Latest / Icons of DC Area Real Estate / Matt Pestronk- From Wrestling to Real Estate Success (#97)

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Matt Pestronk- From Wrestling to Real Estate Success (#97) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Co and welcome to Icons of DC Area Real Estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington, DC area real estate market. The purpose of the show is to highlight their backgrounds and their experiences and some interesting stories about their current business as well as their past, and to cite some things that you might take away both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called the Iconic Journey in CRE, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community both in membership and in programs. It also allows you as listeners to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019 with a charitable contribution. Transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at John at Coenterprises Coenterprases.com Separately, my private company, Co Enterprises, now will focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please review my website@Coenterprises.com. Thank you for listening. Thank you for joining me for another episode of Icons of DTR Real Estate. My guest for today's show is Matt Pestrunk. Matt is the co founder of Post Brothers with his brother Michael, which is a multifamily development company headquartered in Philadelphia but now making a big wave into Washington with two large projects in downtown converting office to residential I've known Matt for almost 20 years when he and I worked together at the Acman Ziff companies. He's always been a very tenacious and go getter type of guy, and when I this interview you'll find out why he is so tenacious and go getter. His wrestling background was interesting to learn about. So he and his brother formed a partnership back while he was actually at Ackman Ziff and decided to buy small projects in Philadelphia multifamily and his brother was running them and then eventually the company group large enough where he joined him. So here are the takeaways from the episode. First is the power of partnership between Matt and his brother Michael. Second are lessons from the Mat, his wrestling experience. So Matt was a collegiate wrestler at Drexel and he learned about problem solving, perseverance and thriving in uncomfortable situations. Three is the entrepreneurial journey that he took from a college young college student doing office leasing through his capital markets experience at Dakman Ziff and then starting his own company and developing multifamily. The shift to ownership from being a real estate broker and a financial intermediary. The next is navigating the market. Matt's company managed to navigate through the financial crises without any defaults or workouts. Number Six is the upcoming projects. Matt shared about their projects here in Washington and the two universal project as well as 2100 M Street, which gets into some detail about and finally, his financing strategies, where post brothers have been innovative in their financing using primarily high net worth individuals and not institutional investors. Typically, Matt is engaged with both work and giving back on nonprofit boards, primarily up in Philadelphia. But he is getting more engaged here in Washington as well as he's now a member of the Federal City Council here. So without further ado, please enjoy this wide ranging conversation with MatT Pestrunk. So, Matt Pestrunk, welcome to Icons of DC Area Real Estate. Thank you for joining me today.
• 5:38
  Speaker B: Thanks for having me. John, great to see you.
• 5:40
  Speaker A: Great to see you. So, Matt, could you describe your role as the co founder and president of Post Brothers and your focus day to day, and contrast that to your brother Michael, who is the CEO. How do you complement each other? We'll get into the history of how you came together to form the company later.
• 6:01
  Speaker B: Sure, no problem. My role in the company is capital formation, acquisitions and oversight of all the things involving capital transactions. My brother oversees development, management and construction, and we work together on certain things collaboratively, but we each have unique areas of sort of ownership and oversight. So we complement each other because we do entirely different things.
• 6:35
  Speaker A: Okay, well, we'll get into kind of the origin story of the company and kind of why you guys came together as brothers, because it's a unique situation. Although in New York City it's pretty common. There's a lot of brothers and stuff that are in business. You don't see it too much here in Washington, too much, which is interesting. So I'd like to talk about that a little bit more in details. And getting to family now a little bit about your origins, youth and parental influences.
• 7:02
  Speaker B: Matt. Sure. So as I think you've detected, I have an affinity for the Washington area I'm a native Washingtonian. I grew up in a place called Fairfax Station at the very southern end of Fairfax County. Near where? Near Prince William county in Aquaquan. So the way I think of it, when we moved there from Alexandria in the early eighty S and changed what started elementary school there in 1983, that was the last place you'd go before people had pronounced Southern accents. And what I realized maybe 20 years, 25 years later, is because no one was from there. It was an extension of the Washington area, which is broadly, I think, a mix of longtime Washingtonians and transplants. And so my parents were transplAnts. They met while they were in college. My father went to Hopkins, mother went to Gaucher. Those were both single sex schools. They'd have mixers. They met at a mixer. My dad went. I think they tossed a coin because they both wanted to go to graduate school, who was going to work, who wasn't? So our mother worked for Eastern Airlines. Our dad went to SYSE in Washington full time for Hopkins School of International Studies, Johns Hopkins Advanced School of Advanced International Studies. So he did that. He finished after he got his bachelor's, did that full time for a year, then started Georgetown law. Our mother worked for Eastern Airlines, Go figure, which was headquartered in Washington. And they lived before. I was born in Park, Fairfax, and moved to Rosemont in Alexandria, near the Masonic Temple, closest identifying landmark off of Braddock Road, in like 1974. I was born in 77, my brother born in 80. The public, the elementary school catchment we lived in, my parents were not crazy about. So they moved to Fairfax, which had really top rated public schools. That's why we moved there. Our parents are both from New York. Both of them had family businesses they chose not to go into because there were other siblings or relatives involved. The businesses weren't really growing, but there were more people coming in them, and that's not ever a good dynamic. So they were both the children or grandchildren of immigrants. So having a professional career versus trading cocoa beans or selling military surplus equipment, getting a graduate degree was preferred. And that was what people wanted their kids to do. And when my brother and I showed no interest in doing that and getting involved in entrepreneurial businesses, which we can get into exactly how that all happened later, they were hoping we would have a law, accounting, or medical degree to fall back on, which we didn't. Dad was a lawyer. Mother was both, thankfully doing well, still active, vital both.
• 10:21
  Speaker A: What kind of law did your dad practice or does practice?
• 10:24
  Speaker B: SUre, he practiced bulk travel, bulk contracting, and procurement law on behalf of government. Only a specialty you could develop in Washington, getting hired by the government to responding to requests for proposals to procure bulk travel services and purchase airline tickets way before the development of computer reservation systems, and then realized that he could apply that to help travel agency owners. Travel agencies were once a huge business in that field, and doing that travel law, as he calls it. Anything.
• 11:04
  Speaker A: State Department, major client, or was it other?
• 11:07
  Speaker B: What's that?
• 11:08
  Speaker A: State Department, the major client. Obviously, they do more travel than anybody else. I think the federal government.
• 11:16
  Speaker B: Multiple agencies, actually. I'm going to have to ask him generally if there was anything relating to people doing things that were classified. And the government touches so many things in the private sector that are classified, but national security stuff. I think they tended to do their own procurement, but no, the Department of Agriculture. I remember hearing that name at the kitchen table. I don't know. He could tell you all about it. I don't quite remember. But he did a lot of M and a between travel agencies and things like that. And he still works. He's definitely not retired. Works for himself now. Mother was. She started a travel agency, then she was a real estate agent. She recently just actually retired. She says she's retired, and I think that neither of them were in real estate. And I think we had a general awareness of real estate growing up because they always had, like an investment house or two that they were subscale where they would be partners with a friend or another family, and they'd buy it and they'd have to fix it up together. But they didn't really want to be doing that. They didn't have enough scale to have employees. So it was like the painful rental house of an amateur investor. They were always doing that and making money. That was not our vision of real estate as we ever thought we'd be involved in.
• 12:47
  Speaker A: Sure, sure. So where'd you go to high school then?
• 12:52
  Speaker B: I started high school at WT Woodson in Fairfax, and I finished at a boarding school in Maryland called West Donningham Academy, which I think was a really good experience in building independence. And it was north of Baltimore, just south of Delaware.
• 13:11
  Speaker A: Okay, cool. And then that kind of lead you towards going to Drexel or what was that process going there?
• 13:21
  Speaker B: Well, I was always into different sports, like lots of kids. And so I wrestled through high school, and I based my decision of where I wanted to go to college on being in a city, ideally on the East coast, having Division one wrestling, and got a decent amount of recruiting attention. But I went to boarding school kind of in the middle of nowhere. And so I want to go to a college in the middle of nowhere. So that ruled out a lot of schools that are not in cities. So it was a pretty short list. I went to Drexel, division One wrestling. In my mind, I was going to be far exceed what I accomplished in college and was going to be a national champion and thought I was going to be an Olympic champion. And then I realized that there's about a hundred other people who graduate high school every year that are that good in America in every weight class. And so my first day in college, in the wrestling room, I went from the high school wrestling room. No one could give me a match on the whole team, even the heavyweight. Even if my weight class was 160 pounds and the heavyweight was 250, I could beat him pretty easily to. I couldn't even get a takedown for a month in college, in practice. And it was just wrestling guys who'd been, who are 50, or seniors who are 23 years old, national qualifiers, and nearly all Americans, or wrestling guys that were all Americans in tournaments and just getting killed. But then sports at a high level really teaches you about lots of things, but what it teaches you about is how to prepare at the highest level. And sometimes you have to accept failure. Now, failure in business is so much more within your control, because in wrestling, in any sport, there's winning and there's losing. And in real estate, you can do everything. If you do everything great and everything's terrible, like a market like we're in now, you can do better than everybody else and it won't feel like you lost. And if you don't have to sell a property because you've got staying power and you don't lose money, it's not like getting pinned in the first period. But I think it's all relative. And I think in some ways there are certain things about business where preparation, you appreciate it as an athlete, where you can become great by what you put into something, but there can be somebody better than you and the outcome is you losing. Whereas in business, if you're really strategic and thoughtful about whatever you're doing, it's almost like no matter what happens, my.
• 16:13
  Speaker A: Experience with competition is the biggest competitor you have is with yourself. So you have to compare yourself, not with others, with what you were yesterday or last year or whatever. So if you're competing with yourself, I think you can then benchmark much better than trying to be the best at something, in my experience. What's your thought about that?
• 16:40
  Speaker B: No, I agree with you. Anything where you can become better by identifying your own weaknesses and working on them is very rewarding. And some sports are more reflective of your improvement, reflects your effort, and others are. You just can't dunk a basketball. In my case.
• 17:08
  Speaker A: We always like to be. If you're a basketball player, you all like to play like Michael Jordan.
• 17:15
  Speaker B: Right?
• 17:16
  Speaker A: But you'll never will, you know, physically, you'll never get there. So know what you can do and be the best you can. Mean, you could have gone to the University of Iowa if you wanted to. If you wanted to be one of the best wrestlers or where else? Oklahoma State. Those are always, historically, the two best wrestling programs in the country, just about. So maybe I'm wrong, but, you know.
• 17:41
  Speaker B: I mean, they're right up there. They're right up there.
• 17:46
  Speaker A: So you could have done that. But you said they're rural environments. You wanted to be in an urban environment, right?
• 17:53
  Speaker B: Yes, definitely. I think that also, there was a cognizance in my mind that some schools require you to forsake everything for wrestling, and I felt I could be excellent without doing that. But the style of coaching and the culture at certain schools, if you are an all state level athlete in wrestling from anywhere, pretty much. If you want to go to one of those schools and walk on the team, you can. And if you can do the conditioning, eventually you'll be able to compete, wrestling wise, in the room and then on the mats. Except that is your life, and that's all there is versus. You can maybe get that good in a different environment that allows you to pursue limited other interests.
• 18:42
  Speaker A: Interesting.
• 18:43
  Speaker B: Yeah.
• 18:43
  Speaker A: So you didn't want wrestling to be your entire life, is what you're saying to some extent at that point. But as you're right, collegiate sports, my son was a swimmer at Princeton, and it's an intense training. I mean, if you're in intercollegiate sports training, it's definitely difficult, especially in a challenging academic environment, too.
• 19:10
  Speaker B: It's hard. It's really hard. It's really hard. And it's a real learning experience.
• 19:17
  Speaker A: Yeah. So what were your takeaways from collegiate wrestling, and what do you think you took from that? That you've kind of looked back on saying, if I hadn't done that, I wouldn't be where I am today kind of thing.
• 19:33
  Speaker B: The ability to solve any challenge put in front of me in a linear fashion, because that is being physically and mentally pushed to your limit at all times. I think they call. There's a book, I think, called Full Catastrophe Living, which someone recommended, I read because they thought it would be applicable to the real estate business. And I started reading and I was like, I knew this stuff when I was 20. Be comfortable being uncomfortable, get out of your comfort zone, that kind of thing. Everything that goes wrong does well, I think I just learned to always persEvere, always think ahead, and just persevere strongly. And I'm saying, you know, and I'm. What I'm referring to is something that people who aren't familiar with. The level of exhaustion you incur at that level of competition training for it is that you'll be in a practice and you'd say, I would agree to live only one more week if someone gave me a big gulp right now. And of course, you're rationalizing yourself, getting through the practice or the training, and then there's very little in business that's that hard. And it's not just physically hard, it's mentally. The mental part is harder than the physical part.
