the 410 00:24:57,880 --> 00:25:02,440 Speaker 1: board maybe six months after we started our campaign. UM. 411 00:25:02,920 --> 00:25:04,920 Speaker 1: But then what happened at this conference a year ago 412 00:25:05,000 --> 00:25:07,919 Speaker 1: was Blackstone did that transaction. And I ran into the 413 00:25:07,920 --> 00:25:10,960 Speaker 1: CEO in the hallway, UH, and I said, Bill, would 414 00:25:11,000 --> 00:25:14,080 Speaker 1: you think of the Blackstone transaction? And he said, my 415 00:25:14,200 --> 00:25:17,240 Speaker 1: portfolio is better than that portfolio. That portfolio is worth 416 00:25:17,280 --> 00:25:21,359 Speaker 1: that valuation. My valuation is even better. And I said, well, 417 00:25:21,960 --> 00:25:24,439 Speaker 1: give me a second, your stocks at fifty and I 418 00:25:24,480 --> 00:25:26,439 Speaker 1: did the math in my head and I said, so, 419 00:25:26,680 --> 00:25:28,800 Speaker 1: like sixty two bucks of shares what you're worth? He 420 00:25:28,840 --> 00:25:31,199 Speaker 1: goes yeah, And I was like, okay, so how are 421 00:25:31,200 --> 00:25:33,920 Speaker 1: you going to get to sixty two? Uh? And he 422 00:25:34,400 --> 00:25:36,879 Speaker 1: realized you probably shouldn't have said that to me. But 423 00:25:36,960 --> 00:25:38,600 Speaker 1: we had a nice call with the board a few 424 00:25:38,640 --> 00:25:42,080 Speaker 1: days later and said, look, Um, if you have a 425 00:25:42,160 --> 00:25:45,359 Speaker 1: way to get to sixty two without selling the company, 426 00:25:45,720 --> 00:25:48,080 Speaker 1: don't sell it. But these guys are paying big prices 427 00:25:48,080 --> 00:25:49,360 Speaker 1: and they go a lot of money to put out. 428 00:25:49,680 --> 00:25:52,000 Speaker 1: You should call Blackstone, you should call Prolodge, just call 429 00:25:52,080 --> 00:25:55,879 Speaker 1: brook Field and see if they'll buy the company. And again, 430 00:25:55,960 --> 00:26:00,160 Speaker 1: to their credit, UM, they a little reluctantly, but they 431 00:26:00,160 --> 00:26:06,040 Speaker 1: did engage with UM. The three big buyers and prologists 432 00:26:06,520 --> 00:26:09,480 Speaker 1: ended up buying them for sixty one dollar to share. 433 00:26:09,960 --> 00:26:14,400 Speaker 1: Evaluation that this management team was unlikely to ever get 434 00:26:14,400 --> 00:26:17,879 Speaker 1: the stock to on their own UM. And so I 435 00:26:17,920 --> 00:26:20,800 Speaker 1: think the activism is a great way to find these 436 00:26:21,160 --> 00:26:24,800 Speaker 1: diamonds in the rough in the real estate market and 437 00:26:24,840 --> 00:26:27,920 Speaker 1: work with the boards and management teams UH to unlock 438 00:26:27,960 --> 00:26:30,440 Speaker 1: the value. And you know, we don't like to see 439 00:26:30,440 --> 00:26:33,160 Speaker 1: companies going away in sales were much rather to see 440 00:26:33,200 --> 00:26:36,959 Speaker 1: companies fixed. Uh. In this case, it was likely the 441 00:26:36,960 --> 00:26:39,320 Speaker 1: only way it was going to get there to that 442 00:26:39,440 --> 00:26:42,199 Speaker 1: kind of valuation. So we think it's a it's a 443 00:26:42,400 --> 00:26:44,080 Speaker 1: it's a great way to buy cheap real estate in 444 00:26:44,080 --> 00:26:46,840 Speaker 1: the public markets. Uh. And when we see these pension 445 00:26:46,880 --> 00:26:49,960 Speaker 1: funds buying in the private market of full value, uh, 446 00:26:50,000 --> 00:26:52,000 Speaker 1: you know, we think, uh, you know, they should be 447 00:26:52,000 --> 00:26:55,359 Speaker 1: doing it. In the reads, quite fascinating. Let's talk a 448 00:26:55,400 --> 00:26:58,080 Speaker 1: little bit about a comment you had that I'm someone 449 00:26:58,119 --> 00:27:03,639 Speaker 1: intrigued about in your most recent white paper. COVID nineteen 450 00:27:03,760 --> 00:27:08,119 Speaker 1: has supercharged the American dream of living in a single 451 00:27:08,200 --> 00:27:12,640 Speaker 1: family home. Discuss so obviously the American dream we all 452 00:27:12,680 --> 00:27:18,920 Speaker 1: know living a home. And with COVID nineteen, it accelerated 453 00:27:18,960 --> 00:27:21,840 Speaker 1: the movement of the millennials out of apartments in the 454 00:27:21,920 --> 00:27:25,520 Speaker 1: homes in our view. Uh. And you know, if you 455 00:27:25,640 --> 00:27:28,000 Speaker 1: talk to folks that are living in apartments now, they 456 00:27:28,000 --> 00:27:30,199 Speaker 1: are like cooped up and they're afraid to press the 457 00:27:30,200 --> 00:27:32,879 Speaker 1: elevator button. They don't want to be on the high floor. 458 00:27:33,359 --> 00:27:36,520 Speaker 1: All the cultural benefits of being in an apartment in 459 00:27:36,560 --> 00:27:42,200 Speaker 1: an urban setting had participated during COVID nineteen and they 460 00:27:42,200 --> 00:27:45,439 Speaker 1: were thinking of moving anyway, they were at that age. UH. 461 00:27:45,520 --> 00:27:49,200 Speaker 1: And so what we've seen is that the public companies 462 00:27:49,240 --> 00:27:52,560 Speaker 1: that own homes and rent them out and the companies 463 00:27:52,560 --> 00:27:56,840 Speaker 1: that build homes saw, much to our surprise, a real 464 00:27:56,960 --> 00:28:00,879 Speaker 1: pickup in demand the second half of a roll and 465 00:28:00,920 --> 00:28:04,199 Speaker 1: throughout May. UH And UH. You know, one of the 466 00:28:04,240 --> 00:28:06,800 Speaker 1: things we love and I always tell my investment team, 467 00:28:07,160 --> 00:28:10,040 Speaker 1: we have to know our company's cold. We don't know 468 00:28:10,160 --> 00:28:12,400 Speaker 1: when we're gonna get the opportunity to buy them because 469 00:28:12,400 --> 00:28:15,760 Speaker 1: they're cheap enough. But when that happens, the market goes 470 00:28:15,800 --> 00:28:19,760 Speaker 1: against the down or it goes against the company. We 471 00:28:19,800 --> 