Yet Another Value Podcast - Bill Chen on the current set up for REITs

Episode Date: February 3, 2026

Host Andrew Walker welcomes back Bill Chen for a wide-ranging discussion centered on the world of REITs. Though the conversation was intended to focus on one stock, the duo instead explores why REITs have underperformed in recent years, capital cycle dynamics, governance issues, and where Bill sees current opportunities. They dive deep into the theoretical and practical aspects of REIT investing, dissect recent REIT liquidations, and discuss portfolio construction and leverage in event-driven opportunities.______________________________________________________________________[00:00:00] Intro and sponsor message[00:02:20] Launching into REIT investing theory[00:04:38] Cap rates vs. real estate value[00:08:03] Rent growth, leverage, and returns[00:11:06] Why REITs have lagged recently[00:15:51] Capital cycle theory in real estate[00:17:55] Governance issues with public REITs[00:22:23] Share buybacks vs. reinvestment[00:25:18] Griffin case study and alternatives[00:30:35] Takeouts and market inefficiencies[00:33:37] Where Bill sees dislocation now[00:36:11] Using leverage in liquidations[00:40:14] REIT liquidation downside surprises[00:42:00] Asset quality and bid dynamics[00:45:25] Legal risks in revised estimates[00:47:11] Unique REIT liquidation wave[00:49:31] Navigating current REIT opportunities[00:50:01] Wrap-up and next time teaseLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

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shine through. I think you're going to learn a lot. And hey, maybe we'll have them back on later to talk about the stock we meant to talk about this time. So we're going to get all there. Remember, legal disclaimers, not investing advice, all that at the end of the podcast. But before we get to all that, a word from our sponsors. This podcast is sponsored by AlphaSense. One of the hardest parts of investing is seeing what's shifting before everyone else. For decades, only the largest hedge funds could afford extensive channel research programs to spot inflection points before earnings and stay ahead of consensus. Meanwhile, smaller funds had been forced to cobble together ad hoc channel intelligence or reliance their reports from sell-side shops.

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Hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker, and with me today for a, Bill, I think you're a non-insignificant amount of the podcast. Seven, six time or something. Sure. There's a six-time joke in there. Bill, how's it going? Good, good.

Go ahead. No, go ahead. I'm super excited to talk to you today. you know, I had some questions I was sending to you over. So I've kind of been thinking about REITS and specific and just the market generally. And you're the perfect person's about these is also off of plus. And interesting new investing idea. But before we get to all that, quick disclaimer, remind everyone, nothing on this podcast is investing advice.

You can see a full disclaimer at the end of the podcast, link to the legal disclaimer in the show notes. So, Bill, let's kick it off here. Look, I'm thinking about REITs a lot. I know you've talked about how it has been a really tough couple years for REITs. And we can talk about all that, but do you mind? I know you know where I'm about to go. Do you mind if I start with kind of my hypothetical? Sure, go ahead.

Yeah. So I've been thinking about REITs and I know you, my good friend Hawkins, several other people who look at real estate a lot. And, you know, a lot of the pitches will sound like this. Hey, this company trades for, and I'm going to use really easy number, a 5% cap rate and every like property, you know, they're an industrial rate. All their properties, if you look at where they're going for, trade for 4% cap rates, right?

So if they just sold today, you'd get 25% above where they're trading on an unlevered basis, right? The going to 5% to 4% is going from a 20x multiple to 25x muscle. So you get 25% up to the side there. Plus, all these have leverage, right? So that's on an enterprise basis. On a market value basis, you might be talking about an 80% pop, 100% prop, whatever. And I love that thesis. But the issue I always come into is, hey, that's true.

but if you don't get that sale tomorrow, right? Then you just kind of buy them and you get a 5% cap rate. So you get a 5% return forever less, you know, there's GNA drag, which generally when you say the cap rate, it's before the G&A. And less, hey, if that management doesn't sell, guess what? They're probably going to go buy. So they're going to buy a lot of properties at 4%. So I've had that thought in my mind.

And now, look, to be fair, when somebody says, hey, I want to go buy this company at a 10 times price to earning and all the peers are trading at 20x, guess what? exact same thing if you don't get the instant re-rate. But something about the lower cap rates hits me. So I threw a lot out of you there. We can talk all about it. We can spend the next 50 minutes talking to go. But what do you think about that? So I think this is, I think you're missing a few things. And I think this is like a common misinception about investing in real estate and reads in general, right? Which is like, I'm just going to make one tiny little adjustment. Right. Let's just bring the cap rate up to six because generally even large cats, we're finding a lot of 67% cap rate. So, completely okay. I only use five and four because it made the math really easy as I was laid out. Completely okay.

Yes. So let's walk through that, right? So if you buy the multifamily and let's just are, they meant six, but let's just call it six. And, you know, if you look at the SG&A burden of being a public trade company, it's 40 to 50 basis point because when you buy them at a large enough rate at scale, they run fairly efficiently. So let's say bring it down to five and a half. right and then let's say you're signing a thousand dollars a door for maintenance capix which is based on you know tons of conversation i've had over the years with private gps who manage multifamily that's a pretty good rule of thumb right um and that generally uh will bring you down to about like a

five one five two kind of like true free cash flow without the use of any leverage now i think what you what you what you mentioned you know the whole reason and the whole reason what people own real state and reads and it's like this adage is that over a long time period it at least keeps up with inflation or it beats inflation right and I think what you're missing is a rent growth component right and if you model a 3% annual rent increase for an asset class like warehouse or cell storage or multifamily or if you ultra-conservor use two right like you use a CPI number and you insert it in there So you cut on AF5.1 and you attack on another seven to, like two to three, right? And this is before any use of leverage.

