We Study Billionaires - The Investor’s Podcast Network - TIP368: The Best Opportunities in CRE w/ Ian Formigle

Starting point is 00:00:00 You're listening to TIP. On today's episode, I sit down with TIP fan favorite Ian for meagli. Ian is the chief investment officer of Crowdstreet. And in this episode, we discuss how commercial real estate has performed since COVID, demographic migration leading to growth in surprising places, the silver tsunami, aka the baby boomer generation, reaching the age of retirement and where opportunities may be present. And lastly, we talk a bit about how Crowd Street weighs external challenges like

Starting point is 00:00:29 climate change into their prospectus. It's always a treat to have Ian on the show, and today is no exception. He is a wealth of knowledge and an authority on the commercial real estate markets. I guarantee you're going to learn a lot from this discussion, so sit back and enjoy my conversation with Ian for Meekly. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, everybody, welcome to the Investors podcast. I'm your host, Trey Lockerby, and today we have another fan favorite on the show, Mr.

Starting point is 00:01:17 Ian for meagli, who needs no introduction. Ian, welcome back. Thanks, Trey. It's a pleasure to be back on this podcast. As you guys know, this is probably one of my favorite formats to talk about commercial real estate. Well, I have not gotten a chance to talk to too many people about commercial real estate on this show yet, so I'm really eager to have you back on the show.

Starting point is 00:01:36 So last time you were on, which was back on episode 337, we discussed how commercial real estate performed through COVID. And the thesis was that we hit this trough of commercial real estate in 2020 and that a new cycle was beginning with an estimated 40% increase in transactions going into 2021. Now, are you seeing this thesis pan out? And is the market performance sort of matching your expectations? Yeah, so to get right into this one, Trey, interesting question because, you know, there was obviously a lot of optimism coming into this year in terms of, you know, massive spikes in transaction volume, kind of getting to the backside of the pandemic and that was going to kind of shake everything loose and you'd see lots of deals get done. So what we've actually seen so far in the first half of 2021 is that transaction volume has not yet expanded at the rate at which groups such as CBRE had forecasted coming into the year. Now, however, I think as we get into this question, I'll talk a little bit about how I do think that there is some hope on the horizon that we're going to see it begin to expand in the second half

Starting point is 00:02:41 of the year. So just to anchor us in the question of like, where was it, where is it now, where do we think it's going? Real capital analytics is the best source of data for us to track total transaction volume in the commercial real estate industry. And we've got 21 data up through May. So total volume so far this year through May was about $170 billion. Now, that translates into just a 1% year-over-year growth rates,

Starting point is 00:03:06 so really just flat year-over-year. So, but what's interesting is if we dig a little bit deeper into that data, it's when you break out that cumulative volume by asset class that I think it gets a little bit more interesting. So first, let's talk about office and industrial. Those are the asset classes where transaction volumes are down year-over-year. Office is down 14%, industrial is down about 15% year-over-year, but they're down for, like, very vastly different reasons.

Starting point is 00:03:31 So to get into office, so for starters, you know, office is this asset class that's still working through a massive amount of uncertainty associated really with what the post-pendemic office is going to look like. Right now, how we look at the market is unless you have a highly occupied property with a strong rent role with a long lease terms that are in place, and in industry parlance, we refer to that whole roll up as weighted average lease term. it's really difficult to obtain reliable price discovery right now on an office deal. You just don't kind of know what it's really worth because we kind of got to get to the

Starting point is 00:04:06 backside of the pandemic more to understand who's really going to office at what rates and which tenants are staying and which ones are going to go. So I think until we get more of that market clarity, we're going to see diminished office transactions. Now, industrially, in contrast, that market is as strong and certain as office is weak right now. but the difference there is that pricing for industrial deals has really spiked in 2021. So now I think what we're seeing is we've got certain buyers that are just moving to the sidelines. They can really just no longer make those deals pencil. And then at the same time,

Starting point is 00:04:40 the market's so strong that we see sellers as not really highly motivated to transact, more or less they're kind of putting a deal out there, throwing it up at a new high premium pricing and kind of saying, come and get it. If you pay my price, I'll sell it. And if not, I'm pretty happy to continue to own and operate it because the fundamentals are really strong. So I think when you combine that together, that dynamic is just really slowing down deal velocity and the industrial side. When we look across other asset classes, retail is off right now about 7% year over year. I do think that that transaction volume kind of picks up once we get to the later part

Starting point is 00:05:13 of the year. Now, let's talk about some of the bright sides of transaction volume because it's not all down. So, for example, we're seeing a strong year-over-year increase in apartment volume transactions, roughly $63 billion through May, and that's up 24% relative to the first five months of 2020. And also, what's of note, and not really on a dollar basis, but I think just the fact that it's actually starting to happen again is hotels. The gross numbers are small. We're talking about a billion dollars of transactions so far in 2021, but that's up 72% year

Starting point is 00:05:44 over year. So we are actually starting to see some hotels trade. I'm kind of bullish on this space as we come out of the pandemic. We're seeing massive amounts of increases in getting out there and going places and you're seeing TSA throughput spike dramatically. We're kind of almost back to some 2019 levels of travel already. So I think you're going to see hotel transactions really start to pick up later this year as that market really gets going.

Starting point is 00:06:09 When we take it back to the big picture, and I think an interesting data point, which is just showing up in May, is that May as a month relative to 2020, was up 73% year for year. So now, it's fair to say May 2020 was pretty abysmal from a transaction volume standpoint. That was essentially the depths of the pandemic. But it's also fair to argue that January and February of 2020 were really pre-pendemic. So I think that's also skewing some of that flat data that we see year over year. So I think when you roll it all up, I'm still bullish that 2021 volume looks, you know, a chunk larger than 2020 volume, but probably more perhaps 15 to 20% greater when it's all

Starting point is 00:06:48 said and done relative to the 40% or greater number that CBRE had projected. So just quickly touching on those really high growth rates you just mentioned. So when you talk about like a 70% increase in the hotel market, you mentioned we're kind of almost back to 2019 travel levels. Is that what you're seeing on a transaction basis for hotels? We're almost getting back to 2019 levels on transactions? No. So transactions are still down precipities.

