EP#38 James Ray | Cap Rates Are B.S., and Other Hot Takes

Welcome to episode number 38 of The Rent Rule, your podcast on all things rental housing, apartments, SFR, and BTR. And today's going to be a fun one. Joining me today in studio is the man, the myth, the legend, Mr. James Ray. If you don't already know that name, you may also know him by his alter ego, the voice and author behind many of those always trending Siri analyst posts on social media, the famous account with 90,000 plus followers on LinkedIn. James is the co-founder of Siri analyst and also managing director and a portfolio manager at MetLife, where he's focused on the rental housing space among other things. So we're going to be chatting about some of his hot takes, why cap rates are BS, why the wall of maturities isn't the doomsday event that some think it will be. We're going to talk about bi versus build for BTR and for apartments, and why it's not as clear cut and simple as many investors think and imply right now. We're going to talk about institutional capital and they're appetite for BTR SFR and for apartments right now. And then James is going to share some tips for emerging GPs trying to get in the door with institutional capital, spill and some secrets there. And you also get a chance to hear James's truly remarkable story. Here's a guy who grew up bouncing around trailer parks in rough neighborhoods and made his way onto Wall Street now in a leadership role for one of the nation's preeminent institutional investors and also spending time giving back through teaching and higher education and also co-founding CRE analysts along with his buddy Richard Bird to train up the next generation of analysts. And they've got an upcoming book coming out about commercial real estate valuations and I was lucky enough to get an early copy. And I'd highly recommend it for anybody looking to better understand commercial real estate, whether you're a newbie trying to figure it all out or you're an old pro, still trying to get sharper. Either one, I think you will enjoy it. And it's not like a traditional textbook. I think that's what's really interesting. It's real life. We all have seen the differences between sometimes academic research versus practitioner research and textbooks obviously no difference. So this isn't your traditional textbook and I think you'll enjoy it if you get your hands on it. Before we move along, I also got to confess something. James and I just recorded this conversation and we went longer than planned. I typically try to keep these interviews around 30 minutes or less. I just think 30 minutes is a good length of time. Today's conversation went about an hour, but it's so media and substantial. And also James and I were just having so much fun nerding out over these hot button topics. He wears many hats, but as a fellow research nerd, we had a lot to talk about and a lot of things I think are very relevant to multi-family SFR and BTR conversations right now. So I hope you enjoy it. Before we dive in, I want to give a big thanks to our sponsors first to JPI, a leading department developer with a state of purpose to transform building enhance communities and improve lives working across Texas and Southern California and now Seattle and the southeast as well. And also to Waymaker, a multi-family investment group focused on attainable housing and class A apartments partnering with best-in-class apartment builders across Texas and the southeast. All right, as always, pick it off with here's a chart. And today's first chart is fresh data on apartment rents for the month of May. And we've actually got a little bit of a narrative shift and maybe something worth watching. There's been this long predicted rent rebound to be able to see this year and we start off this calendar year on that track. The last couple of months, not so much. Okay, so we had, prior to these last couple of months, we had six consecutive months of improved momentum in the year-vier effect of rent change numbers nationally. We've now got two straight months of backtracking, meaning, you know, rents are still growing, but the pace of growth has moderated each of these last two months when you look at effective same-store rents. From in March, we're at 1.05 percent effective rent growth year-vier. Two months later, through May, we're at 0.74 percent according to market analytics data, real-page market analytics data. So it's not a big drop-off, obviously, but it is lost momentum. And with two straight months that, you know, I always can't take one month, maybe a little bit grain of salt, but two months starting to watch that a little more closely. And of course, that lost momentum corresponds with the start of the peak leasing season. So a couple of things I want to highlight from this. Number one, they're really aren't any obvious reasons in the fundamentals data for rent momentum to have reversed. Macro demand is still very strong. I mean, just because you see, you just, because you're not seeing this great leasing traffic right now, it's not, it doesn't mean there's not demand out there. Remember, type of this a lot. There's been, the demand number has been very good. Absorption number has been very good. It's being spread across a great number of properties given the supply. That hasn't changed. It's been the case for two years. Vacancies holding steady in most markets. And it's actually pretty good in most of the country. Affordability is actually improving. Rent income ratio has been trending down. I've been talking about that a lot. And so there's no obvious indicator for why rent growth momentum would be backtracking. Second thing, it's happening in markets of all types all across the country. It's not just a high-supplied market story. It's most significant in higher-supplied markets across the Sun Belt and the mountains. As you can see, for those of you watching this video, a bunch of second chart here that shows rent growth in the Sun Belt mountain regions versus the Midwest and the coast. And certainly the rents that I've been following in higher-supplied markets in that depth of rent cuts have been moderating previously. It's instilled a bit deeper these last couple of months down around 2% currently. Not dramatic, but enough momentum shift to be worth watching. Also, what appears to be driving this is concessions in these markets. Among stabilized departments, meaning non-lease-ups that are used like utilizing concessions in the Sun Belt and Mountain regions, the average discount increased from 8.9% of asking rent in March to 10.1% in May. So that's more than one month free on a 12-month lease. But again, it's not just those markets. I think that's what makes this interesting. Again, I always tell people it's like if you see one trend across different markets, if you see one trend in these higher-supplied markets, rent growth these past couple years has fallen in the higher-supplied markets. It's been steady in most of the rest of the country. That tells you it's all about supply. Right now, though, it's not just about supply because we're seeing stall momentum also across the coast and the Midwest, at least in this effective rent data, not in the other data, but at least in the rent data. So let me give you this list. Here's a list of markets that's the most deceleration and rent change for the last two months. And by decelerating, I mean, the change and rent change. So either rent growth lessened or rent cuts deepened. And that list is a mix of lower supply and higher supply markets. It's Las Vegas, Riverside, Baltimore, Austin, Memphis, Milwaukee, Kansas City, Washington DC, Denver, and Orlando. And all those places rent growth momentum has decelerated by at least 100 bips over the last two months. Now, again, obviously, rents are falling in Austin. They're still rising in Milwaukee. So we're not trying to say that all those places rents are falling. But again, momentum has dropped off in all those places. So again, it's not just about supply. And so again, supply was the reason for these rents cuts these past couple of years. And yes, there's still a ton of active lease-ups competing for renters right now in certain markets. I think the year two hangover for lease-over lease-up projects is going to be a challenge is contributing to this. But when you see the same trend happening in lower supply markets as well, again, it's telling us it's not just about supply anymore. So a great case in point, I think, is Washington, DC. Okay. I think it's indicative of broader trend here. This is my theory, at least. Obviously, DC has been a point of focus given those cuts and federal layoffs, a lot of anxious headlines. But we've also heard from operators there, led by the REITs who operate there. And what they've been telling us is that the data so far has shown continued steady demand, healthy occupancy rates, healthy rent collections, improving affordability, meaning lower rent income