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Your Commercial Real Estate Insider guide. From profiles of the biggest dealmakers to skyline-shaping transactions, we bring you the deals, breakdowns and war stories that move the market — for insiders, by insiders. From bad-boy guarantees to CMBS tranche warfare to syndicator sins, we cover it all.
Each week, The Promote Podcast explores three of the most interesting and consequential stories in CRE, taking you well beyond the headlines and into the heart of the action. Hosted by the award-winning “Bard of CRE,” Hiten Samtani, along with no-BS institutional insider Will Krasne. Now a top 80 pod on Apple in "Business & Investing." Also check out our 3x/week newsletter for industry insiders at https://www.thepromote.com/
Will Krasne (00:03)
Paraphrase the Goonies. It's Hiten's time up there. But down here, down here it's my time.
Welcome back to the Promote Podcast. I'm your host, Will Krasne
Hiten off gallivanting, and you're stuck with me doing my best Bill Simmons imitation with this mailbag. A shout out to our sponsors, Lone Boss, Best in Class CRE debt management software, Bravo Capital, a leading HUD and bridge lender that lives and breathes cap stacks, and Real Property Captive, the first group captive program for mid-market learners.
We asked and you delivered. It took a couple weeks, longer than we thought. It really was a hit to the ego. But we are full up and we are ready to go. So thank you everyone who wrote in. Thank you everyone who gave a review, who listens week to week. It is such a joy to do this. And without you, it wouldn't be meaningless because I would still do it. I would still chop deals and things up with a 10, but it'd be less fun. So thank you so much for that. All right. Straight dope, straight to the mailbag. Here we go.
This is from Jake Dersovitz. And if I mess up anyone's name, I'm really sorry. Jake writes, Will, I don't think you've ever spoken about what you actually own and operate. I would love you to briefly talk about your current portfolio, what asset classes you currently own and operate in, and your geography. Thanks, Jake. I'm sure a lot of people who listen in are thinking, what qualifies this doofus to opine on CRE? The answer's nothing. Like really nothing.
Nothing. Patent at least has a journalism background. I don't know why he picked me and I don't know why I'm qualified to do this. But anyway, here we go. So right now I have two things that I do on the real estate side. The first is industrial. I'm an owner operator of small bay. In small bay, your definition may vary. My definition of small bay is whatever an allocator thinks it is. So they'll give me some money. But I have a industrial platform focused on central Pennsylvania. So Lancaster, Harrisburg, York.
Are the main target markets? We own half a dozen deals in that market. I have a capital partner and we are looking to grow that. So not a solicitation, but write a five-star review and tell me about the deal there. The second thing I do is multifamily investing. I currently have two multifamily assets, one in Milford, Delaware. The other is a BTR deal in Salisbury, Maryland. I have a third under contract right now. So
All of these are sort of similar markets to industrial, but also focused on the mid-Atlantic, mostly Delaware, Southern Delaware, and the eastern shore of Maryland. So that's why I moved to Rehoboth Beach a year and a half ago to be closer to some of the assets that I bought. My wife was kind enough to join me down here. I kind of shanghide her. But we are headed back to Manhattan as my son starts school. Thanks again, Jake, for the question. This is from Brian Sabiecki. We're gonna do a
Quick, would you rather? And then one or two other questions that he's got. So would you rather be equity or debt on a non-hyperscaler data center development? I think I'd rather be equity because when you lose it, you can just say it was a data center. Who knew that things could go badly? Whereas if you're debt, it's really tougher if you lose principal on debt just because it's the nature of the beast. You're really supposed to protect capital, hasn't stopped a lot of people in private credit, especially software private credit.
But I think it's easier to explain away the losses on the equity side. So I'd rather be on the equity side. Would you rather own the best asset in a B or the worst asset in an A market? I was listening to the founder of EOS. He does hospitality. He was talking about how 70% of the hospitality return is based on the market. You can't out-operate yourself out of a bad market. You're better off being in a higher performing hospitality market and being worse at operating almost than being in a bad market.
Best at operating. And I really agree with that. We like to give ourselves a ton of credit here as real estate investors and say, like, I'm the smartest, I'm the best operator, I'm vertically integrated, I do this, that, and the other. I am inevitable. The shorter answer is that it helps on the margins quite a bit, but you can't outrun cap rate expansion, as we've seen. You can't outrun huge increases in your borrowing rates unless you have long-term fixed-rate debt. You just can't operate yourself out of those headwinds. The best
Operator in Phoenix has had a really hard time, you know, while the worst operator in a Midwest market with a much better supply story has had a much better time the last couple of years. So rather be the worst asset in an A market. And then the last is tertiary market storage syndicator son or single family home, wholesale or daughter. Single family home, wholesale or daughter. That's probably got a little bit more legs. You can get on the Facebook marketplace, make something happen. Who knows? Maybe you can get an HGTV show out of it.
