Subscribe
Share
Share
Embed
Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
David Moghavem (01:47)
All right, welcome to another episode of Deal Flow Friday. I'm your host, David Mogavum. Today we got Will krasne the, yeah, Will, how's it going, man? It's good to have you on. When we first connected, I was a little bit of a fanboy, because I love the PromotePod, which Will is the co-host of. But Will also does real estate for a living. He's not just a podcaster. I'm not just a podcaster.
Will (01:53)
Hey.
I'm well. Glad to be here.
You
David Moghavem (02:16)
We're in the CRE space and ⁓ today we're gonna talk a little bit about what Will's busy with, what you're up to, some of your investment strategies. know, when I listen to the promote, we're talking about all the big guns, we're talking about all the guys in the news, but here we talk a little bit about what Will krasne seeing out there and what you're busy with and some of your CRE insights. So it's good to have you on.
Will (02:29)
Yeah
Thanks for having me. Thanks for listening to the podcast. Thanks for the kind words. It's all due to my co-host to 10. I just drag them down.
David Moghavem (02:49)
You guys are like Kobe and Shaq out there with the promo pod. You guys are ⁓ yin and yay. Yeah. You're putting up stats on the court. I don't know how it is off the court. So ⁓ if it's good off, then maybe it's like a LeBron D-Wade or something like that. Yeah. But you guys are putting stats out there and it's awesome to listen to you guys and honor to have you on.
Will (02:56)
I don't know, we don't hate each other though, that's at least, or yet. No, it's good, off the board too.
There we go. ⁓
Thank you, it's great to be here.
David Moghavem (03:20)
So we'll maybe give audience a little bit of a quick background, ⁓ what Spectre's busy with and what you're up to.
Will (03:28)
Sure. So just my 32nd background is I was in institutional private equity at the Carlisle Group and Starwood Capital Group, doing multifamily and hospitality acquisitions and asset management. And then spent ⁓ the next five, six years building out a private real estate platform, focused on multifamily and industrial assets in the mid Atlantic and ⁓ dealt with the family office there. And I now run my own
platform ⁓ focused on the same types of assets. So multifamily and industrial in the mid Atlantic with a focus really on ⁓ South central Pennsylvania, Maryland and Delaware.
David Moghavem (04:09)
And you moved out to Delaware, you're in Delaware now, right?
Will (04:12)
Yeah, we did.
So I shanghaied my wife into leaving New York and moving down to Delaware. So I bought a multifamily property last year and I have more in the pipeline. We're delivering on a BTR asset later this spring. And so my wife was kind enough to move down here and let me be closer to the assets and ⁓ get everything set up so that I wouldn't have to be driving back and forth on 95 twice a week. So it's been, it's been much better being down here.
David Moghavem (04:41)
Yeah,
that's real dedication. ⁓ You don't, you we own across the nation and we're in different markets, but it's definitely something different to be right next to the asset or close by the asset. What was kind of the driving force that kind of differentiated you from
Will (04:44)
if
David Moghavem (05:01)
hey, I'll just buy in this market and visit once a month to, hey, I need to live here and visit the property and be more hands-on.
Will (05:14)
Well, I think more broadly, you just taking a step back to answer the question. I think it's really important to understand what game you're playing at any given point. And you guys obviously have a bigger platform. You've got ⁓ access to quite a bit of capital. You're nationwide. If you are coming out and trying to build that, it's almost impossible to raise capital. Just like a general like, hey, trust us. We're smart. And I can cover every market nationally. That's just really, it's a really hard sell. And so for me.
David Moghavem (05:37)
Okay.
Will (05:43)
Trying to build my own business. figured, all right, I can't be everything to everyone. I'm going to try to be like one or two very specific things and then take the bet that I can convince capital to come with me versus, you know, trying to go to markets where everyone else is, where I can't compete on cost of capital on scale on, you know, I'm not vertically integrated. And, you know, part of that was just saying like, I know the market because I live here and you know, it helps that I invest in this market because I think it's a very attractive place to live and.
David Moghavem (05:48)
So
Will (06:13)
You know, it, think helps folks get comfortable with it by the fact that like, I'm here
every day. You know, my, we move my young kid, ⁓ our dog, ⁓ my in-laws live down here. So, you know, we are very focused on these markets. I know the scuttlebutt, I know the traffic patterns and you know, that's not something that's scalable, but at this point in my career, I need to put up numbers. And I just felt that the best way to do that was to find a market that had really appealing demographics.
really appealing supply demand characteristics, and then just try to brute force the returns. And that's sort of why I'm here.
David Moghavem (06:49)
Yeah, I mean, you got to find your edge somehow. And that's probably one of the best way to do it is, hey, I live and breathe and do everything in this sub market. And I know, as you said, know the traffic patterns. This is why I think this property on this cross street is the place to invest. Talk to me a little bit about
some of the sub markets that you're bullish on right now in the mid Atlantic and what is the key metric that's kind of getting you excited about some of these different pockets you're investing in.
Will (07:23)
And so again, take this with a grain of salt because I'm absolutely talking my own book here, but I'm really excited about South Central Pennsylvania. Yeah.