ratios, all good signs. And yet, and by the way, also a renewal rent growth, very solid. And yet, new lease rent growth, which is really what we're talking about, when you're talking about headline rent growth, effective rent growth, I'm not new leases in front door. He will coming in the front door. New lease rent growth in DC is backtracking more than most of the country. Year of year rent growth eased from 3.5, sorry, 3.45 percent in March to 2.35 percent in May. So that's a drop off against still positive, but momentum is off by about 110 bips over the last two months. And I think data like that, again, it's just emphasizing it's not just about supply anymore. There's something else going on. So what is it? I think it's about confidence, or I should say a lack of confidence. Consumer sentiment is low. We've all seen those headlines. And it seems industry sentiment is low as well. It was improving earlier this year. And these past couple of months with tariff headlines, increased fears of recession, lots of negative news, doge, federal las, et cetera. And again, while we've seen very high renewal demand, steady occupancy rates, you combine that with the fact that we're now in the leasing season, the leasing traffic numbers probably aren't showing the big pop that operators hope to see in the spring and early summer so far. And part of that's just fact that we have so many people renewing their leases as opposed to moving. That's particularly happening of course in markets where all that demand is being spread across the great, great number of properties given new supply and prolonged leases. Meaning like, you know, in these higher supply markets, they're used to seeing a big pop in the spring and some releasing season. Maybe they expected to see that. And again, that demand is still being spread across the great number of properties given the supply of the market. Plus, the fact that people are renewing their leases more often than not, more often than usual, should say. So, I think all of these things have properly created or combined to create a lack of confidence among apartment operators, some nervousness. And when operators are nervous, they're likely to sacrifice on rent to protect occupancy. And I think that's what might be happening right now. But we'll see how this plays out. But again, right now, I just think operators are nervous. And we have to see those next few months play out either consumer sentiment translates to a weaker economy, which obviously softens demand. Or we see, hey, this is kind of like the past blips that we saw in 2020. And again, in 2022 or early 2023, we're demands softened a little bit. In this case, we haven't seen demands often yet. But in this case, it's rents. And then the kind of confidence comes back and we see momentum again. So again, these next couple of months are going to be really critical, especially since we're in peak leasing season. All right, before I leave the here's a chart section, I want to highlight a couple more things quickly from actually, I want to highlight a few more charts from REIT week presentations for NA REIT's conference last week in New York. Again, this is a big conference with a public trade of REITs and their analysts and investors. I showed most of those slides and last week's podcast, but three of the apartment REITs hadn't yet released their charts at the time of their recording last week. So I want to quickly highlight some highlights, I was quickly show some highlights, excuse me, but echo some of these themes around strong renter financial health right now, despite these other things talking about related rents. So let's start with Independence Realty Trust, IRT. IRT shows renter incomes ranging from 82 to 92,000 across their markets with Dallas on top rent income ratios are below 21% in all their key markets, except for Tampa and Denver, which are both a 24% and then they're showing sub 19% rent income ratios in Oklahoma City and Memphis. So those are all good numbers. Again, remember, 30% and above on rent income is considered, you know, kind of, yeah, rent burdened. And so we're way below that across all of the REITs and IRT's no exception. Also some fascinating data from IRT showing 52% of their residents are women and that 22% of IRT's new residents are moving in from out of state. And for those of you don't know, IRT is Sunbelt plus Midwest and Mountain West, but mostly growth markets. Another one on renter demographics. Another REIT I should say, Center Space, which is focused on the Midwest and Mountain West. Center Space shows surprisingly high renter incomes, even in tertiary markets like North Dakota and Omaha and Rockchester, Minnesota. Year-to-date new winter households have incomes of about $110,000 in their portfolio. And here's a really interesting one. Most of us probably don't know Rockchester, Minnesota very well. In fact, most of us, if you're like any think of Rockchester, you're probably thinking about the one in New York, the one in Minnesota. Well, in the Rock chester, metro area of Minnesota, renter income incomes in Center Space's portfolio are coming in at $134,000 for new renter household selling leases. And so who would have guessed that besides Center Space, of course, that apartment renters in Rochester, Minnesota are bringing in incomes north of $130,000. So again, interesting numbers that once again show strong financial health among renters in institutional grade apartments. And the same, of course, is happening in institutional SFR. And on rent income, 20.7% have been come toward rent for Center Space. And then one more read. And that's a big one, Avalon Bay. AVB didn't release much data on their renters, but they did show a couple of very interesting slides on their development strategy. And here's an interesting one. Remember a few episodes ago, we talked about how part and builders and home builders did not expect tariffs to have a major impact on construction costs, like most estimating load amid single digit impact. Why is that? Well, this Avalon Bay chart helps explain. I'm not going to dive into great detail, but I just want to quickly explain this chart. If you don't know more about this topic, you can go find that past episode related to this topic, but just real quickly, I want to highlight this chart. Avalon Bay shows that materials represent only about 20% of construction costs. And that's the chunk that's really potentially impacted by tariffs, by comparison, labor, and subcontractor profit represents about half that cost of construction. And so as we talk about four subs, have increased capacity right now as far more jobs are finishing than starting. And so they're absorbing some of these cost increases or they are cutting their profit margins in order to stay active and competitive. That's helping reduce some of that cost burden as well for developers. One more slide from Avalon Bay before we move on. So I mentioned I'll be talking that James Ray and a bit about the math of building versus buying. And just for some background context, James talked about this. Most institutional investors on the private side, they typically want around the 200-bip spread for new development versus acquisitions in terms of yield. But this slide from Avalon Bay shows they're moving forward with spreads of 100 to 150 bips. And we know other REITs are doing similar. So of course, we talked about a lot REITs benefit from lower across the capital, that helps. But also, you know, they're long-term holders. Most REITs of course are long-term holders. And when you're a long-term holder, and you're betting on this lower supplied future, I think it's maybe easier to justify that the development story. So I don't think they mind these spreads as much. But again, we'll get James' take on the buy versus build argument in a bit. But next up, rental housing trivia. All right, today's rental housing trivia question is brought to you by Foxon. A technology first renters insurance compliance and rent reporting platform that helps you reduce risk and drive NOI. Check them out at foxon.com. And also go to foxon.com. It's FOXEN.com because there you can register for a webinar. I'll be doing with the Foxon team related to the NOI environment, how to improve yields, NOI a little bit, and a tough environment. So that webcast is coming up later this month. So sign up there at foxon.com. So today's rental housing trivia question. MetLife built a sprawling apartment neighborhood with 110 red brick apartment buildings, containing a combined 11,250 units in Manhattan in the 1940s. What is the name of that apartment complex? And of course, everybody who's lived or worked in New York will probably, you already spend out this answer already now. But this should be one of the easier questions we've asked, not even getting multiple choice. So again, we're asking that question out of our honor of MetLife, the employer of today's interview guest. Next up in the