This is before any use of leverage. And, you know, the leverage of public reeds is generally about 20% loan to value. They're very conservatively levered. There are other reads out there that are 40, 50% loan to value. So if you model that out, you know, you can get somewhere. And I've done a ton of this math, right? Even with 20% loan to value, you know, 3% rent increase gets you to an 8, but that like 20% leverage will kind of get you over 10, just like, you know, a little bit

over 10. And I think like if you have, if you hold these assets to perpetuity, you get about a 10% total return is generally what I think will happen. Now, a lot of multifamily reads today actually miss 6th. So if you start at mid-6, knock off 80-90 bips, right? Add on 3% rent growth. If you hold it to perpetuity, you actually, like, start approaching that mid-10 to 11%, you know, total return. Can I just please?

Go ahead, go ahead, please. No, no, no, I think that, and this is, you know, if you were about to buy low-leveraged public reads, right? If you were to buy, you know, kind of, if you're going to put the kind of like 50 to 70% loan to value that a private, you know, real estate investor will put on it, then your, you know, total return on a kind of like permanent hole actually goes that significantly. Yep. Let me just ask one question to start there. See, the math you did was kind of, hey, let's just start with a flat six, 90 basis points off for management. and, you know, I even forgot, I want to say the cap rate doesn't include kind of your maintenance cap to maintain these properties.

That brings you down to just over five. Then add two to three percent for rent growth. So that takes you to seven to eight. And then you get the leverage component to equity. The leverage component, can you just walk me through the bridge? Because if I've got 8% on the whole EV stack and then I throw a 20% LTV on it, it seems kind of aggressive to take it from 8 to 10 there. Does that make sense?

So, like, if you kind of like divide by point. Like it kind of gets you to that right ballpark there. But you need, the debt has expense, right? Like it's not like you're getting a response for creation. Well, that's like the beauty of it, right? Because you're buying it at a six cap, right? Like the cash flow, that's leverage neutral. Right.

So the debt expense is leverage neutral. But like your rent growth over time, your rent growth over time. Okay. So you're assuming, that's what I drive to you. So you're assuming basically your. you're barring at your cap rate effectively, and then all the rent growth on that 20% goes, okay, perfect, perfect. Yeah.

I mean, I could look at Interactive Broker. No, no, don't do Excel right now. That's fine. No, no, not except, but I do want to just like kind of see. I think like interactive, like, you buy like, you know, at Interactive, it's like low to mid-force right now because it's just like a tiny blue spread over so far. Oh, well, you're talking about margin lending, which, you know, I'm just going to refer to everybody to all the investing disclosures and legal disclaimers and all that type of stuff. But, you know, there is a difference as many of us have learned painful over the years

in our PA. So let's go back to company financing. Companies are borrowing, are issuing, issuing seven to 10 year fixed rate at below 5%. And this is like when the 10 years, you know, around similar interest rate as it is today. So it like, you know, they are borrowing at below their choice. free cash flow on a lever basis. Okay. Let's, a lot to talk about there.

So let me start with the first one. I want to come back to this, you know, this 8 to 10% all in number that we just discussed. We'll come back to it. But let me just ask a different one. If I rewind the past two to three years for REITs, as you talked about, it's been a tough time for REITs, right? Like, they are annualizing way below that number we talked about. They're annualizing below the cap rate.

I mean, they're basically annualizing at like cash rate, you know? If I said, hey, the reed indices over the past two to three years have been flat, I'd be a little conservative, but I wouldn't be too much. So if I look at the past two to three years, I'd say, hey, stock market booming. Economy's doing pretty well. Interest rate stabilizing, inflation coming down. Like, it seems to me like this should have been a pretty good time for REITs. So why has that algorithm not worked over the past two to three years?

Okay. So I think it's important to, so I'll give the exact number. Neary, we just calculate this. In the past two years, the total return for Neary is 7.3%, which is, I think, you know, if you adjust for the dividend yield, like, it's either flat or a slightly negative on a price perspective. But that's a big adjustment, right? Like, the dividend is a real thing.

Like, every one's the amount. And when you buy a reason, it's an absolutely real thing. But, like, 7.3 over two years, like, kind of fairly brutal, like, you know, like, if that's your exposure, that's a fairly brutal, like, benchmark, right? And I think it's important to, like, you can look at it and a lot of people say, like, Reese is never going to work. Like, this, you know, this is like, why bother with it? The other lens to look at it will be this makes for even more exciting opportunity, right?

