Hi, I'm John Coe and welcome to icons of DC Area Real Estate.
A one on one interview show highlighting the backgrounds and
career trajectory of leading luminaries in the Washington,
DC area real estate market. The purpose of the show is to
highlight their backgrounds and their experiences, and some interesting
stories about their current business, as well as their past,
and to cite some things that you might take away both from
educational standpoint as well as lessons learned in the industry,
and some amusing and sometimes interesting background stories.
So I'm hoping that you will enjoy the show.
Before I introduce my guest, I'd like to share that both this podcast
and the community I started in 2021 called The Iconic Journey in Cree,
is now part of a new non-profit organization with that same name.
The new company will offer opportunities for sponsorship to
grow the community, both in membership and in programs.
It also allows you, as listeners to show your appreciation for this
podcast, which has delivered episodes twice monthly since August 2019,
with a charitable contribution. Transitioning the community and
podcast into the non-profit organization is underway.
The community, which is open to commercial real
estate professionals between the ages of 25 and 40 years old, is currently
up to 65 members and growing. If you would like to learn more
about either joining the community or contributing to the podcast,
please reach out directly to me at John at Coe. Enterprise Enterprises.
E e n t e r pre ces. Com. Separately, my private company Coe
Enterprises now will focus only on advisory work for early stage real
estate firms and career counseling. If you have interest in learning
more about its services, please review my website at Coe enterprises.
Com. Thank you for listening. Hi, this is John Coe and welcome
to another episode of icons of DCR Real Estate.
This is a special episode where I've brought together a panel of
five prior icons on for a live session at the law firm of Seyfarth
Shaw in downtown Washington with 30 roughly members of the iconic
journey in CRE in a very intimate, private session to talk about the
2025 Five market coming forward in downtown in the Washington,
D.C. area, as well as advice for young people.
The five panelists are Bob Murphy of MRP Realty.
Lacy rice of FCP, Toby of the group, Vicki Davis of Urban Atlantic.
And Henry Fonda of the Rappaport Company.
My two member speakers who spoke right up front are Kevin Dean of
Rockbridge Investments and Colin Thomas of Thomas Development,
both of whom have been members of the community for three years
plus and have been very active, interacting with other members and
growing their businesses and having significant success and the community
being a big part of that success. So really the purpose of this
was to introduce members to the opportunities that the icons discuss,
as well as to be able to network and meet each other.
And of course, my mission is to grow this
community to a reasonable number. Probably not too large,
but large enough so that people have a wide variety of connections
that they can make and learn how to adapt to this very fast
moving industry that we're in. Commercial real estate today.
So without further ado, please enjoy this wide ranging
panel discussion, let off again by Kevin Dean and Colin Thomas,
and then each of the panelists. Talk first about the market
projections as well as we go in, then into the advice for leaders.
So without further ado, here is the panel. Good morning everybody.
Thank you for joining me. Thank you for joining today.
Welcome on this crisp and chilly morning.
It's, uh, heartwarming to see you guys here. I really appreciate it.
Thank you for braving the cold and joining us today.
Um, so today, what we're going to do is we're going to start with two,
uh, member briefing discussions about their experiences with the
economic journey and CRA. And then after that, we'll start
our panel discussion after that. So, Kevin Dean, you want to step to
the mic and then you come after that. Thank you, Mr. Kevin.
Good morning everybody. How are we doing?
So for those of you who have not met, my name is Kevin Dean,
Rockbridge Investment Group. I've been a part of the community,
I think, since the very beginning. I may have joined a month or two
late. Um, but just wanted to briefly
share kind of what the community has done for me and sort of what
I've taken away from it. Going back to 2021,
I was actually working at Fannie Mae and was just jumping from Fannie
Mae to go full time in the business that I had started back in 2018.
So it was kind of a pivotal time for me where I knew enough to be
dangerous, but not really enough to be very smart.
So getting into this group, I was surrounded by a bunch of
peers who were doing projects way bigger than me.
You know, like Chad, for example, is always working on these, you know,
$100 million deals with Mill Creek and other guys where, you know,
it's just I'm trying to get these ten, $15 million deals done.
And I'm talking to somebody in the room who's, you know, working on an
extremely difficult challenge that I didn't even know really existed.
And then on the flip side, you know, we've got individuals such as
you on the panel here that have got way more experience than us.
And, you know, the community allowed us to really
get on site and actually walk the real estate with people who are in
the business every day who have, you know, made the mistakes,
who have learned from them. And I would say the, the one thing
that I've really taken away from being a part of this community is
kind of seeing what's possible and kind of getting out of the box of,
you know, doing a deal like this is impossible, or building a
business like this is impossible. And just seeing, you know,
the icons in the DC area, you know, going from, you know,
in many cases very small kind of start up real estate company to,
you know, name brand, real estate company in the area.
So it's just been extremely fulfilling not only to build
relationships with people in the room here, but also just to learn
from individuals such as you all appear on the panel and just
really kind of jump the learning curve many years just from being
around you guys. So thank you. And John,
thanks for having us here today. Uh, first I want to thank John.
Um, he's done a lot of work to put all of this together.
He's brought all these great panelists here, um,
a lot of people whose names, you know, but now you can actually
have an opportunity to meet them. That's one thing that his community
provides, I think, is access. But access, not just, uh,
panelists like this. Um, really, as Kevin mentioned,
access to all of your peers because, John, a lot of you are hand
recruited by John. A lot of you are exemplary and some
form, which is why you're here. And so you can really reach out
to any individual here and really gain a lot of insight.
You can solve problems, you know, if you need recommendations on
contractors, you need to meet someone in the capital markets.
You can get those things done through an exercise with your peers.
And I think it's a close knit group, and it does a great job of bringing
specific people together who are like minded, and it really is.
I can give a couple concrete examples.
I had one friend who John introduced me to who's a member of this group.
He's not here today. His name is Jacob Hamilton.
He has a residential development company,
but he found an apartment building listed on the single family MRIs.
And we ended up closing on this apartment building.
It was fantastic. Deal. If you called me because we were
in this group together and we had chatted a bunch and he was
interested in doing apartments, so and I made him a partner in the
deal, and that worked out great. You know, I can call Kevin if I
need some fundraising advice. He's been banging the phones for
years, so I get to hear word of problems before they arise for
me from Kevin, but I really do think it's a great group.
Thank you all for being a part of it. It's been helpful for me and
always feel free to reach out. And also, big thank you to John
for putting it all together. Thank you. All right.
So we're here to now have a little panel conversation.
We're going to have two two topics today. We're going to talk about.
First is kind of a forecast of the 2025 real estate market here
in the Washington DC area. Um I'm going to ask five Uh,
questions of, uh, the panelists here in general to start with.
And then the second part of the is going to be advice for young people,
for young professionals. And I'm going to ask each panel
is to take a topic and kind of lead a conversation.
They're looking for interaction from all of you to respond.
Any questions you have along the way. ET cetera. So there it is.
So I'm going to sit down and join the panel here.
I'll just go ahead and say the first question is second.
What trends of development do you anticipate will dominate the DC area
in the real estate market in 2025? So I'm going to leave that.
I'm going to open that up for discussion and let the panels
respond. Go to order I guess. I mean, for me, there's you know,
probably the biggest thing screaming your faces is distrust office.
And and I don't mean keeping you in his office, but what do you do
with these buildings are going to tear down and what happens there?
And, you know, in some cases, in some cases, Is, you know,
you know, you renovate it and you keep it as an office.
In some cases, you know, sort of tear down.
So there's a lot of it out there. That's probably when we have
more than, you know, it's a we have a large office market
relative to the rest of the supply. You know,
if you look at our product type. So I think this market is
probably more than a lot of other markets around the country
has to process that. Yeah, I think for us the headwinds
of demographics and employment are big drivers because we invest in
apartments and we look across the country for the most prosperous
markets over the next 5 to 7 years. And DC has had its challenges with
regulation in Montgomery County, Prince George's County and the
district that have made it more difficult to be an institutional
apartment owner. Um, there's a lot of bluster
going on about downsizing the federal government.
It's difficult to determine at this point if that's going to be good
or bad for jobs in economics here. So we're keeping an eye on that.
The back office dynamic here has been, I think, the worst in the
world. Yeah, it's worse than the US. And the US is behind everybody
else and going back to office. So that may get a lot better if these
guys really do carry a baseball bat and force people to go back to work.
And those people don't say, oh, with you, I'm going into retirement.
So they'll be interesting to watch that.
The city seems to be on the right track thanks to people like Bob, Law
and Order and all those things that are important for our commerce seem
to be moving in the right direction. How quickly and how far they'll go
are things that we're watching that really drives a ton of aversion
to institutional investors. I think one thing that's interesting
has happened during our careers is it's a lot easier to move
from market to market today than it was 30 years ago, because
there's so much good information that's available just like that.
So being an insider is not significant in my opinion.
And similarly, institutional capital can move very quickly as well.
So if the district has a topa tax that nobody else has and it
really impacts growth. Money just goes like that to
some other city and conversely can come back very quickly too.
So it'd be interesting to see how that works.
Or if you can't pay you, or if people can not pay their
rent or self-certify their income. Same thing. Bad policy. Yeah, yeah.
