Brian Kavoogian – National Development

[MUSIC] Welcome to GoodDirt Conversations with leaders in real estate and beyond. Today we have a great discussion with Brian Kavujan. Someone we really looked up to and learned a lot from throughout our careers. Brian is a managing partner of national development, a Boston-based, investment manager and development firm. Very interesting person, incredibly well-rounded. I think what's very cool about national is they've executed really almost across every asset class with a ton of success. Yeah, they're truly one of the best place makers in the city. They've executed some of the greatest developments, both in Boston and in Greater Boston and throughout New England, which is all really impressive, but what we were struck by in this conversation is Brian's commitment to giving back both from a civic and a philanthropic perspective. He's a great human being in addition to a great investor. We think you're really going to enjoy the conversation. [MUSIC] Welcome to Good Dirt, interviewing leaders in real estate and beyond. Today we are psyched to be with Brian Kavujan, a national development, managing partner and someone who has had an amazing career in the real estate business. And we're going to learn a lot from today. So Brian, thanks for being with us. Thanks for having me. You guys are two of the perfect people in this city to be doing this, given the relationships you have in your reputation and the platform you've set on. So good for you guys. Well, you've already lost all your credibility. One minute and there we go. Well done. So Brian, we'd like to start with these discussions from the beginning. So we'd love to hear how you got your start. A lot of us are familiar and the listeners are familiar with where you've gone and what you've built. And we'll get there. But take us back to the beginning. What were you doing in college? You graduated from college. What was your first job? Just take us through the beginning. Yeah, so I was at Tufts in the early 80s. I originally went there thinking I was going to go to medical school, decided I didn't want to do that. Actually my dad was in the middle as a dentist of going through the development of a medical office building in Worcester. And began pretty intrigued himself with the development process. And I read some of the materials and actually got an internship back in 1983 with a firm that is now colliers during my junior summer. And I was completely bitten by the industry at that point. For me, it brought together politics and architecture and design and finance and everything I like all rolled into one. Boston was in the early 80s just beginning to get started. So I spent the summer there. I actually decided not to leave there and work there during the fall and spring semesters. And then actually my very first job out of college. I met my partner, Tom Alperen, who was actually working at colliers as a mortgage broker. And it just spun off to start national development, which was the Boston affiliate of a Pittsburgh-based firm. So I became his second employee for the summer. But Tom had always urged me if I wanted to be in the development business to really learn the capital markets. And I was fortunate enough to get hired that September by what is now HFF. So that was how I got into the industry. I spent about 16 years at HFF. We took the company and actually with a company called Holiday Fanolio based in Houston. We rolled up a series of firms and became a national financial intermediary over that period of time. It's amazing. And what kind of deals were you working on, Brian, at that point where you asset class specific or you a generalist? How did you get your start? We know today you're doing a lot of everything. Where did you start? So our firm back then we had at that time a very significant market share in this business almost as good as the one as you guys have. And although the bills got paid by doing mortgage financings across asset classes, the really fun thing that we did and the special sauce that we had. And this was really unusual back then was arranging development financing and pre-development financing for some of the major developments around the city. So we got to really be involved at the very earliest stages of some of the largest urban projects going on in the city during the 80s, which helped to really distinguish us from our competitors. And I worked on many of those firms and got really close to a number of the developers that we are still in business today. And the amount of time I spent with those folks early on in the conceptualization of these projects is what really made me ultimately want to transition to the principal side of the business. Let's talk about that transition a little bit. You probably start developing the itch and helping people finance and capitalize these development deals and acquisitions and eventually you probably said, I'd love to be on that side of the table. Was that a long term plan? Was it market based? Was it an opportunity? It said now is the time to jump or how that happened? Yeah, it's a good question. So when I first came into the business in the 80s, everybody that was in our business most wanted to be a developer. And I obviously got talked out of that early on by going to what became HFF. And while there we had a great business. We were in the middle of many of the largest transaction in the city. But I began to sort of look out and some of my older colleagues and realized that we were all doing the same thing. And I just was going to really struggle with doing the same thing in many ways over and over again for another 20 years. So when I was in my late 30s, I began to think about departing. We had sold our firm at that point to Lenless after creating this national firm. I was running the Boston office. I was having a great time. I loved my colleagues. We had an extraordinary work environment. But as I said, I felt like over time I was going to get a bit bored with being in a intermediary. And so I began to think about making the switch. I had had a close personal relationship with Paul Marcus since the early 80s and Paul and John were running the Davis companies at the time. And so I left the firm literally the day the Nasdaq fell 30% was my last day. It's amazing how that happens. Exactly. And if I went to go into partnership with John and Paul for a period of time. But I bet there was a lot of opportunity with that. The Nasdaq falling the market, hitting a bit of a speed bump. You think of people like John Davis and Paul Marcus. That's when they get really active. That's when they start to see opportunities. So in reality, it was probably a good time to make that jump. Well, then