And I'll go into a little bit. And, you know, if you go back to two years when I first did the podcast and I said, I think I thought what happened is there were, because of ultra low interest rate, essentially free money in 2021. and, you know, like these incredible headline rent growth figures in all real estate asset classes. Real estate GPs, every single one of them put a shovel on the ground, and this is across almost every single real estate asset class, multifamily, self-storage, not office, but like, you know, just like warehouses, every single one of them, right? Like, this is classic capital cycle theory. And you have, you know, push up on the ground, all the deliveries kind of hit in

24 or 25 and we're like now really starting to get to like the kind of like the back end of that and you can see that because demand's a little bit harder to forecast but supply there's a lot of really good industry you know data on this right and you can see that to supply so what you had in 24 25 is very very mute at rank growth so go let's go back to the algorithm the algorithm that we just walk through on like, how do you actually generate returns from real estate slash reeds in general is you have the yield and then you have rent growth. There is most real estate asset classes have really exhibit a very, very little of rent growth. This is true for cell storage.

It's true for, you know, multifamily. Now, with the multifamily, like the coastal, the coastal were hit, you know, worse by COVID. So costos had better, you know, rent recovery, right? A lot of Sunbelt had a lot of rent growth. And then there's a ton of supply. I think like inherent in all this, there's also a very interesting capital cycle theory. And I would say that, you know, when we first did the podcast two years ago when I was excited, I would say I am more excited today because there's been very, very minimal cap rate contraction,

well, multiple expansion. There's been very, very little of it, right? All the returns have essentially been through dividends. And the stock price has kind of been similar to what it was two years ago. But what we have now is you have to support. supply wave that would be delivered. And if you go listen to a lot of the earnings call, whether it's multifamily, self-storage or warehouses, what you're hearing from the management team is that the supply wave is getting,

now they're all trending below 20-year averages in essentially all every single asset class. The only real estate asset class getting capital injection and new star activity is data centers. I was supposed to say, is it AI data center? Yeah. It's a lot of money is good. It's, it's, it's, the only getting built today are AI dating center and anything infrastructure related, because that's often different, right, funding source. And can I just pause you on the, I like the capital cycle source because I think you read some of the stuff I put out in some of my podcast stuff. What it like about the capital cycle stuff and what you just, the capital cycle stuff and what you just explained about it is I said, hey, why hasn't this eight to 10% algorithm worked?

And you said, hey, at the start of two, three years ago, whenever, it looked like the starting point looked good on a cap rate. But here's why it didn't work, right? There was capital cycle. There was something outside of what you just see when you read the financial statements that you could go read industry sources and think this through. And look, there's the counter. Maybe the man just kept increasing in like mass or exceeded supply.

But what I like is like you kind of drove on the ground research and like putting the capital. I like, anytime you can combine. capital cycle dynamics with why this didn't or didn't work. And I kind of like where you're saying, hey, right now, you're still getting the same starting valuation. And like, honestly, if every, like, kind of miss I had was, hey, it's like slightly positive after tax for two years. I'll tell you I've had a lot of misses that are a lot worse than that.

But I like the combination of, hey, you still get all that and now, like, the supply has dried up. So please continue. Yeah, no, I mean, I think, I think, like, Andrew, like, you and I both invest in, you know, companies that are outside of real estate, right? Like take chemicals, right? I mean, think about when you invest in a chemical company and you say, I think one year out, two year out, EBIT is going to be X number.

Like, how many times are we within plus minus three percent of that projection two years out, one to two years out, right? I'd like to be plus minus 30 percent one of these times. Yeah. And in multifamily, like when I go back and look at particularly multifamily, I mean, and basically all the NOI numbers that we forecast from two, you know, two years ago, we're like within, we're within like two, three percent of the range in either direction. And that's why, that's why, you know, particularly multifamily and real estate, essentially it's more like, it's probably

a little bit closer to a bond than it is in equity. I was thinking, in my head, it's capital cycles for beginners, right? Because as you said, chemicals, the capital cycle, the next year the EBITDA could be minus literally 200 or plus a thousand. Whereas with the reach now, you know, third-tier office in, you know, third-tier cities, yeah, it's pretty tough right now. But outside of that, as you're saying with the, with a stabilized apartment building that's pretty good, like, yes, it might be plus 10% two years or now. It might be plus 2%.

It might be minus 2%. It's not going to be negative 30 and it's not going to be plus 50. So you kind of, you get that capital cycle bullwit for beginners, you know, It's my little two-year-old doing the bullwhip. So it's barely moving up and down, but it is moving. Yeah, yeah, yeah. And keep in mind, this is like, you know, in multi-family, I mean, this is the most delivery we've had in something like 40 years.

Like if you said you have the most new capacity addition in an asset class, and the net result is analyzed down, I don't know, 3%, you know, from like over two-year cycle when you get the most, you know, delivery in the industry. I mean, I think you're doing okay. Let me go to this. So I think there's also a corporate governance angle, right? Anyone who's looked at REITs knows REITs are really hard to do activism in, the corporate governance is really tough. Not impossible, and we've seen some, but I think the other thing people might push back on would say, hey, if this company is trading for a six cap and there are lots of properties at five caps, right? Yeah. Lots of private. That is an argument for,

hey, we should just go right now and hit the bid on everything. And I understand companies can't buy or sell every day based on the stock price. But there is something where for two years, a lot of these companies have traded below public market discounts. And we've seen, right? You and I have talked about several. We've seen when they sell themselves, they go for 50% premiums, right? So I think the other thing people would push on is, hey, shouldn't these be getting corporate

governance discounts? Because management teams, as you and I've discussed on previous pods and offline, management teams often don't own a lot of stock. They get paid pretty well. The boards definitely don't own a lot of stock. So yes, you and I can come and say, hey, all these trade at 6% cap rates and they should trade at five caps, but the board and management are never going to realize that. And actually, they're going to take a lot of your money and invest it into the five caps. So shouldn't we get some type of corporate governance this down? Well, I mean, I think like re-discounts and re-prems are kind of... We've certainly talked about that. We still don't want to talk about it. But, you know,

