Full Transcript
slava (00:01.868)
Hello and welcome to another episode of Smart Humans. I am very excited for today's guest, Ben Miller. He is the CEO and founder of Fundrise, one of the largest investment platforms in real estate in the world. Actually done over three and a quarter billion dollars of AUM transactions to date. Ben, welcome to the show.
ben_miller (00:22.771)
Hey, it's great to be here.
slava (00:24.568)
So we always like to start with the same first question. How did you even get into alternative investments? Where did it all start?
ben_miller (00:33.066)
Yeah, it's funny. I don't think of it as alternative investments. But yeah, I think of it as like what I've always done. So my father was a real estate developer. And he's like a quintessential entrepreneur. So if you know quintessential entrepreneurs, like a little bit crazy. But like kind of fun. Like there's like, I almost think about like the Royal Tenenbaums. You ever see that movie? That's like what it was like.
slava (00:52.676)
Absolutely.
ben_miller (01:01.878)
My father's like Gene Hackman. So he would, he, um, did all sorts of real estate development, like, and that's like, uh, that's how I learned about real estate. And, um, one of the things I think it gave me as much longer perspective, cause I can think about like, you know, the real estate in the eighties and he was building like strip centers and like marshals and, and then like,
slava (01:03.976)
Hahaha
ben_miller (01:28.07)
malls in the 90s and then mixed use developments in the 2000s. And I worked for them briefly. So I got into real estate because I was family business. And then I sort of went in a different direction in 2012 after the great financial crisis.
slava (01:47.172)
And were you always working with your father before you started Fundrise? Or was there anything between kind of, let's call it, education and starting Fundrise?
ben_miller (01:55.998)
Yeah, no, I've had a bunch of jobs. I worked for a real estate private equity fund sort of early in my career. That actually went and worked for a tech company. I went to work for a tech startup 99 to 01. So that was, yeah, it was absurd. I have so many great stories from that. Like company bought a production company. So the startup says like, we need to produce content. So we should buy a production company. And we did. And the company managed Snoop Dogg. And so I have
slava (02:09.159)
That's an exciting time.
slava (02:23.841)
Wow.
ben_miller (02:24.498)
Yeah, so I'd go out to LA and be like, and like hobnob with the stars. It was absurd. So that didn't work. So I'd done that. So, and I've done all, you know, real estate on my own, um, like all small real estate development company in DC. So I've done.
slava (02:42.316)
What year was that you did that small real estate investment company?
ben_miller (02:44.778)
Um, well, so I, I've done a, I'm basically like, in a way started a few companies, um, in my career. And so that was like 2010 to 12 is when I started that. And then I also, I also did like, I did like a tech, a green tech business in 2002 and three. So, um, it's only a bunch of things.
slava (03:12.76)
So you've had kind of that entrepreneurial itch since the late 90s.
ben_miller (03:17.714)
Yeah, I mean, I guess I just always that's always what I wanted to do. Actually, I wanted to be an inventor as a kid, but that's actually really hard. So I just in a way, entrepreneurialism is a form of invention.
slava (03:26.116)
Hehehehehehehe
slava (03:31.204)
Absolutely. And it's so easy. So it was a good decision. And from your personal perspective, obviously we'll get to the platform Fundrise soon, but what do you like to invest into? Obviously, you know a lot about real estate, but what about all these other assets, whether it's, you know, venture or crypto or art or collectibles or private credit, NFTs.
ben_miller (03:34.466)
Yeah, right. No suffering.
slava (03:59.736)
You know, take your pick as to what you'd like to say that you're into or what you're not into.
ben_miller (04:04.23)
Yeah. So I'm not into most of those things. I'm not into crypto. I'm not into ours and a lot of that sort of like, I would say alternative alternatives or like extreme spectrum alternatives. Definitely in real estate hard as an individual. I don't even own stocks. I haven't owned stocks in like, I don't know how many years, a long time.
slava (04:28.469)
You don't.
ben_miller (04:33.934)
like decade. So I just like own a lot of real estate, personally before Fundrise and after Fundrise, you know, and then and then I own some of Fundrise. So that's like a private tech company. And then and then like, where I do invest is credit. So I do like, but it would be more like, you know, like investment grade or non rated debt kind of stuff. Not like, not like online credit stuff.
slava (04:45.209)
course.
ben_miller (05:03.134)
more the street credit.
slava (05:05.784)
So did you say that outside of your own company investment that you do or you don't angel invest or things like that?
ben_miller (05:13.254)
No, I've done a little bit of that years ago. I mean, my 99 to 2001 experience, like, made me pretty skeptical of a lot of angel investing is more like, um, a lot of angel investing is more like resting in restaurants. It's like good for the world, but not necessarily like good way to make money. So yeah, it's, I mean, you know, there are those, those like rare situations, but I think, you know, I'm not.