Starting point is 00:07:18 from relative to pre-pandemic. I draw that data point out to suggest that I think that if we're actually seeing mobility return, this is kind of a key theme, I think we'll probably talk a little about later. I'm optimistic that you're actually going to see some real pickup and transaction volume in hotels. The other key thing to also understand in the commercial real estate industry is that so much of transaction volume is really dependent upon debt financing, right? Most deals are leveraged with commercial real estate debt. If lenders aren't lending, deals aren't happening, just kind of bottom line. Just in the last few months, you're seeing those lenders actually step into the market, quote, deals and transact. So we're shaking off a lot of rust right now in the hotel

Starting point is 00:07:58 industry. We're also kind of starting to see operations return. And now you can literally now leverage a deal in 2021 because there are people staying at it, still not to the level that it was in 2019. The optimism there is that the rebound and the recovery in the market is actually happening a lot faster than groups like Smith travel and research had previously forecast. So I think that, you know, look, it's still small. A billion dollars is really nothing in the grand scheme of things in terms of total commercial real estate markets. It's just that essentially nothing happened in 20. Now we're seeing some deals start to happen. I think you could see that, you know, 10, 15x growth and actually start to see some real transactions happen. And probably by 22,

Starting point is 00:08:37 it's going to start to look like 2019 levels of transaction volume. Got it. And one thing that was super interesting to me was around the massive migration. So, for example, I live in California, and I was just astounded to see such a massive migration move to, for instance, Boise, Idaho, and that led to a 20% increase in home asset appreciation there. Are there any particular industries that are migrating to Boise or attracting people to the city other than just maybe sort of a more economical base for real estate? Well, yeah. So, So to get into that one, so I would say first, you know, Boise has been a fascinating case study during the pandemic.

Starting point is 00:09:19 We were bullish on Boise coming into 2020. So from our perspective, I would say that I wasn't necessarily astounded by what occurred, but I would say that it was an abnormally large spike in population outflow from California into Boise in a matter of months. And so, you know, to me, this is just, it is. It's a really interesting case study in how a growing metro can accelerate its transformation when a catalyst event, and in this case being a pandemic, accelerates regional migration. So to answer question, Trey, as far as, you know, are there really, are there pockets

Starting point is 00:09:50 or is there specific story of growth there? If you look at a variety of company growth indexing websites, they tend to show that the growth in Boise has been diversified, which I think is good news for the Metro. When we think about, so what are those industries? Well, they look like tech and tech services. Remember, we have the headquarters of Micron Technology based in Boise, so that's an anchor for that city. It looks like education and learning, financial services, health care, construction, government,

Starting point is 00:10:17 even real estate. So, Trey, I think what's interesting is that when you point to this, you know, massive spike in real estate prices, I think, you know, what we saw in Boise last year, to me, you know, one of these key considerations here is that it is a still relatively, you know, small metro. It's got a population about 750,000. That ranks at 78th in the United States in terms of population. So a 20% spike in real estate pricing in Boise isn't necessarily a surprise to me because, in essence, when a bunch of Californians decide to move to Boise, the amount of wealth they can bring and the amount

Starting point is 00:10:51 of price talents they bring into a smaller market could quickly translate into those major housing spikes that we saw. Now, what will remain to be seen is, does that momentum carry forward or do we start to see, you know, that taper off a bit? And also, as we discussed in my previous appearance on this podcast, I think one of the super interesting stories in the United States is potentially here in Boise that I think emerges over the course of the next decade. And that's at, you know, as it moves closer towards being an industrial market, I think a super interesting story that is going to emerge for Boise over the course of the

Starting point is 00:11:24 next decade is that as it moves closer to becoming an institutional market, that's going to change a lot of things for the city. So, you know, right now, Boise is growing. You're seeing this, you know, this influx of California migration. I think that this presents it with an opportunity to establish some of its key drivers of growth and differentiate itself. So with an existing tech presence and an influx of those Californians, I think it's possible to see Boise gain some real momentum in tech over the next five years and look like a little, a mini Silicon Valley, so to speak. I mean, I think this is a story that you're going to see pop up in a number of cities around the country as we redistribute population. But I think Boise is one

Starting point is 00:12:03 of the beneficiaries. Similar to what we've seen in Austin, for example, people migrating away from Silicon Valley, San Francisco. San Francisco rents dropped 20% in 2020, which kind of, to be honest, seemed to overdue in some ways. It was just so astronomical. But I'm curious, anecdotally speaking, I get the sense that a large majority of the market is still very bearish on San Francisco. But what is the data actually telling us today? Yeah, so there is some interesting data in San Francisco that I think kind of tells us almost like a tale of two markets right now. To your point, San Francisco being one of the banner headline cities along with New York in terms of being kind of the epicenter of the negative effects of the pandemic. And so the two

Starting point is 00:12:48 markets, I think, really to focus on here are the multifamily market, which I think is what you were just referencing a minute ago, and then the office market. Those are the two key markets that we saw as kind of having the most headline risk. And so when we look at current data, what it's telling us essentially is that the multifamily market is bouncing back in 2021, while the office market is still really struggling. And my personal guess here is that I think that anecdotal, you know, kind of bad vibe out there that's overhanging San Francisco probably still has a lot to do with the office market because there's really green shoots in the multifamily side that are starting to look okay. So let's get into those and talk about kind of both sides of the market. When we think about

Starting point is 00:13:29 the multifamily market, co-stars great data in terms of tracking, you know, month over month, vacancy rates and rent growth rates. And so what we see right. now is still a market that's definitely off the bottom, but it's at the basis of, I would say, an early stage of the recovery. Total vacancy rate in San Francisco multifamily right now looks like about 8.4%. And it still is as high as 13% or so for the four to five star properties. Now, neither one of those numbers are good at a national level. So for example, you know, based on those metrics alone, Green Street ranks, you know, essentially the top 50 markets that it tracks. and San Francisco is kind of coming in right now out of 50th out of 50 markets that it actively

