We Study Billionaires - The Investor’s Podcast Network - TIP516: Navigating A Real Estate Market On The Brink w/ Patrick Carroll

Starting point is 00:00:00 You're listening to TIP. My guest today is Patrick Carroll, the founder and CEO of Carroll, which is a multi-billion dollar real estate investment firm. Patrick is a self-made entrepreneur with boundless ambition and has built his empire from scratch. In this episode, we discussed today's real estate markets and how they eerily resemble 2008, why multifamily is looked at as the least risky real estate asset, how real estate investors and more importantly lenders are navigating the current landscape, why a large majority

Starting point is 00:00:30 majority of Gen Ziers are living with their parents and how the $68 trillion wealth transfer from baby boomers will affect the real estate market. Patrick has risen from the school of Hard Knocks to become the success he is today and is a very impressive but remarkably humble individual. I hope you enjoy it as much as I did, so here's my conversation with Patrick Carroll. 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. Welcome to the Investors podcast.

Starting point is 00:01:14 I'm your host, Trey Lockerbie, and today we are very excited to welcome to the show, Mr. Patrick Carroll. Patrick, welcome to the show. Thank you for having me. I have been excited to talk to you. There's a lot going on in the real estate market and looking forward to this. There's been a lot of talk of the current market's resemblance to 2008, but there are a lot of counterpoints that make an argument for more growth ahead, like the unemployment numbers, disinflation, passive inflows, smaller interest rate hikes, etc. However, you seem to be highly

Starting point is 00:01:45 confident that a great financial crisis level collapse is on the horizon. This is what I've kind of seen you mentioning on CNBC and elsewhere. Having invested through the GFC, what similarities are you seeing that's giving you such conviction? During the last large downturn in 0809, it was really caused by the single family home market and mortgages there. And I see that possibly happening here. I mean, as property values decline and people become underwater on their mortgages, they're more inclined to walk away. Same with, you know, new loans or adjustable rate loans. As those interest payments go up and cost of basically everything's gone up, gasoline, food, everything, again, some people, if there's layoffs, will be forced to give back the keys. I'll tell you what's different this time is

Starting point is 00:02:33 the fundamentals are still strong. As you said, you know, job growth is still happening. You haven't seen a major contraction in the economy. And my primary business, multifamily housing, we're still seeing rent growth, occupancies are strong, but you're seeing a huge increase in, you know, interest expense and debt. So you have these properties that are performing well. But with the increase in interest rates, nobody really knows how to price properties. You know, cap rates are tied to interest rates and nobody really has conviction on where interest rates are going. So there's a disconnect on what people are willing to pay for properties, but sellers are willing to sell for. So the market's basically frozen.

Starting point is 00:03:10 A lot of times when that happens to, you know, the last time that happened was 2008, 2009. So there's definitely similarities there. I don't think we're quite there yet. But, you know, a slip up in the single family home market could certainly put us back in, you know, in that type of condition. Now, you mentioned you don't necessarily focus primarily on the single family market, but there is an interesting dynamic playing out there where there's this low inventory happening, but also due to the high interest rates, there's also lower demand. So a lot of folks have locked in very low rates and aren't looking to make a move.

Starting point is 00:03:43 And I think we're often prone to thinking in these terms of boom and bust, right? But is there a potential for a very sideways market in real estate for a longer period to come? Yeah, definitely. I mean, I think that's what you're looking at now. Like you said, people that were lucky enough, lock in low interest rate mortgages are going to be you are going to stay put i think the only thing that causes somebody you know that has a good loan on the property to sell as if there's a panic where you know you read in the paper home prices have gone down 25 percent and you know you start

Starting point is 00:04:16 seeing your neighbors dump properties things like that that could be a catalyst you know but right now it's literally double the cost to buy a new house where interest rates are so that will keep people renting longer. It's definitely a sticker shock. I think people, you know, maybe they've been looking to buy for a couple years, are now seeing they can afford, you know, half the home. So I do think it's going to keep people put, whether it's renting or if they have good mortgages in place for the time being. You mentioned that during the GFC, a lot of lending froze up, but that seemed to be kind of after the Lehman moments and the other collapses that we're falling underway or already underway. And we're seeing the freezing happening now almost before we've had any sort of big

Starting point is 00:04:57 break, it would seem, right? So is that something that is just different as in like history doesn't repeat itself sort of thing? Or is this something that's totally different on the terms of where a big break may or may not ever come? Yeah, it's totally different. As far as I've been in the business, I've been in the business as 2004. What's causing the freeze this time, there, as you mentioned, there was no big failure of a big bank or anything like that is purely capital markets. And I think everybody expected interest rates to go up. Nobody expected them to go up as rapidly as fast as they did. So what you're having now as lenders don't really know how to price their debt. You know, they want a price to get a, you know, return. They don't want to put money out

Starting point is 00:05:41 today and have interest rates keep rising and their loans are out of water. So it's purely a capital markets thing. I think, you know, you could point to, you know, the office sector. I do think you'll see some defaults there just because the weakness of that sector. But I don't think you'll see massive defaults or a bank failure that's going to cause the market to freeze even more. I think the market freezing may cause massive distress because property owners that are looking to refinance or all the developers that have construction loans on right now that are short-term loans. When they go to finance the properties, their properties are going to be underwater and, you know, they're not going to be able to finance them. So that can cause a downturn for sure. All the corporate debt that has

