Latest / Icons of DC Area Real Estate / Bill Norton- Boots on the Ground: Why Intuition Still Outperforms the Spreadsheet (#145)

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Bill Norton- Boots on the Ground: Why Intuition Still Outperforms the Spreadsheet (#145) · Icons of DC Area Real Estate

• 0:00
  Speaker A: Foreign.
• 0:09
  Speaker B: Hi, I'm John Koh and welcome to icons of D.C. area real estate, a one on one interview show featuring the backgrounds, career trajectories and insights of the top luminaries in the Washington D.C. area Real estate market. The purpose of the show was to explore their journeys, how they got started, the pivotal moments that shaped their careers and the lessons they've learned along the way. We also dive into their current work, industry trends and some fascinating behind the scenes stories that bring unique perspective to our industry. Commercial Real Estate welcome to another episode of icons of D.C. area real estate. My guest for today's show is Bill Norton. Bill has retired about 10 years ago from Northwestern Mutual Life as the Regional office head which he held for about 30 years here in the Washington D.C. area. Bill currently serves on the board of Chevy Chase Land Co. Now known as CCLC and leads its investment committee. Bill and I go way back to our early careers in the Detroit area where he began at Northwestern Mutual and I began at Prudential Insurance Company. Bill grew up in Elmira, New York and attended the University of Rochester for undergraduate and then the University of Michigan for his MBA and decided to stay in the Detroit region, joining Northwestern Mutual in their Detroit office in the mid-1970s. In 1981 he transferred to Washington D.C. just before the Detroit office was closed and rose to become the Regional manager of the D.C. office in 1993. This interview offers a rare look at the evolution of commercial real estate through the eyes of a capital steward who I call Bill. The conversation covers several key pillars of Norton's experience. The evolution of underwriting. He looks back at 1979, an era before desktop compared to computers. Hugh and I both experienced that. He talks about using the HP12C to do analysis instead of spreadsheets. No computers, no Internet of course. And then of course the human element. Recurring theme is his insistence that real estate remains a boots on the ground business and the humbling anecdote about a truck terminal deal where the photos look far better than the reality. It's an interesting story and his legendary partnerships, how he built long term trust with iconic firms. He recounts the early days of the relationships with the Busuto Group who of course I've spoken with three of the leaders there on the podcast and financing Tyson's Corner center with Macerich. He talks about that then navigating today's market. Bill provides candid assessments of the current office market. He expresses caution regarding the office to residential conversion business and then talks a little bit about the Northern Virginia data.
• 3:25
  Speaker A: Centers business that we Talk about.
• 3:28
  Speaker B: So it's a fascinating conversation with Bill that goes way back. And of course, many of you who've listened to this have done business with Northwestern over the years. But Bill reinforces their philosophy of relatively conservative investments with some creative structuring. So without further ado, please enjoy this wide ranging conversation with Bill Norton.
• 3:50
  Speaker A: So, Bill Norton, welcome to icons of D.C. area real estate. It's been so many years to try to get you on the show and I really appreciate you doing it. We've known each other probably for 40 plus years, believe it or not.
• 4:05
  Speaker C: Yeah.
• 4:06
  Speaker A: Which is just probably as long as anyone I've known in the real estate industry because you go back to my first employment, which was Prudential. And there are, there aren't many people left from 1979 in Detroit that are still in real estate business.
• 4:21
  Speaker C: I remember when the moving vans were all exiting in the early 80s.
• 4:25
  Speaker A: Oh yeah, all the, all the life companies shut down their offices I think in the early 80s in Detroit.
• 4:34
  Speaker C: Well, now that you bring that up, in 1981, my boss's boss suggested was talking about a vacancy in Washington D.C. and he never talked about those things in front of me. So I knew what the hint was. And they had already downsized the office in Detroit. So I stupidly volunteered instead of waiting for him to ask me. And it probably cost me salary and I should have known better, but I volunteered to move to D.C. and a year later they closed the office and I would have had, I would have had to go to Chicago or Milwaukee.
• 5:09
  Speaker A: Right, right.
• 5:10
  Speaker C: Very fortunate to make that move.
• 5:13
  Speaker A: So you're happy looking back, that you moved to Washington D.C. 40 some years ago.
• 5:18
  Speaker C: It turned out extremely well for me.
• 5:21
  Speaker A: Yeah.
• 5:21
  Speaker C: Yep.
• 5:22
  Speaker A: Clearly. So let me shift here to the questions I've, I programmed here and we'll get into a more formal approach. Today you serve on the board of Chevy Chase Land Company and chair its investment committee. And this of course is post your retirement from Northwestern Mutual Life, which I'll talk about in the, in the, in the intro as well as the show notes. So how is your role shifted from capital capital originator to capital steward and what responsibilities feel heavier now than they did earlier in your career?
• 6:02
  Speaker C: Well, you know, it really hasn't changed a lot. So you know, as regional director in Washington, I had several producers, several asset managers and you know, I was in a supervisory role. I at that point rarely did deals myself. Today as a chair of the investment committee, it's kind of the same thing but much less direct. You have to step back. You can't get into the details that you did with your own colleagues, so to speak. So the challenge is staying in a big picture and not getting down too far into the weeds.
• 6:43
  Speaker A: Looking across today's commercial real estate landscape, what concerns you most right now and what gives you cautious optimism that others might not be maybe overlooking potentially?
• 6:57
  Speaker C: Well, I think maybe there's too much underwriting without really going to see the property and understanding it. The Internet's great. We can do the Google Maps and we can do this and that and pick up all the data, but you can. It's still a boots on the ground business I think and that concerns me. You know I remember one of the guys that I worked with in Detroit, we were doing truck terminals at the time and he sent the deal in the home office got approved and then one of the analysts that worked on it came out and said looked at the property and after he looked at the property said damn, you guys take good photos. It didn't look near as good in person that it did in photos. And I had a similar situation where I was, the office was really busy. I couldn't even spare an analyst to go look at a property. And so it was a multifamily product property in the Mid Atlantic, about 100 mile drive for me. And I started working off the broker package, started talking about a deal and I went too far without going to see the property. And finally I said I got to stop and see the property and I did good thing. Terrible deferred maintenance, et cetera, et cetera. So had to terminate discussions, I'd gone too far. So like I say, it's still a boots on the ground business.
• 8:27
  Speaker A: So in context of where you are today, have you seen decisions made that were with assumptions that shouldn't have been made after not understanding certain things on the ground that they should have seen? Just out of curiosity.
• 8:41
  Speaker C: I mean my, my only exposure right now is to cclc and that has not been the case.
• 8:48
  Speaker A: That strikes doesn't strike me as something that they would do knowing people there.
• 8:52
  Speaker C: No, no good people.
• 8:55
  Speaker A: Yeah, they, they understand the business. I think you know John, particularly the chair, the president is absolutely, he's, he's a boots on the ground kind of guy. No doubt. From your vantage point, where are experienced investors being too fearful today and where might they still not be fearful enough?
• 9:19
  Speaker C: I'm concerned about too many office to residential conversions in urban cores. I know people are coming back to work, but I think there's two issues. One is, is there enough demand? And number two is it really good product, particularly in the D.C. market. Our buildings are, you know, pretty square and don't really work out well if you're trying to use the existing footprint. There's some knockdowns, but some of them are. I'm not sure they're going to work real well, so. And I hear a huge number of them. How many are actually coming to fruition, getting financed? I don't know. I know one developer who couldn't get financing on a property and gave it back to the lender and then another one who got a huge one approved. So I really don't know how much. It appears there's a lot in the pipeline.
• 10:13
  Speaker A: How many have you toured, Bill, that you've seen, just out of curiosity?
• 10:18
  Speaker C: I haven't toured them, but I've seen the packages and so, you know, got an idea of what the footprint of the existing building was and that sort of thing.
• 10:27
  Speaker A: There are two examples of ones that I've toured recently in the last couple years that are actually one about four years ago and the other one about a year and a half ago. So the one I saw four years ago was in Alexandria and it's. It's located outside 395 off King street, and it's called park and Ford, and it's a project by Low Enterprises. And it's interesting. These were office buildings developed by Erkeletian, who was a developer here in the 1980s and 90s companies. And it's an office. An office. Park Ford was the name of the street. And. No, that's north. You're thinking of Mark Winkler's Mark center, which is the next intersection. Now this is, this is on King Street. This is King Street. Okay. Yep. And so I actually had meetings with their. Or their offices were there back in the 80s. And I'd seen that building. It was mostly military presence, the Army. And what Low Enterprises did is they took the two buildings and that were next to each other and they bridged them together and they created an interesting amenity space in between and did a spectacular job by stripping these brick office buildings and putting glass curtain walls up. And they worked on the depths of the, of the, of the units to make it look. They kind of architecturally made it look very interesting. So they did a really interesting job. But the advantage they had is they didn't have urban setting. This is a suburban office setting, so they could work with the environment around it. So that was one really good example.
• 12:15
  Speaker C: I know those buildings well. Northwestern owned them at one time.
• 12:20
  Speaker A: Oh, really?
• 12:21
  Speaker C: Yeah, yeah. And the First. You know, the first building in there that was converted. Mm. Before. Way before Lowe Brothers.
• 12:32
  Speaker A: No.
• 12:32
  Speaker C: I'm trying to think of who we sold a building to. And he converted into a live workspace.
• 12:37
  Speaker A: Really?
• 12:38
  Speaker C: Okay.
• 12:38
  Speaker A: Yeah.
• 12:38
  Speaker C: He was with K. Fritz.
• 12:41
  Speaker A: Oh, sure.
• 12:42
  Speaker C: Then he went out on his own. Rob. I can't remember his name anymore, but he did the first one in that park.
• 12:52
  Speaker A: Was it a good one?
• 12:55
  Speaker C: Yeah, I think he did a good job when I retired. I think we still own the other two. We own three. And they were decent investments in the beginning. And then I'm trying to.
• 13:05
  Speaker A: Was Erkele Shan, your partner, were you wholly owned?
• 13:07
  Speaker C: No, no, we bought him, I believe, from him, I'm pretty sure. Yeah.
• 13:12
  Speaker A: Okay.
• 13:12
  Speaker C: I think he'd passed away at that point, and then.
• 13:14
  Speaker A: Low.
• 13:14
  Speaker C: Low.
• 13:15
  Speaker A: May have bought him from you then. Potentially.
• 13:17
  Speaker C: Yeah. Probably after I retired. Yeah. I don't. Because I don't recall that, but I remember selling the one to. I can't remember his name. I apologize to him.
• 13:26
  Speaker A: Sure.
• 13:27
  Speaker C: Yeah. I think he was one of the pioneers in office conversions.
• 13:31
  Speaker A: Yeah.
• 13:31
  Speaker C: Yeah.
• 13:32
  Speaker A: That part of Alexandria, you know, the markets, you know, evolved quicker.
• 13:36
  Speaker C: Yes.
• 13:37
  Speaker A: Mark center, of course, was another one that. Actually, there's a school. They. The city bought one of the coupler buildings and converted into a res. Into an elementary school. The office.
• 13:46
  Speaker C: We had loans on several of those buildings with those folks. Yeah.
• 13:51
  Speaker A: Good people. And then another example of office conversion is in the city at the corner of 20th and L Street. And that was with Wilco. So that's Richie Cohen.
• 14:05
  Speaker C: Yeah, yeah, yeah.
• 14:06
  Speaker A: Richie Cohen's. They built those buildings. That building in the 1960s. And so they had a very low basis on it. And I interviewed Richie's son, Mr. Cohen, who told the whole story. He was a residential guy, and so he figured it out. He said, you know, dad, let's try and do this. Convert this to a residential building because of what's going on now. And this was right at the time when the city was. Or it was during the initial stage of the pandemic, actually was a little before that.
• 14:40
  Speaker B: Yeah.
• 14:41
  Speaker A: And so they got it approved. They didn't take advantage of the tax incentives that the city gave, but because of their low basis, they were able to make it work. And we toured that. They did a really, really good job of that building. And it was a rectangular building on a corner, which helps.