00:28:22,240 Speaker 1: want to be ready to move. Uh. And in the 472 00:28:22,280 --> 00:28:26,199 Speaker 1: midst of the crisis, UH, in March, we saw the 473 00:28:26,200 --> 00:28:28,480 Speaker 1: home builders in the single family for rent guys get 474 00:28:28,560 --> 00:28:31,720 Speaker 1: really cheap, and we started buying them, and we were 475 00:28:31,760 --> 00:28:34,720 Speaker 1: calling every day anybody we could call, UH to find 476 00:28:34,760 --> 00:28:36,439 Speaker 1: out what was going on with new home sales, what 477 00:28:36,520 --> 00:28:38,920 Speaker 1: was going on with the ability of the tenants and 478 00:28:39,480 --> 00:28:42,760 Speaker 1: the homes to pay rent. And we got comfortable that 479 00:28:42,800 --> 00:28:45,360 Speaker 1: it was not going to be a total disaster. But 480 00:28:45,440 --> 00:28:47,560 Speaker 1: then there was a real surprise that happened in mid 481 00:28:47,680 --> 00:28:51,440 Speaker 1: April where we started hearing that the rental guys were 482 00:28:51,440 --> 00:28:54,239 Speaker 1: able to push rents and occupancy UH and the home 483 00:28:54,320 --> 00:28:57,560 Speaker 1: sales started picking up. And that's only been accelerating. So 484 00:28:57,600 --> 00:29:00,720 Speaker 1: this trend out of the city's which has been going 485 00:29:00,760 --> 00:29:04,480 Speaker 1: on pre COVID, has accelerated. And an interesting fact, you know, 486 00:29:04,560 --> 00:29:06,360 Speaker 1: one of the things we didn't talk about we talked 487 00:29:06,360 --> 00:29:11,160 Speaker 1: about New York is um the inability to duct the 488 00:29:11,240 --> 00:29:14,920 Speaker 1: state and local taxes is a bad outcome for places 489 00:29:15,040 --> 00:29:17,320 Speaker 1: like New York. And one of the home builders said 490 00:29:17,320 --> 00:29:19,880 Speaker 1: they've seen the most the greatest increase in demand in 491 00:29:19,960 --> 00:29:23,120 Speaker 1: Texas and Florida to states with no state tax and 492 00:29:23,200 --> 00:29:26,320 Speaker 1: so I think we're going to continue to see both 493 00:29:26,400 --> 00:29:29,960 Speaker 1: financial incentive to move out of certain states with high 494 00:29:30,000 --> 00:29:32,920 Speaker 1: taxes to states with lower no taxes, and this move 495 00:29:33,000 --> 00:29:36,240 Speaker 1: into homes. And I don't think that's going away. I 496 00:29:36,240 --> 00:29:41,080 Speaker 1: think that's again demographic, it's generational. UM. You know, it'll 497 00:29:41,360 --> 00:29:43,600 Speaker 1: ebb and flow. But I think the next two to 498 00:29:43,680 --> 00:29:46,520 Speaker 1: five years you're going to continue to see that movement 499 00:29:46,720 --> 00:29:48,800 Speaker 1: to single family homes, wanting to be in a good 500 00:29:48,840 --> 00:29:52,760 Speaker 1: school district, having a backyard for your family, typically have 501 00:29:52,840 --> 00:29:56,280 Speaker 1: two wage earners, versus one wage earner and an apartment 502 00:29:56,680 --> 00:30:00,000 Speaker 1: um So I think those trends are set in most 503 00:30:00,000 --> 00:30:02,400 Speaker 1: s and are likely to continue. I think the spike 504 00:30:02,480 --> 00:30:07,080 Speaker 1: we're seeing right now will abate and become a more normal, 505 00:30:07,400 --> 00:30:10,560 Speaker 1: steady growth. But what we're seeing out of the apartment 506 00:30:11,240 --> 00:30:14,680 Speaker 1: owners in the urban markets is a real challenge on 507 00:30:14,760 --> 00:30:19,200 Speaker 1: occupancy and rent. Again, we're at this Navy conference today 508 00:30:19,200 --> 00:30:22,120 Speaker 1: and tomorrow, and so all the companies are giving us updates. 509 00:30:22,120 --> 00:30:26,400 Speaker 1: In the apartment occupanties are down two basis points and 510 00:30:26,440 --> 00:30:29,720 Speaker 1: rent are it down anywhere from four to seven in 511 00:30:29,800 --> 00:30:33,240 Speaker 1: the apartment And so there's a real movement out of 512 00:30:33,280 --> 00:30:37,600 Speaker 1: apartments and into single family homes, whether you're renting it 513 00:30:37,720 --> 00:30:42,080 Speaker 1: or your owning. So we've been hearing that housing demands 514 00:30:42,360 --> 00:30:48,520 Speaker 1: is outstripping supply, especially for single family homes in the suburbs. 515 00:30:48,600 --> 00:30:51,280 Speaker 1: But we've been hearing that for a long time. When 516 00:30:51,320 --> 00:30:54,760 Speaker 1: does this reach the point where it really becomes problematic 517 00:30:55,160 --> 00:30:59,200 Speaker 1: and we begin to see a significant increase in real 518 00:30:59,320 --> 00:31:04,720 Speaker 1: estate prices. So the single family home prices bottom that 519 00:31:04,760 --> 00:31:07,000 Speaker 1: I'm going to say the end of eighteen uh and 520 00:31:07,160 --> 00:31:09,920 Speaker 1: have been accelerating and they're now going up about four 521 00:31:09,960 --> 00:31:14,160 Speaker 1: percent a year. UM. I don't think that's terribly concerning, 522 00:31:14,600 --> 00:31:18,200 Speaker 1: because it's not like we saw in the housing bubble 523 00:31:18,520 --> 00:31:21,880 Speaker 1: where they were going up much much more dramatically. The 524 00:31:21,920 --> 00:31:26,240 Speaker 1: other advantage that we have in the single family market 525 00:31:26,840 --> 00:31:31,600 Speaker 1: post COVID is thirty year mortgage rate is probably going 526 00:31:31,680 --> 00:31:35,520 Speaker 1: to decline, and it's down base points now, but we're 527 00:31:35,520 --> 00:31:39,040 Speaker 1: probably going to see that it's gonna be down over UM. 528 00:31:39,120 --> 00:31:42,640 Speaker 1: And so the individual or the couple that was living 529 00:31:42,680 --> 00:31:46,400 Speaker 1: in an apartment or uh somewhere else UM now has 530 00:31:46,440 --> 00:31:49,640 Speaker 1: the ability to buy a home because it's more affordable 531 00:31:49,640 --> 00:31:53,240 Speaker 1: because