• 21:06
  Speaker A: I'll just mention that one of my inspirations for the podcast and doing it know, I listened to a few podcasts, and one of the podcast hosts is a guy named Tim Ferriss. And Tim wrestled at Princeton University, and he talks about wrestling and how intense that sport is. And I tried when I was in high school, lasted 60 seconds. Basically, I was just completely exhausted. I knew that that was just a sport I never could compete in. But listening to him talk about it was fascinating, actually. And I don't know if you know Tim, you might have wrestled against him. I don't know. You guys are about the same age.
• 21:45
  Speaker B: But he's a little bit older. I do know him. He's huge for the sport of wrestling in terms of his overall visibility. And his podcast isn't about wrestling. He talks about it all the time. Yeah, he's very well known. It's a small sport. And then, so in the business world, at the upper echelons of the business world, certainly you'd see an even smaller world.
• 22:09
  Speaker A: I can imagine. Yeah. So you went to school. What did you major in? Electrics.
• 22:17
  Speaker B: History. And. History and political science. Okay.
• 22:20
  Speaker A: And did you have real estate at all in the mind at that point, or.
• 22:25
  Speaker B: No.
• 22:27
  Speaker A: What were you thinking about when you got close to graduation?
• 22:32
  Speaker B: So, Drexel has something called the co op system, and you do internships in different industries. Being a history major, the industries that were available to do internships, like I learneD, there's no such thing as a historian except in academia. So you could do things in furtherance of your academic career for like a stipend during the six month internship period, which just sounded like more school to me, reading and writing papers. So I had no interest in doing that. So my first co op was doing corporate event, was doing marketing for a company that did corporate travel and corporate event planning. And I realized that that was interesting, but it didn't seem like there was that much money in that job unless you own that business.
• 23:27
  Speaker A: Your dad cheat up for you?
• 23:29
  Speaker B: Yes, I think he did that because the job was so menial and tedious. It was literally like organizing a brochure, a marketing brochure closet. They had hard copy marketing collateral of like, have your sales conference at the Arrowhead, and we had like 80 stacks of brochures. And I have to get envelopes and just get a list of packages I had to put together. And the most intellectually stimulating thing I did was type A cover letter. But that was instructive because it was really unenjoyable. And I realized that I was going to have to find something where I could have a more direct out, direct influence in the outcome of my own success. Because no matter how good you were at that, you were only making what it paid. And that was it. It was a learning experience. And then my next year for my second co op, I sort of got the real estate. I got the real estate bug. So I got an internship at a company that was a predecessor to, well, today's CB, Richard Ellis. It was a local Philadelphia company that was pretty prolific, called Jackson Cross, similar to the old Barnes Morris or one of those in Washington. And my job was canvassing office buildings for a senior leasing broker. And that was like the opposite of the other job. There was no brochure closet because we actually only represented tenants, which is pretty new in the late 90s, especially in Philadelphia. So you didn't even represent buildings. I mean, you might represent a tenant who had a Sublease, but the guy I worked for was like the number. Actually, the company was bought by Edward S. Gordon during the pendency of my co op. This guy was like the number one person in Edward S. Gordon, not in Manhattan. So he was an animal. And I'm still friends with him to this day. In a good way, he was an animal. He's an unbelievably successful leader.
• 25:45
  Speaker A: That was the terminology used at the time, yeah.
• 25:48
  Speaker B: So he was really good at what he did. So on my first day of internship, this particular guy, John Sarkeesian, he didn't believe in having a co op, like a training program, a practice, or any of that. So I came into his office the first day I was dressed with it. I had a suit and tie on. I was 22, and I had an AV cart for a desk, like, for an old, like a little metal thing for a film projector for someone to show slides on. There's nowhere for my feet to go. But, like, in this little. On the little shelf on the bottom of the AV card, I had to tuck my legs under. I had, like, a desk chair that was broken and a phone and a laptop and three shoeboxes full of index cards on the ground. And John said, your job is to take all of my files and put them into act. Act was something that's like today's sales for your listeners. What I'm explaining is, what was in these shoeboxes were index cards. The index cards had a business card on them, stapled to it with notes going back to 1984 to, like, 1998 or 1999, when I was sitting there. And he would make a note every time he followed up with a potential customer. And the way he got those business cards was he walked through office buildings, walked up to the receptionist and said, who handles your office space leasing needs and having no work? So that was what he did. That was how he explained to me how he'd gotten those cards. And I'm sitting there looking at this guy and like, boy, is there no training program here? What am I supposed to be doing? He goes, well, here's what I want you to do. I want you to see this card. It says the Harleysville Insurance Company, right? And that was one of his big clients to date, lynch, you know, South Jersey branch office. So I want you to call the branch office of Merrill lynch in Cherry Hill, New Jersey. And I want you to ask know Charles, who's the branch executive, and find out if he wants to know about opportunities in the office space leasing market. And does their lease still expire and do they need more or less. Does their lease still expire on this date? Do they need more or less? I was like, well, I don't know anything about the office. You want me to call him and do this? He's like, yeah, I want you to do that. And then put all the information in act, because I don't even use a computer. John says, john didn't use a computer. I want you to put it in act.
• 28:46
  Speaker A: What year was this?
• 28:47
  Speaker B: 1998. And they'd been on him for years. They'd been on him for years to do this, right? It's so much easier, except he just never got around to doing it. But because Edward S. Gordon had bought the company they were in disbelief. And this guy was. He was probably 37 then, so he was sort of in the beginning of the prime of his career. And for somebody that age to not be marginally computer oriented, it was kind of funny, but he didn't care. Not computerized. Costar existed in a magazine.
• 29:24
  Speaker A: Really?
• 29:24
  Speaker B: I thought only in 2000, maybe in Washington, because it started in Washington right here in Bethesda. Yeah. It came on a CD ROM. I never saw a costar CD ROM till, like, 2001. Right. So then John was like, okay, now, after you just went through this call with Merrill lynch, after you call them. And I'm like, but hold on. I have to ask you. I don't know what to tell him about the office leasing market. He said, well, tell him there's great opportunities. I'm like, what is a great opportunity? He's like, to pay less rent than he's currently paying for the same space. Like, looking at me like, what do you mean? But I don't know. He's like, listen. He's like, I'm going to teach you all this. Just do what I said. Because they know they're not in the office leasing market all the time, and I'm not either. You are now. That's what he said. I basically called through all the index cards in a couple of weeks and learned to talk to people on the phone a little bit and got people to agree to take meetings with me starting about a month after I started calling. I was setting meetings in advance. Then he said, okay, so now what I want you to do is print out some reports by building from all of this data you just entered, and then go into the physical building and find out if there's any tenants that aren't in there, and then go drop in on the person you talk to or the person you've been leaving messages for. And I had sort of like, a frightened look, because I'd never done anything like that. I was very young. He's like, that's what you have to do. He said to me, you are lucky I'm telling you how to do this. I'm writing a path for success for you. Just go do this. Nobody else your age is doing this, okay? And I sort of understood what I was doing after a month. It certainly doesn't mean I was good or skilled, but I understood what the objective was, and that was how the business. That was an unbelievable way to learn the business. I was still in college when I was doing this, so I did the entire New Jersey office market from Trenton, south, which was in one summer, 25 million sqft, got to know every tenant in every building and then that's exhausting. Well you have a lot of energy when you're 22. And then I was going back to school and I realized that this was all actionable now I had this and he was like, why are you going back to college? I was like, well, I have to graduate. He's like, that's not what I mean. Why don't you like, you've got all this actionable information at his age, he was 37 or 38, like I said then he was representing Lockheed Martin on a national basis so he didn't have time to relocate 3000 foot tenants. And the commissions on a 5000 foot office tenant even then were 20 or $25,000 depending on how much rent they were paying or something like that. Real money to a 22 year old. And he said, you should just take all these tenants. Anybody I haven't done a deal with, it's yours. Then the company didn't want to hire me and my plan was to finish school at night. I'd hurt my back the year before in wrestling. So I was like, I don't know if I'm going to go back. I had two herniated discs and they'd healed. But I was like, I kind of want to do this full time. So then insignia was like looking back on it, I understand it was totally an insignificant decision for them, but insignia was probably preparing itself to be sold yet again, which happened several years later. So they had a bunch of really sort of rigid policies designed to make an entrepreneurial business operate in a much more corporate fashion, which in real estate brokerages there's lots of different philosophies about letting people be entrepreneurial or not, but fundamentally they had a policy that they just didn't hire people who did not have college degrees then. And I was like, well, but I'm finishing my college degree and I can be a broker now. That was what I said, why? The job of this company is making money. And I think they just looked at having to deal with this person who was a total outlier. They also had a formalized training program that I had taken no part of that they wanted me to do. And then when they explained, like after I graduated and when they explained what you learned in that training program, I said, I learned everything in that training program and much more already. Like, I'm ready to do this. And they said, well, we just can't hire you. You're a square peg in a round hole. So I went and I got a job at a competitor firm called Lanyard and Axel Bund, which is now part of a large colliers affiliate in Philadelphia. Very, very successful. And they recognized what I knew already. And whether I took the information I had with me or not, that remains lost in the sands of time. But nonetheless, I decided I was going to finish school at night and I wanted to be a real estate broker full time. I had my real estate license. And it was funny, they had a training program that depending where you were, you could be what your level of readiness was, you could be anything from where I was, which was just go do this, and we're going to sort of partner you with somebody that if you bring in a big opportunity that you really can't pitch 100,000 foot law firm relocation today, you bring in somebody who's much more experienced. But for small sub 10,000 foot tenants, it's all yours. Or if you were really inexperienced, they had a much more structured training program. And so they said, it's funny. So it was 2000, and they said you can do office, industrial or retail. And I just chose office because I had a six month plus head start doing it already. And so then the joke is industrial was looked upon as like the dregs of real estate. Then it was like rents were $3 and they'd been $3 triple net. And that's in a good building, maybe 350. And in a crap building they were $2. Now the rents are $3 a month triple net. But it was really uninteresting. I didn't want to do industrial at the time. The shopping center business was huge, but that company was already very crowded. So I just decided to stay with office leasing. Then the.com bubble sort of burst hard. Then 911 hit, but I think probably within a year of two years of starting, I'd covered two years of draw and made six figures the second year, I think. And that was pretty unusual. But during the process, I got to decide that I wanted to own real estate. And the office market then was not doing well because the tenants weren't expanding, because the stock market was in a rut and we were in a little bit of a recession. And around 2002, 2003, and I remember asking an owner, I would show up early, and there were some owners who did their own tours and were served as their own leasing representatives, decent middle sized companies that owned a lot of suburban office, where if they had investors, they would get a leasing override for representing themselves. So that was what they would do. And it was real money. But I realized the principles of the company would come a lot of times, and it was very valuable for me. I noticed the ones that I admired were always early because they were coming to meet a customer, which was my tenant, and so I would always be early. So I'd gotten to asking a lot of them about how they did it, and I learned about real estate, syndication and financing conversationally, and just started reading books and really knew I was sort of into doing this. But then I was at the point of really questioning whether owning office buildings in syndications would be a viable business, because you had this sort of friction that I was seeing in real time that rents could go down and tis could go up, and there's kind of no way to prepare for that if you own an office building that's got tenants with fairly significant rollover.
• 38:30
  Speaker A: Let me back up just for a moment. When you went over to Colliers or the predecessor company, were you still a tenant rep broker, or did you get into the landlord rep side and do both, or did you stay in the tenant rep side?
• 38:45
  Speaker B: They wanted me to do both, and I hated landlord rep, so I did. I picked up some listings. I liked selling buildings, like user buildings. Those were, interest rates were coming down. People wanted to own buildings then. So I sold some buildings and I sold some investment buildings, but I never really liked landlord representation. It was like, if it was a lucrative building that got high rents and had a fair amount of turnover, lucrative to work as a landlord broker. It was generally business that was chased after and still wasn't that interesting. And it was time consuming for some more relatively guaranteed money. But it was more like what was available in terms of taking landlord agencies were lesser buildings. And just like now, tenants didn't really want to be in those unless it was for a very low price. So I just didn't see that as didn't find that interesting. You'd have to take part of your day and show up to show the space, and there would be no guarantee of getting paid. And I thought that was sort of felt ridiculous to me.
• 40:03
  Speaker A: So the user representation, the tenant rep, I mean, that's a very lucrative business if you're good at mean. I interviewed two people in the business that are both with Savills, which is that was their main thrust. And those guys, they do seven figures often and very well good in that business. And since you're in a unique niche, my guess is, as your senior broker told you, look at this opportunity you have, Matt, my God, you could just kill it here. So why didn't you, I guess, is the question.
• 40:44
  Speaker B: Wanted to own real estate and to get from where I was. I've always been someone who likes to lean more into immediate opportunities, or certainly earlier in my real estate career, I was more short term greedy and the kind of tenants that I was representing, which is of course, the complete opposite of our real estate business today. But I guess you have to get to the point where you can be long term greedy. And so my approach was, I thought I was at least maybe in my mind then, five years, but realistically, a decade away from having enough lead time in front of tenants where you could build a relationship with someone who was growing into a managing partner at a law firm and you might do their relocation, their first relocation. Five years into the relationship, I saw that that gestation period of building major tenant relationships is kind of like real estate. Like major real estate project pre development. I wasn't interested in that. I wanted to find somebody 510, 12,000ft who needs to move in a year and needs to look at space now. So I was focused on that and I didn't really want to invest the time to see if I could. And I saw with real estate brokerage there were lots of other variables, but I knew I could be successful at doing it at a larger scale. But I wanted to own real estate and I just knew I didn't want to own office.
