Transcript:
slava (00:02.882)
Hello and welcome to the latest episode of Smart Humans. I'm excited for today's guests, somebody who's gonna be able to teach us and educate us about all things real estate. Welcome to the show, Charles Clinton, the co -founder and CEO of Equity Multiple.
Charles (00:20.774)
Great to be here, excited to have a good conversation.
slava (00:24.684)
Excellent. Well, let's dive in. You know, we always tend to ask folks for their background through a simple question, which is how did you even get into alternative investments?
Charles (00:34.478)
Yeah, my entry points was, I guess, a little non -traditional. So I started out as a lawyer, not on the investment side. And I, in my somewhat arbitrary quest to decide what kind of lawyer I wanted to be, I ended up in the real estate group. I think that was honestly just a product of growing up in New York City around a lot of big buildings and having a little natural fascination with real estate.
There wasn't too much grand career planning beyond that. And I spent years working at Simpson Thatcher, which is a private equity focused real estate firm. So most of the work I did there was for Blackstone, KKR, Carlisle, really all the biggest real estate private equity folks.
And then I didn't really come into the world of real estate investing until starting Equity Multiple in 2015.
slava (01:36.674)
And was it just a natural segue from your legal work or were you exploring doing other types of startups?
Charles (01:44.142)
Yeah, I would say not a natural segue, definitely a little bit of a jump, but you know, for me, I was starting to get interested in real estate as an investment option while I was still still a lawyer and, you know, spent some time on the weekends or late at night after work going into Brooklyn and looking at, you know, a little three or four unit kind of multifamily properties to buy.
And, you know, honestly, I found it incredibly challenging, right, to kind of balance being a landlord or taking that on, especially in a place like New York, where it's just so competitive from a real estate perspective. And it just felt like there had to be a better way, right? Like I wanted to be invested in real estate, but I didn't want to be a landlord. And as I started to look out into what was available in the market and, you know, how to get into it.
you know, in a seat like, look, I was working for Blackstone every day. I felt like I should have had good options to invest in real estate, but it's just surprised at the dearth of them. So I had friends within the real estate industry, of course. And, you know, I, one of them in particular worked on the buy side of real estate, private equity. We joined together and, you know, really saw a hole in the market and kind of led to the creation of equity.
slava (03:00.834)
And were you investing in real estate before Equity Multiple?
Charles (03:05.966)
I mean, just dabbling. You know, like I said, we were basically trying, I was with a few other friends were trying to buy these small unit buildings out in Brooklyn, you know, had money in the public markets in real estate, but it's really not the same thing, right? I mean, you're really, you're investing in a stock with the pros and cons of that. And it tracks the underlying performance of real estate, but you know, not in the same way as the kind of a private alternative version of real estate investing.
slava (03:33.474)
So clearly you're investing now into real estate. You mentioned a little bit about public stocks. What about the other asset classes? How do you think about your own investing beyond just the real estate? For example, like private credit or venture, pre -IPO, crypto, art, collectibles, et cetera.
Charles (03:54.796)
Yeah, so, you know, look, I, by virtue of being a co -founder of a startup, I am heavily invested in venture capital, almost by default. That's, I would say, the category where I have the most familiarity. The alternative credit, I would say, is the other area where I give a lot of focus. You know, I think from my perspective, really coming from a real estate investment background at this point.
Some of the metrics and how you look at underwriting on private credit has a lot of commonality to how you're looking at real estate credit. So it feels like a natural entry point for me. I'm also interested in litigation finance. I think similarly, leaning into something where at least I know enough to be dangerous. I have a context around the things that can go right and things that can go wrong. I, for better and worse, have really stayed out of crypto.
Um, and you know, I, I miss the, miss the good time and miss the bad time. Um, but I think, you know, it's obviously interesting. It's something you have to pay attention to and follow if you're in the world of alternative investing at all. Um, and you know, some of the more true alternative stuff that's gaining purchase, you know, whether it's through, uh, a platform like masterworks or, you know, through some of the private investment groups where you see a lot of that stuff like, like art or, you know,
music rights and that kind of stuff. I would say I have an academic interest but haven't actually put any money.
slava (05:25.186)
That's great background. It seems like you're into the yield oriented stuff with the private credit and the real estate. How are you actually participating in the private credit or the litigation finance that you mentioned? That's super interesting. We don't hear that every day.
