Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. I'm Carol Master.
Speaker 1: Welcome to the Bloomberg Business Week Extra. It's a weekly
Speaker 1: podcast with a favorite conversation from the week, including someone
Speaker 1: who came to play that was first short on a
Speaker 1: favorite topic and one that's constantly popping up in our
Speaker 1: news coverage on the Bloomberg and Bloomberg dot com about
Speaker 1: real estate and specifically on how everyone seems to be
Speaker 1: headed to Austin, Texas. We're talking about Elon Musk, Oracle
Speaker 1: and so many more. For some thoughts on that, we
Speaker 1: caught up with Ari Rostagar, founder and CEO at Austin,
Speaker 1: Texas based Rustagar Property Company, who was as you might
Speaker 1: have guessed, in Austin and who talked about the texed US.
Speaker 1: Austin's booming, I mean Austin's booming and yeah, you would
Speaker 1: think that there was not a pandemic. I mean malls
Speaker 1: are packed and seriously, yeah, I mean it's I mean
Speaker 1: it's absolutely booming. I mean companies coming in like crazy.
Speaker 1: As you know, Oracle announced our global headquarters shift here
Speaker 1: Elon Musk about two thousand acres next to fifty acres
Speaker 1: that we own. Um, you know near the airport where
Speaker 1: we're developing five thousand square feed of industrial to really
Speaker 1: support all the ancillary companies. They're really feed off of
Speaker 1: Oracle and Tesla and those groups. And you know, Carol,
Speaker 1: you and I have been talking about this for years, right,
Speaker 1: I mean, this is uh, this is not new for
Speaker 1: you and I even on the panel we were on
Speaker 1: a few years ago. Um that I've been I've been
Speaker 1: preaching Austin for many, many years, and it seems like
Speaker 1: finally people are listening. Well, what is it specifically beyond
Speaker 1: the nice weather and uh that you guys don't have
Speaker 1: an income to state, income to tex which is kind
Speaker 1: of a big plus more than that, what is it
Speaker 1: so much more than that? It's so much more than that.
Speaker 1: I mean, look, Austin is not in Texas. Let's start
Speaker 1: with that. You know, and and I say that jokingly
Speaker 1: that you know, we have a beautiful dialogue between both
Speaker 1: the left and the right to concern it is in
Speaker 1: the liberals. You know, we're very very very liberal urban core,
Speaker 1: very conservative kind of suburban suburban corridor, which just created
Speaker 1: a great dialogue, meaning that you know, we have beautiful trees,
Speaker 1: beautiful lakes. Most people don't know for a top ten city.
Speaker 1: We actually became the tenth largest city of the United
Speaker 1: States last months, surpassing San Jose of all cities, being
Speaker 1: the hardest Silicon valley, which I think it's just kind
Speaker 1: of ironic, and we've been calling it the Texasus. You
Speaker 1: know that people are just coming over here, um in
Speaker 1: masses and you know, look, we have more parks than
Speaker 1: any other top ten city in the United States. The
Speaker 1: whole city is built on lakes. There's hills, there's outdoor activities,
Speaker 1: some of the best eating in the United States, live music,
Speaker 1: great outdoor activities, and so much green space, trails, parks,
Speaker 1: um and all of those things together mixed with all
Speaker 1: the reasons why people want to be in Texas, as
Speaker 1: you mentioned in terms of um you know, in terms
Speaker 1: of no state income taxes. You know, if Texas was
Speaker 1: a country, you know, we'd be the tenth largest country
Speaker 1: in the world on a GDP basis. You know, we
Speaker 1: operated a twelve billion dollar surplus. But the alert to Austin,
Speaker 1: you know, really started in two thousand thirteen when Google
Speaker 1: decided to use Austin as their beta case for Google Fiber.