Starting point is 00:06:25 floating rate, you know, everything that basically causes interest or they uses interest and leverage is going to be affected by this, even the national government. You know, they're paying so much more in interest carry that that's going to have an effect. So there's a lot of things. I mean, everything is basically tied to interest rates. I mean, I remember Warren Buffett said, you know, interest rates are like gravity. They keep every, you know, as they go up, things like that. So it's really tied to everything. But yeah, there's definitely was not one big failure, unless you consider what the federal

Starting point is 00:06:56 government's doing. There was no big failure that caused us. It was just interest rates rising faster than anyone expected. Really shocked the system. Yeah. Part of me thinks that so much of us are, we have this like almost PTSD from that huge collapse that we're just waiting for that next big drop. And it's interesting to think about ways where this might just be more like a normal recession,

Starting point is 00:07:17 where perhaps things just kind of recover. And it's really hard to tell. I know that you got your start by financing homes, 100% financed. And a lot of people were doing that and were rug pulled in 2008 due to being over levered. But you managed to sidestep that. But when I see stats like 50% of Airbnb units were listed since 2020, it tells me that perhaps a lot of people took out these key locks and bought extra rental units or properties with it. And if real estate valuations continue to decline, that could cause some cascading effects as well, like margin calls and vast liquidations,

Starting point is 00:07:55 etc. When you talk about the potential or a further decline, do you see something like that happening or something similar? Yeah, I mean, that definitely could happen. When people start speculating, I mean, you see it happening in China right now. When people speculate on homes and they don't have enough revenue coming in. So, you know, Airbnb, if people stop traveling as much, stop using those, you know, those people are going to have to feed those properties. I mean, I remember back in 08, 08, and a lot of people had rental properties, 08,09. And, you know, even friends of mine had five houses and they were renting them out. And as soon as a resident would move out, they couldn't afford their mortgage. And they ended up walking away. You know,

Starting point is 00:08:34 it's a lot easier to walk away from an investment property than it is your primary resident. So, Yeah, I definitely think that could be scary. You know, what causes mainly every downturn that I've been part of is a shock to the capital markets, you know, the debts. So, yeah, if you have a mass, you know, wave of people handing back the keys and these banks that are supposedly in good shape becoming, you know, in not so good shape now, you could definitely see something very resemblance of 2008. And, you know, that's been my view. I mean, everything's fine until it's not. And so, yeah, the banks may be good right now, but if 25% of the people with home loans stop paying, it's a really different story.

Starting point is 00:09:14 Now, on that note, that has been the narrative, right, that banks are strong right now. And despite this temporary period where the government suspended the statutory lending ratio requirements that has now expired, the major banks are being held to the SLR again, which is to say that they have to maintain 18% of their net demands and liabilities and liquid assets. How they came to that number and whether or not it's sufficient is a different discussion, but the general consensus is that banks are in a healthy position. If that's the case, where is the economy most vulnerable, in your opinion? I mean, you know, banks are so complicated to begin with. They are, you never really know what our banks doing until you peel back the covers.

Starting point is 00:09:57 I mean, they have loans for big, big lending fund. I mean, debt funds, basically, you know, 80% of the properties in my business in my industry were financed last year, I believe it was last year, on debt funds. So very, very aggressive lending, very short-term lending too, almost bridge loans that are all in trouble right now. They're all underwater. Well, they operate off of warehouse loans given to them by banks. So if these guys are in trouble, the bank becomes in trouble. So there's a lot of things out there that, you know, a lot of everyday people don't really understand about banks. I mean, that's what, you know, caused the last downturn was CLOs. I mean, the housing market was a big problem, but, you know, it was leverage upon

Starting point is 00:10:41 leverage that really brought the house down. So I do think you could see something like that. The banks have been restricted for, I'll tell you right now, they're not in the market. They're not giving quotes. They're not financing anything. So whenever something like that happens, it makes me believe they're not as healthy as they may allude to. Well, there appears to be perhaps this situation happening where people are withdrawing from their savings account, that's the only yielding 0.01% in order to put it in like a money market fund, right? Which could give you 4% right now. And that's actually kind of ending up in these reverse repo markets it would seem. And so that could potentially, I could see being an effect on the banks. But I've heard you also

Starting point is 00:11:23 talk about shadow lending or other kinds of situations that aren't held to these SLR standards. what are you seeing in that world or have you noticed any weaknesses or cracks in the system in that regard? Yeah, I mean, the debt funds I just referred to are all but out of business and it's ugly. I mean, they're getting capital calls. A lot of the loans they've made are underwater. So like it's leverage upon leverage, meaning if they have $100 million, they lend that out and then they borrow $50 million against that. So they're lending out $150 million. You know, so when that $100 million, that they lent first, you know, drops in value, they get a capital call from Bank of America, J.P. Morgan, whatever. And eventually, you know, it comes a point where they can't make those capital

Starting point is 00:12:10 calls. So I think you have a period right now where everybody's kind of frozen up. These debt funds may not be getting paid their interests, but, you know, the banks don't want to start foreclosing yet. So I do think, you know, the shadow baking is, you know, it's happened in the single family Market 2, all these kind of mortgage companies that you'd never really heard of were lending money probably at weak criteria. And you can't really do that much volume that some of these groups were doing without, you know, dropping your underwriting a little bit. There's no secret sauce to lending, you know, and when you see some of these groups, you know, some of these debt funds, some of these non-traded reeds come out and do such volume. You have to realize that they're probably dropping the

Starting point is 00:12:52 underwriting. They're probably being a little too aggressive. I mean, I know Black, Blackstone and Starwood, their B-Reed, Nessreet, I mean, they're getting tons of headlines right now, but they were the most active borrowers over the last two years. They were paying prices that nobody was paying. They were way overpaying. And it's just because they had too much capital. So when you look at somebody that's doing that much volume with a relatively small shop, you have to realize that, again, they're being a little too aggressive. And Warren Buffett says, nobody knows who's swimming naked until the tide goes out. You know, a lot of these groups that get aggressive and good times and look really good

Starting point is 00:13:26 and good times, the second there's a little hiccup, they're the ones that usually are in the most trouble. You mentioned there might become a time where these tenants or these homeowners can't pay their actual mortgages or the rents. What are you seeing in your tenant base? Are you able to push rents anymore? Are most people paying on time? Or is inflation pushing up delinquencies?

