J. Darrin Gross
I'd like to ask you, Dale Watchowski, What is the Biggest Risk?
Dale Watchowski
Yeah, so Well, I could speak on on this topic for hours. But but I'll start by by just you know, offering a general thought and it's it's nothing that that that I'm sure your listeners haven't haven't heard already and in know very well but, but risk is inherent in our business. Being in the real estate business as an investor is, is you know, we're no strangers to risk and, and, you know, as developers, you know, I'm part of a pretty optimistic lot. And I think you've probably heard it said before that you have to be a dreamer. And you have to be a very, you know, an optimist to be a developer. And, and I would say that I'm probably the exact opposite of that. So I tend to focus on the downside, and, and, you know, my team here, as always temper that, you know, because I'm always pointing out the risks inherent in everything that we do, but but I'd say that, you know, you know, speaking outside of, you know, the risk inherent, you know, that inherent in the insurance industry, I'm gonna, I'm gonna go to kind of market risks right now, and I'm going to tell you that, that to our conversation earlier, my biggest concern is around, you know, our Office users and, and, you know, are we going to be able to retain them? You know, will, you know, will we go back to the office? What form? Will we go back to the office? And what's it going to cost me, you know, to build out space that is attractive to my office users? And, and, you know, what did we do during this time of transition, you know, when your users are only looking to renew on a short term basis, which is really what's happening right now. So, you know, so what the, the impact of, of all of that might be is that is the capitals becoming much less scarce, you know, for Office owners and developers. And because the, you know, like, the capital markets are pricing in the risk inherent in that business. And so, and so I see the development of capital playing significantly into the office market. And, and so, I also see on the residential side, I'm gonna move to another area of our business. And in this translates into, you know, both our market rate, you know, traditional multifamily uses, you know, of any age, right through, you know, a multi generational platform, that will include senior housing, but, but affordability is a major factor. And, you know, while we were not acquiring bundles of properties, you know, in multifamily, you know, over the course of the last five years, you know, we certainly were looking at, you know, the trades that were being done out there, and, and you know, what had happened is we took a, you know, an affordable stop, and we said, Okay, we're going to, we're going to improve a kitchen, or we're going to improve the common areas. And what we're going to do is we're gonna increase the rent by 20%. Okay, and now you factor in inflation, and what's that going to do to, you know, the housing stock that's out there that would have otherwise been affordable? And then the other factor is, how are we going to build housing that, you know, that that our our tenants can afford, you know, given inflationary pressures? So, so I'd say that there's a lot of pressure on the residential space, in that, in that we're going to have to be responsive to the needs of the general population, which is, you know, how do I afford to live? And maybe that's why multifamily or rental housing is so, so attractive, and probably the reason why we're looking at single family rentals. You know, it's an alternative to single family ownership. And so, you know, what I see, you know, as a trend right now, in this is intergenerational, is that is that people are underemployed. And so that'll probably change, but, but then kind of moving over to the senior space. You know, what I've seen is a trend is that many of many of the boomers throughout this recession, or this throughout the pandemic.
By the way, I happen to believe that we're probably in a recession right now, but at least the real estate recession but, but that said, many of the boomers have have retired, or they've left the workforce. And, and then those same boomers that we're trying to attract into our senior business. They're not like, you know, the greatest generation in World War Two generation, they don't have savings. They don't have equity in their homes. They don't have pensions, and they don't have 401 K's, you know, which is what really drove our business and enabled us to maintain occupancy levels, you know, over the course of the last 10 years. So we have very few of those residents left and, and very few of our residents now, you know, how the kind of money that they would need to move into one of our properties. So what's happening is that they're moving in on a need driven basis, and they're moving in at, you know, 85 rather And then 75, which is where they were 13 years ago when I came into the business. And so and because of that, they have more health needs. So we have to find employees to serve their needs. Okay. And, and those employees are out there. You know, so, you know, how do you, you know, how do you mitigate that risk, and I think you mitigate the risk by trying to play in the middle markets and build a product that's affordable, you, you know, you try to, you know, not just attract and pay your employees well, but you, you try to retain them by, by offering them a great, you know, work environment, and, and then what you're going to have to look for is a way in which to retain your talents, even after they, they don't have the ability to pay any longer. And so we're, we're looking for different forms of assistance to bring into our business. So a lot of factors play into this. And I think I could, you know, as I said, I could talk about it for an awful long time. And, and that doesn't even, you know, bring up the risks that we have today, that present themselves, you know, as a result of, you know, geopolitical pressure and in the environment that we're dealing with. In the US, we started our conversation before this call, the environment that we're dealing with is one that's quite obvious through, you know, the heat that were that were incurring right now. And in the fact that we have to keep these buildings running well, throughout, you know, extreme temperatures. So So there are a lot of challenges. I think you hit on a interesting topic.