Darrin Gross:

I'd like to ask you, Kyle Tushaus, what is the biggest risk?

Kyle Tushaus  

I think, right now everybody's kind of afraid of inflation, which is an interesting business environment to be in for real estate, because everybody kind of gravitates towards this industry is a safe haven. I think you can kind of take that a step further and think if I'm going to de risk myself from inflation, and I'll say inflation, I don't think is actually the risk of getting at its eventually I think there's a risk that I think a lot of people are not thinking about some are but I haven't seen any media headlines about it. But within real estate, right, you might say okay, well what's my what's my best inflation hedge within an inflation hedge? Right. And that would be a property that I can mark to market more often, right? So the reason why consumer durables doesn't do well, and inflation is because I can wait 10 years to buy my next car or washing machine. But bread and butter, I'm gonna buy that more often. And so that price can keep going up every time I transact. So how can I mimic that in real estate and well, the properties that get marked to market more often would be better and inflation environment. So hotels get marked to market every single morning. So it should be the best inflation hedge, but you've got the dual side of that sword, it says it's also discretionary spending. So be very careful on that front. But then, so maybe I'm okay with every year, say in multifamily. You know, the, the triple net 25 year lease would probably be the worst, depending on how that lease got written. So there's obviously a spectrum even within the inflation hedge that is our industry of commercial real estate. But the thing I haven't heard enough people talking about, and the thing that scares me the most and influences a lot of how we're going into these, these, this first phase of deals is that the labor risk that is kind of bubbling under the surface where you see a lot of these value add deals, I mean, people have been ever since 2008, value add has been kinda like the everybody, everybody and their cousin is getting into this idea of renovating a property and popping the value of it. But I think there's going to be a massive moving target into how well you control those costs. And so for like an interesting data points since about the early 70s. Productivity, or I'm sorry, compensation has gone up 115%, since the early 70s, which sounds great hiring 10 or 15% increase in compensation. And that's for non supervising roles. So the roles, the jobs that are actually doing the thing.

While productivity of the same jobs has gone up almost 250% During that same time, so there's this massive difference in the throughput that's being provided by somebody in our job versus what they're getting out of it. And I look at the landscape of people now for the first time in four years even know what inflation is. Our socio socio economic landscape is not great, there's a lot of political strife. And I feel like that gap is probably going to get closed to some degree. And so I see a big risk factor in those business models that are going to be very reliant upon labor as an input, because I think we're about to see a compression of that gap. And I think rightfully so, I mean, you look at some of the numbers, and it's just, I might be a little jaded, I came out of, I came out of school, after the Oh, eight collapse. And so I don't, I don't really have the, I don't have that much of an experience through that run up. But, you know, you look at what was accomplishable with, say, your bass degree, or even no degree 3040 years ago versus now and how much you know, someone's having to work to get the same throughput in terms of quality of life. I don't see it continuing status quo for much, much longer, maybe, you know, we kick the can a little bit longer, but I don't see people being willing to do it. And the great resignation might be sorted a first little cue of it. But yeah, I think I think what's about to follow inflation is and we talked about energy prices going up housing prices going up, when labor prices keep going up. And right now it's the remote workers that are driving, you know, the leverage in those negotiations, it'll eventually get to all labor. And if your investment thesis is heavily dependent upon labor, I would think of some ways to lock that in ways that we mitigate that, right? If I if I see a value add deal. It's got to be in a market where I've already got a pretty good relationship with the GC. And I can go to them and say, Do you want to be part of the GDP tranche? And so with that, I can say, you're now going to have equity incentive, not just, you know, hourly rate, or markup incentive. So, you know, let's put together a budget of do not to exceed and you control that cost, but you're also in our cap stack. Now, you know, outside of that, I would be very worried about taking that GC risk, because I hear horror stories of colleagues having guys walked off the job for $2 more an hour. And, you know, it kind of sucks when you've already pulled the debt on the deal. And you got, you know, this bridge loan kind of clock ticking away at you, but then you look at the data and you're kind of like, well, I don't necessarily disagree with it. I mean, someone offered me more you probably do the same thing. And so I think it's something that needs to be taken into consideration when you're when you're underwriting because I do think that's the next big wave to follow in this. disinflation run up.

