WEBVTT - Dunkin’s Travis: Public Companies Profit From Scrutiny 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.320 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla 0:00:31.520 --> 0:00:35.400 is under investigation by the Justice Department over public statements 0:00:35.440 --> 0:00:38.880 made by the company and CEO Ellen Mosk. The shares 0:00:38.880 --> 0:00:42.400 are down about two percent, making a little bit of 0:00:42.520 --> 0:00:45.919 gains against the initial losses on that headline. We will 0:00:45.960 --> 0:00:49.400 monitor it for you. Perhaps it is perfect timing, then 0:00:49.560 --> 0:00:52.080 that we talk about what it is to be a 0:00:52.120 --> 0:00:54.880 private company rather than a public company, and what it 0:00:54.880 --> 0:00:57.880 means to be a good manager versus a bad manager. 0:00:58.200 --> 0:01:01.040 Here joining us now is Nigel tracks Best, executive chairman 0:01:01.120 --> 0:01:03.960 of the Duncan Brands Group, also the author of a book, 0:01:04.040 --> 0:01:07.000 The Culture Challenge or The Challenge Culture. Excuse me why 0:01:07.040 --> 0:01:11.360 the most successful organizations run on pushback? Nigel, thank you 0:01:11.400 --> 0:01:14.040 so much for being with us. Delighted to be here. 0:01:14.360 --> 0:01:17.080 Decades of experience in this business, you know, just just 0:01:17.680 --> 0:01:20.640 talking about Tesla and some of the issues that they've 0:01:20.680 --> 0:01:24.160 had with going private or going public. From your perspective, 0:01:24.319 --> 0:01:26.920 is it better to be a private company? And why? 0:01:27.200 --> 0:01:31.640 Great question, And as a very happy second time Tesla owner, 0:01:32.680 --> 0:01:35.560 really yeah, yeah, I mean I think the machine is awesome. 0:01:35.600 --> 0:01:38.800 As someone said last week, it's artificial intelligence on wheels, 0:01:39.360 --> 0:01:44.360 So I think the product is fantastic, do you No, no, no. 0:01:44.440 --> 0:01:46.280 I bought the stock a long time ago and got 0:01:46.319 --> 0:01:50.320 out with a very hefty gain. But anyway, um, but 0:01:50.960 --> 0:01:53.680 it's a fascinating question. It's a it's a question that's 0:01:54.200 --> 0:01:56.640 discussed in the book. Because I joined Duncan back in 0:01:56.680 --> 0:02:00.080 two thousand nine and we were private, I think we 0:02:00.120 --> 0:02:03.040 were helped, which is going to sound slightly contradictory by 0:02:03.080 --> 0:02:04.840 the fact it was in the middle of the recession. 0:02:05.160 --> 0:02:07.280 You can't get more in the middle of the recession 0:02:07.280 --> 0:02:11.320 than January two thousand and nine. And we spent the 0:02:11.360 --> 0:02:15.600 first year studying the company and our franchisees with several 0:02:15.639 --> 0:02:19.840 microscopes because everyone was under severe pressure and and in 0:02:19.880 --> 0:02:22.120 many ways, when I look back, that was good. But 0:02:22.160 --> 0:02:25.720 I was supported with a phenomenal group of private equity firms, 0:02:26.120 --> 0:02:30.120 being Carlisle and thhle. We had an excellent board, and 0:02:30.160 --> 0:02:32.919 what is interesting is that two of those original board 0:02:32.919 --> 0:02:37.480 members are still on our board now um uh still 0:02:37.520 --> 0:02:41.440 on the board um And we went completely public in 0:02:41.480 --> 0:02:45.360 two thousand and twelve. So I like being private, but 0:02:45.480 --> 0:02:48.040 I'm one of the few CEOs that actually likes being 0:02:48.080 --> 0:02:52.200 public as well, because I truly believe that the questions 0:02:52.240 --> 0:02:57.119 from people like yourself, or from analysts and certainly investors 0:02:57.520 --> 0:03:00.480 have a role to make you better. They constantly challenged 0:03:00.520 --> 0:03:03.480 the status quo, which is what what my book's all about. 