• 42:27
  Speaker A: Right, so you wanted to own real estate. But it's interesting, in 2005, maybe there was an intermediate.
• 42:38
  Speaker B: Oh yeah, there was. Yes.
• 42:40
  Speaker A: Talk about the intermediate step before I jump into when you and I met.
• 42:44
  Speaker B: Sure. So my point about short term, long term greed and entrepreneurial runway, you'll definitely appreciate this. So I was 26 and made like over $100,000 and had no expenses when my most successful year as a real estate broker, which was hard to do in office leasing. Again, it's not that fast of a turn business. And so like I said, I realized I wanted to own real estate and my brother and I decided we wanted to own apartment buildings together. We had some investors that said they wanted to back us in 2003.
• 43:23
  Speaker A: Interesting.
• 43:23
  Speaker B: And then they were a real estate adjacent people already. One guy was a really successful attorney. One guy was a software guy who'd been in real estate until the early ninety s and then early 90s pushed him into the software business. And then he sold a company to Dell and made some money and then they had another real estate, fairly well known.
• 43:48
  Speaker A: How did this idea germinate, Matt? I mean, you and your brother obviously have been talking about this for a while. Probably before you started talking to investors, I have to assume. So. How long had you and your brother germinated this thought process?
• 44:05
  Speaker B: I'll synthesize how it actually began very quickly. So what made me succinctly not want to own office buildings was that the office leasing market was extremely volatile, and it didn't lend itself to small capital structures, small projects, money being tight, et cetera, to be successful as an office building owner. I read a bunch of books about real estate investing, and I realized that you could have an apartment building. The risk profile was way lower. So what I. What I what? So then I called my brother and I said, you know, I just read this book by Peter Linneman, and it seems like I've read some other books, but we can find a piece of undervalued real estate, put a plan on paper, get people to give us money to buy the building based on our plan, and then we'll make a disproportionate share of the profits and borrow the rest of the money. This is the greatest thing I've ever heard. I can't believe no one told me about this before. Meanwhile, it's about as complicated on one extreme, as simple as I made it sound on another extreme. So I was sort of just networked in socially to a lot of other real estate people, found my way to these prospective investors, and they did something that, in today's terms, I think it's used routinely. They agreed to capitalize our platform, meaning put money up to pay our salaries and working capital until we effectuated the plan of acquiring enough real estate under management to become for the management company to be profitable. And that's something people do all the time today. Except then these guys had been through the early 90s. They were really gun shy about buying anything at the 2003, 2004 prices. And we realized that we needed to be able to control our own destiny and have enough capital to buy my brother and I real estate. And so without being able to do things like fund deposits and have enough money to work on our own full time and support ourselves and have enough money in the bank until there was enough real estate under management, under decisions of our own control to be profitable. And so we realized that wasn't going to happen with those guys. So we had friends with all of them. One of them, unfortunately, since passed, but friends with them today. No hard feelings. And I decided that what I needed to do was make enough money. We both decided we needed to put enough money in the bank to do that. And the plan would be that once we collectively had enough money between us for one of us to do that, to run what is now post Brothers full time with one building. After we bought the first building, the other person would continue to do whatever it was that they were doing until the business was of sufficient scale that we could have.
• 47:57
  Speaker A: Go back further. How did your brother and you just come together? I mean, what was his orientation to the business?
• 48:04
  Speaker B: He's an engineer. He's an engineer, okay. Totally different than me.
• 48:10
  Speaker A: Why was he interested in development, doing deals?
• 48:14
  Speaker B: Because he did an engineering co op. He went to Drexel, too, and he's a structural engineer, and he did an engineering co op. And what that entailed was rowing to the middle of a creek to inspect a bridge in the dead of winter by hitting the bridge with a hammer and seeing how much paint fell off, then writing a report about that. And he called me one day coming home, and he said, let's go have a beer. Sure. And so we were just talking about what we were doing, and he said that was what he did. And he did it with the owner of the firm, too. It was like a successful engineering firm. And maybe that guy was just, like, taking an interest in the young guy and showing him the basics of the job, but that was kind of the job, more or less. And he was like, I don't think I can do this for a career. And I asked him, are you sure? But what about drawing plans? And he said, I've known how to do that since I was, like, 14. And it's really not interesting. I just don't want to do this. And so then we had a continuation of the conversation where I said, we can buy real estate with other people's money. And he said, well, that sounds great. You can find the deals and raise the money, and I'll do all the other stuff. And I said, that sounds good to me. It was kind of like we both knew what the other one was going to want to do.
• 49:40
  Speaker A: That's great. So you guys obviously compliment. I mean, he's an engineer, and you're a finance guy, or at least a real estate guy at the time. So you file the deals and you let him do all the mechanical stuff basically, right?
• 49:57
  Speaker B: Yeah. Or as some people say, I find the mess as he cleans the blind.
• 50:01
  Speaker A: There you are. So, as I've said to a lot of people, and I do it all the time in careers, there's usually a hunter and a Skinner in every company, and it sounds like you're the hunter and he's the Skinner, if I'm correct.
• 50:16
  Speaker B: With that, you're totally right, though. Some companies are founded by one person who is really good at both better at one than the other, and then they'll bring in someone else after they found it who's better at what they're not as good at, but that's right. Yeah. So.
• 50:36
  Speaker A: Mr. Outside and a Mr. Inside. And it's interesting how your career developed that. Mr. Inside obviously did a lot more for a long period of time until you came back as Mr. Outside to the company. So let's talk now about the transition. You started buying properties, the two of you, and then you needed to figure out how you're going to raise enough money to be able to be a sponsor. Sounds. So how do I do that? So how did that lead to joining our friend Simon Ziff at Ackman?
• 51:13
  Speaker B: Ziff? So I feel like my life is a series of learning things the hard way, not necessarily not listening to other people. But what you just described so succinctly is that most real estate sponsors don't think about the fact that you have to spend a lot of money to get to scale, if you ever get to scale. And a lot of people spend a lot of frustrating time once they're already a sponsor, a developer, like being frustrated about being under capitalized. And luckily we experienced that at a very young age. And so what I liked doing, I realized we were under capitalized, dependent on other people, and that kind of made both of us miserable. And I didn't have control of the outcomes. We were realizing this arrangement wasn't working out with these backers. And I had gotten to know real estate, what real estate finance people, mortgage brokers and mortgage bankers did in my dealings of trying to buy properties. And I just intuitively felt that that was something that I'd be really good at doing. And I really understood it. And it felt like a breath of fresh air in terms of being able to generate income compared to what I was doing then, which was just trying to write with Jello, just not going anywhere. So I worked actually somewhere else for six months in the mortgage brokerage field before I got hired by Simon not to be named. I didn't like working at that waSn't, it was all of the bad aspects of the commercial mortgage industry. There were nice people there.
• 53:17
  Speaker A: What's that, in Philadelphia?
• 53:19
  Speaker B: No, the company was a big company based in New York, and it was successful, but I just wasn't near the center of the action in my mind. I needed to be in New York. I didn't want to move there from. Well, I wound up doing that. But I was 27, 28 when I started working there. I was not married. I hadn't even yet met my now wife. And I had a dog, but I had a dog walker, and I had friends that could walk. I wanted to be in New York, in the center of the action, to learn as much as I could so that I could take that knowledge and go apply it to what I would be doing in the future as I envisioned it, and make a lot of money doing that. Ideally, that was the. It was. I went from this place where I was actually working in a branch office in New Jersey, and it was just not that interesting. It was more of a cold calling type of environment to ackman Ziff, which I'd say was closer to an investment type of business, or certainly collaborative, strategic. Did a lot of interesting, structured. Knew somebody. I think I just cold called our old friend Jerry Cohen, who unfortunately is no longer with us. Actually, I'm 100% sure that's what I did. And so I don't think you could make your phone number appear anonymously. Just kept calling Jerry till he picked up. I'd sent him my resume, and I said, and he picked up. And I was just, I am Matt Strong. I'm already a successful mortgage broker, and I know your firm only hires people who have less than ten years of experience with a graduate degree out of business school, and you go through an associate program. I said, I'm just going to tell you now, I have no interest in doing that. I will walk in with Business day one. I have clients already, and I'm coming from this firm that you might think I might need to be trained the way you do business. But I actually understand it already and let me meet you. And then it was before ICSC. No, sorry, it was in the end of four, I would say New York ICSC. No, it was there. ICSC plays into this twice.
• 55:52
  Speaker A: That's right, New York.
• 55:53
  Speaker B: I interviewed. So I met them before the New York ICSC. And the main thing about AcManzif that differentiated the company from other companies then was they had a unique way of doing business, which was they didn't represent capital sources. And the mortgage finance industry was in the middle of, I think, a bit of a transition. They represented borrowers, and they only represented borrowers exclusively. And I think I convinced them on the interview to hire me. But then I was kind of having second thoughts about, like, it's hard to sell being to an owner exclusively representing them, especially if they're you could, I could find lots of reasons why an owner would. They're either really sophisticated and they might not need you or they might not need you for that assignment. To my way of thinking, at that age, they might not need me at all, or they don't even understand the value of what I can do because they're that unsophisticated. And then I sort of was of the opinion that it would be a hard place to work because of that. But then I really thought about it more, and then about, I'd say in February, I called them back and I said, I'm interested. And we met a couple of times. Just, they wanted to understand what my business plan was because they were hiring me outside of their normal avenues. They either hired people who were 15 or 20 years of experience or more, or sort of right out of business school and trained them as associates. And so I was neither. And so then I was ready to start. And then they said, you have to start after ICSC. So I sort of like, had the other company realized that I had 1ft out the door, and they sort of unceremoniously bid me goodbye. And so I had, like, 45 days of doing nothing, which was nice. It's the only time in my life I ever had that, except I was burning to go make money, because I think the market, I could see the markets were really very liquid and strong and transactional then. So then I started there in 2005, and the idea was that my brother and I were going to continue to pursue our plan to buy real estate, but we were going to start even smaller than what we tried to do in terms of our first acquisition. Maybe not 4 million, but 1 million, and we'd take three to four years to mature. Except there was a little thing that started to happen in 2007 that interrupted that. But we bought five buildings before Lehman Brothers went out, from six to eight. And my brother was really doing that full time, and I was really enjoying it. I didn't want to leave. I'd met my wife, my now wife, and gotten engaged. And my brother and I owned $30 million worth of real estate. And I was making a lot of money, not really doing, I would say not doing that much. I mean, you remember those days. It was a very good time in real estate finance. My wife was like, why would you leave this job in 2007? I felt I had enough money accumulated. We didn't have a lot of expenses. I have enough savings. Why would you leave this job and go work with your brother in this tiny business? The gross income of the business before paying its corporate employees was not even close to what I was making. And so I was like, yeah, you're right, it's stupid. And then the market changed. It's very interesting. We got through that period as a real estate owner. No workouts, no defaults. We owned all of our real estate when the financial crisis was over. Meanwhile, in the ensuing period, I got married, had bought a condo in Philadelphia. My wife and I moved back from New York, had a mortgage, had a new baby, income went down by 90%, had this marginal new business that I'd invested a lot of money into that was not growing, and nothing was growing. And so at Acman Ziff, the arrangement was, it's fine if you invest in real estate broadly, but you can't compete with our clients if you do that. Certainly that company was not in the business, or its main business, was not financing three and $4 million apartment houses in PhIladelphia. So there was no competitive information to be sensitive over there. And they were pretty much fine that I was doing that. And I think that Simon's general view was, it was a total waste of time. I put in all this effort on these things, and how much was I going to make if I put in that much more effort at being a mortgage broker? I'd make a lot more money. He was probably right. But that was the beginning of long term greedy for us. And so the financial crisis hit. I got through it from a personal lifestyle perspective, fine. It was painful as it was for everyone. Pretty horrible business made it through. And I realized that it made sense to continue to be a mortgage broker. The market really started to recover. If you had transactions that could be financed in 2010, and it was like, for the first time in two years, for people who are not too young to remember this, it was amazing. You'd pick up a bank, and you could pick up the phone and get a conduit loan quote. You could call Morgan Stanley. And they were quoting business again. And it was so great because the market was totally illiquid for two years. And I realized that I should probably take advantage of that for a little while just to bolster my own income. But really, I had a plan to start doing this running post brothers full time. I was already immersed in it full time while I still sort of hung a shingle at AcMan Zif by sometime in 2011. But I didn't actually leave because it was just spending more time on one thing and less time on the other.
• 1:02:59
  Speaker A: Surprised that Simon and Jerry allowed you to do and that I'm really curious, obviously, Simon, since you left, financed several projects, so the relationship is still pretty strong there. But it's interesting that they allowed you to. I mean, Jerry was a. He wanted to know what you were doing.
