WEBVTT - Businessweek Extra-Ari Rastegar

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<v Speaker 1>This is Bloomberg Business Week from Bloomberg Radio. I'm Carol Master.

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<v Speaker 1>Welcome to the Bloomberg Business Week Extra. It's a weekly

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<v Speaker 1>podcast with a favorite conversation from the week, including someone

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<v Speaker 1>who came to play that was first short on a

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<v Speaker 1>favorite topic and one that's constantly popping up in our

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<v Speaker 1>news coverage on the Bloomberg and Bloomberg dot com about

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<v Speaker 1>real estate and specifically on how everyone seems to be

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<v Speaker 1>headed to Austin, Texas. We're talking about Elon Musk, Oracle

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<v Speaker 1>and so many more. For some thoughts on that, we

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<v Speaker 1>caught up with Ari Rostagar, founder and CEO at Austin,

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<v Speaker 1>Texas based Rustagar Property Company, who was as you might

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<v Speaker 1>have guessed, in Austin and who talked about the texed US.

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<v Speaker 1>Austin's booming, I mean Austin's booming and yeah, you would

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<v Speaker 1>think that there was not a pandemic. I mean malls

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<v Speaker 1>are packed and seriously, yeah, I mean it's I mean

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<v Speaker 1>it's absolutely booming. I mean companies coming in like crazy.

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<v Speaker 1>As you know, Oracle announced our global headquarters shift here

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<v Speaker 1>Elon Musk about two thousand acres next to fifty acres

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<v Speaker 1>that we own. Um, you know near the airport where

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<v Speaker 1>we're developing five thousand square feed of industrial to really

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<v Speaker 1>support all the ancillary companies. They're really feed off of

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<v Speaker 1>Oracle and Tesla and those groups. And you know, Carol,

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<v Speaker 1>you and I have been talking about this for years, right,

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<v Speaker 1>I mean, this is uh, this is not new for

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<v Speaker 1>you and I even on the panel we were on

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<v Speaker 1>a few years ago. Um that I've been I've been

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<v Speaker 1>preaching Austin for many, many years, and it seems like

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<v Speaker 1>finally people are listening. Well, what is it specifically beyond

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<v Speaker 1>the nice weather and uh that you guys don't have

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<v Speaker 1>an income to state, income to tex which is kind

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<v Speaker 1>of a big plus more than that, what is it

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<v Speaker 1>so much more than that? It's so much more than that.

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<v Speaker 1>I mean, look, Austin is not in Texas. Let's start

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<v Speaker 1>with that. You know, and and I say that jokingly

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<v Speaker 1>that you know, we have a beautiful dialogue between both

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<v Speaker 1>the left and the right to concern it is in

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<v Speaker 1>the liberals. You know, we're very very very liberal urban core,

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<v Speaker 1>very conservative kind of suburban suburban corridor, which just created

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<v Speaker 1>a great dialogue, meaning that you know, we have beautiful trees,

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<v Speaker 1>beautiful lakes. Most people don't know for a top ten city.

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<v Speaker 1>We actually became the tenth largest city of the United

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<v Speaker 1>States last months, surpassing San Jose of all cities, being

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<v Speaker 1>the hardest Silicon valley, which I think it's just kind

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<v Speaker 1>of ironic, and we've been calling it the Texasus. You

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<v Speaker 1>know that people are just coming over here, um in

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<v Speaker 1>masses and you know, look, we have more parks than

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<v Speaker 1>any other top ten city in the United States. The

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<v Speaker 1>whole city is built on lakes. There's hills, there's outdoor activities,

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<v Speaker 1>some of the best eating in the United States, live music,

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<v Speaker 1>great outdoor activities, and so much green space, trails, parks,

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<v Speaker 1>um and all of those things together mixed with all

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<v Speaker 1>the reasons why people want to be in Texas, as

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<v Speaker 1>you mentioned in terms of um you know, in terms

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<v Speaker 1>of no state income taxes. You know, if Texas was

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<v Speaker 1>a country, you know, we'd be the tenth largest country

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<v Speaker 1>in the world on a GDP basis. You know, we

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<v Speaker 1>operated a twelve billion dollar surplus. But the alert to Austin,

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<v Speaker 1>you know, really started in two thousand thirteen when Google

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<v Speaker 1>decided to use Austin as their beta case for Google Fiber.

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<v Speaker 1>So they invested a billion dollars, remember, Yeah, and that

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<v Speaker 1>was really the beginning of the beginning of this. Let's

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<v Speaker 1>not forget to Apple is making a new one billion dollars,

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<v Speaker 1>three million square foot campus in Austin. Is that correct? Yeah,

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<v Speaker 1>and it's it's not again. Here's the here's the beauty

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<v Speaker 1>of Austin and that regard Google's But if Facebook just

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<v Speaker 1>took another million square feet, which if this is already

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<v Speaker 1>their second largest office in the world, Amazon's largest acquisition

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<v Speaker 1>to date and hold Foods for thirteen point two billion,

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<v Speaker 1>is founded and headquartered in Austin. Okay, they're our largest

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<v Speaker 1>distribution hub in the southern United States. Is about fifteen

