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Jonathan Litt on Real Estate Investments (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Very Ridholts on Bloomberg Radio.
0:07
Speaker 1: This week on the podcast, I have a special guest
0:10
Speaker 1: and really quite fascinating. His name is John Litt. He
0:14
Speaker 1: is founder and chief investment officer of a firm that
0:18
Speaker 1: invests in public reads called land and Buildings. And there
0:24
Speaker 1: aren't a lot of companies that have this sort of
0:28
Speaker 1: unique ability to express their views on real estate and
0:33
Speaker 1: interest rates, in the state of the economy and where
0:36
Speaker 1: people are living, working, shopping, etcetera. By purchasing companies and
0:42
Speaker 1: reads in the public space. It's it's really kind of
0:46
Speaker 1: unique and interesting. We see a lot of private equity
0:49
Speaker 1: making investments into either individual houses or multi family or whatever.
0:55
Speaker 1: But to see a public company to specifically look to
0:58
Speaker 1: identify under priced reads because of their underlying assets being
1:04
Speaker 1: undervalued kind of interesting, quite fascinating. If you are at
1:08
Speaker 1: all interested in real estate or reads or anything related
1:11
Speaker 1: to the topics, you're gonna find this to be a
1:14
Speaker 1: very interesting conversation. So, with no further ado, my conversation
1:20
Speaker 1: with John Litt. This is Masters in Business with Barry
1:25
Speaker 1: Ridholts on Bloomberg Radio. My special guest this week is
1:29
Speaker 1: John Litt. He is the founder and chief investment officer
1:32
Speaker 1: of Land and Buildings. Institutional Investor ranked him as the
1:36
Speaker 1: number one real estate analyst for eight years running. He
1:40
Speaker 1: comes to us with a background undergraduated at Columbia. He
1:43
Speaker 1: got his NBA from n y U. Stern John Litt.
1:47
Speaker 1: Welcome to Masters in Business. Thank you, Barry. So, like
1:52
Speaker 1: so many uh in Wall Street, you began your career
1:56
Speaker 1: as an analyst, but you started in Oman. What was
2:01
Speaker 1: that like? So? I always wanted to be in real estate,
2:05
Speaker 1: And first I thought I was going to be an architect,
2:08
Speaker 1: and along the way I realized I was probably better
2:11
Speaker 1: on the investor side. If you remember, there was a
2:15
Speaker 1: minor stock market crash on a cable eighteen stat about
2:21
Speaker 1: and I always wanted to be in real estate. I
2:24
Speaker 1: got into it. I worked for a private buyer syndicator
2:28
Speaker 1: of real estate. And when I started my career, and
2:32
Speaker 1: we went right into the recession of the early nineteen
2:37
Speaker 1: nineties and the and what I learned very quickly was
2:43
Speaker 1: that as a private sponsor of real estate transactions, we
2:48
Speaker 1: always made money, whether our investors made money or not.
2:53
Speaker 1: And we went from buying shopping centers to doing workouts
2:56
Speaker 1: and bankruptcies and round that time, in the early nineteen nineties,
3:02
Speaker 1: the legislation that governed the reeds was changed and it
3:07
Speaker 1: allowed reads to be internally managed and internally advised UM.
3:13
Speaker 1: And so there was a real alignment of interest in
3:16
Speaker 1: the public market where management's interests were alignment at a shareholders.
3:22
Speaker 1: And I looked at my position on the private side,
3:25
Speaker 1: where there clearly was not on alignment. When I was
3:28
Speaker 1: a young analyst at time on the acquisitions team, and
3:31
Speaker 1: I looked at the reds UH in two and I said,
3:35
Speaker 1: that's a better mass trap. That's a better mass trap
3:37
Speaker 1: as an investor to make money in real estate. UH.
3:41
Speaker 1: And I switched and went to work for one of
3:43
Speaker 1: the leading buyers of reeds. At the time, the industry
3:46
Speaker 1: was all a fifteen billion and I went to work
3:50
Speaker 1: for them. UH. And it ended up being that that
3:54
Speaker 1: changed in the legislation in the early nineteen nineties opened
3:57
Speaker 1: the doors to today with a one trillion dollar industry
4:02
Speaker 1: of public companies. And I got a great front row
4:05
Speaker 1: seat right UH in ninety two as the I P
4:09
Speaker 1: O machine started in earnest So how significant were the
4:14
Speaker 1: I don't know if you were. You can recall the
4:16
Speaker 1: era in the nineteen eighties when there were all these
4:21
Speaker 1: huge tax incentives to use real estate as a write off.
4:25
Speaker 1: When did that change? And the move towards public reads
4:31
Speaker 1: was that related to taxes that everyone always had a
4:34
Speaker 1: headache with the K one filings? How has the legal
4:37
Speaker 1: structure made it easier to be a public investor in
4:41
Speaker 1: real estate? Right? So now I'm going to really date myself.
4:44
Speaker 1: So Ronald Reagan was president and he put through him
4:48
Speaker 1: a tax Reform Act eliminating many of the benefits of
4:52
Speaker 1: owning real estate in a private structure through the as
4:57
Speaker 1: you mentioned, through the tax benefits. And so you went
5:00
Speaker 1: into a bit of a real estate depression because the
5:04
Speaker 1: valuations of real estate and the leverage on real estate
5:07
Speaker 1: no longer made sense. And in part the firm that
5:10
Speaker 1: I started my career at was impacted by that. They
5:15
Speaker 1: were still able to continue to raise money and invest,
5:19
Speaker 1: but that was a real sea change. And of course
5:22
Speaker 1: we then went into the recession in the early early nineties,
5:25
Speaker 1: which was quite painful real estate. I would say we
5:29
Speaker 1: had the recession I recall calling the early nineties of
5:33
Speaker 1: depression uh for real estate, and it took a long
5:36
Speaker 1: time to recover, and frankly, many companies that went public
5:41
Speaker 1: really didn't have a choice. It was go broke or
5:43
Speaker 1: go public. And it coincided with the time when this
5:46
Speaker 1: legislation was changed, and that really opened up the doors
5:49
Speaker 1: to what I believe is a much better masstraft for
5:52
Speaker 1: investing in real estate by investing in the public reads.
5:55
Speaker 1: I have a vivid recollection of graduating grad school and
5:59
Speaker 1: eight nine and all my colleagues who ran out and
6:04
Speaker 1: bought condos or co ops in New York City that year.
6:07
Speaker 1: It took them almost a decade to get back to
6:10
Speaker 1: break even. That real estate depression you you reference was very,
6:15
Speaker 1: very significant in the nineties and it was almost like
6:19
Speaker 1: the boom in the early two thousands was making up
6:22
Speaker 1: for lost time. How do you look at that era
6:25
Speaker 1: of the nineties to the two thousand's, How significant was
6:29
Speaker 1: that prior lost decade? You know, it's interesting and you know,
6:33
Speaker 1: if you read the papers today about how long is
6:36
Speaker 1: it going to take us to recover from the Corona
6:39
Speaker 1: COVID nineteens, how long has he let to get the
6:41
Speaker 1: jobs back, et cetera. You know, once you have the reset,
6:45
Speaker 1: which we've now had with the thirty million people unemployed
6:49
Speaker 1: or with the bottom in real estate, which was probably
6:53
Speaker 1: um you then had growth, uh, And you then looked
6:57
Speaker 1: at not when do we get back to peak, but
6:59
Speaker 1: what are gonna look like in the next twelve months,
7:01
Speaker 1: twenty four months, thirty six months. And that's really what
7:04
Speaker 1: we were focused on at the time. Supply got largely
7:08
Speaker 1: shut off, and you were able to see the economy
7:11
Speaker 1: slowly coming out of the recession and demand building. And
7:14
Speaker 1: I remember the hotel business, which was fairly decimated during
7:18
Speaker 1: that period, was really the first to come back if
7:21
Speaker 1: people got back out on the road. Uh. And we
7:24
Speaker 1: started to see healthy increases and occupancies and and and
7:28
Speaker 1: rents a nightly rates. And then's gradually built over the
7:32
Speaker 1: balance of the decade, not without its bumps, but we
7:36
Speaker 1: saw steady growth. And in fact, I when you look
7:39
Speaker 1: back at thirty years, there's been steady growth with a
7:41
Speaker 1: few major interruptions, but there's been pretty steady growth in
7:44
Speaker 1: demand for real estate. Quite fascinating. So, John, you had
7:48
Speaker 1: a really fascinating quote. I have to ask you about quote.