• 14:57
  Speaker C: I know which building is. We were right there at 113320 Street. 4. Three buildings away for a long time. Yep, yep.
• 15:06
  Speaker A: And that's an interesting one to tour as well. Bill, it's just. There's something you can do. Just. They did it really quite well, I think.
• 15:13
  Speaker C: Well, that wasn't a big floor plate building. No, it was a corner. So it helped a lot.
• 15:18
  Speaker A: It does. The mid blocks buildings are almost impossible to do. I think I agree just from one line.
• 15:26
  Speaker C: I worked with at least one architect on, you know, how to go about that and so forth. So I spent a little time looking at it. Not that property, but conversions in general.
• 15:40
  Speaker A: So let's go back to your origin story, Bill, if we can. Okay. You grew up in Elmira, New York?
• 15:48
  Speaker C: Yes.
• 15:48
  Speaker A: Upstate New York.
• 15:50
  Speaker C: Yep.
• 15:50
  Speaker A: Just north of the Pennsylvania line, I think. It's not far from Pennsylvania as I recall.
• 15:54
  Speaker C: That's correct, yep.
• 15:55
  Speaker A: Paint us a picture of that place. During your childhood, what kind of town was it and what did it quietly teach you about work, money or responsibility?
• 16:04
  Speaker C: Well, you know, when I was real young, it was a fairly prosperous little town and it had a lot of industry, but it didn't pay attention to what was going on. Industries were changing. It lost a Westinghouse tube factory. And some people that hear this won't know what tubes are, but they used to be in TVs, right. They lost the GE foundry, they lost American La France, who built fire trucks there for many years. There was a fire hydrant company that was there for many years. So they lost a lot of businesses. And then they got devastated by a flood in 1972, which was later labeled as a 1000 year flood. And the city's never recovered. It's just never recovered. But going back to my childhood, one of eight children.
• 16:59
  Speaker A: What are you on the pecking order?
• 17:02
  Speaker C: I'm the oldest of the second half and people say, what does that mean? Well, there were four and six years, then it was a four year break, and then there was four more in the next six years.
• 17:16
  Speaker A: Same mother and father.
• 17:17
  Speaker C: Oh yeah. Oh yeah.
• 17:19
  Speaker A: Okay.
• 17:20
  Speaker C: So. So my mother was a homemaker. My father was a furniture salesman. And he, he was. Back then you bought furniture from a furniture store. And he had a loyal following over the years and he did pretty well as a salesman, partially salaried, partially commissioned. But my father died at a relatively young age, late 40s. There were still six children at home. Fortunately, my mother had an English degree from Elmira College and was able to become a school librarian. And then she went back to school part time at night and during the summer to earn credits towards a master's degree, which allowed her to get step increases in salary every year. So what did it teach Me? Well, first of all, we were a Catholic family. I wouldn't say we were rigorous discipline, but we paid attention to what was going on, did the right thing, I think. But what it really taught me because my mother had that education to fall back on was, you know, hard work and the importance of education. As young teenagers, all of us children, you know, started shoveling snow, babysitting, doing whatever we could to kind of help out with the finances. You know, teachers, school librarians still don't make much money. And so we got along just fine. But it, you know, really emphasized hard work and education.
• 18:52
  Speaker A: So as a young person, what were you curious about before you knew real estate was a path?
• 18:56
  Speaker C: Well, I kind of thought, you know, building houses might be cool and that sort of thing. But then I went to University of Rochester and you know, I was growing up in a space age, you know, watching all the rockets take off and finally go to the moon. So aerospace engineering, that's what I wanted to do. I also had a brother in law who was an engineer and I thought that was a good thing to do. That lasted about three semesters. Well, I was tired of this vector going in that direction and this vector going in the other direction and when would they meet or whatever. And so I dabbled in psychology and economics and finally got a degree in economics, which was a fun degree but doesn't really get you a good job. So it was off to Michigan and mba.
• 19:38
  Speaker A: Did you go directly from Rochester to Ann Arbor?
• 19:41
  Speaker C: I did, and that was pretty common back then, although today it's totally rare by Ann Arbor. That's an interesting situation. So I had mentioned the flood of 1972 and that was I graduated from Rochester in June of 72, hadn't decided where I was going to college yet. I had applied to Cornell, Wisconsin, Stanford, Michigan and so went back to my mother's house and we had that devastating flood. So I earned no money. I knew I was going to earn no money that summer. I had a job, but the place got washed away in the flood. So I wrote Wisconsin and Michigan both letters that God, I'd love to come but I don't have any money. And Wisconsin sent me a nice letter back saying we'd be happy to have you, here's $500 a semester. And Michigan said we'd love to have you and here's your tuition.
• 20:41
  Speaker A: Wow.
• 20:42
  Speaker C: Was a no brainer.
• 20:44
  Speaker A: Yeah. What about Cornell? There's a state school right up the road from you.
• 20:48
  Speaker C: I decided it was time to get.
• 20:49
  Speaker A: A little further from home. Ah, okay.
• 20:52
  Speaker C: It's not a state school. It's a private school.
• 20:55
  Speaker A: Well, maybe the graduate school, but the undergraduate state.
• 20:58
  Speaker C: It's expensive.
• 20:59
  Speaker A: Yeah. Undergraduate is a state school there. Yeah, believe it or not. Yeah. Okay.
• 21:05
  Speaker C: Yeah.
• 21:06
  Speaker A: Well, that's interesting. So they gave you a scholarship and that. That took you there. Okay. Yes.
• 21:11
  Speaker C: Yeah.
• 21:13
  Speaker A: That's unusual. Full scholarship for. For graduate business school. That's interesting.
• 21:17
  Speaker C: Yes, it was. Yes, it was.
• 21:19
  Speaker A: You're not common. I imagine you weren't the. You. You were a rarity there. I guess most people paid full freight. I guess.
• 21:26
  Speaker C: I don't know. I don't know.
• 21:28
  Speaker A: Interesting, interesting. So economics at Rochester, MBA and at Michigan. So what turned you on to real estate while you were doing your MBA program there?
• 21:40
  Speaker C: Well, like I say, I always. Even as a kid, I thought, you know, something to do with building and would be fun. And so Michigan really didn't have a strong real estate program?
• 21:50
  Speaker A: No, they did.
• 21:51
  Speaker C: Wisconsin did. So I spent most of my time in finance. And the program was terrific. I really learned how to think and boil things down, make persuasive arguments. It was really a terrific program.
• 22:05
  Speaker A: So while you were there, professors. While you were there, I was across the street from the business school as an undergraduate at 1000 Hill street, at Saiyub Salon Fraternity. That's where I lived from 1973 until 1975. I lived in that. That building. And I remember looking across, thinking, maybe I should go to business school. But I never did. I went. I stayed in MLS and A. I should have, but I didn't. But we called it Disneyland. So I don't know if that ever. That word ever came out.
• 22:43
  Speaker C: No, I don't remember that. But it was busy. You had to work hard. We had. The Navy sent people there to get their MBAs. And these were people that were destined for bigger roles.
• 22:55
  Speaker A: Right.
• 22:55
  Speaker C: Most of them were older, they were usually married, and all they had to do was go to school because they had everything else taken care of. They were being paid. The home front was clear. They would break our curves all the time. We didn't like that.
• 23:11
  Speaker A: Yeah, well, you coming right out of college, you had no business experience at all at that point, really.
• 23:17
  Speaker C: No, no, that's true. But when you said across the street, I was thinking of the architectural school, and I took at least one course there, maybe two.
• 23:26
  Speaker A: Interesting.
• 23:27
  Speaker C: Well, it was on new towns, remember? They were big things back then.
• 23:32
  Speaker A: Oh, sure, yeah. Well, that. Columbia, Maryland and Reston, Virginia. Right here in the D.C. area. Of course.
• 23:36
  Speaker C: Well, I had to write a research paper and I wrote all those companies. There's one in Chaska, Minnesota, and I did write Columbia, I wrote Reston and got all this material. And I think that's what really turned me on to real estate, that this is cool stuff. Yeah.
• 23:53
  Speaker A: So I'm going to ask you if you ever met the professor that turned me on to real estate in Ann Arbor. And he was only there for about five or six years. His name was Carl Pearson. Did you ever take a course from Carl?
• 24:07
  Speaker C: I sure did.
• 24:09
  Speaker A: Okay.
• 24:10
  Speaker C: Yeah.
• 24:11
  Speaker A: What do you remember about Carl Pearson?
• 24:15
  Speaker C: Well, he. He had a quite a career and I think he made a lot of money. I forget. I think he worked for an oil company, didn't he?
• 24:22
  Speaker A: Yes, he did. He came from Texas. He was in Texas for a while.
• 24:26
  Speaker C: He also traveled a lot and he kept a map with pins of all the places he and his wife had ever been. And also we were talking about manufacturing housing because it was just starting back then. And I think maybe he was talking about particular company which I can't remember the name of anymore. And I guess some people went out and bought it and he found out about it. And the next class he goes, folks, don't take my stock opinions for anything. Please don't buy something just because I talk about the company. And the company eventually failed. So he was a character. He really was.
• 25:03
  Speaker A: He was. We developed. So one of my oldest friends growing up was at school with me at the same time, and we went out to lunch with him. And my. And you may have know this fellow who I grew up with who came to Washington and worked. He's the one actually inspired me to move here. His name was Richard Vincey and he worked for Equitable Life. And then he was at MassMutual for a while and then of course went with other, other firms. But he and I took. We went out to lunch with Carl while we were taking this class together, and he just. He told stories after story after story.
• 25:43
  Speaker C: He did. He was a storyteller. Yeah.
• 25:45
  Speaker A: Oh, he loved stories.
• 25:47
  Speaker C: He did.
• 25:48
  Speaker A: Fascinating guy. Anyway, so was he some inspiration to you at all as far as the real estate industry or not?
• 25:54
  Speaker C: I think the course that I took in New Towns with architecture and so forth, I think that's really what spurred me in that direction.
• 26:02
  Speaker A: Interesting. Interesting. Okay, so you can't. You got your graduate business degree. So what were your, what were you thinking when you're coming into. Into your career, what you're thinking about doing at that moment?
• 26:16
  Speaker C: Something to do with real estate and finance combined. And I was fortunate enough to start with Northwestern and their mortgage load department right there in Southfield, Michigan, suburb of Detroit. And it was a great start.
• 26:31
  Speaker A: Did you interview others?
• 26:34
  Speaker C: Oh, I did, I did. Oh, gosh. Banks in Chicago, New York, a mortgage company in Boston. Boston that wanted to open a Detroit office. And one of my good friends in the program took that job. They would have hired both of us. Ford Motor Credit. They gave me an offer.
• 26:54
  Speaker A: Why did you want to be in the Detroit area? Just out of curiosity.
• 26:58
  Speaker C: I really wasn't excited about going to Chicago and probably living a fair distance from the office and the commute and all that sort of thing. And Detroit had an opening, so that worked out well.
• 27:13
  Speaker A: Perfect.
• 27:14
  Speaker C: Yeah.
• 27:15
  Speaker A: Great. So you began at Northwestern as an analyst in the 1970s. What did. What did good underwriting mean then? And how different was the institutional mindset compared to today?
• 27:29
  Speaker C: Well, you know, I think Northwestern's always been good underwriters, um, you know, looking at comps and, you know, expense comps, sales comps, all that sort of thing. But I would say I really didn't use a lot of my MBA skills early on, but underwriting became much more sophisticated over the years and, you know, much underwriting became much better. So what was the other question?
• 27:58
  Speaker A: I just said, well, I'll just go on to the next one.
• 28:01
  Speaker C: Sure.
• 28:02
  Speaker A: 1979, Southfield, Michigan. You and I crossed paths. We talked about that. Me at Prudential, you at Northwestern Mutual. What do you remember about that era of the life company investing, and what do you think we each represented in that competitive ecosystem?
• 28:20
  Speaker C: Well, in the mid-70s, there were certainly a malaise in real estate, particularly, I think, in the Midwest. And, boy, you had a scratch for deals. I mean, it was tough. The lenders had money in the mid-70s, but it was almost impossible to get it out. And then in the late 70s, we started experiencing disintermediation. A big word.