news. All right, just one headline this week for the sake of time, given the length of our interview, but this is from the Washington Post. And it says, these publicly funded homes for the poor cost $1.2 million each to build. And these were apartments, by the way, 1.2 million per unit sub headline. DC apartment buildings exempt, exemplify, excuse me, I exempt DC apartment buildings exemplify a national trend as the cost of verbal housing approach and sometimes approach and sometimes exceed $1 million per unit in cities that also includes San Francisco and Chicago. You probably put LA in there too. And here's the craziest part of this article. It's buried like halfway into the story. Quote, next door, the same developers built the park Kennedy for mostly market rate tenants at a per unit cost of about $350,000 record show. So let's get this straight. $1.2 million per unit for affordable housing. Next door, market rate housing, $3,500 per unit. Why? Well, anybody's in construction and development know this already. Red tape, costly strings attached, all those things drive up the cost of affordable housing. Qualifying for affordable housing subsidies often means taking on additional requirements and a longer approval process and all of those things cost money. And so, oh, by the way, one more thing. For that 1.2 million dollars per unit, you think that might include washers and dryers, but nope, residents will still need to use a community laundromat, which is absolutely wild, you know, 1.2 million dollars per unit. All right, let's get back to today's trivia question. It was MetLife built the Sprawling apartment neighborhood with 110 red brick park buildings, containing a combined 11,250 units on the east side of Manhattan in the 1940s. All right, so I'm my New York friends already shouting out the answer, stifescent town slash Peter Cooper Village, aka stifetown. And obviously that one has its own very unique story. You could Google if you want some of the some of the story around that. It certainly created some challenges over the years for various owners and whatnot, but that's a conversation for another day. Next up, thrilled to welcome in James Ray, a managing director and portfolio manager at MetLife, as well as the co-founder of CRE analyst. We're going to cover a lot of ground, but again, I promise it's going to be worth your time. This is going to be fun. This segment is sponsored by the Guarantors, who offer a suite of insurance solutions designed to increase access for renters and strengthen risk mitigation for multi-family owner operators. In a reminder, for those of you attending NEA, you'll part mentalize this week. In Las Vegas, stop by and see the Guarantors at booth 639 at the Expo. All right, now we enter the interview portion of today's podcast. And I am absolutely honored to welcome in my friend, James Ray. James, some of you know James is the managing director and portfolio manager at MetLife. Others of you know him as professor James, adjunct professor at SMU. And a lot of you may know him as the co-founder of the wildly popular LinkedIn account and also teaching organization, CRE analyst. So James, thank you so much for being here and making the trip up to Frisco, Texas. I wouldn't miss it. I love being together in person. It's good to see you. I really appreciate you inviting me. It's awesome. Yeah, it's good to see you. So James, you and I've got to know each other a little bit over the years through LinkedIn, both of us have benefited from that platform. But again, to know you, I've really just enjoyed hearing your story. So, can you share a little bit about your story and first just starting with how you got into commercial real estate? Yeah, sure. Thanks for that. So it's kind of an interesting background because I feel like most people just sort of stumble into real estate. Most people outside of real estate don't know just don't typically know what the roles are. I mean, I think my mom still thinks I'm a realtor. Yeah, it was just fine. But I was probably a little rare in this. I really did always knew I wanted to get into real estate in some sort. And so started off in architecture and college and changed majors three years into it, but still wanted to do something on the property side. And so I went to grad school for real estate, graduated and got right into it, and started in consulting, just underwriting models, building models, comparing financial analysis and really just valuing buildings. You know, that's where I wanted to start. I always had an itch to sort of get on the ownership side of our business, but started by just grinding it out as a consultant 20 years ago, 22 years ago, getting some reps, you know, which is what I talked to some of the people earlier career, earlier in their careers now about is how do you get those reps? It was an easy one to graduate. You graduate grad school in 2005. It's really easy to get reps, right? When there's that many things going on, but that's how I started it. Yeah. Well, as I've had this count, so many times on this podcast, talking to people whose story nobody really thinks I want to be in commercial real estate or multi-family, single-family rentals, like, but you get into it at stick. So tell us a little about your career progression and ultimately, how you ended up in net life? Yeah. So 20 years ago, I was doing consulting and I wouldn't say I loved it, but I loved the reps. I was getting and it was interesting what happened. We were basically working around the clock and there were some of us that worked on equity type due diligence assignments and some of us that worked on debt primarily CNBS. I was outfishing for another job because I said I'm going to go learn, I'm going to go learn a little bit about our business, hopefully learn how to value properties for a couple of years and then try to get down the ownership side or at least a bigger brand that might be able to help me out long run. And one night, I remember this pretty vividly, we were talking to or I was talking to a peer of mine who was working on transaction. They were underwriting it on the debt side for CNBS issuance. And the biggest deal at the time was Peter Cooper-Stuyvesson Town, which is this giant multi-family project in Manhattan that MetLife actually built. Yeah. Many decades ago. Yeah, exactly in the 40s. Before you were born, yeah. A little before, a little before me, yeah, exactly. But so in this deal was going, I think the sale price was like five and a half billion dollars or something like that, which is a massive deal. A massive deal now is an especially massive deal 20 years ago. And the comment that was made is almost in passing because we're young. I mean, we're 24, 23 years old. And this person said, yeah, I think that Met might be carrying that at like two billion dollars or something. You know, I heard from a rating agency or something. And it was really done in passing. I think this was the kind of thing where the firm buys you dinner. You know, if you hang out past eight o'clock, so we're all sitting around a conference table eating before we get back to work. And she said that it just rang that I kept coming back to that comment. Like, I don't know anything about anything. I barely know what a cap rate is, but the seller is carrying it at two billion and they're selling it for five and a half. I'm interviewing for these other roles. I'm making X doing what I'm doing right now. And they're offering me X times two or three to do these esoteric things. Maybe it's pretty hot. Either it's really easy or it's, this is a strange time. And so I, when I was interviewing with folks and this gets to the MetLife connection, when I was interviewing with folks, I would ask some questions because I'm from, as I'm sure we'll talk about them from, you know, pretty tough background. I had no safety net, right? So I literally could not get laid off or I was going back to a trailer park in Southeast Texas, which was not going to happen. I wasn't up there long enough to save any money before the world blew up. And so this is late 2006. And all these shops that I would talk to, I would ask them, you know, basically, how do you guys actually make money? And what happens, you know, in different environments when people aren't selling for multiples of what they're carrying, what they think the properties are worth. And so many of those people said, don't worry, that doesn't happen. Values don't go down. And today, that sounds insane, right? Every time I do someone that store, they laugh like that, but it's, it's true. And that threw up all kinds of rift flags. Well, through a connection of mine, a really meaningful mentor, Steve Bardsick, who was a professor of mine, ended up teaching with him. I was at TA. Still do a bunch of stuff with him. He, he helps out with CRT analysts. And awesome guy, he connected me with Met and said, look, trust me, I know you're going, you don't know anything, but