And the other thing that's interesting in this cycle,
I think, is people are a lot more, much more inclined to give the keys
back to banks and other institutions. In our day, they go through and
work out your reputation because everything you did,
you didn't do that. So money,
everything moves a lot faster today. And a good decision or a bad
decision can really change that, particularly at the governmental
level. So those are some factors. Good morning. My my answer is.
More multifamily centric. That's what I do.
And in the multifamily sector, there have not been a lot of transactions,
a lot of trades of buildings selling because of obvious reasons.
If you sell now, you're selling it. At least in theory,
it's some sort of discount. To what? Maybe only what you think you
should have gotten. Maybe this is the new pricing,
but the cost of capital is so expensive that it's encumbering
you the price of the assets. So what I think is going to happen
both in a macro US sense and micro in DC, is that you're going to see a lot
of dispositions or acquisitions. Put another way,
in DC of multifamily and I'm using DC as in the broader MSA.
But an interesting dynamic is exactly the one, Lacy said, which is capital
can flow wherever it wants to go, and capital will flow to a place with
the least amount of friction, both on new developments and on acquisition.
So if you we may sell a building or we're contemplating selling a
building and in D.C., but whoever buys it has to suffer
through this protracted process before things settle out.
And during that time, anything can happen.
Just macro variables can come in versus another place where you buy
in the next morning, you own it. So if you're a capital provider,
why waste your your time? So that will be interesting to see
what cap rates end up being in D.C.. MSA relative to other regions.
On a positive note, some of us read an article yesterday
that there were some good sales, or at least a very good multifamily
sale in Clarendon, and that that was a nice green shoot of.
So I think money will go to Northern Virginia versus DC.
More of a micro comment. But anyway, interesting year.
And until the market establishes what the heck cap rates even are.
I don't think development starts happen till much further because
how do you price risk if you don't know what an exit happens?
And right now a few trades don't make a cap rate environment.
So we'll see. Yeah. Good morning. We've been sort of chatting
about this issue. I want to I want to start my response
similar to some of the others and say I think it starts with demographics.
Baby boomers. Right. And probably all your parents
are and millennials out there. And I think that people in my
age bracket are retiring, some of them typically between
65 and 80 people are retiring. So a little bit later than it used to
be. So I think we're seeing that. I'm the last year of the baby boom,
the biggest year. And I think that people have
been talking about the silver tsunami for decades now,
but I think it's it's here. And so we have people who are
trapped in enormous homes at very low interest rates or paid
off or whatever, and trying to figure out what to do next.
So I think that's that's something. And that might include migration
southward, by the way, or to warmer climes.
I have kids who are probably a tiny bit younger than you.
Late 20s, early 30s. And they have more weddings this
year amongst their friends than ever before.
I think they're clocking in at 7 or 8 weddings,
which they're all the best men. And you're like, oh my God.
But and they're all destination weddings. Who knew?
So I'd like to see a show of hands and see if that's true for
you guys in your cohort who's got weddings this year? Yeah.
Who's got more than three? Okey dokey.
I would like to ask you, how many of you guys are either
married or in relationships. Ha ha. How many of you guys have babies
or babies on the way? I feel a little. What is this?
I'm not sure that's an option. Don't ask. It's too early.
Too early for that. Uh. How many of you own your own home?
Haha. Well, I think there are people who
are following you to own your own home. So I think home ownership.
How many? Own your own home in DC? In the city. How many?
Own outside the city? Haha. So I think less people are
buying in the city. I think you're going for a
larger home in the burbs. And my guess is that that's a
trend that will continue. Thanks for thanks for playing with
us. Yeah that's good, that's good. Got everybody excited.
So at Rapoport we do retail investment.
You know Tenant landlord advisory. So we have kind of a unique lens
that I do business with everybody at the table.
On the suburban side, suburban offices are super strong.
You know, all the people that have left town not working, mom,
are increasing the sales in the suburban shops.
That being said, there's no supply. No new buildings can be built and
occupancies get super high and rents are going to get are getting high.
So much so that you're going to price some people out.
So suburban shopping centers are going to be great on the urban side,
either in a residential building or an office building in Washington DC.
We're seeing consolidation. Some people are getting stronger.
The nodes of like seventh and ten or, you know, wherever there's a lot of
traffic used to be that we put retail in the first floor of every building
downtown. There'd be something. And now people, you just can't do
that. There's not enough to be. Especially when you don't know if
there's going to be, you know, how many days a week you can
actually support a lunch. So we're going to see those
nodes getting stronger. You know I'd love to see the H
Street redevelopment happen at the retail corridor.
So there's going to be a ton of opportunity for all of us here
in the room. The only question is how long does
it take for these buildings to change uses. Go to residential.
Go to trophy office. Everybody probably saw the Bxp
buying Metro Center yesterday. You know, for the last I think 2
or 3 years, people were trying to reuse the existing building
to convert that residential. And nobody can make it pencil.
Now Bxp is going to come in and demo it. You know, it's pretty dramatic.
It means somebody lost a lot of money. Well, I lost a lot of money.
Then the lender lost money. And now Hynes has got to build a
really expensive building. So in my mind,
we're going to be very busy. All of us in this room over the next
and 20 years. Remaking DC. Yeah. I mean,
you'd say there's supply and demand. Why would the developers look at
the sites? You know, the construction cost.
John, are just so out of whack right now in the.
And then the interest rates. You know, nobody's going to invest
for four and a half point return. And the rates are already so high.
So we have a piece of property, you know, and right beside the Whole
Foods development in Virginia that we're actively negotiating on.
But you know, Mr. Little neighborhood,
we're going to have to get $60 rents and, you know, $60 rents.
Lease up takes a long time. You know, you're not going to
open it 100% at least. So if you have a 50% lease up,
you know, you're going to drag out and your IRR is going to go.
I hate to see where it's going to go. So the other thing just that you ask
that question is we need to update our retail shopping in the summer.
You know, a lot of the centers look the same way they did 40 years ago,
and there are a ton of improvements in the retail facades and
interiors that need to happen. One more piece of information is
a bunch of centers are selling, as Debbie was saying, where,
you know, where are the prices going? You've got interest rates at
five and a half, 6%. Who can afford to buy a Wegmans
anchored shopping center, $100 million.
You know, it's selling for six. What we've seen recently,
things that we're actively bidding on or advisory investment advisory
clients, it's just somebody will come in and just take it.
You know, they've got 1031 money to read.
It's a high net worth individual who believes in the future.
They've got no cost of capital. They're buying all cash and they
just go, okay, we'll take it. And we can't compete with that.
We don't want to compete. I don't think anybody at the table.
So you almost have two different spectrums going on at the same time.
But the center I'm talking about was sold by JLL.
Stonehenge down in Richmond. It wasn't even, you know,
Metro DC. I'm on a rich asset. So it's amazing what happens when
rents. Get to 60. Bucks a foot. You start to see development.
So I you know, John, I don't think given the value of
Ireland and interest rates in those, in those rents,
the risk is still too high. So in answer your question,
I'm not going out to look and buy. But but one last piece about retail.
Sorry. Dominate here for a minute. The last 15 years everybody's
been talking about big box and internet and how retail is going
to get killed. We have a building, new big boxes.
Those big box rents went from roughly $15 a square foot,
triple net down around ten. And. And even at the ten,
the landlord had to do all the work for like a any TG concept.
So the net effect of rent was probably $2, but you had to do it
because you had to keep a Co tenancy. And they forced you in to build
the suit for those rents. Now, because of no new boxes,
we're finally going some over $20 a foot. So that's a huge move.
So if there's any place where there's like, you know,
happiness in the retail industry, it's with the big insurance.
Bob, you just bought. A gallery place.
Huge investment there. Talk about that investment.
I mean, I think Lacy kind of alluded to it.
You know, we all know during Covid things got pretty rough here and
there were some bad decisions. A lot of self-inflicted wounds.
Uh, district government, frankly, on, uh, policy.
And so, you know, the area, even though it's, you know,
there's there's really no low income housing at all around Gallery place.
So you have to go above convention center and the other side of 395,
Five. You know, and so the problem is
that there's 25,000 workers, 3000 residents, 300 residents,
just, you know, kind of no one's going to work, so no one's there.
And there's all kinds of metro and there's and it just wasn't
pretty vacant. So the crime,
all petty crime primarily really picked up in that area.
And now if you're going to a game last year, you know, you know,
a concert, you know, people are nervous, you know, about walking
down seventh Street between each. And their corner was pretty rough.
But I knew just you know, I've done a lot of deals in this area.
I mean I was part of the process, you know, the last, you know,
post in the mid 90s on about I'd be like maybe 5 or 6 buildings in
that area and bought land and stuff. So, you know,
I know what it cost to build. I know, I know all history of land
and my takeaway with Gallery Place, and I did not know they were staying.
I thought they were going. In fact, I was trying to help
them stay, but, you know, through some lobbying efforts.
But I thought it was a done deal. But I did know that if you gave me
two acres of land at six at seventh and H, you gave me $40 million,
and you said build 700 parking spaces. I couldn't do it for that.
So, you know, I've kind of bought a parking garage with a eight year old,
and then we got lucky. But fundamentally, though,
I knew my market, I knew my area. I knew what it cost to build.
You know, I know that the white House seven blocks that way,
capital, seven blocks that way. Four blocks that way.
I just knew you weren't going to go wrong. And we got lucky.
So there you go. How does that happen?