Starting point is 00:13:47 Yeah, it's kind of a little bit of everything. We are still able to do rent increases. So, you know, the fundamentals are still strong. You know, one thing we've noticed lately, probably over the last 30 to 60 days, as delinquencies have started ticking up. Now, nothing to a point where it's terribly concerning, nothing like 0,8, 09, but we are starting to see delinquencies happen where, you know, that typically, you know, is because due to job loss or some other financial strain.

Starting point is 00:14:17 So, you know, a lot of times these things are delayed. You know, not everybody realizes that their credit card bill is now higher because of their interest rate. And so eventually, and their food bill is now higher and gasoline's a lot higher until eventually they're out of money. And so it's unfortunate, but that's what's happening. But again, the market that we primarily at play in is still strong. I mean, there's still a demand for rental housing. I think the demand is going to continue because, as we've discussed, it's nearly impossible for a lot of people. to buy a home right now with where interest rates are. We had record low interest rates for 10 plus

Starting point is 00:14:52 years. So I think what you're going to see is people that are having financial trouble, one, aren't going to be able to buy homes. But if they get in real trouble, they're not going to be able to pay their rent. So it's a scary situation, I think, for all asset classes. Now, with the lenders freezing up like we talked about, does that mean that you yourself are also hypercautious? Is Carol being active? Or are you also waiting on the side? lines. A little to both. I mean, we are active. We are underwriting a lot of things. We're working on a large transaction right now. I think the challenge is, and we're still able to get debt. I mean, when I say the markets are frozen, there's the biggest and best borrowers can still get financed

Starting point is 00:15:36 through the agencies. So Freddie Mac and Fannie Mae are still in business. Their loaned values may be smaller, you know, lower than we're used to, but we can still get financed. The real cause of us being on the sidelines is what we want to pay is not necessarily what the sellers want to sell for. So, you know, unless somebody has to sell right now, they're kind of holding on and waiting to see prices come back to where they were. And opportunistic buyers, buyers like ourselves, you know, we're putting out offers every single day. And it's just, you know, right now there's just a disconnect between what we feel values are and what the market in general is willing to sell for. Let's take a quick break and hear from today's sponsors. All right. I want you

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Starting point is 00:20:17 That's Shopify.com slash WSB. All right. Back to the show. Now, in the aftermath of the GFC, you were able to acquire a few property management companies that help set the foundation for your now multi-billion dollar real estate empire. Should another collapse of that magnitude occur, how would you advise investors to stay rational and make similar moves like you did? Yeah.

Starting point is 00:20:46 You know, don't freeze up. I mean, I think a lot of people in downturns, they get scared when a shock happens and they freeze up. They do nothing. What we're doing is looking for creative ways to stay active. So, you know, I just launched Kural Capital. Karel Capital's business plan is to come in there and lend capital on good properties where the borrowers have just got in trouble.

Starting point is 00:21:07 So, you know, their interest rate caps have expired or their loan to value is too high and they need to pay down that loan to value. So we'll come in in a preferred position and provide that, you know, what I'm calling rescue capital. Another thing we're looking at is buying companies, you know, buying property management companies buying other real estate companies. If you look at, you know, the public capital market or the public equity markets right now, those values are down 25 to 30 percent. So, you know, those are interesting plays. You know, so I think, you know, the worst thing you can do in a downturn is panic

Starting point is 00:21:41 and freeze up. I think, you know, if you keep your head and you remain calm, you can spot out opportunities while, you know, others remain on the sidelines. That Carroll Capital initiative is is really interesting. It tells me that you guys must have a lot of liquidity that you're wanting to put to work. And I know that you were, I think, upwards of 60,000 plus units at one point. And I'm not sure where exactly it is now, but it seems like you've been active on the selling side as well and getting to this position. Is this something that you've been preparing for for a couple of years now? Did you see this kind of on the horizon? Or is this sort of good timing again? It's a little bit of good timing. And, you know, I think, you know, I can sense that the market was

Starting point is 00:22:21 overheated. You know, I didn't know when it was going to end, but I just knew it was, you know, a little too good to be true. So yeah, even at the beginning, you know, the first part of this year, we exited two billion worth of property. I think, you know, like you said, over the last three or four years, we've sold off 30,000 units. And so we're in a great position. We're in a highly liquid position. We have great investor backing. And so, yeah, it's a little bit of good luck, and it's a little bit of intuition. Similar thing happened to me in 08. I sold my portfolio off in March of of 2008 and September of 2008, the market crash. So I'm either very lucky or very, I'll go with very lucky. But yeah, we're in a great position, you know, thrilled to have sold kind of at peak