as now, it takes a while for private market valuations to reflect what's really happening in the marketplace. So I joined there in spring of 2000. And it took some time before what was happening. At that point, it was the tech crash. It took some time for that to filter through into the real estate market and begin to really affect real estate valuations. So the first year or so was a bit challenging in terms of trying to find interesting opportunities. But ultimately we did some things that worked out pretty well. And I learned an extraordinary amount from those two guys. The level of debate was high. It was very animated. But it had a huge impact on me as an investor. And Charles Replaza was developed around that period of time. That's right. We were in the middle of buying Charles Replaza when I joined. I will not take responsibility for that investment. But I was one of the investors. And that was an example of a situation that worked out really well. Yeah. So you were with that team. And then eventually you moved on to form what was really the investment management sort of sister company. And you can clarify that of national development. Charles Replaza were real estate investors. Incredibly respected brand name. We're going to talk a little bit about the rebranding and sort of the unification of the two platforms. But we'd love to hear about how that came together. So I departed from the Davis companies after a few years and started my own shop. You know, I had access to capital. I was reasonably well known in the community. And said I'm going to go start my own firm and do this. And I quickly found myself competing against all my old clients and friends. And frankly, realizing the value of brand. And the fact is if you guys can sell to two people that are offering the same price, you're going to sell to the firm that's done it a hundred times. Before you sell to the startup run by your friend. And I pretty quickly realized that I was finding myself in a position where I was going to have to pay more than my competitors in order to get my friends in the brokerage business to sell to me. So I looked around. I realized that most of the opportunity funds over that period of time had become two and three times the size they were even two or three years earlier. And suddenly they had abandoned the middle market. I wanted to be more than just capital. So I came to national and said, let's form a separate business. We will allocate capital to national development as an operator. And we'll also allocate capital to middle market operators in and around Boston that can benefit from both our capital and our expertise. So we made that deal in about three months. And I went off and I wrote my PPM in an office without a window for a period of time. And off we went to raise capital in the beginning of '06 and we ended up raising about $170 million in fund one. We hired a separate team. We really wanted Charles River to be separately branded from national. We wanted to be able to do business with operators other than just national. And we did our first couple of deals actually involve third party operators. But I didn't need to worry about payroll and office space and all of the details associated with putting it. When you went to raise that fund, what was that like you would raise plenty of equity for different types of projects and opportunities at that point. But going off to do it in this format, what was it like? And how did you go about doing it? I think people would be curious to hear. Day one, fund one, what do you do? So first time funds are brutal as most folks will tell you. And the capital that I had raised in the past historically had been from institutions, not directly from their investors. So I decided early on that I didn't want to be making coal calls. In addition, we had a structure with Charles River in this partnership with national that was a little hard to explain. And so I quickly made the decision that we were going to only talk to investors that either knew me or knew national development. And the big breakthrough we had in addition to a couple of our well-known and long-term funds. time investors committing to us was that Cambridge Associates actually agreed to vet our fund and our business and put some of their clients into our fund one. And as anybody knows, getting into Cambridge Associates is an incredibly challenging thing to do. It's a very high bar. And we were very fortunate to get in the door there. We also set our expectations at a very reasonable level back in '06, '07, the markets were extremely inflated driven by very aggressive levels of leverage. And I did not want to raise so much capital that we'd be forced to do things we shouldn't do. So that was also really it turned out the right decision that we made at the time. So you have these institutions that you're raising money from. How just fast forwarding to today, which is fund five, I think? Yeah. Two questions. How many of those institutions and those LPs have stuck with you for those five? Is that a big group or a small group? And then secondly, how have their return criteria changed? Is it, it was in the 20s now, it's in the teens, now it's in the low teens. How is that progressed? As you've moved through funds one, two, three, four, now five. So a couple of things have happened. First, the usual evolution of a fund business is your first group of investors is high net worth investors and a few institutions. And if you do a good job, you make it to the point where you can start talking to endowments and foundations, which in many cases are the most demanding and sharpest investors of all the institutions. And we were able to make that jump in 2012, given the returns that we had accomplished in fund one. And so the investors that came with us in fund two back in 2012, almost every one of them are still with us in our fund five. And our investor basis primarily and down with some foundations, there's a handful of pension funds, but largely we have not spent any time in the public pension world and have devoted most of our time to the endowment and foundation world. In terms of return expectations, I think everybody needs to realize that real estate competes for capital against all the other asset classes. One of the things I do in addition to my day job as I sit on the investment committee at the Tufts endowment where I was on the board for 10 years and you really in that position realize that people have choices should we invest in private equity should we invest in venture should we invest in hedge funds public equity. There's a variety of choices. And so real estate needs to compete for that capital. And so I would tell you interestingly, I