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Michael Levy on Real Estate Finance · Masters in Business

• 0:02
  Speaker 1: This is Mesters in Business with Very Results on Bloomberg Radio.
• 0:09
  Speaker 1: This week on the podcast Yes Again, I have an
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  Speaker 1: extra special guest. His name is Michael Levi. He has
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  Speaker 1: a fascinating background in real estate, both from a finance
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  Speaker 1: perspective as well as an investing and development perspective. He
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  Speaker 1: is currently chief executive officer at Croll Holdings, the largest
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  Speaker 1: builder of apartments in the United States. They've been around
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  Speaker 1: for seventy five years and they have well over thirty
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  Speaker 1: billion dollars in investments across twenty one local markets. If
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  Speaker 1: you're interested in everything from apartment buildings, industrial space, warehouses,
• 0:51
  Speaker 1: what's going on in the world of office space, how
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  Speaker 1: to invest in retail? Right, you would imagine retail is
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  Speaker 1: a disaster, but it turns out certain types of retail
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  Speaker 1: is doing really well while other types are lagging. The
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  Speaker 1: same is true in office buildings. I think you will
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  Speaker 1: find this to be a fascinating conversation. I know I did,
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  Speaker 1: and so, with no further ado, my conversation with Crow
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  Speaker 1: Holdings Michael Levy. I'm Barry Hults. You're listening to Masters
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  Speaker 1: in Business on Bloomberg Radio. My extra special guest this
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  Speaker 1: week is Michael Leviy. He is the CEO of Crow
• 1:31
  Speaker 1: Holdings and oversees all of their business activities. Crow runs
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  Speaker 1: about thirty billion dollars in assets, investing in commercial real estate.
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  Speaker 1: They have been around for more than seventy years and
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  Speaker 1: operate in over twenty local markets in the United States. Previously,
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  Speaker 1: Michael was Morgan Stanley's Chief operating officer for investment management
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  Speaker 1: and a member of the firm's management committee. Comes to
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  Speaker 1: us with bachelor's from n y U Stern School of
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  Speaker 1: Business and a j d from Brooklyn Law School. Michael Levie,
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  Speaker 1: Welcome to Bloomberg. Thanks Barry. It's great to be here.
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  Speaker 1: It sounds like you are very much a New York kid,
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  Speaker 1: with U, n y U and Brooklyn on on that resume.
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  Speaker 1: I am. My grandparents settled from Russian into Brooklyn and
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  Speaker 1: the nineteenteens, and my dad grew up there, and uh,
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  Speaker 1: when we were little kids, moved this out to Long Island,
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  Speaker 1: and and I was raised in Port Washington, and I
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  Speaker 1: went to n y U. Was the best college I
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  Speaker 1: got into, and one thing led to another, and I
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  Speaker 1: spent most of my life here. So so let's talk
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  Speaker 1: a little bit about your professional career. You started in
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  Speaker 1: real estate investment banking. Was this mostly M and A
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  Speaker 1: deals or refinancing or transactional what? What was that like? Sure? Um,
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  Speaker 1: I came out of law school in n and uh
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  Speaker 1: in Wall Street was recapitalizing the real estate industry, and
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  Speaker 1: so I got dropped into the real estate group because
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  Speaker 1: there was a lot of transact and flow and it
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  Speaker 1: was equity offerings at that time, primarily I p O
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  Speaker 1: s and secondary offerings. There was some M and A
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  Speaker 1: activity that took place, but it was a wave of activity,
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  Speaker 1: and as a young guy looking for opportunity, there was
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  Speaker 1: a new deal a week, and so we worked really
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  Speaker 1: really hard. But you get your chops early on by
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  Speaker 1: working really really hard. So it was a great time.
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  Speaker 1: Was there a prior interest in real estate or did
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  Speaker 1: you just kind of stumble into whatever it was hot
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  Speaker 1: at the moment? Absolutely not. I UM. When I was
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  Speaker 1: going to law school, I went at night and I
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  Speaker 1: worked during the day for the lawyers, and uh, most
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  Speaker 1: of the lawyers I worked for said, you don't want
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  Speaker 1: to do this, you know, you want to work on
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  Speaker 1: the business side. Those guys have more fun and they
• 3:41
  Speaker 1: make more money. So UH, I talked my way into
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  Speaker 1: a job and investment banking. I went into training and
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  Speaker 1: uh they placed me where they saw fit and dropped
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  Speaker 1: me into the real estate group and well well as
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  Speaker 1: a recovering attorney myself. I could tell you those guys
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  Speaker 1: were telling you that there's there's less tedium and more
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  Speaker 1: fun on the business side because every deal, every transaction,
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  Speaker 1: there is a framework that you learn, but each one
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  Speaker 1: is specific and unique to those circumstances. Yeah, it was.
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  Speaker 1: It was great fun. I loved and respect the law incredibly,
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  Speaker 1: but it turned out to be a great decision. Uh,
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  Speaker 1: I can't can't agree with you. So, so how did
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  Speaker 1: you end up at Morgan Stanley for almost two decades. Well,
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  Speaker 1: I started out at Prudential Securities and that's where I
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  Speaker 1: worked while I went to law school, and they gave
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  Speaker 1: me a chance in the business. Um, I had an
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  Speaker 1: opportunity a couple of years in to work for Solomon Brothers,
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  Speaker 1: and UH. At the time, you know, I knew that
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  Speaker 1: there was a pecking order and investment banking and Prue
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  Speaker 1: was great, UH and great people I worked for, but
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  Speaker 1: I knew that Solomon was to step up, and so
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  Speaker 1: I took the opportunity with Solomon Brothers. Well, very quickly
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  Speaker 1: Solomon Brothers got gobbled up by Smith Barney, and very
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  Speaker 1: quickly Smith Barney got gobbled up by City Bank, and uh.
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  Speaker 1: I remember going into the headquarters and uh they were
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  Speaker 1: selling me checking accounts. As I was walking into the
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  Speaker 1: office one day, I said, I'm not quite sure this
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  Speaker 1: is what I was hoping for. So uh, I was
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  Speaker 1: lucky enough at the time to have an opportunity to
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  Speaker 1: move to Morgan Stanley, and I took it. So Sally
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  Speaker 1: ends up at City Prudential is now PIJAM, which is
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  Speaker 1: a giant, giant operation worldwide. UM, and Morgan Stanley is
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  Speaker 1: still one of the biggest investment banks in the world.
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  Speaker 1: You were at one time chief operating officer of their
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  Speaker 1: global Investment Management division. I'm assuming that is real estate focused.
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  Speaker 1: That was not. That was the investment management division. The
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  Speaker 1: first half of my career at Morgan Stanley was real
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  Speaker 1: estate investment banking, and the second half of my career
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  Speaker 1: transitioned into real estate investing, which transitioned into alternatives, which
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  Speaker 1: transitioned into investment management more broadly. So, so you were
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  Speaker 1: at Morgan Stanley. If I'm doing the math in my head,
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  Speaker 1: right two thousand and eight throughout the crisis. So I
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  Speaker 1: have to assume you eventually became an expert at restructuring
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  Speaker 1: and all the fund that took place after the Great
• 6:02
  Speaker 1: Financial Crisis. Yeah, I I would describe it a little
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  Speaker 1: as the in the in the land of the Blind,
• 6:07
  Speaker 1: the one eyed man is king. It was late two
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  Speaker 1: thousand seven, and uh, the markets hadn't yet entirely cracked um,
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  Speaker 1: and I had an assignment as an investment banker to
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  Speaker 1: work for one of the country's largest pension funds who
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  Speaker 1: was on the leading edge of bankruptcies and restructurings in
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  Speaker 1: the real estate portfolio. And so I had a lot
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  Speaker 1: of advisory work. And then once more once Morgan Stanley
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  Speaker 1: is a firm in the winter of two thousand eight
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  Speaker 1: hit the wall. Like many financial institutions, real estate was
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  Speaker 1: a leading edge of that wall, and so I had
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  Speaker 1: a chance to work with the firm on restructuring its
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  Speaker 1: real estate holdings in the real estate business. That two
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  Speaker 1: thousand and eight experience, How did it impact you and
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  Speaker 1: what sort of lessons did you take from it going forward?
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  Speaker 1: The most formative period of my career, without a doubt,
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  Speaker 1: and I think most people you learn more from the
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  Speaker 1: difficulties than you do from the success. UM. It was
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  Speaker 1: a reminder of our inability to see the future. UM
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  Speaker 1: first point. But within the core business of finance and
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  Speaker 1: real estate, the first lesson was leverage. You know, it's
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  Speaker 1: leverage that will kill you, and it will leverage. It's
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  Speaker 1: leverage that will take you down. UM. There were other
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  Speaker 1: things that I learned the people I had worked with
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  Speaker 1: and the groups I had worked for, both as an
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  Speaker 1: adviser as well as Morgan Stanley sought tremendous growth in
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  Speaker 1: the early two thousand's growth without necessarily all of the
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  Speaker 1: guard rails, the systems and the processes, and to manage
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  Speaker 1: that unparalleled growth, and so between high levels of leverage
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  Speaker 1: as well as growth for growth sakes without all of
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  Speaker 1: the constraints around that growth, those two things together kind
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  Speaker 1: of result in catastrophic events which occurred in two thousand
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  Speaker 1: eight and two thousand nine. You know, if you're investing
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  Speaker 1: your own capital with no leverage, the worst that happens
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  Speaker 1: is the market gets cut in half and it's painful.
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  Speaker 1: But if you're using leverage, you get margin holes and
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  Speaker 1: you could be pretty easily wiped out. As we saw
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  Speaker 1: time and again in oh eight or nine, right and
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  Speaker 1: beyond sure, And that's where it comes to alignment and
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  Speaker 1: the people that work you know, if if if they
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  Speaker 1: have nothing but upside and they're not participating in the downside,
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  Speaker 1: then the use of leverage. And so, whether you're an
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  Speaker 1: employee of a large firm or you're managing a fund
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  Speaker 1: or whatever position that you're in, being fully aligned with
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  Speaker 1: investors is a great guard rail with respect to these
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  Speaker 1: questions of the use of leverage, which which leads me
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  Speaker 1: to the next obvious questions. So, how did you end
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  Speaker 1: up at Crow Holdings from? Was it directly from Morgan Stanley?
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  Speaker 1: It was? It was again. I was working from real
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  Speaker 1: estate into alternatives into investment management broadly um and my
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  Speaker 1: career was going well and I was doing interesting work.
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  Speaker 1: But in two thousand and fourteen I met this really
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  Speaker 1: interesting guy named Harlan Crow who was the patriarch of
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  Speaker 1: the family and the son of the founder of the company,
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  Speaker 1: and he was looking for someone to succeed him to
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  Speaker 1: run the business. And I found him to be a
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  Speaker 1: fascinating individual and a and a very kind, benevolent, interesting
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  Speaker 1: human being. And we talked off and on for about
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  Speaker 1: two years. And then in the summer of two thousand sixteen,
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  Speaker 1: my wife and I went to spend some time with
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  Speaker 1: Harlan and his family in the business. And we were
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  Speaker 1: flying back from Dallas, Texas to New York and my
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  Speaker 1: wife looks at me and she says, you need to
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  Speaker 1: go do this, and uh, she knew what I knew,
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  Speaker 1: which was it. It pulled at my heart. You know,
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  Speaker 1: when you work at a firm like Morgan Stanley, or
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  Speaker 1: you work on Wall Street, in any given year, there's
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  Speaker 1: always someone knocking on your door. There's always an opportunity.
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  Speaker 1: And I had always analyzed these opportunities. You know, I
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  Speaker 1: made this much money, or I had this much authority,
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  Speaker 1: or what would this title mean? And this was the
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  Speaker 1: first time in my life that none of that mattered.
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  Speaker 1: All that mattered was my heart pulled at me and said,
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  Speaker 1: I want to work with these people. You want to
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  Speaker 1: work do this work with these folks focusing on this topic. Correct,
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  Speaker 1: That's that's really that's really interesting. Since then, in the
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  Speaker 1: past day, cade you become very active within the commercial
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  Speaker 1: real estate industry. You're a member of the Real Estate
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  Speaker 1: Round Table, You're part of the policy Advisory Board at
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  Speaker 1: the Fisher Center for Real Estate and Number and Economics
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  Speaker 1: at Berkeley, which is not in Texas, California. You're on
• 10:16
  Speaker 1: the advisory board at the Institute for Real Estate Operating Companies.