It was great for me. It's always, you know,
being great to drive everything. The reason no one is building
any multifamily right now. You know, there's issues with
the District of Maryland, but in Virginia, for example,
they're starting to go now because rates have not come in enough.
And, you know, people feel good enough.
I think about it that, you know, you can maybe start a couple, but
we're still not where we need to be. I mean, rates need to come in
another 50 plus basis points. Or revenue is going to grow
enough to justify. The cost is pretty high right now.
It's just I think that's the underlying theme I keep trying
to impress upon my folks. Construction with the construction
costs of the last 40 years. When they make these quantum moves
up, they don't come back down. They sort of stay level.
And there's a decent amount of margin in construction costs.
So what you're seeing now, with the handful of starts that we're
starting to see across the country, is contractors are operating
effectively a 0% margin so that they can keep their subs employed
and keep their people in business because they know in 12 to 24 months
it's going to change, and they want to be on the front end of it.
So I think across all sectors, retail is another great example.
I think offices are doing so. There's going to be real inflation
adjusted real rent growth that is going to justify environment that
I think is not going to have 2% inflation, something above that.
It's not going to have interest. That much lower. Than they are today.
But we were all around when we were making money when rates were seven,
eight, nine, 10%. And you say, yeah. So one point I'd like to make to you,
all of you who are much younger than we are, is look at all
these fears as opportunities, not as reasons not to do it,
but reasons to do it, because everybody else,
particularly us old folks, get chicken because you,
you know, you've got your little nest egg now you're 40 or 50 and
you don't want to blow it. So I'm not going to go start
speculating on class A apartments in DC when I don't know what it is.
It's true that you go for wealth creation.
Yeah, but but it's for folks like you to say, you know what?
This type of thing is unsustainable. They're going to get rid of it.
I'm going to make the bet I can buy these Class-A properties at 60
basis points, better yields than any other market in the country,
because as soon as they get rid of the differential is going to
collapse, and I'm going to be a hero. And I'm going to, in 20 years,
be sitting on the panel. Yeah. People like you.
Utopia has to change because, you know, how I look at it is you
want more affordable housing, right? How do you get more affordable
housing? You don't get it by having rent
control. You don't get it by having Topa.
You don't get it by having Erap. You don't get it by get yourself
certified for income. You get by, you know, you go to
if you go to Arlington County, it's 2%, 2 or 3% vacancy rate or,
you know, delinquency. Here we were getting we were
getting 20 or 30%. It's crazy. So but the point being that you
make all those policy decisions and you get less housing,
not more housing, and you're screwing over your community. Yeah.
No, no, it doesn't work at all. And I think the city is starting
to see that. And we all remember when in the
70s and 80s, this neighborhood was really, really close.
And that seems like a long, long time ago. But in your career.
That's a 20 year period. Is the period you want to bet on?
Yeah. And if you would have made a bet
on DC in 1985, yeah, you would have killed it, right? I mean.
Guys like if you look at this area, I mean, you know,
the Verizon Center back then or MCI center delivered in like 1997.
But again, we built Market Square on seventh
and eighth or seventh Pennsylvania. You go two blocks north of there.
You know, you weren't parking your car there
and coming back and finding it. Man. It was it was really rough.
I remember when Jamal was doing, you know, across from what's now
gallery place, you know, his Branson Road, Branson's.
It was all burnt out back in like 97, 98 driving past him like, wow,
this guy's pretty bold. And then five years later,
I'm building a office. But I went to a law firm right behind
it, so the things changed pretty quickly. What's a good policy?
I think at least one good. Once a good policy happens.
Everybody knows that DC is the capital of the most powerful
country in the world, militarily and economically.
Right? So it has a purpose. Um, it's just bad policy.
I mean, for example, Henry could talk to food deserts.
You want to get rid of food deserts? Everybody in Ward 7 or 8 eats, right?
They go to other wards to buy because, you know, there's no
housing. There's no retail. Why is there a retail there?
Because they get robbed blind. So they take care of the 5%.
Two. Five. Three. You know, whatever it is,
they steal shit and they screw over the 95%. Easy to fix.
Just, you know, it's good for everybody. Like you need to have.
Yeah. People need boundaries. Like, don't go in there and
steal shit like. That. Henry's companies made investments.
Yeah. Huge investments. Well, does not give me pleasure
to talk about that, but it is. It? It is. It is a hot topic.
So I've been in DC for 40 years. When I lived in Foggy Bottom,
my grocery store was a Safeway, about 15,000ftÂ² over Watergate.
It was pathetic, you know. And we've been hearing about that.
All our careers and investments have been made.
There have been an amazing amount of grocery stores that
have opened in Washington, D.C. and unfortunately, as Bob said,
there's some bad actors who go in with a grocery cart and just loaded
up with laundry detergent because it's easily sellable on the market,
they just roll out with, you know, 20 bottles of laundry detergent
down the street and they can it's, you know, it's easy to sell.
And some of the grocery stores are doing 40, $50 million in volume,
which is an amazing volume in a suburban grocery store.
Some of these grocery stores are doing that volume and losing money.
So without going through the names of the individual stores,
I can tell you there there's a lot of people looking at closing their
stores based upon the profitability. So it is really sad that Rappaport
and a lot of other good investment investors have built grocery stores,
taking care of what they used to call the food desert.
And and a lot of them are on the bubble.
And to add to that, in the food desert for the restaurants,
you know, east of the river, there are only a couple, like two,
I think, sit down full service restaurants. That's a shame.
We've been telling ourselves to try to do another 6 or 7.
We have a lot of showers east of the river, but trying to do full service
restaurants and it's really hard. And that's even with the food
access grant from the district. The food Access grant,
the way it was written is if you get $1 million, you get,
you know, a third of it up front, a third of it when you open in a
third a year after you're open. The reason why they've done that
is because they don't want people just to open up and close.
But the reality is most people can't finance that.
That means you'd have to go to a bank to get that final third.
Once you open to, you know, to stay in an opening for a while.
So the way they wrote it is made it so difficult. You can't use it.
I'm sure you guys have already seen what's going on with the tax.
They're trying to get to people doing the conversions. Same thing.
There's so many restrictions based on on that tax for ten years that
you get if you build residential. It's your tubby's looking at it.
Vicky's looking at going rather not get that help from you if I'm
going to have to do this over here. Speaking of urban development, you
talked about a little bit about your experience with Walter Reed. Yeah.
So, um, I have a very wise partner, Lois, who says, you know,
the pendulum swings This went back in the other direction.
And during Covid, we had a pretty terrible.
And what happened is that I'm just going to generalize and say
the city swung pretty liberal and there was no eviction court and
there was no law enforcement. Those were extremes. There was some.
And and what it did is it changed values a bit.
And so what's being experienced in southeast is being
experienced throughout the city. If people know they're not going
to be prosecuted, then, um, they're going to do stuff.
I've, I've heard of things personally from the security guards at the
at the stores, at Whole Foods, because we have a band of gypsies
who comes to shop with us and we're not allowed to touch them.
They go in, they fill the cart, and they leave,
snatch and grab at Starbucks. If you're waiting in line and
the drink comes on the counter, someone's going to take.
Do you think that any of that is reported? No. No. Why?
It's like a wife beating. Nobody wants to fess up to it, right?
It's a it's a shame, it's embarrassment. It's bad for business.
And so nobody says anything. So you're hearing it amongst us here.
It's the it's the pills of life meeting, right.
We don't talk about those things. And and so that's that's how I
see it. So things have to change I,
I have the phone numbers of a number of police commanders in the city
and I use them and I, I try to do that so that people have attention.
And I've also been sharing this information with council members.
And I talked to them about the same way.
I talked to you about it, like it's life beating guys and
nobody wants to talk about it, but you know, it's there.
But we as developers are always vastly unpopular,
just in case you didn't know that. And and because nobody likes change
positive negative nobody likes it. And so I don't believe the topic
will change. To be honest I don't. And for affordable housing
production, the city produces more affordable housing than any other
jurisdiction in the United States per capita than any other jurisdiction.
Allocates more money to it than any other jurisdiction.
Please understand that this city. Right.
So we have to adjust our lens a bit. If you look at the MSA, the city has
more low income people than any other part of this jurisdiction, followed
closely by Prince George's County. So I just want to right to that
level. But it's so off topic. The question which was what are
the challenges? Right. So. How many of you were practicing
in 2008? Haha. Okay. So and construction prices were
really high in 2008. Right. Like how high and what happened
the next two years? Could you build something for us?
Yeah, I think it dropped 20%. 20%. Yeah. Something. Mammoth. Yeah.
So I think we're still in 2008 for this cycle,
and the prices haven't dropped. I just got back a wood frame
construction price. Not from. That was that was $290,000 a
unit and hard cost. And I was like, oh my God,
big X on that. So biggest cost items land interest
free and construction. Right. And those things have those are
your three top risks right there. And how that resets.
There's always tools to do that. And in jurisdictions like if I
think about the the 1990s for DC when we developed our first, uh,
public housing in Ward eight, a lot of people wouldn't want to
go there and nobody could get anything permitted in the city.