Today, my guest is Tom Dunkel. Tom has a background in corporate finance, and over 25 years of real estate and investment experience. Tom brings extensive experience to Belrose storage group, taking the company from a startup to a world class organization. And in just a minute, we're going to speak with Tom about self storage syndications.

J Darrin Gross

I'd like to ask you, Tom Dunkel, what is the BIGGEST RISK?

Tom Dunkell  36:38  

Like lots of business owners out there daring and we have a number of different different risks that we're faced with on a daily weekly annual basis. In the, like, in storage, as I, as I mentioned earlier, we're avoiding development projects, because we just see a lot of risk in those right now with with supply chain issues, labor issues, material cost issues, and it's just not really in the DNA of our company. So we're avoiding that one entirely. On the facilities that we do buy, we minimize risk by not over leveraging by being conservative with our projections. And of course, we use insurance to make sure that the physical plant is properly insured. But as far as our biggest risks our business there, and I would say, it's really, it's really me, it's really me and our leadership team. The business can only grow and go so far as we're able to take it. So we have to be the best that we can be we have to be we have to be educated and smart and and hire the right people and bring in the right partners. Because if any of those things get out of out of whack, you know, we're not going to reach our potential and that's what we're we're here to do or reach our potential and provide value to our investors. So we're always looking for ways to improve ourselves and improve our business. As I mentioned earlier, we do have core values, we do have a purpose. And so we use those as our guideposts every day in our decision making. But you know, we're always looking for better ways to do business to take care of our investors and just be good good members of our of our business community.

Today, my guest is Neal Bawa, Neal is a technologist who is universally known as in real estate circles as the mad scientist of multifamily. Besides one of the most in demand speakers in commercial real estate, Neal is also a data guru process freak and announced an outsourcing expert. Neal treats his $1 billion multifamily portfolio as an ongoing experiment in efficiency and optimization. And in just a minute, we're gonna speak with Neal about real estate, disruptive trends tokenization and property or prop tech.

The biggest risk to the commercial real estate market. So I'll stay away from single family. The biggest risk to commercial real estate family is that the jobs back in 2014, made it very easy to raise money raise have syndicators raise money. And what has happened today is syndicators have become such a massive percentage of the overall multifamily market, that they are inflating the market far, far beyond its fundamentals, not just beyond its fundamental fundamentals, but far far beyond, because their ability to raise money has accelerated far beyond, and far quicker than the property's ability to raise rents. And so that has created a situation where there's a very, very aggressive, all ships raising effect, that is making these properties go far beyond their fundamentals. And that is a very risky situation. We're all in it. I'm in it, even though I'm doing new construction, I'm still in it. And so it's something that we have to really watch very, very closely. I do not believe that it's possible for this bubble to deflate, it has to burst. And so I'm, I'm just being very cautiously watching this to see if there's any evidence of it bursting. And it probably isn't ready to burst yet simply because rents are rising so fast. So to me, the point at which the bubble could burst is, you know, the Feds raising interest rates very, very quickly, they have to do their job because inflation is under control, which means and the Fed is only once out of 10 times succeeded in engineering a soft landing, which means that there's only a 10% chance that we'll have a soft landing, this time, there's a 90% chance we'll end up in a recession. So when that happens, rents could fall. And that I think is the point of greatest risk for the commercial multifamily market that has been flooded by syndicators including myself since 2014. So we've had eight years of crowdfunding and the syndicator flood, we have not seen the bubble bursts, all bubbles by their nature must first. I don't believe in bubbles deflating. It happens sometimes I don't think this one will deflate. So I'm curious to see what happens when rents drop a bit in a recession. And luckily, they don't tend to go down a lot in recessions. Sometimes they won't even go down at all in recessions, right? So most US recessions, rents haven't decline. But if they do start declining, I'm, I wonder what happens to the industry at that point.