David Moghavem (07:29)
By the way, that's what this pod is, right? You get someone on, they talk
their own book, and the audience gets to decide what they want to do, what they want. Yeah, for sure, for sure.
Will (07:35)
I just want to be upfront about it.
So I'm really bullish on South Central Pennsylvania, specifically in the industrial space. So part of the reason for that is industrial has obviously exploded nationwide over the last five, six, seven years, and even frankly, a little bit earlier than that. But South Central PA is sort of, it's, think the eighth largest by square footage market in the country. But if you go to CBR, CBR, JLL.
Cushman, Wakefield, all of the brokerages define central Pennsylvania differently. Like it's hard to get anyone to agree on like what the actual market is, which to me is an opportunity because if you were just looking at the research reports and saying, we got to be in a top X market, it's a lot harder when the market isn't defined the same way. Like everyone knows what the Inland Empire means. Everyone knows what, you know, South Jersey means. ⁓ Not everyone sort of understands central PA because like some might say that's Philadelphia. Some might say that's Pittsburgh. It's not.
David Moghavem (08:25)
So, you.
Will (08:33)
Like it's Harrisburg, Lancaster, York, maybe Reading, like some of the other ones. So those markets have much lower property taxes than like competitive products in South Jersey or around Philadelphia. So in the rents are 60 % of what class A is in those markets. And so if you're looking for overall occupancy cost for a tenant, it can be half of
what you're looking at if you're in South Jersey. So if you're a tenant and you don't have to be.
right at the port of Newark or right at the port of Philadelphia, you know, you can be half as expensive in central PA. And so we've seen a lot of tenants move into the market because you can get the same product again at half the price. And if you're a three PL, like the salad days are kind of over, like you got to compete on price. And so the way to, you can make your savings is on the real estate side. So you can pay nine bucks a foot for brand new, amazing class a space and a great location with the same connectivity.
David Moghavem (09:17)
Mm-hmm
Will (09:29)
Or you can pay 16 bucks a foot in South Jersey and, know, another one 50 a foot in property taxes above what you'd pay in central PA. So we assume that. And also because the rents are lower, it's really hard to make new supply work, especially below call it a hundred thousand square feet. ⁓ cause you can't spread the soft costs across enough space. So, you know, it kind of costs to build what it costs to build. Like the land prices are really what's different. and so if the rents are lower, it just makes it.
harder to pencil. So you have less supply, you've got growing demand, and that's a pretty good equation.
David Moghavem (10:07)
Yeah, it's interesting just how you were saying it before as like a emerging operator, you got to play around the fringes a bit with some of these markets and understand the nuances to it. And it looks like you found and carved out a nice niche where
As you said, the definitions of the sub markets have kind of cost some gray area where you can play around the fringes there and get a little bit of an edge on property taxes where the nets are going to be lower to your tenant. ⁓ What's interesting is on the supply side, you're even seeing that in some markets, free rate hike in multifamily where there were low supply on paper.
But then if you got crazy rent growth, the supply just flooded in. But it sounds like for you, it's maybe the barriers aren't there right now in industrial, but are you a little bit concerned of like, if rents just skyrocket, hey, like now industrial is gonna start popping up next to your properties? How are you kind of accounting for that?
Will (10:55)
Mm-hmm.
So the stuff that I buy is smaller. we buy 30,000 to a hundred thousand square feet. And those are really their service. We service the million square foot, Amazon, FedEx, Chewy, super tankers, because each of those buildings creates an economy sort of all to itself, because like the packaging companies aren't going to want to do like the off the run packages for the million square foot Amazon warehouse. They're going to sub that out. You you're going to need like
HVAC supply company to service all these buildings. Those are the types of tenants we're going after, but more broadly, like industrial versus multifamily, like your lease is in multi or a year. And so if someone sticks a gray star sticks up an apartment complex next door and they're charging two months for free rent, know, people are just going to go to that. it's, it's, know, industrial again is like kind of a commodity. Like the location is really what the barrier is. But if you.
David Moghavem (11:55)
Mm-hmm.
Will (12:02)
have a million square foot building lease to Amazon and then someone builds a spec million square foot next door. Like Amazon can't leave. I mean, they can go dark, but like, yeah. Now there is on the worker side because what can happen, what I've seen happen is if you're in a warehouse and you're hiring people at like, know, 15 bucks an hour, and then the warehouse across the exit hires at 16 bucks an hour, like those people can leave and that can make it a little more difficult. That makes it less desirable.
David Moghavem (12:11)
There's no concession hopping in industrial.
Will (12:31)
for tenants to go there because labor availability is one of the hardest things. So it's not just looking at like industrial market, like is the industrial market hot? You also have to look at can people afford to live there? Like, can people hire? Like, is it a good place to live? Because if you can't hire the labor, then the tenants eventually can't come. So that's part of what we see in central PA is it's a nice place to live and like good public schools, commutable, not super expensive. mean, it's gotten relatively more expensive, but compared to Philly, Baltimore, DC, ⁓
South Jersey, is very affordable. ⁓ and so we've seen people move there because they know they can hire.