So we were in 97. So I had a I had a development
ambassador assigned to me that's like a chaperone at a party.
goes through all the agencies to get our stuff done because it
was a broken system, and I only raised that because there
are ways that the jurisdiction, whatever the jurisdiction,
wants to have happen, they have ways limited in some ways
to impact that right and to do it. So for me,
it was an ambassador in 1998. It could be the stimulus that
Mayor Williams put in for infrastructure construction to
take away a huge barrier. Like there are ways that people
can do development that's needed. But some of these things
construction cost, interest rates, cost of land or office buildings
has to come together. So I think we're I think we're
still at that point. What do you think of that? Yeah.
I'm going to balance Vicki's comments with Lacey's and that.
I agree with everything Vicki said. But I also agree with with Lacey,
and I'm sure Vicky does as well that these problems are are
disguised as or they're opportunities in disguise. Really.
I'll use my company illustrative in 2008.
The world stopped in late September, mid September, as it were,
and there was no liquidity, right? You couldn't get a loan.
You couldn't get equity, debt, anything.
Yet the millennials was it millennials at the time? Yeah.
We're in college and not yet having graduated the beginning
of the millennial. So you saw the second largest
demographic bulge in the history of the United States in the system.
Yet we couldn't build apartments in oh nine because people made
subprime loans having nothing to do with rental housing. Right.
If you under one model, I woke up every day and I read
the Wall Street Journal and it says the world is collapsing.
LIBOR was like 5 or 6 or something crazy.
It had been at like 25 basis points and it was like 6%. Think about that.
And all this chaos was happening and you wanted to just cry every
morning, right? But another way to do it was we
we went around my company. We went to each institution and
we said, are you sure you don't want to lend us equity to go do
these deals? Yeah. We're sure. Construction prices had come down.
Millennials were loaded in the gun, ready to come out into the world.
We had to find a private individual. In our case, we partnered with
Penny Pritzker in Chicago. And we formed a fund because she had
as much money as an institution, but was private and thus more
entrepreneurial. And I only use this illustrative
because I look back on it on years like this year and last
year when I read the paper every day and it's miserable.
And we started 11 deals, which is a lot for us in two years.
Not all with her, but then the equity came back quickly, by the way, and
we sold them at incredibly low cap rates like 4% or something like that.
So we we made money every everybody made money on the transactions.
So I tell you all of this in a long winded way, saying yes,
things are pretty crummy right now. Costs are crazy.
Interest rates are high. Regulatory. Regulatory environment is terrible.
But what do we know? We know that no new housing is
being created or very, very little. So if I didn't start I think we
started one deal last year. We usually do 3 to 4 and one is
generous. Like we barely started it. Right.
If that's true of my competitors and all of these guys and others.
You're looking at an opportunity that if you're able to find a way to
create, to start housing tomorrow, one month, six months,
eight months from now, it'll take you two years to build and you'll
be delivering into an environment with zero, literally zero supply.
So coming full circle, I agree with your previous point
and maybe disagree. Bob, I actually think rents will
go can and will go higher not. Which isn't great for the for a
resident, but because where the hell else are you going to go?
I agree with that a bit more. It's crazy. It's just crazy.
So I think the next bottom line. Next two years.
I think you'll see mammoth rent growth.
I think rates will come in a little. Construction costs will come in
a little, but not not enough to save the day.
I think we're saved by by rent. But if you all can find a way to
get in front of it. You'll Do you have a question? Yeah.
Oh, I'll add one comment, Chad. I think that's an opportunity.
And clearly one that's contrarian. So to your point, might actually
be a great idea because no one else is doing it. Or very few.
But I would argue you should similarly similarly look at places
like Walter Reed where Vikki made an incredible neighborhood
and environment or city rich. You know, we we manage those
buildings and people want to live there because there is no crime.
It's not. You don't have to guess that it might
get better. It is better in theory. I'm sure there's some de minimis
crime, but at least people feel a little better.
My only point is there's no housing being built. I keep saying no.
That's quite a grandiose statement, but very little housing being built,
including suburbs. So I think the opportunity is in
both places. I agree, I also think there's a
category of housing. I agree the fence will go up and
there are going to be a whole bunch of people who can't afford them and
they can't afford anything. Nothing. Which is what Bob was getting to
in the beginning. And and so again, that's kind of
driven by government, right? People in the government are and
they're hearing all of these complaints. I can't afford anything.
I can't afford this. I can't afford that.
So is there an opportunity to create workforce housing? What is that?
Most times it's apartments. Like apartments. I'm sorry.
Doing this a long time ago, and we always used to say apartments
serve people at 85% of median income. It's kind of still the same,
right? No, no. I'm good. No, I agree with you. Yeah.
And so and so that's your workforce housing right there.
And so I think that there are opportunities to provide workforce
housing. I'd say another thing. And that is so interesting to
have you here. And so what do you want for your
lifestyle. You probably want good schools for
your kids. Everybody in favor? Yeah. Okay. Good.
Probably want them to be free or included. Okay.
You probably want a safe neighborhood.
You probably want housing that you can afford within your budgets,
whatever the limitations are. You probably want a place to go and
play with your kids and your family. Right near recreation. Right.
You might want to do other fun things on the weekends, which would argue
for the city, because there's a lot of opportunity in the city.
Um, I think there's much more emphasis on
recreation for for your age range. And I don't know who here spends
their fun time going shopping. Think. Okay. One.
And so like I don't I don't like it. So.
Look, I think you have to really look at what people want.
How many of you would like to belong to a pool if you don't already?
Okay. Uh, a club of some kind. Uh, recreational facilities of
some kind. Golf or something? I don't know. Tennis, whatever. Okay.
So I think, shockingly, even poor people want that. And so.
And so we try to build our housing with those things in mind.
How many of you would like to live near transit? Okay. So.
So you can see what what people want and and and if you can find a way to
do that as a formula, then I think that becomes a real compelling case.
I have a final question here. Are there specific property
types of submarkets that you believe will outperform?
You said, I think Northern Virginia for multifamily, for sure, because
their policies aren't screwed up. John, can I add on to that? Sure.
Fascinating to see, because the like I think union
market is where everybody's built a built in the last five years.
How has that turned out for everybody? A flat. Lacey says good.
We were there earlier. You know, and we like you know,
for me it's more like, can you can you sell it?
Like we built elevation for 290,000 a unit.
Think about your hardcore comment that was we delivered that in 2014.
Shows you how much it cost. But everybody jumped in,
you know, once it did. Yeah. 10,000 years. Yeah.
Just an amazing amount of units. So in the Harvard Business School
case that we're doing right now, you know, it's kind of fun to
look at the post mortem. We're still in the middle,
right? We're not done. It's amazing all the restaurants
have been added. But I think what's most amazing
is how many people went bankrupt. Well, they're there anywhere.
Not every my career. Every ten or so years, there's
an economic cycle, a downdraft, and I can go back and name them all.
And historically, there's carnage. The brokerage business.
Remember the brokerage business in 2008?
A third of your friends were out of work.
It was really sad because the brokerage firms were all small
companies, poorly capitalized, didn't have the wherewithal, and the
economic impact was worse because you had banks and other institutions
that were not just not lending, they were going out of business.
They were going bankrupt. The stock market and the housing
market weren't the biggest point. How many people think they're in
the upper 60% of the nationwide demographic income?
Everybody in this room. Housing prices.
Majority of those people own their real estate.
Majority people are up 4,030% in the last few years. Stocks.
We are doing great. And I think my personal view is
as you look across your career, that's where the money is.
Willie Mosconi says, you got to go where the money is.
We spend a lot of our time working with the lower 40% of global housing.
I know John does the same. Tougher, tougher place to make
money for a lot of reasons. But I think we are in you all young
professionals are so lucky because you're at a bottom after a second,
but it's not bottom without definition here.
We think there's good reason to think we're bottomed and
everything is relatively stable. The top 60% of the economy is in
really great shape, where you're going to probably
make most of your money, and they want to live in urban nodes.
We grew up during a year where everybody was moving to the
country or moving to the suburbs and these cities.
It wasn't just law and order, it was law and order.
It was infrastructure. It was demand. It was 15 things that made it really
difficult for people like Elvis or the car to turn around DC completely.
So today I think I want to live in downtown.
You see, the population is growing despite the crime.
Uh, and the same is true in suburban areas.
You don't want to be near a shopping center where they can go get a cup of
coffee. They don't want to live out. I grew up in West Virginia, where,
you know, the coffee shop is downtown. Cost $0.50 to get a cup.
So I would again encourage people to be optimistic. Recognize the noise.
Recognize the opportunity in the rubble and take advantage of it.
Yeah. For sure. I mean, I think multifamily I
think office is not. That's why the first question
was about where opportunity for me is in office.
I mean, keeping an office that is being office or offices.
Now, some of it, like 11th Street or 11th Street, turned into a
brand new beautiful office. Others will be torn down and
converted. That's where the opportunity is.
But I also think the multifamily piece is your developer.
I mean, two things. On the buy side, I think you can
make a replacement cost right now. That'll be good buys in five years.
Depends on your source, your capital. And then, you know, I do think
we'll see. I'm with Toby or Vicki. Another we need we need another 50
bips. We need to cost another 810%. And then I think you're going to
need markers if you can get something going this year,
get it going this year. Go ahead. So most of us in this room don't have
the money to buy a parcel and wait. If we're getting all started
just ourselves, what would you do just so you don't spend?
What would the council probably do? What I would do. Accountant.