Today, my guest is Nobu Iguchi. Nobu is the co founder and Managing Partner of Agya Ventures, prior to Agya, Nobu worked at Bridgewater Associates as a senior investment professional. And he holds a BS in chemistry from Yale and his MBA from Harvard Business School. And in just a minute, we're going to speak with Nobu about the Creator Content Economy, and how it can help real estate investors.

I'd like to ask you, Nobu, Iguchi, what is the BIGGEST RISK?

Nobu Iguchi  

Yeah, this very deep question, but I think the, let me try kind of the short term and the long term, if I may, I think in the short term, so, you know, this is this is May, right, May of 2022, the world is looking, increasingly uncertain.  The economies looking increasingly after the inflation is through the roof. There's no, no indication is subsiding. And there's not a question that the Fed is going to keep raising interest rates. And even if they keep raising interest rates, which is basically I think, at this point, given, the question becomes, you know, is the interest rate? Is inflation actually going to come down? And what's the, let's say, stabilize the 4% 5%? I mean, is that acceptable to the Fed? And the likely answer is no, because they want the 2% interest rate, which is good for the economy, and that's their mandate. 

So if that's not acceptable, they may have to keep bringing interest rates even further up, which is a substantial risk for the, for the asset for the assets, asset prices, in general real estate, and also public market assets and private market assets. And, and also, it's an it's a risk to the economy. So it could lead to more job losses, unfortunately, and so on. So in the, in the short term, that's, that's, to me seems like a huge risk. For many of us a different context, it could be about our jobs, let's say, from an investor standpoint, for portfolio companies, the companies that we've invested in, I think there's a huge risk, they should prepare for it. So you know, for example, having not just having six months of cash in the bank, but you know, 18 months of cash in the bank, just in case, you know, there's a substantial food, our economy, they find it challenging to raise capital, and so on, and so forth. Real Estate operators. Again, it's the same where, you know, even though COVID, you know, in the United States seems to be to a large degree, you know, not a big, big factor anymore, and people are coming back to the office, perhaps that's going to have a substantially negative impact on our company's willingness to have more office space. Right. So I think that, to me, seems like a short term, big risk of like, in as big as through what the buffer should be, in each case, in one's case, to see it to prepare for the future. In the long term, what we see is an apology I have alergies today. 

But in the long term, what I would say is, even though, let's say with that sort of Outlook, technology companies, you've seen NASDAQ down a lot, you've seen venture valuation down a lot, right? And so on and so forth. But in the long term, we're very bullish still in, in, in technology, on technology, and in fact, are some of the best technology companies, including the say, Airbnb in the in the in real estate space, came out of basically a recessionary period. So even though that seems like a huge risk to have technology exposure, in the long term, there's a ton of risk in not investing in technology. So we talked about web three as one example. You don't have to necessarily invest in every single web three company or like, you know, adopt anything that comes out, but is keeping track of what's in the face. And even investing, let's say, as a real estate operator or investor and so on and so forth. And some of these, I think, actually, in a lot of ways mitigates risk. because there is a risk of obviously investing in failing in that, but also also other risks, which is you don't invest. And five years, 10 years later, you're kind of left behind. Right. So I think saying the short term there is the kind of inflation risks that could lead to potentially a recession that could lead to asset price. Coming down even further, in the long term, long term, that the risk is not investing in technology, and thereby being left behind.

Today, my guest is Jake Harris. Jake is a best selling author on distressed commercial real estate with over 18 years of experience in real estate, construction and investment management, and has been featured as a national speaker on his expertise. Over the past six years, he has managed and developed and acquired over $200 million in projects and over 250 million in the development, or he has over 250 million in his development pipeline. In just a minute, we're gonna speak with Jake about what to do before investing in distressed real estate.

I'd like to ask you, Jake Harris, what is the biggest risk?