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  Speaker 1: Tell us a little bit about all of this extracurricular activity,
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  Speaker 1: which I'm sure is intimately connected to your day job. Sure,
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  Speaker 1: you know, the real estate industry is as large and
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  Speaker 1: as vast as it is, like many industries, is kind
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  Speaker 1: of small, and these various organizations are opportunities both to
• 10:40
  Speaker 1: network as you get older. They're friends of yours. There
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  Speaker 1: it's an opportunity for old homecoming to see people, and
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  Speaker 1: it's an opportunity to learn to compare notes. And sometimes
• 10:50
  Speaker 1: it's an opportunity to give back, depending upon the mission
• 10:53
  Speaker 1: or objectives of the institution. But most of the time,
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  Speaker 1: it's ability to gather with peers in the in the industry.
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  Speaker 1: It's hawk about what's going on. Some of them are
• 11:02
  Speaker 1: are very confidential forums, off the record forums where people
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  Speaker 1: can speak their minds, where you're not going to read
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  Speaker 1: about it in the press. And so you learn as
• 11:11
  Speaker 1: you get older, you find out most of the time
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  Speaker 1: that you're not necessarily learning new things, you're confirming what
• 11:17
  Speaker 1: you what you either like to believe or what you
• 11:19
  Speaker 1: thought you believed, and that confirmation is sometimes helpful that
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  Speaker 1: perhaps I'm not crazy with respect to these ideas. Really
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  Speaker 1: very interesting. It's funny you say real estate is a
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  Speaker 1: small um community. Someone described New York City as vast
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  Speaker 1: and frenetic, as it is as just a series of
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  Speaker 1: small industry villages all staffed on top of each other.
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  Speaker 1: And you know, you know most of the people in
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  Speaker 1: your business, even if there are thousands of people, you
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  Speaker 1: know your peers at your level. I'm not surprised to
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  Speaker 1: hear you say that about commercial real estate. It's true
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  Speaker 1: in every industry, absolutely. So let's talk a little bit
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  Speaker 1: about Crow Holdings. It looks like a pretty fascinating place.
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  Speaker 1: Tell us about that history and the patriarch who uh
• 12:05
  Speaker 1: made such a compelling case that you had to switch jobs. Yeah, well, well,
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  Speaker 1: thank you, Barry In. There was a young man who
• 12:12
  Speaker 1: built a speculative industrial building in Dallas, Texas, and his
• 12:16
  Speaker 1: name was Trammel Crow and Uh. Trammel went on in
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  Speaker 1: the nineteen fifties and sixties to become the largest real
• 12:24
  Speaker 1: estate developer in the United States. And Trammel had a
• 12:28
  Speaker 1: great optimism, great insight, great great foresight. But he also
• 12:32
  Speaker 1: had a way of doing business. He didn't have the
• 12:34
  Speaker 1: means when he started out to employ people. He partnered
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  Speaker 1: with people. He had an ability to work with many
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  Speaker 1: of the local banks and regional banks to get loans
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  Speaker 1: to build real estate. And he partnered with young people
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  Speaker 1: all throughout the country and said, look, I'll go into
• 12:50
  Speaker 1: business with you all on a handshake, will split the
• 12:54
  Speaker 1: ups fifty fifty, and I'll help you get started by
• 12:58
  Speaker 1: helping get them financing for these projects. And so, with
• 13:01
  Speaker 1: that trust and with that love that he had for people,
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  Speaker 1: he went on to build partnerships all throughout the United States,
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  Speaker 1: and that way of doing business was different than others.
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  Speaker 1: He also took an approach that and I used the
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  Speaker 1: word speculative, meaning he built the building in the hopes
• 13:18
  Speaker 1: that someone would lease it. He didn't build the building
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  Speaker 1: with a lease in hand. He built the building and
• 13:23
  Speaker 1: then it got leased. Now, now this might be my
• 13:26
  Speaker 1: post Warward two hindsight bias, but I would imagine the forties, fifties,
• 13:31
  Speaker 1: sixties was a great time to be real estate developer
• 13:34
  Speaker 1: in the United States. It was a great time to
• 13:36
  Speaker 1: be a real estate developer, and there was tremendous growth
• 13:39
  Speaker 1: throughout the United States. There was also another dynamic that
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  Speaker 1: the banks at that time would would lend sometimes more
• 13:45
  Speaker 1: than a hundred percent of the cost to build a building. Well,
• 13:48
  Speaker 1: you gotta decorate, you have other things you have to
• 13:50
  Speaker 1: do once the building is up. A hundred and ten
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  Speaker 1: a h loan to value that seems kind of aggressive
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  Speaker 1: these days. These days, that's not available. But in those
• 14:00
  Speaker 1: days that was available. And so why the excess? What
• 14:03
  Speaker 1: was the above the cost of construction? There they are
• 14:07
  Speaker 1: the soft cost, there's the financing cost along the way,
• 14:09
  Speaker 1: and as you said, there's engineering and other costs that
• 14:12
  Speaker 1: come in. And so you I don't I don't know
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  Speaker 1: if would have been the norm, but certainly for for
• 14:18
  Speaker 1: discussion purposes, you're borrowing a dent of the cost to
• 14:21
  Speaker 1: build a building, and so you don't need to come
• 14:23
  Speaker 1: out of pocket with any equity. Now, we just talked
• 14:26
  Speaker 1: about leverage a minute ago. When times are good and
• 14:29
  Speaker 1: times are growing, you know that works out well. And
• 14:32
  Speaker 1: as you pointed out, in the nineteen fifties and nineteen
• 14:35
  Speaker 1: sixties in America, those were tremendous times for growth and
• 14:38
  Speaker 1: opportunity and so the company. So, so let's talk a
• 14:42
  Speaker 1: little bit about about the crow family members. You were
• 14:47
  Speaker 1: the first person outside of the family to become a
• 14:51
  Speaker 1: leader of the firm. What made them decide to not
• 14:55
  Speaker 1: stay with the family that they've done for seventy years,
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  Speaker 1: And what sort of channe leunges does running what's essentially
• 15:02
  Speaker 1: a giant family office create for you. Well, Trammel ran
• 15:07
  Speaker 1: the business until the very late nineteen eighties, and we
• 15:10
  Speaker 1: had a terrible time for real estate in the late eighties,
• 15:13
  Speaker 1: and his son Harlan took over in the late nineteen eighties,
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  Speaker 1: and uh in two thousand fourteen, Harlan began to think
• 15:19
  Speaker 1: about his succession and made a decision that he wanted
• 15:23
  Speaker 1: to go outside of the company and specifically to bring
• 15:26
  Speaker 1: in someone who had more capital markets experience, someone ultimately
• 15:32
  Speaker 1: like me, not me in particular, but someone who didn't
• 15:36
  Speaker 1: come up the ropes from the real estate side, who
• 15:38
  Speaker 1: came up the ropes from the capital market side of things,
• 15:41
  Speaker 1: to augment the great skills and capabilities in the company. Now,
• 15:45
  Speaker 1: it's not self evident that on a piece of paper,
• 15:48
  Speaker 1: this New York guy trained on Wall Street went to
• 15:53
  Speaker 1: Brooklyn Law School would be a great fit with a
• 15:55
  Speaker 1: Dallas based family owned company called Crow Holdings. But it
• 15:59
  Speaker 1: was a right fit and we share very common values.
• 16:02
  Speaker 1: And I find Dallas to be a really fun city.
• 16:05
  Speaker 1: Is that where you're you're working out of where you
• 16:08
  Speaker 1: had correct? So we're headquartered in Dallas, Texas. We have
• 16:11
  Speaker 1: about twenty one offices around the country and other cities,
• 16:13
  Speaker 1: but we are a Dallas based, Dallas headquartered, Dallas cultured company.
• 16:19
  Speaker 1: At our at our core, and at our roots, which
• 16:21
  Speaker 1: means big everything right, nothing has done small, nothing is
• 16:25
  Speaker 1: you know, nothing is tentative. What I love about Texas
• 16:28
  Speaker 1: is when they do something, it's big. Texas think big
• 16:32
  Speaker 1: and Dallas sizes think big. Yeah, no, no doubt about that.
• 16:35
  Speaker 1: So so let's get specific about Crow focuses on multifamily units,
• 16:39
  Speaker 1: office industrial. I would imagine multi family is doing great.
• 16:45
  Speaker 1: Industrial is doing even better. In office not so much? Correct? Um?
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  Speaker 1: We uh. We both have a real estate development company
• 16:54
  Speaker 1: and a real estate investment management company, and there are
• 16:56
  Speaker 1: two different businesses with what's the split into arms of
• 17:00
  Speaker 1: activity and assets is it's about half, really, it's about half. So,
• 17:04
  Speaker 1: so half of Crow's work is actually building developing new assets.
• 17:08
  Speaker 1: The other half is investing in existing assets exactly. Exactly
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  Speaker 1: and UM but both businesses have a high degree of
• 17:16
  Speaker 1: overlap in terms of their strategies. So as a real
• 17:18
  Speaker 1: estate developer, we have built more apartments in the United
• 17:21
  Speaker 1: States than any other firm. Really correct, that's a that's
• 17:24
  Speaker 1: an enormous uh undertaking. And the US is still dramatically
• 17:30
  Speaker 1: underbuilt when it comes to apartments. Yes, it is, both
• 17:33
  Speaker 1: both in cities and suburbia. We have a big problem
• 17:35
  Speaker 1: in America. We don't produce enough housing, particularly for working
• 17:39
  Speaker 1: class people. And UH, it's a great opportunity from a
• 17:42
  Speaker 1: development and an investment perspective, but it's getting harder and
• 17:45
  Speaker 1: harder to build. And it's an area we have a
• 17:47
  Speaker 1: lot of expertise in. And then and then you guys
• 17:51
  Speaker 1: were very early into UM industrial facilities, warehouses, logistic sort
• 17:58
  Speaker 1: of facilities in the early days of e commerce. Tell
• 18:01
  Speaker 1: us a little bit about that. Well, two things. One,
• 18:03
  Speaker 1: we still own the first industrial building the Trammel built
• 18:06
  Speaker 1: in and it's on Coal Street in Dallas, Texas. And
• 18:11
  Speaker 1: my youngest son is named Cole. So I like incidents
• 18:14
  Speaker 1: or I think it's good. Um. Look, you could see
• 18:19
  Speaker 1: the e commerce trends coming from a mile away. It
• 18:22
  Speaker 1: started in the mid nineties, but it became very clear
• 18:25
  Speaker 1: a decade ago that this trend was accelerating. You say that,
• 18:28
  Speaker 1: and yet not everybody piled into warehouses, logistic facilities, et cetera.
• 18:34
  Speaker 1: Certainly in two thousand to two thousand eleven they did,
• 18:36
  Speaker 1: and today it clearly is the most favored asset class um.
• 18:40
  Speaker 1: But nonetheless, when you're looking at secular trends, that secular
• 18:44
  Speaker 1: trends seemed to us to be very clear, and so
• 18:47
  Speaker 1: we amplified our industrial development activities and today we're one
• 18:52
  Speaker 1: of the largest developers of industrial real estate in the
• 18:55
  Speaker 1: United States. Right, And your structure is you're not to
• 18:59
  Speaker 1: read You're you're more or less a private family office.
• 19:02
  Speaker 1: How does that operate? Sure, so you're not publicly traded, right,
• 19:06
  Speaker 1: We are not publicly traded UM and we have no
• 19:09
  Speaker 1: outside shareholders in the company it is. It is owned
• 19:12
  Speaker 1: by the Crow family. UM. Our real estate development business
• 19:16
  Speaker 1: engages with investors in three ways. We either pursue one
• 19:20
  Speaker 1: off development projects in a joint venture with an investor,
• 19:24
  Speaker 1: or we have a programmatic relationship with an institutional investor
• 19:28
  Speaker 1: where we'll develop many properties over time, or we'll have
• 19:31
  Speaker 1: a com mingled fund with a group of investors also
• 19:35
  Speaker 1: developing properties over time. Are those one off for specific
• 19:39
  Speaker 1: types or specific geographies? Because in my head, I imagine
• 19:43
  Speaker 1: there are endowments that want exposure real estate. There are
• 19:46
  Speaker 1: other large institutions that want real estate exposure. Are they
• 19:50
  Speaker 1: participants in all of crow or is it one off?