0:03:03.840 --> 0:03:07.200 It's about getting input from informed outsiders. It is the 0:03:07.280 --> 0:03:11.239 outside looking in. And I truly believe you know that 0:03:11.480 --> 0:03:14.960 good managers, as you say, good leaders, can operate in 0:03:15.080 --> 0:03:20.240 both private circumstances and public circumstances. Nigel Travis as the 0:03:20.320 --> 0:03:25.440 author of the Challenge Culture why the most successful organizations 0:03:25.560 --> 0:03:29.880 run on pushback. In addition to your role at Duncan Brands, 0:03:30.320 --> 0:03:34.000 you previously have experienced as the chief operating officer Blockbuster. 0:03:35.040 --> 0:03:38.720 You also worked at Burger King and you've also had 0:03:38.720 --> 0:03:42.760 a career at Papa John's. You've also helped to restructure 0:03:42.800 --> 0:03:47.320 an English football team, Layton Orients. Can you tell us 0:03:47.520 --> 0:03:50.920 what some of those things have in common. Well, actually 0:03:51.200 --> 0:03:55.400 cook quite a bit um. Firstly, the English football team, 0:03:55.400 --> 0:04:01.320 which UH a consultium led by myself bought the club 0:04:01.560 --> 0:04:04.680 June last year. We had no bank account, no credit 0:04:04.720 --> 0:04:07.600 card processing and worst of all, no players. But we 0:04:07.680 --> 0:04:10.440 applied the challenge culture and everything we did. And the 0:04:10.600 --> 0:04:13.360 challenge culture is about two things. Is about challenging, which 0:04:13.360 --> 0:04:16.560 is what everyone focuses on, but mostly it's about culture. 0:04:16.960 --> 0:04:20.719 So to link all those companies together over time, I've 0:04:20.760 --> 0:04:24.719 tried to develop a very positive culture in all the companies. 0:04:24.960 --> 0:04:28.560 I think we've got an extremely positive culture in Duncan 0:04:28.640 --> 0:04:32.320 where people have always been encouraged to challenge, pushback too, 0:04:32.480 --> 0:04:36.240 if you like, take all the hierarchical boundaries out the way. 0:04:36.640 --> 0:04:39.320 Papa John's, despite some of their recent problems, we had 0:04:39.320 --> 0:04:41.560 a great culture when I was there, and I did 0:04:41.600 --> 0:04:44.320 it there without changing any of the leadership team. You 0:04:44.400 --> 0:04:47.600 did a whole digital initiative there. Oh yeah, yeah. We 0:04:47.600 --> 0:04:51.560 we became the leaders of online pizza ordering in nineteen sorry, 0:04:51.560 --> 0:04:55.040 two thousand and five, two thousand and six, and I 0:04:55.240 --> 0:04:57.880 focused on that because when I was at Blockbuster we 0:04:57.960 --> 0:05:01.080 did a lot of great things. We had to constantly 0:05:01.160 --> 0:05:04.680 fight new technology challenges coming towards us all the time. 0:05:05.200 --> 0:05:08.840 We probably didn't tackle Netflix early enough. We certainly didn't 0:05:08.880 --> 0:05:11.320 tackle Netflix early enough, and we could have bought the 0:05:11.360 --> 0:05:14.800 company for about fifty million it's now worth I think 0:05:14.839 --> 0:05:18.200 a hundred and sixty billions, something like that. But we 0:05:18.320 --> 0:05:20.919 came back hard and we put them under pressure. And 0:05:21.080 --> 0:05:24.040 after I left, after my then boss John anti Arco left, 0:05:24.839 --> 0:05:27.760 the company struggled and eventually went bankrupts in two thousand 0:05:27.760 --> 0:05:30.760 and ten. But we could have been the leaders. So 0:05:30.800 --> 0:05:33.640 I think the messages you've got to constantly look at, 0:05:33.800 --> 0:05:37.040 look where you are, how you challenge going forward, how 0:05:37.080 --> 0:05:41.000 you challenge the status quo, but all within the context 0:05:41.040 --> 0:05:44.919 to answer your question of a very positive, people oriented culture. 0:05:45.360 --> 0:05:47.720 And that's what the books about. It's not just the challenging, 0:05:47.800 --> 0:05:50.920 it's about creating that culture. We should live every day. 0:05:51.360 --> 0:05:54.560 You should set an example of what it's about every day, 0:05:54.680 --> 0:05:57.919 and I truly think we've demonstrated that at Duncan. I 0:05:57.960 --> 0:06:00.080 want to go back to something that you were talking 0:06:00.120 --> 0:06:03.320 about with respect to being a public company, that that 0:06:03.400 --> 0:06:07.200 actually encourages a challenge culture, and I want to ask 0:06:07.240 --> 0:06:09.239 you about the