don't think that return expectations have changed a whole lot. They probably showed up as the tenure treasury moved down, but they didn't. And perversely, what happened when the tenure treasury moved down was that cap rates as you guys know fell multiples expanded and valuations grew. So actually returns were much more than people expected as of what happened to interest rates. Right. And when you go to that process raising fund one through five and you won't say it. So we will because there's a lot of great data available online these days, but you can I saw somewhere by the end of 2019 that inaugural fund was the number one ranked 2000 vintage fund in the US. That's true. That's amazing. It has a six. It has a six round of applause. Yeah. No one coats that you should promote that. I'm you're too humble to do it, but that's amazing. There's a lot of funds were raised in that era. How did you navigate that? I was getting in the business a couple years after that. I know how choppy things were. So a fund that was raised in 2006 started to deploy over the coming 12 months. What was the strategy heading into that? And there was a pretty much a market collapse. So as I said earlier, the world back then was very inflated and it was driven by very high levels of leverage. And we knew it. And for me, launching fund one this had to work. So I felt like the markets were inflated. And therefore we only put about 18% of our fund out through the through 09 up to 09 must have been painful at times. It was had to you had to sit there and people wondering, you know, when you were going to get into action, it was painful both with my partners at national. And I can tell you even to this day, I've never had a call from a limited partner asking why we are putting out their capital faster. But yeah, it was a hard thing to do, but I have a value orientation generally in terms of my approach to the business. And I was going to be stubborn and I was going to wait. And that was really the trick to our returns in fun. And you've always been someone who can recognize the opportunity in the market. We see it because a lot of times we have a deal on the market and you walk in for a tour and you have a totally different perspective of the execution as others do. How did that shift? You run into some market turmoil right as you wrap up the fundraise. The opportunities are in a different place and they were when you initially launched fund one. And I think now you probably have a little more leeway, but you raise that fund based on acquiring one type of asset or opportunity and it shifts. How do you manage that change? Yeah, so a few things on that point and it also comes back to why we were so careful in putting out capital. These businesses, you either set out to become an AUM shop where you're trying to raise as much capital as possible, put it out over two to three year period and get back into the market. And at that point, probably only produce returns that are around the midpoint, around the index level. We've never taken that approach. We have treated this capital as if it's our own capital, our return requirements and our discipline and approach has been to treat that capital like it's our own. We really are doing this to make carried interest. And the other secret sauce that we have is the ability to invest across product types and across strategies. So we're very focused on Boston. But unlike many firms that are a single vertical, we are across verticals. And so when office looks expensive and apartments look cheap, we're buying apartments. When industrial was cheap, we bought industrial. When industrial got expensive, we built industrial. And so that is really the fundamental secret sauce of our firm is the ability to look across product types and look across strategies and find value. There's no doubt in your unique in that way. You're one of the few groups that we deal with in this market. And I think that our colleagues and other markets see who can truly do all those things and do them best in class. It's not like you're just a multi-family shop who also does industrial and office. You do all three of those things. All four of those things. Incredibly well. And it's a testament to the brand. And we certainly see it. And it's been awesome to watch. And on that note, some of the projects you've worked on have totally, totally changed the city. Things like ink block, like ironworks, which I happened to what lived down the street from. So I'm particularly fond of that one. Tell us a little bit about fund five. What you're going to be focused on is self-busting gateway. The ironworks is that what's going to take most of your time. Are there more projects like that? How are you thinking about fund five? And how are you going to deploy it? And this is a $450 million fund, right? The goal was to raise $400 million. The hard cap was 500 million. We've raised about $450 million. We raised virtually all those dollars in a 30-day period last April in April of 2022, just as the world was coming apart. We have basically stayed out of the fundraising market during this very volatile time period. And frankly, we have enough capital to do what we want to do. But you were able to raise that all in April when Ukraine was being invaded. Interest rates were flying up. That's pretty impressive. And all of those dollars came from existing investors. And we still have a little bit of dollars to put to work in our fund four. Fund four is about half industrial and about 30% life science. So we have some dollars to deploy in fund four. And then we'll get to fund five. We're taking a half a step back to say that in fund four, prior to raising fund four, we completely combined the firms. And at this point, Charles River and National Development are single firm called National Development. Nationals run by five of us, Andrew Gallon-Aaron, I spend most of our time sourcing and underwriting new investments. And Ed Marstner and Ted Tai spend their time executing our development projects. And Steve can sell you know, with our CFO. It's an amazing group. We should pause to and talk about culture for a second because you figure it a way to nail it. And you're in Newton. You're not in the city, which has always been interesting. But the team, and you named your five partners, but it's very deep and some of the brightest people, Pat McEnany, Naomi, I mean, the whole team topped about them. They're just great people and a lot of fun to work with. So it's worth recognizing you for that. If you've done many things well, but building a great team is top of that list. And what drove that sort of the rebrand or the the unification of a variety of things? Number one, and when we raised a fun two