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<v Speaker 1>miles south of Austin and San Marcus. Um. You know,

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<v Speaker 1>Google's second largest office in the world is here. A

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<v Speaker 1>little company that you probably forgot about called Dell. It's

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<v Speaker 1>headquarters here. Um. You know, so all these things, all

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<v Speaker 1>of this groundwork was laid when Google put in that

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<v Speaker 1>put in that Internet and put into Google Fiber. Um

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<v Speaker 1>that allowed this to actually exist. But the reason people

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<v Speaker 1>are picking Austin is because of the lakes and just

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<v Speaker 1>how beautiful the city really is. And you know, kind

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<v Speaker 1>of that liberal conservative you know, it's kind of almost

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<v Speaker 1>purple party, right, So a lot of the Californian exodus

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<v Speaker 1>and a lot of the exodus from you know, from

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<v Speaker 1>New York and some of those other, you know, more

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<v Speaker 1>liberal states, they find a lot of comfort in Austin,

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<v Speaker 1>you know, because it doesn't have that staunch conservative feel

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<v Speaker 1>that Dallas or Houston or some of the other Texas

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<v Speaker 1>cities have. Do you anticipate, eat um, that this continues

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<v Speaker 1>and what is this do ari to kind of real

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<v Speaker 1>estate prices? Real estate prices are gonna absolutely absolutely surge,

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<v Speaker 1>and and the reason why is we have really real

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<v Speaker 1>geographic barriers in Austin. So if you go far west,

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<v Speaker 1>you hit the hill country, you hit the lakes, you

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<v Speaker 1>can't develop it. We have a huge housing shortage. So

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<v Speaker 1>from a supplied to supply and demand standpoint, you know,

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<v Speaker 1>there's only so much land you could build here. And

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<v Speaker 1>because you know, the city has done such a great

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<v Speaker 1>job of protecting the trees and and having very very

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<v Speaker 1>strict zoning restrictions, it's very very hard to build new

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<v Speaker 1>product here, you know. So for us, we've been buying

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<v Speaker 1>older apartment complexes renovating them because it's very very hard

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<v Speaker 1>to find, you know, great development sites because it's so difficult,

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<v Speaker 1>which makes the city beautiful, which keeps the city beautiful,

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<v Speaker 1>which I know very much agree with as as a

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<v Speaker 1>native um. But you know what I thought was the

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<v Speaker 1>second inning of Austin's growth. I realized when Oracle decided

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<v Speaker 1>to move here, they haven't even saying in the national

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<v Speaker 1>anthem yet. What do you mean? What I mean by

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<v Speaker 1>that is just party hasn't even started. You mentioned that

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<v Speaker 1>you guys have been buying older apartment complexes, and it

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<v Speaker 1>was interesting. We just did a story um for some

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<v Speaker 1>of our viewers around the country that talked about how, uh,

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<v Speaker 1>some folks are actually buying empty hotels, kind of old

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<v Speaker 1>ones and you know, making them into tiny apartments. So

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<v Speaker 1>tell me a little bit more about kind of where

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<v Speaker 1>you guys maybe are investing at this point, what properties

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<v Speaker 1>seem appealing, and kind of what's happening there. Yeah, that's

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<v Speaker 1>that's I've been seeing a lot of that too. And

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<v Speaker 1>you know the thing about pandemics and recessions, and whenever

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<v Speaker 1>you go through these hardships, you know you you have innovation, right,

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<v Speaker 1>That's that's the silver lining, right. And so when the

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<v Speaker 1>big box retailers started to go bankrupt, you know, and

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<v Speaker 1>you saw like Sears as an example, go dark. People

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<v Speaker 1>were converting that into self storage. So there's something great

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<v Speaker 1>about how innovation is actually happening and you know we'll

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<v Speaker 1>receive the deepest value and the safest kind of risk

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<v Speaker 1>adjusted returns. Are these older apartment complexes that are similar

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<v Speaker 1>to that Motel six kind of design, you know, two

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<v Speaker 1>story walk ups, and what's brilliant about it is they

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<v Speaker 1>have inherent social distancing. So this concept we call vintage

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<v Speaker 1>multi family because outside the urban core, people feel very safe.

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<v Speaker 1>They can walk up one flight of stairs, go in

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<v Speaker 1>their apartment, come out. They don't have to worry about

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<v Speaker 1>a gym or a pool or you know a lot

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<v Speaker 1>of these instances, but they're extremely well located. That's the key.