I think I just want to reiterate, right? think that if you're if you're a scale re meaning you're above $5 billion right like it takes a long time to grow to that size right and it takes a long time to do a lot of development a lot of you give me a publicly trade to read in an ATM program and I might surprise you how quickly I could grow to $5 billion bill well so no no man I think it's worth I think it's worth like I think that it's it's I think it's a disservice the investment community if every time it you know a retray a $5 or $10 billion reed. They all just instantaneously, you know,

liquidate themselves or get, you know, sold to a private equity, right? Because, I mean, candidly, okay, like, you know, we could disagree. No, no, I don't know. You know, the stock trades from 20 to 18. It would be kind of silly if, like, the management team instantly said, hey, strategic alternatives, we need to sell. Like, that seems a little. But, you know, I do see a lot of them where the stock trades at 15,

You, several people say, hey, Nav is 22, 24. And the management, they don't care, right? No, but they do. But if they do care, like if you look at Camden, Camden are selling their worst, older, vintage, lower quality assets to buyback shares, right? So the way that they're financing it is, you know, they bought $50 million in a quarter. Avon Bay, so I'm waiting for Q4. So in Q3, they sold some older assets and they bought back $50 million. Avon Bay, I believe the number is $150,000.

dollars. They said, you know, so a lot of these larger reeds are, like, I think the larger blue chip breeds, what they're doing from capital allocation perspective, like on the margin, it's like that incremental dollar, the incremental dollar is going to, whether it's going to a brand new development at a 6% cap rate, I think it's actually a pretty good use, because now you get a brand new building, right? Now, so, so I'm okay, like, like, I'm okay with, with, you know, lot of these larger retail, not selling themselves, but like on the margin, buyback shares,

right? Well, you know Camden much better than I, right? So as you said it, I just pulled up the 10Q, but I'll just push back, right? If I just look at the 10Q, net cash from operating activity, $630 million in the first nine months of 2025, they do 50 million of buybacks. They do 310 million of development and capital improvements and 334 million of acquisition of operating properties, which is about half offset by net net proceeds from sales operating. So I'm not saying they're not buying any shares back, right? They bought 50 million, but this is a

$11.5 billion company that bought, fine, they'll do $65 million in the hole if they kind of keep that pace off. Sixty-five million. I mean, it's not nothing, but the incremental dollar is clearly to me still going to development. I don't know what that position was, but it's still clearly going to growth. And if you're saying, hey, they're trading at a six cap, and they did or FIFCAP, it seems to me like, shouldn't the incremental dollar be going to share repurchases? Well, I think this is where, and we can talk all day about this, right?

And I think, like, we got an hour-long podcast. That's what we're doing, maybe. Well, I mean, I think it's important that, like, there is a fiduciary duty for these management teams to kind of keep the average age of these properties, you know, like, low or not grow too much over time. Like, you run a, you manage a portfolio.

You don't want them to, like, constantly get like every year. Why is that a fiduciary duty? What's that? Why is that a fiduciary duty? I think it's, I mean, I think if you do nothing and just sit on your back, you know, your butt and you don't, you just, you don't recycle capital. I think every single year, the assets gets older.

True, but let me, let me take it to the extreme, right? If the stock traded for a dollar, right, forget the, per year. If the company traded for a dollar, like clearly the incremental dollars there should be, Shouldn't the company always be looking like, all right, I'm not saying let the buildings fall apart, right? But shouldn't the company always be looking like, we need to maintain a baseline level of maintenance catbacks, right? That's not making the buildings younger. It's just a baseline level of maintenance capax. Yes, we can't be slow lures in letting these buildings fall apart.

But after that, shouldn't every dollar be, why does having an age of buildings that's eight versus 10 years old matter? Like, shouldn't it matter if, hey, if our stock is cheap enough, yeah, let's let our buildings age by a year this year and we'll buy back even more shares, right? because these buildings, like, you can trade them below just like kind of the, even if you're not replacing them, yes, they're depreciable assets and they will run out. But if they, if the stock trade's low enough, shouldn't you say, hey, we can't go replace these buildings. We just need to buy them on the stock market. In the same way, I've argued with, you know, a lot of pharma companies where they're like, hey, what do you want us to do? Cut the signs to buyback shares. And I'll be like, unfortunately, the answer is yes. You know, all of your key drugs failed. You raise 500 million dollars to find the cure for

cancer, your stock trades for $250 million, you can't go buy drugs and run this. Like, you need, the market is screaming and economic screaming. You need to liquidate this. I'm not saying all of them needs to liquidate, but isn't there an incremental argument there? I mean, I think, Andrew, I think I understand, like, I understand the show my back argument, right? And I, they are doing a part of it. And, you know, like, like, I get the. argument that, like, the buyback will be a higher, better use of capital, right?