I'm not expecting to get angel investment until like the next Google.
slava (05:44.588)
Got it. So you're actually the first person on our show to say that you don't invest in stocks that you don't own stocks. That's, that's amazing. So how did you get there? So did you have stocks like, you know, in 99, like maybe a few shares or something or
ben_miller (05:50.622)
No, no, nope.
ben_miller (05:59.334)
Oh yeah, oh yeah. I messed it. I mean 99, right? I was messing in all sorts of stocks, right? It was a bubble. I thought it was great. And then like, you know, you know, a one, oh two or three, like all of it wiped out. And so it made me like pretty skeptical stocks. I went back in a few times and but after about 2015, I probably sold 15, 16. I sort of sold all my stocks. I felt like I felt like stock.
prices didn't make any sense to me. And like the, all the quantitative easing and money printing and like, you know, political stimulus that, you know, first Trump, then Biden, I just, I was just like, wow, this doesn't make any sense. I can't understand it. And so I just, so I'm out.
slava (06:45.94)
Wow. So from a private, your own like kind of money management, net worth perspective, you really try to keep it either in cash, you put it in real estate, or you put it into these credit opportunities.
ben_miller (06:59.466)
Yeah, I'm 100% alternatives, basically. Ha ha ha.
slava (07:04.352)
Yeah, totally. Meaning because you don't really have any bonds, you don't have the public equities, and you might be limited on the actual cash.
ben_miller (07:13.578)
Yeah, I've been sitting on a ton of cash for a while because I basically like, it's something Nassim Tlaib talks about, like barbelling your investments. So I have tons of risk on investments with like, fundraise and my real estate. So they have, and I'm like, you know, it's like, whatever, plenty of convexity, if you want to call it, whatever. And then on the other side of the spectrum, I'm just like cash. And then I do have bonds. I mean, I have credit. Like I have, so I have like the extreme opposite ends and nothing in the middle.
slava (07:17.272)
Okay.
slava (07:41.496)
Got it, got it. So you do have some of the stuff that's not alternatives. Okay, gotcha. That's super interesting. And just one more question about the things that you don't like. Crypto are collectibles. Is it that you don't feel like you understand them, they're too volatile, you can't find the right manager to put money into, or it's like, you know what, I gotta just stick to my knitting. Like what's the reason to stay away from those things?
ben_miller (08:05.194)
Yeah, I mean, I guess with crypto, I have to be careful. I'm a little bit of a skeptic on crypto. I think Bitcoin could sort of go the distance, but I think it's like a lot of what people say crypto is for, you can get with good real estate. It's inflation protected, I think in retrospect, better than crypto. It's like hard asset. It's a utility. People need housing.
in good times and bad times. So I end up, I understand the sentiment around crypto, but I just feel like I can get it better with owning real assets. To me, I'd look at crypto as an alternative to essentially quantitative easing and all the things the Fed's been doing. And that's why I'm not in non-stock. So I get the sentiment. I just think there's been a lot of hype around crypto. And I basically hate hype. Hype is like the...
I'm just like, I'm like the curmudgeon.
slava (09:05.645)
The Chromogen of Hope.
ben_miller (09:07.05)
Yeah, yeah. Anytime somebody starts hyping me, I'm like, well, this must be BS.
slava (09:12.012)
Got it. So what is the non-hype cell that you like? What do you like to hear that doesn't sound like hype?
ben_miller (09:17.578)
Yeah, value investing, right? Like, if we talk about the market, you can get things way below real value, fundamental value. I'm like a fundamental investor. And that's like, you know, cryptos, it's not a fundamental investment. It might be something, but it's not fundamental.
slava (09:27.884)
Got it.
slava (09:35.136)
And just for the audience, can you explain what you mean by fundamental investor?
ben_miller (09:39.054)
I mean, the traditional definition is you're buying something less than its intrinsic cost. So that might be you can buy a house for half the cost to build that house, or you can invest in whatever company at a cost that were below book value. So that's like traditional. I think that's a little bit extreme. That's not really how my fundamental investors invest anymore, but it's much more about like cash flows.
than it is about like, sort of like paradigm shifts that you sort of imagine might happen with crypto or others are extreme alternatives.
slava (10:20.576)
Got it. So thank you for sharing all of that. Shifting to your perspective on the market and the market being a very broad generalization of the word, you could take it anywhere you want. You have a very unique point of view, obviously from your lens with Fundrise and all the real estate exposure, et cetera, et cetera. I'm just gonna give you the stage here. What's your view on the market? Say anything you want.
ben_miller (10:45.506)
This is such a fun conversation right now. So as I said, I can be a little bit like a contrarian. And so I've been really worried about Fed policy for the last 10 years. It's been 10 years of zero interest rates, ZERP, and money printing. They printed trillions and all this sort of artificial injections.