• 19:54
  Speaker 1: It's always a defined strategy. It's always a defined strategy,
• 19:58
  Speaker 1: usually demarcated by geograph, fick objectives, or other property size,
• 20:03
  Speaker 1: property configuration objectives. But there is a strategy within industrial.
• 20:07
  Speaker 1: We use the word industrial, that can mean a lot
• 20:09
  Speaker 1: of things. Are a lot of different things to different people.
• 20:13
  Speaker 1: Our real estate investment company invest in real estate across
• 20:16
  Speaker 1: the United States primarily and co mingled funds, occasionally in
• 20:21
  Speaker 1: joint ventures with investors, but primarily and co mingled funds.
• 20:24
  Speaker 1: So so let's talk about that investment process a little bit.
• 20:27
  Speaker 1: What are you looking at? Is it you mentioned geography?
• 20:30
  Speaker 1: Isn't any of the specific sectors? Is evaluation? How do
• 20:34
  Speaker 1: you make the decision? This development, building, whatever is a
• 20:39
  Speaker 1: go And we're gonna pass on that one. Sure well,
• 20:42
  Speaker 1: stepping back, Barry, we've learned over the years that it's very,
• 20:46
  Speaker 1: very difficult to predict the economic cycles, the capital market cycles,
• 20:50
  Speaker 1: and trying to hang your hat on that as an
• 20:52
  Speaker 1: investment strategy is often hollow. And so we're pursuing secular
• 20:57
  Speaker 1: trends and they're in decades long, decades long, and there
• 21:00
  Speaker 1: are several things that to us seem fairly self evident.
• 21:03
  Speaker 1: One of them I highlighted, which was e commerce. And
• 21:06
  Speaker 1: if you believe that e commerce will continue to gain share,
• 21:09
  Speaker 1: then you know that's a positive for industrial and that's
• 21:12
  Speaker 1: a negative for retail. You're also looking at demographics, the
• 21:16
  Speaker 1: age of people. You know, things about young people, things
• 21:20
  Speaker 1: about the trailing ends of the millennials are the leading
• 21:23
  Speaker 1: edge of the Gen Z. Young people rent, they don't buy,
• 21:27
  Speaker 1: and so we have the largest group of young people
• 21:30
  Speaker 1: in history going through in their mid twenties now going
• 21:33
  Speaker 1: through the U S demographic chain and so being long
• 21:37
  Speaker 1: the apartment sector or the multi family sector. And the
• 21:40
  Speaker 1: third main trend that we're looking at is Americans are
• 21:43
  Speaker 1: moving to the southeast and the southwest, the moving a
• 21:46
  Speaker 1: lower tax, better weather, and just generally where there's a
• 21:50
  Speaker 1: little cheaper standard of living and and as well as
• 21:55
  Speaker 1: just overall quality of life. And this is not just COVID.
• 21:58
  Speaker 1: You know, we've seen the impact of COVID, but long
• 22:00
  Speaker 1: before COVID, it became very clear people are leaving the
• 22:04
  Speaker 1: Midwest and the northeast and the west and they're moving
• 22:06
  Speaker 1: into the southeast and the southwest. And so that defines
• 22:10
  Speaker 1: not everything we do, but that drives a lot of
• 22:13
  Speaker 1: our decision making within multi family. So now to take
• 22:17
  Speaker 1: the next layer down, we're pursuing two areas within multi family.
• 22:21
  Speaker 1: One would be Class A beautiful new properties that professionals
• 22:25
  Speaker 1: are renting because they want experiences in life to rent
• 22:30
  Speaker 1: and not own, as well as everything from student loans
• 22:33
  Speaker 1: to other costs are making rentals more attractive to them.
• 22:37
  Speaker 1: But the area we've been particularly focused on is workforce housing.
• 22:41
  Speaker 1: First responders, firefighters, teachers, cops are having a very very
• 22:46
  Speaker 1: difficult time finding places to live, and so we've been
• 22:49
  Speaker 1: very focused on building new supply. There's a lot of
• 22:54
  Speaker 1: arguments about rent control or about owning older properties and
• 23:00
  Speaker 1: making sure that the rents don't don't go up through agreements,
• 23:04
  Speaker 1: but the solution is not taking older properties and holding
• 23:07
  Speaker 1: them there. The solution is new supply. And as the
• 23:10
  Speaker 1: largest developer of apartments in the United States over the
• 23:13
  Speaker 1: past forty years. We view it as both our obligation
• 23:16
  Speaker 1: as well as an opportunity, and so we've been very
• 23:18
  Speaker 1: focused on workforce housing. So, so you you mentioned as
• 23:23
  Speaker 1: an obligation, there's a quote of yours that sticks out
• 23:26
  Speaker 1: in my mind. You said, I don't sit around with
• 23:29
  Speaker 1: Harlan and talk about profitability and returns. We talk about
• 23:32
  Speaker 1: doing the right thing. Explain what that means in the
• 23:35
  Speaker 1: context of developing rental apartments. Sure, Um, two things. One
• 23:44
  Speaker 1: at the company level, at the Crow Holdings level, in particular,
• 23:47
  Speaker 1: because we're not public, we don't have any outside shareholders.
• 23:51
  Speaker 1: We don't run the business according to an earning subjective.
• 23:55
  Speaker 1: We run the business according to creating opportunity for the
• 23:58
  Speaker 1: people that work here in an aligned way so that
• 24:01
  Speaker 1: they can grow in their careers and they can create
• 24:04
  Speaker 1: opportunity and will participate in that opportunity with them. So
• 24:07
  Speaker 1: as it relates to the company and doing the right thing,
• 24:10
  Speaker 1: it's treating the people that work for us the right
• 24:12
  Speaker 1: way so that they love their work and then they're
• 24:16
  Speaker 1: they'll love their clients and they'll love their opportunity. How
• 24:18
  Speaker 1: many people work for Crow, how many people a little
• 24:20
  Speaker 1: over five people who work for Crow, and how many
• 24:23
  Speaker 1: of the original family members are still active in the firm.
• 24:26
  Speaker 1: There there are no family members active in the firm.
• 24:29
  Speaker 1: So so essentially Crow is more or less operating like
• 24:33
  Speaker 1: a family office on behalf of I don't know what's
• 24:36
  Speaker 1: to call at the estate, the foundation on behalf the family?
• 24:40
  Speaker 1: Um it is it is our ethos And the moment look,
• 24:43
  Speaker 1: the moment that your company brings an outside shareholders, the
• 24:47
  Speaker 1: moment that your company becomes public, things change. The whole
• 24:51
  Speaker 1: dynamic changes. You now have a different master. Correct, we
• 24:56
  Speaker 1: don't have that, and so we don't have those outside
• 24:58
  Speaker 1: forces dry hiving us with respect to how we behave,
• 25:03
  Speaker 1: what we do, how we act. All right, So let
• 25:06
  Speaker 1: me push back on that, sure, because I've worked with
• 25:08
  Speaker 1: a number of family offices, I've worked with a number
• 25:11
  Speaker 1: of billionaires, and what always comes up, there's always some
• 25:14
  Speaker 1: M B A sending to his left or are left saying, well,
• 25:18
  Speaker 1: what's the internal raid return for this? What sort of
• 25:21
  Speaker 1: quarterly profits can we expect? What is return on investment
• 25:26
  Speaker 1: and um yield that we should see by putting this
• 25:29
  Speaker 1: capital at risk? So I need and i'd like to
• 25:32
  Speaker 1: distinguish that's at craw Holdings. At the company level now
• 25:37
  Speaker 1: almost all not all, but almost all of the real
• 25:40
  Speaker 1: estate investment activity and the real estate development activity. We
• 25:43
  Speaker 1: are in partnership with institutional investors and individual investors in
• 25:48
  Speaker 1: a fiduciary capacity, so that's going to come up. So
• 25:50
  Speaker 1: we are very focused on delivering the investment performance at
• 25:56
  Speaker 1: every level in what we do. And in that area,
• 25:59
  Speaker 1: we again and we are focused on whatever the return
• 26:02
  Speaker 1: metrics are, whether it's I, R R or multiple and
• 26:05
  Speaker 1: our track record stands for itself over time, and we
• 26:08
  Speaker 1: have delivered for investors over time, which is why they
• 26:11
  Speaker 1: continue to do business with us. But as it rolls
• 26:15
  Speaker 1: up to Crow Holdings, that is not what drives us.
• 26:18
  Speaker 1: Do I report on our financial results, of course I
• 26:21
  Speaker 1: do do. I try my best to anticipate what we
• 26:25
  Speaker 1: may do in the next year. But and we may
• 26:28
  Speaker 1: talk about this later, but your ability to guess the
• 26:30
  Speaker 1: future with respect to how it all rolls up to
• 26:33
  Speaker 1: the to the corporate entity. The other thing I learned
• 26:36
  Speaker 1: in my prior life when I was working on Wall
• 26:38
  Speaker 1: Street is that hunt for the elusive earnings this quarter
• 26:42
  Speaker 1: can also drive very short term behavior on behalf of
• 26:45
  Speaker 1: the institution. That can have a profound impact on the
• 26:48
  Speaker 1: people that work there and really break the trust between
• 26:52
  Speaker 1: the company and the people that work there. No doubt,
• 26:54
  Speaker 1: the hunt for alpha can be destructive if it runs amok.
• 26:58
  Speaker 1: And and as we've seen we talked about O eight
• 27:00
  Speaker 1: oh nine, it very often does run a monk. So
• 27:03
  Speaker 1: so you're hinting at something, but I I and I
• 27:07
  Speaker 1: don't want to ask you to talk out of school,
• 27:09
  Speaker 1: so to speak. But when you report back to the
• 27:12
  Speaker 1: family and say, here's what we did, here's what next
• 27:15
  Speaker 1: year looks like. What are they telling you your marching
• 27:19
  Speaker 1: orders are? Are they like, go make us more money
• 27:21
  Speaker 1: or we're really concerned about this? What can we do here?
• 27:26
  Speaker 1: I do present. We have an advisory board and uh
• 27:30
  Speaker 1: Harlan as chairman of the advisory board, and Harlan's engaged
• 27:33
  Speaker 1: in the business with me, and so I'm keeping them
• 27:36
  Speaker 1: regularly apprised with respect to the strategy for the business
• 27:40
  Speaker 1: and the financial results for the business. The primary objective,
• 27:44
  Speaker 1: if Harlan sat here today, the primary objective we're solving
• 27:48
  Speaker 1: for is culture. Culture isn't violent, and that goes back
• 27:52
  Speaker 1: to at Crow Holdings. Our culture and the culture is
• 27:55
  Speaker 1: based upon creating opportunity for the people that work here.
• 27:59
  Speaker 1: And if we do that well, then the other elements
• 28:03
  Speaker 1: of our business, our customers being happy with our work,
• 28:06
  Speaker 1: the financial results that follow that will come true. And
• 28:10
  Speaker 1: that's been going on a crow for seventy five years
• 28:13
  Speaker 1: and that works for us. So how do you, as
• 28:16
  Speaker 1: an outsider and CEO, maintain and further the culture at
• 28:21
  Speaker 1: the firm? Well, I maintain it by pursuing that in
• 28:24
  Speaker 1: that I'm not trying to bring my own objective in
• 28:28
  Speaker 1: terms of this specific financial result this year. I'm continued
• 28:32
  Speaker 1: to focus on how do I continue to one be
• 28:35
  Speaker 1: thoughtful with respect to strategies. I mentioned these secular trends.
• 28:40
  Speaker 1: There's obviously sub strategies underneath that. So hopefully we're smart
• 28:44
  Speaker 1: and we develop strategies that make sense in light of
• 28:47
  Speaker 1: where the world is heading. The second thing is I
• 28:50
  Speaker 1: work very hard to make sure that the compensation structures
• 28:55
  Speaker 1: with our people are aligned so that if we do well,
• 28:59
  Speaker 1: they do well. And I would the last thing I
• 29:01
  Speaker 1: would comment on this. We have now lived through the
• 29:03
  Speaker 1: Great Resignation. I talked to my friends at businesses all
• 29:07
  Speaker 1: over America who talked to me about how difficulticult it
• 29:10
  Speaker 1: is to attract talent, how many keep them and keep them.
