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but the world is not
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in great shape you know it's especially
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the u.s
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i think i do think that investing real
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estate is a long-term game
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and when i started in 91 we were buying
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from the rtc
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today where well the chorus deal was
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bought from the fdic
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sort of added a letter but it's still a
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government agency
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um and uh the principles that i
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was so excited about in 91 when i
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started my firm are back in play 20 some
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odd years later and what three key
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principles would those be you're buying
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below replacement costs
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in the u.s which is a big deal good
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thank you
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or you got a couple more i got two more
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uh you have positive leverage if you can
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get leverage at all
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so your if you if you buy it as even an
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eight yield then you can
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borrow it six you you can get a 10 cash
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on cash or nine and a half ten
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which is compelling relative to the
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other asset classes you have fixed
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income
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governments even corporates even junk
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bonds
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and you just wait and eventually in a
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growth country like the united states
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which we are still growing people forget
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that
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unlike western europe unlike japan we
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have demographic growth here
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so eventually you know if you're
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certainly a patient investor
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growth will bail you out unless you're
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investing in detroit so if you're in
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detroit you're probably not in great
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shape but
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there are there are even in places like
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albany you can make money
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so it's a great industry the real estate
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industry because it is the last great
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and perfect market you're sitting over
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the
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epicenter of the perfect market you know
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the the but
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real estate it's not that hard i mean it
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you have to
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keep common sense is really important
00:01:47
which most people seem to
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lose in the real estate cycles um
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because they get access to both equity
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and debt capital but at the end of the
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day it is the most practical application
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of common sense probably in investing
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well especially if you're buying
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property instead of just pieces of paper
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trading back and forth which
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you do a little both though don't you we
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do both and they both take common sense
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but i was once when i was young er i'm
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going to pretend i'm still young
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i saw a sign at a holiday inn that said
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it was one of those billboards and said
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common sense is very uncommon and i
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really believe that i mean it's
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it's amazing how as we look at the
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chorus assets which are 102
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construction projects all over the
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country some of the stuff that was built
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is inexplicable
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you know like in the you know 40 miles
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from
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the nearest indian reservation and it's
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a high rise and all you see are
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tumbleweed so you kind of wonder did
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loan officer ever come out to the site
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and feel the dreams those are the
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problems you know those are the problems
00:02:42
when
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the basics of real estate are forgotten
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they build two-story retail i learned
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that when i was six years old that the
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second story of retail
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only rents on a pro former for a banker
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right
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and um i'm impressed that at age six you
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knew the phrase for pro forma i did
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and but we'll all right so we heard a
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couple reasons for why you're investing
00:03:01
now and why it looks good tell us
00:03:02
two or three key things that worry you
00:03:04
about the economy and whether we
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will have a second dip or whether we
00:03:08
actually will this is not i mean people
00:03:10
look at then you see this is the fastest
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second fastest recovery in history since
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the
00:03:14
you know the second largest dip in the
00:03:15
second facts of recovery i think
00:03:17
fundamentally this is a different
00:03:18
economy than it was
00:03:19
any other recession that we've come out
00:03:21
of better or worse well
00:03:22
different and worse because you're
00:03:24
you're it's being powered by government
00:03:26
spending and not by private market
00:03:27
spending
00:03:28
um and it's uh you know i i use the
00:03:31
analogy the day of it's a lake
00:03:33
a thin lake or a lake with a thin layer
00:03:35
of ice on it and some people came out
00:03:37
and started to dance and other people
00:03:38
looked at them so they're not falling
00:03:39
through the ice and they came out and
00:03:41
it's a race between how fast the ice
00:03:42
will get thick
00:03:43
how fast the economy will strengthen and
00:03:45
whether the weight of all these people
00:03:46
now
00:03:47
losing all their risk
00:03:50
focus that they had the last 12 months
00:03:52
are now just piling on top of the lake
00:03:54
because
00:03:55
everyone's got to be in the market have
00:03:56
we really nobody wants to say that
00:03:57
quickly it looks that way
00:03:58
yeah i would say we're forgetting very
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fast you know and it's corporate bonds
00:04:02
you know
00:04:02
corporate bonds the real estate deals
00:04:04
are trading faster and faster
00:04:06
the discipline of reading the documents
00:04:08
what these um
00:04:10
documents say in the fine print is again
00:04:12
you're not having time to do
00:04:14
there's a tremendous global search for
00:04:17
yield
00:04:17
and it's driving prices and yields and
00:04:19
it's supporting the market
00:04:21
probably certainly in real estate way
00:04:23
ahead of the fundamentals so the low
00:04:24
government rates allow me not to do any
00:04:26
research and just rely on moody's right
00:04:29
well well that's not moody's i mean you
00:04:32
have uh in 1991
00:04:34
two and three the reed industry was
00:04:36
really born when borrowers went public
00:04:38
because they were going to go broke
00:04:40
right everyone was recourse
00:04:41
mr told knows this with with me that the
00:04:44
is a recourse on debt instead of going
00:04:46
uh david simon isn't here i was with him
00:04:48
yesterday but his i remember seeing his
00:04:50
father mel who should rest in peace
00:04:52
just passed away in the office of my
00:04:54
boss crying
00:04:55
tears coming down his cheeks because uh
00:04:58
our bonds were trading at like nine
00:05:00
but the guy was government treasuries
00:05:02
but but cap rates were six
00:05:04
so he was worth billions on paper and
00:05:07
then all of a sudden malls were worth
00:05:08
10 and he had dead at nine and he was
00:05:11
broke
00:05:12
and how did he get out of being broke he
00:05:13
went public and the market
00:05:15
short rates were so low that a yield of
00:05:17
five or six percent on a mall
00:05:19
looked pretty good to the public and the
00:05:20
retail guys stepped in and
00:05:22
and and re-equitize the real estate
00:05:24
industry and that's how
00:05:25
that's the dirty little secret of how
00:05:27
the real estate industry was born
00:05:29
um the reit industry and it's happening
00:05:31
again i mean
00:05:32
we did a blind pool this summer we
00:05:34
raised just cash but
00:05:35
everywhere i go now i hear about 43
00:05:38
different ipos
00:05:39
of anybody with any asset thinks they
00:05:41
can go public
00:05:42
and probably at the moment with the
00:05:44
discipline or lack thereof in the public
00:05:46
markets you can do that
00:05:59
you