And now finally that's unwinding and that unwinding is creating like ton of opportunity. It's finally like fundamental investing is possible. It wasn't possible like 2021, most of 2020, 2019. And I'm seeing that like one of the great things about Fundrise, we're really at a scale where I'm now able to like be on the phone with like the major investment banks with sales coverage. And I'm starting to see like...
you know, basically real distress. Like, I mean, people, I mean, I was reading about in the Wall Street Journal where you, you see like the, you know, there are all these pension funds that dump their, um, CLOs basically cover their, their margin calls on their, um, guilt on their. Yeah. Oh, got, um, collateralized loan obligation. I mean, it's what is it actually like, God knows, but it's like this synthetic, um,
slava (12:00.562)
And sorry, for the audience, what's a CLO?
ben_miller (12:12.494)
LLC that lets people... It's a lot like what happened in the 2008 financial crisis. You put a bunch of assets into an LLC and then you lever it up. Those assets are usually debt. So basically, the street has all sorts of really interesting complex credit instruments out there and those things go bad in a financial crisis and that's what's happening now.
slava (12:40.472)
And one of the reasons they're going bad is because interest rates are going up. So maybe the amount of interest that needs to be paid back or potentially it's hard to get the value on those investments, on those opportunities.
ben_miller (12:52.49)
Yeah, yeah, I've been having this debate with people. Basically, like I see a liquidity crisis coming because when you have some, let's say, I'm gonna give you an example, portfolio of houses or portfolio of credit loans, let's say you're a rocket mortgage or somebody's basically bundling up assets and selling them to the street.
all of a sudden your interest rate doubled, which means basically you can only get half the amount of debt as you could get before. And so everybody who has anything floating, any floating debt basically has to de-lever, has to pay down their debt because the interest rate doubled, which means their coverage, debt service coverage requires them to sort of bring the leverage down. And that basically, yeah.
slava (13:46.25)
Sorry, floating meaning that the interest rate might have changed, meaning it wasn't it.
ben_miller (13:48.862)
Yeah, it's not fixed interest rate. Yeah. People fix their home mortgage, but most businesses, the street is made up of tons of floating rate debt. The entire repo market, which is basically the blood of the markets, it's like the actual underlying flows, it's $4 trillion. That's all floating.
So I think there's this kind of like, as interest rates stay higher for longer, which is what I think is going to happen. There's a massive deleveraging, like starting. And when you have to do lever, it's a, it's when you have to do lever, right? It was a forced leverage that is going to, I mean, things are breaking, like companies are going out of business and, and they're just like going out of business overnight.
Like they just can't meet their repo calls and they're boom, gone. And so then you can buy them. If you're at the table for like, for, I mean, a quarter of the price you could have gotten last year.
So it's really getting, I mean, it's only beginning. It's gonna get much worse.
slava (15:07.796)
And is that something that opportunity wasn't really available in the last few years because things were so frothy and all the quantitative easing and money printing, but you're saying now that's all gonna come to roost and those that wanna be more value investors, work with the fundamentals might be able to pick off these opportunities now.
ben_miller (15:30.922)
Yeah, I mean, I thought I might. I'm like, it's already happening. It's like, it's now. And so I'll give you like something that's closer to what I know a lot about, which is rental housing. So, so specifically, there's a lot of companies went out and bought single family rental homes. Well, they bought single family homes, a lot of it off MLS, they were buying it like he went to try to buy a home and instead some institution bought it, right? That was a huge thing happening. And billions of those of the
that of houses were bought, maybe 10 civilians. And a company would take those houses, bundle them up into like maybe a thousand, two thousand homes and then go securitize them in the markets. And so last year, companies were securitizing those loans like 95%. There was one print that was 99% leverage, 1.8% interest rate.
Okay, so that's not very attractive, except for if you're a borrower. And I just as an aside, the number of companies that were touching that part of the market, the open door, a third of their business was selling their homes to these institutions through an API. Like there was a lot of quote Fintech companies that actually were sort of.
slava (16:54.02)
Hmm.
ben_miller (17:00.658)
Roofstocks, another one that were part of this sort of big, like this institutional trend. Okay, so now that exact same company is in market actually right now with a securitization. And I'm looking at like the BBB, like the, you know, the BBB investment rated tranche. And that's about, I'm going to say 70% of cost.
at an 8% interest rate, maybe nine, depending on where ultimate price is. So that's, I mean, that is just crazy, right? How much that's moved to you're basically way, way deeper. You're buying, you're at 70% of the home value, which seems like a good place to be at a nine, like or eight, 9% interest. And you can go lever that if you want. And so that is just like, I mean, one, obviously that tells you a sense of like why that's attractive.
anybody who's on the other side of that trade is getting hosed because that means they've lost basically half of their equity or more, which is just complete bloodbath.
slava (18:12.476)
Wow, and is that open door or roof stock that's offering that right now? The triple B 70%?
ben_miller (18:17.134)
No, no, they were just like, they're almost like an originator. The market has like, it's a lot like 2008. People originate stuff. A lot of the fintech players out there were just straight up originators. They would just get stuff, consumer credit or housing or whatever it is, get it, and then turn around and they sell it to the street. The street would bundle it up and then
slava (18:20.782)
Got it.
slava (18:38.208)
Mm.
ben_miller (18:46.39)
that like kind of factory floor is now like in shambles.