Speaker 1: So they invested a billion dollars, remember, Yeah, and that
Speaker 1: was really the beginning of the beginning of this. Let's
Speaker 1: not forget to Apple is making a new one billion dollars,
Speaker 1: three million square foot campus in Austin. Is that correct? Yeah,
Speaker 1: and it's it's not again. Here's the here's the beauty
Speaker 1: of Austin and that regard Google's But if Facebook just
Speaker 1: took another million square feet, which if this is already
Speaker 1: their second largest office in the world, Amazon's largest acquisition
Speaker 1: to date and hold Foods for thirteen point two billion,
Speaker 1: is founded and headquartered in Austin. Okay, they're our largest
Speaker 1: distribution hub in the southern United States. Is about fifteen
Speaker 1: miles south of Austin and San Marcus. Um. You know,
Speaker 1: Google's second largest office in the world is here. A
Speaker 1: little company that you probably forgot about called Dell. It's
Speaker 1: headquarters here. Um. You know, so all these things, all
Speaker 1: of this groundwork was laid when Google put in that
Speaker 1: put in that Internet and put into Google Fiber. Um
Speaker 1: that allowed this to actually exist. But the reason people
Speaker 1: are picking Austin is because of the lakes and just
Speaker 1: how beautiful the city really is. And you know, kind
Speaker 1: of that liberal conservative you know, it's kind of almost
Speaker 1: purple party, right, So a lot of the Californian exodus
Speaker 1: and a lot of the exodus from you know, from
Speaker 1: New York and some of those other, you know, more
Speaker 1: liberal states, they find a lot of comfort in Austin,
Speaker 1: you know, because it doesn't have that staunch conservative feel
Speaker 1: that Dallas or Houston or some of the other Texas
Speaker 1: cities have. Do you anticipate, eat um, that this continues
Speaker 1: and what is this do ari to kind of real
Speaker 1: estate prices? Real estate prices are gonna absolutely absolutely surge,
Speaker 1: and and the reason why is we have really real
Speaker 1: geographic barriers in Austin. So if you go far west,
Speaker 1: you hit the hill country, you hit the lakes, you
Speaker 1: can't develop it. We have a huge housing shortage. So
Speaker 1: from a supplied to supply and demand standpoint, you know,
Speaker 1: there's only so much land you could build here. And
Speaker 1: because you know, the city has done such a great
Speaker 1: job of protecting the trees and and having very very
Speaker 1: strict zoning restrictions, it's very very hard to build new
Speaker 1: product here, you know. So for us, we've been buying
Speaker 1: older apartment complexes renovating them because it's very very hard
Speaker 1: to find, you know, great development sites because it's so difficult,
Speaker 1: which makes the city beautiful, which keeps the city beautiful,
Speaker 1: which I know very much agree with as as a
Speaker 1: native um. But you know what I thought was the
Speaker 1: second inning of Austin's growth. I realized when Oracle decided
Speaker 1: to move here, they haven't even saying in the national
Speaker 1: anthem yet. What do you mean? What I mean by
Speaker 1: that is just party hasn't even started. You mentioned that
Speaker 1: you guys have been buying older apartment complexes, and it
Speaker 1: was interesting. We just did a story um for some
Speaker 1: of our viewers around the country that talked about how, uh,
Speaker 1: some folks are actually buying empty hotels, kind of old
Speaker 1: ones and you know, making them into tiny apartments. So
Speaker 1: tell me a little bit more about kind of where
Speaker 1: you guys maybe are investing at this point, what properties
Speaker 1: seem appealing, and kind of what's happening there. Yeah, that's
Speaker 1: that's I've been seeing a lot of that too. And
Speaker 1: you know the thing about pandemics and recessions, and whenever
Speaker 1: you go through these hardships, you know you you have innovation, right,
Speaker 1: That's that's the silver lining, right. And so when the
Speaker 1: big box retailers started to go bankrupt, you know, and
Speaker 1: you saw like Sears as an example, go dark. People
Speaker 1: were converting that into self storage. So there's something great
Speaker 1: about how innovation is actually happening and you know we'll
Speaker 1: receive the deepest value and the safest kind of risk
Speaker 1: adjusted returns. Are these older apartment complexes that are similar
Speaker 1: to that Motel six kind of design, you know, two
Speaker 1: story walk ups, and what's brilliant about it is they
Speaker 1: have inherent social distancing. So this concept we call vintage
Speaker 1: multi family because outside the urban core, people feel very safe.
Speaker 1: They can walk up one flight of stairs, go in
Speaker 1: their apartment, come out. They don't have to worry about
Speaker 1: a gym or a pool or you know a lot
Speaker 1: of these instances, but they're extremely well located. That's the key.