• 1:03:22
  Speaker B: Jerry. Jerry.
• 1:03:24
  Speaker A: I remember he called, so what's going, what's know? Because I'd be in Washington and he wasn't here all the time.
• 1:03:30
  Speaker B: I was there almost every day. Even when I was doing both, I could be. What would be more productive for me to be doing, like sitting in an office in Philadelphia where we weren't buying real estate in 2010. Really? And that was my job. Or like going there and arranging a $30 million mortgage for somebody. Obviously that, and I was very clear about where my alignments were. I think it occurred to Simon at some point that I was probably going to wind up being one of their best customers, and there reached a point where we were doing transactions that might conflict. I pretty much was out of the soliciting new business for the firm at that point. I had a couple of clients who I had very good relationships with who just used me because I was good at getting them what they wanted. So that stayed on till like 13, but I was pretty much done at that point entirely.
• 1:04:34
  Speaker A: So there was a point where the crossover occurred where you were starting to say, doing the business to scale that Ackman Ziff probably wanted to do. So he said, okay, I think it's time for me to kind of transition out.
• 1:04:48
  Speaker B: Yeah, that was, I'd say, by the middle of 2011.
• 1:04:53
  Speaker A: Okay, interesting. Well, that's cool. So what was the tipping point of the growth of your post brothers, to the point where you decided, okay, I'm done now with AcManzif at mortgage Brokering, what was that point? Was it a big deal that you guys sold or a big capital event, or what kind of caused that? And the other thing is obviously your time. I mean, how did you balance your time between both situations, is the question.
• 1:05:28
  Speaker B: Well, I would say it was not a big early capital event. There. There weren't any. The world was just recovering.
• 1:05:39
  Speaker A: In 2011.
• 1:05:43
  Speaker B: We bought an institutional size transaction from a special servicer that was pretty high profile. We knew we were going to do it six months before it happened, and we had some major outside investors, and it kind of looked like amateur hour to tell the world I was doing. Both missed. Well, Bob Cohen was on your show, and he said he was the top land salesman in DC. So I can say I was a really good mortgage broker. So luckily I was able to make enough money quickly that it gave me the ability to just decide that I was going to go work with my brother and do that. And we weren't even the highest paid employees in our own company until nine years ago or maybe ten years ago, because it was about building out what is now the senior core team and things of that nature. I just realized that that was the time. So we bought a major transaction from a special servicer. It was in the works for a while, and I really had in my mind that when people heard about that transaction, it was going to be hard to explain for everyone. Was I a mortgage broker? I didn't gain access to the transaction at all because I was a mortgage broker. I happened to use what I knew about special services to be able to get control of, to be able to gain control of the real estate. But also, we paid a dollar more than everybody else. So it was an interesting deal. And so that was the tip.
• 1:07:32
  Speaker A: Well, it's interesting. I worked there for two years, from four to six, and looking at people that came in that were more senior, like me.
• 1:07:44
  Speaker B: Yeah.
• 1:07:46
  Speaker A: There was a reason why. There was a couple of reasons why Simon hired them. I think. One was they were affiliated either through relatives or prior business with huge capital or financing opportunities with them. Two examples I'll cite are Jason Panzer, of the Panzer companies, who has gone on to be probably as big or bigger than you are, or maybe certainly big.
• 1:08:18
  Speaker B: Not a competition. He's a friend. Different business.
• 1:08:20
  Speaker A: But they're in.
• 1:08:21
  Speaker B: You know, we're not in New York. We're in Philadelphia. I know, but he is.
• 1:08:25
  Speaker A: He's in. And then Connor McCaffrey, who worked with me, and his father Dan, who big retail developer at Chicago and here in Washington, et cetera. And there was a method to Simon's madness a little bit there, I think, to find people that would lead to other business and new business.
• 1:08:48
  Speaker B: Well, it sort of worked that way with me, but in verse.
• 1:08:51
  Speaker A: That's kind of why I brought it up in that it's a little different, because Simon didn't know when he hired you that you were going to become where you are today.
• 1:08:59
  Speaker B: I don't think I torture him about that to this day. I actually asked him to mentor me, and he said, if I mentor you, there were maybe a dozen people in their late 20s or early thirty s that were all promising young people who had different roles in the firm than me. And he said, if I mentor you, then I have to tell this person and this person and this person that I'm mentoring you. I have time for you. My door is always open. So I always say to him, hey, Simon. But we talk all the time. It's a running joke. Got it.
• 1:09:38
  Speaker A: So you transitioned, so you went on, and so talk about the growth of the company and what happened then from there forth, and how you kept going. And when did the idea of converting office to residential become kind of interesting? And I'm going to speculate. Let me just put a speculation out there. I work for a company called Leg Mason Real Estate Services from 2000. Let's see, when did they acquire us? It was about, actually was 94 when Lannimer and Buck, which is a Philadelphia, was acquired by Leg Mason, along with the BF Saul's real estate mortgage company, which I worked for, and the commercial side. So Lake Mason aggregated all these companies, and they were headquartered in Philadelphia, and it was the Latterman Buck organization that was managing it. So I got to know a little bit about Philadelphia, because the guys that ran it, Walt Valesio and Craig Buchenhart, were there. And I knew what was going on in Philly at the time just to see it. And I could see that because I looked at transactions up there, and all office building financings or deals. Development had subsidies from the city. It seemed like because you couldn't economically develop the scale of the projects they were building in Philadelphia with market rent. At that time, rents just weren't high enough to justify development. And I said, why is this happening? Well, corporations needed to be there for various reasons, and there was just this culture. And I'd be interested, since you're in Philadelphia and understand it, that there's a public private culture in that city. And I don't know if it's unique in Philly to the rest of Pennsylvania, but it just seems that there's a unique undercurrent of public involvement in private development there. And therefore the markets are such that office buildings just didn't have the same panache they had in Washington or New York City, just not the same. You couldn't get the rents, couldn't justify it. The demand wasn't the same. It just wasn't the same market. And so maybe there was an opportunity there, from an economic standpoint, to convert earlier in a place like Philadelphia than there could be here in Washington and New York. So that's my thesis. Shoot holes in it, or agree with it, or however you want to.
• 1:12:25
  Speaker B: Am I right, John? You have a singular and fairly 100% accurate perspective of the real estate business. Government subsidizing real estate in Philadelphia then was because the market was so severely depressed. Everything had to be. Was a life preserver situation. Not the case anymore. The bottom fell out of the office market in Philadelphia two different ways. One, the way it fell out the rest of the country, it was overbuilt in the late eighty S. And a lot of CBD buildings went into foreclosure. But secondly, we had. What's happening in Washington now happen in Philadelphia in the crushed the older buildings, which was the dissipation of tenant demand. Our dissipation of tenant demand was due to two things. The deindustrialization of America. Philadelphia was considered the workshop of the world, which it wasn't in the 1980s. But all of our heavy industries that weren't obsolete and hadn't just gone away entirely. Many, many companies, jet engine businesses, all kinds of companies that the Bud engine company, GE's armaments business, they were taken private and leveraged buyouts. All the insurance companies that were based in Philadelphia, they were all taken private. That underpinned the office demand in older buildings before the 80s. So the office market was in the toilet in Philadelphia starting in the early 80s. Then these buildings were built in the 20s. So they were no longer competitive for law firm tenants because they were so old. So new buildings were built along Market street in Philadelphia in the took all the remaining tenants moved them to like corporate glass and steel towers. Then the old buildings had no demand. And so the city put forth continuing to finance redevelopment capital assistant grants, we call RCAPs, like state grants, run through the city. In Philadelphia, it still exists. It's not sustainable to get those for every project. So what the city of Philadelphia did was put forth a ten year tax abatement for any kind of renovation of any. So you could make a hotel, you could upgrade an office out of an old office, make a hotel, upgrade an old office building to a new office building, which a few people did, but not much, and convert to apartments. The market rents, to your point, in office, have barely ever made sense in Philadelphia to build ground up, even with a tenant in hand. Maybe when there's very low interest rates, apartments do make sense. Our apartment rents in Philadelphia are actually close to Washington's at this point, but still 20% lower. Our land costs are really low. Though construction costs are high, they've always been very high. Building trade unions are probably the most powerful, politically influential industry in Philadelphia, in Pennsylvania. And so it's kind of what they call a union market. Not for everyone, but a lot of developers build all union. That's very expensive. And so that had been prohibitive for new construction before. So we actually saw the same thing in Washington. I remember even 15 years ago, I saw office building owners do uneconomic leases in northwest Washington. Coming from Fairfax Station, Northwest Washington might as well be Central Park, South Connecticut, and Florida, where our universal project is. I saw what was happening, and I just realized landlords were giving Three years of free rent, $200 work letters on a 15 year lease sometimes, which meant tenant was only paying rent for twelve years, and their basis would be accreting up by $100 a foot a year because of no rent paying, no rent payment. And people just kept selling that to the next guy. And the market. Washington, at various times in the past two decades, has been the most liquid market for investment in America, certainly. And we always liked it for multifamily. And it just so happened that as they changed the zoning code in Washington to closely resemble Philadelphia's, which is besides the height limit, which is something unique to Washington. Pretty much anywhere downtown you have a piece of real estate. Certainly in Northwest, it can be an office building, a hotel, or an apartment building that didn't exist two decades ago. Office was office. Zoning started to change. We saw that the office market was getting really weak, but people were starting to get really high rents with the limited amount of new class a construction for multifamily that there was. And we just said, there's going to be an inflection point. We believe, if we can get an unencumbered piece of real estate, right. We didn't want to be in markets with submarkets, with low barriers to entry in Washington, we had no interest in doing that. We wanted to be in premium locations where we could find a piece of real estate that was unencumbered, whether it was land or a building to convert. We saw it coming because the market had gone so tenant friendly in terms of tenants that could influence, be a full building user or influence the outcome of a whole building. We'd just been waiting and waiting and waiting, and then it just happened.
• 1:18:10
  Speaker A: So how did that your first opportunity come to you? And what kind know, triggered you to make that? Why, you know, did you not have enough business in Philadelphia or were just on a growth trajectory, that now is the time to come down to Washington kind of thing?
• 1:18:37
  Speaker B: We've had over a thousand units under construction in Philadelphia, active every year for more than probably close to a decade, maybe seven or 800 on average. And so we just sort of. Just sort of had run out of submarkets to do the. We felt we were going to cannibalize our own projects in Philadelphia, if we.
• 1:19:09
  Speaker A: Continued for ten years, and correct me if I'm wrong, were you the leading converter of office to residential in the city of Philadelphia?
• 1:19:17
  Speaker B: We've done a lot, one or two other people have, but we're doing two massive ground up projects in Philadelphia now. So Philadelphia was. So the dynamics of Philadelphia were so different than Washington that most everything that was attractive to convert was pretty much done, was available. After the financial crisis, there haven't been a lot of great conversion opportunities. We've been doing a couple in outlying neighborhoods in the last five or six years, but the great conversion opportunities pretty much until COVID whacked a couple more office buildings into being uneconomic. The conversion opportunities were generally done, I'd say, five, six years ago in the best locations in downtown Philadelphia. So we had two very large ground up projects of 1000, 101,500 units each that we're in the middle of both of those right now, as well as we've completed a few ground up projects of 300 units, and we have more in the pipeline in Philadelphia. So it just became, we liked Washington. It was an opportunistic entry point, the same way Philadelphia, we sort of came in not being burdened by a historical perception of the market. Washington. Although we're from the suburbs of Washington, we could see what other people couldn't see in Washington was coming, and we're just waiting for the know.
• 1:20:49
  Speaker A: It's interesting. I knew and I saw that you guys were coming here when you made a deal. I just know it takes fresh perspective to understand what you're looking. You know, there are some very successful office owners that decided, okay, we're going to convert. We're going to become residential developers now, too. There's several here in Washington that did, some that stayed with their knitting and stayed with office and still doing office, only now they were involved in mixed use projects, but they brought other developers in to do it with them instead of doing it themselves. Whereas others have gone full, whole hog into the residential market from the office market, which is interesting, but they didn't see the scale that you've done with the two projects here. So now is time to maybe go into those projects. Why you think you won both those deals?
• 1:21:48
  Speaker B: That.
• 1:21:49
  Speaker A: Let's just say. Let me just give an example. Let's say chip acreage. Let me put acreage companies on the table, or MRP, which is another major developer here in town that is doing large scale residential mixed use projects now that were predominantly office developers before. So I'll throw that out there. Why do you think you guys are special about that and how you.
