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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.
Shervin Lalezari (00:17)
Alright, welcome to another episode of Deal Flow Friday. I'm your host, Dave Mogavum. Today we have Shervin Lalazari, also known as Dead Sealing Daddy, on X. let me tell you something about Sherv. Not everyone is fortunate enough to have someone as sharp and as shrewd and be so analytical at assessing risk like Sherv. And
I personally am honored to also have him as my best friend, that I get to talk to him every day, get to talk to you when we're getting coffee at dinners, we debate, we're in the saunas. And I think it's really a blessing that I get to have you to bounce ideas off of. I mean, at the end of the day, we're just two 30-year-olds trying to place capital and make money, and to have you as like a sounding board.
Throughout my life has been amazing. And I really wanted to share that with the audience. And so thanks for coming on Deal Flow Friday. I know you are coming into the lines then of of real estate guys, as you are in our chat, where it's you're outnumbered, but you hold your own. And you not only hold hold your own, but you have a track record to show it. So it's really amazing to have you on. Thank you, David.
It's a pleasure to be here. it's it's an absolute honor. I know we've talked about this for some time, so I'm really happy we got to put
Put it in writing and the boys are excited to see are we gonna do a showing party on this? I think down for a showing party. I think we're gonna do another hype, yeah. A lot of hype amongst our friends. I think there's like I think there's odds right now. There's like a board of odds. Yeah, what does Vegas have the odds of? I think I think Hallshi is has has odds of different different prophets going on. So I love that. We'll see. We'll see. Wait, we haven't seen the odds yet because we we don't tamper with that. No insider training. But sure.
It's amazing to have you. Maybe let's just start off briefly briefly give the audience a little bit of background on yourself. Sure. So
Similar to yourself, I was a finance major in college, worked in investment banking post-college, left investment banking, worked for a few tech startups, so did operating roles there, mix of finance, accounting, operations, analytics, eventually started my own business. I owned a chain of liquor stores. sold that about
year and a half ago, two years ago, and you know, I've always been a stock market enthusiast since I graduated college and I've been in the market for a long time and so I've kinda picked up on on certain things and and you know
L like you mentioned, I think our our internal group of friends is a is a group of maybe twenty, twenty-five real estate guys. And I know I've always been the one stock market guy that's kind of been like the David against the the Goliath the David against Goliath. Right. yeah, just just
Have a passion for business and understanding you know, different businesses, how they grow, and kind of where the economy and the US as a whole is headed. Yeah. And I think that background's important because you've really covered every facet of someone who graduates college, like where they might get into, whether it's like straight into the IB world, going into a tech startup where you're at hyper growth, getting your hands dirty with operations on a business and a liquor store, doing you have some real
Estate deals you've done as well, and you've done everything in between, and you're trading stocks and you're putting positions. And so I think that gives you such a broad spectrum of understanding risk and reward better than anyone else. And so I think like to set the stage, let's talk a little bit about the risk spectrum and risk-adjusted returns and how that looks like from risk-free all the way to the ballsiest positions.
Yeah, like you mentioned, I've worked in a number of different facets and capacities within the realm of business. And what when you talk about finance and investing, like you mentioned, it's it's really about assessing risk versus reward. And depending on where you want to sit on that risk reward spectrum is kind of what asset class you're partaking in. So within the business realm, operating businesses, there's kind of on this spectrum of high risk, high reward, there's venture capital and
And
You know, I think the far majority of these startups fail. I was a I was a part of one of them. So just so the audience knows, I was a first 50 employee at Bird. We were the fastest growing company to reach a billion dollar valuation. Saw that business from A to Z ultimately until it's bankruptcy and the SPAC craze. So kind of venture capital is on this side. Then you move into growth equity, which is kind of more a little bit more established of a business, but still unprofitable, burning money, need to continuously raise capital to keep.
The lights on. And then you eventually graduate into like the private equity realm, or these are established businesses that are probably doing between 50 million to 200 million dollars in revenue. They're lendable, commercial banks will lend to them, et cetera. And then once you graduate from the private equity world, really what those guys do is they take these companies public. And so on the far right of this risk spectrum, you're talking about mature companies that have really stable cash flows that have kind of more predictable growth.
So yeah, depending where you want to be on this risk risk spectrum is is kind of where the world of investing kind of kind of lands. And that's in the operating businesses. We can kind of talk about real estate also. Yeah. And then I think that's where you kind of hand the baton into real estate, where you start getting into private real estate investments. And then there's obviously public ones. There's different asset classes in real estate. Yep. And the risk spectrum there, there's the equity side of it, there's the credit side of it, and playing throughout the cap stack.
I guess first of all, one of my questions before we kind of go in is like, where do you like to play currently? So having spent time kind of touching different parts of this, I've I've you know, I I my dad was a real estate buyer my entire life. So I kinda grew up in a household of real estate. I saw that firsthand.
I personally have been in the stock market since graduating college. I've worked for startups and you know I did the classic investment banking. And, you know, over the past 10 years, I kind of decided that where I like to find the best arbitrage is in the public markets. And the reason for that is because, you know, I
I kinda got burned working in a startup where, you know, you're on this like rocket ship and then it just crashes down. And I've worked in a business that, you know, made money, but ultimately, you know, it's a tough business, lot of competition.
No real moat. And so that eventually like it'll have its highs, but then it also comes crashing down. And so when I sat back and I really thought about it, you know, I ultimately determined that the way capitalism works is that the strongest companies tend to be able to prevail for the longest periods of time. And the strongest businesses in America are public companies.