I agree with you. But at the same time, I've also invested in enough REITs where there's very, very minimal buyback. I'll tell you a hilarious story about share buybacks, okay? So I was at a Liberty Investor Day years ago, and I ran to Marioca Belli. All of them will be hilarious if it was Liberty Investor Day. This is like 2019, right? Pre-COVID, I ran to Mario Gavala.

Mario was, you know, he had a couple. Like, we both owned shares in a company called Griffin, which is a, you know, some of the parts, land bagged. I remember it. And Mario, you know, had a, he had probably written a letter and basically pressing them to buy back shares. And we were like, and I, you know, just gotten out of like, FRP the first time. after Blackstone bought that, and then I'm like, oh, here's another warehouse company trading at a huge discount. And they kind of had a complex site, some of the part story.

They had this land back, right, up in Connecticut. And they were doing a really good job selling land in Hartford, and they were using 1031 to buy land in Lehigh Valley and then develop it. And the CEO is excellent. His name is Michael Gansler. We still talk today. It's been taken private, right? So right into Mario, and I'm like, you know, what do you think about them? Mario just wanted to buy back more shares, right?

And if they would have bought back more shares when Mario was pushing them to buy back more shares, they would wind up like being more heavily weighted in land in Hartford, Connecticut, an office in Hartford, Connecticut. And like, that entire portfolio would have never evolved, right? And instead, like, what Michael Gamsom did was he, he, sold the land 1031 into Lehigh Valley, and he built an incredible modern portfolio, and he was getting like 7% unlever return. And then like subsequently rent double over time, right?

He picked great markets. He built great assets. And then he took, you know, and then he expanded to Charlotte. He expanded it to all the markets. What I'm saying. And then like, you know, within a few years and nobody care, nobody care, right? I was telling people, I was telling people, Michael's a great operator, right? He's doing the right thing.

He's recycling this capital. And Mario publicly just want, you know, to buy back shares, okay? And like, fast forward to today, you know, they got taken, they got bored out by Centerview and government Singapore for double my cost faces, you know, like three, four years later. And, like, in the private world, like, they've also, like, probably doubled their portfolio. So what was like a $250 million enterprise value company is now probably like a billion, Bill and a half.

Like I don't know, they're like 50 million square foot when they were maybe under two million square foot, right? And what I'm saying is that like, Andrew, it doesn't, like, not every solution to undervalue stock is some form of share buyback, right? I do hear you, but isn't that like, the thing that jumped out to me is it was the CEO, this brilliant CEO who made this. this great move that really justified, right? Like, he was so good that he could sell the assets and go, instead of buying undervalued stock, go, do this great development.

You know, and that's awesome. But, Andrew, Andrew, I'm going to stop you there. I'm going to stop you there. And I'll tell you what, there are messages on the investment forms where I, like, instead of you, like, saying, oh, this is a brilliant CEO. He's doing this. everyone, every value investor was like pushing back on me at the time, say, well, the guy's father-in-law is on the board. Like the SGNA is seven million dollars because they're doing a lot of development. They're doing a lot of heavy lifting with this transformation.

Every value investor is basically saying, why are they not buying back shares, right? There's like trading liquidity concerns. There's like, you know, they got an opportunity to do really good. But, like, all the really good stuff that they were doing in terms of recycling capital was only apparent when a, when they got a new chairman by the name of Gordon Dugan. Then everybody, like, the stop pop 20% in one day. It's like, Michael Gansom is not, like, any less of a CEO, right? Like, before Gordon Dugan joined, like, the board, right? And then the top pop 20% all of a sudden, like, Michael Gansom is a really good CEO.

right so what i'm saying is that like um i think that i think the sure by back makes a ton of sense and and and like the fact that they're not doing it doesn't mean that you're you're not going to generate a good return on these equities i think i think that the tides you know when they will turn the other way and and people will want to own these assets and when they when they want to own it like how many how many times like if you look at i don't know pick pick uh silver pick whatever it may be like flat, flat, flat. I mean, how, you know, it's funny. You're saying, because I was thinking the other day, I was like, you know, for the past,

since I've been doing this podcast or whatever, you know, everyone's been like gold, whatever, you know, like, yes, if you have a pandemic or pandemonium, yes, it does well, but like that's it. And the people who've just been hardcore bowls for years, you know, everything's got to say, let me go do it completely different one because I want to get to Alex, but I want to get one more question in here. Yeah, but before you go on, I just want to say that, like, we, we, We've been so hyper-focused on the large-cap, right?

Like, let's go through, like, we're not just, like, in large-caps, right? We're in a lot of these, like, small-run. Let me just walk through, like, a list of names that, like, been taken out, that, like, both, like, in our portfolio, but also, like, that I'm aware of, right? You got AIMCO that's liquidating. You got Elm community that's liquidating. You got R.I.C. bought by Bloxone. That's in our portfolio.

You got Alexander and Baldwin, you know, bought by Blockstone. That's in our portfolio. Dream Residential. That was a portfolio name of ours. Plya Hotel and Resort, which our friend, you know, Travis, I, you know, owned that as well mentioned. So, like, there's, there's mentors. Did you see, uh, did you see what Hyatt did with Playa?