Starting point is 00:14:09 tracks. So, you know, it's not in a today good state. But what is interesting is to see how we've seen substantial gains in that market year to date. They can see was, you know, really almost as high as 12% market-wide last year and as high as 20% for those four to five-star properties. And that was as recently as the summer of 2020. So if you think about how far we've come and, you know, less than a year, well, I think we're back to some pretty decent absorption. And we can also dig in a little bit further and we can look at the asking rents because I think this tells an interesting story, too, of where the market has come from and where it's back to. So when we look at San Francisco, we know it's a really expensive rental market. Rent topped out at about $4.10 per

Starting point is 00:14:54 square foot across all property types in 2019. So very expensive market. Then rents fell market wide, about 15% to around $3.50 by mid-2020. And as you pointed out, I'm in a go-tray. Like, if you're at the high end of that market, you actually saw a deeper drop, that 20-plus percent drop. But what's interesting is that we are now today back market-wide to about $3.90 per square foot as of July. And at the current rate of recovery in a cent, it's fair to say that we might actually see rents fully recover in San Francisco by sometime in 2022. So on the the apartment side, at least, it's pretty clear that San Francisco is a recovering market and its future looks okay.

Starting point is 00:15:39 If we want to go back to Green Street for a minute and kind of look at some of the forward-looking data that they track, then there is a metric that they use, which is called M-Rev Path, which stands for market revenue per available foot. What it really means is that it takes its rent growth outlook and it multiplies it by the assumed occupancy rates in the market to get a blended perspective on total income growth. And on this metric, San Francisco currently ranks number 14 out of its top 50 markets. So despite the fact that it's at the bottom of the Green Street rankings today, its outlook on the San Francisco going forward market, at least in apartments, is actually pretty good. Now,

Starting point is 00:16:19 let's turn to the office market because this data, unfortunately, is markedly different, let's just say. The last 12 months have been absolutely brutal for the San Francisco office market. It's really kind of hard to characterize it any other way. If we go back to CoStar, according to CoStar, net absorption in the office market is down about 7.3 million square feet. Rents are down about 7.4% year over year. That's actually coming off of further declines in that previous period. And over the last year, they were declining at the fastest rate in the nation. Vacancy today is technically sitting at 13.5%, which isn't necessarily horrible on a national level, but it doesn't really tell you the whole story. And it's also important to note that that vacancy level was sitting

Starting point is 00:17:03 around 6% entering 2020. So it's still markedly down on just absolute vacancy. And what that vacancy rate doesn't even account for is this massive spike in sub lease availability. Lots of tech companies are now realizing they don't need as much space in San Francisco as they used to. And they're putting that space on the market via sub lease. So when you take sublease vacancy, combine it with traditional vacancy, like true vacant office space, that total availability rate is now about 19 percent, and that is bad at the national level. And so really, I mean, I think when you put it together and say there's unfortunately kind of a bit of a perfect storm right now that's still hitting the San Francisco office market, you've got a market that,

Starting point is 00:17:44 one, it heavily leans on tech tenants. Most of those workers are still at home. You know, two, SF tech companies continue to sort out their hybrid office policies, and these are the types of companies that are more likely to rely on remote workers when things settle down in the months and years ahead. And, you know, this was a market. Third, you know, think about this, this was a market that was probably one of the epicenters of worker sensitivity to safety during the pandemic. There are today, there's still a ton of Class B office buildings in San Francisco that are not really equipped for a post-COVID world. So I think there's unfortunately just a lot of unleaseable space in this market until either buildings are upgraded.

Starting point is 00:18:24 or tenant expectations change. And I think neither of those things happen immediately. You kind of hope they happen in the next year or two. So I think when you put it all together, I think this adds up to suggest that there's more pain ahead in the office market. And current expectations even going forward right now are for more negative rent growth all the way up until 2023. Vacancy is expected to increase in the year ahead,

Starting point is 00:18:49 topping out at 17%. So that probably puts total availability rate into the solidly into the low to mid-20. But after we get to 23, 24, they do think that vacancy trends down to about 12 to 13 percent by 2025. But it is fair to say that as far as market outlooks go across any asset class, this is about as bleak as it gets in the United States. Before, the one thing I do think it's fair to say is, you know, before we go and just proclaim the end of San Francisco office, I do think that there's recency bias here that's

Starting point is 00:19:20 at play. And it is leading us to partially disregard why San Francisco. became one of the most expensive and most well-occupied markets in the United States in the first place. You know, when we come to looking at markets at the beginning of any year at Crowdstreet, we think about a number of attributes that makes a market attractive and what we think spurs growth. And if you just step back, pull the name off and just look at a market and say, you know, San Francisco still, to me, possesses most of those attributes. You know, there's a number of things going for it. For example, you know, you have major research universities.

Starting point is 00:19:53 Stanford, you see Berkeley, UCSF, and you need a good market pumps out a lot of intellectual capital every year, and companies, they want to be near that intellectual capital, capture it as it's coming out of school, hopefully incentive to stick around. Also, think about the fact that after Boston, San Francisco has the second largest life sciences cluster in the United States, so major growth market with a lot of runway ahead of it. It still ranks number one in the United States for attracting VC capital. It's already attracted over $25 billion this year, according to a recent San Jose Business Journal article. When we think about also quality of life measurements, it's got a temperate climate,

Starting point is 00:20:30 it's kind of hard to argue that the weather isn't pretty bad. It's pretty good. Good weather in San Francisco and generally the Bay Area. It is a highly land-constrained market. I think that's important to note too. When we think about area, the city is about 47 square miles. You got water on three sides of it. just to provide some context in terms of how small that is for a major city.

Starting point is 00:20:52 Oklahoma City is over 600 square miles, so we're talking less than 10% of the size of Oklahoma City. And then, you know, finally think about this. It has a major airport, and it is the gateway to Asia. So I could go on on some things that are great about San Francisco. I'm a former resident of this city, so I'm probably pretty biased. And there's no doubt the market still has a lot of sorting out to do in its office sector, but it's still an amazing city. I think most things in San Francisco look a lot better by 2024.