• 28:45
  Speaker A: Explain what that is for people that might not know.
• 28:47
  Speaker C: Sure, sure. That's when interest rates went up very high and people borrowed low when they could and invested high. And for Northwestern, who was a whole life, predominantly company, which meant that we sold policies that lasted a long time. They had a contractual right in the contract that they could borrow against the value of their policy at a relatively low rate. So for about 18 months, our biggest investment, unfortunately, was policyholder loans. So we were out of the market for about 18 months. And when we came back in the market, we merged our very small real estate equity group with our mortgage loan group. And that's when I was allowed to start doing equity deals. So what time was that?
• 29:45
  Speaker A: You know what years those were? Just out of curiosity, remember that years?
• 29:49
  Speaker C: I think it was 1980 probably.
• 29:52
  Speaker A: Yeah, that's exactly what happened to me at Prudential. Exactly. So in 1979, interest rates went from. I started the business in February. We were in the like high eights and nines doing loans at that time. And then suddenly it just went into double digits very quickly. The last deal I did, I think it was around 10 and a half percent. And then after that they just went out of the market in October of 79. I'll never forget that. We got that notice from home office saying we're out of the market, no more deals. Except there was a borrower out of Texas, Vantage companies. They got the big deal. And it was because our head of mortgage lending was guy named Bob Lyle who went on run Travelers after, after leaving Prudential. And that was a relationship he had with the guy, the guy that ran Vantage. Anyway, so we were out of the market and then they said, well, you can do equities, you can look at. So what we did is we had lender borrowers that said, okay, we're doing a construction on this industrial property, we'll do a pre sale deal with you. So what we did, we contracted a purchase instead of doing a loan commitment on a takeout, we did a forward purchase agreement which I think was pretty pioneering for life companies at that point in time.
• 31:12
  Speaker C: Yeah, yep.
• 31:13
  Speaker A: You were doing joint ventures at the time, I think even then.
• 31:17
  Speaker C: But I was still in Detroit and my first one was I had a loan on an office building and the developer wanted to build two more buildings but rates were way too high, they didn't work. So I told him he could contribute that building to a joint venture and we joined venture development in the next two buildings.
• 31:39
  Speaker A: There you go.
• 31:40
  Speaker C: It was very interesting.
• 31:42
  Speaker A: Was that your first venture deal?
• 31:44
  Speaker C: Yes, it was. And so like I said, we had a very small real estate equity group. So I'm basically doing equities. My boss and colleagues had never done equities. They were all mortgage loan people, people in Detroit. So I was really off on my own a little bit.
• 32:02
  Speaker A: Wow, that's cool.
• 32:04
  Speaker C: So I did a new money after tax yield equivalent on this deal. It was new money because I already had a loan in there. So I had to calculate the loan, the yield on the new money. It was an equity deal, so I had to do an after tax. Remember we didn't have computers back then.
• 32:25
  Speaker A: Yeah, I know.
• 32:26
  Speaker C: HP were relatively new. I had this big green accounting spreadsheet and did it with a pencil and a calculator.
• 32:36
  Speaker A: Did you do it monthly or annually?
• 32:38
  Speaker C: A monthly or 10 year cash flow.
• 32:40
  Speaker A: At least you didn't do it monthly.
• 32:44
  Speaker C: I sent it to home office like what the hell is this? We've never seen anything like this before.
• 32:48
  Speaker A: Before.
• 32:50
  Speaker C: That was a new one today.
• 32:52
  Speaker A: Have no idea what we went through back then.
• 32:55
  Speaker C: Yeah, yeah, yeah.
• 32:57
  Speaker A: We used to have a two page loan sheet that was this long and that was our loan approval process. That was it.
• 33:03
  Speaker C: A little, a little side story because I just said that we didn't have computers and HP12Cs were relatively new. You actually took a course in them, how to use them, a two or three hour course.
• 33:13
  Speaker A: Yeah.
• 33:13
  Speaker C: But at any rate, I, I think it was about that time the home office did a survey of producers in the field. And at the time the only connection we had at home office was a dial up and you could look up a loan balance or something. And we had one of those FATS machines that rotated with a pin that went across people who should probably go to some type of industrial museum to find one of those today. But anyways, they did a survey about computer computers and myself and another young guy, you know, we answered it and how would we use a computer, what would we do with it, how often would we use it? My boss looked at him and he goes, now he's old school. He goes, I'll be damned if you guys are going to spend the whole day on the computer and not do deals.
• 34:05
  Speaker A: That's funny.
• 34:07
  Speaker C: It was funny.
• 34:08
  Speaker A: You know, we had, at Prudential we had what was called Inva Prop, which was an internal rate of return analysis tool. But it was a terminal system that we had in the office. So we had this terminal, we'd sit down, we type in stuff and then the home office had the mainframe and it, and it would, it would communicate over the telex. It was kind of like a telephone type of connection. So we'd have to, we'd send the data in and it come back and then it would produce this spreadsheet thing that was done on a mainframe. And I think we were pretty pioneering with that. This was 1979.
• 34:47
  Speaker C: Way ahead of us. Yeah, yeah.
• 34:49
  Speaker A: And so we were doing. And that's how we did the development deals that we were doing too because they had to show the yield on these deals.
• 34:57
  Speaker C: Right, right.
• 34:58
  Speaker A: And all that. So it's, it was pioneering at that point. And of course we didn't have any desktop or anything like. So as you said, HP12C handwritten, everything. It was really a whole different business at that time.
• 35:15
  Speaker C: Yeah, it was.
• 35:16
  Speaker A: So what was the first deal that truly humbled you? Where the spreadsheet was. Right. But realty had other plans.
• 35:28
  Speaker C: So in the late 70s, a developer came to us. And we had done a. A hotel in Lexington, Kentucky, with them.
• 35:38
  Speaker A: Oh, okay.
• 35:40
  Speaker C: Construction Perm did extremely well.
• 35:43
  Speaker A: Really?
• 35:44
  Speaker C: Yeah.
• 35:45
  Speaker A: Yep.
• 35:46
  Speaker C: So they wanted to do one in Michigan. And we said, you guys are out of your minds. No, no, we did a good job in Lexington, didn't we? Yes. Yes. So we went up to Flint. The city was pushing it, believe it or not. The Mott foundation, which was gm. Put equity in the Pritzker family personally put money in.
• 36:12
  Speaker A: Was this a Hyatt hotel?
• 36:14
  Speaker C: I wasn't going to mention the name, but yes.
• 36:17
  Speaker A: Well, because that's the Pritzkers. Yeah.
• 36:19
  Speaker C: Yeah. Well, that's true.
• 36:20
  Speaker A: Yeah.
• 36:21
  Speaker C: So we're thinking, wow, Mott and Pritzker's both putting money in. And that was Buick Town, of course, where GM was originally started.
• 36:35
  Speaker A: Yes, that's correct. Yeah.
• 36:37
  Speaker C: As the Buick company. And that was their headquarters. And GM told us that they put people up in this very bad hotel. And needed a new place to put people up. So we made a construction loan of $12 million on a $24 million cost. Which later became a $12 million loan on a $30 million cost. And we basically got a convention center for free in Arlene. The automobile crash occurred with the oil crisis. As we all know. Brent got hurt worse than anybody. What was the name of that documentary? Roger and Me. I'm trying to remember who did it about Flint.
• 37:18
  Speaker A: Yes.
• 37:18
  Speaker C: That hotel almost went to a Zero Value.
• 37:21
  Speaker A: Oh, wow.
• 37:23
  Speaker C: Yeah. Yeah. So it was a tough one.
• 37:28
  Speaker A: Yep. I had a hotel. And this is one you probably remember that we had a loan on the Stouffer's. Which was at the Northland Mall there.
• 37:37
  Speaker C: Oh, yeah, I remember that one.
• 37:39
  Speaker A: Well, we had the loan on that. And it was a workout. When I was working there in 1979, it was a workout then. So I remember that was the first workout I ever worked on. So a hotel workout is about as complicated a workout as you could possibly have in an operating business. It was tricky.
• 37:59
  Speaker C: Skip ahead several years and ask me this question a little later in the interview. And I'll tell you about one I worked on. They're hell.
• 38:05
  Speaker A: They are. Especially when you have to take over the hotel as an operator.
• 38:11
  Speaker C: But at the same time, we did a Holodome in Livonia, Michigan. With Industrial Revenue Bonds.
• 38:18
  Speaker A: Really?
• 38:19
  Speaker C: We didn't Put with a developer, obviously it was a venture. One of the reasons they wanted us to come in is because our credit was going to back the industrial revenue bonds. One problem, Northwestern wasn't rated. Mutual companies, Life companies were not rated at the time.
• 38:36
  Speaker A: Well, you had a best rating.
• 38:38
  Speaker C: Yeah, but that.
• 38:39
  Speaker A: But not a financial rating.
• 38:40
  Speaker C: It was more on a sales side than it was on the financial side. So it took certain rating agencies over a year to rate us because they didn't know how to rate a mutual company. And we used basically statutory accounting as opposed to GAAP at the time. But at any rate, that hotel ended up with an infinite return because we never put any money in. So we had a winner just to offset the bad story in Flint.
• 39:09
  Speaker A: Well, you know, it's interesting, Bill, because when you. To me, Northwestern and hotel is not in the same framework. Because that must have changed. That must have changed when you came to Washington. Because I never heard you do a hotel here at least.
• 39:24
  Speaker C: Oh, we did. Oh, we did. Yeah.
• 39:27
  Speaker A: Interesting. Well, that I. Because I always think whenever I was doing a hotel deal, never think about going bring it to Northwestern Mutual. So that was just not for better or worse.
• 39:37
  Speaker C: I probably did the majority of hotels in the company and I don't know, good thing or a bad thing. But I did a couple Sheridan's in greater Washington.
• 39:45
  Speaker A: Okay.
• 39:46
  Speaker C: Yeah, yeah.
• 39:48
  Speaker A: Interesting. So when I moved to D.C. in 1985 and we reconnected when I was at the B.F. salt Company you were already developing a sharp view of the region. What did you see in the D.C. market then that outsiders didn't yet appreciate?
• 40:05
  Speaker C: Well, the D.C. market, the whole Northeast was so much more sophisticated than the Midwest was. And particularly in Detroit. And I think it was probably true in other Midwestern cities. The growth was relocation, unfortunately. From what one part, usually the urban core, to the suburbs. In D.C. the urban core was thriving and we had growth both in the suburbs and in the urban core.
• 40:37
  Speaker A: Both.
• 40:37
  Speaker C: So it was quite different. I never did alone in downtown Detroit. All in the suburbs.
• 40:46
  Speaker A: Yeah, well, I didn't either. And we didn't even look downtown. When I was in Detroit doing. You know, that was all mostly industrial.
• 40:54
  Speaker C: Didn't you guys get strong armed into doing the Renaissance Center?
• 40:58
  Speaker A: We were. We were a candidate, but we never. We turned it down.
• 41:03
  Speaker C: Oh, I thought you put debt on that.
• 41:06
  Speaker A: No, we turned it down.
• 41:07
  Speaker C: We turned that one down. Three major life cos did that.
• 41:10
  Speaker A: MetLife. Did it. Met.
• 41:11
  Speaker C: Yeah.
• 41:12
  Speaker A: Met, I think ended up being the lender there.
• 41:14
  Speaker C: And I know asked my manager at the time in Detroit how come you guys weren't involved? He said we weren't invited and we didn't want to be.
• 41:22
  Speaker A: Right. Al Tubman took the head of the company, Don Nab at pru. They did a tour, a personalized walkthrough of, you know, the project when it was built and they turned it down. They said we just don't like the risk profile. We didn't like the architecture either. The Portman, they didn't like the architecture. And that building, if you remember walking, it was a maze. Was really hard to figure out.
• 41:50
  Speaker C: Could get lost easily. Yeah, yeah. Well you remind me of something. I did a loan with Ford Motor Land Development company.
• 41:56
  Speaker A: Oh sure.