Tarek Elmusa has made a whole career, and his ex-wife, who has her own show, they've done really well with home flipping. And I think that's probably a little bit easier to sell to reality TV than tertiary market storage syndication. What's the wildest tenant interaction you've ever had? Frankly, it's something that every real estate person we trade these. So I've got two. I think the statute of limitations is out on the second, so I can say it. So the first is
Right when I left private equity, I started buying 10 unit apartment buildings in Baltimore. And I'm from DC originally, I'm from the Mid Atlantic, bottom of Mount Vernon, which is a nice area of Baltimore. One of my tenants chronic late pair. And he would go five, six months without paying. We'd move to evict, he'd, you know, go to court, and then he would just pay cash. Do you accept cash? And so this happened probably for like two or three years. And every time we're like, hey man, like what's going on here?
So at one point I went to sell the building and he had like six or seven grand of bad debt. And this is, you know, $1,300 a month apartment. Two days before closing, he just shows up with like, you know, literally bands of cash, pays everything off. So that tenant was the guy who wrote Above the Rim in New Jack City. Very bizarre. What's the category in the rewatchables for the guy who's in a different movie? That was literally written by but this guy. He's above the rim, you one of my favorites, Birdie. Very terrifying.
Shep playing with no ball. Yo, he's playing ball without a ball. He wrote that scene. Magic. That's one. This second one is nuts. I've traded on this one, and there are folks who've run massive property management companies, huge owners, and this has been consistently considered the craziest story that anyone's ever heard. Have this apartment complex.
two story building and there is a trash chute on the second floor down to the first floor. I'm not gonna say the city, not gonna say anything else, like not anything identifying, but we have a video camera in the in the trash chute and it drops down to the dumpster, which then gets picked up at the garbage truck.
We get a call that, you know, one of our residents is not in great shape. And apparently something happened with the trash chute. So we check the video. And there is a lady who on the video walks into the trash chute, opens it, crawls in it, and just disappears. Very clearly, it wasn't like I tripped and fell in. The door is one of those doors you pull forward and it snaps back. So she pulled it down, got on it, and just
went in. Apparently what happened, and I Hannah God, this is true. It was a trash day. And the garbage truck is on the way to the dump and the guy here is banging. And so he stops the car and finds the lady in there and like obviously calls the proper folks. She gets picked up, goes to the hospital. And I I've seen this video. I watched the security camera footage. Miracle she didn't die. So everyone's okay.
We said, maybe it's best if you leave this place, go with God, whatever you need. I think we might have even offered, we'll give you a reference, whatever. And she left. Everything's okay. I never really got to the bottom of that, but that absolutely happened. That's by far the wildest interaction I've ever had. Brian, thank you for the question. Honestly, not sure why we should even release that, because I don't know if I still have liability. boy. All right. The next question is from Dennis Burrito.
Is it worth the brain damage to bring property management in-house? It's the perennial GP dilemma. I get it if you're trying to scale a platform to get AUM gobbled. Trademark. Thank you for putting the trademark in there. We are trademarking that, I think. Hit 10? Yes. But there are plenty of examples of successful regionally focused sharpshooter shops that don't do this. Thoughts. The first thing is it depends on your asset class. It is much harder to do some asset classes than others. Office asset management, multifamily asset management, super labor intensive, really hard. It's really hard to make money unless you have big scale.
Even at big scale, you really don't make a ton of money necessarily. But industrial, retail, some others where you have longer term leases. Once you sort of get somebody in there, they're triple net, it's a little bit easier. Self-managing makes a lot more sense. I self-manage currently on the industrial side. I don't self-manage on the multifamily side. Multifamily is really hard unless you have several thousand units. I know folks who are vertically integrated with 10,000, 15,000 units, and they'll tell you it's 90% of our time. And
We don't take any money out of business. I think it's really tricky. The the other part that's interesting though is that a lot of folks want you to be vertically integrated on the allocator side. So if you're looking to raise big pension money, it's really hard now to do it with third party. And even the big private equity firms, which used to really third party a lot, are trying to bring that in-house to some extent or to an affiliated company. I get the arguments for both. If you're self-managing, you know all the costs, you know how to run it, you have greater visibility.