Starting point is 00:23:02 pricing and, you know, feel very fortunate. Well, lightning doesn't usually strike twice. So I wouldn't say you're lucky. I think at this point it's skill. But I know with Carroll Capital, are you focused on multifamily? And if so, maybe go into the reasons why you focus on multifamily over some of the other real estate classes? Yeah, multifamily's asset class that I'm most comfortable with and believe, you know, the most strongly in. When I did sell my portfolio in 08, I had done just about every asset class. I'd done office, retail, single family, and I really made a concentrated effort to go into multifamily. I mean, you could look back 20 years and occupancies were at like 90%. I still feel bullish about that. It's, you know, the need for, you know, affordable housing or

Starting point is 00:23:48 workforce housing is something that is not going to be ever met. You know, you can't really afford to go in as a developer and build that type of product and rent at that type of price point. It's typically older properties in good locations that you come in and renovate, but you can offer them at a much lower rent than you could if you built new and your cost was double that to build. So we're looking for properties that are, you know, great properties and the markets that we focus on that we would otherwise be buyers of. So we're going to underwrite those properties as if we were to buy them, and we're going to lend on them, and that's what we're really looking for.

Starting point is 00:24:26 So, you know, we're looking at it from a buyer standpoint and also from a lender standpoint. So speaking of some of those markets, I know that you primarily focused on what you call the Sun Belt, but a lot of markets in that area have started to look overvalued places like Miami and Austin, etc. what areas still excite you and that you think are still undervalued? Yeah, I don't know if anything is really undervalued right now, but, you know, my belief is a sunbelt. Before COVID, nobody really paid attention to it, at least not nearly the international focus that happened after COVID. Post-COVID, I get calls weekly from international investors that want to be in the sunbelt. They believe in the long-term viability. They believe that, you know,

Starting point is 00:25:10 it's job-friendly. It's going to continue to attract. businesses and, you know, people. And so investor capital, I believe, will continue to flock to those markets. Now, on the single family side, I think you did see some overvaluation. I mean, I'm sitting here in Miami today. And, you know, the prices that were paid a year ago aren't available now. And I think there's a bunch of reasons for that. I mean, Miami had a lot of technology employees moved down. That sector's been crushed, especially crypto. So you don't have that buyer pool, the foreign buyer. I mean, speak, you know, a lot of Russian buyers, a lot of Chinese buyers, they're out of the market. So I think you've got to expect on the higher end prices to come down and also the middle

Starting point is 00:25:54 market. You know, there's just people that could finance a home at a low interest rate a year ago could buy double the price to the home today. So if they qualified for a $600,000 loan a year ago, they would qualify for a $300,000 loan today. That's got to have an effect on prices. Another effect on prices before all this was the lack of inventory, right? So I'm curious, does Carol ever go into building as well to try and build up more inventory in places where it's underserved? Yeah, absolutely. I mean, we look at development deals just about every day. You know, where we're focused now is basically, you know, I think developers that may be in trouble, we can come in there and provide capital. So basically using our balance sheet to come in there and help out, you know,

Starting point is 00:26:40 potentially struggling developers. Development makes a lot of sense when you, when it's more expensive to buy than it is build. And I think we're not in that area anymore. I think it's going to be a lot cheaper to buy than build. You know, you still have supply chain issues, even though they've eased up.

Starting point is 00:26:57 And, you know, I think it's going to be harder to get financing for development. So I think as we've done, I think we'll continue to be on the buy side. Some areas that we've looked at are build to rent, which is single family, build to rent, which I think is attractive, but it's not really a great time to speculate.

Starting point is 00:27:13 You know, I like in downturns, I like to come in and find values, things that, you know, we can buy below replacement costs, things that we can buy with, you know, exceptionally high cash flow. And, you know, things like that mitigate risk and a downturn. The idea of building something that has no cash flow and just, you know, hoping that it works out in two years or however long it takes you to build, as a scary proposition going into an environment like we are. So earlier you mentioned Starwood and even Blackstone, and I know that early on, you really started out partnering with institutional capital, Blackstone, Carlisle, etc. Talk to us about those early days. Was there an imposter syndrome feeling when you were in those rooms trying to sell the dream to some of these institutions? Yeah, I don't think I necessarily felt like an imposter. I felt, you know, kind of like a high school basketball player played against LeBron James.

Starting point is 00:28:05 I mean, I knew I was, you know, from an experience standpoint and from just education standpoint, I was outmatched. But it also made me really humble. And so I would tell potential investors, look, I won't eat, sleep or anything until I make money back and earn, you know, my position in this business. And that's what I did. You know, I went out and I would work, I think 18 hours a day when I was getting started. I would look for properties that not others could find.

Starting point is 00:28:33 I was just trying to do anything to substantiate my existence of the industry. And, you know, thankfully, I delivered on that. But I think, you know, instead of, I was always confident. I always felt I could figure it out. But yeah, it's definitely made me humble. It still makes me humble. I mean, there's a lot of people that are very, very smart people that are in this industry and they've been in this industry a long time.

Starting point is 00:28:57 You know, both Starwood and Blackstone, you know, those are the groups that help me get going. And they have extremely smart people. and I'm sure they'll figure out whatever issues they come across. And so you've got to remain humble. You know, they're the biggest and best, and they have a little bit of mud on their face. There's never a smartest guy in the room. Once you get to a certain level, everybody's smart, everybody's hungry, everybody's aggressive. So I think, you know, I felt confident enough to be in the room.