• 41:57
  Speaker C: On an office building across from Dearborn Town Center. And back then we did forward commitments. Right, Right. Yeah. So we were about ready to fund a of lot alone. And the story goes that Henry Ford looked out from the glass tower and didn't like the reflective glass that was on this major office building. And that's about the time they started coming out with a two pane tempered glass. And I don't know that the glass was really streaked but he didn't like it. So the glass came back off the building.
• 42:34
  Speaker A: Wow.
• 42:35
  Speaker C: And of course it took several months to get new glass to put on a building. So it was very interesting. I, I know the construction company and Ford Motor had a years long discussion about that, so. But we eventually funded only imagine.
• 42:52
  Speaker A: Yeah, well I grew up at where the Fords were in Gross Point so I saw all that and interacted with a few of them. Billy, the one who's now the chair, executive chair, was a choir member when I was in the choir at the school church. I worked as a young boy so my brother actually knew him better than I did.
• 43:13
  Speaker C: But anyway, reminded me of something I gotta tell you. So I'm working with a guy at ford Motor Development Company on this loan and I say to rates 10% and he goes that isn't going to work. That ain't going to work. I got to have a coupon below 10. In those days we didn't deal in eights or 16 or we didn't use decimal points yet. And I said how about nine and three quarters and two points? All right, we can do that. Well for me 91 3/4 and 2 points on a 10 year deal was about 1005, 10:06, I can't remember yield. So I got a better yield out of the deal. And he went and bragged that he got a sub 10 coupon. So win, win.
• 44:04
  Speaker A: There you go. Creative Straight creative negotiations there. I love it.
• 44:10
  Speaker C: I hadn't thought about that in years.
• 44:14
  Speaker A: So you eventually became regional director of Northwestern Mutuals Washington real estate office overseeing a vast multi state platform. What were the intentional choices that turned that office into one of the firm's most significant engines?
• 44:31
  Speaker C: Well, a few things. First of all, we had a Philadelphia office that we closed and we did very little business in the northeast north of Washington. In the early 70s we had a New York City office and I think it lasted two or three years. But back then the life companies that were based in New York and Hartford just owned that market. We just couldn't be competitive. But one of the things we did in the early 90s was start to expand into New York, Boston, New Jersey. So that helped us grow rapidly. The other thing is I had to kind of rebuild the staff because we were down substantial. So it was really important to me to hire good people that knew the market. There was a lot of good people out there, but they didn't necessarily know the market. So I got both. I hired somebody that was covering the New Jersey market to work for us and that helped a lot, et cetera, et cetera. But I think one of the biggest things is there was still a large mortgage brokerage community back then and a lot of Lico Lens Life Cos got their business from the brokerage community and there was nothing wrong with that. But I worked with the brokerage community. But I also said, who do I really want to work with and what do we want to do? So we went after the borrowers we wanted to work with, the joint venture partners we wanted to work with. So instead of the business choosing us, we try to choose the business.
• 46:06
  Speaker A: Interesting.
• 46:06
  Speaker C: And you know, I'd be asked, so who are your clients? And I name four or five. Well, who are the rest of them? I say we do a lot of repeat business with the same people. I think that was an intentional choice.
• 46:22
  Speaker A: So sure worked out. So, you know, one guy that I know worked with you and I got to know him quite well. He actually really solidified my passion for uli. The Urban Land Institute. And that was Nick Yankee.
• 46:37
  Speaker C: Absolutely. Nick did a great job for us in New York City over the years. Really opened that market up for us. He did some business with New Jersey. I mean, he got in with the big players in New York that we want to be in with and expanded our portfolio tremendously there. He also did a great job with uli. Exactly what were those annual meetings where we.
• 47:02
  Speaker A: The Trends Conference.
• 47:04
  Speaker C: Yeah, the Trends Conference.
• 47:05
  Speaker A: He ran that he ran that he land that. And that's what I went on that committee, and that's what he really inspired me. And that's how I got, you know, close to you guys a little bit.
• 47:16
  Speaker C: Because of Nick, and I think he did a great job. The end of that was usually icons of real estate to use one of your frame and everybody.
• 47:26
  Speaker A: Well, that was the.
• 47:27
  Speaker C: Yeah, nobody left that conference early. They wanted to hear what, you know, the.
• 47:33
  Speaker A: The first one was. Was Ben Jacobs. That was the first one. And that was it. Okay. The annual. It was. Yeah, it was the. They honored one man. Yeah, usually. Usually a man. I don't think they've done it. They did a woman back in those days, but it was.
• 47:46
  Speaker C: I don't think so, neither.
• 47:48
  Speaker A: So Mil, Peterson and several of the, you know, in the area.
• 47:53
  Speaker C: Those were big programs. Yeah. Yeah. You guys did a great job.
• 47:57
  Speaker A: Yeah, well, ULI was just, you know, it. I didn't realize. I started. I was in icsc, and I know you were involved with ICSC as well, and. And I enjoyed DCBIA and some of the other ones, but until I got into uli, I didn't realize what, you know, the influence that had. And the borrower saw sources that I wanted to go after.
• 48:18
  Speaker C: So, yeah, that was a great organization to be part of. And I wasn't, unfortunately. Yeah, yeah. I spent a lot of time on the DCBIA capital markets, and we ran those capital market programs every year. That was fun. And it was good contacts, and I spent a lot of time with niop. I was never on their board, but that opened up the suburban development community to me.
• 48:39
  Speaker A: And I always saw you at the Mid Atlantic ID Exchange for icsc, too. So I know you were involved in that.
• 48:45
  Speaker C: Yep, yep. Not in an official capacity, but yeah. Yeah, they were good programs.
• 48:51
  Speaker A: Yep. So you. You operated across debt, equity, construction, lending, joint ventures and acquisitions. How did you personally decide when to be conservative and when to lean in?
• 49:05
  Speaker C: Well, we were always conservative on the debt side because we didn't feel like we were being paid to take any risk. We want to take our risk on the equity side. And we weren't adverse to getting in early in terms of, for example, it would have been in the 80s or the late 80s, I guess the market wasn't doing well. And a developer came to us and he said he had a single tenant, new construction, he needed a construction permit, he needed some equity, and the tenant was willing to pay a reasonable constant against the cost of construction. But it was above market. The rent was well above market. Suburban There were some foreclosures going on back then, so we didn't really want to take an equity position. So we did a shared appreciation mortgage. So we had upside and no downside, and we gave them virtually all the money. Money at a decent rate. But our theory was, is that. Which doesn't work today. I want to quickly say that when the market recovered, rents would go back to where they were and justify new construction. And within a couple years they did.
• 50:19
  Speaker A: So what kind of property was it?
• 50:22
  Speaker C: It was a single tenant office building in Suburbs. Suburb. And so another example was the West Park Corporate Center. And we started that building in 1999 with a national West Group. Dealers Association. No, Native National Dealers Association.
• 50:37
  Speaker A: Okay.
• 50:38
  Speaker C: So there hadn't been a new building in Tysons in years. Remember all the bank consolidations in tysons in the 90s?
• 50:47
  Speaker A: Oh, yeah, early 90s, yeah.
• 50:48
  Speaker C: And there was no new construction. So we were the first building. New building coming out of the ground. People thought we were crazy. There was a major. Well, first of all, it was Nate and ourselves, so we had to go out and hire a developer. So we interviewed a number of developers and one of them, surprisingly asked me if he could throw his hat in the ring. And I said, sure. Didn't know you were interested in third party development. He goes, oh, yeah. Well, it turns out all he really wanted to do was find out what we were up to because he wasn't interested in it. But he also told me that this wasn't going to work. We were fools. It turned out to be a terrific investment that we still own. And the last time I talked to Northwestern is we were, I think, virtually full in both buildings in today's environment, we've upgraded the buildings. I mean, one was finished in 99 and 1 went 2001. But it also.
• 51:45
  Speaker A: That's the West End. You were the west end of Tyson's Corner there. I mean, basically at that time.
• 51:49
  Speaker C: Yeah.
• 51:50
  Speaker A: About as far west as you could be.
• 51:54
  Speaker C: Drive. Yeah, yeah, right. Yeah, yeah. So we got in early. We. We did a apartment project in Herndon with a joint venture developer. And there wasn't much around us at the time. There really wasn't. And this would have been again in the mid to late 90s, and people going, boy, you're. You're out here ways.
• 52:15
  Speaker A: Yeah.
• 52:15
  Speaker C: So we got the ground so cheap when we sold that we doubled our capitalization, not our equity, our total capitalization in like three or four years. Yeah. So getting in early at the right time really helped.
• 52:31
  Speaker A: Well, I think also understanding the people you're doing business with probably were. Was equally, if not more important.
• 52:39
  Speaker C: Absolutely. Yep, yep. I think we did probably the first. First four story walk up with the Busuto at Vienna Metro station. Oh, okay. The last time I checked, Northwestern Busuto still own that property.
• 52:56
  Speaker A: What's interesting, I interviewed Tom, as you know, and his first equity relationship was Copley, New York, New England Mutual. And they're basically the company that put them in business.
• 53:09
  Speaker C: Right.
• 53:09
  Speaker A: And so it's interesting, I think Copley evolved and had they not. I mean, they became Cigna in essence. I think Cigna in essence merged into New England Mutual at that time and then became their. Their primary equity relationship. I'm curious how you got in the door with them. Was that something you proactively went after or did they. Did Tom come to you?
• 53:32
  Speaker C: So I took a piece of ground back in Connecticut that was thrown from multifamily, and our joint venture developer had made a mess out of it. Mid-80s, things were really bad in Connecticut at the time and the economy in general. And so I wanted to sell the vacant ground and I went around trying to talk to people and I called up Tom Bazzuto, who was at what was before he formed his own company.
• 54:03
  Speaker A: He was at Oxford.
• 54:04
  Speaker C: Oxford. Oxford, that's right. He said, no, I wouldn't touch that property. So auspicious start with Tom. But I don't know exactly what year it was, but probably 94, 95. Brian Lee in my office contacted Tom. I don't remember why. And Brian started that relationship, which evolved in many different ways. And that could be a story in itself, which I won't go into, but it was a tremendous relationship. That was our first joint venture with him and we did several more after that. A lot of loans with him also. So, yeah, we broke ground on that, I think in maybe 97, completed 99, and we started phase one and maybe 2001.
• 54:51
  Speaker A: Well, I, I tried many times. I remember sitting with Tom that literally the year they. They the company opened in 1987. 88. And he looked at me, he said, you know, John, my best friend is one of your biggest competitors. And he actually worked with him, ran the Columbia national office there. And he said, I said, well, I'll do what I can do. So I came close once. I lost by an 8 to them on a deal, and then I lost a joint venture deal that I had a great opportunity to debt. The Bethesda theater project, which you're familiar may be familiar with. The Whitney. The Whitney, yes. I came that close on that too. So.
• 55:32
  Speaker C: So who was the guy? Columbia. Really nice guy. I just can't remember his name.
• 55:36
  Speaker A: In Baltimore? Yeah.
• 55:38
  Speaker C: Oh, Oh, I thought it was in.
• 55:39
  Speaker A: D.C. no, no, this was the Baltimore you think of. Jim Witt used to run the office in Washington at one point.
• 55:46
  Speaker C: I know the name, but that's not who I was thinking of.
• 55:48
  Speaker A: Jim Whip. I mean, and then. And then in Baltimore is. Well, there were two guys, actually, but the guy that was Tom's friend, Tom worked there. So that was the James W. Rouse Company before. Because, you know, Jim Rouse started a mortgage company right before. Before he built Columbia. So that was. That was his history. Anyway, so Tom worked there. He came out of hud. You know, Tom worked at hud. So I. I told the whole story in the interview with him. So he went then to work there. And, you know, they grew up, they worked together there. And so he joined Oxford to develop, and they channeled all their mortgage business through them, through the Rouse Company. Continued doing a lot of that. I said, you know, come on, you got to look at other options once in a while. Tom, you know, actually, John Slidell, his partner, introduced me to Tom. So I know you probably met John over the years as well, but many times.
• 56:51
  Speaker C: Good man.