I mean, I know that they bought it and then they, you know. They bought it and then they sold the real estate. And if you look at the implied of what they created kind of the management fee stream, the opco, you know, because if you have a hotel, there's the host. which is the real estate, and then there's the opco, which is actually operating the hotel. If you look at the implied for what they created the offco, it's, you got quite the price on Playa. Yeah. No, so like, I think, look, I think any private equity that buys takes a re, like, like, one of the

observation I made is that we're in an environment where the public equity investors could get a 40% bump on a takeout, right? say, I don't, 25 to 40% bump on a takeout. I think the P.E., the bar for P.E. to make money buying public greets today are so low. It's like, it's a really easy game for that. That was my argument, right? Like, the bar is so low all the time. It should be hidden in the bid.

Yeah. I mean, like, like, there was a part of me when, like, I was really happy to hear the news of Alexander Baldwin, like, get taken private. That was a 5%, you know, portfolio day for us, right? But, like, when I looked at the valuation, like, there's a part of me who immediately is like, I may want to go activists on this, right? But then, like, because, like, I know what Blackstone's going to do, like, on that acquisition. They're going to do really well on it.

But, like, the only reason why I didn't try to make more noise on it is that there's so many other things that I could just buy right now, rotate that capital. It's such a target-rich environment that, like, I just keep recycling my capital today. The history of going activists on deals at nice premiums, unless the deal is crazy, conflicted, I would say the history of going activists on well-negotiated deals, even if you, you know, you can disagree, you say, hey, I thought this was with 20 and

it's worth 18, but if it was shop, well-thought-through, Go-shop does clear some of it, though there can be issues. But the history of going activists is you really don't want to break a deal, you know, the burden of hand versus two the motion. Okay, last question, then we're going to Alexander's. Yeah. Lots of, lots of

different sectors within Reyes, industrials, hotels, apartments, office buildings, New York city office buildings. Where are you seeing the most dislocation right now? I would say so blind, I would say that without adjusting for leverage, I would say probably life signs and co-storage are the two areas where there's the most amount of dislocation because you have lineage, you got Merckhold and you got Alexandria, large, large, you know, blue chip reeds, just kind of trading at fairly high, you know, apply cap rate and fairly low EVE, even multiples, right?

So I think that's an area of like regardless of the inherent leverage in the company. And then I think what should get outside of that, I would say the way to think about it is that anything that's got, you know, in that 40, 50% loan to value, you're generally going to find a little bit more dislocation, but that's, I think that's a factor of leverage, right? I would say, I would also say that, you know, self-storage is, is very, very dislocated right now, meaning, like, after two-three earnings last year, for word reason, they all sold off, like, kind of, you know, in groups. And then early this year, like, it kind of fine a little bit of bid people think that the supply demand dynamic is, is kind of inflecting. And so we love self-sortage exposure right now. I think, you know, a lot of liquidations, a lot of vent-drivens, like not on an absolute

basis, but on a risk-adjustive basis, I think are very, very dislocated right now. I'm laughing because we're recording January, 207th. And if you want to mention specific ones, we can, and I'll give disclosures. But a few of them have had, let's call them hiccups recently. And I have noticed all of them have traded off on the hiccups of one and then another. And I have been wondering if it's like, hey, there's like 10 guys you care. The 10 guys all have the same position. When one of them has an issue, like one of the guys says, eh, I'm just out of all of them.

And there's just like no natural buyers. And I always am kind of interested when like, you know, biotex one real estate is another. In general, like the issues at one company should not bleed over to issues at another company. Now they can be related. But, you know, if one company's Miami real estate and another company is San Francisco self-sourage, like very different things. But you do kind of see, hey, you know, the Miami real estate thing disappointed. So the San Francisco self-storage thing is trading down to.

And I've definitely seen that. You can tell me if I'm wrong. You can tell me otherwise. But I'm not very interesting right now. I think that. So generally like, like what we've done, what we like made adjustments to a portfolio, right? And this is like really the first time like in and this is not a investment. some advice, but this is like, you know, in a professionally managed portfolio, I just personally

historically ran, you know, under 100% gross exposure. This is the first time that we ran over 100% gross exposure, call it like between 110 to 1.30. And here's the reason why. I call it like the bonus exposure from 100 to 130. A lot of it is these event-driven liquidations, right? They're literally like, you buy something for 10 bucks. You know. based on the asset sale and cash on the balance sheet, you know you're getting, you're getting like half of that back within, like, between one to five months, right?

And, and like, I could like run that. I'm like not afraid to run that because I know that 130 gross exposure could very quickly drop to 120, 115 to 110. And then I also have, you know, recurring dividends coming in, right? So, no, I'll refer everyone to the legal disclaimer for everything about the gross,

but I do hear you, and it's one of the tough things, right? Like, a lot of these liquidations declare, hey, the stocks are 20. They say, hey, we're giving $15 back. Like, they declare the dividend, right? So now they are legally obligated to pay the dividend. We're paying it in two months. You're like, hey, how do I think about this position if I think ultimately this is going for 25?

How do I think about this position? And how do I think about my sizing and relation? Because, hey, if you were running under 100, then cool, you can just keep. But if you were kind of like 100% in bed, It's like, hey, is this, if it's at 20, is this a 10% position or if the 15 is coming back, should I think about it as a 2.5% position? And if I'm doing that, like, I'm way under. It keeps me up at night, though.