Starting point is 00:21:21 And while I'm not obviously bullish on office right now, I think if the right opportunistic deal showed up, we'd probably take a look at it. And we would definitely start looking at some multifamily deals, you know, coming up in the months for sure. Yeah, and just to add to that with San Francisco, you're just an hour or two away from things like Napa, wine country, Big Sur, Yosemite.

Starting point is 00:21:43 So you've got all these attractions. probably ties into that as well. Yeah, Central Coast is pretty beautiful. Last time I checked, Pebble Beach is pretty awesome. Well, I'm glad you kind of touched on that hybrid working model because last time you were on the show, you mentioned a quote unquote new normal of sorts with 10% of employees working remotely, 30% hybrid, so say three days a week in the office. Are you seeing that model sustained through the rest of this year? Is it getting more remote, less remote. I know it depends on the market, but just generally speaking, what are you seeing there as far as occupancy? So let's unpack that a bit. First, while I mentioned, it's fair to say that,

Starting point is 00:22:22 you know, the data is a bit murky and it's not fully consistent. There are a number of data points out there that discuss how workers are finding their way back to their office throughout the summer and probably expected to do more so after Labor Day. For example, there's a Gallup poll out there that shows that how remote or hybrid work had trended down from a high of about 70% in April of 2020 down into the mid-50% range as of Q1, 2021. And if we extrapolate that a little bit a bit, I'd probably say that that would peg remote or hybrid work at roughly 50% right now. With more companies looking to get workers back into the office later this year, it's certainly possible that the overall percentage could continue to trend down towards

Starting point is 00:23:02 that 60% full-time, 30% hybrid, 10% remote worker breakout that we had discussed on the last episode. However, as I mentioned, every time we turn around, I think we hear about another major company updating its office working policy, and it tends to continue to go into the direction of greater flexibility for hybrid work, particularly for the tech companies. We've got Uber that recently expanded its work remote policy. It went from 40 to 50 percent, and it's even granting workers greater flexibility on how they want to choose that 50 percent of out-of-office time. Apple, we had heard that they were planning to go into the office, you know, three days that week officially after Labor Day, they've moved that back. They're citing that with a Delta

Starting point is 00:23:43 variant upticking cases, they're going to kind of punt on that decision. So I think just a lot of hybrid flexibility in the future for Apple on a TBD basis. Google had been trending really more towards that model. Now they're announcing a plan to let up to 20% of its workforce remain remote indefinitely. So I think there's some flex there. And even on the financial sector, we had been seeing companies like Goldman Sachs and B of A and Morgan Stanley call for its employees to return to the office by September. We also know there's some pushback going on there. And I think that you were starting to see some of those companies rethink, you know,

Starting point is 00:24:17 how rigid they want to be in their office policies. And I think there are some of that, I think remains to be seen. But I won't be surprised in October if we start to see some changes coming there, too. I think overall, when I attempt to kind of synthesize everything I'm reading out there, I'd probably adjust that 60% full-time, 30% hybrid, 10% remote models. model to probably something more like 50% full-time, 38% hybrid, and 12% remote. But that's just my guess. And I do think that the Delta variant is the wildcard here that could change these

Starting point is 00:24:48 trends later this year. Yeah, you know, it makes sense, actually, if you think about it. Going back to that Boise example with the 20% growth in home prices, it's, I'm sure there are burgeoning industries there, especially the tech movement you mentioned, but there's also that flexibility you mentioned, right, where people can now say, well, why pay for a three bedroom in San Francisco and I can still work at Apple and live in Boise? Are you expecting to see almost like a flattening of sorts just because if that flexibility trend continues to stay strong moving forward? Do you think that that just sort of almost creates

Starting point is 00:25:20 a leveling across the major metropolitan areas with more rural markets at all? Yeah, really interesting question because I mean, I think now we're going to go into behavioral economics and say, you know, we know that workers right now are, they like their flexibility. They like the ability to work at home as much as they want. And they're, they're arguing with their employers to make sure that they can continue to do that going forward. And because we're still kind of in the pandemic experiment, so to speak, I mean, and we know that you have companies that it's a sensitive time. And so I think you're seeing these companies listen to the employees. We also know that it's hard to attract talent right now.

Starting point is 00:25:57 So it's an employee's market. So I think that you've, as a company, you've got to listen to your people and you're going to kind of bow to their whims a little bit right now. As we get a couple years down the road, what we don't know enough right now is that if we have prolonged periods of remote work, does this really change the collaborative effect? Do we start to see a little bit of, you know, stunting of growth of the younger employees? I mean, there's a lot of stuff that's been talked about out there that suggests that being in an office has a lot of benefit to it. And I think that we probably have to experience this a little bit more and get a little bit further down the road, because now if we start to see the stunting of growth of the younger employees, obviously

Starting point is 00:26:33 the younger employees are going to want to get back into the office. They're going to be leaning in. Right now, they're kind of leaning out. So we're only three or four innings into this story. There's a lot more to come. It'll be pretty fascinating to see what happens later this decade. There's no doubt to me that a higher percentage of hybrid workforce, like, that's a thing. But I also think that there's a little bit of a pendulum that has swung and it might swing back

Starting point is 00:26:54 to the little bit to the middle over the course of the next year, you know, maybe two years. I guess it remains to be seeing how that looks. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

Starting point is 00:27:20 From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience

Starting point is 00:28:05 powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing

Starting point is 00:28:50 your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business.