Charles (05:41.134)
Yeah, I mean, you know, some of that stuff, there are platforms, you know, online platforms where you can get access. But a lot of that stuff, I think, is still in the more old school world of kind of private investment clubs. And you hear about it from a friend, one of our investors, you know, someone who invests with us at equity multiple, who's a professional investor and has become a friend.
You know, he basically is he was he was all a public market guy, you know, really made his money in the public markets in the 90s and in the 2000s. But he's been shifting his portfolio, you know, more and more and more heavily over into alts over the last decade. So I see a lot of my stuff from from him candidly, because I feel like, you know, it's that initial screen of not just the trust that where this is coming from is legitimate, but.
You know, also he's just got more context around the more esoteric stuff than I do.
slava (06:42.53)
You mentioned Investment Club a couple of times. I don't think everybody in the audience might know what that means. Can you expand what that means exactly?
Charles (06:51.406)
Yeah, yeah, I mean, there's definitely there's a range of clubs for investors where they basically will share different interesting stuff that, you know, they're finding, pass it around. Some of them are more formal than others. You know, some of them are literally like an email list where, you know, people will say, I saw this interesting thing. Take a look if you want to. Those tend to be a little bit more, you know, filled with people trying to sell their stuff than than kind of the true nature of these clubs and.
And some are a little bit more vetted where, you know, the only people who can come on and present something are, you know, a friend with one of the members and they really try to make it more focused around the investor. That's, that's really, I think the best model of it, right? Where it's not, it's not just constant sales. It's a little bit more investors talking about ideas.
slava (07:39.714)
And are there any that you can name or is it more just like something that's word of mouth?
Charles (07:44.75)
Yeah, there's one. I don't know if they operate nationally or not. I'm just familiar with them in New York called 3I Group.
slava (07:55.17)
Great.
Awesome. And crypto, you know, it's very polarizing. You said you missed the good, you missed the bad. Often we hear that folks that are very yield oriented like you are somewhat, let's say, skittish about crypto. Can you give us just your one minute on why not get involved in crypto?
Charles (08:20.206)
Yeah, look, I guess it's hard to look at crypto for me and see where the value comes from. You know, that's where I struggle, right? I look at it as basically the value is coming purely from speculation, right? I think we have, as a society, kind of given up at this point on the idea that Bitcoin is going to take over as a global currency, at least, you know, in anything resembling its present form. So, you know, without underlying...
value, you're really just it's all movement on market sentiment. And that kind of stuff scares me, right? Because market sentiment is fickle, and unless it's tracking to some underlying value, or has, you know, an incredibly long history of sort of pure sentiment based value like gold. I mean, I guess gold has some utility value too, but you know, it was really a speculative asset. I think that it makes me think it
could disappear or could be subject to some of the huge decreases that we've seen it hit. I do think some of the other protocols outside of Bitcoin that are smart contract capabilities and stuff that start to have a little bit more utility, I feel a little bit more comfortable in the space where it does link into some real world value that people might pay for.
But ultimately, you know, it's just as a more value driven investment, I have a hard time getting investor. I have a hard time getting my head around.
slava (09:50.272)
Does that mean you're going to be buying some Ethereum soon? Is that what you're saying?
Charles (09:53.536)
We'll see, we'll see, we'll see.
slava (09:55.266)
All right, sounds good. Well, thank you for sharing that. You mentioned market sentiment. It's a great segue where I'd like to go next, which is, you know, you have a great perspective with equity multiple, seeing a lot of different real estate deals, seeing a lot of, you know, investor sentiment, a lot of different trends. What do you think of today's market? It's a very big generic question. I'm not saying just real estate. I mean, just the macro, the economy. What is the Charles?
Clinton perspective on the US economy today and where it's headed.
Charles (10:27.31)
Yeah, it's, it's, you know, big question, obviously. And I would say looking back at the last few years, right, it's just been such an incredibly strange run we've had, you know, really without historical precedent, right? I mean, first you have COVID in which it feels like the world is economically over. And then we have such a, you know, kind of miraculous surge, at least in most sectors, you know, some never really surged out quite as effectively like...