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<v Speaker 1>So a lot of these older complexes, whether it's the

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<v Speaker 1>Motel sixes they're converting or older multi family products. But

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<v Speaker 1>when you gut renovate them or take them down to

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<v Speaker 1>the studs as they stay in the industry, you can

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<v Speaker 1>offer a class a finish out for a fraction of

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<v Speaker 1>the price of new development. Might call it the five

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<v Speaker 1>the five dollar uber ride. So if you can get

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<v Speaker 1>to you know, kind of all the fun stuff, the bars,

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<v Speaker 1>the restaurants within a five dollar uber ride, you you know,

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<v Speaker 1>that kind of fits the criteria a little bit. So

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<v Speaker 1>that's where we see the deepest value. During COVID, we

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<v Speaker 1>bought five properties like that when the rest of the

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<v Speaker 1>world was completely you know, out of standstill. We actually

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<v Speaker 1>bought nine properties in total. UM. A few were part

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<v Speaker 1>of a land assemblages for some new development that we're doing,

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<v Speaker 1>but five of them were actual apartment complex is very

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<v Speaker 1>similar to what you were um explaining, and they offer

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<v Speaker 1>a deeper value to consumers because now obviously people are

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<v Speaker 1>being more thrifty, more frugal, as they should be, UM,

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<v Speaker 1>but at the same time you can offer a fantastic

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<v Speaker 1>value to the end consumer. I gotta ask you, though,

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<v Speaker 1>are you concerned that Austin becomes another silicon valley, especially

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<v Speaker 1>if you can continue to see so many big technic companies,

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<v Speaker 1>you know, setting up shop there, and then once again

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<v Speaker 1>we see that pattern where it becomes real estate becomes

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<v Speaker 1>so expensive that you know, people who work at those

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<v Speaker 1>companies can't afford to live in the city where they work. Well,

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<v Speaker 1>it's gonna happen. Austin is the new Silicon Valley period,

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<v Speaker 1>you know, and if you look at the math, you know,

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<v Speaker 1>Austin is what San Francisco was thirty years ago. You know,

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<v Speaker 1>as you know, I'm a data freak. You know, we

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<v Speaker 1>very much see ourselves as data and as a data

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<v Speaker 1>analytics company that happens to do real estate. And if

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<v Speaker 1>you look at the trends, you know, Austin is by

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<v Speaker 1>is definitely the new Silicon Valley oracle with the lynchpin

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<v Speaker 1>to really solidify that in a very very meaningful way. Um,

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<v Speaker 1>and it's only going to continue, but it's gonna take time,

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<v Speaker 1>I mean. And but the good part about about Austin's

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<v Speaker 1>location is you can go south into areas like Kyle, Texas,

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<v Speaker 1>where we own you know, three dy Acres were building

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<v Speaker 1>hundred homes, nine multi multi units. So Texas is much

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<v Speaker 1>more expensive. Of so there's more room for workforce housing

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<v Speaker 1>to be built. If you go further east and go

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<v Speaker 1>further south, if you go about sixty miles south of Austin,

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<v Speaker 1>you hit San Antonio, which is another top city. Okay,

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<v Speaker 1>so so so this is much more sustainable. And since

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<v Speaker 1>we do have a housing crunch, yes, prices are going

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<v Speaker 1>to go up and it's going to be tough for

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<v Speaker 1>kind of um, you know, ordinary Austinites. As you know,

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<v Speaker 1>I'm born native Austinite, and you know, I'm very, very

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<v Speaker 1>sensitive to this gentrification and I kind of hate that word,

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<v Speaker 1>you know, in a lot of ways because I believe

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<v Speaker 1>in more community enhancement and adding deeper value. But there's

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<v Speaker 1>no question prices are gonna surge exponentially. And this is

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<v Speaker 1>only the beginning, and there is no question in the

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<v Speaker 1>next thirty years we're gonna look back and the prices

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<v Speaker 1>at San Francisco and New York City hit ut no

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<v Speaker 1>doubt it's going to hit those numbers and surpass them, alright.

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<v Speaker 1>And you're talking your book a little bit, but that's

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<v Speaker 1>fair because you're seeing it firsthand. But let me just

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<v Speaker 1>ask you. You and I've talked about this before, and

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<v Speaker 1>we've just got about a minute minute twenty left here.

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<v Speaker 1>You know this urban exodus. Do you believe that San

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<v Speaker 1>Francisco's at risk or it just gets a little bit

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<v Speaker 1>lighter in terms of people moving out? What about New York?

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<v Speaker 1>What massive risk you do? What about New York City?

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<v Speaker 1>What about New York City? And how do you justify

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<v Speaker 1>what are you seeing new York City the same thing,

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<v Speaker 1>because the companies are all leaving, all the employers are leaving,

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<v Speaker 1>and if the employers leave, then the employees have to leave.

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<v Speaker 1>And and de Blasio is an example, he's not really

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<v Speaker 1>helping the program by making SOHO the affordable Housing Homeless

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<v Speaker 1>Epicenter of Manhattan to incentivize the high net worth employers

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<v Speaker 1>that own these companies to be there. And San Francisco

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<v Speaker 1>recently passed another wealth tax, you know, on high paid

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<v Speaker 1>CEOs to where these states, I don't think they could

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<v Speaker 1>try harder to disincentivize business owners to be there. That

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<v Speaker 1>was Arie Rastagar, found and CEO at Austin, Texas based

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<v Speaker 1>Rostagar Property Company with us from Austin. You've been listening

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<v Speaker 1>to Bloomberg business Week Extra, be sure to listen to

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<v Speaker 1>Bloomberg Business Week Radio, airing live Monday through Friday at

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<v Speaker 1>two pm Wall Street Time, HM Bloomberg Radio. I'm Carol

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<v Speaker 1>Massif this is Bloomberg