And when you really delve into it, you know, who controls the majority of capital in America and who the super investors of the world are, they are hedge fund managers. And this is what they do. They pick individual, high-concentrated, sometimes public equities. And so within this realm, where I've personally found the most passion and interest in is this part of the risk-reward spectrum of kind of the world. So
You mentioned arbitrage. I think I wanna I wanna really dive into that word and the idea of finding an edge in a market like stocks that is so efficient. I think we could both agree it's the most efficient market out there. And there's so much data and that the data, even with AI, is highly commoditized. Whether as like in an industry I'm in, also feel like it's pretty efficient at times for sure. But there's relationships, there's kind of a finesse to it, there's operations.
So how do you find an edge and an arbitrage that as a as like a retail investor that you don't have this whole proprietary data behind you versus like a hedge fund, for instance? For sure. So I do think the stock market is highly efficient. I think
And this is kind of where Warren Buffett found his edge. If you are extremely patient and disciplined with capital allocation, you know, you're not gonna find 10 to 20 swings a year, but you might find one to two really big swings once every one to two years. And that's really how you make your money for the most part. You have to have the stomach for volatility, but you know, assets get mispriced all the time.
I don't wanna sit here and catch up the audience on kind of our whatever five to ten year banter me and you have had, but let's take Google, for example, right? You you know, just like a lot of our friends, of course, a big Google Bowl. Just exactly just a little context. Cher was really harping on betting on Google. When was it? Like when they were out of favor. I think it was when they released Gemini and it had a like the the the black.
George Washington come out of the of there and it was like on out of favorites, like, are they too woke? Woke AI. And you're like, no, their earnings, their forward earnings are missed price. they they have the mo. So like so, yeah, I I I mean, I I started building a position at Google before the April tariff dip. I think the April tariff dip really gave an opportunity to buy some of these stocks at really cheap, but really.
I guess the the market took a big hit in like twenty twenty two, twenty twenty-three when the Fed started hiking rates, everything came down. but kind of what picked us back up was this AI catalyst that picked up in twenty twenty three, twenty twenty four when ChatGPT got released. And essentially what happened to Google was that there was this narrative in the market that ChatGPT was gonna replace Google search. And so everyone kind of the consensus at the time was that their moat was disrupted.
And that they would and there are close friends of ours that held that position as well, right? And so that stock crashed down to what was it, a year and a half ago. It was at a at its trough, it was about 1.8 trillion in market cap. They're projected to do 200 billion dollars a year in Ebidah in 2026. So it was trading at roughly nine times EV to Ebitah. And is is EV to EBITDA, just to translate it for the real estate audience?
Is that the inverse of a cap rate exactly or is or not exactly? It it is and depending on the business, you know, there's accounting discrepancies, which I I'd love to get into later, but for now
Let's just kind of use it as a proxy for earnings and a multiple, which is essentially the inverse of a cap rate. Right. So a five cap would be a twenty x multiple, ten cap would be a ten x multiple. Same thing for a business. And so when you talk about efficiency in the markets, let's let's kind of delve into that, right? So Google hit a one point eight trillion dollar market cap in April of twenty twenty five, and we're now
a year and a half forward and I think at its peak Google hit a five trillion dollar market cap. So let me ask you this. How how do you think it's possible for a market to such a perfectly efficient market to misprice an asset that that wildly? Right? We're talking about
What is that three point two trillion dollars in market cap right discrepancy? And it's not like it happened over ten years. It happened over a year and a half, right? Like well, growth growth alone doesn't show that it was mispriced. Like I understand what you're saying. Like, how can how can value creation happen that drastically? So so let's talk about that. So why did it fall that hard? Right? So when your mo
Is and just so the audience knows, think of a moat for a business as kind of a princess in a castle and you have an army and walls defending this princess and you have a bunch of competitors, competing armies trying to penetrate this castle and replicate your business. And how easy is it for a competing army to come in and snatch your princess? Right? That's what a moat is. And so the market kind of determined, wow, Google's moat is not as strong as anymore. So it fell from a 20x business.
To a 10x business, right? And as time went on. And by but just to clarify, the moat is the search revenue that they had, that it was going to get disrupted by AI, right? Well, the moat is so this is the art of investing, also. You have to really understand these businesses and really understand the future, also. So a year and a half ago, you know, we're talking about the AI race, which is the most, which is the biggest industrial revolution in American history. It is also the most capital-intensive race in American history. You know, some of the numbers they throw.
Throw out like are just unfathomable, right? the hyperscalers collectively are probably spending a trillion dollars in CapEx. I think the the Gulf states committed two trillion dollars to AI infrastructure build-out over how many years? there's a lot of government-enacted policy, I don't know, in the in the hundreds of billions. So there's a ton of money being thrown at this, right? And so
When you kind of take a step back and think, all right, is is the market getting this wrong? And Google has so much behind it. They have their own custom chips with the TPUs that they've been developing.
the the longest out of all the hyperscalers since like twenty fifteen, twenty sixteen. They own the compute layer, right? So GCP, they have their own data centers. And on top of that, they have their own LLM too. And no one has more data behind LLM than Google does because they've been running search for 25 years, right? Where is
Where do you think ChatGPT is crawling to get a lot of this stuff from? Right. They're they're they're crawling the different websites that are hosted on you know on the web and and Google's kind of been capturing this data for 25 years. So who really has a structural moat? And aside from that, Google is sitting on $200 billion of cash in the most expensive race in history, where Sam Altman has to go out and continuously raise capital. So when you start to piecemeal these things together on top of a
cheap business. Like it it makes a very surefire bet. And you know, I went all in on it. It paid off very handsomely. And it's not the first time I've seen it in the market either. So I'm happy to touch on other examples. Yeah. And I think I think the examples obviously speak for themselves, but it's the approach. And I want to get into the approach a little more because in real estate
We look at the data we have available. We look at the third party data data, the co-stars, the we look at rent growth projections. And similar to how you're picking Google, I kind of translate that to us picking a market or going all in on a market. We look at supply-demand data, inbound migration, household formation. But then there's a little bit of an extra edge.