I think the answer is that's actually a 2.5% position, but it keeps you up at night. You and I are thinking about something very similar. I think that's because we've got one or two and a time. I just go back to you when Buffett was running his partnership successfully, right? And what he was targeting is he was doing a lot of these event-driven liquidations. And, you know, like my John Sons was a third, but he was also running over 100% gross. And, you know, he was using a little bit of leverage, right? And it's like if you could get, if you could get, like, the wrong way to do these liquidations is to do like the New York Reap liquidation from years ago, right?

Everyone, like, every hedge wrong was, were in those trades. And today, like, there's maybe like you, me, like, maybe, yeah, there's like a, maybe a dozen people. who are like tracking these, they're not that large and liquid. So it's not like a $10 billion liquidation where all the big funds, right? There's like, certainly like there is some illiquity to some of these names. And this is like, you know, Ameco, net lease office property, right? This is, I'll disclose that Bill is basically talking my portfolio right now. Well, since we've talked a few and we don't have to talk specific ones, but you know,

there's like five liquidations out there. in the real estate and you get two of them. You know, as I said, a lot of these have had disappointing numbers, right? And look, prices, everything, you can adjust for price. But when I look at these and a lot of these have had disappointing numbers. And for some of them, I think and hope that's presented opportunity for me. But when you look at these and you see the disappointing numbers, like a famous thing with liquidations was, hey, a company comes out and says, we'd like to liquidate. We think we can give our share rules $20 to $21 back per share.

The famous thing with liquidation was, hey, that 20, that low end is so. so heavily lawyered up and so contingent, come hell or high water, they're probably going to hit the $20 per shit, right? And now we've seen a few liquidations that they've said, hey, we're going to do 20. And then they come out and they say, actually,

when we started putting the properties on the market and getting some bids, it seems like we're going to do 1950 on the low end. So are you reading anything to that? I mean, I think there is a, and the only thing I will read into it, Andrew, is I think it's really important. Like for us, a clearing benchmark would be if we get in, we need to see like a MOIC, like at least like an equity multiple of like 20% upside, right? Like we'll generally try to underwrite.

Like if it's below that, if like we put up that capital and we like we don't see at least like 20% upside. Because like our general thinking is like if we underwrite the 20% upside and we get some disappointment kind of exactly what you said, right? 20, now it's really 19 and a half, right? That, that, like, cold, you know, 3% to an half percent, uh, um, disappointment, like cut cut that MOIC back down, right? From, um, 1.2 to 1.15, 1.17. And, and that's how, like, we're trying to control that. In terms of, you know, like, from a market perspective,

I think that like particularly, like, like, let's go through like, I think that if you look at that lease office property, I think there is some truth to that, like the assets that have longer lease terms, assets that are easier to underwrite, were sold earlier, right? So what you have left is like, you know, these office assets with very short term,

lease terms, and with likely lower quality, right? Like the stuff that's like good for redevelopment as multifamily, have been picked over. So I think there is some, there is truth that, you know, in a liquidation, the easier to value the better assets get picked over and then to the end, like you get, you get stuck with a little bit. And again, I'll disclose. I've got a position.

Enlop is one where I also, I wonder if you run into the issues with liquidations where it happens a lot. The management team, I don't think they had much incentive and I don't think they cared that much about value maximization because I look at some of the prices, some of the properties they sold. And I think everything you're saying is correct. Like this is a low quality property. But they've sold a few properties where I look at them like, hey, it had eight years left of lease life. And you sold it, you know, eight years at, I'm just going to pull it number, 10 years for 10 million per year. So 80 million of rent remaining.

Now, obviously, there's a little bit of expenses and some time discounting. But you sold that property for 80 million. So you basically said there was no terminal value left after the lease. I just kind of wonder if it's a case where, hey, if you and I had been in there and we had 15% position in the equity and we were in charge of sale, we would in like, absolutely not. You know, if you want to pay us 80 million, we're going to hold this thing and we're going to manage it and we'll sell it for scraps at the end, you know, but you've got to pay us 85, 90, 90, you know, something on top. And I wonder if you have a management team that doesn't own

anything. They're getting a very small management fee in WPC. I wonder if they were just like at it. First bid that seems reasonable. Take it. Don't negotiate. I do wonder, part of that has happened there. I mean, Andrew is smile a little bit, right? Because like there's there's like the counter example of like New York re-liquidation where they decided to hold on to one more white plaza. And then lo and behold, they're like, oh, you know, we'll do the value ad. They partner with S.O. Green. And lo and behold, they put that into like a non-traded stub and it doesn't trade.

And guess what? Like they wait a few years. COVID happens. And they were going to like spruce up the lobby. They would need some value add. and then try to get, like, extract more value out of it. And, you know, I think the equities, I totally wiped out on that, right? So I think, I think, like, what I think there is some truth to,

they, you know, they wanted that, I think what you say makes a lot of sense. And I think there is some truth to it. But, like, I think, like, shareholders also criticize management teams for moving too slow, right? And, like, they made a very, they made a decision. They're going to move fast. I'm going to sell these assets. Yeah, I mean, I think is there like some under, you know, modicization of assets? I do think so.