• 29:14
  Speaker 1: We have not experienced the great resignation. It has not
• 29:18
  Speaker 1: happened at our company and our firm. So whether we're
• 29:21
  Speaker 1: doing things right in someone's eyes, are wrong in someone's eyes,
• 29:25
  Speaker 1: what I can say is the very talented people who
• 29:28
  Speaker 1: work here have decided, amongst the opportunities that are available
• 29:31
  Speaker 1: to them in the marketplace, Crow is the best opportunity
• 29:34
  Speaker 1: for them and their families. So so it sounds like
• 29:37
  Speaker 1: you are creating or maintaining the sort of culture that
• 29:41
  Speaker 1: works for both the firm and the employees. I am maintaining.
• 29:45
  Speaker 1: I came to Crow and had the privilege that my
• 29:47
  Speaker 1: first year, I didn't have the title of CEO, I
• 29:51
  Speaker 1: didn't have anybody reporting to me. I had a chance
• 29:55
  Speaker 1: with Harlan to get to know the organization, to get
• 29:57
  Speaker 1: to know the people, to get to know the culture,
• 30:00
  Speaker 1: to build trust and build relationships, and learned and understood
• 30:04
  Speaker 1: what made this venerable institution in real estate so successful,
• 30:09
  Speaker 1: what made the alumni network that came out of Crow
• 30:12
  Speaker 1: have such good will and good feelings towards our firm,
• 30:15
  Speaker 1: And it was these elements of culture and the hallmarks
• 30:18
  Speaker 1: of our firm, and so I simply said, don't screw
• 30:21
  Speaker 1: this up. So so that first year did you just
• 30:24
  Speaker 1: shadow Harlan and kind of get a feel for everything
• 30:28
  Speaker 1: that was going on. Part part of it was shadowing,
• 30:30
  Speaker 1: Part of it was independently spending time across the organization.
• 30:33
  Speaker 1: I grew up in real estate finance. Our companies a
• 30:37
  Speaker 1: real estate company that came to America through building real
• 30:41
  Speaker 1: estate and then developed over time the capital markets and
• 30:45
  Speaker 1: financial expertise. I had never built a building in my life.
• 30:48
  Speaker 1: I had never leased a building in my life. I
• 30:50
  Speaker 1: had never managed the building in my life. And so
• 30:53
  Speaker 1: I spent that first year in the field at our offices,
• 30:56
  Speaker 1: talking to the people who do those things and learning
• 31:00
  Speaker 1: so that when the time came the following year that
• 31:02
  Speaker 1: the responsibilities became mine, I had good, good judgment and
• 31:06
  Speaker 1: better judge. How how steep was that learning curve that
• 31:08
  Speaker 1: sounds like you're throwing yourself into a related but entirely
• 31:12
  Speaker 1: different field than you were experiencing. Yeah, it was a
• 31:15
  Speaker 1: learning curve. Being around real estate finance for twenty five
• 31:18
  Speaker 1: years beforehand, I had interacted with and finance, then spend
• 31:22
  Speaker 1: time with real estate developers, so I didn't have to
• 31:25
  Speaker 1: learn new industry jargon or lingo or market participants. But
• 31:31
  Speaker 1: sitting sitting on Wall Street, the perception is that you
• 31:35
  Speaker 1: add value by your financial I'll use the word engineering,
• 31:39
  Speaker 1: or your financial acumen. The reality is the people who
• 31:42
  Speaker 1: add value are the people who actually build these buildings,
• 31:45
  Speaker 1: who manage these buildings. Quite interesting. My extra special guest
• 31:50
  Speaker 1: today is Michael Levy. He is the chief executive officer
• 31:53
  Speaker 1: of Crow Holdings, a seventy five year old residential and
• 31:58
  Speaker 1: commercial real estate developer. The largest developer of apartments in
• 32:03
  Speaker 1: the United States, the firm manages over thirty billion dollars
• 32:07
  Speaker 1: in assets across twenty one local markets. Previously, he was
• 32:11
  Speaker 1: chief operating Officer for investment management at Morgan Stanley. So,
• 32:16
  Speaker 1: so let's talk a little bit about commercial real estate investing.
• 32:21
  Speaker 1: When I was looking at your website, there are a
• 32:23
  Speaker 1: whole run of different, for lack of a better words, subsidiaries.
• 32:27
  Speaker 1: There's Crow Holdings, Capital, Crow Holdings Office, Trammel, Crow Residential,
• 32:33
  Speaker 1: Crow Industrial Signature Properties. Tell us a little bit about
• 32:36
  Speaker 1: these different divisions of what they all do. Sure, well,
• 32:38
  Speaker 1: first of all, I'm sorry about the brand confusion. Um,
• 32:41
  Speaker 1: not at all. The simplest way to understand us is
• 32:44
  Speaker 1: we have a real estate development company called Crow Holdings Development,
• 32:49
  Speaker 1: and underneath that we have sub brands Crow Holdings Industrial,
• 32:53
  Speaker 1: Crow Holdings Office, Travel, Crew, Residential, and then we have
• 32:57
  Speaker 1: a separate real estate investment company that we call Crow
• 33:01
  Speaker 1: Holdings Capital and Signature Properties. How does that fit into that?
• 33:05
  Speaker 1: Those are properties that that we own without investment partners,
• 33:09
  Speaker 1: and those are properties that Trammel Crow back in the
• 33:12
  Speaker 1: day or Harlan Crow in more recent years, has developed
• 33:16
  Speaker 1: and the family has held onto these properties for decades.
• 33:20
  Speaker 1: In many cas the Crown Jewels, so to speak, there
• 33:23
  Speaker 1: are some terrific properties. Um. And they're in primarily, not entirely, Dallas, Texas,
• 33:29
  Speaker 1: which is says, you know, the fastest growing metropolis in
• 33:32
  Speaker 1: the country. So is that true. I did not know
• 33:34
  Speaker 1: that the nominal population coming to Dallas, and I think
• 33:37
  Speaker 1: it's changing during COVID in any given year. But there's
• 33:40
  Speaker 1: somewhere in the neighbor of a hundred and ten hundred
• 33:42
  Speaker 1: and twenty thousand people moving to Dallas each year. Now.
• 33:46
  Speaker 1: So we we saw Miami, we saw Tampa, we saw Dallas,
• 33:49
  Speaker 1: we saw Austin. There has been a ton of growth
• 33:51
  Speaker 1: in the South, South and southeast. Um, when does that
• 33:56
  Speaker 1: top out? When does that start to slow down? Well,
• 33:58
  Speaker 1: I think you're you're at some level you're having now.
• 34:01
  Speaker 1: The COVID induced movement out of California and New York
• 34:07
  Speaker 1: and Chicago is slowing down a bit. I know in
• 34:09
  Speaker 1: New York and folks from Florida are moving back right now.
• 34:13
  Speaker 1: But the mega trends are very clear. The mega trend
• 34:16
  Speaker 1: is it's not slowing down. And this has been decades
• 34:18
  Speaker 1: in the MASCA. This this goes way back. Um. Alright,
• 34:23
  Speaker 1: So so let's talk a little bit about some of
• 34:24
  Speaker 1: those signature properties. Sure Crow HQ and the main campus
• 34:28
  Speaker 1: is the old Parkland Campus, which the pictures look like
• 34:32
  Speaker 1: a college campus. It looks astonishing. Do you actually work there? What?
• 34:36
  Speaker 1: What is the old camp? Old Parkland Campus? So old
• 34:39
  Speaker 1: Parkland Parkland Hospital was built in nineteen thirteen, this beautiful
• 34:44
  Speaker 1: red brick building that became derelict in the nineteen sixties
• 34:48
  Speaker 1: and nineteen seventies, and in two thousand and five, I
• 34:51
  Speaker 1: believe Harlan acquired the site tore down most of the
• 34:54
  Speaker 1: buildings except for the main beautiful hospital and built eleven
• 34:58
  Speaker 1: new buildings around it, and it's now an office campus
• 35:02
  Speaker 1: in in Dallas, Texas. It's part museum. The theme of
• 35:06
  Speaker 1: the campus is the American experiment, the foundations of freedom
• 35:10
  Speaker 1: and democracy. And there's tremendous manuscripts and art and and
• 35:15
  Speaker 1: and statues exemplifying everything from the group starting with the Greeks,
• 35:20
  Speaker 1: going all the way through entitlement and the founding fathers
• 35:24
  Speaker 1: and and Abraham Lincoln. And it's a beautiful physical campus.
• 35:29
  Speaker 1: Is this other businesses and organizations or just grow? Yeah,
• 35:32
  Speaker 1: So we occupy about fifteen percent of the space and
• 35:36
  Speaker 1: and virtually all of the tendency at the campus are
• 35:39
  Speaker 1: other principal investors, other family offices, foundations, private equity firms,
• 35:45
  Speaker 1: hedge funds, and so. So it's a little financial center
• 35:49
  Speaker 1: right there in the middle of Dallas. Yes, exactly. And
• 35:51
  Speaker 1: what is the Dallas Market Center. Tell us a little
• 35:54
  Speaker 1: bit about this property. In the nineteen fifties, this was
• 35:57
  Speaker 1: a building and they will come. Trammel had the view
• 36:00
  Speaker 1: at if I build a permanent building, these trade shows
• 36:03
  Speaker 1: that go all throughout the United States, if I can,
• 36:05
  Speaker 1: if I can house them there permanently, Retailers will come
• 36:10
  Speaker 1: and visit the uh, the exhibitors, and so the Dallas
• 36:13
  Speaker 1: Market Center is a five million square foot property that
• 36:18
  Speaker 1: houses for various industries, permanent and temporary exhibitions, and we
• 36:23
  Speaker 1: hold trade shows where literally hundreds of thousands of individuals
• 36:27
  Speaker 1: per year from thousands and thousands of retailers come to Dallas,
• 36:31
  Speaker 1: Texas to intermediate and mingle and spend time and examine
• 36:35
  Speaker 1: and explore new goods for their stores. What other signature
• 36:41
  Speaker 1: properties really stand out, because because the list is is
• 36:44
  Speaker 1: not short at all, no um. One of the largest
• 36:47
  Speaker 1: hotels in the United States, not the largest, but one
• 36:50
  Speaker 1: of the largest is the Anatole Hotel in Dallas, Texas.
• 36:53
  Speaker 1: It's proxibly sevred rooms and six hundred thousand square feet
• 36:56
  Speaker 1: of meeting space. And so you know, and then there's
• 37:00
  Speaker 1: land holdings in Dallas and industrial buildings, and there are
• 37:04
  Speaker 1: other properties in in Brussels. We own one of the
• 37:07
  Speaker 1: Brussels in Brussels. We own another trade center in Brussels,
• 37:11
  Speaker 1: the Trammel, built I believe in the nineties seventies, and
• 37:14
  Speaker 1: we own that today. What other overseas properties do you
• 37:17
  Speaker 1: guys that that's the main overseas propert there are a
• 37:20
  Speaker 1: couple other smaller ones, but the signature properties are again
• 37:23
  Speaker 1: properties that Trammel or Harland developed, and uh, they are both.
• 37:28
  Speaker 1: There's there's an emotional aspect to some of them, but
• 37:30
  Speaker 1: they're primarily good financial investments that compound over many years.