In real estate, U .S. office hasn't really surged effectively out of COVID. But whether it's in real estate or the broader economy, you basically have this incredibly rapid recovery. And of course, the economy got overheated. We saw a spike in inflation. And now the story of really mid -2022 through today is the story of the Fed versus inflation. And that's where we find ourselves, right, is sort of at this linchpin moment of
of that story. To me, that is clearly within real estate, but I think within a lot of the broader economy, that's what's going to determine the next few years exactly what the Fed does and what inflation does. So I think that in my view, inflation is cooled. I think there's obviously risk because a lot of the core economic...
performance data is stronger than the Fed would predict. Looking back at this when they started, it's this weird data set, right? You have inflation numbers coming down, not quite to target in the Fed's view. But I think if you look at some of the other underlying data sources that are maybe a little bit more modernized, there are indications that we're actually down at that 2 % target or even below.
But, you know, by the same token, you also have incredibly low unemployment. You know, consumer spending has been surprisingly, you know, durable, even if it's getting a little wobbly more recently. So, you know, I think it's this funny moment where the policy tool to dampen inflation seems to have worked, but it hasn't worked in the way that you would think, which is it's pushing the economy into a recession.
Charles (12:49.262)
And that's really what's cooling inflation ultimately. So, you know, I'm optimistic for kind of soft landing outcomes like everybody else, but I do think that there's too much optimism in the market about rates going down. You know, I think that the Fed has, of course, there's a lot of reasons why they would. It's...
you know, really said that it's not going to reduce rates at the rate that the market feels like it is. And, you know, Powell is in one part a, you know, economist and data scientist, and then the other part of psychologist, right? So, you know, what the Fed says and what it thinks are not the same thing, because it's trying to keep expectations down. But, you know, I think our view and the view within the real estate industry is that,
You know, the eight cuts or seven cuts, whatever the stock market has priced in, just isn't realistic, right? There's no, there's nothing for Powell and the Fed to gain by cutting faster, right? At the end of the day, you know, even thinking about it at an individual level, like there's legacy risk for Powell. If he cuts too fast, then inflation goes back up as we saw in the seventies and gradually reducing rates or waiting longer to cut rates.
You know, it's just a more conservative course that has less downside for, for the fed and the public's perception of the fed. So, you know, our, our expectation is the rates are going to be higher for longer. They will start cutting down. Um, and you know, from there, it's, you, you can trade, you can start to trace a lot of rebels.
slava (14:31.778)
So that was super helpful overview. I'm gonna put you a little bit on the spot. So you said seven or eight cuts is not realistic. So what's the Charles number? How many are realistic in 24?
Charles (14:44.174)
Yeah, look, I think we're going to get more on track with what the Fed has said publicly, right? I think you're going to be more in the range of two or three cuts this year. And, you know, looking back at the historical, which is only somewhat useful because all of these situations are different, but, you know, you generally, the history of rate cuts has basically been they come very gradually and then they come fast.
because something in the economy forces it to happen fast. So, you know, you start to hit some kind of true recessionary events and that's what leads to a more rapid drop. So, you know, we'll see, but I would think that Powell's aligned to play this out slowly. You know, we were hoping for a first cut in the first half of the year. The data that, at least that the Fed has released is, you know,
indicates that they could wait, right? I mean, I think we might see one in the second quarter, but I also wouldn't be surprised if the first one was in the...
slava (15:46.53)
And you said you're optimistic about the soft landing. So does that mean we've hit bottom or do you think we still have somewhere to go to see bottom?
Charles (15:57.774)
Well, look, I think that there's a lot of interdependencies there. I think that the fact that rates seem to at least have crested makes me very optimistic that we've seen bottom. And the fact that the underlying performance of the economy is still strong and even stronger than projected, kind of keeps coming out that way. Makes me think that we're going to be resilient enough.
to get through this. I think that on the other hand, that's part of what pushes my view that rates are going to be held higher for longer because I think the last thing that the Fed wants is for the economy to quickly overheat because it gets enthusiastic about rate cuts.
slava (16:42.914)
So as a CEO of a real estate platform, how do you navigate the decision making with the uncertainty around rates as to where they're headed?