in 2012, there was the recognition that although we learned a lot in doing fund one, I think that one of the things that was most clear is that we were married to one of the best operators in town at National. And we knew that if we simplified our structure, we could attract great investors, which would enable a business with real sustainability. So we effectively combine the businesses in raising fund two. And by saying that, I mean that national development was exclusive to the fund for everything, but ground up development. When we got to fund four, we realized that there were still some inherent conflicts between Charles River and National that we needed to break down. There was also the issue of enterprise value and a whole series of things that just made sense for us to be a single firm. So we combine the firms. I exchange my ownership of Charles River into ownership of national development. And we greatly simplified our our structure at that point. Great. And you're vertically integrated and a lot of people throw that around, but you truly are national. We are sure you've crunched our construction that actually builds these deals. Can you tell us a little bit about that and how that's played into the strategy? So we have a 275 person company today. We are truly vertically integrated. Our construction company is probably a hundred people or so. We manage most of the assets we own. We don't manage our hotels. We don't manage our seniors housing. And in our ventures with Alexandria, we do not manage the life science space, but everything else, we self-manage. So we have a whole team on the ground and on properties. A 10 person development team, a six person acquisitions team, a five person legal team. It's a very expensive operation to run. And one of the things that our investors notice is that our fund sizes are pretty modest in the context of the size of our organization. But that's driven by, in our view, market our opportunity in the desire to stay home and invest in our local marketplace. Yeah. We're going to talk a little bit about some of your joint venture partnerships, but as you rattle through the list, you've obviously been recognized as the go-to partner for some of the most respected sort of allocators in the world. And then there's your life science partnership with Alexandria, which I think some really exciting things happening there. Alexandria, of course, is the largest life science owner and operator in the world. How did that come together? And you guys have some really interesting things baking. Great question, Mike. Actually, 2007, the third deal that Charles River did was the purchase of the Jocelyn Diabetes site in Longwood, where in Longwood. And that's right now for the long, exactly. Longwood Center. And at that point, I had actually had experience with this deal when I was with John and Paul, the Davis companies we had evaluated this deal six, seven years earlier. No one could quite make a work. The Jocelyn had a new CEO in place that I knew quite well. And they were going to do a very small process to pick a developer. And I realized that although we had the expertise and the relationships to build a life science building in the middle of the Longwood medical area, that a nonprofit board was not going to pick us versus the public company that we were competing against whose name I won't mention. So I called Tom Anderson, Alexandria. We had a one hour conversation and decided to partner up. So the beginning of our relationship with Alexandria actually dates to '07 when we signed our first joint venture agreement. We'll tell you that the joint venture agreement that I negotiated in '07 is still the agreement we used today on our projects. That project as you know. And we spent a lot of time early in our careers in this building. You did, you went up. And we bought it in '07. We had the GFC occur. And we didn't start construction on that project until 2012, '13 delivered in '15, our largest tenant was Dana Farber. But ultimately it became the home of children's hospital and a Brigham and women's tenant as well. So that's where the relationship started. It worked out quite well. I think there's just great trust between us, a recognition of our capabilities in theirs, and having worked together as long as we have. When you work with a public company, they have a different set of metrics and a different audience that they manage to. And you have to recognize that. And I can tell you that we have been incredibly flexible with them as they've had to deal with the ups and downs of the public markets, which I think has gone a long way towards our relationship. They have typically left the permitting and entitlement process to us. The design process has been a collaboration. The leasing process has been a collaboration. But the leasing prowess, the value of the Alexandria platform in terms of the life science community is just extraordinary and we're obviously benefiting from that. Yeah, well, you guys are great compliments to each other, which I think is the perfect partnership and it's yielded, obviously, some incredible new development opportunities to. So it's been a case study to say the least. Yeah, we're pretty pleased with it. We have 15 Neco Street underway right now, which will be the amazing home of so clearly. It's taking shape. And we have another building under construction and water town right now with them. And so in addition to Alexander, who's equity, but also an operating partner, you have a lot of LPs that you've worked with over the years. And it's a laundry list of high quality groups, Clareon, AEW, JP Morgan, Angelo Gordon, Holist goes on. It's impressive. Talk to us about how you're thinking about going forward. LPs are going to be partnering on deals or you're going to fund them from your fund or is that going to continue to be the strategy going forward? What we tell our investors is that we never feel constrained by capital. And yet we don't want to raise so much capital that it's more than we can deploy at a given time. So as you know, we're in the market and for investments that range from 50 million to 500 million. And investments that require a check size of much more than 40 or 50 million dollars, we're going to want a partner. There's two ways for us to attract that capital. We could go back to our existing limited partners and do something called a side car co-investment or we could go out to the institutional community. And we do both. And we have, as you know, the heritage, the early beginnings of our business, we're doing business with institutional investors like you mentioned. We still have great relationships with them. And we have done ventures with them while operating