the interest rates are so low UM and so UM. 532 00:31:53,280 --> 00:31:58,360 Speaker 1: I think that the demand will continue. Uh. The prices 533 00:31:58,480 --> 00:32:01,800 Speaker 1: probably won't get out of hand because the builders will 534 00:32:01,840 --> 00:32:05,600 Speaker 1: build new homes and sellers will put their homes back 535 00:32:05,640 --> 00:32:09,560 Speaker 1: on the market, uh, and the inventory will clear UH, 536 00:32:09,680 --> 00:32:11,320 Speaker 1: and I think it will be much more rational. But 537 00:32:11,360 --> 00:32:13,760 Speaker 1: you know, time will tell. The key thing about being 538 00:32:14,160 --> 00:32:17,400 Speaker 1: an investor in public real estate is you can't just 539 00:32:17,600 --> 00:32:20,400 Speaker 1: have a thesis, put it in the bank and forget 540 00:32:20,400 --> 00:32:23,959 Speaker 1: about it. You have to be in the market every day, UH, 541 00:32:24,080 --> 00:32:26,360 Speaker 1: talking to as many folks as you can to see 542 00:32:26,360 --> 00:32:31,200 Speaker 1: if those trends that are underpinning your investment thesis are changing. Uh, 543 00:32:31,240 --> 00:32:34,520 Speaker 1: and when they change, you've got to reevaluate. UH. You know, 544 00:32:34,560 --> 00:32:36,840 Speaker 1: I talk a lot with my team about the off ramp. 545 00:32:37,120 --> 00:32:39,080 Speaker 1: You know, it's easy for them to come with their 546 00:32:39,120 --> 00:32:42,040 Speaker 1: investment thesis and their presentation about why we should buy 547 00:32:42,040 --> 00:32:46,120 Speaker 1: a stock, but UM, it's much harder to say when 548 00:32:46,120 --> 00:32:48,640 Speaker 1: should we get out. And so when we go into 549 00:32:48,640 --> 00:32:52,640 Speaker 1: a name, we have clear off ramps. If this doesn't 550 00:32:52,640 --> 00:32:55,160 Speaker 1: play out the way we expected, whether it's in the 551 00:32:55,200 --> 00:32:57,920 Speaker 1: first six months or in the third, fourth, or fifth year, 552 00:32:58,240 --> 00:33:01,920 Speaker 1: we're constantly monitoring the off france for not working. So 553 00:33:01,960 --> 00:33:04,520 Speaker 1: I think the key as we're looking at the housing 554 00:33:04,560 --> 00:33:07,160 Speaker 1: space and as you suggested, you know, we may have 555 00:33:07,200 --> 00:33:10,360 Speaker 1: an under supply and prices going up too quickly. We 556 00:33:10,560 --> 00:33:12,320 Speaker 1: just got to keep our finger on the pulse of it, 557 00:33:12,800 --> 00:33:15,000 Speaker 1: uh and make sure we're aware of what's going on, 558 00:33:15,120 --> 00:33:18,720 Speaker 1: and then reassess our investment RATIONALE. Let's stay with that 559 00:33:18,880 --> 00:33:22,520 Speaker 1: question of supply because I'm I'm intrigued by the concept 560 00:33:23,200 --> 00:33:27,760 Speaker 1: that nimby ism the not in my backyard regulations that 561 00:33:28,040 --> 00:33:30,560 Speaker 1: not only are in cities like New York and San Francisco, 562 00:33:31,160 --> 00:33:35,720 Speaker 1: but all the surrounding suburbs have really kept density low 563 00:33:35,920 --> 00:33:40,000 Speaker 1: and have kept lower income housing out. Are we going 564 00:33:40,040 --> 00:33:42,960 Speaker 1: to see any change in nimby laws and how might 565 00:33:43,000 --> 00:33:48,560 Speaker 1: that affect housing supply and prices? So most new construction 566 00:33:48,560 --> 00:33:52,760 Speaker 1: of single family homes is on the outskirts of town. 567 00:33:53,360 --> 00:33:56,000 Speaker 1: That's maybe an overstatement because it sounds too remote. But 568 00:33:56,760 --> 00:34:00,160 Speaker 1: inside the let's say highway circle, the first circle, it's 569 00:34:00,160 --> 00:34:02,480 Speaker 1: pretty well developed. So there's not gonna be a lot 570 00:34:02,480 --> 00:34:05,760 Speaker 1: of room for a national homebuilder to come in and 571 00:34:05,800 --> 00:34:09,080 Speaker 1: buy a hundred acres and and and build the homes, 572 00:34:09,400 --> 00:34:11,480 Speaker 1: So they're gonna have to go a little further out. Now. 573 00:34:11,480 --> 00:34:14,680 Speaker 1: It's interesting, it's with the work from home. The individuals 574 00:34:14,719 --> 00:34:16,680 Speaker 1: are willing to go a little further out as well 575 00:34:16,760 --> 00:34:19,480 Speaker 1: because they don't have to commute every day. Um, So 576 00:34:19,640 --> 00:34:21,759 Speaker 1: we've got a monitor that supply and make sure it 577 00:34:21,800 --> 00:34:24,719 Speaker 1: doesn't get over supplied, which you know right now. We've 578 00:34:24,719 --> 00:34:28,640 Speaker 1: been underbuilding the single family market for since the financial crisis, 579 00:34:28,920 --> 00:34:31,960 Speaker 1: So I don't see that as an immediate challenge clearly. 580 00:34:32,320 --> 00:34:34,359 Speaker 1: You know, when I got in this business thirty years ago. 581 00:34:34,840 --> 00:34:38,200 Speaker 1: The beautiful thing about New York is high barriers to entry. 582 00:34:38,480 --> 00:34:41,960 Speaker 1: You can't build no news supply, and we have all 583 00:34:42,000 --> 00:34:46,239 Speaker 1: this demand. What's fascinating about New York is we're overbuilding 584 00:34:46,239 --> 00:34:50,160 Speaker 1: the office market, We've over built the hotel market, and 585 00:34:50,560 --> 00:34:53,440 Speaker 1: we've also seen overbuilding in the for rent and for 586 00:34:53,600 --> 00:34:55,920 Speaker 1: sale apartment market in New York. And this is in 587 00:34:56,000 --> 00:35:00,000 Speaker 1: a market which is supposed to have high barriers to entry. So, UM, 588 00:35:00,040 --> 00:35:03,319 Speaker 1: what happened in apartments, particular in New York is there 589 00:35:03,320 --> 00:35:07,040 Speaker 1: were tax benefits that were granted to build an apartment building. 