Charles (16:57.326)
Yeah. I mean, look, I think that's the much harder environment for us to navigate is the one that we're coming out of where it was escalating and escalating really rapidly and not knowing where the top was. Right. That is the hardest thing to do in real estate because interest rates determine everything. Right. Ultimately, they indirectly drive cap rates, which drive valuations of properties. And of course they impact, you know, cashflow at existing properties cash.
loans you're going to take on new properties which impact the cashflow of those. So that was an incredibly hard environment to operate in. Stability, I mean, look for any kind of business, right? Like some level of predictability, even if you don't know the exact pace of things going down, you at least don't think it's going to be in the same period of volatility is easier. So, you know, we really, we, we,
slowed down our investment activity, right? I mean, think that was the first thing that we did in response to just the unknowns and the conditions, right? When your forecasts of the future are more muddy, that's not the time to be plowing forward in quite the same way. We also shifted from more of an equity focus within real estate to more of a credit focus. So we launched a credit fund last year.
to really take advantage of great escalation and great volatility. So focusing on, you know, bridge loans that, you know, kind of originated at this point in the market at like 11 or 12%. And then you can lever those returns up into up into the mid teens because, you ultimately you're, you're blending on things even at those rates that a few years ago would have been, you know, 8 % loans or something like that.
So, you know, just trying to pivot to where we saw the near term opportunity was our kind of response on the escalation side. But now we're looking out at the future and starting to get, you know, think about being greedy again on equity and, you know, going for that upside because, you know, as rates kind of peak out here, I think we're going to start to see more activity in the real estate market. You know, really transaction volume has been down.
Charles (19:18.638)
50 % you know, an absolutely wild amount within the whole world universe of commercial real estate, you know, some sectors, of course, more active than others. So, you know, we think that there's not going to be this opportunity over the next, you know, 12, 24 months to buy at more distressed or at least, you know, mark to market kind of values within equity. And if you believe that rates are going to go down, it's
whatever rates, there's going to be a chance to sell at values that increase just because rates go down to refinance and enjoy better cash flow and stuff you're buying today with higher rates. So, we really look at the next 12, 24, 36 months as the by the bottom opportunity for real estate.
slava (20:11.308)
Nice, by the bottom in the next 36 months, very interesting. You already shared with us how you started the platform with your real estate background and legal background. Can you contextualize the size of the platform now? Can you give us an understanding as to how many customers, how much volume are you doing, just so the audience can understand the scope of what you guys are covering?
Charles (20:18.766)
you
Charles (20:27.046)
Yeah, absolutely. So we started in 2015. We have about 50 ,000 registered investors on the platform.
You know, we have invested in the six to 700 million range into about five billion of real estate asset value.
slava (21:05.314)
Did you say 700 investments?
Charles (21:07.95)
No, no, 700 million, 600 or 700 million. And number of investments is somewhere over 200.
slava (21:10.338)
Oh, oh, got it, got it, got it.
slava (21:17.954)
Nice. Amazing. So clearly you see a lot of action. So how is 23 versus 22? I imagine it slowed, or how does that?
Charles (21:31.726)
Yeah. Yeah. So our, um, we did in terms of new investment closings, we probably did 60 percentage, um, of what we did in 22. Um, and honestly, our 22 numbers, you know, the bulk of that came in the first half, um, before rates started to go up. So.
slava (21:51.81)
Sure, that was like, like COVID inflated sort of thing.
Charles (21:55.18)
Yeah, yeah. I mean, you know, you had just a really strong market in 21 into 22. And obviously, you had just crazy rent growth, particularly in areas of multifamily. So, you know, a lot of that was let's try to find properties where the owners have not pushed rent to the new market level. So you're really just capturing a market to market that the previous owner wasn't willing to put the time and money in to kind of get there.
But as the market turned, you know, we're like, okay, well, too much uncertainty. Let's slow down and, you really try to pick our spot.
slava (22:32.834)
And how do you think about 24? Is there a year that you could try to compare it to or to try to see year over year growth or is it too much of a awkward last few years to try to compare it?