He's you know, he micro market. You know a neighborhood.
You know that you you know you see upset around.
You see maybe our family around it has been built and you know,
you're putting stuff together and preferably deals that are carried.
Land plays where you see assemblage, but assemblage scraps out.
You still have a performing asset. And right now is not a bad time
because a lot of people are hands off in the district.
I would say find a friend and and and so. But nobody has any.
Business phone number. Yeah. He can't have it.
And he's got his phone right there with him.
I still need it texted. To the. Exception of Toby, there. Are not.
A lot of people here who are in the last third of their career. Right.
And your parents are two, by the way. And and a lot of those people
have real estate, and it's a tiring business.
So I would find small scale and I, I would talk to your friends,
talk to your parents, the parents of your friends. Figure it out.
Talk to your investment advisor because they handle all of those
people's money and and start looking for stuff.
And those people might want to partner with you but not do any
of the work. They might have the asset like.
Those are things that you can do. And people have made a lot of money
doing that. It's very hard work. It's very hands on if you're
starting out. The other thing is find a bigger
friend where you can add value to them that somebody else can't.
And that value is in knowledge. And nobody here has talked about AI.
But man oh man, is that a game changer.
Because you can sift through so much crap to find the diamond. Right.
And so I would say this, my grandfather used to say the
most money is made in lost in times of stress like this.
And and so it's your Carpentier moment.
And what you have to do is spend a little bit of time thinking
and figuring it out. Of where you can see a value play.
And if you don't have any ideas and ask somebody who does. So Bob has to.
Leave in about. Five minutes. So I'm going to let him kick off.
Round two here. Our second round, which is uh,
individual questions for you and the audience.
And this is on the observations in the panel here.
This first one is how would you navigate the challenges posed by.
Email John yesterday and said I'm a really bad candidate for this
question because I hate work. I'm a big believer in the office,
frankly, not just because an office, but just my personality has,
you know, grew up in a big family, more of an extrovert than not.
I get energized by people being around people.
You know, my entire career, you know, including my time in the military,
was always an open day. People talking to each other.
And I like the camaraderie that's created by it. I like the culture.
It's created by it. I like the transfer of information.
I like whether that be, you know, a learning moment for someone or
just, hey, I know that guy to you. He's looking at this, all this stuff.
You miss a lot of that. You're not together, you know?
You have to schedule everything, and you schedule things.
Spontaneity goes away. And I think that there's a lot
of opportunity missing. And do you need to be in there?
Listen, I'm totally flexibility if I'm going on vacation or if I'm not
even on vacation, let's say I want to go. You know, it's still on.
I want to go to the beach for two weeks, so I'll be working.
That's fine. You you know, if you have daycare
issues, you need to leave earlier. That's fine.
If you don't, you don't want to come in five days a week.
Four days a week. Okay, okay. But you're working the other day.
But I just think being together is really important.
And even, you know, all these people that say like,
oh, you're an accountant. You're doing, you know,
payables and receivables, whatever. You can do that at home. Sure.
But let's say you're the junior accountant.
You got to schedule a time to find the senior accountant to
ask a question you could have leaned over and asked.
So I think look at where the what street in the United States
makes the most money of any street in the world. Park Avenue.
What's Park Avenue doing? Everybody's working five days a week.
We go real quick. here. But for me, like, you know,
if you're an individual in this business that your personal capital
is your credibility, right? You know, and so which means a
couple things. Credibility. First of all,
you gotta be good at what you do. Um, and you got to be honest.
And, you know, you and you got to be, you know, you know, never hide.
So for me, I'm always, you know, I put my partner and the deal first.
Me and my firm second. You know, you do the right thing
by your partner in your firm, but by your partner and the real
estate, you'll make money and, you know, and the guys have been
in business a long time. You know, they get their big boys,
they get it. They know when shit that happens,
it's not your fault, right? But if it happens, that may be
your fault. And then that happens. You just gotta own up to it real
quick and say, this is what's going on.
This is what we. So our options are. This one we're thinking of
recommending you know just put it out there.
I mean being good at your job helps a lot.
I posted the story that Bob. Shared. My interview with him about
Watergate, not Watergate. And it's something, you know,
his firm and it was a tough go. But he's brilliant. So, Toby.
Are there specific skills or areas of expertise that don't.
Yeah, you're doing it. You guys take care.
Appreciate it. You're doing it. You're here. Others aren't.
So you win this morning. And I'm only partially joking. If.
I'll give you another example. I live in Baltimore.
I drove down here this morning, and instead of listening to music,
which I love, I listen to a podcast about the economy. It's super boring.
At 6 a.m., by the way. But I know more than whoever did
not do that this morning, and I could use all the help I could get.
So I think showing up is something. For example, I see this group of
people all the time, like all the time. I mean everywhere.
So you go to an event, you go to a fundraiser,
You go to the charitable thing. Lacey is very involved in
charity as an example. You see him a lot and you do
these things. You show up and then there's a
connective tissue and you're beating. Here's an idea. Go to work.
Go to the office. You can just win it.
I never thought I would say that, but just even going to your job
during the day will put you at a distinct advantage over those.
That may be great, maybe better than you, but aren't
there and out of sight, out of mind. And I've always described to the
younger people, my my company, that you know how quilts have
squares of different, different, different textures, etc. and
they're all sort of sewn together. Well, think of everything you do.
Like this morning is a square. And then go to your office today.
That's another square. And sometimes I say,
I have no idea what the hell that event was all about for a fundraiser.
It's boring or something. But you were there,
and something may have happened. And eventually you'll look around,
you'll. You'll turn around and they'll
all be knit together. And Michael Lewis gets back to
your capital question. You know who else is at all
those events? Bankers. And you do the dinners and the
lunches and the social events, and it's just staying present
and top of mind. So knowledge and showing are things
that definitively can't hurt. And we are in the most connected
industry that I'm aware of. I remember talking to Mark business,
who, when he was starting his business by far real estate was
the easiest business for him to put the network together in
because we all need each other. You can't build a building
without an architect, contractor and all these other people.
And the same is true on the capital side.
And this is a phenomenon that should play to your advantage.
Back to the 60%. The top 20%. The 60% has gotten a ton richer.
We're competing, you know, writing $50 million equity checks on $200
million deals with family offices. If you factored into what that means,
if you're a family and you're putting $50 million into one piece
of real estate, that's probably 10% of your real estate portfolio.
And your real estate portfolio is probably 10% of your total portfolio.
So the point is that there's a lot more big money out there.
And the they want folks like you who are smart,
entrepreneurial future leaders. So take advantage of the
connective tissue of the quilt. It's what makes this business
unique and what will give you the opportunity to excel if you do it.
Well, you've answered some of this. What advice would you give to 25
year olds starting pitching? So. I ask everybody who comes to
interview with us. So what's your five year plan?
Where would you like to be? Where are you going?
What's your ambition? How are you going to get there? And?
And it's shocking how many people don't have a plan.
Well, I've never really thought about that. Like, what the hell, man?
So first, figure out what you love, what you're good at.
Usually, those are the same thing. What you don't love and what's not
good at lots of the same things. And and figure out where you
want to be and and what you want to do to to get there.
And so that's my first piece of advice. Like have a plan.
Um, and then, uh, my second part of the advice is listen to people.
And my third piece is an echo of everything that's been said over
here, which is Relationships matter. Everybody at this table is a
fiduciary of one kind or another to somebody,
and you're holding the trust. When you work with money, with you or
your government or your community. You are a fiduciary and you need
to stand up for that. I'm going to tell you something
from my past. I've been through a number of
recessions because I grew up in real estate, in the one that
happened in 89 and 90. My partner today, I said, hey,
wouldn't you like to come and work for a bad bank with me?
I was like, what? And I didn't even know what it was.
I was pretty young, and and I went to work for a place
called South Charles Realty, foreclosing on developers.
And my family had been in development for generations.
And so at the age of 25, I started doing that 26.
And and it was brutal, like brutal. And there were people who looked like
us who wouldn't answer a phone call. I was representing the bank,
and they wouldn't they? It's like a game of hide and seek.
And then there were people who stepped to the plate and they're
like, yep, I got a problem here and I'd love to work it out with you.
And what would you like me to do? And how are we going to work
this out together? And there was a significant
difference in how those people performed over time.
Horrible story. Right? But but it matters what you do
when the going gets tough. And we've been through good times
together and bad times together. And and how people act during those
periods of time matters tremendously. And so I want you all to think about
that for your careers as well. Like how how you handle those
relationships. Oh, that's Like, um,
people talk to me. A lot of people that we talk to
talk about their entrepreneurial aspirations,
the most honest ones will say, I would like to learn as much as I
possibly can from you and go out on my own and build my wealth and
business check. I'm down for that. You know, a more suave approach
that I've seen is, oh well, I'd love to learn from you and then
be a part of your team forever. But. We know we know better.
But but people also like, I'm going to answer the other
question you ask, would you like the worst thing I ever heard?
Oh, I like to vision project. Like, what the hell, man?
Really? And junior whatever. And it it's that's not a good answer.
And so for me I think I think people who talk about being part
of a team talk about relationships and talk about where they
actually want to go and have information on those investments.
I don't know if that's a question. No. We do to some degree.
And I sense your skepticism meaning it's well placed and that
it's okay if some of the people that work for us want to move on.