But at the same time, if you suck at it, you can't fire yourself. It's like much harder to do that. And the costs at the corporate level like don't scale linearly. And you need so many units to really make it worthwhile. And you're dealing with such a HR problem. You have to deal with payroll benefits, which detract from finding deals. So at scale, yeah, I think it makes a ton of sense. What's tricky too is a lot of deals don't support third party management. I learned this the hard way, but I won't do a deal that
Has too little revenue to justify on-site management on the multifamily side. And that works out to 1.5, 1.6 million of total revenue and you sort of back into call it 100 plus units. Because below that, if you're scattered site, it's just really hard to drive the value. I think there's a difference in the resident experience, not having somebody there. Obviously, it depends on the market. If you own a 40-unit job in the West Village, that's all free market, the rents are $9,000 a month, totally different. I'm just talking about typical suburban class B multi.
The bigger question is one that I think really gets under discussed when folks are considering how they build their real estate careers. And that question is, what are you trying to solve for? What game are you trying to play? Are you trying to make the most money? Period. Are you trying to make the most money with the least amount of risk? Do you want the most job security? Do you want the most work-life balance? Do you want the most responsibility? Do you want the least responsibility? All these types of things. I can't answer them for you. That's for you. But those questions will sort of guide you. If you're looking to build a massive
Company, you're gonna have to probably bring it in-house. If you're looking to build a low overhead, a handful of IPs, really shoot the lights out, be targeted, but really focus only on a couple of markets where you have really good PM relationships. I think you could outsource it. The flip side, if you're just starting out and you're going smaller, building brick by brick and trying to build a local business, then self-managing does kind of make sense because if you're starting small and you third party, you're just losing such a vague.
This next question is from Jonathan Lawrence. I know it's not this guy because he doesn't exist, but in my head, this is Johnny Lawrence from the Karate Kid and Cobra Kai. Let's pour out a Cores Banquet for you, Johnny Lawrence. Thank you so much for all you've given us.
I'm relatively new to the hotel development game, and I'm wondering if you have a hotel that you think every developer should stay in at least once. Not necessarily because it's the most luxurious, but because it demonstrates something essential about hospitality. Bonus question, is there something in hotels that you're irrationally focused on? For example, I have a friend that judges hotels solely based on the quality of the slippers. If it were your hotel, where would you overinvest? Love this. I did
Hotel investing is our capital group. So hotels are my favorite asset class. And my joke is my goal with real estate investing at this point is become rich enough to once again do hotels down the line when it's not, you know, out of a fund. I will say this if you're new to the hotel development game, the best way to do it is to build Hilton Gardens or extended say hotels, but that's boring. That's not really what the the question's about. So the hotel that I think everyone should stay in once. Once. It's one of the grandms in New York.
And to me it's the plaza. And it's not even necessarily because of the rooms, or you know, things can look kind of tired. It's just such a big space. You see how it's a money pit. If you read The Plaza by Julie Satau, one person's ever made money on the plaza, despite it being this unbelievable piece of real estate, one of the best in the world. But I would say that because you can watch north by northwest and you see Cary Grant coming out of the oak room. Good evening, good evening, Victor. I'm looking for Mr. Weltner and two other gentlemen. Yes, sir, right this way.
And you show up there and it's one of the rare times where you just think, holy shit, I'm in the plaza. I think that every time I go there. The bonus questions, my answer here is easy. If if it's my hotel, we're talking full service hotels because my hotel is going to be a home to suites right off you know, highway interchange. Like that's the real hotel. But the fun hotel, the fun full service hotel, I would overinvest on the sense of arrival for the guests. And what I mean by that is orient the entire hotel when they walk in. You want them to
have a jaw-dropping experience. Not necessarily because of a view. That's always the best thing, I think, is that you walk in a hotel and what you want is you want the shoulders down. You want people to be relaxed because that's how they're gonna spend the most money. There's one, the Borgo San Andrea, when you know you walk down these steps and you see the ocean, you just go, holy shit.
It's the only Mafi Coast, that's a little easier. But in any hotel, you can really think about when your guests walk in, what do you want them to experience? Because that's the one thing you can really control. You know what's going to happen. You know there's one way to come in. They're gonna go this way. How do you index to make that memorable experience in whatever way it is? Something that's memorable that creates a sense of arrival, where you want people to realize like we are somewhere special. that to me is where you over index. So again, Johnny Lawrence, thank you for the question.
Sorry, I dropped my ring. This is from Jack Schwalby. The AI and technology buzz is everywhere. Pod sponsors aside, what are some truly game-changing technologies you see entering the area? Thank you for recognizing the pod sponsors. That's my stock answer. I am on message, like you wouldn't believe. I am going to random people in the streets and talking about Bravo Capital, Real Property Captive, and Lone Boss. Best in class CRE debt management software. Anyway, those aside.