Starting point is 00:29:21 I just was humbled by the lack of experience and, you know, the knowledge that they had. That was probably a great strategy, right, to embrace that humility and accept that. sell them on what you knew you could do, which was work and provide the grit probably necessary to ensure it was a success. I very much respect the fact that you've built your empire from scratch. And I know that that takes a lot of dedication. What were some of the biggest hurdles you faced starting out and growing your business that maybe you don't often read about in a business book? Yeah, I mean, the lack of credibility. I didn't go to college. I didn't have, you know, a long track record. I remember, you know, before I bought the property management companies,

Starting point is 00:30:04 I was going to New York and saying, hey, look, single family market is going to get crushed and people are going to buy or have to rent multi-family properties. And we should go out and buy those properties, you know, who's with me? And basically, I was told, get the heck out of here. You know, you're 27 years old. You don't have a company. And, you know, we partner with fully integrated companies. So then I went out and I bought three property management companies. So I think the thing you have to get over is the lack of credit. ability. You can be the smartest person in the world. If you don't have a track record, you're going to be looked at differently. You have to have the ability to take a, you know, no, but you can't take it,

Starting point is 00:30:40 you know, you can't rest on that. You know, I used to always say, if somebody said no to me, I would say, well, what would it take to get a yes? You know, and I think you have to be willing to constantly reinvent yourself. I mean, you know, you can't get so comfortable and so confident that you don't notice when the market shifts. You know, if you were a brick and mortar retail, and you didn't adopt the internet strategy or the online strategy, you went out of business. You know, I think if you look at this environment now, if you don't adapt your strategy, you're not only foolish, but you'll probably go out of business. So I think you have to be humble enough to accept when your model no longer works.

Starting point is 00:31:18 So other challenges were just, look, everybody was bigger of me at that point. So, you know, I vividly remember getting bullied and being threatened with lawsuits, things like that. you know, and then cash flow, capital, you know. We were doing deals so fast. You know, I was investing a lot of money in properties, but also wanting to grow the business. And so that was challenging, you know, always finding capital, always, you know, that's my primary occupation is finding capital. And so I think, you know, to grow a business, to buy properties, you have to have access to capital. And so, you know, that goes back to the credibility thing. You're constantly trying to prove yourself and, you know, reinvince yourself and, you know, stay at the front of the pack. So I think those are some of the

Starting point is 00:32:00 biggest challenges. And you have to adapt and you have to adapt with the right strategy, right? Because I read this quote recently, which was when the tornado's coming, it's not the day to repaint the garage, right? You have to have the right strategy. And after you bought these three property management groups, you now had hundreds of employees at that point. What was it like to step into that and say, okay, now you're leading a huge company, you know, and you can glomerate all of them together, and you're leading hundreds of people. What was the experience like taking that on? Humbling. You know, I basically bought the three property management companies and, you know, you think when you buy these companies, they're going to have a brace, okay? What I didn't realize,

Starting point is 00:32:44 even looking back on it, you know, I was 27, 28 years old. And, you know, the idea of that, you know, for most people scared them. So I had a lot of people that worked at the company that, you know, wouldn't respond to my emails or I would ask for something to be done one way and I get, you know, blown off. And I remember vividly, you know, I went up to Greenville, South Carolina where one of the management companies was based. And I believe I fired 95% of the office on a Friday. And coming back, you know, I basically told at that time the president of my company, we need to go out and hire all these new employees. And I remember it was a mad dash, but it was the best thing we could have done. It showed the rest of the employees that we were, we met business.

Starting point is 00:33:25 I was working harder than anyone at that time. So I expected that. And it really laid the groundwork for what we do now. I mean, I hire self-starters. I hire people that, you know, are hungry. They want to be at the front of the industry. And so I think, you know, my biggest wake-up call was, you know, there are a lot of people that are, quote, unquote, fat, happy that resist change and don't want to, you know, don't want to learn new things and certainly don't want to learn them from somebody that they view as lack of, you know, not credible. And so you have to be willing to, you know, be firm. I mean, I think a bad example of this because I don't really know how it's going to work out, but like Elon Musk at Twitter. I mean, there was no doubt there was people

Starting point is 00:34:07 there that were not working so hard, that were, you know, working from home most of the time, that were, you know, not giving their all. So I think what I take from that is he probably did need to come in there and trim the fat a little bit. Now, I think he's gone a little overboard. You have to maintain morale. And I think there has to be rational decisions made and things like that. So I think, you know, we got fortunate in the fact that we were able to rehire people. You know, it was still in a market that was coming out of the downturn. So there were a lot of really good people looking for jobs and opportunities. So we were able to fill those positions, you know, very quickly. Yeah. And I know you got to sometimes cut out the cancer but not kill

Starting point is 00:34:46 the patient. So in the Twitter example, I think what they're experiencing, like you said, a lot of people working from home, there's pros and cons to that, right? Because that's sort of opened up a whole new economy in the world of real estate, as I understand. A lot of outflows of major metropolitan areas into inflows of new markets that are still burgeoning. Are there any in particular, have you seen them rotate around that you're focused on, any markets in particular that you're kind of dead set on at the moment? I grew up in Tampa, Florida, and I still spent a lot time there. That market really impresses me. It's completely changed. It was a sleepy, you know, I don't want to say beach town, but it was a sleepy Floridian town. Now I go there and