We had a young guy, Martin. Ditto. Some of you know Martin,
and he was a good developer. And I could just tell that he
was itching and raring to go. And instead of arguing with him about
it, we just said, I think that's great and good luck and call us.
Um, I remember there's an old JRPG model that I regrettably didn't
follow, which is invest in those people leaving your company.
Yes. And I made a mistake there. And that Martin and Martin
illustrated in a positive way, went out and raised money from
friends and family. I should have been right.
I don't know why we don't typically invest in others that have nothing
to do with money at all, but that was a mistake and it's encouraging
to to watch someone. Succeed that. Worked under here learn something
positive, because then it's this sort of wonderful ripple.
Effect on the community. And he did some really cool
projects and I'm sure he. Will will continue to do so.
So Henry, I'm going to. Ask you the next. One.
How would you recommend building a professional network?
Finding mentors? Well, when I look back in my career,
I was at Chelsea Smith for 17 years before going to Rappaport. And.
You know, not everybody likes to go to the events that we all go to.
We were talking about charitable events, and I consider us all to
be friends because we've done things together and we run into
each other and we I think we have a mutual admiration. Respect.
Mr. Smith had just given a lot of money to the Children's Hospital
for some research foundation, basically because I was the guy who
was willing to go to these events. He called me into his office and
said, I want you to be on the foundation for the hospital.
At the time, I think I was maybe 37 years old, and the youngest
person on that board other than me was probably 60, you know.
And I was like, really? Yeah. I want you to to, to represent,
you know, my family. So once I got there was like,
well, I gotta do something. I can't just go to the meetings.
And I became the chair, the co-chair of the board, which is now one of
the most successful events in town. At the time, it was not what it's
called. But I saw an opportunity. He said, you know what?
I think I can fix this. And even though everybody else
in the village, I was kind of surprised nobody was.
The foundation board kind of stepped up.
It was, you know, had given millions of dollars to themselves.
And so, you know, it's hard work. Your energy is such that, oh,
yeah, he's the guy. Well thank you, John,
but but take risks. You know, I mean, I will tell you,
I sat there and I'm like, I'm gonna, you know,
go over and I won't go for the names. But Hayford says, and, you know,
all these other people that were, you know, household names in D.C.
and, and take those chances. The, the one thing I want to add to
that is one time I was walking with Mr. Smith, who had made billions
of dollars in Crystal city and developing in Washington, D.C.,
and he was a very, very smart guy and really trusted people.
But you didn't say dumb things in front of him because, I mean, he was
just like, what? You know, it was. And again, I was one of the younger,
um, executives at Chelsea Smith, which at the time was the biggest
residential developer, Washington, D.C., and he had made billions of
dollars, specifically Crystal city. And for those of you not been there,
well, probably haven't been there because a few times Crystal city used
to have a road that went around. It was a it was a loop.
And all the buildings are called crystal, something which took
place as a gateway. So if you're coming to visit and you
make a wrong turn, you are screwed. I think about that. Yeah.
Thank you. Thank you for that. But most of it was the Department of
Defense Patent Trademark Office. So a lot of people that came
there all the time, we were trying to transition to
being a true office destination for private office as well.
And I went into a meeting and said, we need to, you know, two way all the
streets make into a grid system. It sounds just like now.
And I almost stood up because they had made so much money on
that system. But a couple weeks later,
Mr. Smith called me up and said, you know what? I think you're right.
We changed the grid system. We tore down some buildings at
retail in the street, which was Red Underground's
finally closing after years. And so my big takeaway is go out.
Make those connections. Keep all of those.
I'm still a card guy. I'll give you a card today.
You know, make sure people remember you, you know,
get that card. Don't just email. Email is great email.
But if you give me your card, your card to me on my desk,
I don't feel my way. I'm going to see it go. Yeah.
You know, we met a while back. You know, all these little things
that nobody else is doing. I can't tell you how many people
in your demographic. They're like, I don't, I don't,
I don't care, like it's below, you know, and I can't tell you how
many people I look at later and go, yeah, I can help that person.
So you said, yeah, I use audible. I don't listen to music either.
Don't listen to music news because it just pisses me off both sides,
you know? And so right now I'm listening
to an audible. Ten times is easier than two times.
Pretty cool. Yeah, it's pretty cool, man. Wow.
And once you start doing audible books like that that have helpful
audible starts suggesting more of those types of books to you, if you
don't have to go out and find them, they're kind of given to you.
But in conclusion, take a risk like I'm talking about, you know,
put the time in, think about how to do things differently, you know?
Go to somebody and say, you know, I've been thinking about this.
I think we could we could do this project differently.
What do you lose? Last thing is, is if you're saying no
to somebody. Do it with a smile. Most people feel like they have to be
all serious and and and, you know, change their composure to say no.
Look at Vicky. Look at me. When I said, he smiled.
You know, do it pleasantly. People are.
You're going to do business. The people I'm doing business with,
you know, the people that I felt did not like me when I left Chelsea
Smith. This is an interesting story. When I went to.
I've now been wrapped for 20 years. The people that when I left,
I thought were not my buddies. You're the people who called me
up and gave me business. You know, you don't know who's
going to be your best mentor or source of business in the future.
So this goes back to my conclusion on John's podcast. Love, everybody.
It's easy. Smiles free you know. And I think when you smile,
it gives you personal enjoyment too. Final question what role does
technology. Well, I'll sort of stay on the
entrepreneurial bet. I think I look at the world as
opportunities and barriers to entry. So I think that in real estate
for a long time, information flow is a barrier to entry.
Because if you wanted to learn by property in Phoenix and you
were in Washington, you had to figure out who the brokers were,
call them up on the phone, get them to send you a book that
took multiple weeks to for them to generate for you to process.
We all have so much information at our fingertips.
There are endless opportunities and you all are in your career on
the front end of I, which I really think of more as data analytics.
We're in a hugely data driven business, but the information is
imperfect and dispersed. So I'm encouraging my teenage kids
to really focus on data analytics. These relates to real estate.
There are all sorts of inefficiencies that if you work hard,
you can uncover and there are more efficiencies to be created.
We're working hard to automate our underwriting, so our analysts in
Excel are really becoming data analytics analysts and processing
information not just on the individual property, but on all the
comps and everything else much more quickly and much more efficiently.
I think we're much better able to analyze trends in markets.
Our sector multifamily is driven largely by demographics.
And if you can really understand where people are moving, not just
city to city, but neighborhood by neighborhood, that can really
help improve your performance. So we're dedicated to that.
And again, the barriers to entry that are so low for you,
you don't need to go build a system. Um, I remember when Avalon Bay built
the first revenue management system in the whole apartment industry.
They spent like tens of millions of dollars on it and five or 7
or 10 years. And it made a difference for
them for about two years, until all the programmers who did it
went and started their own company and then sold it, and it became
the systems that we all use today. And so you have access to an
incredible amount of technology that can help you find inefficiencies in
the market and capitalize on them. And so to me, those are really some
of the most important aspects. Related is Proptech.
Everybody's familiar with all the new products that are being generated
to do all sorts of things that were relatively mundane processes,
like our our guys that go fix things at apartment buildings.
They would we never really thought to.
There's a lot of inefficiency there. We knew it wasn't really well done.
It was tough to kind of count the numbers.
But now all that data is available to us instantaneously on our handhelds.
We can look at rents into the future and tell leasing agents
what the rent should be so they no longer have to spend, you know,
five, seven hours a month sitting down with 7 or 8 people trying
to figure these things out. So continue to look for places
where Proptech or AI or data analytics are going to create
opportunities and find a partner. If you're not a data person who
can figure that out, and together with you raising the money and them
figuring out the opportunities, and maybe a third person who's out
buying and managing the properties, You create a team that, over the
next 10 or 20 years is going to do, and I'm sure incredibly well.
So those are some of my thoughts on technology.
And I know nothing about technology. Exactly.
Because people of our generation tend not to.
I've got about ten minutes for Q&A. So I'm going to open it up. Go ahead.
Yeah, I think that's a great question.
I think there are a couple factors. One is the scale of the players.
If you were Oliver Carr, who built a lot of these buildings
in the 70s and 80s and did a great job of turning the city around.
He only played in DC, and there were a handful of banks
that were all regional banks that went to the DC developers.
If you blew up that relationship, you blew up your business.
Today we invest in 17 or 18 states, and we invest with largely a
handful of very large institutions that won't go out of business if
we hand back a loan to them. So the dynamics are quite different,
and I think that that's part of it. I think the other interesting thing,
and this is this is an opportunity for your generation.
We have largely been a country that's where lending has come from,
federally regulated institutions. But as we've all read, private credit
is on the rise and we've seen private credit and other forms in the past.
That's part of what blew up the economy in 2006, 2007.
And it's going to move heavily into real estate.
Those relationships are completely trading relationships.
You know, you tell a guy that you're going to default on your CMBS loan.
Yeah, I don't care. You know, and you don't know him.
He doesn't know you. The workout people, they don't care.
So that we're moving more and more in that direction.
That sector is getting bigger and bigger volume of real estate.
So I think it'll create an even less personalized dynamic.
I personally think it also creates a lot of risk because
those people are not regulated. We're in the private equity.
We're in there partly because we don't want to be regulated.
We are an SEC registered company, but we're not regulated like a bank.