David Moghavem (13:08)
And is this, I guess, is this where the multifamily part of Spectre comes in where you start also looking at some of the multi opportunities and your lens in industrial allows you to kind of understand the affordability ratios on the multi side?
Will (13:20)
Well, I think,
well, everything is, everything is intertwined, right? Because the rooftops on the industrial side mean jobs and jobs supports housing. So like, that's why I like doing a little bit of both. ⁓ one, think again, they're just differentiated business plans. Like the industrial stuff is much more of like high octane shorter duration. Like those are three to five year olds. Like let's get in and out, buy something vacant, fix it, it, sell it, ⁓ or buy something with Mark to market. Like burn off the Mark to market.
sell it. Multifamily is more like medium long-term holds and that's more like durable cashflow, less heavy value add. that's sort of more of the strategy there. But having both, again, they really tie into each other because you need housing for people to build industrial because you need workers as I said. And then if you have industrial growth, you know you're going to have job growth, which means housing can...
hasn't performed well, but really it's about figuring out where, like all of these things are commodities. I said, like every apartment community for the most part outside of, know, like eight spruce in Manhattan, like designed by Frank Gehry, like is a commodity and above a certain demand level, like the only thing that matters for medium long-term rent card is supply. And if you're in, you know, again, talking about a book, but like everyone can look at a ⁓
David Moghavem (14:30)
Mm-hmm.
Will (14:48)
census data, everyone looks at the same reports. Everyone's like, wow, like, you know, where people are moving Texas. Like, of course, like, you know, everyone knows that, but what I really like to focus on is like, what's the second derivative of that? So where are places where not only is the demand, the demand, like the nominal demand is less important, but like, is it, is the rate of demand increasing? You know, so like if population growth is 50 basis points, but the last three years it's been 120 basis points, you know, and it's
Getting better. That's a way to kind of front run supply. So, you know, and again, like these are the things you have to do when you can't compete on cost of capital, when you can't compete on scale, like, you know, someone else can buy a, know, if you own 20 assets in Texas, like adding one more is like much cheaper for you than it is for me to like go to a new market. So it's just, again, it's, all about trying to figure out what game you're playing and like, how can you generate the returns, ⁓ above market beta.
David Moghavem (15:26)
Right.
Well, I feel like the supply side story is now more, it's more in favor now than ever because rates are higher and people aren't, can't really pencil building as much. And the supplies already just hit these high demand markets that you're seeing.
the on the streets and you're seeing the distress a bit because of the supply wave that hit that can't be absorbed. You're seeing the Austin's, you're seeing the Denver's, you're seeing these parts of Texas that are getting hit on the supply side. so, yeah, so these high demand markets that people used to track of, ⁓ where are people moving to? Where are people ⁓ moving out of? Now it's, hey, where is there?
less supply that needs to be absorbed. And as you said, second derivative order of thinking, the mid Atlantic is one of those places. The Midwest is one of those places. Bay area is one of those places. So I think you're looking at on a right lens and there's something to be said about these low supply markets that maybe they're not jumping off the page on ⁓ inbound migration, but
they're resilient during times where you get these crazy rent growth and then the supply follows and you can get ⁓ pounded on net effective rent because of it.
Will (17:10)
Yeah, for sure. And again, there's no free lunch here. It's not like I've solved investing. Like there's not as much liquidity, right? Like if you're in Texas, if you're in Arizona, if you're in Denver, like there's always been to take you out. May not be like right now at a number you'd like necessarily, but like there's a bit like you can go get, you know, BOV and if you're priced correctly, you'll have 10 offers. Like that's not always the case in some of these other markets where I'm in. So you've got to be okay being in there for the longer term, which, you know, not everyone is, which is, you know, depends on your capital and
David Moghavem (17:15)
Right.
Will (17:40)
Again, so, but I totally agree with you that it's really about what's the supply story. ⁓ because we always, we forget about that part of it. Like everyone wants to focus on the demand because that's how you get people excited to invest with you. It's like, this place is growing. It's, it's popping up. Like, whereas if you'd bought something in, you know, let's like, pick a market in like Illinois, Wisconsin, that have been like really strong performers. Like people are maybe less excited to go invest in lacrosse Wisconsin.
But you know, if there's no supply and you've, you've printed like 4 % rent growth last year, like that's as good as anywhere nationally. I some of the markets I'm in, I I guarantee you, you've never heard of any of the towns that I own multifamily in. You'd be astounded if I told you what our year over year rent growth was. Um, it's just again, cause there's no supply. It's not cause anything else in that we have positive growth and no supply. And that's just as good as incredible demand, but then followed with incredible supply.
David Moghavem (18:38)
Yeah, and I mean, if you zoom over the Northeast and mid Atlantic and you just see like market to market vacancies, they're all sub 10%. And then you zoom over the Southeast and you'll be lucky if you see anything single digit vacancy factors. I mean, the fact of the matter is sub 90 % vacancy is very casual in the Southeast and the Sunbelt. Whereas in these Northeast, it's just
5 % as usual as people were underwriting.