our fund business. And the difference now is instead of going to those capital sources and saying, we'll put up five to 10% of the equity, we're going to them and saying, we'll put up 50% of the equity. And oh, by the way, we want the best darn terms you've given any. Of course. Well, you can get them if anybody can get them. And that's where you're 15 years at HFF, structuring these deals and putting these capital stocks together. Where it comes in handy. It helped a lot. And I think the marriage of sourcing and screening these investment opportunities and development opportunities. And then when we said vertically integrated, we meant it, you know, being able to execute on these, but it's resulted in, you know, we talked about place making and game changing, all the cliches in the real estate business you hear. You guys have done it. The ink block has been a phenomenal success. That was a lot of fun for us. It's Boston residents and his market participants to watch and participate in. And then in South Boston now, what you're doing is just awesome. Tom and I both live there. We just had a pickle ball party at pickle. P.K. Yeah. Great place. We were there. I'm in Tate. Often one thing I'll say about that Tate, it's the Tate that stands out to me is there's a lot of kids drinking coffee and eating in Tate that can see their office building from Tate but prefer to work at your Tate. Yeah, it's, it's time to go to work. We agree with that. And we have a lot of leasing brokers who would agree also. But speaking of ink block, you know, that's one that stands out such a cool project, really, really incredible execution. It was the old Boston Herald site, right? And tell us a little bit about the fruition. I know that happened during the GFC, right? We weren't exactly with the wind at our back at that point in the market. So first of all, I have to give Ted the credit for all of the design and the vision for ink block. But we got a call in '06 from the owner of the Herald asking us if we wanted to enter into a short-term sale lease back on the Herald property. They called my partner Tom and it was six acres in the city. And Tom couldn't resist that. And I think all of us at the time were struggling with exactly what we're going to do on that sign. But we bought it with some high net worth capital. We got a lease back from the Herald and then as the market began to come back, we looked at a series of redevelopment options. Interestingly, our vision was of a lower scale project than the city wanted because we wanted to stick with five-story wood frame construction, which has a better set of economics than high rise did. The thing that changed that project was Whole Foods coming in and that was a little unexpected and a great surprise. And we did a Ted did an incredible job of retrofitting and creating the building for Whole Foods and that really branded the project and from there off we went. That Whole Foods effect was so real. And before that people used to tell you what, that Starbucks effect and all that, but Whole Foods coming to an urban neighborhood, they weren't really known as an urban brand at that point. But what a way to change and reorient the whole. The center of gravity shifted and then you have folks like Gerdang-Eeland building around you, like UDR building around you, like related building around you. You created that place and it's a testament to the project and the Whole Foods effect that these great Vestin-Glass multi-family developers are moving next door. I do have a partner too that wishes that we actually bought everything around us at the time, but remember it was a scary time when we first did this. And it is very satisfying to see that neighborhood and where it is today. The other thing that I wouldn't say we learned but that we demonstrated there was in terms of branding was the retail that we put in there. And the retail decisions you make brand your project, not just with the Whole Foods, but as well with some of the other restaurants and uses there. And it became not about the rent and not about the tenant improvement, but a bit about the who rather than the how much, which I think we also did a pretty good job up there. We've got a shout out a good friend of ours Nick Reesor who owns a spin studio there, turn style. So if anybody hasn't been there, they've got to go. They just merge with handlebar actually, but you're right. That does make place and people come in, young people, old people come in, they work out and they go to the grocery store and they get a coffee. It was really, really ingenious the way that you all laid out that retail mix. In Whole Foods, it is one of their top stores in the entire country. I believe it. Absolutely. It's the lines are in the indication. I believe it. It's one of those things you park at that Whole Foods. You run into Whole Foods and then you're thinking, okay, how can I be creative and how much money can I spend in 20 minutes before needing to move my car again? We like that. We like that. But I remember Tommy that was at the little FW web building that was there. Yep. I think that's now seven ink. That's an interesting one. Can we talk about that for a minute? Seven ink is a high rise in the context of some of your wood frame projects over there, but it's co-living. Can you tell us a little bit about that? It's inclusive living. I think we are about 65% at least there. Leasing's gone extremely well. The hottest product has been the studio product. But as you can see, the fit out in there is extraordinary. The rents per month, when you look at what you get from a quality standpoint in terms of the common areas, are very reasonable. Our fingers across, the lease up has been surprisingly strong. As I said, we're at about 65% and we're hopeful that we'll finish that building off over the next year. From an infill development parcel standpoint, I remember that building. You were working on it to see what's there now. It was pretty amazing. Oh yeah, it's amazing. That was early in my career. We were working on the sale of the FW web building, which for the listeners was a two-story borderline vacant building in the South End and Albany Street before the ink block was the ink block. These guys just had the vision. It's pretty amazing. I think there was some sort of discussion of FW web supplying some of the fixtures for the project. We made a work. You guys were creative. But I think also the Harold, you think of in the markets where there's serious momentum. That's probably been a few examples of where the real estate was worth as much. The newspaper business has been an embattled industry for many years. They've been swimming against the tide, but managed to keep it going. That