7:52
Speaker 1: There's a big pile of private capital that wants to
7:55
Speaker 1: own real estate, and a big pile of real estate
7:58
Speaker 1: trading at a discount. You said that to the Wall
8:01
Speaker 1: Street Journal in has real estate really been trading at
8:07
Speaker 1: that much of a discount for that long pre pandemic lockdown? Oh,
8:13
Speaker 1: you know, it's an interesting question. What we specialize at
8:17
Speaker 1: landing buildings is buying heavily discanded real estate in the
8:21
Speaker 1: private market. Uh. And that exists almost all the time,
8:27
Speaker 1: not reads as a group, but there's always a stock
8:31
Speaker 1: or a sector where you could buy it at very
8:34
Speaker 1: substantial discounts to private market values. What's always fascinated me
8:40
Speaker 1: is the private capital uh that is piling up on
8:45
Speaker 1: the sidelines, is putting the money out at the private pricing,
8:50
Speaker 1: which is often uh in the relatives the stocks are
8:53
Speaker 1: buying materially higher valuation than what we're buying it for
8:58
Speaker 1: in the public markets. And I think some of that
9:00
Speaker 1: private capital in eighteen was looking at the valuations on
9:06
Speaker 1: some property types and saying, you know what, we can't
9:09
Speaker 1: put this money out right now because the returns are
9:11
Speaker 1: not attractive enough. And you know, our argument is, you know,
9:15
Speaker 1: you should be buying the public company is a big discount,
9:18
Speaker 1: rather than going out and buying it in the private
9:20
Speaker 1: market where you're paying essentially net asset value where the
9:24
Speaker 1: assets will trade. So here we are where I don't know.
9:27
Speaker 1: This is daye of it feels like of lockdown. You
9:32
Speaker 1: have more than forty one million people who have applied
9:35
Speaker 1: for first time unemployment benefits. The GDP feels like it's
9:39
Speaker 1: been cut in half. What has this done to the
9:43
Speaker 1: price of both real estate in the private market as
9:47
Speaker 1: well as the public markets. So the COVID nineteen really
9:52
Speaker 1: turned real estate on its head in certain property types.
9:57
Speaker 1: And we've been spending very intense period March and April
10:02
Speaker 1: trying to figure out what the landscape is gonna look like.
10:06
Speaker 1: The last time I remember this type of an intense
10:08
Speaker 1: impact on real estate was was after nine eleven. And
10:12
Speaker 1: of course, the predictions that occur in the days and
10:15
Speaker 1: weeks after a crisis like this, and some some are
10:19
Speaker 1: going to pan out and some aren't, And so it's
10:21
Speaker 1: important to use that period as a lesson for some
10:25
Speaker 1: of the things that might occur in the future. I
10:29
Speaker 1: would say, we're not seeing a lot of price discovery
10:33
Speaker 1: in the private markets on real estate because it's too soon, uh,
10:38
Speaker 1: and it's hard to close real estate. You know, we're
10:40
Speaker 1: talking to the private equity guys and getting a deal
10:43
Speaker 1: closed if you need government approvals and notaries with the
10:47
Speaker 1: stay at home orders is quite difficult. But I suspect
10:50
Speaker 1: we're going to start getting price discovery in the next
10:53
Speaker 1: three to six months, where the private equity guys are
10:56
Speaker 1: going to be buying real estate. You know, as John
10:59
Speaker 1: Gray said of Blackstone following March, you know, they could
11:03
Speaker 1: buy on the screen, but they couldn't buy in the
11:05
Speaker 1: private markets, And they bought eleven billion dollars worth of
11:09
Speaker 1: securities on the screen, so they clearly were opportunistic and
11:13
Speaker 1: buying at that time. The big changes that occurred were
11:18
Speaker 1: the work from home were competitive people thought, uh, and
11:22
Speaker 1: the bosses of the big companies saw that it worked
11:24
Speaker 1: better than people thought. And many of them lived through
11:27
Speaker 1: nine eleven and it was very poor the work from
11:31
Speaker 1: home to the week or so. After this time, it's
11:34
Speaker 1: really working smoothly. And whether it's Gorman at Morgan Stanley
11:38
Speaker 1: or Think at black Rock. Uh. Commenting, particularly as it
11:41
Speaker 1: relates to New York, at how the productivity is quite
11:44
Speaker 1: high and the office used is likely to decline in
11:48
Speaker 1: the future, and so office was already soft in New York.
11:54
Speaker 1: And I think this is going to really accelerate a
11:57
Speaker 1: downturn in office in New York, and it's gonna accelerated
12:01
Speaker 1: downturn in major urban office markets and major urban residential
12:06
Speaker 1: markets because I think as people discover that they can
12:11
Speaker 1: work from home and maybe go to the office one
12:14
Speaker 1: or two days a week, they're going to move to
12:16
Speaker 1: the burbs. UH. And as they moved to the burbs,
12:18
Speaker 1: they're going to move further out UH. And so this
12:21
Speaker 1: dichotomy of urban cores being adversely impacted and suburban markets
12:27
Speaker 1: being positively impacted, I think it's with us for the
12:30
Speaker 1: next three to five years. Some of it was already
12:33
Speaker 1: in place because she had the millennials getting to the
12:37
Speaker 1: age where they were starting families and wanted to move
12:40
Speaker 1: to the burbs. And we already saw the population declined
12:43
Speaker 1: in the past three years in Manhattan UH, and this
12:46
Speaker 1: is this is going to accelerate it. UM. I think
12:49
Speaker 1: single family, whether it's for rent or to buy UH,
12:52
Speaker 1: is going to be a strong place in the real
12:55
Speaker 1: estate market. I think New York City office is going
12:58
Speaker 1: to be very difficult over the next several years. So
13:02
Speaker 1: let me push back against that, because you're not the
13:05
Speaker 1: only person making that suggestion, and here's the counter argument.
13:10
Speaker 1: Cities and urban centers have been the dominant source of
13:15
Speaker 1: economic growth and cultural creativity and entertainment and and go
13:20
Speaker 1: down the list for five years. Once we have some
13:24
Speaker 1: form of treatment and some form of vaccine for COVID nineteen,
13:29
Speaker 1: why wouldn't we just return to that five century long trends.
13:34
Speaker 1: I think the reason why New York works and New
13:38
Speaker 1: York will always be a major UH market is you
13:42
Speaker 1: have a brain trust people in Manhattan and the Tri
13:45
Speaker 1: state area. So if you want to be an employer,
13:48
Speaker 1: you can come here and you can access that brain trust.
13:51
Speaker 1: I don't think that's going the way. And we're not
13:53
Speaker 1: saying New York is going to see a population to client.
13:56
Speaker 1: We've been seeing the populations fall about one percent of
14:00
Speaker 1: year for the past three years. We think that accelerates
14:03
Speaker 1: a couple of percent um naturally. Then if you just
14:07
Speaker 1: look at demographics and a lot of investing in real estate,
14:10
Speaker 1: he's just looking at demographics. Where is the pig and
14:13
Speaker 1: the python gonna be um? And right now, the millennials
14:17
Speaker 1: are that prime age to start families, and they're moving
14:20
Speaker 1: out of urban corps and they're moving to the Burbs.