Starting point is 00:29:32 And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide demystifying AI at Nessuite.com slash study. They got is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and

Starting point is 00:30:05 lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that

Starting point is 00:30:36 write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:31:11 All right. Well, we avoided this catastrophe in commercial real estate. state with this unprecedented amount of government intervention that obviously helped prop up the market. I was actually amazed to read in your report that rent collections never dropped below 93% in 2020. Where do we see rent collections today? Trey, this year, when we look at rent collections at the national level and the national

Starting point is 00:31:37 multifamily housing council is the best source of this data, you're going to see that collections are pretty flat to almost slightly down for 2021 relative to 2020. And I think that's less to argue that collections are weak this year, but rather really how strong collections remained throughout the pandemic. So according to that NMHC data, which is really the best monthly data collection source on national rents, we saw the year start off weaker than 2020 with collections just over 93% for January and February. And that was about 200 basis points lower year for year. So, start off a little bit weaker. However, since then, you've seen collections spike up. Now they've averaged about 95.4% from March to June. And that's relative to 95.6% for the same

Starting point is 00:32:22 period last year. So now I'd kind of say that we're in the flat zone relative to last year, and those collection numbers are relatively strong. And then, you know, looking ahead is where actually I think the story gets a little bit better for 2021. I think that you're going to see collections remain above 94% for the balance of the year. And I think that that stays above 94% even with the burnoff of the moratorium on evictions that will happen later this year. Now, if we go back to last year, we did see that rent collections did trend down as the pandemic, you know, got deeper and deeper in. We saw them go down to that 93% number that you mentioned a minute ago. And one thing I would say is that I think if we say, why aren't collections stronger this

Starting point is 00:33:03 year, it's a great market. We're back to growth. GDP growth is happening. should just kind of be all up into the right. Probably the reason that they aren't stronger so far this year, relative to last year, is that we've seen a massive amount of rent growth in 2021, 6.2% year over year, according to Green Street, and hitting double digits, solidly double digits in some of the fastest growing markets around the country like Vegas and Jacksonville and Phoenix, Irvine, California, and Aurora, Colorado, and the Denver Metro. So with rents rising fast across the nation, it can become more difficult to pay your rent

Starting point is 00:33:36 or pay it on time. So I think there's a little bit of that phenomenon in the data. But overall, I mean, I think with rents going up and occupancy levels on the rise, fundamentals of the multifamily sector look really strong going forward. Last time you're on the show, we talked a little bit about the real estate market cycle. And given that interest rates, I mean, it's assumption, but are likely to stay low for a long time. and that means that creative destruction seems to be at bay for the foreseeable future. How do you see the cycle pinning out from here if our government continues to reflate this

Starting point is 00:34:12 bubble, if you will? Yeah. So I think to begin with this question, you start with where we are now relative to where we were, you know, at the beginning of the year. So I've gotten this adage of like, I think the way to say it is not necessarily what a difference a day makes, but what a difference 180 days make. And so, and what I really mean by that is that just rewind to January 1st and think about that environment that we lived in relative to the one that we live in today. So, right, at the beginning of the year, we were approaching

Starting point is 00:34:42 250,000 new cases of COVID daily and pretty much none of us were vaccinated. I think there was this concept of hope that we were surging into in 2021 with, and that was on the horizon. But for the most part, we were all forced to cling to that sense of hope because none of the actual relief that we were looking for had yet to arrive, right? We weren't getting out of our houses yet. Things weren't opening yet. Life did not feel normal by any means. And it was actually, things were about to get worse before they got better.

Starting point is 00:35:11 So now we fast forward to the end of June. Now we're in July. We're seeing that daily cases have dropped into the low 30,000s as of July 4th. You got over 60% of all eligible Americans that are at least partially vaccinated. So the landscape has changed. And there's this one data point that I think is actually pretty awesome. I had a chance to kind of experience it in person when I was in Salt Lake. And if you want to see, look at one example of just demonstrates how far we've come this year, you look at NBA arenas. I'm a fan of Dr. Peter Linnaman's

Starting point is 00:35:40 great real estate economist. And he has consistently stated throughout the pandemic that if you want to know when the U.S. economy is back and when we are getting past the pandemic, look to win our arenas are full. Well, anyone who's watched the NBA playoffs knows that the arena are full of people again, and just the idea that 20,000 people feel comfortable coming together indoors, I mean, that was almost inconceivable at the start of the year. So just a huge difference in how we're thinking and acting. And it's definitely fair to say, look, this pandemic, it's not over globally. It's still brutal when we get outside the U.S. borders. But it does appear that the U.S. is on the backside of it. Like I said, there's a little bit of a wild card

Starting point is 00:36:19 out there in the Delta variant, but by and large, we have a shift in how we're doing and what we can do. And to me, what that means is that we've restored our mobility. To me, that is a super operative term because mobility is what is critical to a commercial real estate market. If you think about it, we have to get out, we have to visit real estate, we've got to touch it, we have to experience it. Whether we're going to a hotel or we're going to go to brunch, we're going to finally get back to going to the gym, we all have to go out and navigate our built environment.

Starting point is 00:36:49 And we can do that today, and we couldn't do that literally as recently as four or five months ago. So it's with this restoration of mobility, you pair that with good macro news such as GDP growth estimates that are like 7% according to the IMF. And really what that now translates to in a commercial real estate market is solidly back to growth cycle. I'd say with an asterisk on, you know, you got a COVID overhang for office, but otherwise across all other asset classes, it is a new market and that market is growing. And so otherwise, I mean, we're seeing huge spikes in demand for all these asset classes,

Starting point is 00:37:23 industrial is white-hot, multifamily surging again. We're seeing strong NOI growth. We kind of talked about how we've got strong occupancy and rent growth and a lot of markets. And as we discussed a few minutes ago, right, we're seeing this massive resurgence in the hospitality sector, which is really kind of amazing if you think about it, giving how just how devastated that space was months ago. I think when you add it all up, again, we're back to a solid, you know, multi-year outlook in the commercial real estate market. I think it only gets derailed by an exogenous shock. So, you know, if we do fall back into a pandemic-like environment where we're sheltering in place, I think all bets are off for a period of months. But otherwise, you are back to a growth market for

Starting point is 00:38:02 2021, and you've probably got a solid five-year runway, at least, if not more. So you mentioned apartments doing incredibly well, and that seems obvious to me to some degree because it seems like that's the easiest thing to underwrite, right? I think that banks are most comfortable with things like apartment complexes, multifamilies. So which cities, in your opinion, Would you be focusing on if your strategy was built around multifamily or apartments? Maybe they've benefited from that migration we talked about earlier. But I'm curious, what's driving the cities that you're most focused on? I'd probably say that at Crowdsbury, we believe that the metros that continue to benefit