these guys are big. They got a lot of irons in the fire and you should go talk with them. So went out to Jersey, talked to Met and immediately, I was like, all right, this is, this is the kind of discussion I like to have where you ask what happens if property values go down. And they say anything, but they never go down. They say, well, we know exactly what happens because we've been tracking it for 100 years. And, and we've got the scars to prove it and, and a lot of wins. And, and we've been around for a long time. We think through cycles. And it was just intellectually curious, you know, and so that struck up a pretty interesting conversation. And it led to me starting out there in January of 2007. And what's your role there now? So I currently run our first closed-in equity fund that we've ever, that we've ever launched, I believe, on the equity side of real estate. So a $400 million low-density housing development fund for the record. I'm not selling anything. Don't offer investment advice and all my opinions around and have nothing to do with my employer. But I'm really proud of what we've built there. And it's pretty much done most of the things that we do that met in between starting and a risk and research job that literally there were 150 people in the organization at the time. And I don't think anybody wanted the job that I took. I'd loved that role. I love being a research. I learned a ton and then went to asset management into acquisitions and development and then did that for roughly 10 years and then and then launched this fund a couple years ago. It's been pretty fun. Yeah, yeah, that's awesome. So I want to get back to some of your story a little bit before. But let's talk about the avenue that many people probably watching this know you from that is CR reanalysts. And some people listen and they probably just think of CR reanalysts as awesome LinkedIn account with almost 90,000 followers. You're going to be laughing me pretty soon here with the growth pace you're on. You've got a great audience, a wide audience. I'm a little niche rental housing nerd. But tell us a little about the origin story of how how CR reanalysts came about. Yes. So a great question. I appreciate the kind words also. It's such a fascinating thing to me because this was just a passion project. So I've been teaching for a long time. So until you I taught with with Steve Bardsick and what you was a TA took a pretty heavy handed approach to that class. He really tried to train. We had a teach and was kind of hard, right? He made me really learn the stuff. And it was a relatively difficult class that helped them with their couple classes. And I think that stuck with me. But what's important is the entire time that I was going through my career. I was also teaching and involved with with higher ed. And so you just see a bunch of things from that vantage point. And when I moved to Dallas, I obviously stopped teaching at NYU. And then shortly after that, you know, met the folks at SMU. They're doing some awesome stuff over there. Really proud of the work we do over there as well. And but I that is for a certain type of audience. And then there are other opportunities that people just didn't have. And so a buddy and I just said, man, I think there's a giant need for really engaging difficult skills based training. We talk about thinking versus processing is what we say a thousand times. And we're trying to really create environments where people can be more thinking and less processing. We think processors are going to get paid less, frankly, and have a lot less autonomy. We did not foresee AI coming, but that really feeds right into that building. Well, we think are some special classes. And it's been a magnet for for a lot of good people. And it's been an incredible part of. And so real quick, I think people who don't know this, like they see your postings, they don't realize like there's a real ridge, not one called rid, like a structured program that you all offer. I would call it rigid actually. So we have like a boot camp thing, which is just and I'm not trying to sell our class by the way. You know, it's actually tried to talk people out of taking class in Bernhard. I really do. That's something I get into about the difference between traditional higher ed and our approach, this little passion project that we started on the side. But essentially Richard Bird and I started Richards, a developer, awesome guy, also has somewhat of a teaching background. We met knocking on doors trying to get school board people elected, you know, 15 years ago. He went back to grad school and got into real estate and has been a developer since and has done done really well, gotten his some really cool stuff. And we just get along, share a lot of key values. And we were talking about launching this class. And the class being our flagship class, we call it fast track, is really just the basics of our business, the fundamentals of our business. And what we found is that rather than people breaking into the industry that take it, it's more about folks trying to level up. So the average age of our alumni is probably 32, 33. They're already doing really well in their jobs. They just, they're one step removed from really calling the shots and really being trusted. And we work on that together, right? Which is pretty awesome. So we teach that class three times a year. And the rigid part of it is we cover these eight fundamentals. And that's it. And we really want you to build skills on those eight fundamental hands on no topics. We also have a valuation in our class, which is pretty awesome and working on some other stuff, which is good. But linked in is kind of interesting because like probably the best litmus test or we got all these great stats around our class, 98% of them say they love it. They would recommend a friend, the net promoter score is always in the 80s, sometimes in the 90s. People say they get five to 10 dollars of value for every dollar they put into it. All that's really cool. But the stat I probably like the most is that compared to a higher ed situation when class ends, everybody's done slam your books and run out. And all of our classes are virtual and we're all on zoom in that fast track class on Wednesday evenings. People hang out for an hour after class sometimes. And usually they're the more senior people. Yeah. So we'll get into these off the record debates and conversations about stuff. And they're just so fulfilling. LinkedIn literally is just an extension of that. Yeah. So it's the stuff that we're talking about. We're applying the frameworks from class that we apply what we call after hours. And we just say why don't we just start talking about what we cover in class and really blew up during COVID. And that's that's the best content. He will ask me. I'm sure they ask you the same time same kind of questions. It's just like, Hey, you know, how do you get, you know, interest on LinkedIn? It's just it's it's not a formula. It's just fine and stuff that you have conversations with people. You process it. You put some thoughts on paper. Things get you're curious about things. It's just it's just scratch that it. I will say though, I don't know how you do it by yourself because you can go so deep. I do love we've talked about this a bunch, but I love that you tell the truth. You know, like you were trying to get on what's actually happening there. I think that's why all of us kind of obsess over the stuff you post because you can get into some really deep topics, which is awesome. It's got to be really hard to be a one-man band doing that because at least we have a team of folks who teach and we're constantly texting each other ideas. And so it's kind of we have a list of ideas. It probably means you're better at delegating and being part of a team than me. I'm not trusting enough probably. Well, I love it. Keep doing it. All right. So let's let's see a good content. You know, and you put out a lot of very honest content as well. And one of one one of my favorite posts that you've put out was the the cap rates or BS. Yeah. And and this this hit a nerve because a lot of people live and die by the cap rate. I think, oh, I just post we you and I both posted a day about EQ or Atlanta deal. So this cap rates too low. Right. So I love your take on this. So how do you think about cap rates? And I guess follow the question. How do you cut through the noise around it? Yeah. And and to the level side, I don't remember who on our teams ideal that was actually, but it was a good one that that concept. And I think that had to do with Blackstone buying air sea. And and if you think back to year, year and a half ago, you know, people were talk some people were talking about apartment cap rates being six. Right. Yeah. So the byproduct of where investors are willing to buy assets, resulting in a cap rate of something like six would be reasonable to some people. They