Charles (22:43.566)
Yeah, look, I imagine that we're going to, the first half of the year is going to be very much like, um, what 23 is, you know, that will probably be more active on the, on the debt side, just because we have that, you know, platform up and running and humming at this point. Um, we also, you know, we closed a partnership and strategic investment from, uh, Marcus and Milla chap, um, in the fourth quarter of last year. Um, they are, uh,
public brokerage, investment sales and financing. Really in the middle market of real estate, the number one player that closed the most transactions of any brokerage in the country by a pretty healthy margin. So part of that partnership is really getting access into deal flow on both the lending side and the acquisition side. They have 2 ,000 brokers, 70 offices across the country.
So, you know, we've been doing a lot of prep work for what we feel like is going to be a big market opportunity. And I would expect in the second half of the year, once you start to see, you know, an initial rate cut or two that you're going to have, you know, more transaction volume start to come into the market and you're going to have investors start to think, okay, this is, this is the time, right? Like, you know, I've stayed away from the category. I see the bad headlines, but you know, this is the time to start being opportunistic. You know, maybe when some people are still scared.
slava (24:10.498)
So let's say I'm on your site and I want to invest some money. Can you just articulate what the experience is like? Do I have to be accredited, unaccredited? Is there a minimum investment amount? What are my investment choices? Am I choosing individual properties? Am I choosing baskets or indexes or some sort of funds? Can you just walk us through kind of what that feels like?
Charles (24:32.654)
Yeah, it's very much like an online brokerage account kind of an experience. You set up an account, give us all the core information we need to basically make the whole experience digital for you after that. Make sure we have what we need for compliance, linking a bank account, that sort of thing. And then it's really an investor -driven kind of investment selection experience. We do have a range of different products to cater to your specific investment goals.
We divide our categories into keep, earn, grow. So keep is basically a product we have called the Alpine Note. It's kind of a cash management tool. So three, six or nine month note, you know, with an above market yield that goes into a diversified, you know, kind of basket of real estate that's constantly turning over. That's been extremely popular for people, I think, during this time of...
you know, uncertainty about what the future is, putting something in with a good yield that gives flexibility to, you know, redeploy as you start to see other opportunities. EARN is the income focused bucket and, you know, the flagship there is a diversified real estate fund, which we call the Ascent Income Fund. And then we'll also have, you know, individual loans, generally individual loans that are, you know, things that the fund is also investing in.
So, you know, want to build your own portfolio or you want someone else to do it for you, kind of have both options there. And on the equity side, you know, most of what we do is individual property investments. But we also have some portfolios which are not funds because you'll see all the assets in them, but will be, you know, four or five properties grouped together that are thematic. So it could be.
multifamily, it could be high growth oriented, it could be industrial, but basically a little bit in between the traditional blind pool fund and picking an individual deal. We are only accredited investor focused. Minimums range, the lowest we have is 5 ,000, the highest is 30 or 40. So we try to keep the minimums low as we can.
Charles (26:55.598)
And really that's because we want people to diversify. So on average, each of our investors has invested five and a half times. And we'd like to keep increasing that number. We've seen that number continue to go up because really diversification, I think, is the name of the game with all of this stuff.
slava (27:13.858)
What's the average investment like something like 15K or something?
Charles (27:17.262)
It's around 30 a little bit a little bit below 30
slava (27:21.408)
Got it, so the average person is actually putting in like 160K.
Charles (27:25.55)
Yeah, it's, uh, I think we're at 140. It might be 26 K. You know, it's, it's, it's around 140 today.
slava (27:32.418)
No, I understand. Super interesting. And then you mentioned the keeper and grow. Do they have like directional returns that you're looking for in those three different buckets?
Charles (27:45.07)
Yeah. Yeah. I mean, you know, those will definitely change over time, you know, kind of depending on where the market's at. I would say right now, the keep category is in the like six to 8 % range. The earn category is going to be in the low double digits, you know, kind of in the 10 to 12 or 13 range. And then the growth category is going to be at this point in the market, you know,
teens and above. We've really seen from investors, if we're going, we agree, if you're going to make a move in equity, real estate, let's see a real return premium.
slava (28:27.074)
So when the rates were lower, did you see more grow? And then as the rates were going up, people shifted towards keep, and is that now reversing itself or am I wrong?