Speaker 1: So a lot of these older complexes, whether it's the
Speaker 1: Motel sixes they're converting or older multi family products. But
Speaker 1: when you gut renovate them or take them down to
Speaker 1: the studs as they stay in the industry, you can
Speaker 1: offer a class a finish out for a fraction of
Speaker 1: the price of new development. Might call it the five
Speaker 1: the five dollar uber ride. So if you can get
Speaker 1: to you know, kind of all the fun stuff, the bars,
Speaker 1: the restaurants within a five dollar uber ride, you you know,
Speaker 1: that kind of fits the criteria a little bit. So
Speaker 1: that's where we see the deepest value. During COVID, we
Speaker 1: bought five properties like that when the rest of the
Speaker 1: world was completely you know, out of standstill. We actually
Speaker 1: bought nine properties in total. UM. A few were part
Speaker 1: of a land assemblages for some new development that we're doing,
Speaker 1: but five of them were actual apartment complex is very
Speaker 1: similar to what you were um explaining, and they offer
Speaker 1: a deeper value to consumers because now obviously people are
Speaker 1: being more thrifty, more frugal, as they should be, UM,
Speaker 1: but at the same time you can offer a fantastic
Speaker 1: value to the end consumer. I gotta ask you, though,
Speaker 1: are you concerned that Austin becomes another silicon valley, especially
Speaker 1: if you can continue to see so many big technic companies,
Speaker 1: you know, setting up shop there, and then once again
Speaker 1: we see that pattern where it becomes real estate becomes
Speaker 1: so expensive that you know, people who work at those
Speaker 1: companies can't afford to live in the city where they work. Well,
Speaker 1: it's gonna happen. Austin is the new Silicon Valley period,
Speaker 1: you know, and if you look at the math, you know,
Speaker 1: Austin is what San Francisco was thirty years ago. You know,
Speaker 1: as you know, I'm a data freak. You know, we
Speaker 1: very much see ourselves as data and as a data
Speaker 1: analytics company that happens to do real estate. And if
Speaker 1: you look at the trends, you know, Austin is by
Speaker 1: is definitely the new Silicon Valley oracle with the lynchpin
Speaker 1: to really solidify that in a very very meaningful way. Um,
Speaker 1: and it's only going to continue, but it's gonna take time,
Speaker 1: I mean. And but the good part about about Austin's
Speaker 1: location is you can go south into areas like Kyle, Texas,
Speaker 1: where we own you know, three dy Acres were building
Speaker 1: hundred homes, nine multi multi units. So Texas is much
Speaker 1: more expensive. Of so there's more room for workforce housing
Speaker 1: to be built. If you go further east and go
Speaker 1: further south, if you go about sixty miles south of Austin,
Speaker 1: you hit San Antonio, which is another top city. Okay,
Speaker 1: so so so this is much more sustainable. And since
Speaker 1: we do have a housing crunch, yes, prices are going
Speaker 1: to go up and it's going to be tough for
Speaker 1: kind of um, you know, ordinary Austinites. As you know,
Speaker 1: I'm born native Austinite, and you know, I'm very, very
Speaker 1: sensitive to this gentrification and I kind of hate that word,
Speaker 1: you know, in a lot of ways because I believe
Speaker 1: in more community enhancement and adding deeper value. But there's
Speaker 1: no question prices are gonna surge exponentially. And this is
Speaker 1: only the beginning, and there is no question in the
Speaker 1: next thirty years we're gonna look back and the prices
Speaker 1: at San Francisco and New York City hit ut no
Speaker 1: doubt it's going to hit those numbers and surpass them, alright.
Speaker 1: And you're talking your book a little bit, but that's
Speaker 1: fair because you're seeing it firsthand. But let me just
Speaker 1: ask you. You and I've talked about this before, and
Speaker 1: we've just got about a minute minute twenty left here.
Speaker 1: You know this urban exodus. Do you believe that San
Speaker 1: Francisco's at risk or it just gets a little bit
Speaker 1: lighter in terms of people moving out? What about New York?
Speaker 1: What massive risk you do? What about New York City?
Speaker 1: What about New York City? And how do you justify
Speaker 1: what are you seeing new York City the same thing,
Speaker 1: because the companies are all leaving, all the employers are leaving,
Speaker 1: and if the employers leave, then the employees have to leave.
Speaker 1: And and de Blasio is an example, he's not really
Speaker 1: helping the program by making SOHO the affordable Housing Homeless
Speaker 1: Epicenter of Manhattan to incentivize the high net worth employers
Speaker 1: that own these companies to be there. And San Francisco
Speaker 1: recently passed another wealth tax, you know, on high paid
Speaker 1: CEOs to where these states, I don't think they could
Speaker 1: try harder to disincentivize business owners to be there. That
Speaker 1: was Arie Rastagar, found and CEO at Austin, Texas based
Speaker 1: Rostagar Property Company with us from Austin. You've been listening
Speaker 1: to Bloomberg business Week Extra, be sure to listen to
Speaker 1: Bloomberg Business Week Radio, airing live Monday through Friday at
Speaker 1: two pm Wall Street Time, HM Bloomberg Radio. I'm Carol
Speaker 1: Massif this is Bloomberg