14:22
Speaker 1: And that's going to happen with or without COVID. It's
14:25
Speaker 1: been accelerated because of COVID. I think New York like myself,
14:29
Speaker 1: I've been working in Connecticut for twelve years, UH, and
14:34
Speaker 1: you know, I make sure I'm in the city one
14:35
Speaker 1: or two days a week, and I set up external meetings,
14:39
Speaker 1: set up internal meetings UH with UH colleagues, and the
14:45
Speaker 1: excitement and the energy in New York will always be there.
14:48
Speaker 1: But I think what's going to happen, UH, there's gonna
14:51
Speaker 1: be a hybrid model that's going to develop. And that is,
14:54
Speaker 1: if you had a thousand people that worked in an
14:58
Speaker 1: office every day, you'll probably go to seven and fifty
15:03
Speaker 1: people UH with that other peace being there in two days,
15:08
Speaker 1: somebody else's in two days UH. And that's not going
15:12
Speaker 1: to go to fifer zero in my mind. But you're
15:15
Speaker 1: gonna have that UM hoteling of office space. You have
15:18
Speaker 1: your laptop, you come in, you grab a office, you
15:21
Speaker 1: grab a desk, whatever your pay grade is UH, and
15:24
Speaker 1: you set up your appointments and you have conference rooms
15:26
Speaker 1: and you have UH meetings, lunches and other colleagues come
15:29
Speaker 1: in on those days. I think that's likely how it's
15:32
Speaker 1: going to play out. And I think that's facilitated by technology.
15:36
Speaker 1: The technology didn't exist ten years ago uh where that
15:39
Speaker 1: was really feasible, But the technology exists today and people
15:43
Speaker 1: want to Yeah. In fact, the SEC after nine eleven
15:48
Speaker 1: mandated that every UH security firm and every st management
15:52
Speaker 1: firm not only had a backup plan, but had an
15:55
Speaker 1: ability to flick a switch and relocate if they were
15:59
Speaker 1: to have lost are headquarters. So the one of the
16:03
Speaker 1: end results of none eleven is that the work from home,
16:06
Speaker 1: the work remotely is much more easy to perform these
16:11
Speaker 1: days than pre No eleven days. Not just go to
16:14
Speaker 1: the technology, but because people have thought this through in advance. Absolutely.
16:19
Speaker 1: I mean, we flicked our disaster recovery plan on immediately,
16:23
Speaker 1: and you know, because we were one required to by
16:26
Speaker 1: the SEC have a plan, but we were regularly testing
16:29
Speaker 1: it and you were up and running the next day.
16:31
Speaker 1: We didn't have to buy anything that really was wouldn't go.
16:34
Speaker 1: Quite fascinating. So, John, you picked quite the auspicious year
16:39
Speaker 1: to launch a real estate investment company. You you launched
16:45
Speaker 1: the firm in two thousand and eight, Is that is
16:47
Speaker 1: that correct? Correct? So you start your career in eighty seven.
16:52
Speaker 1: You launch your business in oh eight, you have to
16:55
Speaker 1: let us know the next time you're gonna do something significant,
16:58
Speaker 1: so we could all hide our death. What was it
17:02
Speaker 1: like launching the firm right into the teeth of the crisis.
17:06
Speaker 1: So you know, it's it's it's funny. I guess when
17:08
Speaker 1: you look at it in the hindsight. You know, at
17:10
Speaker 1: the time I got into the real estate business to
17:14
Speaker 1: buy real estate. UH. And I did it privately, and
17:17
Speaker 1: then I did it publicly, and then um, the Wall
17:20
Speaker 1: Street firms became I was very aggressive as a by
17:25
Speaker 1: side investor when these companies were going in public and
17:28
Speaker 1: reviewing the prospectuses UM, and challenging the c e O
17:32
Speaker 1: s on why they were structuring the deal is a
17:34
Speaker 1: certain way. Uh. And the Wall Street firms that were
17:37
Speaker 1: taking the company's public said, hey, we'd rather have you
17:39
Speaker 1: in the tent pissing out than outside the tent pissing in. UH.
17:42
Speaker 1: And so I accidentally became an analyst and went to
17:45
Speaker 1: Solomon Brothers. UM. Although I'll just kind of digress for
17:49
Speaker 1: a second. So Sam's l was taking his first republic
17:52
Speaker 1: and he came to the office, and you know, I
17:54
Speaker 1: was a young guy, and I had my legal yellow
17:57
Speaker 1: legal pad and I had like four pages worth of
17:59
Speaker 1: questions and I sat down with Sam and Sam comes
18:01
Speaker 1: in with his motorcycle. How many slaps it down on
18:04
Speaker 1: the conference room table. Uh. And he introduces himself and
18:07
Speaker 1: I said, say, I, you know, look, I apologize in advance,
18:10
Speaker 1: but I've read this perspectives cover to cover and I
18:13
Speaker 1: have like four uh legal pages worth of questions and
18:16
Speaker 1: some of them are gonna be a little tough and
18:18
Speaker 1: a little probing. And he looks at me and he goes, John,
18:21
Speaker 1: I was shaking in my boots, fire away, very classic Sam.
18:27
Speaker 1: And he and I, you know, stayed in touch ever since,
18:29
Speaker 1: and he has been a great mentor to me throughout
18:31
Speaker 1: my career. UM. But so I did that, and then
18:34
Speaker 1: I accidentally became a Southside analyst UH and I built
18:38
Speaker 1: a great franchise. We were the number one rank group
18:40
Speaker 1: for the majority of the time I was there, and
18:44
Speaker 1: we were very focused on making sure we were advocates
18:47
Speaker 1: for the investors and reads, not a shill for the
18:51
Speaker 1: investment bank. UH. And so we pursued our research quite aggressively,
18:57
Speaker 1: picking stocks and calling out miss so on the part
19:00
Speaker 1: of management UM, and I loved that. I had a
19:03
Speaker 1: blast doing it, and I had a great group of
19:05
Speaker 1: folks that I worked with UH and a great team UH.
19:09
Speaker 1: And I ended up running not just the US but
19:12
Speaker 1: I was the global Property Strategy City Group and it
19:15
Speaker 1: was it was great fun. But around two thousand and five,
19:19
Speaker 1: I wanted to get back to the investing side. UH.
19:22
Speaker 1: But at that time we also send bubble gum machines
19:24
Speaker 1: out to our clients, suggesting there was a bubble forming
19:28
Speaker 1: in commercial real estate. Prices were flying higher, interest rates
19:32
Speaker 1: were low. And I said, you know, this isn't the
19:36
Speaker 1: time for me to go out and start a firm
19:39
Speaker 1: because I think there's a bubble and it's going to break. UM.
19:42
Speaker 1: I'd rather wait for the bubble to break, UH, and
19:45
Speaker 1: then get out and start a businesses investing in these stocks. UM.
19:50
Speaker 1: And so UH we send the bubble gum machines out
19:54
Speaker 1: by June or two thousand and seven is actually this week.
19:58
Speaker 1: In two thousand and seven, I was at a ReConference
20:01
Speaker 1: and we met with fifty c e O s UH
20:04
Speaker 1: and at the end of the conference, we were debriefing
20:06
Speaker 1: with my team and there was a common theme that
20:11
Speaker 1: we found from every company. UH. Demand was slow, supply
20:16
Speaker 1: was high, and financing was difficult. And I was of
20:21
Speaker 1: the opinion and our view was it was over, the
20:23
Speaker 1: bubble was breaking. UH and UM it was that was
20:28
Speaker 1: our view on the real estate market. But it was
20:30
Speaker 1: also at at that time my view that, UM, there's
20:35
Speaker 1: gonna be an opportunity for me to start the investment
20:38
Speaker 1: firm that I wanted to start back in O five UH.