Starting point is 00:35:26 every restaurant's packed. All the brands that you see in Atlanta, Miami, and New York are starting to come to Tampa. And a lot of, you know, more professionals are moving down there. I mean, Tampa was a back office community forever. You know, you didn't really see a lot of the entrepreneurial people moving there. A lot of the, you know, high-level finance people. And now you do. And so I think Tampa has a lot of growth. I think it's still somewhat under the radar. So that market excites me. You know, I moved down to Miami in April, and I am very impressed with Miami. I mean, I think Miami's typically a boom-bust market. But I think, you know, this time it could be different, which is usually the worst thing to say. But, you know,

Starting point is 00:36:07 I've seen people, I go to the gym every morning. I work out with guys that started businesses and sold loan and are looking, you know, to get into new opportunities or, you know, major law firms have moved down here, Citadel, the major finance company is moving down here, Blackstone, Starwit, everyone has a presence down here. So Miami went from a condo market or a market that was depending on tourism, but now it's, they call it Wall Street to the South. And so Miami, I'm very bullish in. I think, you know, it started to attract different types of people and it's truly become an international city. New York, I've, I've been skeptical. on since COVID, but it's interesting. When I go back up there, that's booming again. I think,

Starting point is 00:36:47 New York's biggest problem, though, is the regulations. So my business plan is focused on business-friendly markets, markets where people are embraced, you know, companies are embraced, the taxes are low, and regulations low. And, you know, I believe that companies will eventually relocate to those areas, which will bring talented workforces, like Tampa has seen a lot of inflow of new people with high-paying jobs. Miami's seeing that. And I think it's directly tied to, you know, how friendly the markets are to do business them. On that point, I think Elon is moving the Twitter headquarters to Austin, just like everything else. He's kind of seen moving everything there. There's a stat floating around that I was really curious about to get your take on. I think it came from Pew Research that roughly 50% of people in their early 20s, even maybe into their early 30s, are living with their parents, which is, fairly understandable in today's environment, especially after COVID and everything like that.

Starting point is 00:37:45 But does this shift in demographics cause any concern to the demand of potential rental units? Is there a sea change happening where we're moving into a multi-generational household for a longer period of time? Yeah, I have not heard that stab, but it's pretty crazy. You know, I think you're being offset by, if people are staying with their parents, Not only are they not renting apartments, they're not buying home. So, you know, I think with the rise in interest rates, it just becomes less affordable for a lot of people. And so you see people staying in apartments longer. I think the market gets most hit by that is probably a single family. I mean, you know, I started out buying a condo myself. I never rid in an apartment. I was lucky enough

Starting point is 00:38:28 to get 100% a mortgage. But I think you see that with a lot of young people. They, you know, if they get a great job at technology or finance, they might be inclined to buy a condo. I mean, And that's why typically we focus on the middle market because, unfortunately, a lot of those people are not going to be in a position to buy the high end of the market, the, you know, ultra-lexury rental apartments, if they can pay those rents, they can typically go out and buy a condo or buy a single-family home. So I think where we are is relatively insulated, I think, you know, any job expansion or any coming out of this economy, that's when new house formation starts.

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Starting point is 00:42:36 around $68 trillion from the baby boomer generation that's now being passed down, sometimes through real estate and other assets to millennials over the next decade. And it's already started to happen. Do you have any thoughts on how this might affect real estate good or bad? Because at some point, maybe there's not as much selling, right? They're just inheriting these properties. Or does that mean they're coming into somebody found wealth and there's selling that's going to begin. It's kind of tough to tell. I mean, I see it every day, especially down here,

Starting point is 00:43:06 people that have inherited, you know, a tremendous amount of money. They, you know, a lot of times they're not terribly ambitious. They're not going out and starting businesses. You know, they're more interested in living the life of luxury and spending the money and they are in earning it. So it's kind of hard to tell. I mean, I think you could see a boom in high-end homes. You can see a boom in other things like that. And you could probably, you know, on the other side, they're not going to want to live in their parents' homes. So you can see a flood of homes and other properties come to the market as, you know, as these things are inherited, they, you know, they want to go move to the new house. They don't want to, they don't want to stay in mom and dad's home.

Starting point is 00:43:44 So you could see a lot, you could see a flood of properties hit the market like that, that transfer of the wealth effect as well. People, you know, baby boomers think a lot differently about wealth and about savings than the millennials. So you can see the savings rates come way down. You can see, you know, some of these big investment firms lose a lot of that money, you know. So it's, it's an interesting concept to think about. And, you know, really what markets is they going to want to live in? It's another thing that, you know, to pay attention to. I don't, I don't see people inheriting a ton of money and moving to Kansas. You know, so, you know, these 24-hour cities may come back in vogue. And, uh, it's going to be interesting to watch play out.

Starting point is 00:44:22 I want to talk a little bit about your strategy and particularly around indicators, let's call them. So, you know, besides a cap rate, what indicators do you rely on most to search for deals or to just simply know if a deal is worthwhile? Good question. I mean, we focus on, I would say, some markets within some markets. So we want to be typically, if we're looking at suburban properties, we want to be in the markets with the best school districts. So maybe that's a high price home area.

Starting point is 00:44:52 And people want to send their kids to, you know, the exemplary school. But they can't afford to buy the whole. homes, you know, it's a great option to be able to rent apartment in that school district and send your kids to the great school. So we typically look for markets like that that have great schools, great, you know, employment. So maybe it's a great office market as well. People want to be close to work, close to the schools. We also look to buy below replacement costs. We feel like that's a good buffer. If you're in, if your investment is less than what a new competitor could come build for, you're somewhat insulated. So yeah, we look at cap rate, we look at

Starting point is 00:45:32 replacement costs, we look at price per square foot. We also want to look for something that's broken. So if the property is leading the market in rents, it's probably not a property for us. We want to look at a property that, you know, is similar in quality to other properties. You know, we call them comps, but it's somehow not getting the rent or somehow the occupancy's off. and we will come in there and make a determination, can we improve it? If we upgrade the units, can we get, can we push rents? Or if we apply better management, better advertising, can we improve the occupancy of the property? So we typically look for something we feel is undervalued or underperforming and really, really good defensible locations.