thought that's where we were headed, which is pretty catastrophic. If the average cap rate is six and yeah, lots of people just bought lots of properties at three something. You don't have to be a mathematician to get pretty concerned, right? Whether you're lender owner, whatever. And we just sort of thought that was, first of all, BS like that would that just love that those levels were BS. And so we dug into it, right? And the nice thing about when you get something like a public company being purchased like a big shop like Blackstone with no inside information about either of those things and no position in either them, you can sort of cut through and say, guys, this is not about a cap rate and it's not about like a six and and we think the cap rate on that as we kind of put it into our framework and kick it around a little bit as a team. I think we came out in the high fours and then people scream about that's negative leverage and we say, well, that's actually not true either. It's not really negative leverage. It may be negative income yield relative to the cost of your debt going in, but that's not negative leverage because you do get some growth, right? And you have to count for that. So our framework is really straight forward. We don't really believe in through your approach as to value. Frankly, we think that the DCF approach is sacred and we stick to that. And that really is all it was. You could pretty easily get to get to that cap rate by just saying, okay, we know what cost to capital these vehicles with in Blackstone need, you know, what they market and talk to people about. You start there. You figure out how much in place income they have, how much juice they get from a sumable debt. I think it was a big part of that transaction and then you can estimate what sort of growth that they're projecting because they were trying to renovate some units. It's not that hard, but you have to have the framework. If you're just slapping cap rates on things and you think that's how you value a property, in my honest opinion, that's wrong. All right. So let's get real practical. Let's say that, you know, you are, there's a deal you love, you're going to invest in a committee, you know, the senior guys who push back say that cap rates too low. What would you tell that guy who's trying to fight for that deal? And let's say you like everything checks, right? Except for the cap rate. Well, and I think the same thing happens on the development side just with a different lens, but in that sit and we get feedback from folks that teach with on our teaching team, there's in that exact same situation. My boss just really believes in a 200 basis point spread, you know, to be able to develop something or this cap rate is just way too low. And it's not really what I believe or don't believe it really is just your perspective. And in that instance, it would matter is that property stabilized or not. That's one big thing, right? And then it's all about growth. And I mean, I think that's why I don't know anything about EQ or why they bought this half-billion to our deal earlier this week, other than what they put out. And the worst I can hear people say is that, you know, maybe it's mildly accretive. And that's not that bad. That's a far cry from, you know, negative leverage and doom loops and things like that. What I see is a group that has access to capital looking to expand in a market where they have some operational efficiencies. And they, if I remember correctly, they do need to catch up a little bit because they were more concentrated in the coast historically. And this is the market they really like. And what they seem to be betting on is growth. So they're not buying in Atlanta because they're getting four yields. You know, they're buying in Atlanta. It seems like because they can get some growth and they have access to capital. And so just ignoring that seems, seems naive. Yeah, right. Especially if you're not holding for two years, right? In our position really isn't to it. I'm not endorsing what anybody does. I'm not endorsing what I do. I told you it's not an investment advice. But all we're trying to do through that account and our classes is to help people be able to understand why people do what they do. So when we see something hit the news, we're immediately texting like, what do you think they bought that at? You know, and how does it? How much growth is inherent to that? That's just it's a much more constructive conversation than doom loops and yeah, and and negative leverage. No, that's what that's what I tell you also all the time. That's what I love about what I do. I love about this industry is people have the groups have different strategies, different parts of the country, ABC, whatever new construction stabilize. You can be successful doing a lot of things. You're not the personally want to do that. But you can still respect, okay? You know, that'll work for them. And it's humbling. Our space is very humbling. I don't, none of us have all the answers. I don't there's plenty to go around. You know, I hope everybody does well. And it's it is it's been helpful to kind of try to understand and always be measuring against your frameworks. But then realizing that no one has a monopoly on good ideas. No, absolutely. You know, whether you're institutional or mom pop in a small tertiary market in the Midwest, you can be successful. So let's let's let's talk a little more pricing bigger picture. We talked a little about multi-family just now, but let's how do you you've look at all these sectors? How do you think about multi-family relative to scattered SFR and relative to BTR? Where it is today? Where it's going relative to turn those big picture? I'm always careful about like where we're headed on stuff one because I can't make comments like that, but two, I really don't know. I talked about being humble. You know, if you really try to guess about where none of us know. Yeah, yeah, you don't know. But what I do try to latch on to is people who I like their frameworks and they apply these frameworks and and one that I think I'll give you a framework. I think makes a lot of sense and one I think doesn't make much sense. You know, the framework of hey, you've got a lot of income oriented capital out there that's longer and tenor and liking residential products. That seems to me to be I wouldn't say insatiable, I wouldn't say limitless, but I would say a very deep pocket of capital that if yields fall to a certain level, it's certainly there ready to go. And people talk a lot about dry powder. I think you have to disaggregate that. That gives me a lot of confidence then in in assets that that type of capital and there's a range within that box of capital. It gives me confidence that that capital is there right at a certain price point. That framework makes sense to me and it gets right back to the DCF stuff we were just talking about. The framework that doesn't make as much sense is is and this is just making sense of like trying to project values right with there's just a lot more uncertainty around if you weren't feeding into those boxes of capital and you were trying to move. So let's let's say specifically you were buying a classy apartment property in Phoenix and renovating it lightly and pushing the rents by you know three four five hundred bucks a unit or something with light renovations or even not and you're just riding the cap rate wave and leveraging it up with floating rate debt. That isn't a approach that a lot of people got really wealthy on and generated a lot of value in a short period of time but it's not income oriented and so but it started pricing like that right so those deals got into the threes and fours and you know folks that have been on your podcast have talked about you know maybe those operating expense ratios weren't super accurate you know maybe those those credit loss rates weren't what's they're going to be their long run. In short I think those income oriented properties that folks like EQ are buying it's hard to see those values falling because that capital is there if anything it's probably going to run with growth says growth picks up you think that they run with that and if things settle and like spreads come in a little more I could see it a move there that would reasonably fit in our framework but if you were playing the game of I'm trying to convince people that these non-income related deals feel like income related and getting folks to buy them at three and four caps that's tough I mean I don't know where I it's just wildly uncertain where those values are. Yeah we still have to see bigger spreads when I do know it's just an absolute guess and and nothing what's surprising maybe there's a bunch of family office capital that just likes that they love places in their community what more exposure I could see that but I can't see it directly through one of those frameworks says I think the way that