20:41
Speaker 1: And by the first quarter of oh eight, UM. You know,
20:45
Speaker 1: I spoke with the folks at City UH told them
20:48
Speaker 1: what I was looking to do. UH, and they were
20:51
Speaker 1: very supportive and they gave the she did our funds.
20:55
Speaker 1: They allowed some of my folks to join me, and
20:58
Speaker 1: we launched the business of August of two thousand and eight. UM.
21:03
Speaker 1: Fortunately we were quite barished and we were able to
21:06
Speaker 1: make some money in two thousand and eight on on
21:09
Speaker 1: the market. But it was wild. I remember there was
21:12
Speaker 1: one day when our group of stocks reads traded a
21:18
Speaker 1: range uh in one day. It was just mind boggling.
21:21
Speaker 1: And the key was really to have a low nets
21:24
Speaker 1: and UH and and tight risk controls UH. During that period. UH.
21:29
Speaker 1: I'll never forget that song, the R. E. M Song
21:32
Speaker 1: and to the end of the world as we know
21:33
Speaker 1: it kept flying around in email boxes. UM and of
21:38
Speaker 1: course we all got through it and real estates going
21:40
Speaker 1: on to be a great place to be. I remember
21:43
Speaker 1: that song and I remember Tom Petty's free falling also
21:47
Speaker 1: being heard in various UH trading rooms. So you have
21:50
Speaker 1: a reputation as occasionally taking activist positions. How is this
21:57
Speaker 1: different with what we think of as tradition sational operating
22:00
Speaker 1: companies versus being an activist with reads. So we like
22:07
Speaker 1: buying cheap real estate in the public markets, and sometimes
22:12
Speaker 1: those stocks are dislocated because people don't like the fundamentals
22:15
Speaker 1: and they don't like management or something, but they're not
22:18
Speaker 1: fundamentally broken companies. UM. And in those cases where there's
22:23
Speaker 1: something that's broken, that can be fixed and you can
22:26
Speaker 1: unlock the value and get back to net asset value UM,
22:30
Speaker 1: you can work with the boards, you can work with
22:33
Speaker 1: the management team, you can work with the other shareholders
22:36
Speaker 1: to unlock that value. We've been involved since in UH
22:42
Speaker 1: twenty nine activist campaigns UH, and we've seen companies sold,
22:46
Speaker 1: We've seen new management teams, new boards, assets spun out,
22:50
Speaker 1: companies fixed UM and UH. It's been a terrific way
22:56
Speaker 1: to unlock value UM in UH in the public markets
23:01
Speaker 1: and realize that net asset value UM. I'll tell you
23:04
Speaker 1: just one story from last year, and I was thinking
23:06
Speaker 1: about it this morning because this there's a big ReConference
23:09
Speaker 1: going on today and tomorrow and UH, as it was
23:13
Speaker 1: in two thousand and seven, a seminal event UH for
23:17
Speaker 1: me and my deal. We're real estate here. UH. There
23:20
Speaker 1: was a major announcement by Blackstone, and Blackstone was acquiring
23:23
Speaker 1: a warehouse portfolio for nearly twenty billion dollars at an
23:28
Speaker 1: all time high valuation. Now, we had an activist campaign
23:32
Speaker 1: going in a warehouse company, and warehouse is a hot
23:35
Speaker 1: property type, very strong demand. Rents are going up quickly,
23:41
Speaker 1: valuations are going up quickly, as we saw at that
23:44
Speaker 1: Blackstone transaction. And we had started an activist campaign about
23:50
Speaker 1: nine months before this conference in June of h in
23:56
Speaker 1: Liberty Property Trust, which was a warehouse company, and it
24:00
Speaker 1: was trading at a substantial discount to the value of
24:03
Speaker 1: its real estate, whereas the other publicly traded warehouse companies
24:07
Speaker 1: were trading at premiums. And we thought the reason it
24:11
Speaker 1: was trading in a discount was because it had an
24:13
Speaker 1: office component, which people don't like office. Investors don't like office.
24:17
Speaker 1: And because the company and the management team had made
24:20
Speaker 1: poor capital allocation decisions. So if people wanted the way warehouses,
24:23
Speaker 1: they buy one of the other companies, they wouldn't find Liberty.
24:26
Speaker 1: And we began a discussion with the board and the
24:29
Speaker 1: management team. UH, and we said, you know, if you
24:32
Speaker 1: just sold the rest of your office portfolio, we think
24:35
Speaker 1: you could close the gap to n A V. And
24:37
Speaker 1: we also think you should develop a succession plan and
24:40
Speaker 1: refresh the board. And I got to say in our
24:42
Speaker 1: activists my career as an activist, UM, this board was
24:47
Speaker 1: very professional. Uh. And UH listened and responded. Uh. They
24:52
Speaker 1: announced six weeks later they were going to exit office,
24:54
Speaker 1: and the stock moved nicely. We got somebody on the
24:57
Speaker 1: board maybe six months after we started our campaign. UM.
25:02
Speaker 1: But then what happened at this conference a year ago
25:05
Speaker 1: was Blackstone did that transaction. And I ran into the
25:07
Speaker 1: CEO in the hallway, UH, and I said, Bill, would
25:11
Speaker 1: you think of the Blackstone transaction? And he said, my
25:14
Speaker 1: portfolio is better than that portfolio. That portfolio is worth
25:17
Speaker 1: that valuation. My valuation is even better. And I said, well,
25:21
Speaker 1: give me a second, your stocks at fifty and I
25:24
Speaker 1: did the math in my head and I said, so,
25:26
Speaker 1: like sixty two bucks of shares what you're worth? He
25:28
Speaker 1: goes yeah, And I was like, okay, so how are
25:31
Speaker 1: you going to get to sixty two? Uh? And he
25:34
Speaker 1: realized you probably shouldn't have said that to me. But
25:36
Speaker 1: we had a nice call with the board a few
25:38
Speaker 1: days later and said, look, Um, if you have a
25:42
Speaker 1: way to get to sixty two without selling the company,
25:45
Speaker 1: don't sell it. But these guys are paying big prices
25:48
Speaker 1: and they go a lot of money to put out.
25:49
Speaker 1: You should call Blackstone, you should call Prolodge, just call
25:52
Speaker 1: brook Field and see if they'll buy the company. And again,
25:55
Speaker 1: to their credit, UM, they a little reluctantly, but they
26:00
Speaker 1: did engage with UM. The three big buyers and prologists
26:06
Speaker 1: ended up buying them for sixty one dollar to share.
26:09
Speaker 1: Evaluation that this management team was unlikely to ever get
26:14
Speaker 1: the stock to on their own UM. And so I
26:17
Speaker 1: think the activism is a great way to find these
26:21
Speaker 1: diamonds in the rough in the real estate market and
26:24
Speaker 1: work with the boards and management teams UH to unlock
26:27
Speaker 1: the value. And you know, we don't like to see
26:30
Speaker 1: companies going away in sales were much rather to see
26:33
Speaker 1: companies fixed. Uh. In this case, it was likely the
26:36
Speaker 1: only way it was going to get there to that
26:39
Speaker 1: kind of valuation. So we think it's a it's a
26:42
Speaker 1: it's a great way to buy cheap real estate in
26:44
Speaker 1: the public markets. Uh. And when we see these pension
26:46
Speaker 1: funds buying in the private market of full value, uh,
26:50
Speaker 1: you know, we think, uh, you know, they should be
26:52
Speaker 1: doing it. In the reads, quite fascinating. Let's talk a
26:55
Speaker 1: little bit about a comment you had that I'm someone
26:58
Speaker 1: intrigued about in your most recent white paper. COVID nineteen
27:03
Speaker 1: has supercharged the American dream of living in a single
27:08
Speaker 1: family home. Discuss so obviously the American dream we all
27:12
Speaker 1: know living a home. And with COVID nineteen, it accelerated
27:18
Speaker 1: the movement of the millennials out of apartments in the
27:21
Speaker 1: homes in our view. Uh. And you know, if you
27:25
Speaker 1: talk to folks that are living in apartments now, they
27:28
Speaker 1: are like cooped up and they're afraid to press the
27:30
Speaker 1: elevator button. They don't want to be on the high floor.