590 00:35:07,440 --> 00:35:11,719 Speaker 1: Those tax bandonfits were expiring, and so a lot of 591 00:35:11,760 --> 00:35:15,640 Speaker 1: developers rushed to get as many deals approved as they could. UH, 592 00:35:15,680 --> 00:35:18,359 Speaker 1: and that resulted in oversupply. And than that, I think 593 00:35:18,400 --> 00:35:20,440 Speaker 1: what's really to your point. We talked about this a 594 00:35:20,440 --> 00:35:25,239 Speaker 1: bit earlier about the cultural and economic and excitement that 595 00:35:25,280 --> 00:35:27,960 Speaker 1: goes in New York City. Um, one of the challenges 596 00:35:28,080 --> 00:35:30,520 Speaker 1: to that for many people is the cost of living 597 00:35:30,560 --> 00:35:32,480 Speaker 1: in New York City. I think the cost of living 598 00:35:32,480 --> 00:35:34,560 Speaker 1: in New York City is going to be lower in 599 00:35:34,600 --> 00:35:36,960 Speaker 1: the next several years. I think it's look cheaper to 600 00:35:37,040 --> 00:35:38,680 Speaker 1: have an office space, it would be cheaper to have 601 00:35:39,000 --> 00:35:41,160 Speaker 1: a store. That's can be cheaper to rent an apartment, 602 00:35:41,400 --> 00:35:43,960 Speaker 1: to buy an apartment and some of that will keep 603 00:35:44,000 --> 00:35:47,960 Speaker 1: some of those millennials in the city. But it doesn't 604 00:35:47,960 --> 00:35:51,200 Speaker 1: take a big change, right, It doesn't take the people 605 00:35:51,200 --> 00:35:53,440 Speaker 1: moving out of the city to cause a ripple in 606 00:35:53,480 --> 00:35:56,480 Speaker 1: the market. If we see a one percent declientate population 607 00:35:56,840 --> 00:35:59,439 Speaker 1: each year for the next three or four years, that's 608 00:35:59,480 --> 00:36:01,160 Speaker 1: going to be a challenge, and that will make it 609 00:36:01,239 --> 00:36:03,600 Speaker 1: more affordable for folction. I want to stick with the 610 00:36:03,680 --> 00:36:09,440 Speaker 1: idea of the edge of town or the suburbs. Just yesterday, 611 00:36:09,480 --> 00:36:13,120 Speaker 1: my wife and I founded ourselves. We we live about 612 00:36:13,160 --> 00:36:16,120 Speaker 1: forty minutes outside of the city, and you go twenty 613 00:36:16,320 --> 00:36:19,480 Speaker 1: or so minutes east and suddenly it's what you used 614 00:36:19,520 --> 00:36:23,320 Speaker 1: to think of as not a commutable distance to the city. 615 00:36:23,360 --> 00:36:26,480 Speaker 1: But as you suggested, if you're only going in two 616 00:36:26,600 --> 00:36:30,640 Speaker 1: or three days a week, well suddenly there are big areas. 617 00:36:31,160 --> 00:36:33,279 Speaker 1: And I have to assume this is true for Philadelphia 618 00:36:33,280 --> 00:36:36,680 Speaker 1: and Boston, in Seattle and wherever you look. But I 619 00:36:36,760 --> 00:36:39,120 Speaker 1: have to assume there are large areas that are now 620 00:36:39,760 --> 00:36:45,960 Speaker 1: potential bedroom committity communities, for job centers and urban location 621 00:36:46,080 --> 00:36:50,200 Speaker 1: like that that weren't thought of that way three months ago. Oh, 622 00:36:50,280 --> 00:36:52,120 Speaker 1: I think it's going to open it up and I 623 00:36:52,160 --> 00:36:55,200 Speaker 1: think it was already opening up with the ride hailing 624 00:36:55,239 --> 00:36:58,360 Speaker 1: services like Uber, and you know, like you you go 625 00:36:58,400 --> 00:37:00,440 Speaker 1: in your car. I do a lot of eeling here 626 00:37:00,440 --> 00:37:02,319 Speaker 1: in Connecticut with a group of guys, and you know, 627 00:37:02,360 --> 00:37:04,400 Speaker 1: we'll go thirty or forty miles out from where we 628 00:37:04,440 --> 00:37:07,239 Speaker 1: live in Connecticut. And we've been commenting the past three 629 00:37:07,320 --> 00:37:10,160 Speaker 1: or four weeks how there's all these cars with New 630 00:37:10,200 --> 00:37:14,839 Speaker 1: York license plates driving around in these communities, clearly you know, 631 00:37:14,920 --> 00:37:18,120 Speaker 1: looking to escape either renting homes, are looking to buy homes. Uh. 632 00:37:18,120 --> 00:37:20,200 Speaker 1: And you know, we've been riding here for twenty years 633 00:37:20,200 --> 00:37:23,120 Speaker 1: and it was a real noticeable uptick to see all 634 00:37:23,120 --> 00:37:26,120 Speaker 1: these all these New York plates hanging out in Connecticut. 635 00:37:26,200 --> 00:37:28,799 Speaker 1: So and I think, you know, the work from home. 636 00:37:29,080 --> 00:37:30,879 Speaker 1: You don't need to be five minutes from the train 637 00:37:30,920 --> 00:37:33,920 Speaker 1: station if you're gonna take the train in, and you know, 638 00:37:34,040 --> 00:37:36,920 Speaker 1: you don't mind a little longer commune if you're not 639 00:37:36,960 --> 00:37:39,840 Speaker 1: going in is Austen And one of the arguments, uh, 640 00:37:39,960 --> 00:37:42,080 Speaker 1: that I've heard, And we'll see if it will play out. 641 00:37:42,400 --> 00:37:46,520 Speaker 1: But as we get to autonomous cars um or right hailing, 642 00:37:46,640 --> 00:37:50,200 Speaker 1: you know, the Ubers of the world becoming more upiquitous well, 643 00:37:50,239 --> 00:37:54,480 Speaker 1: the community is troubling for folks because right now, if 644 00:37:54,520 --> 00:37:56,000 Speaker 1: you live in the burbs, you go to the city 645 00:37:56,000 --> 00:37:58,040 Speaker 1: and use mass transit, you gotta take your car to 646 00:37:58,080 --> 00:37:59,680 Speaker 1: the train, you gotta get on the train platform, you 647 00:37:59,760 --> 00:38:01,760 Speaker 1: gotta train in, then you gotta get on the subway, 648 00:38:01,760 --> 00:38:04,160 Speaker 1: and then you have to walk to your office. Um, 649 00:38:04,200 --> 00:38:06,759 Speaker 1: if you start eliminating some of those steps or making 650 00:38:06,760 --> 00:38:10,799 Speaker 1: the whole process easier with autonomous cars, the view is 651 00:38:10,840 --> 00:38:14,640 Speaker 1: that that's going to change where people live. And now 652 00:38:14,719 --> 00:38:17,440 Speaker 1: with work from home, you know that's gonna clearly accelerate it. 653 00:38:17,560 --> 00:38:20,600 Speaker 1: An interesting point on this, which which you didn't bring up, 654 00:38:20,600 --> 00:38:23,160 Speaker 1: but I think is related, is you know, some of 655 00:38:23,160 --> 00:38:26,279 Speaker 1: the home builders are thinking about what happens when we 656 00:38:26,320 --> 00:38:29,800 Speaker 1: don't need two car garages because people don't have the 657 00:38:29,920 --> 00:38:33,560 Speaker 1: second car because they're using autonomous or right hailing services. 