slava (18:53.264)
Um, let's go back to a line you just said, which is I see a liquidity crisis coming. And obviously you're providing the examples of how we're getting there. Can you give me an arc or projection of timeline? Like, are we, uh, you know, in the first month of an 18 month process, are we in the six months of a nine month process? Where what's your predictions here?
ben_miller (19:12.506)
So that's really hard. The time is actually the part that you sort of, I'm just going back, like if you're trying to make a fundamental prediction, you can say like, this is like fundamental value, but when it gets there, it could take, like look, 2016, 17, maybe it was 18, I was like, oh, this is like the top. And then it went for like a few more years because there was all this like,
There was a tax cut from under Trump, and then there was Trump stimulus and Biden stimulus and whatever, Powell stimulus. It's hard to set a timing, but you look at it as it just started. I like to sometimes do the parallel to 2007, eight. So 2007, the bond market actually started to freeze up around August. That's when basically you could stop.
Wall Street said, you can't bring me any more stuff. Now, Bear Stearns basically got sold for a dollar in, I think, March of 08. And then Lehman Brothers go bankrupt September 08. So there's this long drawn out process when the music stops, but everybody's hoping it comes back.
pretending that everything's okay. There's this long delay between when everything actually finally breaks and when it's like, you know, I mean, you sort of know it's going to break, but you don't know when at that point. And so that's where we are today. We're in that sort of interim period that's sort of like, if you're going to like The Guns of August, if you ever read that book by Barbara Tuckman, right? The guns of like World War I war was declared by, you know.
Germany and Russia and England and France in August. And then there was like six months where nothing happened. And then like, it was just like sort of like this halcyon quiet period, but like war was coming. And that's where we are.
slava (21:25.827)
So you're not painting a very rosy 23.
ben_miller (21:28.978)
No, it's going to be really ugly. I mean, you know, I'm the curmudgeon here, right? That's like, you know, I'm like, you know, the paranoid survive is like Andy Grove said, so I'm a paranoid person. But like, I'm actually like, the funny thing is I was like, I was a pessimistic for the last few years. And I'm like, oh, this is like, I'm like optimistic, like, oh, now, like, the rules of the game will make sense.
slava (21:32.204)
Don't hold back.
ben_miller (21:56.67)
or you can actually operate and make decisions because like.
What matters is reality.
slava (22:04.928)
So this is a perfect transition to Funrise. So for those that don't know, can you just give some color on what Funrise is, what you all do?
ben_miller (22:14.026)
Yeah, I mean, it's very close to what your mission is. So we basically felt like individuals should be able to invest in real estate the same way they invest in stocks and bonds. Like, it doesn't make sense that you can't as easily and as low cost and without intermediaries. And so we fundraised basically started in 2012. We said we're going to democratize investing in real estate. And I felt like, especially after 2008, like having real assets managed
would pay off. And we have like almost 400,000 investors and 1.6 million users. And we own 20,000 residential units across the Sunbelt. And I think we're in the top 50 largest sort of real estate private equity players in the world. So like maybe no.
slava (23:03.628)
That's awesome. Did you say top five zero or top one five?
ben_miller (23:06.678)
Top 50. We're like number 45 or something. It's not like... Yeah. I mean, it's a trend like direct to consumer, like Warby Parker's direct to consumer and Amazon's direct to consumer. Before private assets were only sold through broker dealers, intermediaries, just by hand, right? Like through country clubs. And so this is like a mega trend. And you look at our performance right now, right?
slava (23:09.1)
Oh, that's amazing. No, no, that's amazing.
ben_miller (23:35.598)
Q3, we put out our performance. Stock market's down. Public REITs would be a good comp. They're down 28% and we're up 5% so far this year. So we're beating the stock market by like 32%. The year, public down 28%, yeah. And we're like, across the whole platform, up about 5%. And so like...
slava (23:52.44)
create said again, follow creature.
ben_miller (24:05.394)
If I said to you, oh, you just lost a 30 year net worth, you would just be like, oh my God, right? So all of my paranoia and pessimism, this is when, I also say I'm the tortoise, not the hare. So this is when it starts to actually show.
slava (24:24.088)
So just so people understand, so okay, like Warby Parker, you're going direct to the investors, you don't have to go through any intermediaries, but people can invest right into your platform, and it's what? They give you how much money? Minimum of what?
ben_miller (24:36.374)
Well, I mean, the minimum is $10, right? So it's like 10,000.
slava (24:38.636)
Okay, and what's the average? Okay, so somebody on this who's listening can give like an average, let's call it 10,000, but the minimum is $10, and they know that they're gonna get real estate exposure that they choose themselves or that you manage for them.
ben_miller (24:53.95)
Uh, we have different strategies. So we have like, I mean, most investors just like have an outcome they want, like long-term appreciation or like current yield. Uh, but then we have also like, you know, we have like, um, bill for rent, industrial, uh, multifamily, you know, credit strategy. So we have like layers of, of choices. Most people just don't, don't like, how do you know the difference? Like, should you be in this, this or that right now?