That I see in real estate to what I believe is generating alpha. And I know we've ad nauseum debated about what alpha is. And to me, I feel like specifically a market outperforming like the country, for instance, in my benchmark, or one stock outperforming SP is not necessarily alpha. Just beating the market or the benchmark is not alpha, but it's risk adjusted, right? Because
There is a risk, an inherent risk, of betting on one stock or betting on one market in us in real estate that attributes to that reward. And so risk adjusted, how do you generate alpha in stocks? I I want to hear that answer, but I would also answer in my sector, the way I justify it,
if you're a good operator and you can in real estate and get your hands dirty and get NY2 where it needs to be and get that extra juice, to me, that's also alpha is through operations. So I guess my answer to you, my question to you is like, how do you generate that extra edge beyond just picking Google or
Is picking Google itself having an alpha just by getting deeper into the analysis that maybe other people aren't looking at the same way? So let's talk about alpha first. So in the investment world, people at least when it comes to equity, people kind of pinpoint the SP 500 as the benchmark rate because it's the most passive.
It's essentially owning the 500 best companies in America. And anyone can do it, right? If you work a W-2 job making sixty grand a year, you just keep rolling your income into the SP got like 10% returns a year. But if you have someone coming forward to you and saying, Hey, I can beat the market and I can deliver better than that to you, right? So you're essentially convincing someone that you can beat the S P five hundred. And
Within the SP 500, there's also a lot of things I wouldn't touch in there. I think Costco is the number 10 company in terms of percentage holding in the SP 500. I personally wouldn't touch Costco. It trades at 40 times earnings, and I think that business is growing 5% a year at maybe 10% to 20% profit margins. That's not interesting to me, right? And so
When you really start to think about alpha, you're like, okay, well, and and and most of the biggest hedge funds kind of do it in a sense where they run a very high concentrated portfolio. So Bill Ackman famously also had the same Google thesis. And I think it was 30% of his portfolio at his peak. And he closed out the position maybe like a year ago and he rotated into something else. So really the the hedge funds at an institutional level that are finding the alpha are also taking very concentrated positions in individual stocks.
And that's what Warren Buffett did his entire career. Also, Warren Buffett did not own a collection of 30 stocks. Warren Buffett owned maybe five to 10 stocks. And he famously always said, Why would I own opportunity five to 10 where I can allocate more to opportunity one to three? And that is really how you find an edge. And as long as your reasoning and logic is sound and you've done your diligence and you're willing to take the conviction, there's nothing more American than risking your own capital.
And either winning or losing. That's it. Mm-hmm. I I understand that. And I think I think there is something to be said of betting on those three companies, those three positions, as you were mentioning, and being an expert in it and knowing the most in it, and that in of itself having some sort of edge. I personally think.
There's it's it's such a robust market with so much information at your fingertips, right? And the fact that there isn't a operational edge in that space levels the playing field. And so you really have to have the conviction to the point that.
I don't want to say you feel like you're smarter than everyone else, but you really have to have that conviction. Because at least in in real estate, when I'm bet buying a deal or I'm doing executing my business strategy, one of the questions like why didn't the other guy buy this or why are you paying more? Or like there's always a story. Like, how did you get this opportunity? So so just to touch on that, that is not unfamiliar territory for me.
I made my first million doing exactly that. Right. Right. So I found operational arbitrage in a niche business like liquor stores. And I built them from the s from the ground up. I built three liquor stores from the ground up. Right. And it was purely operational. I thought I could operate those businesses better than others. I got them for cheap enough that I could flip in turn flip them. And you know, I I always say this, I I I think you can, I think you can kind of
brute force sweat equity operationally make your way to like X amount of money. But where I've seen people really trampoline and rocket ship is if you can compound that base fast enough. And when we talk about an edge, I can
touch on more examples and I do want to touch on more examples. So one of the biggest misses of my career, and probably the thing that's hampered on me the most was back in 2022, I remember when and and this was me peak, like operating my business, every headache under the sun. And
Meta got hit because TikTok started to eat market share. I think it was the first quarter they reported daily active users slowed down. And there were a number of things going on in the economy. The Fed was hiking rates and the stock just got absolutely hammered.
Hammered to a point where it fell to like six to seven times EBITDA. And like I look at businesses all the time, right? My liquor stores trade at five times EBITDA. It's a shitty business. Why like why would Facebook, which is a 80% gross margin, 50% EBITDA, 50% EBITDA business, fall to trading that time? Right. And I had a significant amount of money in that position and I had a lot of conviction behind it. I was just so overwhelmed with work, so stressed.
Dealing with so much headache that I couldn't stay the course. And two years later, that stock 7xd. From trough to peak, it's 7x in a two-year period. And we're not talking about a meme stock or a random piece of shit company. We're talking about meta. Right? So how is that so inefficiently priced?
It happens. It doesn't happen often. I can name them this past year. I had a big position in Microsoft. Microsoft fell to a point where it was trading at 12 times EBITDA. This was maybe six months ago, it was sitting at 350, 360 a share. In the past two months, it's popped up. I think it just hit 510 bucks a share. Right? And why did Microsoft fall that way? It fell because the entire SaaS sector got hit.
So there was a whole SAS polit apocalypse. There was this narrative that AI was gonna threaten all of software.