658 00:38:34,120 --> 00:38:36,960 Speaker 1: So how do you redesign the home? What about Amazon 659 00:38:37,040 --> 00:38:40,120 Speaker 1: deliveries and other deliveries are becoming a bigger part of 660 00:38:40,120 --> 00:38:43,440 Speaker 1: what happens at the house. Do you need a vestibule 661 00:38:43,480 --> 00:38:46,000 Speaker 1: built into the home so that the delivery guys can 662 00:38:46,160 --> 00:38:48,919 Speaker 1: put the things inside but not be able to get 663 00:38:48,960 --> 00:38:53,080 Speaker 1: into your home. And now with work from home and pandemics. 664 00:38:53,239 --> 00:38:55,640 Speaker 1: You know, we have four kids, the six of us 665 00:38:55,680 --> 00:38:58,799 Speaker 1: living in this house. Uh maybe uh, you know, are 666 00:38:59,080 --> 00:39:03,319 Speaker 1: thought to down size an empty nest with supremature, and 667 00:39:03,360 --> 00:39:05,880 Speaker 1: maybe you'll see less downsize and you'll see less of 668 00:39:06,520 --> 00:39:09,520 Speaker 1: the sort of end of life of the homes and 669 00:39:09,640 --> 00:39:12,799 Speaker 1: the downsizing being postponed or not done at all. So 670 00:39:12,840 --> 00:39:15,640 Speaker 1: it's gonna be really interesting to see how how this evolves. 671 00:39:16,320 --> 00:39:18,960 Speaker 1: But I do think it was ushered in by technology 672 00:39:19,320 --> 00:39:26,799 Speaker 1: and the productivity that employers like myself are enjoying as 673 00:39:26,840 --> 00:39:30,000 Speaker 1: people are working from home. One last thing I didn't 674 00:39:30,200 --> 00:39:32,719 Speaker 1: ask you about that I want to get to and 675 00:39:32,760 --> 00:39:36,080 Speaker 1: I know you don't have a crystal ball, but you 676 00:39:36,160 --> 00:39:39,719 Speaker 1: have to look at the suburban malls and other retail 677 00:39:40,560 --> 00:39:45,400 Speaker 1: UM reads as being somewhat problematic. What is going to 678 00:39:45,520 --> 00:39:50,520 Speaker 1: happen with that space retail renaissance in the future or 679 00:39:50,680 --> 00:39:54,360 Speaker 1: is that waiting to be converted to high density housing 680 00:39:54,760 --> 00:39:58,480 Speaker 1: at some point in the future. The there were two 681 00:39:58,480 --> 00:40:02,040 Speaker 1: thousand regional malls in the U ten years ago. Um, 682 00:40:02,160 --> 00:40:05,239 Speaker 1: there's gonna be a fraction of that in the future. Uh. 683 00:40:05,320 --> 00:40:10,240 Speaker 1: And how you repurpose those malls that are no longer viable. 684 00:40:10,760 --> 00:40:13,359 Speaker 1: Uh is gonna be a real challenge. And I think, 685 00:40:13,920 --> 00:40:17,000 Speaker 1: uh it's a challenge for the towns where they're in 686 00:40:17,120 --> 00:40:21,160 Speaker 1: because they were big taxpayers. UM. And you know, tearing 687 00:40:21,200 --> 00:40:24,719 Speaker 1: down the mall is not in an expensive proposition. UH. 688 00:40:24,719 --> 00:40:29,640 Speaker 1: And if it's population has moved away from that location. UM, 689 00:40:29,680 --> 00:40:31,200 Speaker 1: you know, it's a challenge as to what you could 690 00:40:31,200 --> 00:40:35,200 Speaker 1: put there. I don't know that there's a clear a 691 00:40:35,280 --> 00:40:38,839 Speaker 1: clear answer. Uh. These things might just sit empty. If 692 00:40:38,880 --> 00:40:43,000 Speaker 1: you remember, Bloomberg's took over the old Alexander's department store 693 00:40:43,040 --> 00:40:46,839 Speaker 1: building UM in its current location. That's that empty for 694 00:40:47,120 --> 00:40:50,920 Speaker 1: ten years before Tornado built what it is today, the 695 00:40:50,920 --> 00:40:53,520 Speaker 1: Bloomberg building. And I think it's going to take a 696 00:40:53,560 --> 00:40:56,279 Speaker 1: long time. But I do think that that fraction of 697 00:40:56,280 --> 00:41:01,360 Speaker 1: the malls that remain open are gonna be very successful. Uh. 698 00:41:01,520 --> 00:41:04,040 Speaker 1: We're gonna have a much smaller footprint for many of 699 00:41:04,040 --> 00:41:07,320 Speaker 1: the retailers. Uh. Those malls are going to see high traffic. 700 00:41:07,800 --> 00:41:09,840 Speaker 1: People still want to go. You know, I was on 701 00:41:09,880 --> 00:41:12,600 Speaker 1: the board of Tavern Centers. Uh. And when you go 702 00:41:12,719 --> 00:41:15,719 Speaker 1: to some of their assets, um, and they have the 703 00:41:15,760 --> 00:41:18,520 Speaker 1: best mall portfolio in the US. UH. You go to 704 00:41:18,560 --> 00:41:21,839 Speaker 1: some of their assets Um. You know, I remember one 705 00:41:21,880 --> 00:41:25,120 Speaker 1: down in Florida Dolphin Mall. Uh, there was somebody following 706 00:41:25,160 --> 00:41:27,759 Speaker 1: me around and I'm like, what was this woman following me? 707 00:41:27,920 --> 00:41:29,800 Speaker 1: And she was following me to get my parking spot 708 00:41:29,840 --> 00:41:32,279 Speaker 1: and then she called her husband, so he drove over 709 00:41:32,480 --> 00:41:34,160 Speaker 1: and she just asked me to wait because there was 710 00:41:34,200 --> 00:41:38,200 Speaker 1: no parking spots available in a lot. Um and um, 711 00:41:38,680 --> 00:41:41,240 Speaker 1: not that exact scenario isn't true if many of them malls, 712 00:41:41,360 --> 00:41:43,600 Speaker 1: but it is true right where they are