• 1:22:23
  Speaker B: If you're once a competitor, always a competitor? I think the answer is a couple. We'd been doing only residential since the beginning. We always saw what other people didn't see. Every project we've ever done, people have said, this is never going to work. You're crazy. Except it's always worked. So we're used to that. And we're used to a market with no institutional liquidity, with a brutal closed labor situation, meaning Philadelphia. So if you see that one Batman movie where I think Batman begins and they're down in the cave with Bane and they crawl out with a rope, that's what it's like forming a giant business in Philadelphia. It's not like Audi is throwing money at you in Philadelphia, like Washington, with 50 sovereign wealth funds. So you form a business in a tough environment, you become antifragile. We're probably the largest, we've done the largest development projects, by any metric, in the country, outside of New York for better part of half a decade. So we'll compete anywhere. I mean, Washington is an easier place to do business than Philadelphia. The rents are higher. There's more liquidity. The government candidly know much more depth of technocratic and merecratic knowledge to be able to work with to make major projects start in Washington. And there's just more, you know, I think Washington. A lot of developers in Washington have taken for granted, and these people are smart. It's just like, if you're really focused on one place, you don't see. It was easy to make money in Washington real estate for so long. Now it's relatively harder.
• 1:24:07
  Speaker A: But if you've built a business in.
• 1:24:10
  Speaker B: A place where it's always been hard, even in the best times, you look at a place that has so many fundamentally positive aspects, like Washington, and you see that for some moment in time, we're not burdened with owning office buildings anywhere. And that is a drag on anyone. That's a thing that anyone who owns them has to deal with now. So that's a big advantage for us, is I can say, I'm buying this building and I'm buying it for what it was worth 25, buying this real estate for what it was worth 25 years ago. And I don't have to say, and by the way, I own real estate that's worth half as much as it was because tenant demand has collapsed due to no fault of my own. So I don't think it's. Every developer thinks they're the best. I don't think it's being better than anyone per se. I think people have issues to deal with when they've been more focused on the sector of the market that's feeling the most pain right now.
• 1:25:16
  Speaker A: You're positioned better than anybody else really from that standpoint because you're not encumbered by existing leases or other things that you're dealing with from an office acquisition perspective. So you have an unencumbered focus. So I think back to 1993 when Sam Zell came in and bought office buildings right and left in downtown Washington for not ten cents to twenty five cents on the dollar at that time based on what replacement cost was. And he had a fresh load of capital from an IPO upbringing, structure equity office at the time and really had no encumbered office buildings that he had to worry about at the time. So he comes in here and just buys everything.
• 1:26:08
  Speaker B: But everybody thought he was crazy, I'm.
• 1:26:10
  Speaker A: Sure built a huge portfolio here, of course that he was fortunate enough to find Blackstone to buy him out in 2007 before the crisis, which was the largest real estate deal in history and Washington portfolio was a big part of it and Tishman Spire took it over. So it was an interesting story, but it's an analogous story in a way where you coming in, we all know that everyone wants to do conversion to office to residential and there are five or six developers doing it already before you were here even. And most of them are not buildings that they had owned. They're buying them to reposition them and fresh not as existing with one exception that I'm aware of, and that's the Cohen family Wilco at the corner of 20th and M Street, which is really close to one of your properties. In fact, maybe, I think it's kitty corner from the asset that you guys are developing.
• 1:27:12
  Speaker B: Yes, very close. Right.
• 1:27:15
  Speaker A: Anyway, so that's a backdrop. And now maybe dive into your thought process of both of the acquisitions you've made here.
• 1:27:26
  Speaker B: Sure. Just backdrop to the story. Let's just say that we thought Washington, Northwest Washington, a specific area bounded by certain streets and parks and things of that nature, had the potential to support rents that no one was getting. And we'd been watching every piece of real estate that traded for a decade, office buildings that sold for $700 a foot. We just wanted to get the OM from the broker every time because we had this feeling that again we saw the fundamentals and we really had a sense of pretty much every building. Right. Like if you're a real estate owner, I hear these people say, I don't want to be a tourist at a market. No, you have to know every building and every piece of real estate and every development in the market, or you don't have any business spending a dollar. That's the truth. So we'd been following the market forever, and we were looking for a building that was extremely challenged from a leasing perspective, that was probably not going to survive. Interest rates were very low, so that really kept office building owners going for a while. If the office leasing fundamentals were as they were in 2018 and interest rates were where they are now, I think the market would have capitulated in terms of people selling buildings, whether lenders or owners selling them, for much less than they'd been worth for a very long time because they had to. The Office of the Leasing Fundamentals didn't support owning a vacant building for $600 a foot. But there was financing, it was cheap, so the fundamentals were very stressed. And we'd been watching both pieces of real estate that we've acquired. We had been sort of marginally successful for over a decade, and they'd been on and off the market, and we were very specifically looking for buildings that had lots of light and air and a path to not being encumbered, located adjacent to a super premium residential neighborhood. Now, it happens to be that almost all of Northwest Washington has a super premium residential neighborhood within three blocks of it. But these were very obvious locations. All of Northwest Washington, all of the CBD, people don't necessarily think of that. Like, I'll give you an example of just 17th and L, right? Like, there's no particular building I'm thinking of there. People might say, oh, that's like sort of near Case street, and it's not that residential. Walk three blocks, and you tell me anyone you know would live very close to there. So these particular buildings, because they're sort of on the periphery of the CBD, for whatever reason, not surrounded by office blocks, of office on all four sides everywhere were on our radar, and they'd been struggling through marketing processes. And there was a price and a time where I'll tell you what the signal was since it already happened. 2100 M Street sold for $150,000,000 in 2007. It's public what we paid for it, we paid less than half for it. It's not that we're smarter than anyone, it's that it didn't work at $150,000,000 to do residential, what happened was that, and the universal buildings were marketed without being sold or marketed being sold between people that couldn't. The plan wasn't successful. So every time a broker package came out, every time a broker package came out, there would be a little mention of it. Also had residential zoning. And then it became possible adaptive reuse candidate. And then it became generational redevelopment opportunity for residential or office by the time we were ready to buy. And so the seller, the controlling entity in either case, understood that talking about an office lease up or having tenants with lease term was an encumbrance. And JBG sort of signaled to the market that a building was going to be worth a lot more unencumbered. When they sold us universal about two years ago, and that was a long duration transaction, JBG realized as a condition of closing, they needed to get all the tenants who had termed beyond a certain period to agree to not have to surrender that.
• 1:32:38
  Speaker A: This was after the spin. This is after they had merged.
• 1:32:41
  Speaker B: This is two years ago. Oh yeah. Well, they didn't love the Tornado DC assets or all of them. Clearly this was the biggest one. And that sort of set the floor in the market, I think to some degree, to people who were watching this space. So it was just waiting to the point where office building investment sales brokers were starting, because these buildings were all institutionally owned. They were starting to realize that maybe the next person who bought it wasn't an office building owner. And by the way, when I say brokers, this market has been. The vast majority of these assets have been institutionally owned forever. They don't trade between entrepreneurial people who might sort of do something, quote unquote, off market like there was a long waiting period, because there's a lot of people who make an enormous amount of money out of these things staying office buildings. And that was a thing.
• 1:33:46
  Speaker A: It's interesting, I interviewed Bill and Paul Collins that summer, two years ago, and in the middle of the pandemic, and I asked the question. So guys, you guys have been the most successful office sales brokers in the city, arguably over the last 1015 years. Where's the market? They said, john, we're at the cliff. We're at the cliff and things are going to get really rough going forward. So that was about the same time you were in the process of getting your deal done there, it sounds like.
• 1:34:25
  Speaker B: So they knew that then. Of course we knew that. JBG, who's incredibly astute, not only knew that, but knew that if things got worse, they might get less for the building. So they were done. Now, I think you're seeing a pretty broad acceptance of that. And what I'll tell you is I think the office market is going to reemerge.
• 1:34:52
  Speaker A: I agree with you at the trophy level, but not. You're not going to be able to take Class B and C buildings and turn them into trophies. I'm sorry, it just isn't worth the investment.
• 1:35:05
  Speaker B: Class B and C buildings are at a value unless someone owns it with almost no leverage. If they're at a value, they're typically a motivated seller. For some reason, the market clearing values are land, so I actually don't see that being a massive impediment anymore. For the first time.
• 1:35:22
  Speaker A: Well, yeah. I mean, you just redevelop.
• 1:35:26
  Speaker B: Yeah. I mean, the height act is a challenge, and you have to, because the dirty secret is real. High rise construction costs are supported by the rents for everything in Washington. The Height act is controversial for a million non economic reasons, but I think the office market would be much more successful if you were allowed to build a 15 or 20 story building with higher ceiling heights. But that's not my water to carry right now.
• 1:35:56
  Speaker A: Yeah, well, it'll be interesting to mean Congress still has some sway over the DC City Council.
• 1:36:08
  Speaker B: And so for them, they entirely have control over that.
• 1:36:13
  Speaker A: What we just mean. They do have home rule, supposedly in the district, but a good half of the DC budget comes from the federal government.
• 1:36:24
  Speaker B: They can't get the Hyde act through.
• 1:36:26
  Speaker A: Well, I've made some Interesting proposals in the past to some of my guests, one of whom used to be the Head of GSA. And I said, why doesn't the district and the federal government sit down and do a land swap and basically create the ability for the district to do things that they can't do right now. And with GSA suffering so much, their space, they have buildings that are just dysFunctional, completely can't work. They lease space that they don't need. GSA needs a complete Reworking right Now. And the Head of GSA just stepped down yesterday or day before yesterday.
• 1:37:11
  Speaker B: I can't imagine why.
• 1:37:12
  Speaker A: There is a lot to do there.
• 1:37:16
  Speaker B: I would tell you, John, I think there might be a simpler Solution than that. Because as you mentioned, the GSA is complicated, might be an understatement and unfortunately, dysfunctional at this moment. It's more like if they just raise the height act and protect the view Carters and satisfy the preservationists, whose main thing is these view Carters who have a seat at the table, which is the way it is, and just pass it for everywhere, that the additional density will endure to GSA owned real estate and or if they have long term leases they don't want, the building will probably be worth more to the owner such that they could let the GSA out of their lease obligation. They would sell the building to somebody who's going to knock it down.
• 1:38:07
  Speaker A: The other thing it does is unlocks far value of land. That's what I'm saying is phenomenal. Mean, I've argued for this for several years. One of the main architects in the city wrote an article about it, about the Hyde act and what it value. Shalom, you may know. Shalom Morenas.
• 1:38:27
  Speaker B: Yeah. Of mean these office buildings go bad because the Views suck. That's a thing. You're paying $75 a foot. You don't want to look at the third floor of another building across the street. That's a thing. These horizontal skyscrapers, as they call them, are not particularly desirable. And the solution of just renting the top floors is not really for big rents. It's not worked. But I like to deal with things within my control, which is making money with the buildings that I as they're.
• 1:39:05
  Speaker A: So I think if that changes, that tremendously opens the door for opportunity. I mean, you look at the transit oriented development business which know downtown Bethesda, Maryland is that way. So it's like a pyramid building up to the center of where the transit is and downtown Washington just begs for that. You could see the corner of Connecticut and that where Farragut north is and you could see all around it. It could look just like Bryant park in New York City where you have 40, 50 story buildings around that location that makes.
• 1:39:44
  Speaker B: Or the Time Warner Center. Yeah, of course. Honestly, I would tell you it's more likely than not in my career it's going to happen. I think the people who are really opposed to it are getting further and further from the prime of their careers. My generation, well, your generation is not entirely opposed to it. I'm talking about people who are much my grandparents age, well, they're not even alive, but just people who are. The opposition has dwindled over time. There are some people who are adamantly opposed to it. I have never met anyone in their 40s who is adamantly opposed to it. But I'm sure there are people. It's just not who I hang out with.
• 1:40:33
  Speaker A: Well, I agree. So that would unlock a lot of value in Washington, but it may limit the opportunities you have, which is interesting. It's kind of where you've been able to figure things out that other people can't because of your experience. But that IDAC changes, that opens up the door to immediately tearing down buildings. You see redevelopment downtown like you've never seen.
• 1:40:59
  Speaker B: Well, a couple of things. One, you do have most buildings are encumbered with leases. Two, I don't think they're talking about increasing density by even double, which is the minimum they should do. They're talking about. So if they increase density by double, theoretically that would add a lot of value. But I think they're talking about a lot less than that for now. But for sure it would Add value. But I don't know. I go back to we will favorably compete in any environment no matter what. If things get silly, if we feel they're frenetically overvalued, we're not going to play in that. But I mean, I think that the opportunity in Washington is absolutely incredible because we talk to other people. We've been approached by lots of people who own real estate that's underutilized in different forms. And when we show them why we think just demographically and anecdotally why we think the rents we will achieve are what they are, they don't really understand. They're sort of constrained by, no one's built anything in northwest Washington, barely at all. And how do you know this is going to work? Well, actually they have, there's just extreme barriers to entry and that's why nothing's been built. That's why rents are really high because it's a nice place and I would bet you that if they added lots of supply it would all get absorbed because generally lots of people want to live here. And that's kind of how we're seeing, don't I think that the market, residential values in Washington or rental apartment buildings are going to be moving pretty close to New York's in the next decade. That's my.