• 37:34
  Speaker 1: So we we talked earlier about you were early to
• 37:38
  Speaker 1: eat commerce and and logistics and warehousing. I read the
• 37:42
  Speaker 1: other day Amazon said they're looking to get out of
• 37:46
  Speaker 1: millions of square feet of industrial space. Perhaps they might
• 37:49
  Speaker 1: have gotten a little too enthusiastic and overpurchased. Um, how
• 37:54
  Speaker 1: do you see the industrial side of things? Is that
• 37:56
  Speaker 1: just one company that acquired hundreds of building is and
• 38:00
  Speaker 1: maybe overdid it. What what does that space look like? Yeah, sure,
• 38:03
  Speaker 1: well there's no Several months ago Amazon had communicated that
• 38:06
  Speaker 1: they had they were going to slow down their industrial
• 38:08
  Speaker 1: expansion phase and they were going to sublease something in
• 38:11
  Speaker 1: the neighborhood a thirty million square feet, and the markets
• 38:14
  Speaker 1: on those days they announced it were concerned and the
• 38:17
  Speaker 1: stocks pulled back on the industrial real estate companies. But
• 38:20
  Speaker 1: the United States has eighteen billion square feet of industrial
• 38:23
  Speaker 1: real estate, and even though Amazon has been a major
• 38:27
  Speaker 1: player and one of the largest market participants. It's overall
• 38:30
  Speaker 1: market share is very small for the industry at large. Now, Barry,
• 38:34
  Speaker 1: I did expect when I sat here in January and
• 38:36
  Speaker 1: February March and we all saw the capital markets cracking,
• 38:40
  Speaker 1: I did expect. I'd imagine the CEOs all over the
• 38:44
  Speaker 1: country are going to start examining their usage of industrial
• 38:48
  Speaker 1: real estate and maybe leasing is going to soften. I
• 38:50
  Speaker 1: wasn't sure, but you you just had to think that
• 38:54
  Speaker 1: the market would cause that to occur. Well, sitting here
• 38:57
  Speaker 1: as of this morning, leasing velocity and industrial across the
• 39:01
  Speaker 1: United States has been as strong as it's ever been,
• 39:04
  Speaker 1: and there's no softening in demand that we've seen. I
• 39:08
  Speaker 1: know we're all anticipating a recession and we can talk
• 39:10
  Speaker 1: about all those things. Good good. Demand for goods has
• 39:14
  Speaker 1: not slown down at all. Consumer spending is a record
• 39:17
  Speaker 1: highs and the e commerce continues its penetration. So so
• 39:21
  Speaker 1: let's let's talk about e commerce and the retail space.
• 39:24
  Speaker 1: My friend Jonathan Miller, who is an appraiser and a
• 39:27
  Speaker 1: real estate analysts, said, it's not that retail is overbuilt,
• 39:31
  Speaker 1: it's that it's underdemolished. I love that line. What do
• 39:35
  Speaker 1: you think about about the retails. Sure, well, there's retail
• 39:39
  Speaker 1: and there's retail. And what I mean by that, there's
• 39:40
  Speaker 1: retail that's focused on selling goods, whether it's your malls
• 39:44
  Speaker 1: or your power centers, and these have for years been
• 39:48
  Speaker 1: under a duress, and that duress is continuing. But there's
• 39:52
  Speaker 1: other retail where their tendency is food and service. And
• 39:56
  Speaker 1: so during COVID, for example, grocery anchor shopping centers did
• 40:00
  Speaker 1: particularly well. Now some of the tenants adjacent to the
• 40:03
  Speaker 1: shopping center, who may sell goods slowly over time, are
• 40:08
  Speaker 1: being disintermediated by the Internet, and over long periods of
• 40:13
  Speaker 1: time that tendency is being reduced or mitigated. But food
• 40:18
  Speaker 1: and service, and so think about in the neighborhoods in
• 40:20
  Speaker 1: which you live in. Sure, you're going to have a
• 40:23
  Speaker 1: little strip center that's going to have a Starbucks on
• 40:25
  Speaker 1: one end, and it's going to have a subway on
• 40:27
  Speaker 1: the other end, and it's gonna have a cupcake store
• 40:29
  Speaker 1: and a Verizon wireless store, s a t tutoring, some
• 40:34
  Speaker 1: taekwondo ballet. It's all services. It's not the usual retail,
• 40:40
  Speaker 1: which kind of makes me look around at the big
• 40:42
  Speaker 1: box stores, the home depots, the targets, the lows, the
• 40:47
  Speaker 1: ones where you're not ordering plywood online, you have to
• 40:52
  Speaker 1: physically go and get that. So is that how we're
• 40:54
  Speaker 1: going to see this separate? Is that how this? I
• 40:57
  Speaker 1: think it's it's not how we're going to see that's
• 40:59
  Speaker 1: how it is separating. But I would I would lay
• 41:02
  Speaker 1: around another element to the discussion, which is and then
• 41:04
  Speaker 1: there is the capital markets. There is fund flows, and
• 41:08
  Speaker 1: institutional investors and individual investors have been very focused on industrial,
• 41:15
  Speaker 1: multi family and not focused on retail with a big
• 41:20
  Speaker 1: army retail, whether it's food and service or whether it's
• 41:23
  Speaker 1: goods oriented, and so there there are opportunities and the
• 41:26
  Speaker 1: food and service retail space because the underlying property fundamentals
• 41:30
  Speaker 1: are strong and the fund flows are diminished, leading to
• 41:35
  Speaker 1: less competition for that asset class. So that that's how
• 41:39
  Speaker 1: we look at and I look at retail real estate today.
• 41:42
  Speaker 1: So so people are painting with way too broad to brush.
• 41:46
  Speaker 1: You really have to focus on this group is doing
• 41:49
  Speaker 1: well and has a future, and this group maybe not
• 41:52
  Speaker 1: so much. I think I think we often paint with
• 41:54
  Speaker 1: very very broad brushes. But real estate is and there
• 41:58
  Speaker 1: are broad brushes. That makes sense, But Ultimately you need
• 42:01
  Speaker 1: to peel the onion back further and it is a
• 42:03
  Speaker 1: local business, and you need to look at markets and
• 42:06
  Speaker 1: sub markets and the corner of you know, vine and maple,
• 42:10
  Speaker 1: and you know, look at these property configurations and it
• 42:13
  Speaker 1: makes a ton of sense. So Crow recently announced that
• 42:17
  Speaker 1: they appointed Don Brooks as head of sustainability. Tell us
• 42:21
  Speaker 1: a little bit about how sustainability affects both development and
• 42:26
  Speaker 1: investing for commercial Realistic Absolutely well. First of all, there
• 42:29
  Speaker 1: there is no doubt that investors all around the world
• 42:33
  Speaker 1: are more and more focused on the carbon footprint of
• 42:36
  Speaker 1: their investors, and so the starting point of the discussion
• 42:39
  Speaker 1: is an ability to communicate accurately and effectively what in
• 42:43
  Speaker 1: fact is the carbon footprint of your investment activity, because
• 42:47
  Speaker 1: they want to know. There are some investors who are
• 42:50
  Speaker 1: specifically focused on I want to invest in properties specifically
• 42:56
  Speaker 1: geared towards minimizing their impact. Where we are as a
• 43:00
  Speaker 1: company today is, first of all, we need to make
• 43:02
  Speaker 1: sure that our investors understand the carbon footprint of the
• 43:05
  Speaker 1: properties that they're investing in and we're developing in. We're
• 43:08
  Speaker 1: also by our own accord as well as all of
• 43:11
  Speaker 1: the various local requirements increasingly as every year goes by,
• 43:15
  Speaker 1: the properties are becoming more efficient in a myriad of ways.
• 43:19
  Speaker 1: I'll give you one example. We are building in Frisco, Texas,
• 43:22
  Speaker 1: which is in the Dallas market, a mass timber building.
• 43:26
  Speaker 1: What that means is instead of using office building, instead
• 43:29
  Speaker 1: of using steel, there's now technology that allows you to
• 43:33
  Speaker 1: build very tall buildings out of compressed and laminated wood.
• 43:38
  Speaker 1: It's a much better carbon footprint. The impact of of
• 43:42
  Speaker 1: of trees growing versus the impact of producing steel has
• 43:46
  Speaker 1: a profound impact. And so many companies have told their
• 43:49
  Speaker 1: shareholders and society at large that we're going to achieve
• 43:53
  Speaker 1: a carbon net neutral impact by such and such date.
• 43:57
  Speaker 1: One of the ways they can impact that is by
• 43:59
  Speaker 1: the real estate that they occupy. And so whether it's
• 44:02
  Speaker 1: communicating how in fact your portfolio is doing, or whether
• 44:07
  Speaker 1: it's pursuing a specific um building approach to help the
• 44:12
  Speaker 1: investor meet their objectives, those are all areas of sustainability
• 44:15
  Speaker 1: for us. Really quite quite interesting. Um, it's hard to
• 44:19
  Speaker 1: imagine that you could do any decent sized skyscraper with
• 44:23
  Speaker 1: compressed wood instead of steel. But it's hard to believe,
• 44:26
  Speaker 1: and I don't have the data off the top of
• 44:28
  Speaker 1: my head. But city by city and building codes are
• 44:31
  Speaker 1: city by city. But you can now build properties ten
• 44:34
  Speaker 1: and fifteen stories tall, and in some markets even taller
• 44:38
  Speaker 1: given the strength and durability of the technology underlying the
• 44:41
  Speaker 1: mass temper. I'm really curious what the composite carbon materials
• 44:45
  Speaker 1: are when you see the pencil thin you know, super
• 44:48
  Speaker 1: skyscrapers in New York City on on Central Park South
• 44:52
  Speaker 1: and fifty seventh Street over there that are told in
• 44:55
  Speaker 1: anything around them and a tiny, you know, base footprint,
• 45:00
  Speaker 1: I think, but for that materials, they could not have
• 45:03
  Speaker 1: done that in traditional steel and alone. It's it's hard
• 45:06
  Speaker 1: to believe they're not going to topple over right. They
• 45:08
  Speaker 1: look like they're just they're just gonna snap in the breeze,
• 45:10
  Speaker 1: but uh not. Apparently it's lighter and stronger than steel.
• 45:14
  Speaker 1: Hard to argue with that. Let's talk a little bit
• 45:16
  Speaker 1: about how real estate is doing. Obviously it's done very
• 45:21
  Speaker 1: well over the past decade, given what's going on with
• 45:24
  Speaker 1: inflation and the Federal Reserve. What are you seeing in
• 45:27
  Speaker 1: the real estate market today? Yeah, Well, the real estate
• 45:31
  Speaker 1: is an asset class is generally leveraged. Now not everybody
• 45:35
  Speaker 1: is leveraging real estate, but generally it's leveraged. Most real
• 45:38
  Speaker 1: estate investors are using some amount of debt to acquire
• 45:41
  Speaker 1: their properties. The most core or stable investors might use
• 45:45
  Speaker 1: twenty percent leverage, the most opportunistic might use seventy five
• 45:50
  Speaker 1: or eighty percent leverage. But simply put, the cost of
• 45:53
  Speaker 1: debt is going up and the attractiveness and availability of
• 45:57
  Speaker 1: that is going down, and those two things are having
• 46:00
  Speaker 1: an impact on overall asset prices, and they're having an
• 46:04
  Speaker 1: impact on overall transaction activity, which has been declining. So you,
• 46:09
  Speaker 1: guys are a very very long term investor. You don't
• 46:12
  Speaker 1: have shareholders barking at you for quarterly results. Does this
• 46:16
  Speaker 1: create an opportunity for you, Well, there's always an opportunity
• 46:19
  Speaker 1: in the marketplace. Does this create a unique opportunity for
• 46:22
  Speaker 1: a firm like yours, I'm not sure it's a unique
• 46:26
  Speaker 1: opportunity in the marketplace. The marketplace today is still hunting
• 46:30
  Speaker 1: for that bid ask spread, and the marketplace as well,
• 46:34
  Speaker 1: and and and crow as well is looking for what
• 46:37
  Speaker 1: new opportunities are becoming available. We're all waiting for anticipating
• 46:41
  Speaker 1: some amount of distress for example, that hasn't yet really
• 46:45
  Speaker 1: developed in the marketplace at the margin. If you were
• 46:49
  Speaker 1: in the real estate debt business a year ago and
• 46:51
  Speaker 1: you accepted a certain return or a certain yield, well,
• 46:55
  Speaker 1: today those returns and yields are better. But guess what,
• 46:58
  Speaker 1: so is every other fixed income instrument out there, And
• 47:01
  Speaker 1: so the marketplace for real estate investors has not the
• 47:05
  Speaker 1: monstrably changed on that point a year ago. This would
• 47:08
  Speaker 1: be a global phenomenon as well as a US phenomenon.