Will (19:09)
No, totally. again, like you didn't capture as much of the upside in some of these markets as you would elsewhere, right? Like you didn't see the 17 % rent growth in Harrisburg, Pennsylvania that you did, you know, in parts of the Sunbell or most of the Sunbell, I should say. But again, you don't have the downside. And the way the compounding math works is that if you don't have like not having negative growth is really, really important, like the most important thing for long-term compounding, just because it takes you twice as long to catch up.
And when we started investing in Pennsylvania, you know, seven, eight, nine years ago, what really drew us to it is that if you go back and look at the performance during the great recession, like there was like one quarter of negative rent growth in central PA or South central PA in like 2009, I want to say, and it was less than 1%. And so you didn't, you, weren't necessarily a hero, you know, you weren't going to just like catch the most high beta market in the world, but
It's going to be like, it's going be durable. And over the long-term, like those in the markets where you're really going to generate cashflow and now, you you look at the components of return, like maybe you don't get the cap rate compression that you get elsewhere as more, cause again, that's, that's really dependent on capital flows, which are not necessarily in those markets, but you know, it's still like a very strong component of your total return. just backstops you. Like if you make a 10 % cash on cash over 10 years and you sell it for what you bought it for, you make 10%.
David Moghavem (20:12)
Mm-hmm.
Will (20:36)
And if that's your downside, that's not the end of the world.
David Moghavem (20:41)
Yeah, and I feel like that way of investing has come more into favor now than before, right? When everyone was, when debt was cheap, everyone was going bridge, bridge to bridge to bridge and trying to focus on trade outs in these.
high rent growth markets and being able to flip in, flip out. Now you're seeing where cost of capital is so expensive, you can't just flip in, flip out anymore. And they're looking at instead of what your IRR may look like, it's like, hey, what's your year one cash on cash? What's your cash yield gonna look like? What are the metrics today? That's more in favor now than ever. And kind of like you were saying, you start gravitating towards these types of business plans and markets. My question to you though is,
Will (21:14)
yeah.
Yeah.
David Moghavem (21:25)
Are you solving a little bit wider by being somewhere that has less capital flows than like a primary MSA? ⁓ Are you factoring that illiquidity in where you're just saying, hey, we're just comfortable with the cash flow, we don't need to sell. ⁓ And so you need a higher cash yield than maybe what the same property on a primary MSA would be.
Will (21:50)
Yeah, that's exactly right. Because again, no free lunch anywhere. to get, to do any of these deals, need capital, right? And so how do you like raise capital for something that's sort of off the beaten path a little bit, so to speak. And yeah, like if someone shows a deal with a reasonable assumptions on like a 17 IRR in a gateway market, I can't show, I'm not going to be able to raise capital showing like reasonable assumptions 17 IRR in this market. Like just can't, you have to have something different. And so.
It's really like solve on the industrial side. It's solving for higher yields. It's knowing the market better than, know, if you're just like spinning through comps on CoStar, um, you know, it's like, Hey, actually this deal is like, there's paper going out on the lease and like, know that. And I know where the market is, even if that hasn't printed, you know, it's going to show up in two quarters on a CoStar report. But yeah, you got to sell for a higher, higher cash yield. Like if you know, someone, uh, I was looking at a friend of mine, uh, runs a big firm and
They were saying like, yeah, we're developing like to a very strong, like six and a half yield. I'm like, dude, if I showed a six and a half yield in this market, like no one would ever give capital. you got, you know, it's it, and that's again, it comes back to like what game you're playing. Like this is the game I'm playing right now. I don't want to be buying 50,000 square foot industrial properties in South central Pennsylvania five years from now, but like for now, like this is the game. I feel really good about the story. I feel really good about generating the returns. And then, you know, once this
David Moghavem (22:56)
Right.
Will (23:15)
trade for lack of a better word is done. We print these returns, we'll see where we're at. But yeah, think it's, again, if I was running or if I was investing out of a billion dollar opportunity fund, I would not be doing this. know, it's just, this is the game that I'm playing right now and I'm trying to play that hand.
David Moghavem (23:20)
Yeah.
I mean, they're paid to take very different type of risk than what you're looking at, what we're looking at. It's a completely different business model.
Will (23:41)
I mean, I did
it, you know, and like, basically, if you're working at one of these big funds, like you're not really doing real estate investing. Like what you're really doing is like making widgets and, know, a pension fund or a sovereign is coming in and saying like, I want like a box of return, you know, and, you know, we're going to say it's an 18 for this opportunity fund or targets 18, but like, really I want like a 10 or 12, whatever. And
I'm just going to make that box for you and I can
David Moghavem (24:12)
you
Will (24:13)
do it. I'll give you an example of industrial side. There's a deal that traded in our market. Big private equity firm bought it, their first deal in the market last year. They bought it at a five, four cap, brand new seven year lease, like class A building, class A location. And I just remember thinking like, oh man, how are they doing? So I asked somebody at the firm and they basically said, well, we're buying it at a five, four, we're 50 % levered. We got an amazing debt because we're huge. So we have like.