Maybe your listeners are more sophisticated, but.
slava (25:24.244)
No, no, let's assume not. So most people are saying, hey, I'm looking for 8% or 10% or 12% return over this amount of time. Just make it work for me, please.
ben_miller (25:32.79)
Yeah, we try to make it easy. I mean, that's like an, and simple. That's, I think critical for any kind of digital platform. Do you don't want to put like a mental load on people? And then, you know, our job is basically to, to try to, to create the best, you know, outcomes for the customer.
slava (25:53.068)
That's great. So for example, I don't know if this is a fair question, but like, what was like the average return last year, like in 21 for your investors?
ben_miller (26:02.366)
Yeah. It's sort of, I can give you the answer, but it's like, last year was like a special year. So we were like, our equities were up like 30, 40%. And that's, yeah, that's not normal. Like basically, yeah, more like 10, right? Like...
slava (26:13.5)
Oh, because of like a COVID bump sort of thing?
slava (26:18.828)
What's been like your average for the 10 years of existence?
slava (26:24.124)
And that's 10% appreciation or like a 10% yield.
ben_miller (26:27.434)
No, the yield is, I think the average has been like, I don't know, seven or eight maybe. And like the appreciation is like, I don't know, it depends on the strategy. Maybe sometimes it's higher, but I have to, off the top of my head, I could be doing this so long. I don't know, average over a decade.
slava (26:45.912)
Got it. So, and that's cool, that's cool. So you have like a team of folks that are looking for all of these real estate projects across America or are you focused in specific geography? You said Sunbelt. Is that kind of where your main area is or are you looking everywhere?
ben_miller (27:01.354)
Yeah, I mean, you know, I've been doing this now for like 20 years. So like, you know, what's the good investment changes basically every like decade or so. So like we were in urban infill mixed use, like, like Brooklyn and, you know, LA arts district and all these things are in the beginning of fund rise. That's really where the growth was in the, in the big blue cities. And then in 2017, we really started shifting away from that towards the sunbelt.
affordable rental, like more workforce housing. And so now we have all Sunbelt and I sort of see the Sunbelt being like a 10 year trend, probably at least like COVID work from home has really amplified that trend. So people moving to Austin, I mean, this is, everybody knows about this, but that trend in real estate, I think is going to last through like the least of next 10 years.
slava (27:58.068)
Oh, so you think we're early in that 10 year trend.
ben_miller (28:01.006)
Yes. I mean, it's depressing. We're going to see, I think, a real decline in cities. Like, I mean, I'm in DC. I'm from DC. DC went bankrupt in the 80s, basically, or crime. Then you sort of see that repeating, that pattern is in the process of repeating again. And I think as like crime and affordability and work from home,
continues to be like the most important things for people. It's gonna keep driving people to like great more, you know, places to have great weather, you know, great natural amenities and are more affordable.
slava (28:42.424)
So not everybody gets to have you to answer this question, but I feel like I need to ask it. Give me three cities that you're long on and three cities that you're short on between now and 2030. So first, let's go long. What are your three cities that you're long on?
ben_miller (28:50.353)
Oh.
ben_miller (28:54.25)
Yeah. Well, okay. Long. Yeah. God. That's an interesting one. I feel like, I'll give you a couple obvious and one not so obvious. So like, you know, long Austin, long like, you know, Nashville. And then I'm going to say, my surprise one, maybe Columbus. I think Columbus is like an emerging long one. Yeah. Columbus, Ohio. Yeah. No, I think, I think.
slava (29:12.897)
Mm-hmm.
slava (29:16.772)
Oh yeah, Columbus, Ohio, not the Sunbelt.
ben_miller (29:23.986)
Intel's new factory there. It was already good, but I think it's like going to get a lot better. And I worry a little bit about climate change. I think Columbus is like a good hedge on climate change. So that's why long or you want to.
slava (29:38.676)
I like that. Yeah, yeah, let's do three shorts.
ben_miller (29:41.23)
Chicago for sure, I mean, it's a disaster. It's been a disaster in the making for years.
slava (29:48.608)
And is that a crime situation and education schooling or something else?
ben_miller (29:52.574)
It's like everything. I mean, it's basically, you know, it's really bad government. And that's actually all, that's something people underestimate how much the kind of culture of government matters. Like why is Pittsburgh, especially recovered and Cleveland not? It's really like the local government, it just was a disaster and compared comparatively. So Chicago has like pension funds that are like verge going bankrupt. You know, they're having to tax people away.
slava (30:07.981)
Hmm.
ben_miller (30:21.63)
It's just, there's a lot of us them dynamics that I think is, that's why Ken Griffin left. And so it's just a bad dynamic. So that's the easy one. That's for sure the next Detroit. Just really sad. And then probably DC and San Francisco are like, not going to do so well compared to where they were. They're high highs of last decade.