Starting point is 00:38:39 from in migration and have a strong outlook of growth in this cycle are largely, or mostly the same ones that we saw gaining momentum before the pandemic. These are predominantly growing secondary markets, some tertiary markets. And so right now, I'd say that some of our favorite multifamily markets, well, they include places like Raleigh, Durham, Austin, Texas, Charlotte, Salt Lake City. We spent some time in that market recently. It was blown away by what's going on in Salt Lake. Phoenix, strong year-over-year rent growth, inflow, again, major inflow migration from

Starting point is 00:39:12 California. We're fans of Southern Florida, particularly like Fort Lauderdale, West Palm Beach, and other Texas markets like Dallas as well. And then you say, well, what's the common thread here? these are all markets with stronger than average job growth, which is back to job growth in 2021. In 2020, it was a lack of job destruction. And they offer, you know, on average, better affordability than the average market around the country. I think the exception in that list is Austin, because it's becoming pretty expensive. I do think that you see smaller markets

Starting point is 00:39:43 continue to benefit from the increased remote working capabilities that we talked about a few minutes ago. So, of course, yeah, I think a market like Boise continues to do well. But overall, I think that there's a tremendous runway of growth that's still ahead of it for these secondary markets. And for us, I think they just continue to outperform over the course of this cycle. All right. And it's great that hospitality is coming back, obviously. But now you have things like Airbnb, which at a $90 billion market cap is now bigger than Marriott, Hilton, and IHG combined. So knowing that they will continue to be a force to reckon with, should an investor interested in hospitality focus on cities with increased regulations such as San Francisco, New York, Orlando, and Miami? So I think the answer to this question is those are great markets.

Starting point is 00:40:35 I don't necessarily know that the regulation of Airbnb is the driver. So I guess I'll get into that a little bit. But for starters, there's no doubt that increased regulation in some of those major markets, it has served. to level the playing field in the hospitality sector for Airbnb relative to the Hilton's and Hyattes of the industry. I mainly see it as a good thing. I think that this makes cohabitation of Airbnb in a major market with those other traditional hospitality providers as sustainable. And so, you know, ultimately it's a good thing in the long run. Now, also what I would say is that Miami, D.C., New York, Orlando and San Francisco, those are some of our favorite hospitality

Starting point is 00:41:13 markets right now. But our outlook is not really as much driven by the regulation of Airbnb within those markets, but I think really more so because we see those as markets that are faster than average to recover in 2021 as we're seeing this resurgence in occupancy and average daily rates. Miami right now, it's currently one of the strongest markets in the country. We're really bullish on the Miami hospitality market. Everywhere you look, hotels are outperforming where they thought they would at this point. far in the recovery. In a market where today in 2021, if you're thinking about new hotel acquisitions, discounts to 2019 pricing are still possible, although they're dwindling in number

Starting point is 00:41:54 and also percentage discount, it's the rapid recovery that's going to really translate, I think, into profits this cycle three or four years down the road. I mean, this is to me, this is a rebound story, and you want to harness that by going where, go where the people go. So now, let's get to that for a minute. So when we think about which markets that we like to invest, in terms of hotels. We do think about those macro drivers. I think Orlando provides kind of an interesting case study in this. So Orlando is a market that in 2019 had 76 million visitors, number one in the country

Starting point is 00:42:26 by like a mile. Number two is New York at like 55 million. So like Orlando just gets tons of people coming to it. So as we now start to get out and we start to navigate the country, we're going to quickly, and you're seeing this show up in the data, like Orlando is now seeing massive inflow of people they're streaming back into the Disney parks, now that Disney's open, I'm completely confident that we're going to see total visitors to Orlando spike beyond its previous high in the next couple years. Who knows exactly when, but I'm definitely bullish on more than 76 million people

Starting point is 00:42:59 visiting Orlando in a year during this cycle. So if you bring it back to Airbnb, sure, like, it can take a bite out of a market, particularly the smaller ones and, you know, I think to your point, the less regulated ones. But I think if you just step back, you focus on the macro drivers, key in on those markets that are going to benefit the most as the world returns to normal. That's how I think you earn returns in the hotel sector, you know, in the coming cycle. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why Vanta is a game changer.

Starting point is 00:43:38 VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riders spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires.

Starting point is 00:44:22 That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, Nasdaq, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open. Not

Starting point is 00:45:09 sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit.

Starting point is 00:45:49 Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate, With traditional savings yields falling, it's no wonder private credit has grown to be a trillion-dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks,

Starting point is 00:46:35 charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. Okay, so shifting gears a little bit. I want to talk about the quote unquote silver tsunami.

Starting point is 00:46:53 This is, of course, the wave of baby boomers who are reaching. retirement age this decade. They started around 2011. They started hitting 65 up until 2029. And this is anticipated to translate into all kinds of greater demand for goods and services targeted at the elderly demographic. Where do you see the silver tsunami creating the best opportunities in commercial real estate? Trey, to answer this question, I'm going to start by just turning it around and then directly answering. So I'm going to begin by talking about where I don't necessarily see the obvious opportunity to cash in on the silver tsunami right now. And that is today in the senior housing sector. From my vantage point, I think senior housing still has a couple of

Starting point is 00:47:37 headwinds attached to it that I don't necessarily see burning off until we get further into the baby boomer demographic boom, you know, that's going to happen kind of what, like mid-25, 26, 27. So I would say I'm a little bit trepidious on the space today for the next few years. And so there's kind of two key reasons. The first is over supply in the sector still today. If we go back to the last cycle, there was a lot of optimism over the growth of the seniors housing sector, and that did translate into some heavy supply coming into the market. I think you saw supply peak at around 7% of existing stock in 2019. So when the pandemic hit, the sector was exposed. You started to see vacancies tick up. And then once a pandemic hit, new movements just froze, right? And it became this source

Starting point is 00:48:25 of COVID headline risks. I think we all kind of remember reading about some of these horrible stories about mass infections early in the pandemic. And I think from that point forward, if you didn't have to put your parent into a senior housing facility in 2020, you were prolonging that decision at all cost. And so what that translated into is that at the national level, occupancy sunk to 78.8% in Q1 of this year. That's according to the National Investment Center for Senior Housing and Care. It's Nick. It's the go-to source for data in the space. And And that's 78.8% is like, I think it's like an eight year low. It's a poor occupancy number.