real estate was very valuable, whereas the print publication business was in trouble. Yeah. You find a lot of these owner occupants. You need to find that moment where the real estate's worth more than their business. Either because of something that's happened to their business or because of where they are in their lives. And then over the last few years, given what's happened to land values, is a lot of places where they're real estate. was worth more than the operating business. - So you and Andrew are working a lot of the acquisitions and Pat and we deal with you a lot and we always enjoy doing it and we always feel like we learn something whenever we talk to Brian or Tom or Andrew or Ed or Ted any of them, we feel like we're going to get our MBA in real estate. You just, you always teach us one thing or two but thinking about acquisitions for this fund, what are the first couple things you're looking for? Are there any particular elements or themes that you're focused on? - So first of you big picture themes, although we don't spend a whole lot of time on macro and I think you'll find most good investors across the investment landscape, don't focus on macro. I think we can all agree that it's hard to imagine interest rates going back to where they were during the post GFC period of time. And so if that's the case and you're not going to have cap rate impression, you need to focus on investments where you think you can meaningfully move up net operating income. That is how we're going to create value. So I'd say generally we're focused on assets where we think we can meaningfully change net operating income. In the past, over the past few years, we've been able to use ground up development to do that. But given what's happened to our cost of capital to everybody's cost of capital, ground up development becomes much more challenging today. If the 10 year treasuries 150 basis points higher than it was during that post GFC period of time, I'd say returns on cost and cap rates and discount rates are probably somewhere between 100 and 150 basis points higher than they were in December of 21. So what does all that mean for us? It means probably a little bit less development initially, unfortunately, but that's just not the best place where we could be deploying capital today. We do believe that the dearth of new construction and housing for all the reasons I just mentioned will likely result in rent growth in the housing sector. So I think you'll see us evaluating existing residential opportunities, especially where there's a place to create value within the existing real estate. We're still gonna be focusing on the industrial segment, although I think you won't quite see the demand levels where they were when Amazon was growing the way it was. We still have an incredibly outdated stock of industrial space around here in a relatively modest supply pipeline. So we'll continue to look at that segment. And finally, about a third of fund three and about a third of fund two was in senior's housing. We've done about a billion dollars of senior housing over the last 10 plus years and demographics are coming our way. The economics are still challenging like multi-family development, but I think we're a bit more optimistic about rent growth and the economics that are achievable in the senior housing space. - Yeah, senior housing is something that, unless you're in that space, sometimes you don't pay attention to it until you need to and then you realize, "Hey, I think Brian knows that business." You guys have developed a real strength in senior housing, which I think some people have does anything where you fly another radar, maybe that space, because a lot of folks in the commercial market just aren't paying attention. I remember I lived in Cleveland Circle. For several years in Tommy and I, when we were in college rented apartments in Cleveland Circle, when we were at BC, there was our first introduction to the brokerage business. We can do a separate podcast about that. But you guys did the Circle Cinema site, which was amazing, and dilapidated building, incredible real estate, of course. But you guys delivered there was awesome, and that had a senior's element to it. - So that's an AC hotel and a 92 unit independent living building, and so in that particular case, our preferred product type is developing a project with all three independent living assisted living and memory care, a continuum of care. But in some cases, you just can't fit that. And in that particular case, there was a real demand for independent living and an inability to combine all three of those in that project. So that's an independent living project, and then we have a relationship with a medical provider to provide additional services to folks living there. - We were lucky enough to work in the disposition of Avdonadek, which is an age restricted apartment community here in the Nadek market. Bird you image, is that in your multifamily bucket, or is that more in a senior's bucket? Does it straddle in between somewhere? - So we learned a lot in doing that project. It's a fabulous project from a bricks and mortar standpoint. We had projected higher rents than we got, but ultimately it worked out quite well for us. I think if you look out and you think about what's happening to wages, a typical senior's housing project has a lot of employees. And those employees' wages have gone up as much as 50% of the last three or four years. And on the one hand, I'm very pleased to see that. It puts real pressure on economics. The beauty of the over 55 active adult product is you don't have the people. And so you're able to run a business that's largely a real estate business versus a business that's heavily oriented with a high labor component. So I think you'll see us buying a building more of that. I think we will be in the future a little bit more realistic about the rent premium. One can get to the very best non over 55 product in the marketplace and the economics are gonna have to reflect that. - There still was a great premium. If I remember, you were getting a premium. Maybe just not the one that you under wrote. So it was a great execution. - Thank you. - Thank you for your help on that. - Of course, it was a pleasure. A lot of good tours of Don, so shut up to John, she was a great manager. You mentioned earlier, cost of capital is changed, with development projects. And in tandem, you've seen construction costs run in the last couple of years. You've seen regulatory obstacles present themselves, particularly in the city of Boston, things like inclusionary housing and mitigation linkage. Can you talk to us a little bit about how you see the regulatory environment here in Boston