So one of the things I do, and I've mentioned this in a disclaimer, I think, in our conversant new bond episode last year, is I was an investor and board member. I still am a board observer of a software company in the parking space. That's an ERP. we sold the company last year, great outcome. We saw through the lifecycle of that investment, a lot of tech and AI buzz in the parking space. I'm not trying to talk ill of anybody, but a lot of the tech.
was really focused, I think, on the wrong things where they were assuming that the customer was the parker, which is not the case. The customer is the operator or the owner of the asset. And the real customer is the parking attendant because your software could be the best software in the world, but if you can't get the people to use it, it doesn't matter. I'm focused less on what is the coolest problem you can solve. I dropped this thing in and it does a full underwriting for me. It does the full model, it does the full memo. I think all that stuff's kind of nonsense.
I fully believe and I learned this the hard way at Starwood. Shout out to Sarill Shah, Nakshay Goyle of Ruler Capital, who made you build every model from scratch. It's unbelievably difficult, but great discipline and great learning. So I think all that stuff's kind of nonsense. If anything, it starves the junior analysts and junior folks from the reps that they need to really learn pattern recognition about what makes a good investor. So the things that I think are really gonna work are not that. They're the ones that solve really discrete workflows and
Helping your folks improve. I'm not affiliated with these companies, so don't take this as me trying to get an affiliate view or something. there's a company called Flare, which is an AI secret shopper for multifamily. It's a really cool product because your business plan is as good as your worst on-site person. And, you know, you can hear stories about occupancy falling. I heard a great one where this property was showing great traffic, great leads, and they just couldn't lose apartments for the life of them.
And so asset manager goes on site, everyone's like, we don't know. It's it's going great. So it turns out the PM was just sleeping.
Whole day not returning phone calls, not doing anything. That happens more than you would think because property management, going back to the previous question, is a really difficult, really hard job. And so what Flare does is we'll secret shop and really just test how does your team respond? You can hear how they are on phone calls. We reached out on the website at 9:14. What time did they reach out back? How often did they follow up? It records the phone calls, which maybe, depending on your state, if you're not a two-party consent, who knows? But
It's really, really good at seeing how are your folks doing at the most essential part of the job in property management. So I really like that. And one more question from our friend Jack. Who's on your Mount Rushmore real estate players? I think I would go with Zell, Ross, Barnett, and Sternlight. Okay. I would agree with you on Steven Ross. Because he's built a massive machine, but it's really on the back of real estate development. He's in his mid 80s, he's tearing up Palm Beach. That's just love of the game, you know? He's got more money than God.
But he's out there building West Palm Beach because he just loves it. I'm biased towards the guys who are like the real estate guys, less so building the massive machine. And in this group, Barnett is the epitome of that because I don't even know how many people work at Xtel. I don't think it's that many, but he's just in there, just a deal guy, get stuff built. So I love all those guys. But my personal Matt Rushmore, number one for me is Mitch Morgan. What he's built in one generation is staggering. He's the second largest apartment owner in the country.
And he did it from a standing start 40 years ago. Done it at a conjuha in Pennsylvania of all places and king of Prussia. And he's done it without a fund. He's done it without raising, you know, 16 billion dollar opportunity fund vehicles. He's done it community by community and then really portfolio by portfolio. He bet the house at one of the scariest times of the last fifty years. Saying he was right is an understatement. It was as right as a human being can be. He's really done a lot of the growth in last twenty-five years.
You can look, there's an S1 floating around out there for Morgan properties from 2010 or 11. And I think they had 20,000 units. They're like random people in Cincinnati of 20,000 units. And to get to a hundred plus in this short amount of time without raising a fund. It's one thing if Starwood or Blackstone or whatever, they're gonna own 50-80,000 apartments at a time just because of how much capital they have to deploy. But to do it without a fund series is just staggering. And so much of it is the Morgan family, too.
Because of how much equity they've built over the years. I agree with you, Steve Ross. Like we've talked about him a lot on the podcast. I think I'm gonna go Donald Brenn. Very complicated relationship with the son, but in one lifetime building all of Irvine, all of Southern California, and he secretly owns all of these office buildings in the San Diego, which he's selling. I think he owns the MetLife building out of nowhere. Just in terms of the raw equity, I think he's in Forbes at 16, 17 billion, whatever. It's that's so low. How much is Irvine worth?
So doing that I think is amazing. And especially he bought out all these counterparties over time. Like Alan Co. was one of the original investors, Alfred Tobman, all these really smart, uber wealthy guys. And Donald Brennan outlasted them all. And then 10 and I talk about like the cowboys to suits.