27:33
Speaker 1: All the cultural benefits of being in an apartment in
27:36
Speaker 1: an urban setting had participated during COVID nineteen and they
27:42
Speaker 1: were thinking of moving anyway, they were at that age. UH.
27:45
Speaker 1: And so what we've seen is that the public companies
27:49
Speaker 1: that own homes and rent them out and the companies
27:52
Speaker 1: that build homes saw, much to our surprise, a real
27:56
Speaker 1: pickup in demand the second half of a roll and
28:00
Speaker 1: throughout May. UH And UH. You know, one of the
28:04
Speaker 1: things we love and I always tell my investment team,
28:07
Speaker 1: we have to know our company's cold. We don't know
28:10
Speaker 1: when we're gonna get the opportunity to buy them because
28:12
Speaker 1: they're cheap enough. But when that happens, the market goes
28:15
Speaker 1: against the down or it goes against the company. We
28:19
Speaker 1: want to be ready to move. Uh. And in the
28:22
Speaker 1: midst of the crisis, UH, in March, we saw the
28:26
Speaker 1: home builders in the single family for rent guys get
28:28
Speaker 1: really cheap, and we started buying them, and we were
28:31
Speaker 1: calling every day anybody we could call, UH to find
28:34
Speaker 1: out what was going on with new home sales, what
28:36
Speaker 1: was going on with the ability of the tenants and
28:39
Speaker 1: the homes to pay rent. And we got comfortable that
28:42
Speaker 1: it was not going to be a total disaster. But
28:45
Speaker 1: then there was a real surprise that happened in mid
28:47
Speaker 1: April where we started hearing that the rental guys were
28:51
Speaker 1: able to push rents and occupancy UH and the home
28:54
Speaker 1: sales started picking up. And that's only been accelerating. So
28:57
Speaker 1: this trend out of the city's which has been going
29:00
Speaker 1: on pre COVID, has accelerated. And an interesting fact, you know,
29:04
Speaker 1: one of the things we didn't talk about we talked
29:06
Speaker 1: about New York is um the inability to duct the
29:11
Speaker 1: state and local taxes is a bad outcome for places
29:15
Speaker 1: like New York. And one of the home builders said
29:17
Speaker 1: they've seen the most the greatest increase in demand in
29:19
Speaker 1: Texas and Florida to states with no state tax and
29:23
Speaker 1: so I think we're going to continue to see both
29:26
Speaker 1: financial incentive to move out of certain states with high
29:30
Speaker 1: taxes to states with lower no taxes, and this move
29:33
Speaker 1: into homes. And I don't think that's going away. I
29:36
Speaker 1: think that's again demographic, it's generational. UM. You know, it'll
29:41
Speaker 1: ebb and flow. But I think the next two to
29:43
Speaker 1: five years you're going to continue to see that movement
29:46
Speaker 1: to single family homes, wanting to be in a good
29:48
Speaker 1: school district, having a backyard for your family, typically have
29:52
Speaker 1: two wage earners, versus one wage earner and an apartment
29:56
Speaker 1: um So I think those trends are set in most
30:00
Speaker 1: s and are likely to continue. I think the spike
30:02
Speaker 1: we're seeing right now will abate and become a more normal,
30:07
Speaker 1: steady growth. But what we're seeing out of the apartment
30:11
Speaker 1: owners in the urban markets is a real challenge on
30:14
Speaker 1: occupancy and rent. Again, we're at this Navy conference today
30:19
Speaker 1: and tomorrow, and so all the companies are giving us updates.
30:22
Speaker 1: In the apartment occupanties are down two basis points and
30:26
Speaker 1: rent are it down anywhere from four to seven in
30:29
Speaker 1: the apartment And so there's a real movement out of
30:33
Speaker 1: apartments and into single family homes, whether you're renting it
30:37
Speaker 1: or your owning. So we've been hearing that housing demands
30:42
Speaker 1: is outstripping supply, especially for single family homes in the suburbs.
30:48
Speaker 1: But we've been hearing that for a long time. When
30:51
Speaker 1: does this reach the point where it really becomes problematic
30:55
Speaker 1: and we begin to see a significant increase in real
30:59
Speaker 1: estate prices. So the single family home prices bottom that
31:04
Speaker 1: I'm going to say the end of eighteen uh and
31:07
Speaker 1: have been accelerating and they're now going up about four
31:09
Speaker 1: percent a year. UM. I don't think that's terribly concerning,
31:14
Speaker 1: because it's not like we saw in the housing bubble
31:18
Speaker 1: where they were going up much much more dramatically. The
31:21
Speaker 1: other advantage that we have in the single family market
31:26
Speaker 1: post COVID is thirty year mortgage rate is probably going
31:31
Speaker 1: to decline, and it's down base points now, but we're
31:35
Speaker 1: probably going to see that it's gonna be down over UM.
31:39
Speaker 1: And so the individual or the couple that was living
31:42
Speaker 1: in an apartment or uh somewhere else UM now has
31:46
Speaker 1: the ability to buy a home because it's more affordable
31:49
Speaker 1: because the interest rates are so low UM and so UM.
31:53
Speaker 1: I think that the demand will continue. Uh. The prices
31:58
Speaker 1: probably won't get out of hand because the builders will
32:01
Speaker 1: build new homes and sellers will put their homes back
32:05
Speaker 1: on the market, uh, and the inventory will clear UH,
32:09
Speaker 1: and I think it will be much more rational. But
32:11
Speaker 1: you know, time will tell. The key thing about being
32:14
Speaker 1: an investor in public real estate is you can't just
32:17
Speaker 1: have a thesis, put it in the bank and forget
32:20
Speaker 1: about it. You have to be in the market every day, UH,
32:24
Speaker 1: talking to as many folks as you can to see
32:26
Speaker 1: if those trends that are underpinning your investment thesis are changing. Uh,
32:31
Speaker 1: and when they change, you've got to reevaluate. UH. You know,
32:34
Speaker 1: I talk a lot with my team about the off ramp.
32:37
Speaker 1: You know, it's easy for them to come with their
32:39
Speaker 1: investment thesis and their presentation about why we should buy
32:42
Speaker 1: a stock, but UM, it's much harder to say when
32:46
Speaker 1: should we get out. And so when we go into
32:48
Speaker 1: a name, we have clear off ramps. If this doesn't
32:52
Speaker 1: play out the way we expected, whether it's in the
32:55
Speaker 1: first six months or in the third, fourth, or fifth year,
32:58
Speaker 1: we're constantly monitoring the off france for not working. So
33:01
Speaker 1: I think the key as we're looking at the housing
33:04
Speaker 1: space and as you suggested, you know, we may have
33:07
Speaker 1: an under supply and prices going up too quickly. We
33:10
Speaker 1: just got to keep our finger on the pulse of it,
33:12
Speaker 1: uh and make sure we're aware of what's going on,
33:15
Speaker 1: and then reassess our investment RATIONALE. Let's stay with that
33:18
Speaker 1: question of supply because I'm I'm intrigued by the concept
33:23
Speaker 1: that nimby ism the not in my backyard regulations that
33:28
Speaker 1: not only are in cities like New York and San Francisco,
33:31
Speaker 1: but all the surrounding suburbs have really kept density low
33:35
Speaker 1: and have kept lower income housing out. Are we going
33:40
Speaker 1: to see any change in nimby laws and how might
33:43
Speaker 1: that affect housing supply and prices? So most new construction
33:48
Speaker 1: of single family homes is on the outskirts of town.