full and 713 00:41:43,640 --> 00:41:45,680 Speaker 1: people want to go out. So I don't think they're 714 00:41:45,680 --> 00:41:47,279 Speaker 1: all going away, but a lot of them are gonna 715 00:41:47,280 --> 00:41:49,640 Speaker 1: be really challenged. You know. You would asked me a 716 00:41:49,760 --> 00:41:52,480 Speaker 1: question earlier about valuations and how real estate will be 717 00:41:52,560 --> 00:41:56,799 Speaker 1: valued in the future, and I don't think I answered it. Um. 718 00:41:56,840 --> 00:41:59,640 Speaker 1: I think one of the fascinating things that's going to 719 00:41:59,719 --> 00:42:03,040 Speaker 1: come out of COVID is the FED dropped rates from 720 00:42:03,080 --> 00:42:06,200 Speaker 1: call it two to a half percent, or FED in 721 00:42:06,440 --> 00:42:10,040 Speaker 1: the tenure Treasury yield went from almost two percent to 722 00:42:10,080 --> 00:42:18,640 Speaker 1: a half percent. UM. Interest rates going down UM means 723 00:42:18,760 --> 00:42:21,560 Speaker 1: that financing costs are going down. That means that the 724 00:42:21,640 --> 00:42:25,040 Speaker 1: valuation of real estate is likely going up, but not 725 00:42:25,200 --> 00:42:29,760 Speaker 1: all real estates created equal. I think warehouses, data centers, 726 00:42:30,120 --> 00:42:33,879 Speaker 1: cell towers, single family for rent are going to see 727 00:42:33,960 --> 00:42:37,480 Speaker 1: valuations of their real estate go up materially over the 728 00:42:37,480 --> 00:42:41,239 Speaker 1: next several years, whereas the valuation of the malls, the 729 00:42:41,320 --> 00:42:45,799 Speaker 1: shopping centers, the hotels, the casinos, the office buildings are 730 00:42:45,840 --> 00:42:49,400 Speaker 1: going to be more challenged because the secular headwinds that 731 00:42:49,440 --> 00:42:53,400 Speaker 1: are impacting those sectors. So they may see valuations hold, 732 00:42:53,719 --> 00:42:55,719 Speaker 1: they may see them decline, but I don't think they're 733 00:42:55,719 --> 00:42:58,040 Speaker 1: going to go up as much as they could otherwise 734 00:42:58,400 --> 00:43:01,200 Speaker 1: given the given the interestry decline, And if I look 735 00:43:01,239 --> 00:43:05,279 Speaker 1: at my career, the one big surprise that I wish 736 00:43:05,360 --> 00:43:09,239 Speaker 1: I knew before was that the tenure was going to 737 00:43:09,360 --> 00:43:14,239 Speaker 1: be a one direction trained down because if you knew that, 738 00:43:14,360 --> 00:43:16,200 Speaker 1: you would have just loaded up in real estate thirty 739 00:43:16,280 --> 00:43:20,399 Speaker 1: years ago. Uh and and rode the train as as 740 00:43:20,440 --> 00:43:24,760 Speaker 1: interest rate fell and the evaluations real estate increased thirty 741 00:43:24,800 --> 00:43:27,080 Speaker 1: years I'm gonna tell you it's forty years back when 742 00:43:27,360 --> 00:43:32,640 Speaker 1: Paul Vulgar broke the back of inflation. Quite fascinating stuff. 743 00:43:32,680 --> 00:43:35,840 Speaker 1: I know I only have you for a limited amount 744 00:43:35,840 --> 00:43:39,040 Speaker 1: of time, So let me get to my favorite speed 745 00:43:39,120 --> 00:43:43,440 Speaker 1: round questions and talk to you about our five favorite 746 00:43:43,480 --> 00:43:47,560 Speaker 1: questions we ask all of our guests, starting with what 747 00:43:47,600 --> 00:43:50,440 Speaker 1: are you streaming these days? Tell us your favorite Netflix 748 00:43:50,480 --> 00:43:55,160 Speaker 1: show or a podcast or or whatever. So I don't 749 00:43:55,440 --> 00:43:57,160 Speaker 1: listen to a lot of podcasts. Is gonna listen to 750 00:43:57,200 --> 00:43:59,000 Speaker 1: some of years? Now? I see you some great speakers. 751 00:43:59,640 --> 00:44:01,400 Speaker 1: But what we're in the car and we have the kids. 752 00:44:01,560 --> 00:44:04,239 Speaker 1: We we listened to How I Built It, and we 753 00:44:04,560 --> 00:44:08,680 Speaker 1: listened to some great episodes on Spanks and Kate's Cookies 754 00:44:08,719 --> 00:44:13,680 Speaker 1: and how those businesses we're creating. We love those. Um, 755 00:44:13,760 --> 00:44:16,160 Speaker 1: what are your favorite Netflix shows? Do you give us 756 00:44:16,200 --> 00:44:19,560 Speaker 1: a couple if you like? So, you know, we don't 757 00:44:19,600 --> 00:44:22,000 Speaker 1: watch a ton of TV. But there's this new Apple TV. 758 00:44:22,960 --> 00:44:28,319 Speaker 1: I think it's called Defending Jacob uh Uh. That is 759 00:44:28,520 --> 00:44:30,640 Speaker 1: it's fascinating and we wait for each new episode to 760 00:44:30,640 --> 00:44:32,560 Speaker 1: come out and we watch it, and so that's been 761 00:44:32,600 --> 00:44:36,120 Speaker 1: a lot of fun to watch. Um, but we're not 762 00:44:36,160 --> 00:44:40,200 Speaker 1: watching a ton of TV, oddly enough, tell us about 763 00:44:40,320 --> 00:44:42,960 Speaker 1: you mentioned Sam's l earlier. Who are some of your 764 00:44:43,000 --> 00:44:48,279 Speaker 1: mentors who helped shape your career over the years. Sure, 765 00:44:48,320 --> 00:44:51,440 Speaker 1: so Sam's IL was a big influence probably for me 766 00:44:51,600 --> 00:44:55,759 Speaker 1: and many others. Uh and He's always been incredibly gracious 767 00:44:55,760 --> 00:44:59,440 Speaker 1: with his time that will spend uh, you know, talking 768 00:44:59,480 --> 00:45:03,160 Speaker 1: with me uh and uh and and speaking at conferences 769 00:45:03,160 --> 00:45:05,200 Speaker 1: and and I've done a lot of fireside chats together. 770 00:45:05,920 --> 00:45:09,120 Speaker 1: But uh and I was just talking to him last week. 771 00:45:09,680 --> 00:45:12,240 Speaker 1: Uh And he's just got his finger on the pulse. 