slava (30:49.08)
Got it. Really interesting perspective. So the obvious question for somebody in your position is how are you navigating the inflation? How are you navigating the interest rate hikes? So what does that do as part of your decision making in regards to what you invest into and more importantly, how you think about exits?
ben_miller (31:13.182)
Yeah, it's something I learned in 2008 and it's like, you know, most people haven't been through it like you think you have been, but like it's, but when the crisis hits, there's, it's hard to actually like everything you need to have done needed to have happened before the crisis came. Like when you're in the crisis, your options are much more circumscribed. So like way before this we were like, I was like, don't buy that lean back.
we had like cash drag. So here on the income fund, for example, our current yield or credit fund really went down. It was like low around, I'm going to say January, probably it was this low point. I'm not going to remember exactly what number it was, but let's say it was normally 8% or 10% or 12%. It had fallen to maybe like 5% or 4%, let's say 5%. Everyone was upset and they're like, why is the yield falling so much? I'm like, because we're out of credit. We're in cash.
everything's going to reprice and we're going to lose money if we're invested. And people are frustrated, but then everything repriced, like treasuries are down like 15% treasuries, right? So you're let alone like any other credit. And now we're going back into credit markets and we're lending and it's like incredible time to do that. So what we were
ben_miller (32:39.57)
hundreds of millions of dollars of real estate with no debt on it. We were just like, let's de-lever, lean back. And when 2008 happens, which I think is not going to be like 2008, but when a real crisis happens, you could almost not be too conservative. How conservative you were, you wish you were more conservative because when it gets bad, it's always worse than anybody could imagine. So we're going into this, I think, much better
companies because we were just like, we were, you know, we, we had to take the, you have to take the pain when times are good, essentially. Right. And, and that like people aren't always happy about that. Um, but I think our customers like generally trusted us. So we, so that's, so now then where are you like, I mean, we're still having to deliver some because like, um, you know, the interest rates are, are so high, but
Mostly, we have fixed rate debt. So we mostly are with 10-year fixed rate debt. So it's sort of like that doesn't matter for most of our portfolio. We have a decent amount of cash. I mean, hundreds of millions of cash built up. And so I'm like, and I've been waiting to basically like go back into market. We started to go back in, as I said, we started buying these sort of triple B securitizations in SFR. We bought like a few of those.
And we're looking at more, like we're looking at like, you know, single family rental. Yeah, sorry, single family rental, yeah. Like, I mean, you know, cause multi-family, just to get into the weeds for a minute, multi-family doesn't have distress because they'll, all multi-family mostly gets sort of the factory floors through Fannie Mae and Freddie Mac, which then wraps it with a government guarantee.
slava (34:11.648)
SFR being a single family real estate relative.
ben_miller (34:37.514)
And so like Fannie and Freddie paper trades like a treasury.
slava (34:42.104)
So there's much less value to find there.
ben_miller (34:43.958)
Yeah, it's like, you know, you're paying 98 bips over, you know, you're buying like, sorry, I say, I'll take that's fine. Like, you know, you're like, treasure, like the treasury will, will be. Whatever today, three, 4% and like Fannie Freddie paper might be like four or five. That's just not like, um, attractive enough for us at least.
slava (35:10.5)
Just as an opportunity for you to talk about Fundrise versus any of the other platforms, because I think there are other platforms that are trying to serve the investor, whether they've been around as long as you or as big as you, I don't know all the facts, but how would you say Fundrise is different or obviously better?
ben_miller (35:29.706)
I want to say different. It's different in a few ways. In the beginning, the question was, do you let people pick their own real estate deals or whatever? It could be any platform. Do you pick which company you want to invest in? We basically moved away from that in 2015, a long time ago, because I felt like people really didn't know.
ben_miller (35:59.502)
Maybe this goes back to like more, I don't think people even can pick stocks. Maybe you pick like Apple and Google and Tesla, but mostly you're in like a fund and the fund's job is to know what they're doing. And so like a little bit like, what do I want to be? I'd rather be Blackstone than be like, I don't know, like a boutique syndicator. And there's like a lot of benefits
slava (36:23.236)
Sure.
ben_miller (36:29.578)
Maybe we have a point of view that's different from the investor, but it lets us lean back and build up more cash. It lets us exist, really have an opinion that I just couldn't. If somebody loses money, it makes me crazy. A lot of our investors, we have a lot of really big investors on the platform, like millions, because they look at it as wealth preservation. Wealth preservation was not popular.
know, 2021 or 20. Nobody was like, I got to preserve my wealth. They're like, I got to make a lot of money. I'm going to make, you know, 100X on Chris Crypto, like coin. So, like, there was a lot about also like kind of how like constitutionally like we're the people that the company are like, we just, we have a view and that view basically kind of means we just can't put something out there and have it like basically like.
outside of our control that if it goes bad, we can't get in there and take over and fix it because if it's one deal on a separate LLC, it really limits your ability to operate.
slava (37:41.1)
Got it, got it. And you've already, I appreciate you sharing that. You've already mentioned this before, but I just wanna unwrap this. Interest rates are rising, which means mortgages are rising, the payments that need to be paid. What is the impact you're seeing on that on the actual real estate prices? And how do you see that evolving through 23?