33:53
Speaker 1: That's maybe an overstatement because it sounds too remote. But
33:56
Speaker 1: inside the let's say highway circle, the first circle, it's
34:00
Speaker 1: pretty well developed. So there's not gonna be a lot
34:02
Speaker 1: of room for a national homebuilder to come in and
34:05
Speaker 1: buy a hundred acres and and and build the homes,
34:09
Speaker 1: So they're gonna have to go a little further out. Now.
34:11
Speaker 1: It's interesting, it's with the work from home. The individuals
34:14
Speaker 1: are willing to go a little further out as well
34:16
Speaker 1: because they don't have to commute every day. Um, So
34:19
Speaker 1: we've got a monitor that supply and make sure it
34:21
Speaker 1: doesn't get over supplied, which you know right now. We've
34:24
Speaker 1: been underbuilding the single family market for since the financial crisis,
34:28
Speaker 1: So I don't see that as an immediate challenge clearly.
34:32
Speaker 1: You know, when I got in this business thirty years ago.
34:34
Speaker 1: The beautiful thing about New York is high barriers to entry.
34:38
Speaker 1: You can't build no news supply, and we have all
34:42
Speaker 1: this demand. What's fascinating about New York is we're overbuilding
34:46
Speaker 1: the office market, We've over built the hotel market, and
34:50
Speaker 1: we've also seen overbuilding in the for rent and for
34:53
Speaker 1: sale apartment market in New York. And this is in
34:56
Speaker 1: a market which is supposed to have high barriers to entry. So, UM,
35:00
Speaker 1: what happened in apartments, particular in New York is there
35:03
Speaker 1: were tax benefits that were granted to build an apartment building.
35:07
Speaker 1: Those tax bandonfits were expiring, and so a lot of
35:11
Speaker 1: developers rushed to get as many deals approved as they could. UH,
35:15
Speaker 1: and that resulted in oversupply. And than that, I think
35:18
Speaker 1: what's really to your point. We talked about this a
35:20
Speaker 1: bit earlier about the cultural and economic and excitement that
35:25
Speaker 1: goes in New York City. Um, one of the challenges
35:28
Speaker 1: to that for many people is the cost of living
35:30
Speaker 1: in New York City. I think the cost of living
35:32
Speaker 1: in New York City is going to be lower in
35:34
Speaker 1: the next several years. I think it's look cheaper to
35:37
Speaker 1: have an office space, it would be cheaper to have
35:39
Speaker 1: a store. That's can be cheaper to rent an apartment,
35:41
Speaker 1: to buy an apartment and some of that will keep
35:44
Speaker 1: some of those millennials in the city. But it doesn't
35:47
Speaker 1: take a big change, right, It doesn't take the people
35:51
Speaker 1: moving out of the city to cause a ripple in
35:53
Speaker 1: the market. If we see a one percent declientate population
35:56
Speaker 1: each year for the next three or four years, that's
35:59
Speaker 1: going to be a challenge, and that will make it
36:01
Speaker 1: more affordable for folction. I want to stick with the
36:03
Speaker 1: idea of the edge of town or the suburbs. Just yesterday,
36:09
Speaker 1: my wife and I founded ourselves. We we live about
36:13
Speaker 1: forty minutes outside of the city, and you go twenty
36:16
Speaker 1: or so minutes east and suddenly it's what you used
36:19
Speaker 1: to think of as not a commutable distance to the city.
36:23
Speaker 1: But as you suggested, if you're only going in two
36:26
Speaker 1: or three days a week, well suddenly there are big areas.
36:31
Speaker 1: And I have to assume this is true for Philadelphia
36:33
Speaker 1: and Boston, in Seattle and wherever you look. But I
36:36
Speaker 1: have to assume there are large areas that are now
36:39
Speaker 1: potential bedroom committity communities, for job centers and urban location
36:46
Speaker 1: like that that weren't thought of that way three months ago. Oh,
36:50
Speaker 1: I think it's going to open it up and I
36:52
Speaker 1: think it was already opening up with the ride hailing
36:55
Speaker 1: services like Uber, and you know, like you you go
36:58
Speaker 1: in your car. I do a lot of eeling here
37:00
Speaker 1: in Connecticut with a group of guys, and you know,
37:02
Speaker 1: we'll go thirty or forty miles out from where we
37:04
Speaker 1: live in Connecticut. And we've been commenting the past three
37:07
Speaker 1: or four weeks how there's all these cars with New
37:10
Speaker 1: York license plates driving around in these communities, clearly you know,
37:14
Speaker 1: looking to escape either renting homes, are looking to buy homes. Uh.
37:18
Speaker 1: And you know, we've been riding here for twenty years
37:20
Speaker 1: and it was a real noticeable uptick to see all
37:23
Speaker 1: these all these New York plates hanging out in Connecticut.
37:26
Speaker 1: So and I think, you know, the work from home.
37:29
Speaker 1: You don't need to be five minutes from the train
37:30
Speaker 1: station if you're gonna take the train in, and you know,
37:34
Speaker 1: you don't mind a little longer commune if you're not
37:36
Speaker 1: going in is Austen And one of the arguments, uh,
37:39
Speaker 1: that I've heard, And we'll see if it will play out.
37:42
Speaker 1: But as we get to autonomous cars um or right hailing,
37:46
Speaker 1: you know, the Ubers of the world becoming more upiquitous well,
37:50
Speaker 1: the community is troubling for folks because right now, if
37:54
Speaker 1: you live in the burbs, you go to the city
37:56
Speaker 1: and use mass transit, you gotta take your car to
37:58
Speaker 1: the train, you gotta get on the train platform, you
37:59
Speaker 1: gotta train in, then you gotta get on the subway,
38:01
Speaker 1: and then you have to walk to your office. Um,
38:04
Speaker 1: if you start eliminating some of those steps or making
38:06
Speaker 1: the whole process easier with autonomous cars, the view is
38:10
Speaker 1: that that's going to change where people live. And now
38:14
Speaker 1: with work from home, you know that's gonna clearly accelerate it.
38:17
Speaker 1: An interesting point on this, which which you didn't bring up,
38:20
Speaker 1: but I think is related, is you know, some of
38:23
Speaker 1: the home builders are thinking about what happens when we
38:26
Speaker 1: don't need two car garages because people don't have the
38:29
Speaker 1: second car because they're using autonomous or right hailing services.
38:34
Speaker 1: So how do you redesign the home? What about Amazon
38:37
Speaker 1: deliveries and other deliveries are becoming a bigger part of
38:40
Speaker 1: what happens at the house. Do you need a vestibule
38:43
Speaker 1: built into the home so that the delivery guys can
38:46
Speaker 1: put the things inside but not be able to get
38:48
Speaker 1: into your home. And now with work from home and pandemics.
38:53
Speaker 1: You know, we have four kids, the six of us
38:55
Speaker 1: living in this house. Uh maybe uh, you know, are
38:59
Speaker 1: thought to down size an empty nest with supremature, and
39:03
Speaker 1: maybe you'll see less downsize and you'll see less of
39:06
Speaker 1: the sort of end of life of the homes and
39:09
Speaker 1: the downsizing being postponed or not done at all. So
39:12
Speaker 1: it's gonna be really interesting to see how how this evolves.