And I'm on a bank. You can't believe how much
regulation banks are under, but we've seen it before.
You put traders in a business with a lot of money, and they're lending to
the illiquid sector like real estate. There's probably going to be a
train wreck somewhere in the next 5 to 15 years.
So keep your eye out for that because it could create more opportunity.
Let me jump on to what Lacey's saying.
You know, the CMBS special servicers, not only do you not have a
relationship with them, they are incentivized to screw everybody.
Yes, totally. It's the craziest thing.
So bankers are like, oh, I'm going to do another loan with
them. And hey, I'll help you. I'll do this and that.
They won't even the special services are willing to talk to
you until you are in default. All. So you call them up three months
ahead. Say, I got a problem. This lease is. Excuse me.
This loan is coming. Do you know,
can we we work out an extension? They won't even talk to you.
So they put you in on your heels from the very beginning.
And their fee triples are more when you go into special service.
And so they want to get you in and they don't want to get you out,
and they want to keep churning their fees as long as they can.
Yeah. And and so and that. No, no they do actually.
Well yeah. No. If they can extort you for an extra
5%, they'll give you an extension. But if you, you know,
if you can't play that game because property is already,
you know, X amount under under, you take it and then they,
they churn it, you know be capital was great last time.
We did a lot of business with them. But I think the CMBS special
servicing industry changed since 2007, 2008, isn't it?
Now you got the different piece of owners of the of the, um, bonds.
And there's one guy that has the highest interest rate, right?
He's the guy who's going to do anything he can to make his
group make money counter to the other bondholders. Yeah.
Explain this correctly. I think to your point,
servicers don't want you to turn the keys over because they have
no clue what to do. Thanks. At least know what a workout
looks like and how to do it. And so what I think that leads
to we certainly saw it in 2009, ten, 1112 is assets that are in
trouble just tend to sit and they suffer because there's no one's
pumping any money into them. If it's an apartment to fix the
heater or to do this or do that. So another opportunity,
I think over the next five years, particularly in older apartments
and maybe office buildings, is a lot of these buildings are going
to sit and start to rot because nobody can get the keys and fix it.
So if you're patient, you can pick up these rotted buildings,
renovate them, reposition them, and make a lot of money.
That's going to happen at some point in the next 5 to 10 years.
Other questions. Go ahead. Aaron. Aaron. Go ahead.
Aaron used to work with CW capital.
But I think if I could, on behalf of the panel, I'd like to
just further acknowledge John's role. John has essentially taken a
nickel and turned it into a dollar through this program.
And one of the things that's important is to keep in mind is
everyone's career moves at a different pace.
I've had a lot of friends who are enormously successful right
out of college. I'm out, you know, trying businesses
and failing and thinking that that's going to be the rest of your life.
But many of those folks, the second half of their life
didn't work as well in the second half of our careers.
Well, John has had multiple careers, but I think that it's really
fantastic that it's part of this overall fabric or quilt concept
fill the void that I don't think anyone had ever addressed,
which is the history of real estate and the relationships and what
we can learn from one another. And I think that's a tremendous,
important part of any family or any community the history, the fabric.
And I think that, you know, when it's all said and done,
John, your legacy is the is the quilt maker is going to be well
respected and long remembered. Well, in 2019, around the universe,
here we are in the podcast realm and the stories I'm hearing on
all these podcasts. And I said to myself, you know,
I know a lot of people in including all these people here.
A lot of others. I said, you know,
I'm just going to start doing this. So I called up Gary Rapaport.
Gary, Gary is like, I am. Because everybody in he's he
gives he gives constant love. And he's the hardest,
hardest worker in DC still. Yeah he worked Gary Rapaport on
seven. He worked seven. Days a week. He's in the office every single day.
He loves it. I almost cried. Anyway, so he was my inspiration
to some extent and he encouraged. He said, God, yeah, I love this.
Let's keep doing this. So I just went up about 5 or 6
other people I started talking to. Oh, sure. You know, let's do it.
And it's just evolved. And now we're at 123.
Um, and this is the next one today, but. Thank you all for being here.
I really appreciate it. Um, a couple comments I want to make.
There's a QR code here and here. Each of you would snap that and
I prepared a survey. I really would appreciate that.
Not only for today, but also for the board.
We've been in existence three years now. As.
Kevin said, we toured over 100 properties in those three years,
roughly. I like to hear. Two examples, I would say very rich.
He has lots of properties for the rest of town, and I spent a
whole afternoon walking around and instead of gave us a full,
you know, reception for my group. Um, and then he separately took
us to 2110. And then he took us to one of
their local pubs right there. Just an example of what I kind
of give it back. So the program has to do at least
once. One month. One for a month. One. Ask me anything of that.
Um, and I have a curriculum, so all of you signed on.
Remember, take a look at the platform.
I have a program built on the 17th, which is a week from Friday.
And we have an orientation for new members, people that haven't
been involved in the community and noone online. Able to see it.
You can look at the replay. This is a set of the podcast so
you'll be able to watch this again. I'm going to share the video of
this with you. I'm not going to go live broadly
with the video, but So are there any questions or any other comments?
I would love that. This is burning in my soul since
I read it yesterday. I would love for the panel and
please everybody in the audience to talk about the Bxp deal in Metro.
And what do you think about them tearing that building down?
I get that because it's but making that move right now to
build a trophy building there. You know, Folger, Pratt,
anybody here from Folger Pratt, they build a building in Tysons
Corner to be a trophy building because there was no there was no
new trophy right by the Metro not being a metro next one. I'm not sure.
I think Greensboro, thank you. And to my knowledge,
it's just sitting there to see through building.
Now in the article yesterday talked about having a pre lease of 5 to 6
floors and another tenant. Yeah. I mean, even so, it's called,
let's call it 50%, please. And then seem like a. You bet.
Well, I look at 2110. Hopefully. Several of us. Yeah.
They put me in some of the eyes for the.
Mail in that $800 a foot, you know, just incredible dollars.
But the Reds are over triple digits. They're paying out over $100.
So the top tenants. Are able to pay. For the repairs.
Yeah, well, it's it's pulled off okay. Yeah. I'll say this.
I actually think it's great. And if it was up to me, I'd.
I'd take the line that is Independence Avenue and 395,
and I peered all down between there. Those those buildings are my vintage.
And they're there. They're done. And some people really like them
because they like that architecture. I don't think they're functional,
I think. I think it's a place where
people can be. I was wanting this little government
commission about tear down these offices and or repurposing them.
And gentleman took me aside and he said, do you know the history
of office buildings? No, I don't. And he said, well, office buildings
really came to be after the Second World War when we started having
big government enterprises and we had to push a lot of paper.
And so this was a place where people came, mostly men came to work and
push paper as part of communications. And we now have computers and we've
had them for quite some time. And so the whole concept of how
it was set up and these big bullpens of this and that.
He's like, the functionality has changed entirely, which I thought was
really kind of interesting. Right. And so and then we went through
this swing of how small can we make the space for each individual.
And then we've gone through this swing of propelling off the space.
And I think that the federal government office space thing,
you can put a fork in it. It's done. And and it's been done for a long
time because they've already contracted out from last resort.
And so the cost of maintaining those buildings per employee is
like $100,000 a year. Should be now. Like that's crazy.
That's not like, that's that's a bad business proposition,
even if it is government. And so I think that gives us a
tremendous amount of opportunity to envision this for the city.
Nick is going to cry. And and that's just the bottom line,
because a lot of those buildings are not Historic.
And so there's got to be some kind of an overarching way and a
plan to do it. But I think that the office
building scenario has changed, and that new building is probably
going to be contested. High ceilings. I think it's going to be
functionally very different space, but I don't I'm not an expert.
Maybe you guys have something. Special happen.
We have a small portion of our portfolio is in the office.
And a couple things we've seen. One is again the top 20%.
They're doing great. There's a lot of money out there
and they have not really felt any recession.
So why they shouldn't be able to pay more rent now and they could pay ten
years ago. Seems an easy question. It seems like they could easily
do it. And we're seeing in every market that
we're in, the class AA Air space is fully leased. Look at Hudson Yards.
Numerous examples in Dallas. So Bxp is really smart.
I think it makes sense for somebody to say, yeah, I'm going to be
the very best building in DC. There's a big market.
It's one of the biggest in the country.
There's got to be whatever it is, 400,000ftÂ² of demand.
I think that money filled this office pretty well down to the wharf.
So it's great that they're doing it. I think it's one more example of
the fact that you're on the bottom, the upswing of this recession
cycle for anybody. Yeah. You know. It's coming.
I've talked to somebody who's in Doge. Yes.
And I've been told this is a pretty senior person there, that There
could be demolition of buildings like that within the next 24 months.
I think the Wall Street Journal article about 18 months ago, we were
lucky. We featured in Philadelphia. We renovated three office
buildings to residential over the last ten years.
It was primarily about Wall Street, and in 1990, Wall Street,
the population within that submarket was like 30,000.
And there was a huge exodus of office from there up to Midtown
and other parts of the market. So the city got behind tax
incentives to redevelop those office buildings, and those
office buildings were largely built before air conditioning.
That makes floor plans very adaptable.
That's the same thing we found in Philly.
So it's in part with the stories about.
But the main part of the article is that it takes a long time and
you've got to have the right sorts of buildings.
And we've looked at a bunch of these deals.