• 1:42:55
  Speaker A: Isn'T. You can't accrete land too easily and people want to be near transit. But I think we've got some infrastructure issues in the city that need private capital big time, that if they aren't addressed pretty soon will take away some of those advantages of location, in my opinion. So the one that is the biggest one right now is Metro, and Metro is in deep trouble and it's getting worse. And we did have a solution that came up around the time that Amazon the HQ two happened. But my episode that will come out very shortly with Bob Buchanan is going to talk about it. Bob, he's a regional leader and involved in the metro funding. Back a few years ago that changed the way it was funded, but now the jurisdictions don't have the capital they did. And with the tax space eroding, it's going to be tough. And Metro ridership is about 50% of what it was pre pandemic. So if you can't self sustain, you need subsidy and it's going to be a mess. And so without that, to revitalize downtown Washington is not going to be easy unless you can develop enough residential to create this ecosystem of residential work and play in the city fast enough to overcome the aspect of Metro not being viable.
• 1:44:32
  Speaker B: I would tell you that Metro, I'm pretty familiar with the issues and I think the inflection point of downtown reaching a residential density to provide that income shortfall to Metro is not going to happen fast enough. There's going to have to be an interim solution, but ultimately it will happen. This Metro cash crunch is a two to three year issue. Building out downtown is probably, probably a decade to really move the needle. And I do think it's going to happen. I think ultimately Washington, every region has different and similar challenges. If you've got a downtown, if you've got a CBD with different states on either side, which pretty much Washington, New York, Philadelphia, Boston doesn't have that, but Boston has a bunch of its own issues. The transit systems all have the exact same issue, which is a shared regional funding mechanism, including the downtown jurisdiction itself, that the suburbs are sort of richer, but all the value is downtown. But the downtown has a heavy tax structure and a heavy social burden and can't put the money towards the transit system. And the transit system is perpetually needing to be bailed out. And I'm not saying oh, everything's going to be all right because it always is. I'm saying that there's regional leaders, crisis brings people together around this. Like Bob Buchanan is probably involved in the metro because Bob Buchanan probably thinks if I don't do something, no one else will. And I have a good idea of how to bring people to the table. Now I haven't talked to Bob about this in any way, but I would imagine that he's got a plan to coalesce people and that's what he's going to do. Like what you see the Federal City Council has forcefully done with Union Station because they realized it was within their Baileywick to figure out under Mayor Williams and the people he's organized, eminent domain lawsuit, Amtrak notwithstanding, it's going to get fixed finally, I think in the near future. But it caused a crisis to bring people together just like 911 did, just.
• 1:47:00
  Speaker A: Like the pandemic has done and hopefully going to do. And then on a positive note, what the city did in the area did with getting Amazon here, that was a huge undertaking and that was a regional wide one, not just Arlington county and JBG Smith. The whole region came together to bring that here. So there is the capability of solving a regional problem.
• 1:47:30
  Speaker B: Right. So I'm all for the region competing equally. I think that Washington and Maryland have some things to offer, some businesses and some people that Washington doesn't. But the other side of it is Washington absolutely has things to offer that neither of those places can ever have, no matter what. And that's why there's a floor to the office market in Washington. It's just terrible right now. If you need to interact with the highest levels of government, you have to be in Washington all the time and that will never change. And there's other things, some things will change and have.
• 1:48:16
  Speaker A: So, for instance, do you actually need to be on K Street downtown Washington as a law firm or a lobby?
• 1:48:25
  Speaker B: Seen that they don't need to be.
• 1:48:26
  Speaker A: You could be in Northern Virginia and know Capitol Hill just as easily. You can be in suburban Maryland and do it too. But I would say Virginia because it's actually physically one bridge crossing into. Whereas you know, if you're in Bethesda or Rockville, you can't do it that.
• 1:48:55
  Speaker B: Know.
• 1:48:57
  Speaker A: As I told Bob, I think the epicenter of Washington D. C's economic development is now at or west of Tyson's Corner. So I'm talking business growth potential, non government.
• 1:49:16
  Speaker B: Yeah, I would agree with that. Washington's general office building market as a symptom of what you just described is in the process of. Right sizing itself around that. What I'll tell you is long term the most valuable residential is going to be in Washington DC. And it is now. I mean, maybe not for mansions on six acres because that's not what downtown housing is, but for 100 walk square stuff. The wind is at its back for that.
• 1:49:48
  Speaker A: I agree. Because of the density potential, one could argue that Arlington and Alexandria will be very close and parts of Bethesda will be very close in residential value to the most expensive parts of the city. In my opinion.
• 1:50:06
  Speaker B: I think it's good for that to happen. I don't think you're necessarily wrong.
• 1:50:10
  Speaker A: Tyson's Corner and some of the sections there as it densifies will be that way as well.
• 1:50:17
  Speaker B: I think the highest of the high end will still be in Washington. I've talked to some other developers who I think are pretty experienced in the region, and there's some exceptional locations which somebody I know happens to own that you can never replicate the rents you could get in certain locations anywhere in the suburbs, no matter what. But if you're just talking about a solid, good part of Northwest, I think it's pretty much a scratch to some of these markets in the suburbs. But the other part is some of these markets in the suburbs are not easy to build.
• 1:51:03
  Speaker A: Yeah.
• 1:51:04
  Speaker B: Okay.
• 1:51:05
  Speaker A: I think Northern Virginia is easier to build than the city.
• 1:51:08
  Speaker B: Northern Virginia is not a monolith, to be fair. There's a bunch of different jurisdictions and they're all different.
• 1:51:14
  Speaker A: I'm just saying Alexandria and Arlington, I think are easier to develop than in currently. They don't. They're open to more ideas and opportunities. The city can't get out of its own way right now with ToPA and all these different issues that the city has. So there's some real baggage that the city is carrying. If they were able to think big picture, they would clear away.
• 1:51:44
  Speaker B: Sure. So keep in mind, I could easily go develop any site I wanted to in any of those places. I'm sure you so. So we're choosing to be in Washington for a reason. Those issues notwithstanding, there's an opportunity set of real estate, not just buildings we own, not just one or two, but probably 15 or 20 projects that could be done in areas that will get rents that will far exceed those suburban locations. Ultimately, I do think Sotopa still an issue getting watered down. I think that it will probably go away for new buildings over time. Although it's tough, people don't like it. I don't think it's a contest between markets. Washington is dramatically, the region's dramatically underhoused. The wealth really doesn't stop growing. The jobs don't stop growing. I mean, the other thing when we think about where we're going to do a project is what we specialize in doing and is always walkable product in cities with super high end everything. And I'm not totally convinced that the market's there yet in some of those places, but it's getting there. We always like everyone picks what every developer picks what they're most comfortable with. I'm always going to take a high walk, score into account heavily when dealing with government. Don't. Washington is on a comparative basis. It's for cities, right. I'm not comparing it to the subject. I'm comparing it to other cities. It's easier to build in than the other East coast cities. I don't know about Baltimore because we're not active there. But Boston is really hard. New York is difficult to the point of impossible in a lot of times for ground up rental housing. And Philadelphia is more challenging than Washington, but by no means impossible. And then there's other cities around the country that know zoning kind of doesn't exist. So there's no zoning, so you can build anything. It's like impossible to get entitlements. I don't know. I'm long term bullish on the region. We've looked at larger projects in Arlington. We think that sometimes with places where you can build really tall buildings by zoning, there's something called the density trap in development where somebody's. You can build a million foot building that's 50 stories, but it really starts to cost a lot of money when you're above 20 stories or 25 stories, depending on the site. And that's been something we found a little bit challenging. But people are making money. I mean, in this environment, development is going to be, I think, less adventurous the next couple of years because capital is so constrained right now.
• 1:54:55
  Speaker A: Well, one thing we haven't talked a little bit about, and I'd like you to get into a little more, is some of the environmental impact of what you're doing as well know how sensitive you are to the ESG concerns in your developments and in your etc.
• 1:55:14
  Speaker B: Sorry. We are OGESG because we've been doing conversions for a really long time. The statistic that we like to quote is by reusing the shell of a million foot building and all the concrete and not taking a foundation. It's about the equivalent of taking 3500 cars off the road and doing adaptive reuse. It's about the equivalent of taking 3500 cars off the road. We also build basically carbon neutral, other than redundant building systems. So electrical everything. We source wind power for building utilities where you can choose how to buy power, how it's sourced. We also do things like we have a window manufacturing business. We have been using triple pane, low E, Argon filled windows for as long as we've been developing. So I think that sustainability is a major focus of every new development, both because regulation and because it's just the right thing to do. It doesn't cost anymore. To be thoughtful about ESG, when you're building in an urban environment now, I can only speak for building the kinds of high density, ground up and adaptive reuse. Where you've got a million feet of real estate on a couple acres, you're forced to do everything efficiently that way, and it's just the right way to do it. So I think we always think about ESG. People are using cars less and less. Buildings need to have. I think 20% of our parking will be EV parking at some of our newest projects, whether they're pure battery, hybrid, mild hybrid, et cetera. The trade off right now, and it's no pitch, is it takes A lot less energy to build a hybrid than it does a purely battery operated car. Now, that'll change. So all these things are contributing. There's a place for everything in terms of sustainability. Sort of like being a vegetarian to a vegan, I guess, is another way I would compare it. There's a place for different levels of sustainability as that technology becomes commercial. And so I don't think we'll see the ability, for instance, in my lifetime, to power a project the size of our universal projects, which we've renamed the building, the Geneva, by the way, to power something that's a city block, just with rooftop solar. I think that'll be possible in what would say lifetime. It's not going to be possible in 30 years, I don't think.
• 1:57:51
  Speaker A: Well, if you haven't seen it yet, you should go look at the American Geophysical Union building it really close to university.
• 1:57:59
  Speaker B: I look down on it all the time.
• 1:58:01
  Speaker A: It might be next door to your building.
• 1:58:02
  Speaker B: It is.
• 1:58:03
  Speaker A: If you haven't heard that to see what they've done there, you should. It's fascinating. They're doing 20 different energy efficiency things there, including geothermal using the sewer system of the city to heat the building. It's fascinating what they're doing there.
• 1:58:22
  Speaker B: Yeah. So that technology in an urban setting doesn't lend itself to a commercial scale yet. But trust me, we looked into geothermally powering the building, not from the sewer, but going all the way down.
• 1:58:42
  Speaker A: And the city right next door, you've got the infrastructure right there. You should talk to them and maybe tap into some of it, because it's interesting what they're doing.
• 1:58:51
  Speaker B: That is really cool.
• 1:58:52
  Speaker A: It's fascinating. Now, I asked the engineer who did it, who was a podcast guest, and I said, so, is this economically feasible as an office building? He said, oh, no, this is a science experiment.
• 1:59:03
  Speaker B: Yes, of course, that's my point.
• 1:59:09
  Speaker A: There's some of this is going to be viable, I think, if it done in scale.
• 1:59:13
  Speaker B: I mean, a Tesla wasn't viable, period, like twelve years ago.
• 1:59:20
  Speaker A: So technology is changing and there's opportunities, and thaT's one of the things I'm doing with the podcast. I'm trying to stay right on the cutting edge of what's going on in our market, as you are an example of that. So what you guys are doing is unique. So let's get into your projects a little bit more detail, if you would, and doing that maybe a little different than other people are doing here in Washington and converting their office to residential.
• 1:59:47
  Speaker B: Sure. Well, I'll talk about the one that's much closer to starting, which is the formal universal project.
• 1:59:56
  Speaker A: Went to the statistics a little bit, and then what you're doing, about 540.
• 2:00:00
  Speaker B: Units, a million square feet gross, above grade. The parking is mostly above grade. We think parking is very valuable in that neighborhood. We're keeping the existing garages, what, about 60,000ft of retail, which we think is really interesting for that neighborhood. There's been no modern retail space delivered in what I'd say the core non Georgetown area of northwest between 18th and Massachusetts. 18th and Rock Creek park, six blocks.
• 2:00:29
  Speaker A: North of Dupont Circle there.