And Microsoft got bundled in this bunch with a bunch of other garbage software that probably will get displaced at some point. But the other thing you need to understand is kind of like how the structure of the market works. So there's like SaaS ETFs called IGV, right? So if everyone's scared about SaaS and SaaS gets sold off, what's the number one stock in that ETF? Microsoft. So Microsoft gets hammered also, maybe unjustified or unjustly gets hammered for that reason. So you're kind of valuing the the short-term.
trends that the day traders are putting and you're looking at long-term positions to find that ARB. You also have to understand how the market structure works. Like there's it a lot of it is driven by computers and algorithms and not humans a lot of times. Right. So things fall things are more things are not as like linear anymore. They're more choppy. do you feel like the algorithms and the way that the market now trades on
auto basically autopiloting with these algorithms have caused more inefficiencies, if anything, long term. Yes, I do.
And I think anyone that tries to say they're a day trader and can compete, you can't. Right. Because day trading, you're competing against a computer and an algorithm, and you're you're trying to beat on speed and information and a hedge fund is faster than you. And that's a whole different game. It has more information than you. Same, same area, different. However, if you're very smart and you have a thesis of what the world will look like three to five years from now, which is all Warren Buffett has ever done in his career, right?
He doesn't believe in holding companies for the short term, right? If you believe this business can compound
Over time, which again, Google, it's literally in their name. Their name is Alphabet because they generate alpha through taking bets. And if you look at a company like Google, you know, I I always say, like, like, what are the most fascinating technological innovations that have happened in history? When I look outside this window and I see a driverless car driving around this city, I say, Wow, that is the most fascinating technological advancement I've personally seen in my life in the past 20 years. Like that's insane. And it provides a lot.
Of value to the world, right? Less car accidents. I think car accidents are like number one or number two deaths in America. Like, if you can solve that and they get in 99% less accidents than a human being would, like that's immense value to the world. And again, these are just businesses that have consistently been able to compound capital, right? And and that's the beauty of capitalism. The beauty of capitalism is that.
I can give my money to Google. Google can go create this innovative technology that and and they are the first and foremost to do it, beating China and the rest of the world. And all of us as Americans can partake in this beautiful system. And we all share in the wealth together. And I think what's happened lately is that there's probably a disparity between the level of education of people that don't really understand how capitalism works and understand how to partake in the system and have that have fell behind, which is a lot of the polarization.
You see in our politics today between Democrats and Republicans, which we'll probably touch on when we get into our macro. Yeah, when we get macro for sure. I want to actually steer it. I mean, there's so much here, but I really want to steer it actually to get a little more in the weeds on your approach for valuing a deal. I know that's something that you've you've been talking multiple of Ibit Dah. You've been talking about Ibit DA over EV, But how do you?
value and like what's your benchmark. And I wanna take a moment to even translate it in real estate terms a little bit and kind of put it apples to apples if we can. Obviously not perfect, but the idea of like what are the yields or the values and how does that look compared to cap rates? Sure. I mean you you could talk about any of these things. Like Google is growing revenue at 20% year over year. And again, it
And when you say nine X, you're always talking forward looking, right? Yeah, I think that's always so very important to distinguish. One the very important distinguishes in the world of finance is that you always look forward. And the reason you look forward is because these businesses are growing
Very fast. And the example that I give to you is that if you knew your NOI was going up thirty percent next year, would you accept an offer from a buyer that wanted to price it on your last 12 months NOI? Right. Yes or no? No. You want you want pro forma NOI, pro forma correct, mark to market. So you'll get burned in this market if you don't understand that Wall Street analysts are looking 12 months ahead. So that's a very important distinction to make. but
you you can model this out. If you take rental revenues and grow them twenty percent per year, right? And not only is rental revenue growing twenty percent per year, but
your NOI is also a NOI is essentially think of it as as we we kind of call it earnings per share. That's kind of the benchmark of how fast earnings is growing. Right. If you grow earnings twenty to thirty percent a year along with your revenue growing that fast and you buy it at let's just for easy layman's terms, a 10 cap, right? If you model that out, like you can see what kind of yield you'll make over the long run. Right. I think what's different with with us is
That's unlevered with real estate. There's not as much growth, but you're levering that with much cheaper, much durable cost of capital. Right. You can go levered in the stock market also. But you see what happened. I've done it before. Yeah. I've done it before. But I don't recommend it, but you see now there's a hotline in South Korea because people are killing themselves. I would love to touch on that also. I mean
The there it's the nature of a cycle. Me and you are both big Ray Dalio fans also. Big. So we both read his book multiple times. Right. The short term and long term debt cycles and how those work. So in Korea, for example, they kinda went through their dot com bubble bust, right? So they had two companies that made up, I think, ninety percent of the market cap of Korea, SK Hynix and Samsung. And they provide memory for kind of the AI trade. And
You know, you see a lot of people that you kind of get this FOMO and go take out home mortgage loans to partake in the stock market and everything roars, but eventually the leverage has to unwind somehow. And what happens when leverage unwinds? It happens like a domino effect, right? And so
When we talk about a short-term debt cycle, we're talking about kind of like human behavior and psychology and how that works. The long-term debt cycle is more so pinpointed at America itself.