772 00:45:12,640 --> 00:45:16,200 Speaker 1: He's very quick. Uh he gets it. Uh And and 773 00:45:16,239 --> 00:45:21,600 Speaker 1: he's really been a fantastic mentor to me. The other 774 00:45:21,600 --> 00:45:23,839 Speaker 1: one who is a gentleman name is Steve Roth who 775 00:45:23,880 --> 00:45:28,600 Speaker 1: runs Tornado And I mentioned him briefly briefly before. Uh 776 00:45:28,600 --> 00:45:32,600 Speaker 1: and he's the one that really um focused me on 777 00:45:32,840 --> 00:45:36,759 Speaker 1: buying cheap real estate in the public markets and the 778 00:45:36,840 --> 00:45:38,759 Speaker 1: big when I met him. The big thing he had 779 00:45:38,760 --> 00:45:42,600 Speaker 1: done recently was by the Alexander's department store chain. Uh. 780 00:45:42,640 --> 00:45:44,279 Speaker 1: And he didn't buy it because he wanted to be 781 00:45:44,280 --> 00:45:45,800 Speaker 1: in the department store business. He bought it because he 782 00:45:45,840 --> 00:45:48,560 Speaker 1: wanted the real estate. So he shut the department store 783 00:45:48,560 --> 00:45:52,120 Speaker 1: down and then redeveloped all of the real estate that 784 00:45:52,160 --> 00:45:56,800 Speaker 1: they owned. Obviously, the killer location was the full City 785 00:45:56,840 --> 00:46:00,560 Speaker 1: block which is now the Bloomberg Building. Um And it 786 00:46:00,600 --> 00:46:04,880 Speaker 1: took him ten years, but uh he was able to 787 00:46:05,000 --> 00:46:08,680 Speaker 1: uh put in great retail uses on the ground floor. Uh. 788 00:46:08,719 --> 00:46:10,759 Speaker 1: And then Bloomberg's office space in the middle of some 789 00:46:10,920 --> 00:46:14,160 Speaker 1: condos on the top of that building. Uh. And um, 790 00:46:14,200 --> 00:46:16,960 Speaker 1: you know, took something that was undervalued in the public 791 00:46:17,000 --> 00:46:20,479 Speaker 1: markets and created billions and billions of dollars of net 792 00:46:20,480 --> 00:46:25,840 Speaker 1: worth and um. Throughout his career and my career alongside him. 793 00:46:25,880 --> 00:46:28,040 Speaker 1: You know, watching him do that over and over again 794 00:46:28,680 --> 00:46:32,279 Speaker 1: has been enormously valuable. Uh. And it's, frankly, you know, 795 00:46:32,400 --> 00:46:35,360 Speaker 1: something which we practice in in particular in the activist 796 00:46:35,440 --> 00:46:37,800 Speaker 1: work that we do, But we try to find these 797 00:46:38,040 --> 00:46:40,640 Speaker 1: undervalued real estate and the public markets and and go 798 00:46:40,680 --> 00:46:45,040 Speaker 1: about unlocking that value. Quite fascinating. Um. If you're not 799 00:46:45,080 --> 00:46:47,800 Speaker 1: watching TV, tell us about some of your favorite books. 800 00:46:47,800 --> 00:46:50,520 Speaker 1: What are you reading these days and what books do 801 00:46:50,560 --> 00:46:53,120 Speaker 1: you like to recommend to people who might be interested 802 00:46:53,880 --> 00:46:57,520 Speaker 1: in real estate. So one of my favorite books I've 803 00:46:57,520 --> 00:47:01,120 Speaker 1: read in the past few years is Malcolm Gladwell Outliers. 804 00:47:01,000 --> 00:47:03,680 Speaker 1: It's the whole book. I reread it, um, and I 805 00:47:03,719 --> 00:47:05,960 Speaker 1: made all my kids read it. I made doctor with 806 00:47:06,600 --> 00:47:09,799 Speaker 1: about it. And uh, you know, in that book, he 807 00:47:09,840 --> 00:47:12,359 Speaker 1: has this concept of ten thousand hours. You know, if 808 00:47:12,360 --> 00:47:15,279 Speaker 1: you spend ten thousand hours doing something, Um, you're gonna 809 00:47:15,320 --> 00:47:19,640 Speaker 1: get good at it. Uh. And um, you know the 810 00:47:19,640 --> 00:47:22,480 Speaker 1: people who really put in, whether it's the time in 811 00:47:22,520 --> 00:47:25,279 Speaker 1: the pool, at the time at work, er uh, practicing 812 00:47:25,320 --> 00:47:28,120 Speaker 1: an instrument um and they you put that kind of 813 00:47:28,160 --> 00:47:32,960 Speaker 1: time and energy into something, you're gonna you're gonna master it. Uh. 814 00:47:32,960 --> 00:47:37,680 Speaker 1: And he hasn't got a great um. Uh. The people 815 00:47:37,680 --> 00:47:40,200 Speaker 1: that he talks about in their cookie tasters. And I 816 00:47:40,239 --> 00:47:43,160 Speaker 1: didn't know this about cookies, but the or food tasters. 817 00:47:43,920 --> 00:47:49,080 Speaker 1: But when they make an Oreo cookie, um, the cookie uh, 818 00:47:49,120 --> 00:47:52,120 Speaker 1: the excess dough I guess they used to make the 819 00:47:52,160 --> 00:47:55,560 Speaker 1: next cookie. And these two women who were food tasters 820 00:47:55,880 --> 00:47:58,000 Speaker 1: could tell when they ate an Oreo cookie if it 821 00:47:58,040 --> 00:48:03,160 Speaker 1: was the original or it was the excess um and 822 00:48:03,719 --> 00:48:05,560 Speaker 1: the remake cookie. And you know, I think about that 823 00:48:05,600 --> 00:48:07,239 Speaker 1: in my career, and I've been doing real estate a 824 00:48:07,280 --> 00:48:09,600 Speaker 1: long time, and I think about the example I talked 825 00:48:09,600 --> 00:48:12,040 Speaker 1: about earlier with Liberty, where I didn't have the numbers 826 00:48:12,080 --> 00:48:15,360 Speaker 1: of my fingertips. Uh, but I was able when I 827 00:48:15,400 --> 00:48:17,520 Speaker 1: ran into that CEO in the hallway, but I was 828 00:48:17,560 --> 00:48:18,960 Speaker 1: able to sort of do the math at the rough 829 00:48:19,000 --> 00:48:20,520 Speaker 1: math in my head and come up with sixty two 830 00:48:20,520 --> 00:48:24,319 Speaker 1: dollars share and value and that's just something. And then 831 00:48:24,360 --> 00:48:27,160 Speaker 1: the company got sold at ste That's just something that 832 00:48:27,200 --> 00:48:30,080 Speaker 1: comes with putting the hours in. And I think that's 833 00:48:30,080 --> 00:48:32,440 Speaker 1: such a valuable lesson. And you know, that's why I 834 00:48:32,520 --> 00:48:34,560 Speaker 1: had my kids read it and that they're going through 835 00:48:34,600 --> 00:48:37,600 Speaker 1: school and