Jake Harris  

So, I mean, I'm gonna give you kind of It depends, because depends on who who you are, as an investor, an LP investor investing into a deal. I think your sponsor Are as your biggest risk. And so because they're the ones that's kind of captaining the ship, I think if you're someone that's buying real estate, your biggest risk is the purchase, actually, because and maybe you've heard this or maybe you haven't heard this is you make all your money on the purchase. And if you overpay for an asset, it's very, very difficult to correct course, and trim out the expenses. And then you're kind of, you know, writing this, you know, failed investment out. And sometimes it takes so much more energy to even get out of it, then, you know, and you'd be like, all I'm trying to do is get my money back. And I see a lot of that right now. And alas, and actually, this morning, I was talking with a buddy, I realized I did not buy a single property and 2021. And actually, so far in 2022, I haven't this is the longest period of time that I have gone without buying a property. I think in the last 20 years, I think this might be one of the only years I have not actually bought real estate at all, any property, and over a year time period. And so I was looking back at that. And I was like, Wait, I didn't even realize that happened? 

Well, because I have a very disciplined, you know, like buy acquisition model that I'm looking at. Part of it is because I lost my ass in the subprime meltdown, I became a millionaire. And then I had a negative network. I remember sitting on the street corner in Tucson, I was crying. I was like, you know, a grown adult, crying, and sobbing and praying, dear Lord, can I be worth no money. And there are so many aspects of my life that I look back at that moment of that rock bottom. And the least important of it was the losing the money. The least important of it was going from a millionaire to a negative net worth and wanting to start over at zero, I was 7580 pounds overweight, my relationships sucked with my family, the girl I thought I was going to marry it dumped me. You know, there was so many other things. And so lots of people focus on the money risk of things, and they forget about them 80 or 90%, that is the real life. What is your relationships like, you can make more money, you can't rekindle the time of your relationship with your spouse, your kids, they kind of go away that opportunity to live those those, you know, Bucket List adventures, you grind, grind, grind, grind, and all of a sudden you realize you're 60 7080 years old, and you don't have the health to go travel and do those other things. Those are important. And so it depends on the category. 

As a human, I think the biggest risks that we're currently facing, is not pursuing the things that excite us that we truly, really want and living a very fulfilled life. And so I'll give you a Maslow's Hierarchy of Needs of premises. When you get and you're trying to figure out how to pay bills, you're just in a survival mechanism, you get to a levels of and I'm assuming that your audience members are starting to elevate up into that, because they're thinking about investing is they've gone beyond some of those levels. And they're starting to get into the self actualization kind of topper end of the pyramid of Maslow's hierarchy of needs. And so then they're trying to figure out what they are or who they are, what's their purpose in life. And myself, and this is a constant struggle. And I think everybody has it is like they need to give themselves that validation or approval. Sometimes it might be a millionaire, sometimes it might be making the New York Times bestseller list. But what happens is you stop thinking about what everybody else wants for your life, and you start leaning into the purpose of what you are put on this planet for. 

And then, because money doesn't equate to happiness, your success and making money is not what makes you happy, you've elevated up to that. And I think there should be an extra category on Maslow's higher hierarchy of needs, is when you're living your purpose and life in the service of others, is when you unlock true happiness is when you unlock the ability to then really impact the world. Because what you're doing is you're serving people that couldn't give you back and just not about a transactional equation of how do I make more money or know how can I benefit them? And they give me $1 back? How can I do this and you're elevated out of trading time for money into an investment that you have a certain free, you're living your purpose, and you're pouring it into the world in the service of others is when you will unlock true true value and I think that's what we're all really Seeking, we have to get through some of these levels of validation, we have to get through this of self actualization we have to get through this. And again, this is also part of my own journey. So to me, the risk and the biggest risks that we're all facing is not pursuing that. However, that mechanism looks for you.

Today, my guests are Alison Williams and Anna Ramos. Allison is the Senior Vice President and Chief Production Officer at Walker Dunlop. And Anna is a managing director for the West Coast and mountain regions. And in just a minute, we're going to speak with Allison and Anna, about commercial lending strategies for multifamily.