answer that question is one of those paths I would break the housing space into just halves and it's probably more like 60 60 40 70 30 on the bigger chunk or these income related assets are in reasonably good shape and they're predictable and you can leverage the underlying economy to get some growth those things it's hard to see you know you can kind of see where those values are headed probably the other product is wildly volatile to the upside over the last five 10 years and it's got to shake out some right there's so much uncertainty there and so that's just the way I think about it resonates I'm not the only one that thinks that way I mean no it talks about that you talk about that several of your yes it have had similar take it's not an original take but no I'm the view I think somebody's eventually get really do really really well on those lower quality assets but they're gonna make it it's gonna be a big bet it's not a slam dunk and it's a timing play yeah it's uh and and I don't think we're there yet on the spreads here it is it is super interesting that when you look within those income buckets like core funds core plus funds um sovereigns folks who are really long-term investors and looking to income um there's only so much space that they can go right and so you see that it really they do move markets so if you if you want to get out of office where you're gonna go you know data centers are actually pretty small yeah so it those just that one decision I want out of office is going to meaningfully affect yeah housing markets there it is the capital has to come there right which is why part of why I think you get so much attention on alternatives um and that that's happening not just because people are trying to get out of office but you we certainly see that right where those income investors want uh to expand there and and I think for a long time it was multi-family and industrial and and it doesn't have to be either or but I don't see that attention going away either it's just a bedrock of these portfolios any thoughts on SFR and BTRs relative to multi-family this I mean super interesting to me just pricing today right uh public private you know get a 15 to 20 percent delta SFR BTR I think it's really fascinating we look at you know where those values have traded over the last few years I think the the the deeper capital buckets in multi-family um we're sort of more aggressive in their pricing by the time maybe 25 to 50 basis points of the cap rate and then it actually kind of went the other way for a minute and then now I feel like it's probably back to that if you if you pulled the big brokers invests themselves folks I think they would probably say that the 25 basis points is difference um what's interesting to me is just as you ride that curve you know where individual assets are which I I just think our markets are incredibly efficient over long periods of time but they can be incredibly inefficient and short periods of time yeah so it's so much is just about the capital and what they're trying to do um but I think the bad news around all of this is I just don't see pockets of distress that create these uh why pricing differences that doesn't mean they don't exist I just don't see them yeah yeah absolutely so you mentioned the the discount for public REITs yeah probably market values there's a lot certain groups I won't name names they can make a really big deal about that metric yeah does that really matter how do you think about it I mean what does it I definitely think it matters but maybe for reasons that are different than the the headline reason so you think about the names that we've been talking about you know a big buyer steps in what I noticed is that buyers in today's marketed those income products have one of two things they're either insurance company backed so you think about pretty much the only player out there buying scattered stuff right now is insurance company backed um and and then it's public equity with access to debt yeah and so if you trade at a big discount that cost a capital shifts pretty meaningfully with you to the sideline and so to me that's why I think that discount that's what that's what I track it is because I want and coming from someone who spends a lot of time developing assets investing in developments I care a lot about who my buyers are you know and so I really like that capital coming in into our space I think it's healthy for all of us but that's why I care about the Delta I definitely think the Delta matters I think the CEOs will see if I oh yeah I agree in that point I guess let me rephrase my question so what about do you think a pricing index is more accurate with based on what retail trading at or rate based on you know like a you know like a RCA MSCI yeah property price index green streets property price index probably such a lame answer but I want to know all of them yeah and my favorite thing about our space is it's inherently dark in the sense of it's inefficient in the in the sense of even though I say the capital is pretty efficient compared to other asset classes our transactions they're not structured intently to keep people out but unless you're involved in the transaction you don't know so we're all guessing and some people can make much more educated guesses and others and so I love that about our business right and so I want to know all of the more data points is better yeah and but and so I think both of them are valuable I think I kind of bucket valuation indexes we actually writing a textbook on valuation I'm happy to share that all nice yeah one on these indexes but I kind of bucket them into three groups there's the transaction based indexes and you know I would talk to Jim Costeller someone at MSCI because they could explain much better and I can't but they are really sacred around the way that they track transactions that's great because it's real we know that something traded then there's the totally the other side of the coin which is I'm just guessing what would trade if it traded today so that'd be more like green street CPPI my words not theirs but I consider that to be more of like a bov right yeah and then you can get indexes that are sort of tweeners you know where it's estimate but it's not based as much on like pure feedback and I would say a public stock market index is something like that I care about all three I think they all three say something really meaningful that was going on I just can't imagine like for my friends and they probably should read business like when you're a value you can can move it on every day based on things have nothing to do with your industry or how you're doing like that's it's super and think about it if you're a sponsor and and as this sponsors are really sophisticated right so you got a great deal and you've got a great term sheet there's always strengths and weaknesses of those term sheets and they're really sophisticated about looking through to your what you're putting in the term sheet to tell me where this money's coming from you know and and I am from doing that this what they should do yeah all right so it's we just tackled a hot topic pricing and cap rates cap rates or BS the big takeaway there I love it another hot take that you've had in your in your posts are about the wall of maturities and in you and I have a shared affinity for this one so the perennial headline of course is that there's this ominous wall of maturities around the corner and it's going to you know destroy everybody so give us your take what how big is that wall and how big of a problem early is it yeah and again just micro something you know but it's the opinion generally of our team is we're kind of kicking things around and so it is something that gravitates the top when we're talking about posts and it's just this idea that oh my gosh there's this massive wall of maturities which comes up every time there's a recession and is very natural because loans are in our space three to ten years the three year loans tend to be on less stabilized properties you get tighter debt service card ratio is often in there and and then so therefore you have natural you know preliminary extensions or preliminary maturities and so you chart that out and it looks really scary it's really right kind of a piece that'll get a lot of attention on that this carrot you see that you're like oh my gosh we messed up everybody knows maturities matter so if that's the case and we got a lot of maturities next year then stuff's going to hit the fan it's just that that hasn't happened historically that way for a bunch of different reasons and that's my short take on it is it's really important to know those bunch of different reasons so one of the groups that I really respect a lot is the way that JP Morgan talks about this and I haven't even talked to them about you know mission in this but they do a good job in all their research I mean whether you're talking to