And you know, we're now operating at 130% debt to GDP. it w it's the highest it's ever been. We we crossed a hundred percent during COVID. And so the question becomes, okay, well, how long can America go unlevered running a three trillion dollar year deficit? So that's kind of the long-term debt cycle. But in the interim between when America fails, there's gonna be these short-term debt cycles. A lot of it is
The Fed, monetary policy, interest rates, whether we're in a QE or QT phase, et cetera. And the haves and have nots, which I also feel like we're we're entering that phase. So let's go a little bit macro now. you were touching upon debt cycles at this point. I think one thing that you and I both talk about and we're both feeling is this K-shaped economy, the haves and have nots. The fact that you have, even in your world,
The the Mag 7 carrying the weight for the rest of the stock market. I think how that looks like boots on the ground in real estate is you have a lot of people on the high-end earners, but then the workforce housing getting w hollowed out, more bad debt accumulating, people looking for affordability. So how are you positioning yourself in this macro world and specifically in this K-shaped economy of like haves and have nots?
it's the same stance I've had for the past two, three years. Me and you have debated this for a long time. we're in a inflationary environment. Inflation helps asset owners and it crushes poor people. That's why that's why I like real estate in that regard too. But but I've been deployed for that reason. Right. And I've been asking people, why are you holding cash? It doesn't make sense. Your cash is being eroded five percent every year.
And so real institutional investors like all understand this. And so they are deployed, right? And then when you break down, okay, well, what do I do with my money? We're in a very polarized economy. If you take the SP 500, for example, I think 450 companies are probably treading water, which means they're probably only growing like three to five percent every year. And then you have 50 companies that are just knocking it out of the park, absolutely knocking it out of the park. And so when you
Think about where you allocate capital. Why would you even touch those 450? You shouldn't. It should all go towards the 50 that are knocking it out of the park. And when I mean knocking it out of the park, they're still growing their business 20, 30% every year. Revenue, I mean, Meta just po Meta just posted their last earnings report. They grew revenue 33% for a company that's doing whatever, $250 billion a year in revenue, growing revenue 30%, like at that scale is insane. Right. And so
That is what investing is. They are capital allocators and they're deciding where capital is to go. And your job is to kind of see the puck six to twelve months and be ahead of the curve. And so whether that means investing in equities or bonds or commodities or real estate or private markets or whatever it may be, like
That that is kind of how you think about capital allocation. Right. But you know, on the contrary, just play like a little bit of devil's advocate, whereas the companies that are treading water, it's also a little bit of just like a voting with your dollars, right? Like people want to go to the shiny, sexy, like AI.
And although the underlying asset of those 50 companies that are not knocking out of the park are doing well, there can be fluff, there could be evaluation, there can be a bubble. But I also
At least in my world, see how there is older vintage assets that are heavily mispriced simply because there's a lack of capital chasing that. And to me, when I think capital flows come back into our industry or capital flows come back into maybe some of those 450 companies, you'll see how there is a little bit of a misprice sentiment for those companies.
They're treading water maybe not because of operations, but because of just the dollars aren't there for that type of investment. So I love that you bring this up, and it's something that I actually really want to touch on. I think the best investors in the world are ones that can play different asset classes for the exact reason that you just mentioned right now.
And it's because when so much capital chases such few assets, what happens? They eventually get saturated in price, right? And they all need their exit liquidity. And it's the idiots that buy at the top that eventually get burned, right? But when you exit, what do you do next? Right. And so
Someone that I really admire
Justin Mateen. I think Justin Mateen is probably the best investor in LA. And the reason why I think he's the best investor in LA is because that guy can play every asset class. He plays real estate. He plays VC and private markets. He plays the public markets. And when one thing's not not doing well, he understands the other markets so well that he can shift gears and start allocating capital. I've been following him for a long time. He's absolutely crushed it on his VC deals. He plays the public markets very well. He cr he crushed
Crushed a lot of the same trades that I'm talking about right now. Right. And as you know, also he he buys a lot of real estate. So just like you said, but you have to understand all these different asset classes. And I think if you're a real investor in today's age, like you you should be able to really analyze any of these opportunities at any given moment. Because yes, eventually stocks will get way too overvalued.
People are gonna exit. And then these asset classes that are probably unloved and are now trading way too cheap start to attract some of that capital again. And so I think being a jack of olds investor is very important today. Yeah, I think you need to have that perspective across different asset classes. But it's also tough because me personally, I feel like in order to make it, you kind of need to be specialized in something. Just like you just said with.
Grinding your first million with the liquor stores. But at what point do you pivot to now being able to allocate beyond your specialty? You know, even you bring up Justin Mateen and his family's been in real estate. And Justin then also had his own startup with Tinder and went all in on that before putting himself in where he is today in all these different facets. And so
There is that balancing act where what the trade trend usually is is specialize maybe when you're young, make your first million. It's the hardest million you're ever gonna make. Then think about how to invest strategically in the right places, look for that arb, look at assessing risk return and picking the right horse. For sure. Yeah. And I think the game gets a lot easier.
Because capital compounds. And if again, like if if you start with a large enough nest egg and you can consistently obviously it's really hard to do. No one's saying this is easy. Warren Buffett did this over 40 years, but if you can compound capital over 20 years at 20%, like you can potentially make it anywhere between a hundred millionaire to a billionaire. I wanna switch back to macro for a second.
You love America. We love America. You're you put your dollars behind America. A lot of your investment thesis is around capitalism and America. You we talk a lot about different countries. And also we talk about the flaws of different parts of America, the trend to, you know, some of either it's LA or in New York of the socialist movement. Talk to me about America's outlook.
In this next decade, talk a little bit about investing in American companies, talk about like why you're so bullish in investing in America. I mean, I think the rest of the world is bullish on investing in America. And that's why you've seen our equities market absolutely crush over the past three years. But to really understand that, like you have to delve into what makes America America. so we are an extreme capitalist country, right?
And there is high incentive for someone to be an entrepreneur and go innovate and create something amazing for the world to use. First of all, no one has as robust a capital market system as we do. We have ours, no one's been able to replicate our stock market.