fact that we've seen a growing number 0:06:09.240 --> 0:06:13.680 of companies go private from being public. Are you concerned 0:06:13.920 --> 0:06:16.880 that that doesn't foster enough of a challenge culture that 0:06:16.920 --> 0:06:21.240 potentially companies will end up struggling or being failures because 0:06:21.240 --> 0:06:24.640 they're not getting scrutinized and questioned every step of the way. 0:06:25.000 --> 0:06:27.560 I think that's a great question. And it's interesting that 0:06:27.760 --> 0:06:29.599 the number of public companies, and I think this is 0:06:29.640 --> 0:06:33.000 what you're referring to, is declining at quite a rapid rate. 0:06:33.640 --> 0:06:36.120 I think it's down by something like that may not 0:06:36.160 --> 0:06:40.520 be right, but yeah, it's traumatic. And I think the 0:06:40.560 --> 0:06:43.400 point you make is fair comment because we all need 0:06:43.520 --> 0:06:46.920 outsider input looking in. I mean, one of the benefits 0:06:46.960 --> 0:06:48.960 we have in Duncan and we had the same in 0:06:49.000 --> 0:06:51.200 Pupa John's, and we have the same at the football club. 0:06:51.480 --> 0:06:55.360 The football club we have fans rather than franchisees. Duncan 0:06:55.440 --> 0:06:59.120 and Papa John's we have franchisees. They are the ultimate challenges. 0:06:59.480 --> 0:07:02.440 But some times you need people standing right outside the 0:07:02.560 --> 0:07:06.000 organization looking at trends and by the way, analysts, this 0:07:06.040 --> 0:07:09.200 is what people don't realize. Analysts, good analysts like some 0:07:09.279 --> 0:07:11.240 of the people we have in our industry, and by 0:07:11.240 --> 0:07:14.119 the way, we have thirty five analysts who follow Duncan, 0:07:14.160 --> 0:07:17.120 which is probably too many, but thirty five. The benefit 0:07:17.240 --> 0:07:20.640 is they talk to the competition, they followed the trends, 0:07:21.080 --> 0:07:23.120 and they make you think the whole time. So the 0:07:23.320 --> 0:07:26.840 Challenge culture, a major part of it has been being 0:07:26.880 --> 0:07:30.560 pushed to think and say what direction are we going in? 0:07:30.800 --> 0:07:32.720 Is it right or not? And by the way, just 0:07:32.760 --> 0:07:35.800 say something on Duncan. Under the new leader, Dave Hoffman, 0:07:35.960 --> 0:07:39.760 we're going in exactly the right direction. Well done, Thank 0:07:39.800 --> 0:07:41.840 you very much for coming in and spending time with us. 0:07:42.560 --> 0:07:48.000 Nigel Travis, the author of The Challenge Culture, Why the 0:07:48.040 --> 0:07:53.120 most successful organizations run on pushback. He is the executive 0:07:53.200 --> 0:07:57.440 chairman and the former chief executive of Duncan Donuts and 0:07:57.520 --> 0:07:59.880 Baskin Robins. Don't want to miss out on the imp 0:08:00.080 --> 0:08:02.200 laeve that he has a lot of doughnuts and ice cream, 0:08:02.200 --> 0:08:04.800 because I will tell you he is not. He's very fit, 0:08:05.600 --> 0:08:09.640 keep working out, challenged myself every day. All right, we uh, 0:08:09.680 --> 0:08:11.560 we appreciate it and we look forward to having you 0:08:11.640 --> 0:08:25.920 in the future. Much appreciated. China has decided to levy 0:08:26.120 --> 0:08:29.640 levy tariffs on about sixty billion dollars worth of imports 0:08:29.680 --> 0:08:33.400 from the United States. This is contingent, of course, on 0:08:33.480 --> 0:08:37.360 the plan tariffs on two billion dollars worth of Chinese goods. 0:08:38.240 --> 0:08:41.480 China plans to slap additional tariffs on over five thousand 0:08:41.559 --> 0:08:46.040 categories of US products with two levels of tara phrase 0:08:46.160 --> 0:08:48.679 ten and five percent. Here to tell us more about 0:08:48.679 --> 0:08:51.479 the issue is Leland Miller. He is the chief executive 0:08:51.679 --> 0:08:55.800 of China beige Book International. You can follow their work 0:08:55.880 --> 0:09:00.360 on Twitter at China beige Book. Leland Miller. Always a pleasure, 0:09:00.400 --> 0:09:03.240 Thank you for coming in. Do you believe that this 0:09:03.360 --> 0:09:05.840 back and