Our cash on cash is like six and a half and there's 3 % 3.5 % rank bumps and we're going to sell it in your five. And we think market rents going to grow more than that. So we're going to have a market to market story when we go to sell. So we've made, you know, call it like a blended seven and a half cash yields. We're going to sell it at a premium and we'll like back into like a 12. And we feel like there's like our risk of losing money is very low. And that's a completely reasonable business plan for that business. You know, for me, it's.
David Moghavem (24:44)
So Okay.
Will (25:09)
illogical, I couldn't do that. But, you know, doesn't, and what I also want to get across
is like me saying this is what I do doesn't mean it's better. It's just different. Like, and again, like the folks were trading in and out using bridge debt. Like that was the right thing to do. You know, like everyone gives some of these groups, like I think tides in particular, gets a lot of guff. Like those guys made a ton of money for a long time for a lot of people. And, you know, yeah, they, you know, overstayed the welcome a little bit, but again, like
David Moghavem (25:31)
They did.
Will (25:39)
I just think if you're saying like, this is the one way to do things, like that's just wrong. Like if I had different capital, if I had a different situation, I would not do this, you know? And it's just, again, it comes back to like, what game are you playing? And I think there's a lot of, you know, especially on Twitter and LinkedIn and whatever it's like, this is the one way to do it. Like it's not true. There's a million ways to make money in real estate, but it's just, you have to know like, what is it like you're doing? Like, what are you trying to solve for?
David Moghavem (26:06)
I think that's just a concept that could be hard for other investors to digest just given the fact that, you got to be good at this one business model to be expert. ⁓ But I think the way that I look at investing is
like a set of principles a bit and just like having a bit of a constant on the set of principles and then investing accordingly. I don't know. It sounds like that's similar to what you have where you're dabbling in some multi you're dabbling some industrial you're looking at different markets. You're saying hey this might not be the right move five years from now but is there like a constant set of principles or one constant that you do have investing that you say like hey this investment needs to have.
this or this is what I try to look for in an investment no matter the investment.
Will (26:56)
Yeah. mean, I, the big thing, just comes out of risk reward. And I think you have to, you have to figure out a way to get paid more than the risk you're taking. And that the risk you're taking is different depending on the investment. The reward is different depending on the investment. But I remember my boss at Starwood said, he's like, look at the most successful guys that he pointed across the bullpen. And there's like in that bullpen, there's a guy who like runs a public company now.
head of real estate at a massive ⁓ asset manager right now. ⁓ And guys who've been very successful at Starwood. he's like, the thing is, like, they'd be successful in any other asset class because they understand risk reward. And I think that's really what it is. It's not like saying, we're going to, you know, just like renovate this down to the studs, all cash and like, that's our business plan. And like, that's a little bit like, you know, it's figuring out like
The market's changed. what, and you have to adapt with it and figure out how do I get paid more
David Moghavem (27:55)
So,
Will (27:56)
than the risk I'm taking. And that risk changes over time. You can't eliminate it, but like think of it this way. mean, 10 years ago, we saying, if I bought a massive office building on fifth Avenue, you know, and long-term leased to a bunch of law firms, like I'm, you know, that's really low risk. Like that risk has changed, you know, same if you owned a bunch of like, you know, regional malls, like.
that risk has changed too. So you just have to maintain, stay on top of it. I think constantly be thinking about like, how do I get screwed here? Like if I, if I see an investment, like if you're me or less so you guys, cause you're bigger, but if you see something, the first question's gotta be like, why am I so lucky as to see this wonderful investment opportunity? You know, just like, how do I get screwed? Like think about that all the time. It's, it's kind of not a great way to like live your life, but it's it's like kind of what you have to do in real estate.
David Moghavem (28:28)
Yeah.
Yeah, that's it.
No,
I think the more you invest, the more you focus in that lens. Like for us personally, we have our pipeline meetings and every time we go through a deal, we're never talking about why it's a good deal. We're always talking about, hey, here's the deal. Here's the red flag on it. Like we start with the red flags all the time. And then if we could get, if we could get comfortable with the red flags, then we talked about, okay, why it's good. It has this and has that as good schools and has this, but like,
Will (29:08)
Yeah.
David Moghavem (29:16)
The first thing we're talking about is, what are the red flags here? Why, how can we get screwed on this deal? Like, let's protect the downside first. And if we could get comfortable with that type of risk, then we could start digging in and getting excited about why it could be a good deal.
Will (29:32)
Yeah. And it's just really about process more than outcomes. Cause like, there's some things you could have done that, you know, during COVID for instance, like my old boss, I was on the hotel team, my old boss, who I think is like the best hotel investor in the country, you know, launched his fund in December of 2019, you know, in hospitality. Like not a lot you can do there. Like there's risk inherent, there's risk inherent in hospitality. Cause you obviously don't have long-term leases, right? So maybe you should have underwritten like that possibility, but you know,
David Moghavem (29:49)
⁓ Yeah. Right.