Charles (28:36.01)
Yeah, so I would say, you know, we launched the kind of key product in the fourth quarter of 2021. So don't have a lot of data from before, but we definitely saw incredible resilience in that, you know, really that continues through to today. You know, people are definitely still looking at that product as, you know, a nice safe haven in a time of uncertainty.
have pulled, you know, we pulled back on the on the growth category and really have focused on on that earn because we think that, you know, credit opportunities in real estate are really golden right now. But I think you're right for on a go forward. I would expect, you know, people to start to pull out of the conservative bucket, you know, and be a little bit more risk on.
slava (29:25.058)
And diving a little bit more specific to the asset classes in the space, you mentioned a few minutes ago that commercial real estate has been down 50%, but some sectors vary there. What's your perspective on commercial real estate? Or more importantly, in all of real estate, what sectors do you like, what sectors do you not like?
Charles (29:49.806)
Yeah, no, I mean, so just on the down 50%, that's transaction volume, not valuations. And, you know, I think on the dip on valuations is an interesting case because the transaction volume is low. You sort of have the word values hypothetically stand, but you don't have a lot of validating transactions to actually say values have moved as much as people think they have on paper.
slava (29:55.392)
Yeah.
Charles (30:17.358)
So, you know, I think we're right now we're most focused on residential and industrial. You know, we continue to like the kind of long -term macroeconomic outlooks for both of those. I think that, you know, there's not necessarily a lot of immediate rent growth in the future for either of them because you had a lot of rent growth run up during COVID, but the market dynamics there for, you know, like a three -year outlook, five -year outlook.
are good in many, many, many metros. We're just under supplied on housing. We continue to be. And now we're seeing a lag in new construction starts, which means that we're not going to catch up. Some markets got overbuilt during the heat up of COVID, but many continue to be systemically under supplied. And industrial, we just like the long -term trends there too. Ultimately, we're just under supplied.
how we do commerce in the US with the potential for more on -shoring, a really push from the federal government level to do that, with the importance of last mile industrial for e -commerce. We think that even with some near -term spend pullback from a company like Amazon, that the long -term trends are really good there. So those are areas that we just continue to like, not as, you know, this is going to pop tomorrow.
slava (31:41.154)
So.
Charles (31:46.798)
But if you can get this at a discounted value to what it's been going for over the last few years, it's a good thing, John.
slava (31:53.922)
So if you like residential and industrial on the flip side, what do you not like? Give me two more.
Charles (31:59.566)
Look, I mean, office is a terrifying one. You know, I think that there will be a time when the amount of fear and pessimism around office starts to intersect with this is a good opportunity. But, you know, right now our view is that this is mostly trying to catch a falling knife, you know, especially as an equity owner. You know, we look at it more seriously from a debt perspective because...
In many cases, there's good cashflow you can lend against. You can do it at a high rate and a very low LTV. So that's, you know, we're being a little bit more exploratory there, but I think until we have some idea of what the long -term outlook is on the use of office in core metros outside of core metros, and it's really varying by city, right? I read.
last week that New York is now leading the nation in the back to office, usages back up to 75 % of pre -pandemic levels, which I think nationally in major metros, it's like 55. So is New York a harbinger of things to come for other metros or is it an outlier because of the uniqueness of New York as a market? So definitely that's one where we approach with trepidation, but I wouldn't be surprised if the...
the risk versus opportunity curve does invert at some points, you know, over the, over the course of this year. And, you know, I think we're also a little, retail continues to be interesting. I think we're a little gun shy on some of the more isoteric stuff. You know, I think that we have looked at, you know, data centers and.
car washes and some things that are driven by their own economic variables that exist outside of real estate. And those were just hitting pause on some of those because the picture is so murky in the broad economy trying to drill in on what the impact is going to be for a very niche sector, I think is challenging. Unless it's one where we have more...
Charles (34:18.766)
expertise.
slava (34:20.578)
You mentioned metros or cities a couple of times without naming any, can you name a few? So give me two or three cities that you like, that you're bullish on in terms of real estate in general. And then I'm gonna ask the same on the negative.