ben_miller (38:03.47)
That's a good question. Yeah, so I think people think of housing and they don't think about rental as like different assets. So like for sale housing is completely a different asset than a rental house. You know, if you have somebody renting for $2,000 a month, like you get inflation through rent growth, but it's pretty stable. Most people like need housing. They're not gonna not need housing. It's a basic need.
basic good. That's why I think of it as a really safe asset. But most people don't need to buy a house. Buying a house is a luxury good. And so what happens with for sale housing is it's a much more binary outcome. It's hot, people buy it, or it's cold and nobody buys it. And if nobody's buying your house empty, it basically means it gets foreclosed on. And so 2008, the housing fell 35%, 40%.
and rental income fell 3%, 4% nationwide. And that's like, hopefully we're doing better than average nationally. So I think it's just, it performs a lot more resiliently rental housing does. And so it's, but I mean, where it does get impacted is like, you know, if the risk free return is,
you know, Fed funds rate, the risk-free return went from zero to 5%, right? Then like on paper everything has to reprice, right? What's the paper value of an income stream if the risk-free return is basically, I mean, overnight, I mean, over the course of like six months it went from zero to, it's going to be 4.5%, right, by the end of this year.
slava (39:55.864)
Right, meaning if you can just get 5% by not even trying and have zero risk, you gotta get more if you're getting into risk.
ben_miller (40:03.978)
Yeah, I mean, the fancy way to think about it is any investment is discounted cash flow of future income streams. You take a future income stream, you have to discount it based on, in theory, a risk-free return plus a risk premium. If the risk-free return is five rather than zero, the discounted cash flows are worth less.
So that is like repricing the whole market. And I think that like that's like here to stay. It's gonna be 2020s are gonna be opposite of 2010s, right? Assets are gonna be, we're gonna fall and stay low, but wages are gonna stay up. Last decade wages were stagnant and assets appreciated. So big wealth divide happened, like a lot of inequality was sort of outcome of Fed policy.
We're looking at a symmetrical opposite. I think it's like the Fed, the CPI, the consumer price index was up 8.2% today. I think it was 8.3% last month and 8.6% the previous month. It's not coming down very quickly.
slava (41:23.844)
But that was an interesting saying. So you're saying that wages will go up, but assets will stay stable, which is the counter to what happened the previous decade. Even decline, decline.
ben_miller (41:30.714)
Assets will decline generally. Yeah, yeah, because I mean, because it's just like, you know, quantitative tightening, which is opposite of quantitative easing and high interest rates. But like, there's an interesting like structural dynamic happening in my opinion, where there's we cut off immigration from since 2016 as a policy, as like a policy of the country to reduce immigration. And that means there's less workers.
slava (41:39.736)
Yep.
ben_miller (41:59.846)
I think it's about 2 million less workers now than there were, like there would have been if we'd had immigration as robust. And that means there's less construction workers and less like restaurant workers. And then so people are saying, why aren't there workers? I mean, it's also because of Baby Boomer's retiring and other factors, but you can't replace workers with interest rates.
So it's just like, I think we're going to enter a period where labor is scarce and wages are higher and we can't offshore everything to China anymore. And it's just going to make for higher inflation. And that's, you know, it's good for the average investor, I mean, average worker. But, you know, the kinds of returns we saw last decade are over for some period of time.
slava (42:52.104)
Interesting. You, I'm gonna segue this as a final question about Fundrise is that you got into venture, meaning you just recently offered a venture product. Why'd you do that?
ben_miller (43:05.486)
Well, so we built the infrastructure to let individuals invest into alternatives, which is like very similar to Blackstone. It's a very similar structure just through the internet. And we look at what are great, great investments, like what have performed great over the last decade, 20, 30, 50 years. And I think real estate is like fundamental and people couldn't get it before. And same with basically private tech.
Especially, you know this actually better than me. Basically, private tech companies used to go public 20 years ago. Amazon went public. It had 215 employees and 16 million in revenue. That company today would not go public. And instead, Uber goes public at $50 billion valuation. CoinDesk goes public at $50 billion valuation. So the...
slava (43:50.391)
Right.
ben_miller (43:59.082)
the unintended consequences of the SEC ring-fencing all this risk is that risk and return, they go together. And so it has really limited a lot of the positive outcomes for individuals. So that's like a regulatory structural barrier that should exist to prevent bad things, but shouldn't exist to prevent good things. So
We're trying to break that down. Mostly what we're investing in is just the kind of companies that would have been public 20 years ago, 10 years ago, but aren't. I'm not talking about super early stage seed stuff. I'm talking about Databricks and 5Tran and just like, yeah, I don't think they're going public anytime soon. Hopefully, the pricing is...
slava (44:41.668)
All right, so pre-IPO.
slava (44:46.584)
Right, right, right.
slava (44:50.01)
Is there some sort of valuation threshold of a minimum that you're looking for?
ben_miller (44:53.822)
I would say we're just looking for real product market fit and that might usually mean 10 million revenue or more. It's Series BEC. So it's pretty easy. Once you have product market fit, it's actually really easy to see the company has momentum and good product. You can look at the GitHub stars. And we have like 100 engineers and a lot of technical people. So it's...