We love the Cowboys. Dr. Jerry Bus. He owned the Lakers famously for a long time before he passed. And his kids just sold majority control to Mark Walter. But he was a real estate guy in Southern California, buying apartment buildings, didn't have money. There are a couple great books. There's a Jeff Perlman book, and then Win in Times, The Magical Journey of the Los Angeles Lakers by Scott Osler and Steve Springer. Really recommend that. How he bought the Lakers initially is kind of insane.
He didn't have the money the day before because it was a super complicated trade with Jack Kent Cook for the Jack Can't Cook wanted to own something in New York. So he had to go buy the Chrysler building to sell the Jack Can't Cook to buy the Lakers and some land in Tahoe and all these things. And so he basically drove around with Donald Sterling the night before closing. It was driving through Santa Monica being like, I own that building. Do you want to buy it? What's the number? Like, let's go to the bank in the morning. And just the riverboat gambler, I love those types of guys.
Doesn't really exist anymore. You can't really do it. You need so much capital to get into this game. So Jerry Buss, even though he's really not a real estate guy necessarily, he's going to Mount Rushmore.
This is from Matthew Allard. Given the trajectory of rates and the low transaction volumes we're seeing to reset property basis, I think that is a word. That was him saying that. I basis is not a word. Basis is with a apostrophe F the S. No ES. Which in turn would drive returns to equity holders in theory and makes your equity investments more interesting. Do you see anything on the horizon that would shift the pendulum back toward the equity investors, property buyers, like the go-go days of the 2010s, very early 2020s?
Or is it just a lender's world for the foreseeable future and equity investors are just gonna have to live in it and rock fight through it? So buckle up. I think real estate is generally just a shitty business. When you think of what's a high quality business, you think of recurring revenue, low capital intensity, high margins, not a ton of regulatory risk, not operationally intensive. And real estate is none of those things. I don't mean to say that real estate's a bad asset class, it's not a
It has a lot of purposes. You can make a lot of money. And insider trading is legal, which is one of the most important things. And of course, the tax could favors it above all other asset classes. But I think we sort of got into this over the last however many years, probably post-grade recession, where we thought real estate was like a trading sardine, where the value of a real estate investment came from the appreciation, from the residual value increasing. You would try to increase the top line as high as you could.
We not really worry as much about the cash flow generation. You'd spend the huge CapEx dollars to show the ROI to then get the value to go up. And all these value add deals, like they never distributed cash. The way these real estate fortunes, all of these guys got started, Jerry Bus, Steve Ross got started because they made really high cash returns. If you go read Sam Zell's book, I think he talks about one of his first multifamily deals, and he's like, I made 17% my first year. You can't make a 17% cash on cash anymore. Like just doesn't happen. So I think we have this idea that.
Real estate was intended to make a two X in three years with no cash flow. And that's just not the case. All these guys built the fortunes, their businesses on cash flow. And I think we're just headed back there. And what that means is it's a lower overall return environment. I just don't think you can honestly look at a multifamily deal right now for the most part in under I to a twenty IRR. In the twenty tens, you could show a three percent rent canker, high five, six exit cap, and get to a seventeen, eighteen deal level pretty easily with.
intellectual honesty. And I think that's just over. And it's not necessarily forever, but it is for a long time. You have to adjust. And I think it's a part of this broader theory I've got. I stole it from one of my friends. What's different about this era is that the rich people don't actually have cash or don't actually make cash. When John Rockefeller was the richest guy in the US and Standard Oil just shit money. And he had so much cash. That's why you could see all this philanthropy, you'd see Stanford University get built. But
Now all of these guys have all this paper wealth, but they don't actually make that much cash. Steve Ballmer getting his Microsoft dividends and like that's really kind of it. Yeah, meta pays a little dividend, the Google guys pay a little dividend, but relative to the amount of their wealth, they do not have a lot of cash. And all of this is done with margin loans or borrowing against their equity holdings and something else. That's just sort of the world we've been living in, is is the number go up, not necessarily I'm spending cash or I have spendable cash. We're headed back there.
So the real estate debt, honestly, like I'm just an equity guy. I'm too optimistic. I just have never wanted to have the cap upside and you're taking all the risk, or not as much risk, but you're taking all risk for guaranteed return. And that's not really like guaranteed. I'm just an equity guy. I believe in things. Comes down to what are you trying to solve for?
So that's it. Appreciate everyone who wrote in. Thank you again to all our sponsors, Real Property Captive, Lone Boss, Bravo Capital. Thank you. We appreciate you more than you know. So thank you.
Marie again.