We have a VC Silicon Valley environment where VCs give a 20-year-old a hundred million dollars to go build a new business and it could fail. That doesn't happen anywhere else in the world. Right. Nowhere else in the world has that level of risk tolerance to go give a 20-year-old kid a hundred million dollars to go build a new business, right? But
When you start talking about innovating and giving people the incentive to go innovate and taking risk, that's ultimately what builds amazing companies where the rest of the world starts using those products. And that's how America grows GDP and flourishes. And that's how we've done it for the past 40 years.
And one of the best examples of this is in China, Jack Maw started Alibaba, right? And Alibaba flourished. It became an amazing company. People called it the next Amazon. Right. Right. What happened with that? China eventually came in and said, Hey, you built an amazing business. Like, good shit. This is ours now. We're gonna take it from you. Right? And Jack Maw like went into hiding. He fled. And so
One of the things we take for granted here in America is that we have due process, we have real courts, we have a real system here where you can't just take people's shit. And in other parts of the world, the government can come take your shit and you can't do anything about it. And the far majority of the world works that way. And it it's the reason why I'm so proud to be American. I'm a big patriot. I love this country. Our both of our parents fled Iran.
Fled a government that was exactly like that. They'll come take your shit. You can't do anything about it. Sorry, good luck. If the government oversteps their boundaries here in America, you can sue them. You can take them to court and you can have a fair trial. And that's why people feel foreign capital feels comfortable bringing it here. And that is why we are continuing to flourish. And yeah, you mentioned we have this DSA, liberal, super progressive.
movement that's taking on here and there's some merit to it. But And part of that merit too is like what we were saying before of the haves and have nots. A lot of those educated have nots. The wealth gap's never been this wide. Capitalism is like a rubber band and eventually it'll snap if you have too many people that are at the bottom, that are getting crushed, that are not keeping up with the rest of everybody else. And in the same token, socialism does not work. Like
Europe used to be the absolute powerhouse of the world.
Right. So before America was the reserve currency of the world, pre-World War II, it was Europe and Great Britain. They were the strongest economy in the world. And eventually, after World War II hit, this is eventually essentially how every empire rises and falls, is that you have your hands in so many different parts of the world. Great Britain owned India, they had colonization in so many other parts of the world, and it becomes too expensive to operate. And you eventually default because it's too expensive.
Right? Along with the war, that was kind of the dagger. And after World War II, America emerged as a reserve currency of the world. Well, what's happened with Europe since then? They've been extreme socialist, it's really hard to do business there. They're anti-business. They have no innovation. There's no real amazing schools there either. And
You know, GDP has been lagging, and I think I think they've produced maybe one five hundred billion dollar company in the last 20 years. Right. And I think their number one market cap company is LVMH, which meets cheap bags in China. Who the fuck cares about that? We're shitting out trillion dollar companies in America left and right. Right. Left and right. Two years ago we shit out two one trillion dollar companies. Yeah. And Europe is falling behind. And so
But let me I I don't want America to fall under that trajectory. But, you know, we both follow Ray Dalio and wrote a whole book of how that handing of the baton might switch just out. We took Great Britain's reserve currency. There is a play where maybe America will lose its reserve currency status. And Ray talks about China being coming back as maybe the next global empire and how that trend is starting to happen. Not there yet.
Do you think that's gonna happen? And if so, how can you frame an investment thesis around that? Because that's clearly n I feel like that's clearly not something you believe is actually gonna happen anytime soon. Yeah, I mean, I in the history of the world, every empire has risen and fallen. There's been no empire of the world that hasn't fallen. So I think it's inevitable that it will happen to America. Do I think it's gonna happen tomorrow? No. Do I think it's gonna happen five to ten years from now? No.
Do I think it could happen twenty to thirty years from now? In our lifetime, do you think it's In our lifetime, maybe.
So what Trump is betting on in this administration is that this AI productivity boom can bring us out of this deficit that we're in, and he's pretty much going all in on that bet. Mm-hmm. Which I think you follow and kind of agree with. That's the bet he's taking also. And that's why he's cut all the red tape.
around AI progress, right? And he's kind of just letting these companies do their thing. And it it's an AI arms race against China. And America needs to win that race. And, you know, I always say like
In my career, I I've waited for that one big lick that our generation deserves because I saw every other generation before us go through it. Right. Up until now it's been crypto, which was a fucking scam that I never complete scam never partaked in. Right. Never believed in. I'm like, there's no way crypto is my generation's big lick. Like, fuck that. Right. And
It's been this AI trade. And we're again, we're this is the biggest industrial revolution America has experienced in its lifetime. And
I I don't know. We could talk here and s talk about dot-com bubble and this and that. And yeah, the dot-com bubble burst in a lot of companies failed. But what emerged out of the dot-com bubble? The internet emerged. Right. And it it it took America to new heights. And so sure, there'll be short-term volatility in this AI trade, but if you believe artiful artificial intelligence is the future and and America will win that race, like you should be partaking. Yeah. And I think going back to the dot-com bubble, if you look at valuations from the dot
Bubble versus where multiples are right now. It's not even close. It's not even close. Right. Cisco traded at 200x earnings. Yahoo traded at 200x earnings. Businesses are not trading at two. The our our top market cap companies are not trading at 200x earnings. Right. I think people are. Nvidia is at a 20x forward multiple right now, like
Things are nowhere near as cra crazy as they were in the dot-com bubble. I think even in the nifty fifty crash in Japan in 1990, those businesses peaked at like fifty to a hundred X earnings for the most bullshit, bogus, fake businesses. Like, sure, there's a lot of nonsense in the market right now that'll get corrected and capitulated, but I don't touch those things. I I don't no real institutional investor touches those things. No real institutional investor holds.