Charles (34:36.654)
Yeah. So, you know, we really like Texas. You know, I think that Texas is just such a demographic powerhouse that it's hard not to like it long -term. I mean, the flip side with Texas is, you know, there's just not a lot of restrictions on building. So you got to be really cautious with just new supply. But the fact is, is that, you know, Dallas and Houston basically lead the...
lead the country in growth, you know, pretty much every year. So, you know, we like those, those as long -term. I think, you know, Austin on the other hand, I think needs to catch up to itself a little bit. You know, it's gotten so, it's gotten so overbuilt. So many people have moved in, it's been so fast that I think it needs time to catch up.
Similarly, like if you look out at in Arizona and Phoenix, I think you have kind of the same thing there. So much growth in such a fast time that they're now actually, you know, a little ahead of themselves in terms of, you know, delivery of kind of new product and supply and, you know, rents are going to just take a little, a little while to catch up. You know, we like some of the other Southeast cities as well. You know, research triangle area is, uh,
You know, definitely got good trends in terms of young people moving in and educated young people that I think bode well for, you know, kind of the near term growth in economy there. I mean, that's, that's really the. Yeah, exactly. Exactly. Um, and you know, it looks, some of this varies, of course, by the property type. So, um, we have a proprietary, um, scoring mechanism. We basically link into a lot of.
slava (36:05.602)
Sorry, is that like a rally in North Carolina?
Charles (36:23.534)
of the real estate data services, and then we'll pull in, you know, cap rate prognostications, demographic, you know, population growth prognostications, major industry, you know, headwinds, tailwinds, assigned percentage allocations to those factors and, you know, look at it on a property type by property type basis. So we're gonna release some of that data this month.
just to give a little bit more visibility, at least in multifamily and industrial, those kind of core areas we mentioned, where we're seeing good growth prospects in kind of that three to five year window.
slava (37:04.224)
You have to keep us posted and we'll share that with our audience. So from the COVID time, is there anything that you could learn moving forward or was it an anomaly? It is what it was and let's just move forward.
Charles (37:24.174)
Yeah, that's an interesting one. I think that as an investor in general, I think that it's the reminder that there can always be a so -called black swan event, right? And that fundamentally we forecast on predictability and predictability goes out, can go out the window and something that no one can predict happens, right? So.
I think that's just worth keeping in mind as an investor, right? That something unknown can happen that can infect your investments positively or negatively. I think that's part of the reason why, you know, diversification into alts as a general matter makes sense because, you know, if a rock falls in a pond, you know, you don't want to be right next to where it fell in, right? You want to be kind of spread out all over the pond. So, um, I would say that's honestly core, core lesson, you know, within real estate. I think it is, you know,
probably it was a trend accelerator. I think that what happened with office, the catalyst was COVID. But if we remember back before, definitely there was already starting to be a push of technology into the office, making the need for the five day week start to come down. And now you just saw a mass acceleration of that. And...
You know, I think now we're trying to figure out like, what is the equilibrium, right? It's not a COVID effect anymore. But now that people have experienced in office and out of office, you know, and now not just for a short term, but for a long term, you know, what is, what does the market really want there, right? What do employers want? What do employees want? You know, how's the model going to adapt? And, you know, look things like.
the rent growth that we saw in multifamily, things like the, you know, people moving out of major cities and spreading out geographically. That feels like just a one -time thing that happened and, you know, who the hell knows if it sticks in a five or 10 year horizon.
slava (39:34.53)
Nice. So we all want to be more like Charles. And the only way to do that is understand what are you reading? What are you watching? What are you listening to? You can name anything you want, any of the shows, any of the things you read or listen to or watch. What is it that helps make you smart?
Charles (39:52.75)
Yeah. So, um, you know, look, I like to start with data. Um, so, you know, a lot of what I look at is published by the real estate data services. Um, you know, they're kind of reporting. Um, I, of course I'm reading, you know, Wall Street Journal and New York Times and Financial Times, and then the real estate publications, you know, whether it's real real deal commercial observer, biz now, um, you know, all that stuff to,
to stay day to day with what's in the headlines, but I do like to look at a green street or a Reese or a costar because ultimately, you know, the data can speak differently than the narrative around the data. I think that's really important to try to get to what's actually happening. Similarly, on the inflation side, I always will check what you're reading in the publications or the publicly released inflation data against something like...