forth in tariffs will have a meaningful effect 0:09:05.840 --> 0:09:08.920 on the Chinese economy. I think it will. I think 0:09:08.960 --> 0:09:11.040 it already has. And we've got some new data they're 0:09:11.040 --> 0:09:13.120 coming out next week that I think will shine a 0:09:13.200 --> 0:09:16.600 light on on on on what is happening and and 0:09:16.600 --> 0:09:19.240 and you know not that nothing is hit except the 0:09:19.280 --> 0:09:21.560 fifty billions so far, and even that is just a 0:09:21.559 --> 0:09:25.120 few weeks in. If that is showing an effect, then 0:09:25.200 --> 0:09:27.160 it tells you a lot about what two billion will do, 0:09:27.200 --> 0:09:29.920 and what about what will fillion will do? So I 0:09:29.920 --> 0:09:32.480 do think it is is it's already showing an effect. Uh, 0:09:32.559 --> 0:09:35.719 we'll have a little bit more on that week. Well, 0:09:35.720 --> 0:09:38.720 it's manufacturing. So manufacturing has been going strong for a 0:09:38.720 --> 0:09:41.920 long time, and in China, in China, and uh and 0:09:41.920 --> 0:09:45.360 and I think that the manufacturing sector has gotten skittish 0:09:45.720 --> 0:09:49.000 on what's going on next and and uh, and that's 0:09:49.040 --> 0:09:52.120 one of their real concern points. Well, the Shanghai composit 0:09:52.320 --> 0:09:56.000 rallied overnight in the heel on the heels of this news. 0:09:56.080 --> 0:09:58.280 One theory had been, first of all, it had been 0:09:58.280 --> 0:10:00.719 so beaten up and had been trade at its lowest level. 0:10:01.960 --> 0:10:05.240 But also there are some theories out there that China 0:10:05.280 --> 0:10:08.520 will come back with some kind of infrastructure project that 0:10:08.600 --> 0:10:11.080 will help bolster the economy. So how does that factor 0:10:11.120 --> 0:10:13.800 in and doesn't that offset this? Yeah, I think that 0:10:13.800 --> 0:10:16.480 that's part of it. Um, China is now faced with 0:10:16.600 --> 0:10:19.360 a serious trade threat that looks like it's going through, 0:10:20.000 --> 0:10:22.080 in which case the government's gonna have to respond. So 0:10:22.120 --> 0:10:23.760 I think it's going to be all systems go. We're 0:10:23.760 --> 0:10:25.480 already seeing a little bit of that about that in 0:10:25.480 --> 0:10:28.439 the in the credit world. Uh. And so there's that. 0:10:28.520 --> 0:10:30.160 And I think the other part about this is that 0:10:30.200 --> 0:10:32.640 the two billion didn't come out of nowhere. This was 0:10:32.679 --> 0:10:35.640 going through. The surprise I think was that they they 0:10:35.679 --> 0:10:37.600 expedited the process a bit and they moved up the 0:10:37.600 --> 0:10:40.600 implementation date. But the two billion has been talked about 0:10:40.640 --> 0:10:44.360 for months. It was always going through. Uh even if 0:10:44.400 --> 0:10:46.960 you were to have a deal later this fall, the 0:10:47.000 --> 0:10:51.040 president wanted that two either hovering right over him or 0:10:51.400 --> 0:10:54.280 recently into effect in order to negotiate. So the twitter billion, 0:10:54.280 --> 0:10:57.120 I don't think it's any major surprise. Leland. Tell us 0:10:57.160 --> 0:10:59.760 about the Chinese economy right now. You spend a lot 0:10:59.760 --> 0:11:04.840 of time time analyzing it, where its strengths and weaknesses. Well, 0:11:05.160 --> 0:11:08.480 the two thousands, sixteen, two thousands seventeen years, we're all 0:11:08.480 --> 0:11:14.400 about recovering from the early crisis and recovering the economy 0:11:14.400 --> 0:11:17.360 into a into a period of strength and stability entering 0:11:17.360 --> 0:11:19.319 the Party Congress, and they accomplished that. I think that 0:11:19.320 --> 0:11:21.520 when we talked about this throughout twenty seventeen, it was, 0:11:21.720 --> 0:11:24.360 you know, all systems go, things are looking good. They 0:11:24.360 --> 0:11:27.000 didn't have this trade war hanging over them in seventeen 0:11:27.400 --> 0:11:29.560 and and since then things have gotten a little bit 0:11:29.600 --> 0:11:32.640 more tricky. So you have this, you have the trade 0:11:32.640 --> 0:11:38.040 war looming, you have uh A a bunch of sectors 0:11:38.040 --> 0:11:40.960 in the economy, the old economy, manufacturing, property and others 0:11:41.160 --> 0:11:44.320 that have been run so hard for so long that 0:11:44.360 --> 0:11:47.760 they're starting to weaken. And so you have this possibility 0:11:47.800 --> 0:11:51.000 of a weakening economy with looming tariffs overhead, and it's 0:11:51.040 --> 0:11:53.960 making people nervous. And so the big question is how 0:11:54.000 --> 0:11:57.520 accurate official data are on credit, which they're saying there's 0:11:57.559 --> 0:11:59.840 not that much barring yet and investment and they're saying 0:11:59.840 --> 0:12:02.160 that this is at historic lows. Now, we don't agree 0:12:02.200 --> 0:12:04.440 with that, and we'll have some different takes on that 0:12:04.480 --> 0:12:07.360 in the coming weeks. I think that official data tells 0:12:07.360 --> 0:12:10.560 you a good story three months earlier, but I think 0:12:10.679 --> 0:12:12.600 there's some there's some new developments on the horizon right now. 0:12:12.640 --> 0:12:15.280 Perhaps credit is expanding pretty quickly as they loosen up 0:12:15.320 --> 0:12:17.720 the strings. I'm just wondering. One thing that we're waiting 0:12:17.760 --> 0:12:21.600 for is details on retaliation from China. What could some 0:12:21.679 --> 0:12:23.520 of those measures be in addition to some of the 0:12:23.559 --> 0:12:25.800 tariffs that they've put out there on sixty billion dollars 0:12:25.800 --> 0:12:28.160 of US goods, But what could they do as far 0:12:28.320 --> 0:12:31.840 as basically shifting their supply chains and their lines of 0:12:31.840 --> 0:12:36.520 business away from the US. Well, they are going to 0:12:37.440 --> 0:12:39.280 have to look into that the same way that the 0:12:39.320 --> 0:12:41.319 US is looking into it. They're gonna have a harder 0:12:41.360 --> 0:12:45.800 time because I think that the you know, the US 0:12:45.840 --> 0:12:48.880 trade with China is very one sided at this point, 0:12:48.880 --> 0:12:51.360 and so the US is other places that can go China. 0:12:51.640 --> 0:12:54.360 China wants to have markets for its goods, it's it's 0:12:54.360 --> 0:12:56.439 going to be hard to avoid the US. So they 0:12:56.440 --> 0:12:59.120 have a much tougher task here. But the z t 0:12:59.280 --> 0:13:01.440 E incident was a wake up call for them. I 0:13:01.440 --> 0:13:04.960 think that the the escalation and their of of these 0:13:04.960 --> 0:13:08.240 tariffs and their apparent weakness in the face of them, 0:13:08.360 --> 0:13:10.520 is another wake up call. So, you know what, what 0:13:10.600 --> 0:13:14.360 we're seeing right now, independent of tariffs, and independent of 0:13:14.360 --> 0:13:18.320 whether we somehow see a fall deal or a deal 0:13:18.400 --> 0:13:21.480 in in early twenty nineteen, is a decoupling of the 0:13:21.600 --> 0:13:23.560 U S and Chinese economies. And I think that that 0:13:23.679 --> 0:13:26.640 is setting itself down a path that's not yet irreversible, 0:13:26.840 --> 0:13:28.360 but is looking like this is going to be the 0:13:28.400 --> 0:13:31.880 thing that defines the next decade. If that is indeed 0:13:31.880 --> 0:13:35.640 what defines the next decade, where will the capital come 0:13:35.720 --> 0:13:39.960 from in order to continue the accelerated growth that China 0:13:40.040 --> 0:13:45.280 wants to enjoy. Well, you know, China in some ways 0:13:45.559 --> 0:13:48.080 is a very attractive market. Now. You don't have a 0:13:48.160 --> 0:13:50.680 very good regulatory structure. You don't trust that the government 0:13:50.720 --> 0:13:52.320 is going to do what it says it's going to do. 0:13:52.679 --> 0:13:55.320 On the other hand, you have enormous opportunities. You've got 0:13:55.360 --> 0:13:59.040 a huge consumer base, you've got um interest rates that 0:13:59.040 --> 0:14:03.199 that should be paying out relatively healthily, and as long 0:14:03.240 --> 0:14:06.000 as you're in a low interest rate world, which we're 0:14:06.040 --> 0:14:08.880 emerging from right now. So you've got this