39:16
Speaker 1: But I do think it was ushered in by technology
39:19
Speaker 1: and the productivity that employers like myself are enjoying as
39:26
Speaker 1: people are working from home. One last thing I didn't
39:30
Speaker 1: ask you about that I want to get to and
39:32
Speaker 1: I know you don't have a crystal ball, but you
39:36
Speaker 1: have to look at the suburban malls and other retail
39:40
Speaker 1: UM reads as being somewhat problematic. What is going to
39:45
Speaker 1: happen with that space retail renaissance in the future or
39:50
Speaker 1: is that waiting to be converted to high density housing
39:54
Speaker 1: at some point in the future. The there were two
39:58
Speaker 1: thousand regional malls in the U ten years ago. Um,
40:02
Speaker 1: there's gonna be a fraction of that in the future. Uh.
40:05
Speaker 1: And how you repurpose those malls that are no longer viable.
40:10
Speaker 1: Uh is gonna be a real challenge. And I think,
40:13
Speaker 1: uh it's a challenge for the towns where they're in
40:17
Speaker 1: because they were big taxpayers. UM. And you know, tearing
40:21
Speaker 1: down the mall is not in an expensive proposition. UH.
40:24
Speaker 1: And if it's population has moved away from that location. UM,
40:29
Speaker 1: you know, it's a challenge as to what you could
40:31
Speaker 1: put there. I don't know that there's a clear a
40:35
Speaker 1: clear answer. Uh. These things might just sit empty. If
40:38
Speaker 1: you remember, Bloomberg's took over the old Alexander's department store
40:43
Speaker 1: building UM in its current location. That's that empty for
40:47
Speaker 1: ten years before Tornado built what it is today, the
40:50
Speaker 1: Bloomberg building. And I think it's going to take a
40:53
Speaker 1: long time. But I do think that that fraction of
40:56
Speaker 1: the malls that remain open are gonna be very successful. Uh.
41:01
Speaker 1: We're gonna have a much smaller footprint for many of
41:04
Speaker 1: the retailers. Uh. Those malls are going to see high traffic.
41:07
Speaker 1: People still want to go. You know, I was on
41:09
Speaker 1: the board of Tavern Centers. Uh. And when you go
41:12
Speaker 1: to some of their assets, um, and they have the
41:15
Speaker 1: best mall portfolio in the US. UH. You go to
41:18
Speaker 1: some of their assets Um. You know, I remember one
41:21
Speaker 1: down in Florida Dolphin Mall. Uh, there was somebody following
41:25
Speaker 1: me around and I'm like, what was this woman following me?
41:27
Speaker 1: And she was following me to get my parking spot
41:29
Speaker 1: and then she called her husband, so he drove over
41:32
Speaker 1: and she just asked me to wait because there was
41:34
Speaker 1: no parking spots available in a lot. Um and um,
41:38
Speaker 1: not that exact scenario isn't true if many of them malls,
41:41
Speaker 1: but it is true right where they are full and
41:43
Speaker 1: people want to go out. So I don't think they're
41:45
Speaker 1: all going away, but a lot of them are gonna
41:47
Speaker 1: be really challenged. You know. You would asked me a
41:49
Speaker 1: question earlier about valuations and how real estate will be
41:52
Speaker 1: valued in the future, and I don't think I answered it. Um.
41:56
Speaker 1: I think one of the fascinating things that's going to
41:59
Speaker 1: come out of COVID is the FED dropped rates from
42:03
Speaker 1: call it two to a half percent, or FED in
42:06
Speaker 1: the tenure Treasury yield went from almost two percent to
42:10
Speaker 1: a half percent. UM. Interest rates going down UM means
42:18
Speaker 1: that financing costs are going down. That means that the
42:21
Speaker 1: valuation of real estate is likely going up, but not
42:25
Speaker 1: all real estates created equal. I think warehouses, data centers,
42:30
Speaker 1: cell towers, single family for rent are going to see
42:33
Speaker 1: valuations of their real estate go up materially over the
42:37
Speaker 1: next several years, whereas the valuation of the malls, the
42:41
Speaker 1: shopping centers, the hotels, the casinos, the office buildings are
42:45
Speaker 1: going to be more challenged because the secular headwinds that
42:49
Speaker 1: are impacting those sectors. So they may see valuations hold,
42:53
Speaker 1: they may see them decline, but I don't think they're
42:55
Speaker 1: going to go up as much as they could otherwise
42:58
Speaker 1: given the given the interestry decline, And if I look
43:01
Speaker 1: at my career, the one big surprise that I wish
43:05
Speaker 1: I knew before was that the tenure was going to
43:09
Speaker 1: be a one direction trained down because if you knew that,
43:14
Speaker 1: you would have just loaded up in real estate thirty
43:16
Speaker 1: years ago. Uh and and rode the train as as
43:20
Speaker 1: interest rate fell and the evaluations real estate increased thirty
43:24
Speaker 1: years I'm gonna tell you it's forty years back when
43:27
Speaker 1: Paul Vulgar broke the back of inflation. Quite fascinating stuff.
43:32
Speaker 1: I know I only have you for a limited amount
43:35
Speaker 1: of time, So let me get to my favorite speed
43:39
Speaker 1: round questions and talk to you about our five favorite
43:43
Speaker 1: questions we ask all of our guests, starting with what
43:47
Speaker 1: are you streaming these days? Tell us your favorite Netflix
43:50
Speaker 1: show or a podcast or or whatever. So I don't
43:55
Speaker 1: listen to a lot of podcasts. Is gonna listen to
43:57
Speaker 1: some of years? Now? I see you some great speakers.
43:59
Speaker 1: But what we're in the car and we have the kids.
44:01
Speaker 1: We we listened to How I Built It, and we
44:04
Speaker 1: listened to some great episodes on Spanks and Kate's Cookies
44:08
Speaker 1: and how those businesses we're creating. We love those. Um,
44:13
Speaker 1: what are your favorite Netflix shows? Do you give us
44:16
Speaker 1: a couple if you like? So, you know, we don't
44:19
Speaker 1: watch a ton of TV. But there's this new Apple TV.
44:22
Speaker 1: I think it's called Defending Jacob uh Uh. That is
44:28
Speaker 1: it's fascinating and we wait for each new episode to
44:30
Speaker 1: come out and we watch it, and so that's been
44:32
Speaker 1: a lot of fun to watch. Um, but we're not
44:36
Speaker 1: watching a ton of TV, oddly enough, tell us about
44:40
Speaker 1: you mentioned Sam's l earlier. Who are some of your
44:43
Speaker 1: mentors who helped shape your career over the years. Sure,
44:48
Speaker 1: so Sam's IL was a big influence probably for me
44:51
Speaker 1: and many others. Uh and He's always been incredibly gracious
44:55
Speaker 1: with his time that will spend uh, you know, talking
44:59
Speaker 1: with me uh and uh and and speaking at conferences
45:03
Speaker 1: and and I've done a lot of fireside chats together.
45:05
Speaker 1: But uh and I was just talking to him last week.
45:09
Speaker 1: Uh And he's just got his finger on the pulse.
45:12
Speaker 1: He's very quick. Uh he gets it. Uh And and
45:16
Speaker 1: he's really been a fantastic mentor to me. The other
45:21
Speaker 1: one who is a gentleman name is Steve Roth who
45:23
Speaker 1: runs Tornado And I mentioned him briefly briefly before. Uh
45:28
Speaker 1: and he's the one that really um focused me on
45:32
Speaker 1: buying cheap real estate in the public markets and the
45:36
Speaker 1: big when I met him. The big thing he had
45:38
Speaker 1: done recently was by the Alexander's department store chain. Uh.
45:42
Speaker 1: And he didn't buy it because he wanted to be
45:44
Speaker 1: in the department store business. He bought it because he
45:45
Speaker 1: wanted the real estate. So he shut the department store
45:48
Speaker 1: down and then redeveloped all of the real estate that
45:52
Speaker 1: they owned. Obviously, the killer location was the full City
45:56
Speaker 1: block which is now the Bloomberg Building. Um And it
46:00
Speaker 1: took him ten years, but uh he was able to
46:05
Speaker 1: uh put in great retail uses on the ground floor. Uh.