• 2:00:31
  Speaker B: Yeah, roughly. Nothing from Dupont up to there, from 18th to the park. So we've talked to retailers and we've got a line out the door, because the vacancy that exists in that area is just in obsolete storefront type buildings with columns everywhere. And the fact that we can deliver contiguous 20,000 foot spaces is extremely unique in what will be a modern building. So the apartments will be not catering to millennials, which you've seen. Our average renter across our portfolio has gotten about three years older than they were eight or ten years ago. And that's because, I think there's not necessarily less Gen Z, but millennials are slow to household formation and now they're not buying. So these are big units, 1200 sqft on average, catering to people who would like to buy in that neighborhood, or they're staying in the city for as long as they can with kids, until they either buy a house or they move to the suburbs because of the school system. And so there's not really any buildings that cater to that demographic. There's bigger units in existing apartment buildings, and there's condos you can rent and townhouses you can rent, but people like to be on one floor. Like the loss of space vertically in a townhouse in Calorama is like 30% for circulation. It's tough. And also interest rates for consumers buying houses are high. We're seeing where housing prices were already really high. Now people are staying, so it's timely to be delivering this product, as our renter cohort is generally growing, and they're staying in rental housing for longer of course, you can't mention that kind of unit without mentioning the person, the baby boomer who's selling their house in the suburbs or selling their six story townhouse in caloramics. They're tired of fixing the elevator and it's like a pain. And they don't want to walk six stories anymore and they're selling it to someone else and they want to be in one floor and they've got two places in other cities, but they want to be in Washington or they just want to live here full time. The pie to Terra Market, basically Washingtonian Washingtonian piet. So what I'm describing is Washingtonian Pietiter. Then there's the Pietiter market in general, where there's totally inelastic demand from foreign Mission, State Department driven users who don't want to be in a long term stay unit in a transient hotel, even if it's a five star hotel, because hotels are hectic and they might use their apartment, they might be there a week, a month, but they want to have entertain or have business there. You can't really do that in a hotel. It's a huge demand for that. Washington, we believe anecdotally, and we don't know this because it's not tracked in an organized way anywhere. It's probably the strongest short term rental or extended stay market in the country. That's not really a differentiated asset class other than Airbnb. But the people we're talking about don't really book on Airbnb. So we think that's an interesting opportunity. And so the building will be. IT will look like 15 Central Park west in terms of the cladding, be a new limestone facade with a port cache on Florida Avenue, where the former movie theater now flywheel building is. We're taking all of that out and it will be one contiguous facade. It'll look like one building on the entire frontage of Connecticut Avenue, which we think will be really cool. The way we'll have differentiated the facade, which if you just Google the Geneva Washington, you'll see it's an amazing feat. We took 700 linear feet of frontage and broke up the facade architectural detail so that it really doesn't look like one giant building. The reason that K. Fritz broke up those buildings in the way that he did is just a giant super block. And that was the best they could do in the early sixty S. And we think we're going to build something pretty incredible there.
• 2:04:59
  Speaker A: Architect on the project.
• 2:05:03
  Speaker B: Our architect is Handel out of New York City. They've done some pretty incredible stuff before.
• 2:05:10
  Speaker A: Were they on 15 Central Park West? Was that. No.
• 2:05:13
  Speaker B: Robert Am. Stern. So the challenge with a starchitect and adaptive reuse is that their bench has to be so deep, besides the concept guy, that it can be challenging to get that work out of those kinds of architects. We've used lots of big name architects for lots of different things.
• 2:05:38
  Speaker A: So 500 units, 60,000 square foot of retail. That's quite a project.
• 2:05:43
  Speaker B: That's big. 530 units. Yeah.
• 2:05:46
  Speaker A: So you're delivering when? Spring of 24 or no, summer of 25.
• 2:05:54
  Speaker B: There's still office tenants.
• 2:05:55
  Speaker A: You got a long way to go.
• 2:05:57
  Speaker B: Okay. It's a 700 million dollar project, so markets tough. But when is there a bet there's not going to be a lot of new supply?
• 2:06:06
  Speaker A: That's for sure.
• 2:06:07
  Speaker B: And this will have. I mean, there's no. The area that I've sort of described to you, I think the supply has grown by less than 2% in a decade. And so I don't think we're going to have a lease up challenge.
• 2:06:23
  Speaker A: Low Enterprises has probably at one point the Hepburg was the number one rental building in the city. As far as rents per square foot.
• 2:06:35
  Speaker B: It is still. What's interesting is that the building in the portals gets almost the same rents on Maryland Avenue at 1221.
• 2:06:47
  Speaker A: I know that site.
• 2:06:50
  Speaker B: Right. I heard you talking about it. Right. So you know that site?
• 2:06:53
  Speaker A: I financed the Mandarin Hotel, so I know it pretty well.
• 2:06:57
  Speaker B: Right. So I think the salamander is going to be a nice refresh of that property. I think so. But as we're talking about it, where people get really high rents to justify development costs, prices, et cetera, I think that area there can't be a lot of new supply. But obviously the Hepburn proved out the market. I think it still gets the highest rents in the city. I'm not sure anything else does ORF.
• 2:07:32
  Speaker A: Might be getting there. I don't know where their numbers are, but not yet.
• 2:07:36
  Speaker B: But you can see the portals apartment building is basically there. And they're very, you know, the city.
• 2:07:46
  Speaker A: Ridge numbers, Fishman's Fires project, they would like to get those kind of rents the highest, the one they have near the ballpark, which I have not seen an amenity package in the city like that yet.
• 2:08:02
  Speaker B: We're going to have one. We have 85,000ft of indoor and outdoor amenities.
• 2:08:07
  Speaker A: Have you seen their building, the crossings?
• 2:08:10
  Speaker B: Yeah. Okay. It's solid. It's solid. But imagine an amenity package like that on the border of DuPont and Calorama. I think that they're doing that market a favor by delivering that product. I think it sets a high bar. It's pretty impressive.
• 2:08:29
  Speaker A: Who's your contractor on your project?
• 2:08:32
  Speaker B: Lips are sealed for.
• 2:08:34
  Speaker A: Oh, you haven't signed one yet.
• 2:08:36
  Speaker B: We're something I didn't mention because this is more broad conversation. We are our own general contractor in Philadelphia, so we've been our own GC for everything we've ever built. So we are using a GC for preconstruction services. But candidly, we have 100% of those capabilities in house. I don't think we're going to be our own GC in Washington. I don't really foresee a need to do it. We don't perform work for other people. So we're sort of a little bit of a throwback in that people, real estate, family businesses 60 years ago that were also Jewish people from our part of the world, except that somebody in our family should have done it 80 years ago so we can inherit it all. They did all their own construction. They were actually opportunistic investors. And I also don't.
• 2:09:35
  Speaker A: Washington was built.
• 2:09:36
  Speaker B: Yeah, right.
• 2:09:38
  Speaker A: So it's interesting, we, the Smith family, all those, and the caperits, they all built their own projects.
• 2:09:48
  Speaker B: We're getting calls from the ilk of the people that you mentioned who are going down in generations saying, I've got this building. Can you remind me of how we used to do it? And we say, sadly, we're probably not interested in being in the construction business in Washington. Washington's got a really excellent construction industry in the whole MSA versus other places and developers, much higher quality general contractors than other cities. So we don't foresee that there's a need to do that for us there.
• 2:10:25
  Speaker A: Mark Hip Davis. I mean, you go down the list, there's probably eight or ten of them.
• 2:10:31
  Speaker B: That's what I was going to say is some of them have some subspecialties where they're better than others, but to have ten, I'd say at least seven or eight that are broadly solid, that can do big projects. Yeah.
• 2:10:47
  Speaker A: So to stage up here a new project, unless you did both of your big jobs, then you could probably justify it.
• 2:10:57
  Speaker B: No. So it's not a profit center for us because we own the buildings too. And it's sort of like you can't really make money on yourself. I mean, you can, but it's too complicated to be performing both parts for profit because you automatically have a misalignment of interests. If you're trying to change order, your own project as the GC? No, it's for another discussion and another day. We form the business out of necessity in a different place, in a different time.
• 2:11:29
  Speaker A: Understood, I get it. And you're dealing with unions up in Philadelphia, too, which is, I'm sure, another part of that equation.
• 2:11:36
  Speaker B: I'm sure that might have been the whole equation once.
• 2:11:39
  Speaker A: Yeah, that's what I'm guessing. Whereas in Washington, occasionally things get unionized, particularly in the hotel space, but not in the residential. And the office space at least now used to be the GSA that mandated that, but not.
• 2:11:58
  Speaker B: There's not a preponderance of union trades that even want to do this work. They're doing other stuff, other trades, other work. Highways, what have you. So it's a different market. And construction unions can be easy and constructive in many places as well.
• 2:12:21
  Speaker A: Let's move on to your other project because I have a personal history with that building a little bit. The day I started with the BF Salt Company and launched it in 1985, one of my colleagues had about 35 to 40 leases on his desk of an office building of two office buildings downtown, both owned at the time by the Charles E. Smith CompAny. One was 21, one L Street, and the other was 2100 M Street. And we were doing a refinancing of those buildings at the time. Their loans were coming up. It was a permanent loan refi. Because those buildings were built in the.
• 2:13:00
  Speaker B: Have a Lot of connectivity to all THese buildings, too.
• 2:13:02
  Speaker A: I know, because one of them is.
• 2:13:04
  Speaker B: The project you're doing, not because of that, but keep going. It doesn't matter. Sorry.
• 2:13:11
  Speaker A: I actually was a tenant at 21 one L for a while.
• 2:13:15
  Speaker B: My dad was, too, and just clerked for the Civil Aeronautics Board in law school at the Universal Buildings. He said they were crappy even then, and THey were like three years old.
• 2:13:25
  Speaker A: So. Interesting. Your father has personal.
• 2:13:28
  Speaker B: I didn't know. I knew he did that. I didn't know wHere. AnD Then he said, I just read you bought this? And I said, yeah. Did you tell him about it? The acquisition came about in such a serendipitous, such a weird way that it was like he knew we were buying a building and he didn't ask me, so I didn't where it was. And it also felt like the deal wasn't going to happen at one point. So that was like the point when I didn't. It's like, I don't know if it's going to happen. And then read about it. He said, I used to work anyway. Sorry.
• 2:14:06
  Speaker A: And I said, oh, my God. And Then I saw it and then 2100 M Street. It's a building that. It's a big sled, big footprint.
• 2:14:16
  Speaker B: Big building.
• 2:14:17
  Speaker A: I don't remember what the footprint size, but I think it's more than 30,000ft and it's like, god, that's a tough residential because it's more or less a square. It's a rectangle, certainly. No, it's not a rectangle.
• 2:14:31
  Speaker B: No. It's a pie shaped lot. And the building is built. It actually is a very good adaptive reuse building because of its setback from its main neighbor that fronts New Hampshire Avenue. There's actually a lot of light on the interior.
• 2:14:54
  Speaker A: So how much? At an earlier conversation you and I had, you said that you're taking away density from the property.
• 2:15:01
  Speaker B: So talk about taking away maximum density versus building all of it. Right. We're taking away some of the building to make it. You mentioned there's part of it that's very deep, not the whole building, but then we're adding on top and then we're building to the point that faces Duke Ellington park at Emma, New Hampshire.
• 2:15:18
  Speaker A: That's cool.
• 2:15:19
  Speaker B: Yeah.
• 2:15:21
  Speaker A: So talk about the statistics on that building as it was and what you're doing to it.
• 2:15:29
  Speaker B: Disgusting old office building that has never been successful in my career. I bet when you financed it in 1985, it was marginal Security was a.
• 2:15:41
  Speaker A: Big tenant in the building even then.
• 2:15:43
  Speaker B: Who was?
• 2:15:44
  Speaker A: Social Security.
• 2:15:45
  Speaker B: Right, exactly. So Social Security finally moved out, like five years ago or something less. And so it's had a sad history as an office building. So it's about 300,000ft above grade, it's got parking, rentable below grade space. We're going to transform it. We have about 20,000ft of retail. We're going to build up to as high as we're allowed to build. 400 units. A little smaller than what we're doing at the Geneva. We think that it's a little more lively part of town. It's sort of really at the end of the core of downtown on one side and then abut sort of the West End on the other. So I think our renter is going to skew a little younger there. I think that you're going to have people who are relatively younger, who work very long hours, whether at home or there. Whether at home or in an office building, you know, that they can walk to. We think it'll be a little bit of a younger building, and so the units will be a little bit smaller, about 800 and 5900 square feet and we think that the comps to support residential are all around there. Easy to see. Yeah.
• 2:17:01
  Speaker A: I mean, you've got residential less than a block away. You're. You go northwest of that building, you've got, you know, it's all residential there. And then you're on End street, which is all residential. It's a townhouse.
• 2:17:16
  Speaker B: So that's the other thing I love about Washington, besides the civil nature of the whole place. And I think you described Washington. I heard you talking to somebody, said, Washington is collegial and New York is cutthroat, even within real estate. Like you mentioned, other developers. I'm not in competition with any developers in Washington or any developers anywhere. And I think people have a more collegial feeling towards people in their same industry. But no, the other thing I love is if you look at who the neighbors of 2100 M Street are, the liquidity that's in Washington all the time. It's Adia, JBG, Beacon Capital Partners, and Tishman Spire. That's Adia, Tishman Spire, and Brookfield. That's who owns the buildings immediately adjacent, and the Hershey REIT and was across the street, and I think ta associates. So even when some of that stuff's not doing. And so, you know, not every. Not every city has really only New.
• 2:18:18
  Speaker A: York, maybe San Francisco, most rest places.
• 2:18:24
  Speaker B: Not Boston, is becoming that way, too. Yeah, you're. New York does. Ironically, Francisco does. And I think betting against any of these global incumbent superstar cities over the long term is a bad bet. I mean, New York's been dead three times in my career. Right.
• 2:18:44
  Speaker A: Several times before your career.
• 2:18:45
  Speaker B: Yeah. I'm just talking about in my life.
• 2:18:47
  Speaker A: Like, I remember early 1970s, New York was really dead.
• 2:18:51
  Speaker B: It was dying.
• 2:18:53
  Speaker A: Nobody wanted to be in New York.