Generally, you've got to get the basics down
to like 100 bucks a foot or less. And that's really hard to do.
And it's really hard to do in DC because you've got not narrow
buildings where you need about 70ft of depth for the building,
but you got this big square foot, for instance, that, even if it's
a lot, doesn't work really well for building an office building.
So I think it's going to be a long, slow recycling process.
And I don't think anybody can tear down a building unless
they're ready to build it. So I think one of the challenges the
city is going to have is what do you do with these ghost buildings?
There used to be a bunch of them in New York when I lived there,
and that's usually where guys hung out in the dark crevices of
the entrances when you walk by. So and I think we've all seen
it's going to be a huge dent in the city's revenue bucket.
So we'll see how they adapt to that. I agree, although they don't
have much revenue? The federal government,
except for the daytime population. But that's the question that the
government should. I agree with you. Government is it works at a
snail's pace, but it's the market. The free market can't.
If you gave me a 400 by 400 lot in downtown D.C.,
I'm not sure what I'd do with it. And so there, um,
JLL is working on it. They've pulled together a bunch of
different working groups of people, and they're looking at what buildings
to target first, what to do about it, trying to figure out the whole
plan and what the value is. And I think the consensus was that
they may have overvalued their portfolio and it might be worth this.
And and so and so those are things that are, are being discussed.
And, you know, our new president is a real estate developer.
And I think our mayor went to see him about creating a world class
city and making an opportunity. And I think that took a hell of a lot
of guts and smarts to go and do that. And and who knows how it'll work out.
But I think there's a pretty solid bet for it.
And and my expectation is that they will pick the low hanging
fruit first. Again, it's worth noting that
DC's office occupancy rate is the lowest in the nation,
and the US is way behind Europe. And so I personally think we're
at the bottom there and it will trend better.
And I think the federal government's going to get a little heavier
handed in pushing people to do it. That apparently is going to lead to a
lot of early retirements because a lot of government employees.
But I don't think those jobs will get filled until they get
filled by young people are going to live in apartments downtown
and it'll create even more. I don't think they'll get filled.
I think they'll get contracted out. All of them.
But the contractor has to hire a person. That's right.
And that person's going to need an apartment. Right.
But they're going to be in D.C. somewhere.
That federal building hopefully will get sold and maybe leased
to the private sector. I agree,
and I think that's largely right. Like I walk through the HUD building.
I was going to a meeting with the commissioner and she took me
aside and she's like, oh, yeah. 40% of our people are retirement
eligible. And if the administration changes
it before the election, I think they're all going to retire because
they're not coming back to work. They're just not doing that.
And so it is what it is. And maybe that's okay.
Maybe it's okay. And maybe it's time for a new
day and better processes. Well, it's interesting talking
about HUD and the housing industry. Fannie and Freddie may turn five of
us. It's a pendulum, right? Yeah. So what does that mean to the
capital markets? What does that mean to the industry?
I don't know. Any other questions? Go ahead.
You know, we were back solving for sort of five, 600 bucks a foot.
So that's it depends on the market. But presumably the land gets
crammed down to whatever value makes the numbers work.
If it's a renovation, even with new construction, I think
the challenge with renovations are there always more surprises
than the contingency anticipates? And so that they're harder to
finance and so on. And so.
I think the construction costs for an office building conversion and,
and new construction are converging. Um, they're very close.
And so it puts it on the on the borderline.
Do you tear it down or do you keep it?
I have two office building conversions.
There are two buildings next to each other, and it's a unique location
with a unique requirement, with a unique program and not replicable.
By sharing it, because we certainly looked at it
and it doesn't, it doesn't work. They're very kind of residential
buildings. We did two down at the southwest
waterfront, which are they were there, Lex and Leo,
and we sold them to Bernstein. It's very hard to find a contractor
who's comfortable doing that. Our contractor made money.
But let me tell you, those buildings were built in the 70s,
and they were one of the first buildings ever built. Ever.
And so it's a belt and suspenders building, which allowed us to do
some things, but we actually And shift 2000 poles in each building.
For plumbing and other things that needed to go from floor to floor.
And we had somebody who was willing to do that and could do that
because ground penetrating radar was not as good a tool back then.
And if you had to judge the toilet a little this way and just shower a
little that way, we had enough room inside the footprint to do that.
But it was it was really something. And they turned out to be really
beautiful and successful. But but you really have to find
the right contractor to do that. And it's it's not that easy, right?
Not surprisingly, Bxp is not doing that. Right.
That's the opportunity for the small entrepreneurial local sharpshooter.
And if you want to be in business on your own,
you got to find those opportunities and then get really good at them.
And when you do Suddenly growth occurs. Well, one more question.
That was just said to me, I should start on this topic.
Yeah, just we've got a piece, 75 unit piece of land zoned for housing
over that land. East of the river. And, you know,
with all the things we said before, interest rates, construction cost,
it would be podium, three levels of built on top of the podium.
It's not going to work. So unless unless, you know,
district or somebody comes forward with some grant, you can go.
Yeah, we own a fair bit of affordable housing and the super well,
it's always full people. The nice thing about seniors is
once they're in, they stay for a long time.
We've also got a little bit of it's affordable at all,
and that's certainly as interesting as for people who are indigent.
So that never happened before. I guess there's a couple of them in
DC, but not in many jurisdictions. So that's one thing.
And we have market rate senior under development. We look to. Slow.
I keep I keep asking these hypothetical questions like,
you guys are kind of too young to have put your parents in the
seniors house, right? But I've done it in my parents, too,
so I can see whatever I want to say. But it was it was it was probably a
six month process looking for it. My mom came out of an eight.
My dad was a builder. He had an eight bedroom,
eight bathroom over time. And and she just lived there all
by herself and Potomac. And she, you know, it was just a lot.
She was still working at eight one. And so we found her a spot.
And then she insisted that it had to be fully renovated.
And so we did that, and then we moved her into it.
And I think there's a typical process of leasing these that.
That's really interesting. A lot of them are co-ops.
Some of them are condos, some of them, you know,
and there's a whole selling the home business that gets into it.
So it's a major life chain. I think there's most seniors
have lived in their housing for a very long time.
And and most of them are not renters. They're homeowners, 65% are
homeowners, and they've paid off their mortgages or they've they've
paid them to a point where they pay. You know, I always joke and and I do
this with, with local jurisdictions. What I'm talking what's the most
affordable housing you have in your jurisdiction?
And it's my mother's house with eight bedrooms in it, where she's
paying $1,000 a month to live there. That's your most affordable housing.
And it it's prevalent, right? And so there's a gap in
imagination for seniors. And they're like, I'm going to
move into an apartment that's a third of the size of my house,
and I'm going to pay three times as much. Is that right?
And if so, I think there's a it's a resistance to moving.
And so I've been thinking about how do you do that during lease up.
Do you offer six months free rent for a two year lease.
Like do you do that and say move on in and do it yourself.
We'll spread it over time. Like, how do you incent somebody.
Because lease up cases are one third of the market rate.
So that's that's your conundrum. But you got to think about what you
could do to incent that person to make that deal. But the challenge.
Question, you would think the demand would outstrip that supply, that you
would like be a rush to move in. And just I think you're right,
Henry, but you're right. But the person with no mortgage has
to sell their house to somebody that's going to put a mortgage on it,
and they don't want to get a mortgage for an eight bedroom house at 7%.
So there are a lot of unscientific comment.
Forgive me, but there are a lot of people stuck. Yes.
And they say, oh, I like Vicky's new building.
I would love to move there. Or maybe I could even see myself
there, but I have to wait. So I think the economy has to
break or get a little better. But nonetheless,
I think a macro theme is a focus on demographics, right?
The largest two groups are baby boomers and millennials.
They already talked about millennials, the baby boomers
now aging into housing of some sort or should or will.
And not everybody wants to live in the living.
They don't want to feel old. So so my friend.
So I bet you could come up with a product type that was some
variant we poked around. I kind of like the business,
but it's really slow to your point. So I kind of don't.
Want the full. It's full. Once it's full, nobody leaves.
Yeah, well they do well. They leave, but.
Not on the horizontal. To me. Also. Creating experiences. Yeah. Yeah.
So if you create experience I mean I'm seven so I'm 5 to 10 years away
from maybe. So what am I going to go. I'm going to go find a place that
has experiences, opportunities for me close to my ability.
So, John, we did the Ritz-Carlton condos in Chevy Chase. Which.
Is not meant to be blatantly a place for older people,
but it's being marketed accordingly. And those that live in the building,
including my parents, by the way, have the ability to have social.
They have cocktail parties and they bring speakers in and they candidly,
the people in the building are so interesting in their own right.
They're just a cocktail party alone with your neighbors. Cool.
And so they're engaged without feeling like they're living in a
place for older. Just be aware. That stuff costs money. Yeah.
That's that. You also start down the acuity.
So are you do you have a doctor who comes once a week and does checkups?
So we've looked at a number of times where the least up be
aware of the cost. And if you find a way to make old
people make decisions on lifestyle, they call me because I've got two
sets of parents, and it's been ten years in the process of getting them
to move out. That's part of it. Hello. Amen. Thank you very much.
Thank you. I really appreciate it. Thank you. Thank you. Thank you.
Thanks. Thank you. Ron. Thank you. Yes. Thank you. Ron. See you.