Starting point is 00:48:59 Moving on, talking about the second factor. And this one's a little bit more interesting. I think we've come to this by like learning more about the space and talking to people in the space and actually talking about things that are disrupting the space. And a couple of things here. One is that you have seen the average age of a new move in of a senior housing resident that has increased from 82 to 84 over the last kind of like five to six years. over the same period, the average U.S. life expectancy has remained flat.

Starting point is 00:49:27 It's almost like down, like a fraction of a year. So to me, on average, what that means is that we are seeing a decrease in the length of stay. And I don't necessarily think that was like fully baked into the models of like all the people creating the supply. And so again, that's a further contributor to this kind of excess supply relative to demand right now. And the other factor that is playing into the demand side of the equation is the, you know, consider the, technology. Becoming a new resident in an assisted living project, it's very much a needs-based decision. It's not really a want-to. It's like we must. With the advancement of new technologies that are increasingly allowing seniors to age in place, I expect to see more seniors prolong that

Starting point is 00:50:10 decision-making process with their children, which, who are the decision-makers in this process, let's be real, they're going to kick that can down the road because they're able to help their mom age in place a couple more years due to the advent of new technology. And so I think that's going to just pick up in the next three or four or five years. I mean, I think that one thing is that don't underestimate the power of how technology can change market, can change a lot of markets. And I think it is changing senior housing market rights right now. And so to me, this is the possibility of seeing that average age of the new entrant into the senior housing project go from 84 to maybe 85 or 86. And again, we're not increasing our average life expectancy.

Starting point is 00:50:49 So that, again, could compress, you know, your average length of stay. But with that said, there's no doubt. Demographics are demographics, and the Silver Tsunami is going to bring a spike in the 83-to-87-year-old segment that is beginning around 2025, and it's going to accelerate into 27. And so, as a result, I mean, of course, we're optimistic on plays in the space. If we look at them from a senior housing perspective today, I think it'd have to be an opportunistic type of deal, but I do think that that market looks a lot more normal by 24, 25, kind of when more of that bulge and the demographics start to show up. So if senior housing, and my perspective,

Starting point is 00:51:27 isn't necessarily the best way to play it, how do you play it? Because it's coming. And to me, that answer is through life sciences real estate and medical office buildings. So when we think about those segments, not only do you capture baby boomers in this type of real estate, you capture in the older baby boomers, you capture the younger baby boomers, you're going to start to capture oldest Gen Xers. I mean, essentially kind of like the 65 and up market, which is a big market, right? So if we look at other data sources such as Statista, the 65 and your older segment of our country's population today is hitting about 17 percent, and that is expected to go to roughly 20 percent, over 20 percent actually, by 2030. To me, I mean, right now, I think seniors housing is

Starting point is 00:52:13 trying to play a guessing game of where they're going to live, I think I might be able to accurately forecast to a better degree the increase in demand for their medications and their need for medical attention, particularly the types you can't conduct by video, such as renal care, until we see a meaningful change in the underlying fundamentals of the senior housing market, we're placing our bets predominantly in life sciences and medical office real estate. From what I'm reading, the average savings rate of people in their mid-60s is only like $160,000. It doesn't seem like the baby boomers on balance have a lot of retirement money.

Starting point is 00:52:50 I'm kind of curious about if there's going to be a wealth transfer of sorts in real estate given that the boomers own a large majority of the real estate. I'm also kind of curious if you think the fact that our dollar is depreciating and wage has been fairly stagnant, that that might delay the retirement age and push it out a little bit further. This is kind of a two-part question. First part of that question, that's a tough one to call, but what I could see is that to the extent that the aging boomers, they own real estate, we've had a real estate asset boom. You know, single family housing, what's up 15% year over year, the highest it's ever been. I'm actually seeing, and I'm of an age where my parents

Starting point is 00:53:31 are solidly in this demographic, you're starting to see people of that age wonder if today or in the near future is kind of the right time to monetize some of those. Because if you're getting later in life, for example, and you're sitting on now a tremendous amount more of your total net worth, your remaining wealth to get you through the rest of your life. And that's now in your house. Now it just tipped that equation. Do you stay in your house? Do you monetize your house? Do you liquidate that? And does that provide you the additional nest egg that you need to feel comfortable for the remainder of your life? I think that's, some of those questions are being, wondered about right now. I don't know if there's really enough data to say we're seeing the

Starting point is 00:54:10 monetization of the baby boomer houses, but I do think that that would be something interesting to watch in the coming months or year. But when it comes to the retirement of the baby boomers, I think the answer to your question, tray, is it's maybe yes, but I don't know. Like, I see some mixed data out there on the causes of the baby boomer retirement or the rate of retirement that make me think that there's just not a real discernible trend. And so, for example, I guess some of what I mean by that is there's a Pew Research study last year that noted that we saw this uptick in baby boomers retiring in 2020. According to the study, you saw that we saw retire, you know, the year of 2020 translated about 3.2% of baby boomers retiring that year. And that was more than 50%

Starting point is 00:54:53 higher than the average trend up until that point dating back to 2012 of about 2%. Now, you could also say like baby boomers are getting older. So is there some noise in there? Very possibly there's some noise in that data, but, you know, we did see a pretty dramatic spike in the percentage of the population that retired. But it's also fair to say that maybe some of those baby boomers needed to postpone retirement. I think particularly if any of those boomers were employed going into the pandemic and they were one of the people that were laid off during the pandemic, of course, but being unemployed last year, even despite getting some, you know, benefits from the government, you saw your nest egg, a chunk of it wiped out potentially. You're maybe now

Starting point is 00:55:32 trying to figure out how to earn a little bit more income before you really kind of hang it up for good. So to me, I think that when I kind of go back to the aggregate data, I don't know if I necessarily see a trend, but I'm not an economist, so what do I really know? One of my last questions for you is around climate change. Miami, for example, has been experiencing dry day flooding attributed to sea levels rising, and that's now gone as far as to cause a large apartment complex to collapse. These appear to be only the beginning signs of climate change that will likely continue to impact some of those major cities near the major coastal cities, I should say.