• 56:52
  Speaker A: Yeah. So let's shift gears again here. You lived through multiple real estate cycles. Which cycle most permanently changed how you assess risk, leverage, and human behavior?
• 57:06
  Speaker C: You know, I thought about that for a long time, and we did go through a number of cycles. You know, the mid-70s, economic malaise, early 1980s, disintermediation, 1987, tax law change spurred a huge amount of development, which made the 90s really difficult. The Great Recession, as I called it, 2008, the housing collapse. Then Covid. So, you know, I think 19, the early 90s was probably one of the most difficult.
• 57:39
  Speaker A: That's what I'd say as well.
• 57:40
  Speaker C: Yeah. There were just crazy things going on, and it was a big debate about, do you take property back or do you work with a developer borrower. In most cases, we chose that if they were good people, we'd work with a borrower. And fortunately, things did recover. But the Resolution Trust Corporation, and really the beginning of CMBS. Remember the slogan, Stay Alive to 95?
• 58:06
  Speaker A: Absolutely. Sure do. And so 1991 was a dark year, there's no question.
• 58:13
  Speaker C: Yeah. I remember being at. Well, a couple things, interesting things that happened during that time period in my career is we worked with CAR to take equitable debt out of all their properties when they rolled them up into the CAR reit. Yeah, the CAR reit. The original car reit.
• 58:30
  Speaker A: That's right. And Car America.
• 58:32
  Speaker C: Gosh, it took us about a year to put that thing together with all the roll ups. And I remember the closing took like three days. And for us that was a huge loan at the time. And then we did basically the same thing with the Smith company. We did half the debt and Fannie did the other half. And so we worked with on that one. We worked with Goldman Sachs too because they were involved in investment banking.
• 59:00
  Speaker A: That was an IPO as well. That was a reit. That was an upreach.
• 59:05
  Speaker C: Yep, both of them. So we were involved in financing two of the first.
• 59:09
  Speaker A: Interestingly, I interviewed Brad Olson who was a equity originator for foreign investment and he brought the Dutch to the table in both of those REITs and they became the primary equity for a lot of those upreach. It's a fascinating story actually.
• 59:30
  Speaker C: So Goldman invited us to their December kind of annual review of the year and forecast for the next year, the real estate group. And we were there and two things happened. Tony Lapinto, who was the chief financial officer at Smith, Charles E. Smith Co. They asked him to talk about the upreach structure and everything. And he said, I really want to rec commend both Fannie and Northwestern Mutual for helping us make this happen. And so, you know, there's a bunch of lenders and borrowers there. It could have been advertising. And another thing at that conference was someone got up from another Life company was asked to speak. So what's, what are your goals for, for the next year? Our number one goal is to get our money back. Our number two goal is to get our money back. Our number three goal is to get our money back. And I thought, I can't be hearing that, can I? From a Life company person. They were desperate to get their money back. So we were buying loans at the time from other Life companies, some through Wall Street. My first one was with First Boston and it was an office building in D.C. that I tried to make a loan on. And I quoted 9, 5 8. And they got a loan from another Life Co at 9, 3 8. So now first Boston is selling the loan. And I had never bought a loan before. I never bought anything on Wall Street Street. And they said, well, we need your answer in 24 hours. Verbal. And by the way, when you deal with Wall street and you make a verbal commitment, it's as good as it happened. And if you don't, you're essentially blackballed. Oh well, that's a shock to Me? How am I going to get home office approval this quick? Anyways, I got home office approval in 24 hours, which was extremely rare for Life Company in those days. So I told you I quoted 9 and 5, 8 and lost 9 and 3, 8. What do you think we bought at the yield?
• 1:01:44
  Speaker A: I have no idea.
• 1:01:45
  Speaker C: Nine and five eighths.
• 1:01:47
  Speaker A: Wow. Okay.
• 1:01:48
  Speaker C: Bought it at a discount.
• 1:01:52
  Speaker A: So you made the same deal you would have made in the first place?
• 1:01:55
  Speaker C: Yeah, no, we didn't have the capacity office to do conference calls. I literally had two phones. One talking to First Boston and one talked at a home office because I couldn't connect them in a conference call. And it was quite an experience. The other experience that was interesting, that time period was a major Wall street firm came and asked us if we'd like to buy RTC bonds with them. And then there was also some cmbs involved. But the home office was concerned that this investment bank in New York didn't understand real estate. And at that time, it was probably a pretty good guess that they didn't. So they asked me to get involved and they said, you don't have to do any structuring with the cmbs or any of that. We're going to do that from the home office. But what we want you to do is to go through their portfolio with them because most of it right now is in the Northeast. Find out if they understand real estate. And so talked about properties in Northeast. I knew a lot of them. They knew what they were talking about. And so remember Whitehall? Sure, I think we did Whitehall 1. We participated in Whitehall 2. Yeah, that started out.
• 1:03:20
  Speaker A: That was Claude Ballard. Claude Ballard went over there. So when I started at Prudential, this guy was kind of the king of real estate.
• 1:03:31
  Speaker C: Oh, he was.
• 1:03:32
  Speaker A: We came the. I gave the oval offices in 1979 and he. I mean, he had a limousine. Not many institutional investors, you know, guys had limousines. Claude Ballard had a limousine because his relationships were at the top of the market. There was no one with better relations. He had the best Rolodex in the real estate in the 1970s.
• 1:03:56
  Speaker C: I never met him, but I knew his reputation. Absolutely.
• 1:04:00
  Speaker A: And so he went over to Goldman and basically built the real estate department. And then Mike Facciatelli then succeeded him. And they, of course, became a powerhouse.
• 1:04:10
  Speaker C: They did.
• 1:04:11
  Speaker A: Whitehall was a big part of that. Anyway, so that's a backstory there. Yeah.
• 1:04:15
  Speaker C: Very interesting. Yep.
• 1:04:18
  Speaker A: So I'm gonna. I'm gonna. I. I missed a section. I'm gonna go back a little bit. Sure. Sorry. But from night roughly 1985 to 2006, we competed for many of the same borrowers and relationships because I was at BF Salt Co. Representing Aetna, Crown Life and Century and Northwest Nationwide Life. So we were doing a lot of life business competing with you guys at the lower end. Although Aetna was bank head to head with you on the large deals. Typically from your perspective, what separated the borrowers who earned long term trust from those who merely chased terms?
• 1:04:58
  Speaker C: First of all, they were good people, you could trust them, they were knowledgeable people. They also usually did only one property type. Back then there really wasn't anything as mixed use. And people who try to do more than one property type usually didn't do well. So I think that was the difference. They were also usually looking for a fast execution or execution had something to do with it. And you know, we developed a reputation for all always delivering on what we promised and just going back a little bit. As I mentioned, we sold a lot of whole life policies and those whole life policies were often sold on the dividend scale. So we had to keep our dividend up. So we often weren't the cheapest guy in town. So we had to differentiate ourselves somehow. And so we try to differentiate ourselves to flexibility and service. We do some things that other people wouldn't do that, you know, more complicated deals.
• 1:06:06
  Speaker A: Construction permanent was the big one.
• 1:06:08
  Speaker C: And you know, nobody else was doing that at the time.
• 1:06:10
  Speaker A: That's right.
• 1:06:11
  Speaker C: We did that for a long time all by ourselves. And that was, that was probably for a while. For a few years in the mid-80s, that was the only way we could do a long term loan on an office building because we could beat on everything else. But we did a lot of construction firms give you an example of flexibility. So there was a building in Boston, Virginia, single tenant. It was built on a construction loan and the amount was $120 million, which was a big deal in those days. Yeah, the borrower now wanted to go long. I can only come up with $115 million. And he said, I got to have $120,000. I don't have the equity, I got to pay this loan off. I said, all right, I'll make you a $5 million participating second. He said, okay. So I sent the deal in a home office. Our finance committee was usually Friday morning and at that point, finance committee had to prove every loan, especially this one, because of its size, scale.
• 1:07:21
  Speaker A: Yeah.
• 1:07:22
  Speaker C: So my manager in Milwaukee said, calls me up on a Thursday afternoon, goes, bill, I can't do this Deal. I just can't do this deal. It's just too risky. So we're talking. The head of investments comes in. What are you guys talking about? Guy in Milwaukee says, well, Bill's got this loan, but I just can't. I just don't see us doing it. It's too risky. And so the head of investment says, well, tell me a little bit about it. And I start telling about it. Next thing I hear is my manager in the home office says, bill, how long are you going to be there Thursday night? I said, until you call me back. About 20 minutes later he calls me back and says, going to committee with your deal tomorrow. Wow, that ice went out. But it was an example of things we did. You know, we had a deal up in New York City on the High Line and right off the High Line, transitional neighborhood construction, permanent, huge project. Fairly young developer. We kind of took a risk with him, but we could see the neighborhood was changing the better. There were some nearby uses that were a little hard to explain at home office. And I won't go any detail on that. They didn't stay there much longer, but the market in New York at the time was turned for the better and condos were in. And he came to us and he said, you know, we want to convert this building to a condominium. And we said, well, you got a long term loan, paint it off, it's going to be difficult. And he said, well, you know, there's so much money to be made. And I said, well, you got a formula on which we could share some of that.
• 1:09:23
  Speaker A: There you go.
• 1:09:24
  Speaker C: So we ended up taking a modest interest in his profits and reduced. He paid off. We, we had a structure so we could reduce. I mean, we leased units over a period of time and we reduced the loan to just the retail on the first level. And he laughed all the way to bank and we were pretty happy. And we earned his lifelong appreciation to do other deals.
• 1:09:54
  Speaker A: That's great. Yeah, yeah, that's creative.
• 1:09:58
  Speaker C: Yeah.
• 1:09:59
  Speaker A: Our life company to do a condominium conversion. That was a first. Yeah, I don't think anybody else could have done that. No. Over the decades of competition, how do you compete hard without losing your compass? And why does that matter more than ever today?
• 1:10:18
  Speaker C: Boy, we've gone through some cycles where people were just crazy. I mean, 115 debt coverages. Fortunately, at the time, interest rates were high enough that when it came time to refinance, they were usually at lower rates. But the markets just got carried away various ways.
• 1:10:37
  Speaker A: Well, let me share. I mean, I don't know if you did business. Well, you did business I think with Blake Real Estate at one point, I assume.
• 1:10:46
  Speaker C: Several times. Never did okay. You always beat us out apparently.
• 1:10:50
  Speaker A: I did a couple of times. So I went in and met with Steve Lustgarten who I've interviewed for the podcast.
• 1:10:56
  Speaker C: Nice guy, like him a lot.
• 1:10:58
  Speaker A: I, I worked really hard to try to get some going with them. We had existing loans with them when I came here. So we were. I inspected their buildings annually the ones for annual inspections of the loans that we had the Bender family and you know they had a rift back in the early 80s that I didn't. Wasn't involved in but I learned a lot about it. But anyway, their mantra was rate. They wanted the lowest deal, the cheapest rate they could get because they were very conservative underwriting. So their loan to values were averaging 50 and less. So that was the deal. If you could bring the best price, you'd win. So it was always an auction and price and then in terms too. Steve was perhaps one of the. He and Gary Rapaport were the most detail oriented negotiators of loans I have ever seen.
• 1:11:50
  Speaker C: I, I agree 100%.
• 1:11:52
  Speaker A: These guys, I mean they went down to every letter on the out of a. Of a document and every number was analyzed to multiple decimal points even beyond the. So doing rate locks for those guys was always interesting. So but I brought Principal Mutual to the table and at that time they were going to compete on rate and we got an 80 spread on two deals for them and that was no one could even come close. So Steve was forever debt to me to bringing that. This was on their largest loan, their largest property in their portfolio which was the 1600 G Street which is a 640,000 square foot office building leased to four GSA tenants. So the Veterans Administration and I think GSA had a piece in there and the White House and this is two blocks from the White House. It's very close there. And Secret Service actually had an office on top of and they had on the roof. They had a setup looking at the White House physically because they were high enough to see the grounds from there anyway. So it was a fascinating loan in many ways, but I think it was a 50%, not even that. It was a 30 or 40% loan to value deal. But that's all they wanted was Rate.