bod market 0:14:08.960 --> 0:14:11.320 that's that's crying out for foreign capital. So there are 0:14:11.320 --> 0:14:13.400 opportunities there. But the Chinese really have to get there, 0:14:13.720 --> 0:14:16.400 get their economy into shape, and they have to be 0:14:16.520 --> 0:14:18.720 more open, and I think they would be forced into 0:14:18.760 --> 0:14:21.280 that the more they're back into a corner. Leland Miller, 0:14:21.560 --> 0:14:23.320 such a pleasure having you on. Thank you so much 0:14:23.360 --> 0:14:26.280 for coming in. Thank you. Really interesting him this idea 0:14:26.520 --> 0:14:30.480 that the decoupling of the US and Chinese economies will 0:14:30.480 --> 0:14:33.040 be the defining feature of the next decade. According to 0:14:33.120 --> 0:14:37.320 Leland Miller, chief executive officer of the China Beige Book International, 0:14:49.480 --> 0:14:52.760 there's been a lot of money raised recently for real estate, 0:14:52.920 --> 0:14:57.120 for example, Carlisle has raised five and a half billion 0:14:57.200 --> 0:15:01.440 dollars for its private equity real estate for fund. Black 0:15:01.520 --> 0:15:05.280 Stone has said to raise more than eighteen billion dollars 0:15:05.320 --> 0:15:07.840 for a real estate fund. And now we learned that 0:15:07.880 --> 0:15:11.360 ox IF is looking to raise two point eight billion 0:15:11.520 --> 0:15:15.480 dollars for real estate. So our next guest is probably 0:15:15.520 --> 0:15:19.000 a very popular individual. Scott Lawler is the chief executive 0:15:19.080 --> 0:15:22.160 of a way Point Residential and he joins us here 0:15:22.200 --> 0:15:25.040 in our eleven three oh studios. Scott, thank you very 0:15:25.120 --> 0:15:27.920 much for being here. Are you at all surprised at 0:15:27.920 --> 0:15:30.680 the amount of money that's being raised by private equity 0:15:30.720 --> 0:15:34.120 firms to invest in real estate? Well, first, thanks for 0:15:34.160 --> 0:15:36.600 having me, And I would not say I'm surprised because 0:15:36.640 --> 0:15:39.040 this is a trendline that's been evolving throughout this psycho 0:15:39.120 --> 0:15:42.800 where you know, after the crash, the manager field, if 0:15:42.840 --> 0:15:45.040 you will, real estate investment manager playing field got shaken 0:15:45.120 --> 0:15:48.560 up quite a bit and the few survivors capitalized on 0:15:48.560 --> 0:15:51.440 that opportunity and suddenly there were a fewer managers and 0:15:51.600 --> 0:15:54.600 much much larger funds. And that's continued. Obviously now there's 0:15:54.600 --> 0:15:57.400 more managers back in the game, but the trend towards 0:15:57.760 --> 0:16:00.120 mega funds, if you will, amongst sort of the all 0:16:00.120 --> 0:16:02.000 the fame name managers has been in place for some 0:16:02.080 --> 0:16:04.600 time and they've been successful with it all, right, But 0:16:04.720 --> 0:16:07.680 here we are, two thousand eighteen, some people are seeing 0:16:07.880 --> 0:16:11.160 some possible wobbles in the US housing market. There isn't 0:16:11.200 --> 0:16:14.600 the same kind of dynamism that we saw during the recovery, 0:16:14.720 --> 0:16:20.000 certainly in terms of price increases. Where are the opportunities, right? So, 0:16:20.040 --> 0:16:22.040 I mean, you know, ten billion, eighteen billion, that's a 0:16:22.080 --> 0:16:24.080 lot of money to invest, for sure, But in a week, 0:16:24.200 --> 0:16:26.080 I mean, this is we're talking literally, these are the 0:16:26.120 --> 0:16:28.720 past week. But it's important to understand how they define 0:16:28.720 --> 0:16:31.000 their playing field. So you know, you don't deploy a 0:16:31.040 --> 0:16:33.920 fund like that. And it's not for me to say 0:16:33.760 --> 0:16:35.720 these guys run their business other than we all know 0:16:35.720 --> 0:16:37.800 they've done it very well. But you know they're thinking 0:16:37.840 --> 0:16:40.880 in terms First of all, they're thinking globally of course um. 0:16:41.000 --> 0:16:45.320 And secondly, um, you know, in terms of say larger transactions, 0:16:45.360 --> 0:16:47.800 say there's been a public to private