• 47:11
  Speaker 1: The vast majority of investors, when you said what are
• 47:13
  Speaker 1: your most favorite asset classes, would have said industrial and
• 47:18
  Speaker 1: multi family. What are your least favorite asset classes? They
• 47:20
  Speaker 1: probably would have said something like retailent office. If you
• 47:24
  Speaker 1: pose those questions to them today, you would get that
• 47:27
  Speaker 1: same comment. Office has probably fallen further because of the
• 47:31
  Speaker 1: impact of COVID in the way that we're using office space,
• 47:35
  Speaker 1: and it's really the most interesting area of real estate
• 47:38
  Speaker 1: now with respected discussion the uncertainty about how companies will
• 47:43
  Speaker 1: use office real estate into the future. So so we've
• 47:45
  Speaker 1: already discussed retail in great detail, let's focus a little
• 47:49
  Speaker 1: bit on office. Obviously, remote work work from home probably
• 47:53
  Speaker 1: here to stay as much as as Jamie Diamond and
• 47:57
  Speaker 1: others are jumping up and down saying get back to
• 47:59
  Speaker 1: the office. Um, unless you're a giant multinational corporation, most
• 48:05
  Speaker 1: companies seem to be going some form of hybrid. So
• 48:09
  Speaker 1: a what does this mean to offices around the country
• 48:13
  Speaker 1: be what does it mean especially in urban centers. My
• 48:17
  Speaker 1: office is on Brian Park in Midtown. You know, it's
• 48:20
  Speaker 1: a beautiful day today. When I head back to my office,
• 48:23
  Speaker 1: I'm sure they're gonna it's gonna be busy in that
• 48:24
  Speaker 1: part of the city. But I would guess Midtown is
• 48:28
  Speaker 1: probably of what it was. What what are you seeing
• 48:31
  Speaker 1: and what are the opportunities? Yeah, well, look there is
• 48:34
  Speaker 1: no doubt and and I'll make a number up to
• 48:37
  Speaker 1: prove a point. Let's say before COVID, the average office
• 48:40
  Speaker 1: worker was in the office four point one days a week.
• 48:43
  Speaker 1: By making that number up, but that sounds about But
• 48:45
  Speaker 1: there's no doubt that not only today, but in three
• 48:48
  Speaker 1: years from now, it's not going to be four point
• 48:51
  Speaker 1: one days per week. Maybe it's three point three days
• 48:53
  Speaker 1: a week, maybe it's three points six days a week,
• 48:55
  Speaker 1: but fundamentally there's less demand. The second point is we
• 49:00
  Speaker 1: are much more in the world of have and have
• 49:02
  Speaker 1: nots with respect office space really meaning office needs to
• 49:07
  Speaker 1: be more attractive for your people to want to go
• 49:09
  Speaker 1: to than working out of their bedroom. And therefore, who
• 49:13
  Speaker 1: wants to work in in an eight or nine foot ceiling,
• 49:16
  Speaker 1: fluorescent light, no air, you know, no common space, no
• 49:20
  Speaker 1: collaborative space. And so you have the best office buildings,
• 49:23
  Speaker 1: the nicest office buildings, like your office building here, So
• 49:27
  Speaker 1: just for people who haven't been here, Bloomberg is built
• 49:30
  Speaker 1: around a courtyard, so there's light north southeast west, the
• 49:34
  Speaker 1: all the elevators you have to enter through the sixth floor,
• 49:38
  Speaker 1: which is filled with collaborative meaning spaces on five and four,
• 49:42
  Speaker 1: and all the food, coffee, everything is on six. Like
• 49:46
  Speaker 1: they were way ahead of their time when they designed
• 49:49
  Speaker 1: this building. And I'm sure they they also want more
• 49:52
  Speaker 1: people in the office. They're probably running they wanted over
• 49:57
  Speaker 1: How difficult is that going to be to achieve? It's
• 50:00
  Speaker 1: at some level it'll it'll be difficult. It's difficult for
• 50:03
  Speaker 1: people today. I think hybrid work. I wouldn't use remote work,
• 50:06
  Speaker 1: but hybrid work is is here to stay. But fundamentally,
• 50:10
  Speaker 1: imagine that this office building was nine ft ceilings, fluorescent lights,
• 50:14
  Speaker 1: no air, whatever that is what it used to be
• 50:16
  Speaker 1: fifteen years ago. I remember that building, and I understand
• 50:20
  Speaker 1: why they built this sure, and and last point on this,
• 50:22
  Speaker 1: and then we'll go to the spaces, these big urban
• 50:25
  Speaker 1: environments where your commute is bad. My commuting to New
• 50:28
  Speaker 1: York used to be an hour and a half each week,
• 50:30
  Speaker 1: each day, it's fifteen hours a week. If I was
• 50:34
  Speaker 1: still commuting between my home and New York City, there's
• 50:37
  Speaker 1: no way I'd be coming in five days a week.
• 50:39
  Speaker 1: And so fundamentally, I think the urban environments with long
• 50:43
  Speaker 1: commutes are more impacted than the suburban environments. And then
• 50:48
  Speaker 1: on top of that, imagine and let's say Manhattan on
• 50:51
  Speaker 1: Sixth Avenue, the old nineteen sixties white brick buildings right
• 50:55
  Speaker 1: are older buildings. There's gonna be a tremendous cost to
• 50:59
  Speaker 1: retro fit and upgrade these buildings, some of which will
• 51:03
  Speaker 1: make no economic sense. So there is a really fascinating
• 51:06
  Speaker 1: and I want to just keep harping on Bloomberg, but
• 51:09
  Speaker 1: there's there are three articles I sent you this morning
• 51:12
  Speaker 1: that I wanted to go over. One was Wall Street Journal,
• 51:16
  Speaker 1: one was New York Times, and one was Bloomberg. The
• 51:19
  Speaker 1: Bloomberg pieces really fascinating because it's interactive. New York City's
• 51:23
  Speaker 1: empty offices reveal a globally global property issue, and they
• 51:28
  Speaker 1: exactly what you're talking about. These older buildings, not from
• 51:32
  Speaker 1: the thirties or forties, but from the seventies and eighties,
• 51:36
  Speaker 1: that don't have the modern amenities, don't have the higher ceilings,
• 51:40
  Speaker 1: don't have all this light coming in. How do you
• 51:43
  Speaker 1: how do you bring those buildings up to speed? Well,
• 51:46
  Speaker 1: I think it's gonna be a very long, slow grind,
• 51:48
  Speaker 1: and some of them depending upon the zoning. I saw
• 51:51
  Speaker 1: a month or two ago that silver Stein Properties in
• 51:53
  Speaker 1: Downtown Manhattan was taking an old office building and converting
• 51:56
  Speaker 1: it to apartments, and I think you'll see some of that.
• 51:59
  Speaker 1: So so let me interrupt you. Right there post nine eleven.
• 52:03
  Speaker 1: I have a vivid recollection of that whole downtown space
• 52:07
  Speaker 1: around the Merrill Lynch Winter Garden and the towers or
• 52:13
  Speaker 1: where the towers were, an enormous conversion to residential. And
• 52:17
  Speaker 1: now what was once like a semi office like mini
• 52:21
  Speaker 1: Downtown is almost residential. It's mostly residential. What do we
• 52:27
  Speaker 1: do with something like Hudson Yards that was just built
• 52:30
  Speaker 1: right before the pandemic? Can you really convert that much
• 52:34
  Speaker 1: office space to residential. Well, Hudson Yards is a beautiful,
• 52:38
  Speaker 1: modern respect that's exactly the kind of place people want
• 52:42
  Speaker 1: to to work at. And ultimately but is half empty
• 52:46
  Speaker 1: or or worse. Yeah, I don't, I don't know specifically. Well,
• 52:49
  Speaker 1: New York is taking it on the chin more than
• 52:51
  Speaker 1: most cities as a result of COVID because of the
• 52:54
  Speaker 1: transportation networks and the trains and and so I think
• 52:57
  Speaker 1: New York City is a bit unique across the United
• 52:59
  Speaker 1: States entirely. But it will be a very long grind.
• 53:04
  Speaker 1: You talk about downtown Manhattan that was twenty two years ago,
• 53:08
  Speaker 1: right twenty one years ago, and so this is a
• 53:10
  Speaker 1: matter of decades, the fundamental transition, and so there will
• 53:14
  Speaker 1: be a lot of pain to be experienced over a
• 53:17
  Speaker 1: very long period of time as the leases roll over
• 53:22
  Speaker 1: that we're in place and you're not able to release
• 53:25
  Speaker 1: the space at similar rents for an increase, you know,
• 53:29
  Speaker 1: or an amount of capital you're going to need to
• 53:31
  Speaker 1: spend to renovate the property. There will be properties that
• 53:36
  Speaker 1: are handed back to the lenders. There will be new
• 53:38
  Speaker 1: capital sources who come in. Some of them will get
• 53:41
  Speaker 1: redeveloped to apartment buildings. Some of them will get scraped
• 53:44
  Speaker 1: and torn down, and some of them will be um
• 53:48
  Speaker 1: uh made nicer and attractive to the office tenant. Going forward,
• 53:53
  Speaker 1: it will be a combination of all these forces at work.
• 53:56
  Speaker 1: All right, New York Times today, factory jobs or boom
• 54:00
  Speaker 1: like it's the nine seventies. US manufacturing is experiencing a
• 54:04
  Speaker 1: rebound as companies they had thousands of workers. That's industrial.
• 54:08
  Speaker 1: What do you see as as new factories going up?
• 54:10
  Speaker 1: That is terrific. There. Look, there are three forces driving
• 54:14
  Speaker 1: demand for industrial real estate. We talked about e commerce.
• 54:16
  Speaker 1: The second is this on shoring trend. Hundreds of thousands
• 54:20
  Speaker 1: of jobs are coming back to the United Many. It's
• 54:22
  Speaker 1: that huge. That article doesn't highlight. I don't believe all
• 54:26
  Speaker 1: the data, but there are jobs coming back to the
• 54:28
  Speaker 1: United States. And when those factories are built, there's gonna
• 54:31
  Speaker 1: be part suppliers and you're gonna need to store inventory,
• 54:34
  Speaker 1: and that's a big driver with respect to industrial real estate.
• 54:38
  Speaker 1: And the last driver is the transition from just in
• 54:41
  Speaker 1: time inventory to just in case inventory. So you go
• 54:45
  Speaker 1: from a very fragile system to a much more robust system. Correct.
• 54:50
  Speaker 1: And then the last article that caught my eye Wall
• 54:52
  Speaker 1: Street Journal. The US is running short of land for housing.
• 54:57
  Speaker 1: Land use restrictions, lack of infrastructure, nimby have all made
• 55:01
  Speaker 1: it harder for developers to find sites to build homes
• 55:03
  Speaker 1: and apartments. Without a doubt, it is out of land.