Listen,
with that said, if he held on, he's probably doing great. Yeah. But you're right. That's a scary time.
Will (30:03)
He's done very well. Like he's really, really sharp.
Yeah. So I think it's, just about, you know, you hit the nail on head. It's getting comfortable to risk and feeling like you're getting paid for taking it. Like you just don't want to be picking up nickels in front of the steamroller. Like, you know, if someone puts like $200 million in front of the steamroller, like fucking try to get it, you know, like, but not, not a nickel, you know.
David Moghavem (30:26)
Yeah, yeah.
Right,
right. Well, I want to move on. You are the co-host of the Promote Pod, as I said before, love the pod. It's an incredible what you guys have been doing is how long have you been doing the pod now? Is it a couple of years now or?
Will (30:36)
I am. Thank you.
No,
it's, it's, ⁓ think we are recording our 48th episode this week. So it's been about a year.
David Moghavem (30:48)
Okay,
a year. So credit to you guys. ⁓ I guess, first of all, what originally motivated you for starting the pod? I love to always hear the journey of a fellow podcaster and kind of what was the void that you felt was missing and why did you guys start the pod?
Will (31:00)
I'm
Well, I wish I could take credit for it, but it's really Hiten. So Hiten was former head of, yeah, former, yeah, he's great. Former head of content at the real deal. And he left to start 1031 media. And, know, his thesis was really that real estate has more characters for Capita than any other industry, which I would tend to agree. And real estate's also in everything. Like every major business story has a real estate angle to it. whether it's, you know, AI is powered by data centers. Like whether it's, you know,
David Moghavem (31:09)
It sounds awesome. I mean, his flow is great. Yeah.
Will (31:35)
housing affordability, obviously, is real estate. So he was doing a great job with the promote. I was an avid reader and we'd been friends for a couple of years. And he said last last winter, know, hey, like I've gotten a lot of demand for the podcast. And like, oh, that's great. Like, I can't wait to listen to it. And he goes, oh, well, you're going to be my co-host. And, you know, I, you know, my family's been involved in media. Like I love media. I've read every, you know,
eighties like Disney book, like all of the and A. So I love the media business. read puck every day and I would never invest in the media business. ⁓ but I love the space and we really felt that real estate, like I still think it's really underrepresented in business news. I mean, if you go to, if you listen to, you know, any of the other big business podcasts and they'll talk about the real estate market, they just mean like the residential housing market for the most part. And no one really like, I felt was
David Moghavem (32:10)
Yeah.
Will (32:34)
digging into like this discrete real estate topics, strategies, characters, and Hiten has done a great job of that on the promote and we've tried to bring that to the podcast.
David Moghavem (32:45)
Yeah, I love how you guys bring the characters to life, so to say, in CRE and
⁓ You know, we always talk about the markets and the trends, but when you're looking at deals, you're like, who's selling that one? why are they selling it? And like the whole ⁓ saga of real estate, I love how you guys bring that to life and make it almost like a drama film, so to say, of real estate, reality TV show.
Will (33:12)
Yeah, I mean, you're in the
business like you know how nuts people are here. But I mean, if you're just buying a stock, you click a button. If you're buying a bond, you click a button. The thing about real estate, which is so great, that you can do anything you want as long as you can get the other guy to agree to it. And that's just missing in other asset classes. sure we deal with such crazy characters in here because it's an industry where a
A lot of people are in it without being professional real estate people. like, I remember touring a property, about this multifamily property for like 19 million bucks and no broke. Like the broker's not there for the tour. The guy owns it's there. He's wearing jeans shorts. It's February. And he's like telling me, I don't need to sell. like, okay. Like I'm happy to, you know, we can wait, whatever. He was like, no, no, no, I don't need to sell. And he shows me a Schwab account with $12 million in it. He's like, I'm rich. I don't need to sell. I'm like, okay.
I believe you. ⁓ That's not going to happen if you're buying shares of Apple.
David Moghavem (34:17)
Yeah. One trend I'm noticing is like in our generation and as CRE becomes more institutionalized is, I feel like the characters are, there's becoming less of them as it becomes more institutionalized and you have these big players where it's like faceless names of 500 pound gorillas. How's your take on that in terms of the fact that we are in an industry that's becoming more institutionalized. Do you feel like?
that trend is also happening or is it just looking different than it used to with the cowboys all buying whatever they want to buy.
Will (34:54)
No, I think you're, you're exactly right. And I think the days of, know, Jed will lent it or sorry, David will lent us buying like Dumbo for, you know, $12 million. Like that's over. Like you have to have such a balance sheet at this point to do stuff at scale that, know, the Harry Helmsleaves, David will lent us is like the, you know, the cousins properties, like those types of guys, like it's just a lot harder. That said, I do think it's probably the best time to be a real estate entrepreneur.
at least since I've been doing this because you know, the way the market's going is like, you have to be one of two things. You have to be the 500 pound gorilla. So you've got to be a Blackstone. You've got to be a, you know, a Brookfield. I mean, even some of the firms that, you know, we talk about this in the pot all the time, like AUM gobbling, like there was an article on FT a couple of weeks ago about, you know, some really big private equity firms that
Like can't raise new funds or raising funds at like half the previous size. Like Madison Dearborn, like when I was in college, like Madison Dearborn was, you know, one of the most prestigious P firms that you could potentially get a job at. And now they're talking about like that firm might not able to another fund. So you've got to be one of those firms that can go raise, you know, essentially unlimited money, or you've got to be the exact other thing. You've got to be like, we're the sharpshooter.