activity and so 0:16:47.840 --> 0:16:50.000 on in the reach sector and things like that. So 0:16:50.040 --> 0:16:52.160 they're really in the mega trade business. And when you 0:16:52.240 --> 0:16:54.960 can't you raise funds at that level, you're kind of 0:16:55.000 --> 0:16:57.400 playing at a different tier, and the and the competitive 0:16:57.400 --> 0:17:00.200 supply and demand dynamics are different. So someone like me 0:17:00.240 --> 0:17:02.000 and I have to be careful where I play because 0:17:02.280 --> 0:17:04.840 in certain places that could be fifty folks chasing an opportunity, 0:17:04.840 --> 0:17:06.639 and I don't want to be the fifty one. But 0:17:06.880 --> 0:17:09.040 when you're playing at their level, that's not the case. 0:17:09.160 --> 0:17:11.360 We hold on a second, So this is important. These 0:17:11.480 --> 0:17:14.280 are direct competitors to you in certain circumstances. How do 0:17:14.320 --> 0:17:17.080 you ensure that you're not playing in the same sandbox? 0:17:17.119 --> 0:17:19.480 What's the sandbox that you see the opportunities for a 0:17:19.520 --> 0:17:22.520 fund of your size? Right, So we're the biggest cut 0:17:22.560 --> 0:17:25.520 obviously is deal size, Right, So if you read about 0:17:25.600 --> 0:17:28.560 you know, five billion dollar public to private transaction as 0:17:28.600 --> 0:17:31.159 an example, it's probably not going to be us, you know, 0:17:31.240 --> 0:17:34.120 leading the charge there. So we're playing in smaller markets. 0:17:34.119 --> 0:17:36.480 We're doing deals that are maybe fifty million dollars on 0:17:36.520 --> 0:17:39.800 average of total capitalization, and we would very very rarely 0:17:39.840 --> 0:17:41.920 cross paths with someone who had a ten billion dollar 0:17:41.920 --> 0:17:44.280 fund because they're not going to get that money out 0:17:44.320 --> 0:17:47.320 the door efficiently doing fifty million dollar deals. They're going 0:17:47.359 --> 0:17:49.680 to get it out the door doing very very large transactions. 0:17:49.680 --> 0:17:52.320 So it's a it's a very different playing field, all right, 0:17:52.720 --> 0:17:57.840 very different playing field residential rental properties, that's that's a 0:17:57.880 --> 0:18:01.840 specialty for you. That's right. Where are you looking to expand? 0:18:02.800 --> 0:18:05.840 So we've been expanding the last couple of years, UM 0:18:05.880 --> 0:18:08.439 in a couple of ways. I define it by geography 0:18:08.520 --> 0:18:12.160 and I define it by strategy. So we really found 0:18:12.160 --> 0:18:14.960 the greatest opportunity for the most part, not exclusively, but 0:18:15.000 --> 0:18:19.000 heavily focusing on some smaller markets, UM, which are different 0:18:19.000 --> 0:18:22.520 than when i've student housing, for example in North Carolina. 0:18:22.520 --> 0:18:24.479 That's right, Well, that's as it relates to specialty. So 0:18:24.520 --> 0:18:27.240 we've gone into smaller geographies half a million million person 0:18:27.280 --> 0:18:30.399 metro areas, and in addition, we've gone into specialty property 0:18:30.440 --> 0:18:33.160 types such as student and senior, and we find those 0:18:33.200 --> 0:18:36.199 are more compelling areas right now than say keeping it 0:18:36.280 --> 0:18:37.919 you know what I call center of the fairway, if 0:18:37.960 --> 0:18:41.040 you stick with just conventional and just in the major metros, 0:18:41.280 --> 0:18:43.960 it's where you see the fiercest competition and in my view, 0:18:44.000 --> 0:18:47.479 the most troublesome pricing. So how much more are you 0:18:47.520 --> 0:18:50.480 getting with respect to returns to invest in some of 0:18:50.520 --> 0:18:54.000 these smaller opportunities that have a smaller pool of competitors 0:18:54.000 --> 0:18:56.720 than the large cat type deals. The spread isn't what 0:18:56.720 --> 0:18:58.280 it used to be, and I wish it was greater. 