and you don't have to go into specifics, but just your opinion on where we are and where we're going as a city? - Well, first, I would say that all of this goes back to the increasing levels of income inequality that's gone on since the GFC. Reducing interest rates to historically low levels made assets worth a lot more. And anybody that owned assets became wealthy and it further exacerbated the issue of income inequality, which is driving the politics here. I absolutely believe that building supply is going to help to mitigate this issue, but maybe not as fast as the housing advocates would like. I understand the concern about people being priced out of their homes. It's a challenge. The real question is who should bear the cost of that? This is a societal issue. If we all believe that places like Boston should be a place for people of all income levels, which I think most of us do, then we all need to share in the cost of that. And what's happening is that the cost of that is being put onto developers. And we all know that the economics of these projects before the world changed last year were challenged. And now they're even more challenged. IDP puts more pressure on economics. The prospect of rent stabilization puts potential pressure on economics and so we're in this challenging time where there is displacement going on. As it's the other side of Boston's great success has been the increase in housing prices and the displacement that causes. And we've got to come to a happy medium. It'll got to find a better way. Yeah, we're focused on Boston right now that the issues are acute in many cities, but it's a statewide issue. It's a national issue. Obviously you have a unique perspective on a lot of this. I think if we can talk for a few minutes, just about your civic and sort of political involvement. You are an advisor to Governor Baker, advice chair, mass development, I believe. Your view of this world I think is informed in a different way than most real estate practitioners. So I'd love to hear about your experiences there. Well, I still am sitting on mass development sport as vice chairman, which is the state's economic development agency. So that gives me a real view as to what's happening in what Massachusetts calls Gateway Cities, which is different than what we in the real estate business call Gateway. You have to clarify that all the time. Right. And we're doing really good things there. As I look out today, as I said back to the progressive politics and issues of income inequality, I'd say this, San Francisco was the bell of the ball a couple of years ago. We even Boston looked to San Francisco. San Francisco always traded at premium to Massachusetts, to Boston assets. And today the office markets 30% vacant. The city is feeling in many cases unsafe. And we have an extraordinary place here in Boston. Those of us that are here, I think, recognize what a special place Boston is. And I would say that we got to fight to keep it that way. And part of that is the politics. And we need to stay engaged politically. All of us, you know, we just went through this millionaires tax. I firmly believe that it was a bad idea from Massachusetts in many ways. We are going to see wealthy folks that were angel investors and employers and business creators leave because their tax rates virtually doubled. And I believe that one by about 3 percentage points, it was beatable. And I would say that our industry, as well as some of the other industries impacted, did not do what they could have encountered that issue. And there's going to be issues like this that continue over the next several years. And I think all of us need to stay engaged politically in order to protect what we love about this city and this state. Yeah, I think a few things I'd notice. San Francisco, you know, we have a national audience here. We love everyone across the country that tunes in. We have a Northeast bias. People need to pay attention what's going on in San Francisco. When you say some parts are unsafe, some of the nicest parts are unsafe. You know, some of the sidewalks in San Francisco right now, you would not believe it's in the United States of America. And just a few years ago, the market in San Francisco was untouchable. The tech momentum, the unbelievable job growth, you would never have pictured a scenario where you could slow that down. Then it's a tough place right now. Even the biggest cheerleaders for San Francisco tell you right now that they're in a pretty dark spot. I think also in terms of the millionaire's tax, if you talk to the nonprofits, there is serious concern. Some of the most active philanthropists in the city of Boston that have been extremely active and helpful quietly and in public to our very, very important nonprofits. It's served the social services communities in Boston have moved or will move. I don't think that's something we want to see happen. It's a tough, situation. They'll take their giving with them. And I think that frankly, that corporate Boston has done a relatively poor job in communicating what we do for the community. At the end of the day, if there's a successful economic environment, there will be meaningful dollars for all of the efforts that are performed by these nonprofits as well as by cities and towns. And that's going to be impacted to the extent that our business environment changes. Yeah, it should be a wake up call. We couldn't agree more on all very good points. And we're behind you. So you tell us what to do and we'll do it where your soldiers. So shifting a little bit from Brian, the real estate investor and developer to Brian, the individual, tell us a bit about your daily routine, who you are. We'd love to hear a little about, you know, what you do in the morning and how you go about your day. People love hearing that stuff. He's in great shape. This is not a video podcast, but he's always, always in good shape. Thank you guys. Well, I do work out every day. Fitness is important. I tell you what, it is a place to clear your head. I work out for at least an hour every day. I get up at five. I read for an hour. You're a biker, right? Is that part of your workout? I bike. It's indoors in the winter, but outdoors in the summer. I like to ski in the winter. I like to play golf. I'm not a great golfer, but I do like the walks with people I like. And I try to stay active, especially on the weekends. And I do think it makes me, frankly, a good workout and a cup of coffee and you're a little bit smarter than you are in the morning than you are at the end of the day. Amen. I have to ask, what are you reading in the morning? What's on that list? Well, we are in the real estate business. So I do read the Boston