the REAP folks or their their fixed income folks on the on the CNBS side they generally talk about maturities as as first maturities or fully extended they're just the charts aren't as sexy you know and so that to me that's what half of it is is either someone's moving really quickly or they just really don't want the nuance and that's okay everybody has reasons for telling their stories but to me I really want to understand what's going on and what happens with those wall of maturities a great example is someone our team came with this idea to do a little case study on Willis Tower a couple years ago during its initial maturity and it was right it was one of the biggest maturities and when the hype about the wall of maturities causing a banking crisis blah blah blah was was dominating headlines we looked at it kicked it around and all of us agreed or like this thing's going to get extended you know what else could happen and then that's exactly what's happened a couple times and I think they got a longer term extension that's a sass below and so it's a little interesting there but it's giant everybody knows a sear's tower so it got a lot of attention and it just pays to kind of disaggregate and dive into what's actually going on and bottom up we just see a lot of these deals that seem like it makes sense seems like it makes sense for everybody to just kick the can yeah as much as none of us want to hear that that is it's just what's happening you know well you said the chart is like a sexy but you know I was joking with the earlier that I used to have my presentations that I give like you know these headlines showing wall of maturities and I'd hide the date and you could go but every year going back you know forever right right it's the same headline right it's just a different you know it also helps that values go up therefore they amount of debt that you put out goes up you know and then if you just take three to ten year loans and you just naturally gonna have this push back yeah exactly yeah that's just the nature of it all right so let's talk about development a little bit you know one challenge for developers the developer's having right now is this perception that their investors they're saying they think they can buy cheaper than they can build and you know personally you know my my personal view on this one I guess your opinion on this as well is that I think that's often proving to be more true in theory than in reality meaning like there's just not a volume out there to really buy and achieve any scale to deploy you know especially if you want well located you know class A newer vintage you know multifamily and BTR so maybe development is a more scalable path but how do you think about develop a buy versus build for BTR in apartments right now yes I've seen a bunch out there right and I try to stay super engaged in what's going on and I I will say I have seen some people buy things below replacement costs and I'm like man that seems like a good deal yeah you know and they had usually they had some kind of edge which I think is an interesting topic but that seems definitely more atypical yeah what I'll also see is someone fishing for equity that says I can buy this at blower placement costs but it sometimes is because this shouldn't have been built there you know well so that's it that's it you can buy a blower placement cost but if it if you overbuilt it that's a problem right and so because your rinse aren't going to justify that and I think you you have seen that a little bit but there have been success stories there in hindsight over the last few years sure so few yeah like I mean I probably know it does end of them yeah and then it's like to spend a fun let's go do it yeah and then on the development side it's tough because I feel like the weight a lot of people the people that I dive into and talk to like hey why don't you like development it generally is because I want they say I want a 200 basis point spread let's say over market cap rates which are a six so if you take the whole cap rates of BS you know thing and you say that you thought that six was the market cap rate I need to build to an eight to me that just as you're probably not interested in developing which is fine and I get that you think that they're you need to get paid for that amount of risk but there are only a couple different levers you can pull to make that story different and it's possible that and with the benefit and hindsight in a couple of years you may look back and say I was too conservative with that six yeah whereas you're conservative with the 200 basis points that probably is a lot to do with where you're trying to build yeah right if you're trying to build on the periphery somewhere that probably is pretty good math but if you've got a really great site or a different project we we do see trades in the mid to high fours right now I know that flies in the face of as some narratives but I mean those are well documented ask any broker that's really in the market and I think that's what they would tell you they're seeing so again it may be the case and in hindsight you look back in a couple of years you say gosh that 200 was too wide and six was a joke or five and a half is a joke right so if you're trying to get to mid-7s it just depends on the project though some projects are heck of a lot easier to build than others there's a lot more risk and some than others and then now you've got cost uncertainty and that that I could totally see that pushing people back into acquisitions which by the way is great for the market yeah so so in general I just I tend to really get more excited when capital is falling into all of those you know you want you don't want land prices cratering you don't want land prices getting too excited you don't want asset prices you know going too far in either direction but it stays stable when you got capital flowing in all direction so I could I could see why those arguments make sense but they're they're probably more situational yeah and especially we we're we're we're we're I've seen you time I'm wrong here well I've seen the really big discounts to buy versus build oftentimes these urban high-rise sites there's been some big ones in news and you know Los Angeles and elsewhere yeah yeah we're very little new as we start under construction for a long time yeah I've seen two places the big high-rise deals that were especially larger units yeah right where you just have really big rents that that are just tough to to sell with renters by choice who probably have moved you know a lot of those people have sort of moved with household formations so seeing some of that couple doesn't projects maybe that are like that I've also seen relatively dense product whether that be townhouse or horizontal multi-family this would really far out no right so I've seen some of those deals come up as well where you can definitely argue their below replacement cost I mean the other part of replacement cost is is it below your replacement cost or is it below today yeah because it's super inflated right so then you're almost always below replacement cost those are the only two types that I've seen and and people that may get work they're sort of sort of finding the needle in the haystack you know that this actually could have been built or maybe it was built two years too soon but rents are growing a good way you know I've known some folks have done quite well with that same way with the high-rise product what I've seen there is maybe it was built sort of the amenities might be a little below you know it's almost coming in in an efficient way and then weirdly the folks can come in and recapitalize it a little bit and give it a little spruce up and then you get some activity because you probably still are drafting behind the other high-rise it's you know more fully leased so you've got a value proposition that's that's really the only place I've seen that yeah so let me ask you are kind of a big pressure question one that knows hot on the minds of a lot of folks who are listening right now and that is the state of or the appetite among institutional capital right now for apartments SFR and BTR because it seems that the general sentiment is everybody likes these sectors but there's a lot of kind of wait and see or just not yet yeah with which your pulse which you read I mean that's a really good question I feel like it gets back to what you're talking about earlier I feel like income oriented investors really want to be in housing yeah full stop and part of the issue is that we you know transaction amounts or the number of deals that are trading still relatively low it obviously doesn't help that interest rates are pre elevated but even with that I I mean I you see the same stuff I do I'm just always in the middle of night flipping through decks that I can mention some mentioned funds website and almost every single operator sponsor is proud to