I think, you know, we talk to some bidders, you know, we talked to some bidders who won some of these auctions, who supposedly bought some of these, and I think they're going to do well. But like at the same time, I think the, I think there are like, like, when you look at a lot of these assets, you're like, oh, you know, that price kind of looks low, right? Like if you actually talk to people, you're like, oh, you know, that had like asbestos in it, or like, you know, it's hard to like them. I know one that, you know, you're 10 million less than I thought

because there was a specialist liability, absolutely. We're like, oh, there's one in dollars that sold, right? And that price kind of seems low. And there's like a weird cork in there where, you know, the tenant can kind of like back out of the lease. Like, even though there's like five years left on it, like the tentacle like have this like really weird clause what they could potentially back out of like a portion of it.

And then if you're a buyer, like, you really have to like have a strong conviction that they're not going to. right so like like if you're and and i think like it like eliminates like a certain amount of why bidders so i don't know that answer you the question not no no that that was great let me ask you another one that i've been thinking about a little bit and if you want to say there are two names i'm thinking about in particular if you say i'm all this i'll give disclosure but you know as i said at the beginning the rule of thumb has been in liquidations so they come out with the low end right 20 and the low end is like, hey, man, you know, an asteroid hits the earth.

It turns out our chief legal officer stole 50,000 bucks from us, all this sort of stuff. Like, that's low end. It's like every contingency is in there. And we've seen a few that have come out low. And I've just wondered, a lot of people, when some of these have come in, when they've had to adjust down, I've seen a lot of people say, this is why you want to be crazy conservative in the liquidation because you're going to get hit with shareholder lawsuits if you come in low.

And my two questions are, do you think these companies actually weren't being conservative when they gave these numbers? Or do you think they just came out into kind of worst environments? And then the second question, which I have some thoughts on, but I looked, you know, everybody says, oh, you go conservative because there's no incentive to go aggressive. Like, you get sued if you go. Has anybody actually ever been sued for saying, hey, we think we're going to do 20 in liquidation. And then they come in at 1970 and they say, like, yes, anyone can file. But has anyone ever had to actually pay out on that? I think that

I don't remember anyone having And also keep in my head to right Like I think there's a big difference between like If you if you if you if your low end was 20 And you wind up you know Revising it down to 1950 But I think like if you came out and said The low end is 20

And now we're going to revise it down to 17 I think you're a lot more likely Like the magnitude or the revision matters a lot right You are right, though, if you come out and you say liquidating, we're paying, we have a $20 and we're declaring a $15 for share dividend right now. The sub is five. If you take that from, you know, if you take it from 20 to 1950, on the sub, you actually did a big. So just one more thing, but I do completely agree with you. Yeah, yeah.

No, I mean, I think, I mean, it's real interesting because like, Andrew, like, you and I've been investing for a decade. Like, when was the last time you could recall this many liquidations within like one? one sector. No. Well, come on over to the biotech, Bill. I've got some of the same.

I'm just like, over there. Yeah, obviously biotech there's a ton of liquidation, right? I mean, but like,

I don't remember having five re-simultaneously be in liquidation. And look, I think it's a, it's an interesting counter example to you and I at the start,

my push back on the six to five. One of them was, you know, I kept saying corporate governance, corporate governance, corporate governance, and I do think this is an interesting, like, you've had multiple ones liquidate. Now, were some of them under pressure from, were some of them under pressure from activists, probably? In hindsight, do I think these liquidations are probably inefficient versus the Bill Chan just sell the whole portfolio to Blackstone route? Also, probably.

But I do think it's interesting, you know, you've had five. And a lot of what you said earlier was, hey, these $5 billion plus scaled market cap reads. And those aren't actually the ones I really have issues with, it is these, hey, we're a 700 million market cap reet with, you know, a billion of EV. Well, cool, you're spending 20 million bucks a year to be public. Like, how are you going to out rent? How are you going to outrun that drag and create your value? I don't think, I think the answer is no. And if they're all liquiding, like, I think it's just, and, you know, it's just,

it's very interesting to me. Yeah, no. And this, this is, I mean, I keep saying that this is, like, the most interesting reed environment. And this, this was, like, a great example of that, right? Like, five liquidations simultaneously. And I will trade them like, so we've been like very, very tactical. We've been in and out.

I mean, like I was up on Christmas Eve, you know, trading AIMCO because they close the deal, right? Like that was like a midday, the news came out. Like, it's a very, I haven't been this active in event-drivens within the REEC space in a really long time. It's a, man, Bill, I've got so much to talk to you about, but I actually have a hard stop here. I'm going to have to wrap it up here. Here's the two issues.

A, I have a natural next question, and we're just going to have to stop for the hard stop. And B, I've got 14 questions I have written on Alexander's group that we're never going to be able to hit. So maybe we'll schedule a quick, a quick follow-up appointment, and we'll both wear you another value podcast. What does I, Andrew, you want to do this? I mean, if we got a four, like three more minute hard stop, right?

Like, I'll. It's a right now hard stop. It's like a 30-second hard stop. Yeah, yeah, yeah. But we can, I love having you on. This was a really fun. conversation. We can keep this going in the very near future, either offline or on the podcast. So Bill Chan, Ryso, it's been awesome. It might be on the Mount Rushmore if you have another

value podcast, guess, but I really got to hop. We'll talk to you later, buddy. Talk to you soon. Yep. A quick disclaimer, nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.