• 1:13:27
  Speaker C: Principal was a major competitor of ours. Yeah, they beat us in a lot of deals by rate.
• 1:13:34
  Speaker A: And it's interesting because I didn't correspond. They don't have correspondence.
• 1:13:39
  Speaker C: Nor did we.
• 1:13:40
  Speaker A: They came in to meet with us regularly knowing that even though we did correspond, they could beat our lenders frequently. And so I developed a very strong relationship with them because of that. And I did several other deals with other borrowers, hours with them too. So anyway, that was. Go ahead.
• 1:14:00
  Speaker C: You just reminded me a story of underwriting. So we had one of better life insurance agents in the country come and speak to the real estate group at one point. And he said, you know, in many respects our business isn't all that different. He said, I'm out there looking for clients. And he said, I find a business and then we have people underwrite the life insurance business and most of them get accepted, but not all of them. And he said, your business is no different. You go out and find the borrowers and the home office has to prove the deal. He said, it's like a big funnel with a strainer at the bottom. And he said, the only way you're going to get a lot of stuff fall out of the bottom is to pour a lot in the top.
• 1:14:52
  Speaker A: That's right.
• 1:14:53
  Speaker C: Never forgot that. Yep. You got to look at a lot of deals and you may strain a lot of them out before they even get to the home office.
• 1:15:01
  Speaker A: Absolutely.
• 1:15:02
  Speaker C: But the story was, is if you're not looking at a lot of business, you're not going to do a lot of business.
• 1:15:07
  Speaker A: You know what's interesting and what you've distilled for me a little bit, Bill, because I was a mortgage banker for so long, 20 years plus, your role here in the regional office was almost analogous to what I did as a mortgage banker because you had to sell your home office and the same time you had to sell your borrower on terms that the home office allowed you to do.
• 1:15:30
  Speaker C: So I gotta tell you, I thought about that more than once.
• 1:15:34
  Speaker A: Yeah. So in essence, you were a mortgage broker too.
• 1:15:36
  Speaker C: I was a middleman.
• 1:15:38
  Speaker A: Exactly.
• 1:15:39
  Speaker C: Oh, yeah. Oh yeah.
• 1:15:41
  Speaker A: So you knew. Exactly. So it's interesting. I don't know if you remember when Bloomberg first came out with the terminals and stuff. And so I remember in the, in the mid-80s, we would see the mid. The Bloomberg we hired, we bought one for our office because the way. That's the way the life companies locked rate. And so we, we'd call up, it was Aetna primarily that we did. So we call up and we say, okay. And we talked to the borrower and literally have two phones like this to do rate locks on deals. And so we had a Bloomberg terminal. We look at the terminal and say, okay, when the rate reaches X, we want to lock rate. And it was like that. So we had a simultaneous phone call. And it was in essence like a trade on Wall street kind of thing.
• 1:16:27
  Speaker C: I hated the whole lock rate business. It was awful. But we had the same thing we had when a borrower said he ready to lock. We had to call the home office and they'd give us a rate and it was good for about an hour. And it wasn't fun rate lock business. It just wasn't because, you know, the next day rates would go up or down and, you know, people would feel bad one way or the other. And my response always at the home office was we do a lot of business just average in and average out.
• 1:16:57
  Speaker A: It's the long run. You have to look at the long run. But in that game, they wanted to play short. That's just the trading business.
• 1:17:05
  Speaker C: I had a borrower, I think the rate was about 11 and a half percent, the commitment. And rates start falling dramatically. I mean, dramatically. I can't remember exactly what year it was. And all of a sudden he stopped sending us closing requirements and he didn't return phone calls. And the commitment was going to expire soon. And finally we get a letter from his attorney saying he doesn't tend to close, so the commitment terminates. And I've got a letter of credit written on a D.C. bank. And the borrower was on the board of the bank.
• 1:17:50
  Speaker A: Oh, that's interesting.
• 1:17:52
  Speaker C: We were very concerned. So the home office sent me the letter of credit. I went to the bank on a Friday morning and said, I'd like to cash this letter of credit. It's totally green, no conditions, clean. Please send the wire information to this bank. And I said, okay, we'll do that. And I said, and I'll wait in the lobby till I get confirmation from home office that the money's at the bank. Oh, you don't need to do that. And I said, I got my lunch in this hand and a briefcase in this hand and I could be in your lobby as long as need be. And about an hour later I got confirmation from the home office that we got the money. Never did business with that guy again, but I'd say rates fell about 150bips.
• 1:18:44
  Speaker A: Yeah.
• 1:18:45
  Speaker C: So? Well, I had another situation where had done a loan with a quality developer of quality real estate. He did an upreach. Now he's part of a big reit. Rates had fallen and he asked if he could pay off the loan. And I said, sure. Terminal loan, yield, maintenance oh, we don't want to pay yield maintenance. I said, well, why would I do anything less than yield maintenance? It doesn't make any sense. I said, we got to reinvest the money, et cetera, et cetera. So time passes, and he calls and he says, so? And so the president of the reit, which was a very large REIT at the time, and I would like to come down and talk to you. And I said, sure, I'm open to talk anytime. So they arrive in the morning, we sit in the conference room, and the president of the REIT says, well, Bill, thanks for agreeing to have this meeting.
• 1:19:45
  Speaker A: So?
• 1:19:46
  Speaker C: And so the developer who had done the deal originally and sold his property in the upreach says, you're willing to allow us to pay off this loan? And I said, gosh, I hate to say it, but that's 100% opposite of the truth. And he said, really? And I said, yes, sir. I'm sorry that you came in here under false pretenses. I said, why would I hurt the policyholders by taking a loan back that's got a nice rate on it and there's your maintenance. He looks at his other guy that, you know, was the original borrower, and he didn't say anything. And he stood up and he said, bill, I appreciate your time.
• 1:20:35
  Speaker A: Thank you.
• 1:20:36
  Speaker C: We're leaving now. We ended up doing about a billion dollars with that company, so we had a really good relationship with him.
• 1:20:43
  Speaker A: Obviously.
• 1:20:46
  Speaker C: When a billion dollars was a lot of money today, what happened to the guy?
• 1:20:50
  Speaker A: What happened to the situation?
• 1:20:53
  Speaker C: I think he kind of lost his voice with the reit, and.
• 1:20:57
  Speaker A: Yeah, I bet.
• 1:20:59
  Speaker C: I think his. His chief financial officer was more involved in things after that. Yeah.
• 1:21:04
  Speaker A: Yeah. Interesting.
• 1:21:06
  Speaker C: Wow, Interesting stories.
• 1:21:08
  Speaker A: What's the decision you made during a downturn that looked wrong at the time but proved right with patients?
• 1:21:17
  Speaker C: Well, it. It wasn't necessarily a downturn, but I wanted to do a large, very large suburban shopping center, and it had good tenants. I liked it a lot, and it was pretty big. It was with a new developer, and I didn't get way far along.
• 1:21:37
  Speaker A: Can you say which one?
• 1:21:38
  Speaker C: I'd rather not, because, yeah, it probably wouldn't reflect well on the. So anyways, the home office turned me down, and I really wasn't happy. I pushed pretty hard, and finally my boss from Milwaukee said, did you already make them a promise? And I said, no, no, I wouldn't go that far. But about five years later, two of the anchors went out, and he had. And in order to get a new anchor in he had to demolish one of the buildings. Buildings. Thank God I didn't do that deal.
• 1:22:14
  Speaker A: Yeah, probably one of the few.
• 1:22:17
  Speaker C: I regret that I didn't do that. I.
• 1:22:20
  Speaker A: So that's the opposite of my question. But that's an interesting one. Yes. So what looked right at the time ended up being bad.
• 1:22:29
  Speaker C: So I'm thinking I got one of those too.
• 1:22:31
  Speaker A: The opposite. So what looked wrong at the time but proved right?
• 1:22:34
  Speaker C: So in the late 80s, a guy that we had a relationship with wanted a hotel loan and he was coming off a construction loan. And we researched it. There was good demand, it was a great location, he had a superior product, he had managed a number of hotels or owned and franchise owner. Everything was great. Talk about flexibility. We couldn't fund his whole loan, construction loan. What we ended up doing, we ended up funding the whole thing with what we called a reverse earn out. So he posted, we took out his whole construction loan and he posted a letter of credit for some top portion of our loan. And after the third year, because hotels usually take about three years to ramp up after the third year, we resized the loan. So the market was tight. The first year, boy, he did well. The second year he did well. The third year, the economy turned down and suddenly about four new high end hotels opened up in Northern Virginia. And this one went into the tank and we had workout after workout after workout with this guy, good guy, he knew what he was doing. There's just way too many hotels built at the same time. I guess everybody, shortly after he did his, they decided that, yeah, the market is pretty good, let's do it. And then the economy went bad. And so we had several workouts on that building. And I remember what the rate was. So this gives you an idea of what time it was. The rate was 10.5%. And so during the workout we. Well, the first time we just reduced the rate. The second time we went to a cash flow mortgage with a right to share in the profits in the future. So eventually the market recovers, he sells his whole portfolio to a REIT and we got all our money back. So perseverance and letting him run the property during the downturn worked. And so I did an IRR on it and the IRR turned out somewhere between 7 and 8%. It wasn't 10 and a half, but we didn't lose any money on that hotel. That had to be the early 90s. And so that's perseverance. One of the things we learned was if you had the right people, don't knock the property over, it's only going to get worse. Let them. Let them run with it, get paid for it.
• 1:25:30
  Speaker A: But in the long run, it was good real estate, too. In the long run, it was. Which is good. Yep. Yeah. That's interesting. Can you share which property that was?
• 1:25:43
  Speaker C: I'd rather not, because.
• 1:25:44
  Speaker A: Okay.
• 1:25:46
  Speaker C: Yeah. Yeah.
• 1:25:47
  Speaker A: All right. That's fine. So how do you view today's tension between institutional capital discipline and the entrepreneurial necessity? And who do you think is adapting better in today's market?
• 1:26:02
  Speaker C: Well, you know, I think. I think the institutions have gotten fairly entrepreneurial in the data centers, for example, and we probably should come back to those in a few minutes. But I don't see a big divergence there, although I do see more private money being more aggressive. I see office buildings getting knocked down from multifamily. I see retail being purchased and maybe the movie theater getting knocked over. And we zone for multifamily. So there's some aggressive stuff out there. There's people that are going to make money.
• 1:26:39
  Speaker A: Well, you mentioned data centers. I have to go to that a little bit, especially since Northern Virginia is the leading data center market in the world.
• 1:26:49
  Speaker C: Man. I'll tell you, you drive out Manassas and Gainesville, and there's just. They're going up every place. It's on the. Unbelievable.
• 1:26:58
  Speaker A: Yeah.
• 1:26:58
  Speaker C: I don't know a lot about them. And, you know, early on, data centers were real estate, and now they're gigawatts. And what do I know about gigawatts?
• 1:27:08
  Speaker A: It's a different measurement.
• 1:27:10
  Speaker C: It is, it is. But what I do get concerned about is, I mean, we all know that is going to be enough electricity run these and, you know, are they going to use the small nuclear packages or the gas turbines? And, you know, is what's going to happen with all that? But, you know, I worry about these being built for these large language modules and what happens when they get trained or a new chip comes along that. That says I only need half the square footages I used to need, you know, Exactly. Is. Is there a technology risk there? Some of these things are getting mammoth in size, but that area.
• 1:27:55
  Speaker A: It's interesting, though, the hu. The human ingenuity is. Is pretty amazing how we adapt to. To things over time. So you might have these great big sleds. They were built for one purpose, and they end up becoming something completely different over time. But getting to that, let me get to the real estate piece that just blew me away. About three years ago, I interviewed Art Fusillo of Lerner.
• 1:28:22
  Speaker C: Oh, sure.
• 1:28:23
  Speaker A: And he explained, he told about a site in Gainesville that they had for a regional mall development. 29 and new to battlefield 66. Yeah. So they had a huge piece, I think it's 60, 70 acres. They had right at, right after that, right before that interview, they had just sold that, that parcel, I believe, 3 to $400 million, that land for data center use. And I said even if you built the Tyson Tysons one again at that location and you had all the anchors, you wouldn't have that kind of valuation on the land anywhere close to that. In fact, the shopping center itself wouldn't have sold for that.