Starting point is 00:46:13 It sounds like you're kind of going into a place that's already great and trying to make it better in some way. So what about opportunity zones? Is that something that's still in vogue or with real estate? Is that providing any sort of advantage or is that sort of coming on? You know, I haven't heard as much about them lately. And we never really as a company participated in them. I invested in several opportunity zones personally. I think it's a great opportunity, not to, you know, no pun intended. But a lot of them need to, you know, as far as location, location, location, you really need to study the location. So a lot of these, you know, opportunity zones are in emerging locations or, you know, tougher locations.

Starting point is 00:46:53 that even if you're saving on taxes, it's not something I'd be terribly comfortable investing in. So I think you've got to really get in. Sometimes people make foolish decisions based on tax savings. I've seen so many people 1031 into properties that are ridiculous at a ridiculous price just to save on taxes. And I've always been of their paying. And it's better to pay the tax ban and take your time with making investments and not just rely on tax savings. But yeah, I've not heard as many of those opportunities. I mean, for a while there, everybody was falling over themselves to do those. I just haven't heard as much of them happening or even seen many of them lately.

Starting point is 00:47:35 So I want to shift gears a little bit and talk about Patrick Carroll and in your skill sets because as I understand it, you mentioned you kind of built this from scratch and went to kind of the school of hard knocks, let's say, right? So I know with this industry and really all industries in dealmaking, let's say, people skills are a must. And soft skills are harder to teach and really often left out of the discussion. When you're interviewing people, I find you, it's always like looking for that equation, right? What did you do that produce X? You know, X that produced Y. But what about the softer skills? Can you tell us about the fundraising efforts, the leading, the building, hiring, any other tips or strategies you've picked up over your career? Yeah, I mean, I'll tell you, it may sound funny,

Starting point is 00:48:19 but I always, you know, for 20 years, I always wore a suit and tie. And so I was, you know, the youngest guy in the room, but I wanted to look like, you know, I was taking this seriously. And then as I started getting a little more successful, I would always have a nice watch. I wanted the people in the room that really knew to notice and, you know, notice the little details. I think marketing is huge. And I've always put a lot of focus on marketing. When we prepare our materials, you know, I wanted to look like the biggest out there, even though we weren't. But I wanted it to look like we were, I used to say General Electric, but, you know, I wanted to look like we were established. I wanted our boarding to sound similar to how all the bigger groups were doing it. And I think, you know, and also we

Starting point is 00:49:03 used the media. I mean, I was all over people and reporters to, you know, publish things about us when we would buy properties or sell properties. And so we did a, you know, a concentrated effort and becoming a well-known name in the industry. I think as far as hiring, you know, what my strategy was to go to these large established companies and hire maybe the number two or number three person and a certain position and say, hey, look, you can come to my company and be the number one person. And I'm a young guy and I'm going to be doing this a long time and you can make a lot of money. And so as we were going, as we were growing, I was bringing in, you know, these really talented people.

Starting point is 00:49:41 And so it really, it was about building out a team. It was about marketing ourselves well and paying attention to detail. And then also, I spent tons of time up in New York and in front of capital. I mean, I would go, you know, around every two weeks or so and just give them updates on what I'm seeing in the market. Ask them what they're seeing in the market. And so I think I did a good job early on, building relationships with capital, you know, hiring the right people, compensating them well. And also at building our brand, marketing the company, you know, marketing. for sure, touting our successes and things like that,

Starting point is 00:50:15 but also just trying to become a well-known company and well-known name in the industry. That last point is interesting. I've heard you talk about announcements, I think you called them, and I thought this was so interesting that, especially when you're not fundraising, right, just keeping everyone, keeping a pulse going and letting people know that for your wins,

Starting point is 00:50:33 even before the ask, right? You're just keeping them kind of warm and informed on what you're working on. I thought that was a really interesting strategy. Thank you. Yeah. I mean, I always want to stay on the top of everybody's mind. I used to say when they don't hear about you, they think you're debt. And so, you know, we would always come up with a way, a creative way to continue to be out there in the media or making announcements. You know, I make a joke about it now. But I say, I used to, you know, if I made it to work on time, do a press release, you know. And so it was just really important. If we hired a key person, we would put something out. Now we put out white papers, I think, which is another. good strategy. It's just keeping top of mind and putting out information there. I mean, we have access to so much information, so much valuable information that it's really important, I think, for people to have access to. Even the things I do on Instagram is kind of my way of giving back a little

Starting point is 00:51:28 and just saying, hey, this is what I did. It was non-traditional approach, but, you know, just like the question you just asked me, what did I do that was different that got me ahead? And that's what I'm trying to put out there. As some for financial gain, it's really for, you know, just kind of giving back and, you know, helping people learn. I had great mentors along the way. And they showed me a lot of things. And so it's kind of like free mentorship just to put out there for the next generation. How did you find these mentors?