• 2:18:55
  Speaker B: We looked at an apartment building in New York, right as the restrictions were being lifted, and it was like 70% leased, and it was mostly free market, and we couldn't rationalize why. We were the geniuses who would buy it. But now New York is stronger than ever, and I think San Francisco will come back in some way.
• 2:19:26
  Speaker A: So 2100 M Street will be an exciting project. And so when do you plan to deliver that one?
• 2:19:38
  Speaker B: So probably two years.
• 2:19:42
  Speaker A: Okay.
• 2:19:44
  Speaker B: These are in the design trade off.
• 2:19:47
  Speaker A: Sorry, in the design phase at this point.
• 2:19:50
  Speaker B: Yeah. Good.
• 2:19:54
  Speaker A: Talk a little bit about capitalization of both those projects a little bit, if you would.
• 2:19:59
  Speaker B: Sure. So generally, we've been, over time, somewhat averse to using institutional equity. Earlier, we were talking about Philadelphia and where we started our career. And I was talking to a prospective investor once, and they said, the first thing they said to me is, you must be a great salesman. I said, well, I am. Thank you. Why do you say, like, I'm not dressed in any particular, just, you know, have a suit and tie on? He said, because you've done billions of dollars of development in Philadelphia, you've attracted capital there. That's not where people, where institutional money wants to go. It's like, well, first of all, it's really not that bad. Second, you're generally right that it's harder to get allocated managed money to go to a market that is perceived as, on the margins, less liquid. So we started the business without allocated, with just high net worth capital. And we've gone that way really for 15 or 16 years. Sometimes we're the largest investor in our own projects, but not always and not usually. And I think as we look towards what the environment is going to be like for the next couple of years, leverage is going to be lower. We'll probably own a little bit less of more projects or a little bit less of the projects that do happen, because it's very difficult. Dollars are scarce in this exact moment in the cycle, which is fine. And so we've capitalized them with our own capital, family offices, and then typically we'll bring in other equity when we're ready to build something. So heretofore, we've not been a merchant builder at this point in the cycle. It'S unclear if you can merchant build anything because no one knows the kinds of. If you're pursuing that strategy, you have to have a clear view of exit value in a very short time frame. We've never really focused on doing that. We just want to know, do we feel good about the return? Does it justify an equity investment unleveraged, cash on cash? Does that work? So that's always been our approach. And if we can sell it for a lower cap rate, we will look at that at that point. And then. So we've typically done one of two things. We don't ever buy properties that don't have zoning to build what we want to build as a matter of. Right, you might have to get some variances or something like that. We have a low appetite for things that require.
• 2:22:53
  Speaker A: So you won't take entitlement risk?
• 2:22:56
  Speaker B: Yeah, life's too short. We don't even contract properties to do that. It's more and more difficult in every city to do that. It's kind of, life's too short. So if we're getting, we think something can be sort of bought opportunistically. We'll buy it and finance it as appropriate, and then bring in more capital, equity and debt. When we close a construction loan, and sometimes, certainly in the case of ground up construction, if there's not in place cash flow from something, we'll typically buy the land from the person that owns it if they don't want to joint venture with us when we can close a construction loan. So I think our financing structures are innovative, but not entirely unique. And our projects are very unique as well as innovative. And these things tend to. We're pretty good at raising capital, I think, and we've been through difficult and easy environments to do that. And I think if you have a great project, it will always find financing, I think.
• 2:24:11
  Speaker A: So the universal project, did you use institutional capital for that one, or is that purely family office type equity?
• 2:24:27
  Speaker B: So ultimately, as the construction financing goes in place, I think it'll be a mix of that, of institutional.
• 2:24:36
  Speaker A: 700 million is a big project. Yeah, exactly. We're going to need some help there.
• 2:24:42
  Speaker B: Yeah, we've been able to get excellent construction debt financing even now, and that's hard. I think leverage levels are going down. I think the tailwind we're going to see behind the industry is relatively attractive. Construction pricing coming pretty soon.
• 2:25:05
  Speaker A: Are you getting money center banks to step up, or is it debt funds or what are you looking at there?
• 2:25:11
  Speaker B: Yeah, it's interesting. Money center banks have become more and more sort of like utilitarian in what they do. And so much of the riskier parts of the capital stack are getting outside of the regulated banking system. So if you need a construction loan of more than $150,000,000 without syndication risk, really, for the last six or seven years, the way those have been structured, if you're not looking for just 50% leverage, which we're not, is there's one of five or six banks that can lend two, three, $500 million. They don't want participants. They'll do that. There'll be some, what was moderately priced, sort of B note or MEZ to 60 or 65% of cost, and then everything above that was my experience, is.
• 2:26:05
  Speaker A: They'Re big enough themselves. They'll syndicate internally, they syndicate internally to their own private equity sources for capital. And so they have their own internal investment bank basically to do it, whatever they do. JP Morgan's of the.
• 2:26:26
  Speaker B: No, no, of course they do that. We're seeing know some insurance companies that are owned by private equity firms are doing things like that, and they're sort of innovating in real time. And as a developer, you look at if you have a good financing expertise, you look at how they're distributing your loan internally, and you sort of think of how much of that could I do and sort of make more profitability. And I think in this environment, the answer is liquidity is scarce. If somebody's going to make you a construction loan commitment for those kinds of figures, a lot more than 100 or $200 million, you let them make money, too. I think we'll all be surprised at the. Pleasantly surprised at the end of this cycle, because there's going to be a real pause in new supply, and I think values will just, if there's a pause in new supply and values recover from a sort of valuation, multiple cap rate basis, but rents are going to continue to go up. I think if you own multifamily, this is not really the time to sell it.
• 2:27:41
  Speaker A: You have the opportunity to sit down with Fanny and Freddie once you're done, and just sit down and say you can do a takeout with them and you're all set. So it's just bridging to that point where you're at 90% leased, which takes time with a 500 plus unit project.
• 2:27:58
  Speaker B: We just leased a 700 unit project in 15 months in Philadelphia.
• 2:28:03
  Speaker A: That's got to be a record.
• 2:28:09
  Speaker B: Yeah, I don't know who's keeping records. I mean, it was a strong market and a great project, and it was fat sessions.
• 2:28:16
  Speaker A: Did you have to get those? Did you have a month, a year.
• 2:28:22
  Speaker B: Type deal at various points in the lease up? But we finished it with no concessions. And unfortunately, as there's been a lot of institutional new, multifamily construction since 2010, everybody concesses on their lease up, even if there's no reason to do it. So if you're a one of one.
• 2:28:46
  Speaker A: Thank you, Trammel Pro, for inventing concessions, right?
• 2:28:50
  Speaker B: Yeah. It's just if you're a one of one lease up, which we've been plenty of times, where there's not another competitive building or several in any submarket, or maybe the only thing delivering in not a whole city, but a huge area, I don't know. It's unfortunate, but it's still a good business overall.
• 2:29:14
  Speaker A: So let's quickly go to your company a little bit about the growth of the company and how you guys grew. Did you try and stay lean and mean, or you have property management, so that's probably your heaviest personnel load, I'm guessing, right?
• 2:29:30
  Speaker B: Well, the construction company, but it's really its own entity right, sure, the construction company, but you can staff up and staff down there as needed.
• 2:29:40
  Speaker A: Don't have your own subs though, you just have a GC.
• 2:29:43
  Speaker B: We actually have some value add, finished carpentry and that's pretty much it.
• 2:29:48
  Speaker A: But it's a very Properties, right?
• 2:29:53
  Speaker B: Yes.
• 2:29:54
  Speaker A: So you staff that?
• 2:29:57
  Speaker B: Yeah, we own a materials distribution company that we're a minority owner of that also serves third parties for non commodity building materials, anything you see. So we source all those things so that our projects tend to look way ahead of their time because the procurement is driven by our design. And then we have a construction business and we do as much as we can internally without having a huge load. In terms of investment, professionals like six other people besides me do all of our own reporting. Our investors say our reporting is as good as Blackstone's pub for us. You have an in house CPA? Yes, I have an in house CPA who's CFO. And then I have people that just do reporting that really good. They do reporting.
• 2:30:51
  Speaker A: Portfolio manager, you have an investment relations person that kind of.
• 2:30:58
  Speaker B: But the investor you could roll up.
• 2:31:00
  Speaker A: To public company, then scale potentially if you wanted to. Right.
• 2:31:06
  Speaker B: The last part of your sentence is the interest. I mean, we're set up to do that. Yes. Being respectful of your listeners. Time development real estate companies that do development do not trade well. And even if you're a REIT with a lot of stabilized properties, and you say your value creation engine is development, your stock trades at a big discount to NAv. Unfortunately, it's been proven true over and over and over again, and then some.
• 2:31:39
  Speaker A: It depends on the scale of what your existing asset portfolio is. So I look at a federal realty, for instance. Sure they have some huge development projects going, but they also have a very large fundamental basis of existing ongoing assets too, which creates a lot of cash flow for the sure.
• 2:32:02
  Speaker B: I think that if we had to go to a proportion of asset base that was stabilized such that the development, if it was consolidated just using corporate debt, was sort of a rounding error, it would be a less fun business for me. I mean, Archstone was great at development and they took it off balance sheet. And ultimately, I think that Scott Sellers, a bit of a mentor to me, just had the idea he was going to sell that company a long time before he did. Let everybody think he had no idea what he was doing. And it kind of didn't work out for the guys that bought it. No offense to them. But yeah, I think, look, every entrepreneur that is occasionally very frustrated with the friction of raising capital privately and by project has in the back of their mind, it would be great to be public if you spend some time really thinking that through and what that would look like the trade offs. If you really want to grow today because of where REITs are still at a big discount to Nav, and you factor development into that, it's not the most attractive thing. And you can just envision yourself struggling with answering questions of why do you trade at a discount to nap. I agree.
• 2:33:37
  Speaker A: I just threw it out.
• 2:33:38
  Speaker B: No. And then I see people do that. They go public and then immediately they're doing that. And then you just were like, well, some investment banker must have gotten paid a lot to convince you to do this, because.
• 2:33:53
  Speaker A: It'S a scale game. I mean, you look at Avalon Bay, for instance, they're a big REIT, maybe the largest multifamily REIT, and they're doing development probably more than you are nationally. But it's a scale thing. They can do it and it's a beta thing. It's very little beta to their overall balance.
• 2:34:19
  Speaker B: If I'm doing one or $2 billion of development, I don't own a $30 billion stabilized portfolio. Exactly right. That's your point. I don't know. I would say, I think that the world needs more publicly traded real estate companies that own high quality real estate, and something will evolve to give. A new corporate structure will evolve. That's not a REIT, because the REITs portfolios, the multifamily REITs portfolios are like the three big Class A coastal REITs, EQR, Avalon Bay and Essex. Their portfolios are like 20 years old plus on average, and they can't build their way to new. And so I think the give and take is going to be companies like mine because it's happened in previous business cycles. Real estate development companies that own stabilized assets could be public. It's just not hot right now.
• 2:35:19
  Speaker A: All right, let's shift real quickly to your life priorities. Family, work, giving back, and then I've got a final two questions after that.
• 2:35:31
  Speaker B: So, family life priorities, I'd say two sons, eleven and 14. Wife married quite happily. My son will be eleven anyway, almost eleven. So kids, both into sports, both go to the same school. They play every sport right now. And I coached their teams when they were younger, but now they need more expert coaching, and I'm quite happy to not provide it anymore, not right now. They both started when they were in pre K, and then they decided it wasn't cool to be like dad. So I'm supportive of whatever they want to do. They both flirt with going back to it, whatever they want to do. I just want them to want to be good at something very involved in the community. Multiple not for profit boards have chaired several, really, in the sports based youth development space, generally. Some other things about wrestling and then Jewish not for profits, helping people that are disadvantaged in my areas of passion. And then I actually redeveloped the first public Holocaust memorial in the United States, in Philadelphia, as the chairman. Yeah. I'm never doing that again. Don't ever volunteer to build a public memorial. It's words of wisdom for your listeners.
• 2:37:04
  Speaker A: Did the one here in Washington. It was quite something. Yeah.
• 2:37:07
  Speaker B: Ours is a plaza. Yours is, I think you're talking about the museum. But it was a heavy lift. And so that was interesting. And then, I don't know. I play tennis. I'm a father and I work hard. That's it.
• 2:37:25
  Speaker A: That's awesome. And a husband. So what advice would you give your 25 year old self today?
• 2:37:32
  Speaker B: I would say at the beginning of my career, have patience for people who tell you to go slower.
• 2:37:39
  Speaker A: That's good. All right, so you're a returning resident. Well, not resident yet, but an activity player in the Washington, DC area. So my final question to all my guests is if you could Post a statement on the billboard on the Capitol Beltway for millions to see, what would it say?
• 2:38:01
  Speaker B: Bet big on Washington. All right.
• 2:38:04
  Speaker A: Love to hear it. That's great. Matt, thank you very much for this very wide ranging conversation about your re entry into the Washington region. And good luck with both of your projects here and future projects in this market. Thank you for joining me.
• 2:38:21
  Speaker B: John, thank you so much for having me. See you soon. Take care.