• 1:29:10
  Speaker C: The same thing down in Stafford. I know they had to. They had the 1031 and no apartment buildings. They had so much cash. Yeah. What a nice problem to have.
• 1:29:19
  Speaker A: I mean, but you never, when you bought the land in the first place, had ever suspected that use and that valuation in time. So to me that's lightning striking. And I'm wondering if there's any other situation like, like that in your career that you can think of, of land that became so valuable that you. How did that happen?
• 1:29:46
  Speaker C: You know, like I told you, we doubled our capitalization on that apartment building because we got in early. But we also joint ventured an industrial parcel just west of Dulles Airport and it was with a European investor who owned the ground. And there was a development company that was in for a small piece, but they were really in it for the development fees. And we structured a long term takedown on the land. And at the time we might have been overpaying for because they were contributing it to the joint venture over a period of time, but we had a set price on the, the value of the contributed land and the home office really gave us a rough time. We think you're overpaying for this ground. And we said maybe a little bit, but we got a long term takedown.
• 1:30:41
  Speaker A: And what year was this Bill? Set of curiosity.
• 1:30:45
  Speaker C: Yeah.
• 1:30:47
  Speaker A: What decade even was it in the 90s?
• 1:30:50
  Speaker C: I'm going to say. Five. Yeah, yeah, got it. Well, that land on the last takedown, we were probably taking it down for one third of the value. It was that valuable. Yeah, I mean the con, you know, I mean, contract was in place in the first. Excuse me, first couple years it went pretty slow and then it just took off.
• 1:31:20
  Speaker A: So what were the uses? The end uses?
• 1:31:22
  Speaker C: Small, not small box, but medium sized.
• 1:31:25
  Speaker A: Warehouse distribution.
• 1:31:26
  Speaker C: Yeah. Yeah.
• 1:31:29
  Speaker A: Okay, interesting.
• 1:31:30
  Speaker C: Well, it just took off.
• 1:31:32
  Speaker A: Was that Ed St. John? Was that his company? That was your borrower there no, no. Okay.
• 1:31:38
  Speaker C: A foreign family and I can't remember their name right now, but I think we still own it with them as far as I know. I say we Northwestern.
• 1:31:45
  Speaker A: I know Buchanan had a bunch of properties out there, there in that market and.
• 1:31:49
  Speaker C: Yep, yep. This was literally. Oh no. What's the name of the road on the other side was the western portion.
• 1:31:57
  Speaker A: Of the airport Old Ox Road or.
• 1:32:00
  Speaker C: It might have become a parkway eventually, I'm not sure.
• 1:32:03
  Speaker A: But literally was a big development out there and yeah, there were a lot of industrial.
• 1:32:08
  Speaker C: We call it Northwoods I think.
• 1:32:10
  Speaker A: Northwoods, okay.
• 1:32:11
  Speaker C: Yeah, I think that's what we call it.
• 1:32:12
  Speaker A: Interesting.
• 1:32:13
  Speaker C: But literally the other side of the road was the airport.
• 1:32:18
  Speaker A: All right. Are we properly recalibrating expectations around office mixed use and long term urban demand or still anchored to outdated mental models?
• 1:32:33
  Speaker C: What a big question, John. Well, as I said earlier, I think maybe the office to resi conversion is going to be overdone in a lot of markets. So I'm concerned about that. It's an interesting thing right now in New York city and in D.C. we're seeing new construction by tenants who want the best space and there isn't any. I mean who gets new construction when we got 20% or more vacancy? There's definitely a flight to quality. I mean that's come and gone over the years, but it's really a strong.
• 1:33:16
  Speaker A: Especially in the office space.
• 1:33:18
  Speaker C: What happens to that stuff 10, 15 years out?
• 1:33:21
  Speaker A: I mean it clears. It clears.
• 1:33:27
  Speaker C: I was told in D.C. that the rent for a new building is 100 bucks triple net. So call it 140 bucks a square foot. Yeah, but you can go down the street and you can't get a tenant.
• 1:33:42
  Speaker A: So no, it's, it's a divergence like we've never seen.
• 1:33:46
  Speaker C: Very bifurcated market. Wow. No question it's scary.
• 1:33:51
  Speaker A: That's almost in every, not just office, that's almost in every sector because of functionality and the, the acceleration of technology and the accelerate in technology and building equipment, supplies, systems and you know, just personal feeling about space. So I've talked to many people about this but to me you can't really build anything that's not mixed use anymore unless you've got a single tenant user that says this is what we want. But just about every new construction building is going to be, unless it's industrial, let's say is going to be mixed use going forward. In my opinion. You're going to have hotels, office, retail, all that straight shopping centers to me are almost the thing of the Past you're going to see mixed use like that. When's the last time you saw a big regional shopping center being built that's just retail? I haven't seen one of them. Huh?
• 1:34:57
  Speaker C: Yeah. Just the opposite. Yeah.
• 1:34:59
  Speaker A: Yeah.
• 1:34:59
  Speaker C: There's. There's another bifurcated market.
• 1:35:02
  Speaker A: Yeah.
• 1:35:03
  Speaker C: Boy, they, you know, they. I guess they still call them trophy malls. I don't know. But there's trophy malls and then there's everything else, and there isn't much in between in Washington.
• 1:35:13
  Speaker A: There's really only one now, in my opinion. Although Tysons, too, would argue that. That they're. But Tyson's Mall is the only real trophy mall in the Washington area.
• 1:35:24
  Speaker C: You stand alone on that. Yeah, it took three of us, $750 million.
• 1:35:31
  Speaker A: So I'd have two podcast guests that tell the story about that property that are fat. It's actually three podcast guests. So the first one was Vernon Nar, who actually sold the land that the Ted Lerner owned.
• 1:35:45
  Speaker C: Really? Wow.
• 1:35:47
  Speaker A: He sold that property to Lendorf out of Texas, out of Dallas. They were the group that bought it from Lerner and Max Ammerman, who was the original development group. But what's also interesting, Bill, and you may not know this, that was bought, that was developed on a leasehold. That was a leasehold shopping center. The landowner, I didn't know License 1, and the landowner was Sid Folger, who's Brian Folger's father.
• 1:36:15
  Speaker C: No.
• 1:36:16
  Speaker A: Yes. It was a ground lease, and I didn't know that either until Vernon told the story.
• 1:36:21
  Speaker C: Very interesting.
• 1:36:22
  Speaker A: And they couldn't get Ted Lerner to agree to sell that property. He said he had. He had several times tried to pursue it. So that's interesting story about that property.
• 1:36:32
  Speaker C: Oh, yeah.
• 1:36:33
  Speaker A: And then another story, it was Bob Kettler talking about his development of the residential there and how they did that in integration with Macerich and Hines, who is the office developer on the new version of the property now. And then I had our friend at Heinz who ran the office at that time, Andrew McGeorge now runs the office, but his presence was Chuck Waters.
• 1:37:03
  Speaker C: Oh, Chuck. You know, Chuck, Bill. Oh, yeah, yeah.
• 1:37:06
  Speaker A: Well, Bill Alsop, of course. But. Yeah, but Chuck took over for Bill when. When this was going on with Tyson's Corner, because they built. The Intelsat headquarters, basically was built by Heinz there. And of course, Intelsat's a whole different story in Northwest Washington, but that he explains how they work together with Macerich and all that. So it just. I mean, that property is fascinating. You could do a whole book about.
• 1:37:35
  Speaker C: That property alone, you could. So I can't remember exactly what year it was, but we had done a lot of deals with Mace Rich over the years. A fair number of joint ventures on malls. And then they became a reit. And of course we stopped doing that, but we were loaning them money. And so we did Queens center for them up in New York. In Queens, obviously, and very large deal. And we're sitting there, I guess it was a closing launch or something. And some of the top people from Macerich were there, and they said, so, you know, a couple things we want a loan on, we need to refinance. Tyson's one. And we also want advice on who we should work with to build multifamily. And so my boss, the head of real estate, said, talk to Norton right there. He can answer both questions for you. So I gained a list of my three favorite multifamily borrowers or venture partners, and they chose one of them, which was obviously Keller. And then we shared that loan with two other lenders. I'm pretty sure Prue was one of them. And I can't remember who the third one was, but apparently it came up for a refinancing a year or two ago, and we declined it. And I think they went. CMBS surprised me. Well, the local people at Northwestern want to do it, but the home office didn't. And the mall did have a little downturn when some of the bigger box tenants went to Mosaic. Our house? Well, no, our house moved to Tysons, too. One of the big boxes moved to Mosaic. And so that end of the mall was. Had a lot of vacancy. And when I was there just recently, I think they backfilled it. It's always going to be a good mall.
• 1:39:31
  Speaker A: Yeah.
• 1:39:32
  Speaker C: And when I was there, it was packed. We didn't refinance it, which I. The local people thought we should. So they. They went with cmbs, I think. I think I saw that, yeah.
• 1:39:45
  Speaker A: Well, so your borrower at that point was Macerich. How did you work with Permanent?
• 1:39:50
  Speaker C: Alaska Permanent Fund, mostly, yeah.
• 1:39:52
  Speaker A: Oh, I see. Okay. So they were the joint venture partners at Macerich at the time.
• 1:39:56
  Speaker C: Yeah. You know who originally was a joint venture partner was the developer out of Rochester, New York. And I think Macerich might have bought them. I'm not sure. Somehow Macerich ended up. I think it's a 90 10. Not that it matters, but it's mostly Alaska Permanent Fund, or was.
• 1:40:16
  Speaker A: Yeah, I was just, you know, the involvement of Kettler and. And. And Heinz. I'm just curious if there Was a lot of negotiations with regard to making all that work to form those. Those ventures there and make that. Or was a condominiums regime to cut that out? I would think some extent.
• 1:40:36
  Speaker C: Well, there were. Yes, it was that. But there were also a lot of cross easements and stuff. There was. There was a lot of paperwork.
• 1:40:44
  Speaker A: The documentation must have been tremendous on that.
• 1:40:47
  Speaker C: Yeah, yeah, yeah. We had one in Boston that was more difficult though. Oh yeah, yeah. So it was in the Back Bay. This deal was so complicated. Fortunately, we had a very good guy on our staff who had been an attorney and got into real estate. He could do this stuff. It was a multi use building. So I believe the underground parking structure was owned by the city. The first level was a Target department store. Oh, no, no, it was. I think it was mo. Multi tenant retail. I think the Target was the next level up. And then there were two towers. One was office and one was residential and paper wise error rights and all that. It was the most complicated deal that I was ever involved in. But fortunately.
• 1:41:43
  Speaker A: Who's your borrower on that?
• 1:41:46
  Speaker C: Samuels.
• 1:41:48
  Speaker A: Big developer. Yeah. Yep.
• 1:41:51
  Speaker C: Very good developer. Yeah.
• 1:41:53
  Speaker A: Well, that was the portfolio that Eden Spot, the Samuel's portfolio to get things going for them or at least they formed a venture with them.
• 1:42:04
  Speaker C: So I'm not sure it was the same Samuels. You're talking about a lot of retail.
• 1:42:09
  Speaker A: Yes. Different Samuels.
• 1:42:11
  Speaker C: I think so. Yeah.
• 1:42:12
  Speaker A: Okay.
• 1:42:13
  Speaker C: These guys did mostly mixed use in Boston.
• 1:42:17
  Speaker A: Okay.
• 1:42:18
  Speaker C: I don't know that everyone else had.
• 1:42:19
  Speaker A: A boss because Jody talked about that when I talked to her about, you.
• 1:42:23
  Speaker C: Know, there was a. There was a Samuels company based in New York that did a lot of retail. Was that the one could have been.
• 1:42:31
  Speaker A: That had Ahold relationship? They in essence, all their centers were stop and shops. It was a stop and shop portfolio that she acquired and that's how she developed a relationship with Ahold.
• 1:42:42
  Speaker C: It could have been Samuels. Before I got involved.