0:18:58.520 --> 0:19:01.080 There's some I mean, look, if you talk about prime 0:19:01.119 --> 0:19:04.040 properties and major metros, you know cap rates and you 0:19:04.080 --> 0:19:08.359 know going in returns are sub four percent frequently. Um, 0:19:08.480 --> 0:19:11.080 we're at least a hundred a hundred fifty basis points 0:19:11.119 --> 0:19:15.160 higher than that. So I'd rather play a hundred fifty 0:19:15.160 --> 0:19:18.080 basis points higher and be in Omaha, de Moin or 0:19:18.119 --> 0:19:20.399 what have you, then pay a three seventy five to 0:19:20.480 --> 0:19:22.240 be in San Francisco. Doesn't mean I'm right. There's a 0:19:22.280 --> 0:19:23.760 lot of smart folks. You see it differently. It's just 0:19:23.760 --> 0:19:26.080 what we do. Are you concerned about the amount of 0:19:26.119 --> 0:19:29.320 money going into this space and how high valuations have gotten. 0:19:30.280 --> 0:19:32.240 I'm absolutely concerned about the amount of money in the 0:19:32.240 --> 0:19:34.679 space because it makes our life very difficult, you know. 0:19:34.760 --> 0:19:37.680 It's why we have to focus on specialty property types, 0:19:37.720 --> 0:19:40.919 why we focus on smaller markets. Um, we are constantly 0:19:40.960 --> 0:19:44.520 looking for opportunity. You know, I call outside the center 0:19:44.520 --> 0:19:46.840 of the fairway. We have to rummage around in the 0:19:46.920 --> 0:19:48.480 rough quite a bit. We're in a we're in the 0:19:48.520 --> 0:19:50.240 one in a hundred business, which is a very tough 0:19:50.280 --> 0:19:51.639 way to make a living. We look at a hundred 0:19:51.680 --> 0:19:54.640 deals to do one. But keep in mind our business 0:19:54.760 --> 0:19:58.160 is still quite a bit less efficient than the securities world. 0:19:58.240 --> 0:20:00.439 It's more efficient than it was thirty years ago, but 0:20:00.520 --> 0:20:03.560 less efficient by far than say, trading securities. And so 0:20:03.600 --> 0:20:05.520 the point is, if you're willing to endure the brain 0:20:05.600 --> 0:20:07.560 damage and the wheel spinning of the one in a hundred, 0:20:07.760 --> 0:20:10.560 you can find risk adjusted opportunity. That's how we define 0:20:10.600 --> 0:20:13.080 the business is we're looking for miss price risk. You know, 0:20:13.440 --> 0:20:16.800 I want to ask you to describe what it's like 0:20:16.960 --> 0:20:21.359 to build student housing now compared to what your dorm 0:20:21.480 --> 0:20:25.000 room looked like back in ninety two. For in a 0:20:25.000 --> 0:20:26.879 lot of ways, I'm very jealous of those who were 0:20:26.880 --> 0:20:29.280 born thirty years later. To me, that's one of them. 0:20:29.320 --> 0:20:31.880 I was actually at my old school recently. Of course, 0:20:31.880 --> 0:20:34.119 my daughter is looking at it, and we looked at 0:20:34.119 --> 0:20:35.600 the dorm and she thought I was joking, and it 0:20:35.640 --> 0:20:38.720 looked more like a prison cell than say the dorm 0:20:38.800 --> 0:20:40.520 she'd seen at all the other schools we were trying. 0:20:40.640 --> 0:20:43.320 Actually was riot proof. It was the biggest cement structure. 0:20:44.040 --> 0:20:48.600 Literally it was built for riot proof situations. But if 0:20:48.640 --> 0:20:50.399 all our kids saw our dorms, they won't believe it. 0:20:50.400 --> 0:20:52.760 And so now the world has changed profoundly, which is 0:20:52.800 --> 0:20:55.280 part of the opportunity because it's not just a matter 0:20:55.440 --> 0:20:59.880 of existing inventory relative to demand. It's the quality and appropriate. 0:21:00.000 --> 0:21:02.040 It's if you will have the existing inventory relative to 0:21:02.040 --> 0:21:04.719 current taste and preference. And there's been a massive shift. 0:21:05.080 --> 0:21:07.760 Basically the younger kids, you know, demand more and the 0:21:07.800 --> 0:21:11.760 markets providing it, whether it's the physical layout, the services, amenities, 0:21:12.359 --> 0:21:14.119 all that kind of stuff. I mean, you really, you, 0:21:14.160 --> 0:21:15.639 as a parent, are you going to pay for it? 0:21:15.720 --> 0:21:17.600 I mean, how much you're gonna pay for your kids housing? 0:21:17.680 --> 0:21:26.120 Is that okay with you? That question exactly. We're gonna 0:21:26.200 --> 0:21:27.800 next time. I'm going to bring an eighteen year old 0:21:27.800 --> 0:21:29.800