Starting point is 00:56:11 Do you factor that into your prospectus at all if you're comparing something like a Miami to something more like an Austin? To address, I think there's two interesting parts to this question, and they're somewhat different. So let's address the first part of your question. And so regarding climate change, you know, the answer is yes. We do factor in numerous considerations when it comes to thinking about climate change and to the extent possible sensitizing deals to the risks that are associated with climate change.

Starting point is 00:56:40 Climate change isn't just one thing. It's like everything. We're seeing more abnormal weather patterns. So to your point, dry flooding in Miami, flooding in New York City, more frequent and powerful tropical storms. I live out in the West. The West has just got rampant wildfires. every summer now. Not only is that translate to a mass of degradation and air quality, you wonder about your proximity to the forest fires. If you don't get hit by the fire, you might get

Starting point is 00:57:07 hit by the mudslide that comes after the fire. We even now have the heat dome that hit the Pacific Northwest. So the bummer is that you can't really say now that any region is immune to the effects of climate change. I kind of feel like it's everywhere. So when we think about real estate in these environments that continue to just shock us with these unprecedented climate events, I think that what this does is it forces you to critically analyze a property's ability to endure these outlier climate scenarios. So it kind of starts to feel to us just like a standard underwriting practice, right? This translates into everything from making sure these properties are located outside of flood zones.

Starting point is 00:57:47 We have to look at wind ratings. We have to look at modernized heating and cooling systems. I mean, it goes on and on. You've got to turn over so many rocks to try to feel comfortable that your deal is not susceptible to the next major climate event. What's interesting is I do want to talk a minute about what you referenced, which I think is kind of the tragedy of the Champlain Towers in the Miami Metro. And so while there's no doubt that Miami is a, you know, there's a lot of concern in the

Starting point is 00:58:14 Miami Metro about rising sea levels and what that's going to do to the real estate in that Metro. To me, the specific moral of the story of the Champlain Towers was in this case not as much of one of climate change, but of the hazards of deferring necessary capital expenditures in older buildings. And this is an important thing because I think it's something that's kind of, well, we're now learning. It's massively overlooked around the country. So for starters, think about this, right? Champlain Towers was built in 1981. So that made it 40 years old when it collapsed. Now, we've all read about that 2018 engineering report, and when you looked at that report, it showed multiple points of strain, including eroded concrete and failed waterproofing at its base.

Starting point is 00:58:59 Now, adequate waterproofing, it is critical to maintaining the structural integrity of reinforced concrete, and that's the type of construction that was used at Champlain Towers. So when we think about deals that are 40 years old, we have to be critical of the current condition of the property. So as the Champlain Tower's incident kind of brutally demonstrated, these are critical building systems. And when they're not properly maintained, they can fail. If they fail, the cost can be catastrophic. And if we think about fixing them, well, the cost of properly addressing them, these latent issues in these buildings, well, they can far outweigh what is economically feasible. So another thing was interesting to look at is that when you go

Starting point is 00:59:41 back and take a look at that case study of Champlain Towers, that 2018 report, total estimated cost to defer all the deferred maintenance, to cure all the deferred maintenance in that building, was $15 million or $110,000 a unit. It was a 136 unit building. And these were for condos that were worth somewhere between $400,000 and $800,000, depending upon this is one bedroom or two bedroom at the time of the collapse. And $110,000 on roughly a $600,000 unit, that's a lot of money to expect these owners to fund. So in the case of that tower, unfortunately, they didn't fund it. And it's now creating, I think, a number of similar lurking scenarios in these older buildings,

Starting point is 01:00:23 particularly in coastal markets where air can really degrade the structure over time. So, I mean, to me, I think it's fair to say that what happened in Surfside is one of several data points that makes me today, I think, somewhat more biased towards newer properties. Now, drawing this back to the whole climate change issue, I think as climates change, now at the same time, getting away from climate, but we are seeing advances in prop tech. To me, this creates now, we're seeing all kinds of new demands being placed on buildings that I think are beginning to expose how a lot of these older buildings are just simply ill-equipped to keep up with this rate of change. And I think to address the change, to address these latent deferred issues in properties,

Starting point is 01:01:05 and to catch up on advances in PropTech, it starts to look a lot more like redevelopment than it does refurbishment. And I just don't think that that phenomenon is adequately priced into markets yet. So for right now, I think that just makes us a little bit more leaning in the direction of newer properties. And when we are approached with older properties, we have to dig really deep. We have to really, really analyze and get all over the physical structure because these problems are lurking. they're out there and I think they're going to continue to pop up. Well, Ian, it is always just such a pleasure to have you on the show. You bring such a wealth of knowledge in this space especially and I've really enjoyed this.

Starting point is 01:01:47 Before I let you go, I want to make sure I give you a hand off to Crowdstreet and to you and your research and any other resources you want to share with the audience. Well, first, Trey, I want to say thanks. It's a pleasure as always to come on the show. You know, like I said, this is like my favorite show to come on. I love having these conversations and certainly look forward to doing it again. And for anyone who wants to just learn more about us, where you can find us, the website is the easiest place. That's www.crowdstreet.com.

Starting point is 01:02:13 And as I kind of always note in these conversations, you can ping me on LinkedIn. I'm the only Ian Formigli that ends in an E on that platform. So it's pretty easy to find me. You can hit me up there. I'm always happy to have a conversation. You can tell I love talking deals. Can talk them all day long. Ian, always a pleasure.

Starting point is 01:02:32 Thanks, Trey. I really appreciate it. All right, everybody, that's all we had for you today. If you're loving the show, please don't forget to follow us on your favorite podcast app. And if you'd be so kind to leave us a review, we'd really appreciate it. If you want to get in touch, you can always reach me on Twitter at Trey Lockerby. And if you're curious about the best opportunities in the equity market especially, Google TIP finance and check out the dream tool we've built for you there.

Starting point is 01:02:54 And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network. and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP368: The Best Opportunities in CRE w/ Ian Formigle

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.