Globe. I read the Boston Herald. I read the Wall Street Journal and I also look at Bloomberg. I think the Bloomberg news, the news feeds pretty darn good as well. Yeah. We talk about sort of the three phases of life, learn, earn, return. And you know, you've been incredibly active and generous with your time and your treasure to a lot of the important institutions and nonprofits around the city of Boston and Massachusetts. You've spent a lot of time with Tufts. I think it's great. Handed the rudder there, Tufts University, which is an amazing institution. Also within the mass general break-up system in New Wellesley Hospital, significantly evolved there. Heading home, we talked about mass development. When did that start in your career? When did you start to say, okay, I got a car of time out out of the deal business to be push into you or somewhere else? I will give John Davis and Paul Marcus credit for that. Those two guys were incredibly generous even in the early 2000s and it wasn't just treasure. It was time and resources and judgment and et cetera. And so that is where I realized that I needed to be engaged civically and philanthropically. I would also say that anybody that says they're going to do that at another stage in their life is making a big mistake. The fact is it made my life far more interesting to spend a portion of my time with some of these other pursuits. And it just so happens that if you're in the real estate business, half of those folks you met along the way, probably have some relevance at some point in your business, whether they're sitting on a board of a firm you're doing business with or an investment committee or who knows what I have found a remarkable connection between the nonprofit work that I do as well as my day job. And I would say to anybody, do it along the way, retired old wealthy guys aren't nearly as interesting to boards as people sitting behind a desk with real impact. And it'll make your life far more interesting than just doing your day job all day. Yeah, I think if you do it with character integrity, it helps a lot too, which is what you've done. And your reputation is the second to none. Tommy talked about us learning from you on tours. And in calls and meetings, one thing I'll say is you're one of those people early in our career early in my career, especially I remember learning things from you. And you kind of point out an element of a deal. And I would be the young person on the deal. You knew I was green, but you didn't talk to me like I didn't know. I think you allowed me to sort of save face. And you say, well, you know how that works because this isn't this and why you can't actually make that happen. That's a, yeah, of course. And I know that you knew I had no idea. You allowed me to maintain my usually finish it with a wink and a shower. It's great. That's special ability that you'll do that. We'd be remiss not to mention you've been generous with a lot of organizations. Top of our list is the Corrigor from Foundation, which national development is shown up for a year after year. So we couldn't be more grateful on the philanthropy side for your commitment to that charity, which of course means a lot to Mike and I and Rob and our full team. So thank you for that. It's our pleasure and good for you guys to be as committed to that. It's great. I know you and Cory were close. Yeah. Well, that's a situation where you can't ever replace someone like that in your life. And Tommy and I have not been able to, but we can do what we can. Honors legacy and sustain it to helping these kids. We talk about the Corrigor from Foundation. We encourage everyone at Google, the Corrigor from Foundation, Corrigor's kids.org. We've been able to help over 5,000 children now in his name, which, which is something that gives us a lot of, you know, if that doesn't give you comfort, you know, you may never find it. So we're lucky. You're a very generous guy, Ryan. You've been super generous at the time. We know you have to run up to City Hall to solve some of the world's problems. So we'll let you go. Thank you so much. We're looking forward to doing a lot of business this year. Thanks, guys. Let's work with you. As expected, that was a fun conversation. I think we're going to have to have Brian back for round two at some point. Yeah, he is just awesome. We've had some amazing guests, but Brian is a super individual and such an impressive machine that they've built with their vertical integration with the construction, the investment, they're really, really a cut above. So thanks to Brian for joining. I'm just back from Las Vegas. You can't see, but I'm a bit bleary eyed a long four days, four nights in the desert for NMHC, the National Multihousing Council, where 7,500-ish multifamily professionals, you know, in the investment side, development side, management side, and brokerage side all, you know, come together once a year to talk about what's going on in the world and what's going on in the world of multifamily in particular. Sounds like 48 hours too long in Las Vegas, but they said it was the largest. 72 hours too long in my opinion. It was the largest ever, right? Yeah, it was amazing. I mean, the Aria, which was the host casino for the event, every bar was bursting the seams. Five people deep. The casino floor is packed. And of course, the meeting rooms, the convention center, we're all super crowded. So it was good to see everybody back after a couple of slow years for NMHC. And that was a good indicator for the level of interest, frankly, that we're seeing pile into the multifamily space. And, you know, one of the themes that we heard was in particular focus on gateway markets and coastal markets like Boston. So we're seeing increased allocations to multifamily, as was evidenced by the number of institutions out there and investors out there. But furthermore, we're seeing a concentration in the Northeast and Boston in particular. So we feel particularly lucky. Mike Burnett and I came back with really a lot of vigor for the year to come. And, you know, it might be slower from a transactional standpoint, but the fundamentals are still great. There's still a lot of capital that wants to get put to work here. And so we're encouraged and super optimistic. It's awesome to come back from those conferences feeling full of energy and not the opposite. So I think everyone that I heard that was out there came back excited to get back to work and a lot of green shoots, lots of positive signs on the capital side. Yeah, it was an awesome event. And again, we left with a lot of encouragement. So looking forward to what's to come. Thanks again everybody for listening to Brian's interview and we'll catch up soon.