• 1:42:45
  Speaker A: I thought they were Boston based is what I remember.
• 1:42:48
  Speaker C: Maybe it was before I got involved with them.
• 1:42:50
  Speaker A: Yeah, yeah, she bought. It was. They were both building mostly strip centers because that's what obviously they invested in. But anyway.
• 1:42:58
  Speaker C: Okay.
• 1:42:59
  Speaker A: Yeah. Interesting, interesting. So let's see. Are we. Let's see how. How do you see AI influencing commercial real estate from underwriting and asset management, decision making and government?
• 1:43:15
  Speaker C: I'd like to say that's above my pay grade and not answer your question.
• 1:43:18
  Speaker A: Well, you're a Cheby Chase Land company and obviously that came and we're starting to use it.
• 1:43:23
  Speaker C: Yes, I Think it can do a lot of the rote work for you. And it certainly could help with underwriting if you got a good database. I mean, back in the day when I was doing that, I would have loved to speak into the microphone and say, give me all the comps in an office building. That's 20th M Street in Washington D.C. and have all this information pop up with cap rates and a beautiful spreadsheet too. Yeah, yeah. And so theoretically, that's all possible. But I've said before, when I told you about the truck terminal and that multifamily deal in the mid Atlantic, you still gotta look at it, man. There was a deal in D.C. too, that multifamily development. I thought it was a little bit east of where it should be, but probably okay. And then I went down there and I had looked at the plan ahead of time, but when I went down there, I realized that it hit me more that the entrance to the parking garage was in the back. So you had to go down a side alley and take a turn to get in the parking garage. What female is going to do that? I said, no, I'm out of here. I mean, I used to when we were at 113320 street, our access was off an alley in the back of the building to parking. And when I worked really late or once in a while on weekends, I didn't feel real comfortable when that garage door went up and I pulled out into a basically dead alley by myself. And the neighborhood was fine, but you just. You just never know. So, you know, keep an eye on things.
• 1:45:10
  Speaker A: Interesting.
• 1:45:10
  Speaker C: Yeah, yeah.
• 1:45:13
  Speaker A: So you talked about enhancements with AI. What do you believe most main remain fundamentally human in our business?
• 1:45:23
  Speaker C: Oh, like I just said, you know, really understanding the property and the nuances and why people would want this particular site for this particular use and not someplace else. Never project yourself into the market because you want it to market, but think deeply about who is the market, what the demand is. And I don't think AI can do that for you. They can tell you that buildings are 98% occupancy, but that doesn't mean that that's a good location, that's a good building.
• 1:45:51
  Speaker A: Well, I'm going to go beyond economics a little bit into more of a physical feeling about real estate. And that's a hard thing to underwrite. But you know, a good property, when you walk in it and you don't even have to look at the economics, you know, the feeling of what and why it is a good real estate. Good feeling. And that isn't necessarily a financial purpose. It's as a gut feeling. It has all the elements it really needs to have as a good property. And AI, I don't think could do that to a value a good real estate. How it feels, how it sense. Does it have all the components it needs? You could put it on paper, but you can't until you see it and feel it and walk it and how it interacts. A property that I'd like to use as an example of that is the Wilson in downtown Bethesda, which is an Oliver Carr development. I don't know if you've ever been there.
• 1:46:53
  Speaker C: I have.
• 1:46:55
  Speaker A: And so that property, you walk in the lobby there, and I walked with Ollie through that property to the. As you walk in the lobby to the right is the access to the Tate coffee shop, which is accessed off the lobby. In the lobby, he has a second. He has a tiered mezzanine space with seating on it, and then he has seating on the ground floor. And it's kind of a cathedral type office. You just have this sense of place there that is really unique. And he's done a hell of a job. That's a feeling. You know, it's good real estate when you walk in and feel that. And it's interesting. He's competing with another building down the street that Doug Furstenberg developed that was leasing at the same time, and they were really struggling. And even though they have a hotel next to it, Oliver, you know, car would win head to head battles with them all the time. And I just. There isn't necessarily an economic reason for that.
• 1:47:59
  Speaker C: Mm.
• 1:48:00
  Speaker A: It's interesting. Anyway.
• 1:48:01
  Speaker C: Well, have you been in the. The first building that Pizzuto and Chevy Chase did at Chelsea flight?
• 1:48:11
  Speaker A: Are you talking about the Ritz Carlton or the apartment building?
• 1:48:15
  Speaker C: The first apartment building, yes, I've been to.
• 1:48:17
  Speaker A: I've toured the entire property project. Yes.
• 1:48:20
  Speaker C: You walk into that lobby and see the stairway.
• 1:48:25
  Speaker A: Yes.
• 1:48:25
  Speaker C: And that pearl necklace of lights.
• 1:48:28
  Speaker A: Yes.
• 1:48:29
  Speaker C: Damn, they did a great job. I mean, to. To, you know, to agree with what I just said.
• 1:48:38
  Speaker A: Yeah.
• 1:48:39
  Speaker C: You walk in a building and you know if it's going to work or not.
• 1:48:42
  Speaker A: The next time you go to a Pezuto building, don't even open your eyes, walk in and you know you're in Busudo building, you know, why smell?
• 1:48:52
  Speaker C: Oh, yeah, they do. They have a scent.
• 1:48:54
  Speaker A: Yeah, yeah, yeah, they have a scent.
• 1:48:57
  Speaker C: Yeah.
• 1:48:57
  Speaker A: So when I interviewed Toby Pizzuto, Tom's son, I said, so talk about the Pizzuto smell. And he said, yes, it's important.
• 1:49:07
  Speaker C: I know about it, believe me. You know, he does the playlist too, for some of the projects.
• 1:49:11
  Speaker A: Oh, I know.
• 1:49:12
  Speaker C: He's quite a musician.
• 1:49:13
  Speaker A: Apparently he composed a song for my podcast with him, which I played.
• 1:49:19
  Speaker C: A funny thing about Busuto in his suburban projects, he liked fountains. And I don't know if he still does, but he was fee developing a project for us up in suburban Baltimore. We formed a venture with a landowner who did not have multifamily experience. We hired Brazuto develop it for us and he wanted a fountain. He said, we don't want a fountain. He said, I'll pay for the fountain. If I'm going to manage this building and be connected with it, this project is going to have a fountain. I don't know remember who paid for it, but they wanted a fountain. They did a fair amount of fee development for us over the years in the ventures, they did a terrific job. And on the fee development, they did a terrific job. The other thing they always did in the suburban projects was the little. What do I want to call it? Shelf near the door. Are you familiar with that? Yeah. So you could set your groceries down or your briefcase and get your keys out with both hands. Yeah, yeah.
• 1:50:24
  Speaker A: Very creative in their. Oh, yeah. Property management. Well, so in the early 90s, they were struggling like everybody else. So Tom and Julie Smith, who is the head of their.
• 1:50:37
  Speaker C: I know Julie well, great property management.
• 1:50:40
  Speaker A: She's brilliant. And so I've interviewed her also for the podcast. I mean, she's the reason why their property management group is, in my opinion, as good as anybody, except maybe Graystar, which is large, but they're as good as anybody in quality property management work at the land.
• 1:50:59
  Speaker C: We've hired them on properties we own to manage force.
• 1:51:03
  Speaker A: They're just amazing. And so the two of them came in and at that time, Tom was looking to grow business, but through property management. That was the only way they were going to grow because there was no capital markets for deals. So he came in soliciting to us. I said, why are you soliciting? So you're taking back property Rabbit. Right, John, Some of it might be multifamily. You're going to need management. Right. So that was how they grew their portfolio, big time.
• 1:51:31
  Speaker C: Well, another way they grew for it. And I'm not saying that Northwestern deserves any credit for this, but we did a large project in Jersey City with a developer, two towers, gosh, I can't remember. 700 some units built over a lurking podium, above grade, terrific views of the city of Manhattan, right near a short distance to. What do they call Path? Path in the New York. But we're nearing completion and our developer did not have a management company, and we started talking to management companies, but they all had a development arm, so they were going to be competitive with us. So finally having a great relationship with Busuto here in Washington, we said, would you guys do this in New Jersey? Well, it's a big property. We'll do it in New Jersey. So a couple years later, we sold it to J.P. morgan, and I think that was the first building they ever managed for JP Morgan. And that relationship just exploded. So no credit to Northwestern, but I think that helped them grow their multi family.
• 1:52:45
  Speaker A: Yeah, no question.
• 1:52:46
  Speaker C: And they're the best in my mind.
• 1:52:49
  Speaker A: Yeah, yeah. So for young professionals entering the commercial real estate industry decay, what capabilities should they build now to remain relevant and what timeless principles will never change in our industry, in your opinion?
• 1:53:06
  Speaker C: Well, I would obviously say you got to learn the tools. You know, all the financial tools. You, you know, no construction. Even if you're a lender, you better know construction, you got to know finance. Nowadays, you better be good at accounting. So, you know, learn all those tools, but also interpersonal skills. This is still a people business. And, you know, having worked with a number of young people that came up through the business and, you know, coaching them on developing relationships, and our business is just really important for a while. Borrowers, some borrowers chase rates religiously and that's all that mattered. And they tell you that. But I think the business is just so complicated now that relationships are extremely important. And, you know, just join organizations like we talked about earlier. Uli, icsc, dcbia, niop, get all those contacts. I remember a lot of my clients went away for, through retirement, merged with REITs, et cetera, et cetera. So you better keep your nose in the business the entire time or you're going to be left on the sidelines.
• 1:54:21
  Speaker A: Well, I agree wholeheartedly, Bill, and I know you are. The reason I do this podcast is because of relationships.
• 1:54:29
  Speaker C: Yeah, absolutely. Yeah.
• 1:54:30
  Speaker A: They prevail longer than any deal that you've ever done.
• 1:54:35
  Speaker C: Absolutely.
• 1:54:37
  Speaker A: You know, and that's one thing I work with young people all the time about. You can, you know, as long as you're consistent and you do the right things with people, you know, it'll come back to you, but way beyond what you even imagined could happen. And I also say if you burn bridges, it could be disaster and it could take years to recover from that relationship.
• 1:54:59
  Speaker C: Those relationship Situations, unfortunately, I have both experiences and one burned bridge was unavoidable, but it just happened and it was a sad thing. And it, you know, they happen every once in a while. But most of the relationships have been tremendous, long term relationships.
• 1:55:19
  Speaker A: So if you were to place a billboard on the Capitol Beltway for millions to see, what would it say? Bill.
• 1:55:27
  Speaker C: Is this with regard to real estate or anything in general?
• 1:55:31
  Speaker A: Just in general. I mean, most people have answered. I mean, I asked this to almost every guest and it can be your philosophy, can be your perspective on things. What message do you want to share with people in general?
• 1:55:45
  Speaker C: Well, I remember a billboard that used to be in Philadelphia. Philadelphia. And it said, people, don't make me come down there. God.
• 1:55:55
  Speaker A: And I love that.
• 1:55:58
  Speaker C: Yeah. Today I'd say, folks, let's reclaim our humanity. Let's be truthful.
• 1:56:09
  Speaker A: That's great.
• 1:56:11
  Speaker C: That's great.
• 1:56:13
  Speaker A: So before we let go here, anything else you'd like to say, Bill, about the industry, about yourself, about.
• 1:56:23
  Speaker C: Well, I was extremely fortunate to have worked at Northwestern for 41 years. You know, I was allowed to grow in the industry. They trusted me and the people in my office to do deals that were some kind, a little bit on the edge. And we almost always fulfilled those expectations they had of the deal and maybe sometimes more. So I was very fortunate. I had great people to work with, both in the field and the home office. I mean, I had great people here locally, just great producers, great asset managers. I couldn't have been blessed more. And it was just a great career because of that. So very thankful.
• 1:57:11
  Speaker A: Well, your reputation was stellar industry wide. Everyone I knew that did business with you, loved working with you and Northwestern. So thank you for being on the podcast. I really appreciate it. Bill, it's been a long time in the making and I'm glad we were able to do it today.
• 1:57:29
  Speaker C: I enjoyed it. John, thank you very much.