Tesla. I'll give you money right now if you can find me a real institutional hedge fund manager that has Tesla as a high concentrated core position. None of them have it. Why is that? Tesla trades at 200x earnings. No real finance guy pays 200 times earnings for a business. Yeah. Right? So regardless of how you feel the underlying asset. Yeah, I believe in Elon Musk. I think he's an amazing guy. Would I ever pay 200 times for a business? No. Exactly. It's like you like something, but at what price? Yeah.
Wanna wrap it up with and you don't need to you know, you don't need to say anything that you feel like you need to say just because you're on the real estate multifamily pod. But how do you feel about multifamily investing at this moment? So as someone who's not in the industry, right? I I've never touched multifamily.
I think four or five years ago when apartment buildings were trading at like two or three caps, like that was a obvious easy to say in hindsight, but like when your cost of capital is is whatever, two, three, four percent, why would you buy on two to three percent yield? Now, does apartment do apartment buildings hold a
place in this world, obviously, everyone needs somewhere to live. These are predictable cash flows, right? If a if a residential tenant leaves, you can find someone else right away, right? Once a building is built, it's there. If you're in a growing demographic environment, there'll be continued depan demand for it, right? So it serves a purpose. Now, I think really where my take is is
Where you are geographically. And so I pr even in the stock market, I don't touch businesses that have headwinds. What do I mean by a headwind?
You all the forces of the world are working against you. You want to be in businesses where all the forces of the world are pushing against your back. It's called a tailwind. It's one of the first things we learned in investment. Right. Does this business have a headwind or a tailwind going forward? And I think in LA right now it's been experiencing a ton of headwinds from a regulatory landscape and from, you know, when you walk into a courtroom and you are a landlord, you are the devil in the eyes of a judge. Right. And I personally don't see that.
That landscape changing. I've operated And you're saying specifically LA. I'm saying specifically in LA. Right. I've operated businesses in this city before. Like I don't see that landscape changing here per se.
The thing I will say though is that prices have gone and beaten down really hard. I think even in the public stock market.
The the there's eleven sectors of the economy and real estate is probably at the most unloved or cheapest it's been in like a decade. And so it is bound for a rebound.
And I think what ultimately flips the script on real estate as a whole, per se, comes down to where the ten year is. And it really is so much about the ten year. And unfortunately, inflation has been high. The war in Iran kind of fucked a lot of things up, also. And so
So I mean we can get into a 30-minute debate about what's gonna happen to the ten year. Yeah, I mean we talk we talk at nauseum about the ten year and I think what is gonna happen to the ten year. Right. And I think what's what's what we always, you know, just to summarize our debates right now, is the idea that the Fed controls the short end of the curve, but the markets control that long end of the curve. And we can't control what the ten year is. It's a sticky index that has made it extremely difficult to dictate.
through Fed policy. Yeah. And so when we have runaway inflation and we have printing of money, there's it's beyond our control. And that's where values like multifamily and real estate are dictated. You and I have thought that America, if there's a will, there's a way with the ten year saying they have to get the ten year down. What we found to our to to our surprise is that they couldn't haven't been able to get it down. The war has made it harder too. And so
Can they get it down maybe eventually? But you've seen how even though there's a will, there might not be a way because the markets vote with their dollars. I think to a lot of people's surprise, the Fed started cutting rates in August 2024. And we've only seen the 10 year go up since Yeah. Everyone thought the Fed cutting rates would correlate to
Bonds rallying and we saw the opposite. We saw the opposite. And it was a learning experience for everyone. So yeah, I it it's it's an important distinction that you make that the Fed controls the short end of the yield curve. And what we mean by the short end of the yield curve is you know, one month treasuries, three month treasuries, etcetera. So you're seeing your money market accounts go from four and a half percent to four percent to three and a half percent. Those have been getting cut, right? But long duration bonds have only been rising.
And let's kind of talk about that. Like, why are long duration bonds rising? And when I have this debate with people, and I try to keep it in very simple terms, like, if I came up to you and offered you 5% to lock your money for 20 years, would you take that deal? Yes or no? And we're not talking for individuals, we're talking more so who is who really is moving the 10 year and the 20 year.
Right. When America goes out on their bond auctions and they need to generate demand for their bonds, who is buying these bonds? We're talking sovereign wealth bonds, other countries, et cetera. And it's a tough sell right now at five percent when inflation is globally there's inflation. Right. And if inflation is four or five percent, why would you lock your money for 20 years at five percent?
It's essentially eroding over time. Right. And so what is the number? I and here's another very important distinction to make. Also, we're operating in a very different realm today than we were 20 or 30 years ago.
Again, it's it's the first time in history that our debt to GDP is over 100%. We're at 130%. Our we're running a $3 trillion a year deficit. So the same way that a business has a PL and a balance sheet.
A country has a PL and a balance sheet. And what is America's PL and balance sheet screaming right now? It's the first time where we're over-levered, our debt exceeds our income produced, right? And in our PL, revenue minus expenses, we're running a minus three trillion dollar a year deficit. So you're a lender, right? You're another country that's debating whether I lend to America or not. Why would I lock my money for 20 years? I don't even know if America will be financially healthy in 20 years, given
High debt and and the deficit. Right. So these are the questions people around the world are asking. And I don't know what the answers are. I don't know what brings the 10 year down. In 2008, what brought the 10 year down was the chairman of the Fed and the Treasury kind of worked together in QE to buy long duration bonds themselves. The Fed expanded their balance sheet.