• 55:07
  Speaker 1: Every single year that goes by. It's becoming more and
• 55:09
  Speaker 1: more difficult to build housing for Americans. Whether it's the
• 55:13
  Speaker 1: availability of land as we become a denser society, or
• 55:17
  Speaker 1: whether it's the local nimbism and the entitlement process to
• 55:21
  Speaker 1: build new buildings. That's why we have a housing crisis
• 55:24
  Speaker 1: in America. So you and I both grew up in
• 55:26
  Speaker 1: Long Islands. I have family in Chicago and their view
• 55:29
  Speaker 1: for Thanksgiving, and I, as a Long Island New York kid,
• 55:33
  Speaker 1: was always surprised driving around suburban Chicago where there's a
• 55:38
  Speaker 1: couple of houses here, and then there's a small office
• 55:41
  Speaker 1: building here, and then there's a big apartment building here,
• 55:44
  Speaker 1: and it seemed like there were none of the land
• 55:47
  Speaker 1: use restrictions that we have in Long Island. Now there
• 55:51
  Speaker 1: have been more and more apartment buildings going up, but
• 55:55
  Speaker 1: they're pretty few and far between. How do you change
• 55:57
  Speaker 1: those restrictions to allow Greater down City. Well, this is
• 56:01
  Speaker 1: the this is the challenge we have. There's no doubt
• 56:04
  Speaker 1: that single family homeowners and do not want apartment buildings
• 56:09
  Speaker 1: built in their communities all across the United States and
• 56:13
  Speaker 1: uh land entitlement and the ability to build is a
• 56:15
  Speaker 1: local issue. The states and the federal government are not
• 56:19
  Speaker 1: driving the decisions with respect to what's get built in
• 56:24
  Speaker 1: on main street in your village. It's your local community
• 56:27
  Speaker 1: and the city council and the city planning people live
• 56:30
  Speaker 1: in those same local communities, and so the system is
• 56:33
  Speaker 1: not developed to deal with providing housing for the working
• 56:37
  Speaker 1: class in America. Now, whether the states are going to
• 56:39
  Speaker 1: be willing to step in. When Governor Newsom and California
• 56:42
  Speaker 1: a few years ago was elected, he had some big
• 56:45
  Speaker 1: plans for the state to come in and to tell
• 56:47
  Speaker 1: the municipalities what to do. That didn't quite happen. I'm
• 56:51
  Speaker 1: not aware of any other state I know. The city
• 56:54
  Speaker 1: of Minneapolis has put some regulations in place. You know,
• 56:57
  Speaker 1: there's regulations both in the state of Offornia and in
• 57:00
  Speaker 1: Minneapolis to allow for UH dwelling units on single family properties,
• 57:06
  Speaker 1: so it's no longer single family z owning. So you
• 57:08
  Speaker 1: can convert your garage into an apartment, you know, for
• 57:12
  Speaker 1: someone to live there. That's not the answer. The answer
• 57:15
  Speaker 1: is to allow density in transit oriented places where people
• 57:20
  Speaker 1: where the jobs are or where people can get to
• 57:23
  Speaker 1: their jobs. But this is a very difficult challenge, and
• 57:26
  Speaker 1: it's a large apartment developer. It's very difficult to have
• 57:29
  Speaker 1: any confidence in America today that we're gonna solve this problem.
• 57:33
  Speaker 1: And it's a real challenge for the working class, in
• 57:35
  Speaker 1: the lower class in this country. So you and I
• 57:37
  Speaker 1: both uh grew up on the island. You were in
• 57:41
  Speaker 1: Port Washington. I live in Locust Valley. We're both on
• 57:43
  Speaker 1: the northern shore of Long Island. The two towns in
• 57:47
  Speaker 1: between us one is Sea Cliff, which it used to
• 57:50
  Speaker 1: be a summer community, but right on the water across
• 57:54
  Speaker 1: across Hampstead Harbor from them is Glen Cove. And Glen
• 57:58
  Speaker 1: Cove had these wonderful plans to build um low income
• 58:02
  Speaker 1: housing on the water, create these high rise apartment buildings.
• 58:05
  Speaker 1: Twenty five years of litigation, and eventually what they end
• 58:10
  Speaker 1: up building is this huge run of luxury condos. They
• 58:14
  Speaker 1: go for a million dollars each in Glen Cove, which
• 58:16
  Speaker 1: is not Brookville or SAMs Point or any of the
• 58:21
  Speaker 1: you know better known Shishi neighborhoods. It was the only
• 58:25
  Speaker 1: way they were able to get it through. People in
• 58:27
  Speaker 1: seacliffs still screamed for years and it's ruining our view.
• 58:31
  Speaker 1: I'm sorry, but if you want the few, you have
• 58:33
  Speaker 1: to go buy that property and leave it undeveloped. They're
• 58:37
  Speaker 1: allowed to build and and that's exactly what happened. You're
• 58:40
  Speaker 1: saying this is a door to door ground war. There's
• 58:43
  Speaker 1: no easy way to fix this at the present time.
• 58:46
  Speaker 1: Clearly the state could step in and and take control
• 58:50
  Speaker 1: over these decisions, but elected officials want to get reelected.
• 58:54
  Speaker 1: And if you want to shore fire away in your
• 58:56
  Speaker 1: local community to not get reelected, go pursue policies that
• 59:01
  Speaker 1: the single family home owners don't support. So let's talk
• 59:04
  Speaker 1: a little bit about single family homes, which I know
• 59:07
  Speaker 1: you don't build and and don't necessarily own. Um. All
• 59:11
  Speaker 1: the data I'm looking at is uh time on the
• 59:15
  Speaker 1: market is longer, Bidding wars have more or less gone away,
• 59:19
  Speaker 1: People getting over asked have been cut in half. Uh So,
• 59:23
  Speaker 1: clearly mark downs are happening on single family homes. Doesn't
• 59:26
  Speaker 1: mean it's gonna be like the financial crisis with stuff
• 59:30
  Speaker 1: fell thirt but not. Wouldn't be surprising to see single
• 59:35
  Speaker 1: family homes, especially in the hotter areas, soften a little bit.
• 59:40
  Speaker 1: What does this mean for you when you're looking to
• 59:42
  Speaker 1: do a commercial deal put up an apartment building. How
• 59:45
  Speaker 1: does residential single family homes affect multi family? Well, the
• 59:49
  Speaker 1: the irony of it is, those factors which are driving
• 59:53
  Speaker 1: down home sales are helpful with respect to rental properties
• 59:57
  Speaker 1: because if you're not gonna buy a home a place
• 1:00:01
  Speaker 1: to live, and at some point you're gonna want to
• 1:00:03
  Speaker 1: leave your parents basement, and at some point you're gonna
• 1:00:05
  Speaker 1: need a place to live, and you're going to rent.
• 1:00:07
  Speaker 1: Now you're going to rent an apartment or you're going
• 1:00:09
  Speaker 1: to rent a home. But these forces are positive with
• 1:00:13
  Speaker 1: respect to the underlying demand for rental housing in America.
• 1:00:17
  Speaker 1: And the past five years we've noticed UM household formations
• 1:00:21
  Speaker 1: have increased, which means more and more people are living together,
• 1:00:25
  Speaker 1: getting married, which eventually means a house, a baby, or
• 1:00:28
  Speaker 1: what have you. Um. How much more residential housing does
• 1:00:35
  Speaker 1: the United States need, especially the denser multi family How
• 1:00:40
  Speaker 1: many units can we build before we overbuild? Well? UM,
• 1:00:45
  Speaker 1: depending upon whose data you're looking at, it's somewhere between
• 1:00:48
  Speaker 1: two and seven million units of housing that we're under
• 1:00:51
  Speaker 1: housed in America. I mean, look at the homelessness that's
• 1:00:54
  Speaker 1: taking place in our major cities. This solution for that
• 1:00:57
  Speaker 1: is supply. The solution for all of this is supply.
• 1:01:01
  Speaker 1: And so Americans remember two thousand and five, six seven
• 1:01:04
  Speaker 1: when we had the subprime crisis and all these houses
• 1:01:07
  Speaker 1: were built, and arguably we were over housed at that
• 1:01:10
  Speaker 1: point in time, but then we were chronically undersupplied in
• 1:01:14
  Speaker 1: the decade plus and that deficit has grown year over
• 1:01:17
  Speaker 1: year over year, and so there's millions of houses or
• 1:01:21
  Speaker 1: apartments or housing units that we need to create again
• 1:01:26
  Speaker 1: for the working class and for the less affluent in America.
• 1:01:30
  Speaker 1: But it's very difficult. In the same exact places that
• 1:01:33
  Speaker 1: we need this, it's the most difficult to build it.
• 1:01:35
  Speaker 1: I'll give you one example and then then the numbers
• 1:01:38
  Speaker 1: are fictitious, but they'll be illustrative. We build a lot
• 1:01:41
  Speaker 1: in Houston, Texas, which arguably is one of the easier
• 1:01:44
  Speaker 1: markets in the United States to build in, and we
• 1:01:46
  Speaker 1: can build an apartment building for let's say, a hundred
• 1:01:49
  Speaker 1: and fifty thousand dollars per unit. If we go to
• 1:01:51
  Speaker 1: build that same exact physical building in southern California, that
• 1:01:56
  Speaker 1: will cost four hundred and fifty thou Half of that
• 1:01:59
  Speaker 1: might be land and labor, but half of that is
• 1:02:02
  Speaker 1: related to the regulatory fabric requiring us to undertake certain
• 1:02:08
  Speaker 1: building design and construct to meet the local requirements, such
• 1:02:12
  Speaker 1: as like capturing all the rainwater, and you need to
• 1:02:16
  Speaker 1: capture all of the rainwater your property and funnel it
• 1:02:20
  Speaker 1: into a water filtration system type of right, Well, they
• 1:02:23
  Speaker 1: do have a massive water shortage. I understand. I'm just saying,
• 1:02:27
  Speaker 1: what are we solving for in America? Are we trying
• 1:02:30
  Speaker 1: to produce housing for the less affluent in the working
• 1:02:33
  Speaker 1: class or are we not? If we are, let's get
• 1:02:36
  Speaker 1: serious about it. Huh. So what other states are especially easy,
• 1:02:42
  Speaker 1: like Texas or difficult like California to add additional residential units.
• 1:02:48
  Speaker 1: I think the most difficult is the West coast of
• 1:02:50
  Speaker 1: the United States, whether it's you know, parts of Oregon
• 1:02:52
  Speaker 1: or Washington or California, these cities, these urban California, you know,
• 1:02:57
  Speaker 1: But I always think of um like, uh, Oregon is
• 1:03:03
  Speaker 1: sort of like a libertarian wilderness. First of all, it's
• 1:03:07
  Speaker 1: not a it's not a rural issue. This is in
• 1:03:09
  Speaker 1: the dense, you know cities. But nonetheless, it goes back
• 1:03:13
  Speaker 1: to this point of yes, we wanted for the people
• 1:03:16
  Speaker 1: live here, but not in my backyard. Or if our developer,
• 1:03:20
  Speaker 1: you're gonna build that, but we're gonna require you to
• 1:03:23
  Speaker 1: give fifty of the units at this rent, You're gonna
• 1:03:26
  Speaker 1: have to build a park, You're gonna have to pay
• 1:03:28
  Speaker 1: certain fees, and they put on you elements that make
• 1:03:33
  Speaker 1: it development perspective and capital This isn't the real estate
• 1:03:38
  Speaker 1: developers point. The real estate developer is responding to the
• 1:03:41
  Speaker 1: capital markets and investors investing in real estate are seeking
• 1:03:45
  Speaker 1: a certain return profile. What about the Midwest. I know
• 1:03:48
  Speaker 1: there's been a little bit of a renaissance in cities
• 1:03:50
  Speaker 1: like Pittsburgh, Um, Cleveland, Milwaukee, they all are. Detroit even
• 1:03:56
  Speaker 1: is starting to recover from where it was. How do
• 1:03:59
  Speaker 1: you put up new units, especially in a place like
• 1:04:01
  Speaker 1: Detroit that what is half the population is left of
• 1:04:04
  Speaker 1: the best there? Yeah, I know it's um Farmland is recovering,
• 1:04:07
  Speaker 1: retaking parts of the city. Look, this issue is most
• 1:04:10
  Speaker 1: pronounced in the big cities where people want to live
• 1:04:13
  Speaker 1: and so When you go to some of the smaller
• 1:04:15
  Speaker 1: cities or the Midwest cities which aren't experienced in the
• 1:04:18
  Speaker 1: type of population growth, these difficulties are not nearly as
• 1:04:21
  Speaker 1: much of a challenge. And and and so those cities
• 1:04:25
  Speaker 1: are doing relatively okay. Nowhere is perfect. There's homelessness everywhere,
• 1:04:30
  Speaker 1: there's challenges for young people everywhere. There's challenges for teachers
• 1:04:33
  Speaker 1: and hospital workers and cops and firefighters all over America.
• 1:04:37
  Speaker 1: But it's most pronounced in your high cost of living markets,
• 1:04:41
  Speaker 1: whether it's the New York metro area, whether it's the
• 1:04:44
  Speaker 1: southern California area, Northern California, Seattle. It's cheaper and easier,
• 1:04:50
  Speaker 1: all things being equal, to develop in the southeast and
• 1:04:53
  Speaker 1: the Southwest, and so the problems are less pronounced as
• 1:04:57
  Speaker 1: well as you'll have from a entitlement p fact of
• 1:05:00
  Speaker 1: more pro business um entitlement policies in place that allow
• 1:05:06
  Speaker 1: for the development of real estate for these needs really
• 1:05:09
  Speaker 1: really intriguing. My last question before I get to my
• 1:05:12
  Speaker 1: favorites are is it safe to say you're pretty optimistic
• 1:05:16
  Speaker 1: about real estate development in the United States going forward,
• 1:05:20
  Speaker 1: despite the challenges that it faces. I think these fundamental
• 1:05:25
  Speaker 1: demand trends and industrial real estate are here for the
• 1:05:29
  Speaker 1: foreseeable future. I think America is under house, particularly with
• 1:05:33
  Speaker 1: respect to the working class and attainable housing that we need.