But it's, again, almost a fundamental investment. If you can invest in like, you can invest in Snowflake, but not Databricks. Why not? It doesn't make any sense.
slava (45:32.932)
I completely agree. Speaking of that, what did you think of Cathie Wood coming out with an offering in the venture world?
ben_miller (45:40.502)
I mean, it's a mega trend, right? I think it's going to be direct to consumers, like gonna become a big part of how people invest. And so she's gonna do it. She's sort of in some ways like opposite of us, opposite of me, she's like risk on all the way, you know. She's like flying cars and spaceships and stuff. And I'm like, you know.
slava (46:01.068)
You guys will be a good talk show. The two of you.
ben_miller (46:08.59)
core infrastructure and houses. So, but it's like both, both are good. It depends on what people want.
slava (46:18.436)
I love that, I love that. People wanna be as smart as you and as knowledgeable as you. What are some of the things you like to read, listen to or watch? Any examples?
ben_miller (46:28.638)
Yeah, definitely. I love podcasts. I think my two favorite are Acquired. If you know the Acquired guys, that podcast, I mean, they're like super in-depth, four hours, an episode. And I think Invest Like the Best actually does a pretty good job. Sean is like impressive. So that's the podcast side. And then the Fed guy, it's a blog and a guy used to work at the Fed and he's got a Twitter handle, FedGuy12.
That guy is so on the money about like, if you read him, you're going to see, oh, this is like exactly what Ben's saying too, but he's like in the guts of that. That guy's really smart. And then calculated risk, which is a housing guy. So yeah, but a podcast, podcasts are the best. I just think they're like Gutenberg, right? There's like you invented this new medium and it's just so wonderful.
slava (47:23.732)
Yeah, I mean, I wish our format was to go four hours, but that's not really what we're doing. And I know you're a busy guy. Last question for you, which is when I have you back next year or a few years from now, I'd like to know what your pick today was that everybody should listen to. So we always put everybody on the spot. What's your investment advice for today? A specific investment, the more clear, the more specific, the better, the more actionable, the better, that three years from now you feel confident about.
ben_miller (47:27.703)
Hahaha
ben_miller (47:48.91)
This is what I'm thinking about. This is not available to everybody. I'm going to tell you what it is. It's because it's really crazy. It's literally three years now. I think that I would go get a credit default swap on Taiwan.
because I think that China is really serious about trying to bring Taiwan back into China. And the market has not priced that at all. And even if it doesn't happen, it's gonna become much more likely. And so you'll be in the money on that. And it's a hedge against, it's also a hedge against a lot of bad things happening in the world.
slava (48:31.98)
Basically, you're saying, I want to invest in the probability that something bad will happen with Taiwan.
ben_miller (48:37.086)
Yes. I mean, it's, I know it's not, it's not optimistic. Yes. I mean, you have to go buy a credit default swap. I mean, you know, you have to buy that from like Goldman or, you know, one of the, yeah.
slava (48:40.812)
No, no, that's fine, but that's the investment. And where would you get that investment?
slava (48:48.78)
Got it. All right, this has been awesome. I love, you gave some awesome talking points that I haven't heard before. Ben, thank you so much for joining. It's really been an incredible conversation. I'm looking at some of my notes. We started out with you comparing your family to the Royal Tenenbaums. You were able to navigate the early crash and that inspired you to absolutely abhor stocks. And you even said, I don't own any stocks, which is amazing.
You sold all your stocks in 2015, 16, and I'm going to now know you as a curmudgeon of hype. You might need to add that to your bio. And you see a liquidity crisis coming, which is very interesting. The street is made up of mostly floating debt, which I don't know if people know that as opposed to fixed. So that's obviously a big issue with the rates constantly changing. The guns of August, I thought that was a great example where the guns might have gone off, but people are still, it's silent and people are just hanging out for six months, not knowing what's going to happen.
ben_miller (49:18.902)
Yeah
slava (49:41.08)
Your average investor in Fundrise is putting in 10K, which is amazing. So you're really democratizing it like other DTC companies. And it was very interesting that you said in 2008, the new housing fell 35%, but rental is only a few percent. So that sort of difference and the stability of the rentals is very interesting. Then you said this decade is gonna be rough, right? Wages will go up, inflation will go up.
but the actual assets will decline. So we should look out for that. You also told us your top three cities that you like, the top three cities that you don't like. Columbus was a big surprise. And then you told us to invest in credit default swaps for Taiwan, amazing.
ben_miller (50:18.705)
Wow. Okay. Great summary.
slava (50:20.9)
Thank you so much. We'll talk to you next time.
ben_miller (50:24.086)
Yeah, thanks.