I keep reminding him about it. The other 836 00:48:37,640 --> 00:48:44,160 Speaker 1: book would be Safing, which is history humanity. Uh and uh, 837 00:48:44,200 --> 00:48:47,920 Speaker 1: you know I read that book actually twice. Uh and um, 838 00:48:47,960 --> 00:48:49,920 Speaker 1: you know, you you lose track as we've been here 839 00:48:49,920 --> 00:48:52,840 Speaker 1: for like a nanosecond in the scheme of human beings 840 00:48:52,840 --> 00:48:55,840 Speaker 1: being on the Earth and the development and uh, I 841 00:48:55,880 --> 00:48:59,439 Speaker 1: think it's, you know, a wonderful book that puts our 842 00:48:59,760 --> 00:49:03,600 Speaker 1: live into perspective, our lives into perspectives. Uh and really 843 00:49:04,000 --> 00:49:05,920 Speaker 1: some of the damage that human beings have done to 844 00:49:06,000 --> 00:49:10,200 Speaker 1: this planet, um, and hopefully being able to get get 845 00:49:10,200 --> 00:49:12,640 Speaker 1: ourselves out of it. So I thoroughly enjoyed that book. 846 00:49:13,640 --> 00:49:17,719 Speaker 1: Great suggestions both. Since you mentioned kids, what sort of 847 00:49:17,760 --> 00:49:21,160 Speaker 1: advice might you give to a recent college graduate who 848 00:49:21,239 --> 00:49:26,320 Speaker 1: was interested in a career in real estate investing. It's funny, 849 00:49:26,320 --> 00:49:30,040 Speaker 1: you know, we just rewatched The Graduate from nineteen sixty 850 00:49:30,120 --> 00:49:34,400 Speaker 1: seven with Dustin Hoffman and so you would say plastics 851 00:49:34,160 --> 00:49:39,360 Speaker 1: that your suggests and uh so I always say to 852 00:49:39,520 --> 00:49:41,520 Speaker 1: my kids, they said they listened to me or people 853 00:49:41,520 --> 00:49:47,200 Speaker 1: that work for me, it's it's content because technological technological 854 00:49:47,239 --> 00:49:50,040 Speaker 1: advancement have eliminated a lot of jobs. And I just 855 00:49:50,080 --> 00:49:53,160 Speaker 1: look at my career, you know, the trading floors, emptying out, 856 00:49:53,200 --> 00:49:56,160 Speaker 1: the sales forces, emptying out the people that you know, 857 00:49:56,200 --> 00:49:58,719 Speaker 1: did all the stuff to get our research reports ready 858 00:49:58,760 --> 00:50:01,600 Speaker 1: to go out of those jobs are gone. But you know, 859 00:50:01,640 --> 00:50:04,320 Speaker 1: I'm a content guy. And if I look around that 860 00:50:04,520 --> 00:50:07,960 Speaker 1: the people who have long careers. Uh, if your content 861 00:50:08,080 --> 00:50:10,680 Speaker 1: you're like your content guy Barrier, Right, We've got content 862 00:50:10,760 --> 00:50:14,279 Speaker 1: right here, your content guy, you can have a long career. Uh. 863 00:50:14,320 --> 00:50:18,200 Speaker 1: And so figure out how to create and developed content, 864 00:50:18,920 --> 00:50:22,239 Speaker 1: whether it's you know, picking stocks, or writing research or 865 00:50:23,200 --> 00:50:26,280 Speaker 1: creating new technologies. I think that's the that's the answer 866 00:50:26,360 --> 00:50:30,280 Speaker 1: to the future. Quite quite fascinating. And our final question, 867 00:50:31,000 --> 00:50:33,000 Speaker 1: what do you know about the world of real estate 868 00:50:33,000 --> 00:50:37,120 Speaker 1: investing today that you wish you knew thirty plus years 869 00:50:37,120 --> 00:50:40,719 Speaker 1: ago when you were first getting started. I wish I 870 00:50:40,760 --> 00:50:42,560 Speaker 1: knew the tenure was going to be a sixty basis 871 00:50:42,600 --> 00:50:47,399 Speaker 1: point um that would have made investing a lot easier. Um, 872 00:50:47,560 --> 00:50:51,040 Speaker 1: all the wall of worry while rates have been coming down, 873 00:50:51,800 --> 00:50:55,880 Speaker 1: um about rates going back up. You could have just 874 00:50:55,960 --> 00:50:59,239 Speaker 1: dismissed and bought and finance short and held on for 875 00:50:59,320 --> 00:51:02,719 Speaker 1: the ride. Quite quite fascinating. Thank you John for being 876 00:51:02,760 --> 00:51:06,719 Speaker 1: so generous with your time. That was John Litt, Founder 877 00:51:06,760 --> 00:51:10,440 Speaker 1: and Chief Investment Officer of Land and Buildings. If you 878 00:51:10,600 --> 00:51:13,719 Speaker 1: enjoy this conversation, well, you can check out any of 879 00:51:13,760 --> 00:51:17,200 Speaker 1: the other three hundred such discussions we've had over the 880 00:51:17,239 --> 00:51:22,000 Speaker 1: past nearly six years. You can find that at all 881 00:51:22,040 --> 00:51:27,800 Speaker 1: of your favorite podcast locations iTunes, Spotify, Google, Overcast, Stitcher, 882 00:51:27,960 --> 00:51:32,280 Speaker 1: wherever final podcasts are sold. We love your comments, feedback 883 00:51:32,280 --> 00:51:36,239 Speaker 1: and suggestions right to us at m IB podcast at 884 00:51:36,239 --> 00:51:39,560 Speaker 1: Bloomberg dot net. Hey, check out my weekly column at 885 00:51:39,600 --> 00:51:42,880 Speaker 1: Bloomberg dot com slash Opinion. You could follow me on 886 00:51:42,880 --> 00:51:45,080 Speaker 1: Twitter at rit Halts, and if you would like to 887 00:51:45,080 --> 00:51:48,200 Speaker 1: see my daily reads, you can find them at Rid 888 00:51:48,239 --> 00:51:51,319 Speaker 1: Halts dot com. Sign up for that email. Also, I 889 00:51:51,360 --> 00:51:53,520 Speaker 1: would be remiss if I did not thank the Crack 890 00:51:53,600 --> 00:51:58,439 Speaker 1: staff that helps put these conversations together each week. Tim 891 00:51:58,480 --> 00:52:03,279 Speaker 1: Harrow is my audio engineer. Michael Boyle is my producer 892 00:52:03,480 --> 00:52:07,360 Speaker 1: Mike Batnick is my director of research. A Tick of 893 00:52:07,520 --> 00:52:11,879 Speaker 1: V Album is our project manager. I'm Barry Ridholts. You've 894 00:52:11,880 --> 00:52:15,240 Speaker 1: been listening to Masters in Business on Bloomberg Radio.