Starting point is 00:51:55 I mean, what was the, I've heard this idea that if you want a mentor, don't ask someone to be your mentor. But it's sort of like the value needs to flow both ways. So I'm kind of curious how you found these people. and how those relationships were built. Yeah, for sure, I agree with that. I mean, I get, you know, messages all day long, and I wish I could help everybody. But, you know, hey, can I, you know, can we meet for coffee once a week? Can we do this?

Starting point is 00:52:19 You know, if you're really busy, you don't have the time to do that. So I typically found mentors by, you know, looking for one of the most successful guys in the area and bringing them a deal or talking to them about investing or doing something to add value. And a lot of times it resulted in friendship. And I was humble, was very open about, you know, the fact that I was green and I didn't really know anything at all and that I was very much impressed by them. And, you know, I would ask questions. But I was also conscious about not taking up time. I mean, every mentor I remember was pretty harsh.

Starting point is 00:52:54 I mean, he would, they would say, listen, don't waste my time with these stupid questions. Come back when you've got good questions, this and that. And so I think you have to have thick skin. And I think humility just plays a big part of this. So, you know, it's really hard to say no, especially if you work around their schedule. Hey, can I buy you a drink? Hey, can I buy a cup of coffee or take you to lunch? If you make it easy on them and you're humble and by the way, if you're bringing good opportunities and things like that, it's a good way to get mentors.

Starting point is 00:53:24 That's what I've typically focused on is bringing value to the table. And like you said, make it a win-win. And then once I had those mentors, I made it a point to keep, you know, keep the relationship going. I'd call them every couple of months or so and just check in on them. I'd send them, you know, Christmas gifts, I'd do whatever just to let them know I valued that relationship. Now, it seems to me that you've really leveled up your presence in a big way. You were mentioning about, you know, being sort of regional when you were starting out the firm and letting people in the media know. But you've gone on to do much bigger things, especially recently.

Starting point is 00:53:57 what's the new mission for Carol and getting the voice out? And, you know, is this sort of the Berkshire strategy, right, where you're making everyone know that you're available for calling if they get into financial struggle as we might be preparing ourselves for? Yeah, it's funny you say that. I mean, I'm such a fan of Warren Buffett's. And, you know, very much that is a strategy. I mean, by going on social media, by going on the TV, you know, I want people that don't know about me or my company. I want to be on their radar. So when good opportunities do come along, I want to hear about all the good opportunities out there. I also think there's a big opportunity to build our brand internationally, not necessarily buying properties, you know, internationally, but fundraising internationally. I haven't really done much international. travel in the past. And I think, you know, over the next 10 years, I'll do a lot more of that. It's also a strategy to recruit employees. You know, as you become better known, as more people know you, you know, it's people want to work for people that are well known, well respected in the industry, that companies that are well known, people want to work for brands. And so I think by building a brand presence, it's a great way to grow your business across the board. You see better opportunities. you get different people on your radar.

Starting point is 00:55:10 So I think it's really important to do all that. Tell me a little bit about the philanthropy you've been up to as well, because I know within the last year, so you've donated millions of dollars to Ukraine, UNICEF and others. Where does philanthropy fall into your overall strategy or philosophy? And at what point did you feel the need to start giving back? Almost immediately. I mean, you know, again, I was, I think I've always been pretty,

Starting point is 00:55:37 humble and, you know, just to be in a position to be able to give back to help people is, you know, hugely important to me. I'd say I dialed it up more so when, you know, when I had children, my sons, I wanted them to see that this is a big part of my life and that this is very important. You know, my main cause that I focus on is underprivileged children. You know, I grew up in the boys and girls' clubs system and I needed mentors. I needed, you know, my coaches back when I was growing up, you know, were such big influences on my life, by basketball coaches. And so when moved down to Miami, I called the boys and girls club up and said, hey, you know, what's your biggest need? You know, how can I be helpful? And they said, you know, a lot of these kids don't have

Starting point is 00:56:15 enough money to buy new shoes to play sports. So I ended up coming up with a shoe, you know, giveaway where we gave away $100,000 worth of shoes in Miami. And it was really so successful. I mean, to see the kids' reactions and everything like that, I decided to do it in nine more cities. So we're doing a total of 10 cities, a million dollars worth of shoes. And to me, that's just, about as rewarding as a get. So I think between, you know, giving away financially and just, you know, giving away, you know, information, it's a big focus of mine. I think, I think the world needs it. And it's very important to me. Patrick, this has been such a fun discussion. And I really learned a lot, especially around real estate, which is not usually my, my forte.

Starting point is 00:56:56 So I really appreciate the time you spent with us today. And best of luck with the Carroll Capital and other endeavors you have going on. Before I let you go, though, please hand off to the audience where you want them to find you, what social media or websites or any other resources you want to share. Yeah, you know, I'm active on Instagram. So my, my Instagram name is M Patrick Carroll. You can find me there. I'm on LinkedIn and YouTube. So I try to be on all the social media outlets, you know, they could also, I'm on CNBC frequently.

Starting point is 00:57:27 And then also our website, Carolorg.com, C-A-R-O-L-R-G-com. And, yeah, I'll continue to put out new information. and kind of talk about where I see the market's going and other things like that. Patrick, thank you so much. Let's do it again. Yes, sir. Thank you. All right, everybody. That's all we had for you this week. If you're loving the show, don't forget to follow us on your favorite podcast app. And if you'd be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter at Trey Lockerby. And don't forget to check out all of the amazing

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We Study Billionaires - The Investor’s Podcast Network - TIP516: Navigating A Real Estate Market On The Brink w/ Patrick Carroll

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