• 1:05:38
  Speaker 1: I think that office buildings again, going back to the modern,
• 1:05:43
  Speaker 1: open light, collaborative space, I think there's a demand for
• 1:05:47
  Speaker 1: that that will grow in time. And there are other
• 1:05:50
  Speaker 1: areas of real estate that we're going to continue to
• 1:05:52
  Speaker 1: need to increase the overall supply in America, And there
• 1:05:55
  Speaker 1: are other areas of real estate or other markets where
• 1:05:57
  Speaker 1: we're not going to And so like all topics, there's
• 1:06:01
  Speaker 1: a broad brush to paint and then there's smaller paint
• 1:06:03
  Speaker 1: strokes within that canvas. The devil is always in the details.
• 1:06:07
  Speaker 1: All right, Let's jump to our favorite questions we ask
• 1:06:09
  Speaker 1: all of our guests, starting with what kept you entertained
• 1:06:13
  Speaker 1: during the lockdown? What did you watch or listen to
• 1:06:16
  Speaker 1: either on Netflix or Amazon Prime or podcast or whatever. Well, um,
• 1:06:21
  Speaker 1: I think, like a lot of parents of of of
• 1:06:23
  Speaker 1: older kids, that March April May period was just brilliant
• 1:06:27
  Speaker 1: because every night I sat on the couch with my
• 1:06:30
  Speaker 1: three kids and we binge watched The West Wing with
• 1:06:33
  Speaker 1: Mark Chene, which is just fabulous. To watch that again,
• 1:06:37
  Speaker 1: and a show called Royal Pains, which was about a
• 1:06:39
  Speaker 1: doctor out in uh the east end of Long Island,
• 1:06:43
  Speaker 1: and uh that was really just a terrific family time
• 1:06:46
  Speaker 1: for us. Really interesting. Tell us a little bit about
• 1:06:49
  Speaker 1: your early mentors who helped to shape your career. I
• 1:06:53
  Speaker 1: have always been lucky and blessed through my job to
• 1:06:58
  Speaker 1: have someone seen or to me, wiser to me along
• 1:07:02
  Speaker 1: the way that would look out for me and I
• 1:07:05
  Speaker 1: would look out for them. And so from my first
• 1:07:07
  Speaker 1: job as a legal assistant, there was this great lawyer
• 1:07:09
  Speaker 1: and a marty hunger, you know, all the way through
• 1:07:12
  Speaker 1: most of my career at Morgan Stanley. But something happened
• 1:07:14
  Speaker 1: at forty years old. I was working at Morgan Stanley
• 1:07:18
  Speaker 1: and a guy, a terrific guy who's a mentor to mind,
• 1:07:21
  Speaker 1: went up and quit. And he walks into my office
• 1:07:25
  Speaker 1: and says, hey, you know, uh, last day here, you know,
• 1:07:28
  Speaker 1: still call me kid. I'm at forty He said, listen,
• 1:07:31
  Speaker 1: I just want you to know I'm going over. I'm
• 1:07:32
  Speaker 1: going to do this. And I was so deflated and
• 1:07:36
  Speaker 1: that I sat at my desk and realized, Okay, maybe
• 1:07:39
  Speaker 1: you're just old enough now and you're just gonna have
• 1:07:41
  Speaker 1: to figure this all out for yourself. But the truth
• 1:07:44
  Speaker 1: of the matter is, even today I work with the
• 1:07:47
  Speaker 1: senior partners at at my firm or terrific people. I
• 1:07:50
  Speaker 1: learned so much from them, and I whether it's Harlan
• 1:07:54
  Speaker 1: or a couple of the senior guys, I I consider
• 1:07:56
  Speaker 1: them mentors as well. Today. The guy who quit and
• 1:08:00
  Speaker 1: left you deflated, Yeah, he very much though, mentored you,
• 1:08:04
  Speaker 1: showing you there's life outside of a giant organization. And
• 1:08:07
  Speaker 1: you eventually followed in his footsteps. Absolutely, and he's a
• 1:08:10
  Speaker 1: terrific guy and I love him dearly. So let's talk
• 1:08:12
  Speaker 1: about some of your favorite books. And what are you
• 1:08:15
  Speaker 1: reading right now? When you pose a question, immediately comes
• 1:08:19
  Speaker 1: to mind. I RAN's Outlas Shrugged. There's no book that's
• 1:08:22
  Speaker 1: ever had such an impact in my life. And I
• 1:08:23
  Speaker 1: read that when I was a young man in college.
• 1:08:26
  Speaker 1: I read it in college. I had to fight my
• 1:08:29
  Speaker 1: way through that book. There's a speech in the middle
• 1:08:31
  Speaker 1: that's like eighty pages long. It just goes on. I
• 1:08:35
  Speaker 1: think the book is over a thousand pages. It just
• 1:08:37
  Speaker 1: shaped the way that I thought about the world, and
• 1:08:39
  Speaker 1: it was and it affected me in very profound ways.
• 1:08:43
  Speaker 1: Really like no other book. There was another book I read,
• 1:08:46
  Speaker 1: By the way, you're not the first person to refuse
• 1:08:48
  Speaker 1: that example. A lot of people say that that was
• 1:08:50
  Speaker 1: a formative experience for them. There was a book I read.
• 1:08:54
  Speaker 1: You know, I think there's all professionals we read books
• 1:08:56
  Speaker 1: on leadership and management. And in two thousand and five
• 1:08:59
  Speaker 1: I read a book, The Radical Leap, which was a
• 1:09:01
  Speaker 1: leadership book read written by this terrific guy named Steve Farber.
• 1:09:05
  Speaker 1: And The Radical Leap was love, energy, audacity, and proof um.
• 1:09:11
  Speaker 1: And it was just a great, easy read and it
• 1:09:13
  Speaker 1: stuck with me. Basically, you know, love in business is
• 1:09:17
  Speaker 1: fundamentally the source of of of being successful. And that
• 1:09:21
  Speaker 1: was also by coincidence how Trammel Crow viewed our business
• 1:09:25
  Speaker 1: in our industry, that love was the most important factor
• 1:09:28
  Speaker 1: in terms of success. The books I've been reading a
• 1:09:30
  Speaker 1: more more philosophy and history recently. So I wrote this,
• 1:09:34
  Speaker 1: read this great book called The Cave and the Light,
• 1:09:36
  Speaker 1: which is about Plato and Aristotle. There's this terrific thinker
• 1:09:41
  Speaker 1: named Jordan Peterson who written several books, and I'm reading
• 1:09:44
  Speaker 1: a book called Beyond Order right now. Occasionally I read fiction, um,
• 1:09:49
  Speaker 1: but not that often. I used to read a ton
• 1:09:52
  Speaker 1: of fiction, and I just never get to it these days.
• 1:09:54
  Speaker 1: If I'm on vacation, I'll bring a couple of fiction
• 1:09:57
  Speaker 1: and a couple of nonfiction books and see what what
• 1:09:59
  Speaker 1: gets the time. Um, what sort of advice would you
• 1:10:02
  Speaker 1: give to a recent college grad who is interested in
• 1:10:06
  Speaker 1: a career in real estate investing development? What would you
• 1:10:10
  Speaker 1: tell them? Well, look, I think some of the basics.
• 1:10:13
  Speaker 1: First of all, you know, if if you want to
• 1:10:15
  Speaker 1: be successful in these worlds of investment, broadly speaking, you're
• 1:10:18
  Speaker 1: gonna have to work really hard, and you're gonna have
• 1:10:21
  Speaker 1: to make sacrifices with respect to your life. And are
• 1:10:24
  Speaker 1: you prepared to do that? And and and that's the
• 1:10:26
  Speaker 1: first thing. The second thing, with respect to young people
• 1:10:29
  Speaker 1: looking to go in an industry, my my first argument
• 1:10:32
  Speaker 1: to them is go geographically where the epicenter of that
• 1:10:35
  Speaker 1: industry is. And so, if you want to be in fashion,
• 1:10:38
  Speaker 1: you want to be in New York. If you want
• 1:10:39
  Speaker 1: to be in music, you're gonna want to be in
• 1:10:41
  Speaker 1: Nashville or New York or in l A. And so
• 1:10:43
  Speaker 1: if you want to be in finance or investing, these
• 1:10:46
  Speaker 1: cities like New York still remain the epicenter of this,
• 1:10:49
  Speaker 1: and so go where there are lots of people in
• 1:10:52
  Speaker 1: the industry doing what it is that you want to do. Now,
• 1:10:55
  Speaker 1: the nice thing about real estate development and even real
• 1:10:58
  Speaker 1: estate investing is it's highly fragmented and all over doing
• 1:11:01
  Speaker 1: any states you can, you can do it anywhere. Um
• 1:11:04
  Speaker 1: really really interesting. And our final question, what do you
• 1:11:07
  Speaker 1: know about the world of real estate investing in development
• 1:11:11
  Speaker 1: today that you wish you knew thirty years ago? This
• 1:11:15
  Speaker 1: one's easy. I remember in training, sitting and training and
• 1:11:19
  Speaker 1: listen to Ralph Alcimpora, Oh technical strategies. Great guy, and
• 1:11:23
  Speaker 1: he sat up in front of all of us, young
• 1:11:25
  Speaker 1: smiling faces and showed us these charts predicting the future.
• 1:11:30
  Speaker 1: And I hung on his every word, and I could
• 1:11:32
  Speaker 1: have sworn that Ralph could predict the future. And then
• 1:11:35
  Speaker 1: I went and worked in these firms and listened to
• 1:11:38
  Speaker 1: the brightest people talk about the future, predicting the future
• 1:11:42
  Speaker 1: with respect to the capital markets, the stock market, the
• 1:11:44
  Speaker 1: GDP growth. And finally, at some point along the way,
• 1:11:48
  Speaker 1: I realized that none of these people, irrespective of their models,
• 1:11:53
  Speaker 1: know anything about the future. And so we sit here
• 1:11:57
  Speaker 1: today worried about the future. We feel it's a time
• 1:11:59
  Speaker 1: of tremendous uncertainty with the future. You know what, a
• 1:12:02
  Speaker 1: maximum point of uncertainty was what everybody felt certain December
• 1:12:08
  Speaker 1: because nobody anticipated that COVID would come. And so the
• 1:12:12
  Speaker 1: thing I know now that I didn't know that is
• 1:12:14
  Speaker 1: how do you run your business when you know you
• 1:12:17
  Speaker 1: don't know? And those of us who spend time trying
• 1:12:21
  Speaker 1: to think that we know what the future is going
• 1:12:22
  Speaker 1: to hold with respect to these cyclical activities, fundamentally are
• 1:12:27
  Speaker 1: setting ourselves up to either just be lucky or just
• 1:12:30
  Speaker 1: wrong a lot of the time. Really totally fascinating, um,
• 1:12:35
  Speaker 1: really really interesting. Michael, Thank you for being so generous
• 1:12:38
  Speaker 1: with your time. We have been speaking with Michael Leavy.
• 1:12:42
  Speaker 1: He is chief executive officer of Crow Holdings, a commercial
• 1:12:47
  Speaker 1: real estate developer and investor. If you enjoy this conversation,
• 1:12:51
  Speaker 1: we'll be sure and check any of our previous four
• 1:12:54
  Speaker 1: hundred such discussions we've had over the past eight years.
• 1:12:58
  Speaker 1: You can find that at I Tunes, Spotify, YouTube, wherever
• 1:13:02
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• 1:13:05
  Speaker 1: end suggestions. You can write to us at m IB
• 1:13:09
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• 1:13:12
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• 1:13:16
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• 1:13:19
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• 1:13:21
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• 1:13:26
  Speaker 1: Wald is my producer, Attica val Bron is our project manager.
• 1:13:31
  Speaker 1: Sean Russo is my head of research. I'm Barry Ridholts.
• 1:13:35
  Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.