46:08
Speaker 1: And then Bloomberg's office space in the middle of some
46:10
Speaker 1: condos on the top of that building. Uh. And um,
46:14
Speaker 1: you know, took something that was undervalued in the public
46:17
Speaker 1: markets and created billions and billions of dollars of net
46:20
Speaker 1: worth and um. Throughout his career and my career alongside him.
46:25
Speaker 1: You know, watching him do that over and over again
46:28
Speaker 1: has been enormously valuable. Uh. And it's, frankly, you know,
46:32
Speaker 1: something which we practice in in particular in the activist
46:35
Speaker 1: work that we do, But we try to find these
46:38
Speaker 1: undervalued real estate and the public markets and and go
46:40
Speaker 1: about unlocking that value. Quite fascinating. Um. If you're not
46:45
Speaker 1: watching TV, tell us about some of your favorite books.
46:47
Speaker 1: What are you reading these days and what books do
46:50
Speaker 1: you like to recommend to people who might be interested
46:53
Speaker 1: in real estate. So one of my favorite books I've
46:57
Speaker 1: read in the past few years is Malcolm Gladwell Outliers.
47:01
Speaker 1: It's the whole book. I reread it, um, and I
47:03
Speaker 1: made all my kids read it. I made doctor with
47:06
Speaker 1: about it. And uh, you know, in that book, he
47:09
Speaker 1: has this concept of ten thousand hours. You know, if
47:12
Speaker 1: you spend ten thousand hours doing something, Um, you're gonna
47:15
Speaker 1: get good at it. Uh. And um, you know the
47:19
Speaker 1: people who really put in, whether it's the time in
47:22
Speaker 1: the pool, at the time at work, er uh, practicing
47:25
Speaker 1: an instrument um and they you put that kind of
47:28
Speaker 1: time and energy into something, you're gonna you're gonna master it. Uh.
47:32
Speaker 1: And he hasn't got a great um. Uh. The people
47:37
Speaker 1: that he talks about in their cookie tasters. And I
47:40
Speaker 1: didn't know this about cookies, but the or food tasters.
47:43
Speaker 1: But when they make an Oreo cookie, um, the cookie uh,
47:49
Speaker 1: the excess dough I guess they used to make the
47:52
Speaker 1: next cookie. And these two women who were food tasters
47:55
Speaker 1: could tell when they ate an Oreo cookie if it
47:58
Speaker 1: was the original or it was the excess um and
48:03
Speaker 1: the remake cookie. And you know, I think about that
48:05
Speaker 1: in my career, and I've been doing real estate a
48:07
Speaker 1: long time, and I think about the example I talked
48:09
Speaker 1: about earlier with Liberty, where I didn't have the numbers
48:12
Speaker 1: of my fingertips. Uh, but I was able when I
48:15
Speaker 1: ran into that CEO in the hallway, but I was
48:17
Speaker 1: able to sort of do the math at the rough
48:19
Speaker 1: math in my head and come up with sixty two
48:20
Speaker 1: dollars share and value and that's just something. And then
48:24
Speaker 1: the company got sold at ste That's just something that
48:27
Speaker 1: comes with putting the hours in. And I think that's
48:30
Speaker 1: such a valuable lesson. And you know, that's why I
48:32
Speaker 1: had my kids read it and that they're going through
48:34
Speaker 1: school and I keep reminding him about it. The other
48:37
Speaker 1: book would be Safing, which is history humanity. Uh and uh,
48:44
Speaker 1: you know I read that book actually twice. Uh and um,
48:47
Speaker 1: you know, you you lose track as we've been here
48:49
Speaker 1: for like a nanosecond in the scheme of human beings
48:52
Speaker 1: being on the Earth and the development and uh, I
48:55
Speaker 1: think it's, you know, a wonderful book that puts our
48:59
Speaker 1: live into perspective, our lives into perspectives. Uh and really
49:04
Speaker 1: some of the damage that human beings have done to
49:06
Speaker 1: this planet, um, and hopefully being able to get get
49:10
Speaker 1: ourselves out of it. So I thoroughly enjoyed that book.
49:13
Speaker 1: Great suggestions both. Since you mentioned kids, what sort of
49:17
Speaker 1: advice might you give to a recent college graduate who
49:21
Speaker 1: was interested in a career in real estate investing. It's funny,
49:26
Speaker 1: you know, we just rewatched The Graduate from nineteen sixty
49:30
Speaker 1: seven with Dustin Hoffman and so you would say plastics
49:34
Speaker 1: that your suggests and uh so I always say to
49:39
Speaker 1: my kids, they said they listened to me or people
49:41
Speaker 1: that work for me, it's it's content because technological technological
49:47
Speaker 1: advancement have eliminated a lot of jobs. And I just
49:50
Speaker 1: look at my career, you know, the trading floors, emptying out,
49:53
Speaker 1: the sales forces, emptying out the people that you know,
49:56
Speaker 1: did all the stuff to get our research reports ready
49:58
Speaker 1: to go out of those jobs are gone. But you know,
50:01
Speaker 1: I'm a content guy. And if I look around that
50:04
Speaker 1: the people who have long careers. Uh, if your content
50:08
Speaker 1: you're like your content guy Barrier, Right, We've got content
50:10
Speaker 1: right here, your content guy, you can have a long career. Uh.
50:14
Speaker 1: And so figure out how to create and developed content,
50:18
Speaker 1: whether it's you know, picking stocks, or writing research or
50:23
Speaker 1: creating new technologies. I think that's the that's the answer
50:26
Speaker 1: to the future. Quite quite fascinating. And our final question,
50:31
Speaker 1: what do you know about the world of real estate
50:33
Speaker 1: investing today that you wish you knew thirty plus years
50:37
Speaker 1: ago when you were first getting started. I wish I
50:40
Speaker 1: knew the tenure was going to be a sixty basis
50:42
Speaker 1: point um that would have made investing a lot easier. Um,
50:47
Speaker 1: all the wall of worry while rates have been coming down,
50:51
Speaker 1: um about rates going back up. You could have just
50:55
Speaker 1: dismissed and bought and finance short and held on for
50:59
Speaker 1: the ride. Quite quite fascinating. Thank you John for being
51:02
Speaker 1: so generous with your time. That was John Litt, Founder
51:06
Speaker 1: and Chief Investment Officer of Land and Buildings. If you
51:10
Speaker 1: enjoy this conversation, well, you can check out any of
51:13
Speaker 1: the other three hundred such discussions we've had over the
51:17
Speaker 1: past nearly six years. You can find that at all
51:22
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51:27
Speaker 1: wherever final podcasts are sold. We love your comments, feedback
51:32
Speaker 1: and suggestions right to us at m IB podcast at
51:36
Speaker 1: Bloomberg dot net. Hey, check out my weekly column at
51:39
Speaker 1: Bloomberg dot com slash Opinion. You could follow me on
51:42
Speaker 1: Twitter at rit Halts, and if you would like to
51:45
Speaker 1: see my daily reads, you can find them at Rid
51:48
Speaker 1: Halts dot com. Sign up for that email. Also, I
51:51
Speaker 1: would be remiss if I did not thank the Crack
51:53
Speaker 1: staff that helps put these conversations together each week. Tim
51:58
Speaker 1: Harrow is my audio engineer. Michael Boyle is my producer
52:03
Speaker 1: Mike Batnick is my director of research. A Tick of
52:07
Speaker 1: V Album is our project manager. I'm Barry Ridholts. You've
52:11
Speaker 1: been listening to Masters in Business on Bloomberg Radio.