And what we're going to do is like, can create a whole business and a really successful business around just like front running the stuff that they have to buy. I mean, I'm like pretty candid, like my strategy and South Central PA is literally to put enough assets together to like go sell to one of like three firms who are like, I like this market a lot, but I'm not going to incur the brain damage. It's not literally not worth my time to get out of bed and, write $3 million equity checks into these smaller deals. like, I'll write a $40 million equity check if you can put together nine of them.
David Moghavem (36:33)
Yeah.
Will (36:46)
You know, like that's, that's, that's what my whole business is. And I think that's sort of that opportunity sets really right. It's not just in this mark, my market. It's not just in my asset class, it's across the country. And if you can figure out where these firms need to be and like what's institutionally acceptable, like you can go build really, really strong businesses based on performance. And so I think it's the most exciting time to be a real estate entrepreneur. Yeah. In the last 10 years.
David Moghavem (37:12)
Yeah, I mean, going going back to that, like I love the play. I know we're going back to like business strategy, but like the play of
buying something that's like sub-institutional quote unquote and making it institutional where you're not just banking on the type of rent growth or the as is value and speculating, but you're creating it into some institutional vehicle or some type of asset that has higher demand or higher capital flows for that asset because you get the cap rate compression on the back end as well.
Will (37:42)
I yeah,
I mean, I've seen it. mean, you know, if you go read like the Tram of Coral Letters or anything like multifamily wasn't considered really institutional in like the late eighties, early nineties. mean, that's part of why all the read, that's why the read industry took place is because people couldn't like capitalize their portfolios. And even just on my side, like I think back to at Starwood and this is like 2014, 2015, we were buying like nice select serve hotels and good markets. So like really good Hilton, like Hilton Garden Inn's and like
David Moghavem (37:52)
Mm-hmm, that's true.
Will (38:10)
Good markets in the Midwest and the Southeast. And we're buying like 11 caps, 12 caps. And again, that's not just saying like, Hey, you were the smartest people. Like we saw this coming. Like, well, we were backstop by cash, right? Cause if you're making an 11, you're financing it at six or even seven, know, your cash on cash is really strong, like mid teens. Um, so we're like, okay, like that's the downside scenario. Like we're cool, but we think that select serve is a better business than full serve. Cause the NOI margins are higher.
David Moghavem (38:22)
Mm-hmm.
Will (38:39)
And at some point, like capital is going to figure that out. And like, that's exactly what happened. And that's happened in industrial, industrial 15 years ago, like not really considered institutional, like go look at which markets or which private equity firms, like if they're raising funds, like what was allocated to industrial was not very much like five years ago, data centers, like that wasn't really considered institutional. And now like Starwood's new fund is like 25 % data center. So if you can figure out where they get.
David Moghavem (38:51)
Right. Right.
Self storage
was there, yeah.
Will (39:09)
So yeah, it's a great example.
these are all things, you don't need to be a genius to figure those out. All you gotta do is follow the CRE news and you'll see where people, like John Gray's running videos will tell you. On LinkedIn, office is 2 % of our portfolio. We're really focused on logistics, housing, and what, you can figure this stuff out. And again, if you're an enterprising young person, you can go, like,
David Moghavem (39:22)
Yeah.
Will (39:36)
Roll in the ground game, figure out where these assets are and put them together.
David Moghavem (39:40)
And on that note, after doing the pod for a little over a year now, has your investment thesis changed a bit or a different perspective changed just based on how into it you are with putting up podcasts and talking about the market and if there is any lens that's changed, like what has changed in your view in these past year from doing the pod?
Will (40:04)
I mean, think the big thing is you have to fit, like it comes, you have to figure out what you are. Like, what is your business? I've said this a lot on this podcast, but it's because it's the thing that's become most clear to me over the last year is like, what are you? And not just like, why would someone invest with you? But like, what are you trying to build? Like, are you trying to build a business that gets like, that gets, know, puts together a of AUM? Like that's totally fine. Are you trying to build a business where you put up a lot of your own capital and shoot the lights out and keep the lights on with some small investor capital? Like that's totally fine too.
David Moghavem (40:14)
Right.
Will (40:34)
⁓ so you have to figure out what you are and then, cause if, if, if people can tell, I think the reasons why our podcast has taken off a little bit is because we're very ourselves and people can tell if you're not being authentic and you're in that, like, I'm sure we've all been this too. If you're like pitching an investor and you don't really believe it, like they're not going to believe it too. And people can just smell it. can't, they're not going be able to necessarily put their finger on it, but like they can tell, they can tell.