There's a site, I think, TrueTruflation .com, which is basically looking at a more modernized inflation measure that uses more real -time data that is juxtaposed to kind of a long lag period of what Powell and the Fed look at.
Um, and you know, I would say don't, don't watch too much, um, kind of TV, TV news, that kind of stuff. That's, that's kind of faded out, out for me. Um, I, uh, I wish I could say I had a great, uh, podcast on alternatives. Um, but I think that there aren't too many, so I'm very excited to that you're doing one. I think it's kind of under covered. Um, you know, a lot of the alternative podcasts are just, uh, someone selling something.
Um, so I'm, I'm, I'm excited to be a listener of yours.
slava (41:44.258)
Amazing with the last question we always ask so putting you on the spot will be one piece of advice you would say as what would you buy today for three years out when we have you back on the show or when we review your prediction what's gonna do well three years out from today what investment would you make you can keep it within your own space of real estate but you absolutely do not have to the more specific the more specific you could be the better
Charles (42:10.03)
Look, I've got to say real estate. I think that the buying opportunity is just starting today. Things are kind of coming off on a one -off basis. But I think fast forwarding, if you're looking for what to buy in 2024, I think there's going to be tremendous buying opportunities that are really going to feel like once in a cycle. I mean, having values go backwards 15 % or 20%, especially when you have...
positive tailwinds of rates can go down, which means valuations can climb in that three to five -year window. I think there could be opportunities for basically, hey, you don't do anything, and you can just be buying cheap and selling high in three to five years.
slava (42:56.13)
Can you be more specific though? Can you tell me what type of real estate in which geo?
Charles (42:59.834)
Yeah, look, I think I like Texas multifamily. We like Texas industrial. We like Northern Jersey industrial. You know, I think, as I said, we kind of put out a full report so people can think, you know, we don't look at one or two markets. You know, we have 20 we like to monitor. But, you know, those kind of off the top of the head.
And you know, the other one I would say is, is venture capital. You know, I think that if you look at again, kind of going back to the data, right, that's basically some of the highest, you know, valuations, the most rapid climbs come out of these bottom of the market cycles. So I think you're going to see some amazing companies, you know, formed over the next few years and, you know, maybe they'll all be in AI.
Seems like that's the only thing anyone wants to invest in now, but You know traditionally Look, it's just like anything else right like venture dollars are harder to come by Valuations are down You don't see at the seed stage. You don't see the same crazy values that you did a few years ago So I think there's a real opportunity to kind of be an investor with in venture but you know there I would say like
If you're investing early stage, try not to be a deal picker. If you're investing later stage, you know that that starts to make more sense, but spread it around if you're going seed stage or before.
slava (44:34.082)
I love it. Sage advice. So thank you very much. It was we've covered a lot from being a lawyer and working with Blackstone to starting equity multiple in 2015, telling us about your unique perspective as looking for yield, including litigation finance, telling the audience about investment clubs, which was super interesting. You are optimistic for a soft landing. You don't see the seven or eight cuts. You think it's me more like two or three.
And obviously the interest rates drive everything in the real estate market. It's the transaction volume has been down 50 % but you think that there's a lot of opportunity in the next 24 to 36 months. You obviously have great perspective given the fact that you have 50 ,000 accredited investors that have been investing with you often on average about five and a half times. So $140 ,000 at a pop like, you know, when it's all said and done.
Charles (45:19.47)
Thank you.
slava (45:30.274)
Uh, you have a few different offerings, which is amazing. You are bullish on residential and industrial. You are bearish on office and retail. You're a fan of Texas, but Austin is maybe a little ahead of itself. You like the research triangle and you're concerned about Phoenix. So this is a lot of great stuff. Um, you gave us a lot of great names to look out for research and you love data and mentioned a bunch of them. And I didn't expect to hear Northern Jersey as one of your picks for the future three years out, but we did hear it. And you also like VC.
Charles (45:39.406)
Thanks Slava.
slava (45:59.97)
So thank you so much, Charles. That was a quick summary. We really love having you on the show.
slava (46:08.77)
Have a great day.