I don't know how closely you follow Kevin Walsh, but I've watched a lot of his videos. He's very adamant about not doing quantitative easing because it created such a big disparity between asset holders and non-asset holders. Right. So these are things to consider. Yeah. And I feel like QE can only do so much sometimes, right? And I think what like we all, you know, so selfishly want.
Rates to get cut, get back into doing business. But at the same time, I understand the Fed's policy because they have to have a yield that makes sense for people to do. And they're basically asking other countries: does 5% make sense? And right now the answer is probably not. And so we'll see what happens. I mean, it's it's tough to gauge where the treasuries are. I think personally, the way I'm looking at it is.
Can I get comfortable with the yield today on whatever I'm investing in and not speculate on appreciation through, you know, a tightening of rates? And from there just being comfortable with where yields are today. Yeah. I mean, America is in a very so much has changed over the past 40 years. And there's a lot I want to touch on for your audience just so they understand like what's happened in.
Past 40 years. So in 1980, so pre-1980, America was pinned to the gold standard. And what that means, or what that meant was that for the government guaranteed that for every dollar in circulation in America, there was a dollar of gold stored in a vault at the Federal Reserve that backed that dollar. Right? And so it gave comfort to average people.
That like the government, government's word was correct. Now, there was a r big recession that hit, and you know, people got scared, and there was a run on their money on the banks in the late 1970s. And or I it this was early 1970s, I forget exactly when, but Richard Nixon famously went on TV and said, Yeah, we're nixing the gold standard. And so what that
did was it gave the government and we pi I think the markets thought that that it would crash and instead it went up. Right. That was I think I think Ray Ray Dol Ray so Ray Dalio famously talks about that because he was working on the trading desk. Right. And he went short the market because he thought the reaction was that we're we're screwed we're entering the fiat currency system. But entering fiat currency gave America the ability to print infinite money
Right, without any real gold or anything backing it. Right. And so just their words. Since 1980, the printer press has just been running hot. We've been printing money. And what happens when you print money? Asset holders, right? You create inflation. And asset holders win in inflationary environments and poor people get crushed. Right. And so if you look at the price of goods relative to how wages have increased for the past 40 years, it's just gotten crushed.
And that's what's created this disparity and wealth gap. And you know, it's it's kind of on the Fed and the Treasury to reverse course and kind of fix this. And I and I like Kevin Walsh because at least he admits this and is acknowledges it and says I'm I'm not headed down that direction. Right. And he's stood his ground, he's paused rates the past two meetings they had, and he's been staying true true to his word, which I respect. Yeah.
I respect it. I think it's a also just a little bit Selfishly, yeah, it would help you. It would probably help me if the Fed started cutting rates, but long term it's not the move. Long term it's not the move. Inflation is high. Corporate earnings are surging. We don't need the stimulus in our economy right now. Companies are growing. Sure certain sectors are probably hurting more than others, but generally speaking, GDP is fine. Like we don't really need it right now. Yeah. Yeah. Sure. If we're we we've been running for a while now. I
mean, and there's still a lot to cover, but
I think I think this was great. I was really it's always awesome having you on. I know the audience is gonna love this too. They always just hear business strategies and real estate and our little hole of a of a industry, but to step out, take your hat out, peek and see the different ways to invest and the different opportunities that are out there and the fact that we are in the business of placing capital and placing it in different ways, shapes, and forms. It's good to have you on and kind of talk through that. So
Yeah. And and one of the last thing things that I want to say to you is that I know real estate's kind of been beaten down for the past few years, but everything Keep your head up. Everything no no no, not that. Everything you've been working on for the past few years has just been positioning yourself for that rebound. Yeah. And I love what you've done with this podcast. Thank you. I love what you've done with posting on on X, on LinkedIn, on all the various platforms. You're talking to so many people, networking. You're not letting a
couple bad years kind of get you in the trenches and it kind of weeds out the people that aren't serious. It weeds them out. It does weeds them out. And so, you know, yeah, real estate is gonna rebound. It's not like this asset class is disappearing. Yeah. You know what I'm saying? And yeah, again, no one's better positioned than you are for that rebound. Honestly. And so yeah to your audience, you know, like no one understands this sector better than David does. He's worked at it harder than anybody else. Thank you. And even when times get tough, like
He's still doing everything a real operator and investor should be doing to best position themselves for that rebound. I appreciate it, Sheriff. No, I appreciate the praise. And you know, I I would just one thing I would say to that is it's made me want to think out of the box more on strategy. I think we've been in this bull run in real estate for so long from GFC till basically rate hike.
And it was so simple of just buying a property, renovating the counters, renovating the cabs, lifting NOI, sell it, move next. Now there's so much opportunity that you can capitalize on if you think outside of the box. And so it's forced me to be more creative, leverage more relationships, think differently. And I love the term you said, like waiting for our lick. Like this feels like my lick right now. You know, like this pain.
feels like my lick to position ourselves and we're gonna look back in this time and see all the smoke and mirrors and say like we were focused during this time. And so I know I know you appreciate that as well. 100%. That's why I love talking to you. At end of day we're just two young 30-year-old guys that are that are ambitiously trying to piecemeal this puzzle of how the world works together. It's constantly changing. And I think open communication
Having an open mind, hearing other people's perspective, what works for them, what doesn't work for them, like like being radically transparent and open minded, like will open a lot of doors for you. And and that's why I appreciate your company. I appreciate your time. Thank you for bringing me on. It's been a pleasure. Great having you all love bantering with you, you know, Steam Room sessions. All that were fantastic, but it's it's great to put pen to paper. We're gonna we're gonna maybe do a follow up pod in the sauna next time and just do it in the sauna. So
Awesome. Thanks, Sher. Appreciate you. Love you, brother.