And so doing the podcast, think, really just solidify the fact that, you know, it's not about what asset class or what geography for me, it's like whatever I'm doing, I have to really, really, really believe in it because that comes across and that's really been the biggest takeaway for me.
David Moghavem (41:25)
No, you're absolutely right. I've said this before on some previous episodes, but like you got to die on that hill for whatever type of
investment thesis or deal that you're pitching, have to really have conviction, especially in this time in the market. Conviction is the only way that you can generate alpha and asymmetric returns. ⁓ Because if you're just going with the flow and going with what the crowd wants, you're not going to really be different than what the other commoditized groups are doing and what the big 500 pound gorillas are doing as well.
Will (42:01)
Yeah.
You don't have the, like, you're not going to have their advantages. Like if you saw the debt that Blackstone can get on multi or like the, how they can get Fannie and Freddie, like give them stuff on their dad docs. Like you wouldn't believe it. It's impossible for us to get that, you know? And so you're just not going to be able to compete if you're doing the same thing. I'll give, I'll tell you a quick story about baseball because I was a professional baseball player for five minutes. So I remember I had a teammate in college who came back in the off season. Um, he was playing in the minors.
And there was a, he was playing catch with an, this is in Florida. I to Rollins for my MBA and there's a bunch of pro baseball players in, in Orlando. so Zach Granke, who was a pitcher for the Royals, like he won a Cy Young. was a hall of fame character. ⁓ so he comes, he would come to our practices and play catch with this guy. so this is, he was a minor leaguer, ⁓ who graduated the year before. And so he's playing catch with Granke and, ⁓ Granke's like,
David Moghavem (42:43)
Yeah.
Will (43:00)
are you throwing any bullpens? Like what's, what's your programming is? I just do what, ⁓ they, you know, what the, what the, team, like the program they prescribed to me. And he was like, ⁓ so you're doing what everyone else is doing. And he goes, yeah. He goes, are you that much more talented that you can do what everyone else is doing and still make it? He's like, no. It's like, yeah. And I just thought that was like, that's, that's great. It applies to everything.
David Moghavem (43:23)
Wow.
Yeah.
Will (43:29)
We've invested so many different things. if, like, if you're sitting here and you're like an emerging manager, like I'm going to invest in Austin. unless you live in Austin, have lived in Austin, like have some sort of unfair sourcing advantage or unfair, like your best friend is the, is the, you know, county taxing authority guy who's like going to cut you a break. Like it's, you're not going to be able to generate the returns. You're just not like, and you've got to figure out a different way. doesn't mean you can't do that type of business eventually, but
David Moghavem (43:48)
Yes.
Will (43:58)
you know, all of these huge private equity firms, they were built on the first fund or two that were small and outperformed. And that can stick around for a long time. Like the one I always mention is like Westbrook Fund One, which was, you know, the Morgan Stanley real estate guys. this is like the mid nineties fund one was like a 28 or something. And it launched like 10 firms, you know, and all on the strength of that. And like even Starwood, I mean,
David Moghavem (44:05)
right.
Will (44:28)
Starwood was launched because Barry was buying multifamily for cash during the SNL crisis and like finance it out and sold it all the equity residential for stock before it public. But like that was a contrarian play. Like people thought like multifamily was not institutional. And, you know, if he'd gone and just tried to buy like malls or big office towers in the mag mile, like wouldn't have outperformed. So you have to do something different if you're at the start of your career. Like, again, it's like playing a different game than.
being later on. like, you know, it's like when everyone watches LeBron's
David Moghavem (45:01)
So,
Will (45:02)
workout videos and like, why is he doing like the insane BOSU ball squats? Like, why is he not like that? Like LeBron doesn't need a deadlift. Like if he gets hurt, like that's way worse. Like he just needs to not get hurt when he's working out. Like the risk profile is different. So you just have to know like where you are in your
David Moghavem (45:10)
Yeah. Yeah.
And even him, he's
doing, even him, like, if he talks about his training program, like he's the, probably takes care of his body more than anyone else in the league and look where he's at. And so you're right. Just like what Granky said, like you gotta be, you gotta be, you've got to do something different. You gotta do something different and you gotta be better in that regard.
Will (45:23)
yeah. Yeah. But like, if...
Yeah, you just have to do something different to definitionally generate different returns.
David Moghavem (45:40)
Amen, amen. ⁓ Will, this was awesome. Great banter ⁓ to have you on. You're also just like a natural at this point on the podcast forum. this was easy.
Will (45:45)
Yeah, thank you for having me, David. This was a pleasure.
I've had
a very good coach in Hatan.
David Moghavem (45:57)
Yeah, yeah, exactly. could see it. Well, looking forward to continuing listening to you and Hiten at the Promote Pod and 1031 Media. ⁓ Keep crushing it. And it was nice to take a step out of the Promote Pod and hear a little bit about how Will's investing in deals. So great to have you on.
Will (46:14)
Well,
yeah, thank you so much. was, this was a lot of fun and ⁓ congrats on the pod and look forward to doing it again.
David Moghavem (46:23)
Awesome. Take care.
Will (46:25)
See ya.