have access and some engine that generates deal flow into housing yeah and I think they're responding to capital I haven't seen people talking about lower allocations to housing um they creep added SFR to their index right this set of index uh indexes I think that's a pretty good indicator where things are going anytime some things they sent you'll find you know it's moving around a curve um and can be a little volatile and the way people track it or find opportunities but um I don't just my guess is I am really my observation as I've not seen any backing up on that it's just more the short term economics and you're starting to see capital uh come off the sidelines particularly in those again those income oriented strategies like core plus like I've read about probably a half a dozen you know nine figure commitments and in core and core and and core plus type mandates and fund formats a huge percentage that's going to go into housing right kind of has to and so that's that's leading that charge same thing with the Nickreef index uh turn positive late last year that's massive right so those are both pre-rex to to getting back in the game you don't see people talking about lower allocations to housing for the most part you just brought by another hot stuff in my mind is core and core plus like these definitions what's think about the housing world like you know these are well entrenched terms but if you had just paint a picture of what this looks like yeah like what is it yeah so it's funny because this is what we talked about in our very first class which is buildings aren't lines on a spreadsheet yeah really have to understand that with different chase buildings is that they're physical so for better or worse or just like us yeah we get old you know we get more gray hair like um and uh or less hair or you know you get around a lot slower same thing happens with buildings and you have to recapitize them you also can just get a curveball with tendency right so these and then now you're maybe less attractive than you were 20 years ago when you were brand new and so you really have to do something different so we think about it like a clock like you start at the at the base so call it six o'clock and you're worth land you know and you really have no income it's gonna take some sort of meaningful injection of capital and a business plan to to lock up some leases you get it to the top of that clock and you can kind of hang out at at noon or midnight for a while um once you maximize the value of that building and then it's all about trying to keep trying to stay at the top of that clock so everything on sort of that side of clock we would call core right so income oriented as you start sort of slipping down the the side of that clock if you will toward three o'clock you you know that's kind of core plus maybe so you lose a big tenant you recapitize it you come back if you're outside a multi or SFR or you have to redo the amenities or something that would be that or you're just borrowing more I mean that the only other way to take on more risk is to borrow more so you you could have a course strategy with a lot more debt so it's core plus and then as you fall down the side of that clock I think that's where you get to to more value at an opportunistic and now you're back to square one and so that's the way I think about it but I do think your points are really good in which is what are those boxes and I kind of think about them more like puddles what about in terms of geography because there was a day not too long ago where core meant you had to be in the 66 markets now that's not I mean you could be suburban Dallas in your core it definitely evolves right the way I think about as you want core to mean means pretty specifically it used to mean purely institutional I don't think it means that anymore particularly with all the retail dollars coming in you see that already right you get these huge pockets of money that they care less about I mean they like I'm just picking these markets from out of thin air but they like Knoxville just as much they like Austin yeah or Dallas so that I would argue that maybe you have some core capital there but you definitely see the research I've done and I've benefited from seeing from others is in the top 15 markets it's a lot easier to get that income more into capital they're very skittish about getting so it's going from six to 15 yeah I like that I do think that's fascinating to see how you a lot puts out good stuff on this every year I think it's fascinating to see how market focus shifts yeah and you know we've been through a couple cycles now it's just so fascinating to me everybody gets their day and everybody gets their turn in the barrel and which I think is important to keep in mind because when you're in the barrel it's going to get better and when it's your day don't get too cocky you know because it all it comes out I call it the SI cover curse because you see in curse yeah in the Madden curse yeah I remember you remember Houston was number one market then oil price is you know 2020 50 whatever that 16 something yeah so yeah you want to be like two it was Austin and then I mean it really and now it's probably the Midwest you know and probably some Texas cities and it's really wild and you see Newark San Francisco also get up there and then they fall I mean it just everybody gets their turn in the barrel absolutely all right so another question on institutional appetite is there's been so much focus now on the shift from equity to debt yeah private issuing private credit having debt funds and the sentiment today I hear a lot you know kind of anecdotally is it's gotten so much easier to find debt it's hard to find equity and so what would cause that to change and what's gonna get equity more available again I mean this one thing I really love about markets is they balance each other out and we're all connected yeah right so it's literally impossible to have debt without equity right so for every if you're 50% levered for every dollar of death there's dollar equity so now it's harder to raise equity might be more expensive but you have to have equity to get up to borrow and I think that self governing it's almost like a sailboat if you get going too fast on sailboat it heals over it's gonna slow it self down which is part of reason they don't flip over right and so that the same thing happens in our markets so I mean you talk about this better than literally better anybody else I know if supply evens out on markets I generally think that three things sort of rock the real estate world and it's too much supply too much debt or interest rate spikes unfortunately we've experienced that there to this you know the last few years but the last third or the last one of those shocks but all of those sort of level each other out and and all we're seeing right now is is investors say well why would I invest in equity if you take a big operator that's done a bunch of non-core funds you know a good track record might be 15 net to investors or something you know talking pretty high octane stuff but you're doing a lot of it or if I could get alone at 8% and leverage it up with 4% debt somehow and I can get it 12 that's just tough math for people right now I think it's always important remember that no strategy's perfect you know but it's it's also important that we all kind of had those clocks that I was talking about you know around everybody gets their their day and or because it turned the barrel so private credit certainly get away I don't think that money goes away for what it's worth I just think you're probably seeing more of a shift because banking is huge you know we it's really important to break down real estate capital is not monolithic as you know right so there are five different kinds of lenders as we think about it and one of them dominates particularly on the short-term product and construction lines which is banks and yep and they've been less active you know and they've certainly come back strong last couple of months but when surprise me at all if if private capital in our space goes from 5% to 10% it's a little harder for them to gain market share because they're all short-term so that's a big move yeah to go from 5% to 10 is a really bit I mean that those are tens of billions hundreds of billions of dollars potentially so I don't look at as much either or but I do think you get these pockets where one gets very much in favor and and one gets out of favor and you'll matters a lot to balance that out yeah so we ask you a follow-up question that then so in the in the hunt for equity you have a lot of groups out there that are trying to get in they're trying to get an institution as an institution some of the groups have a lot of drive powder out there there's a lot of people knocking on their doors what advice would you give groups that are trying to form partnerships with some of those some institutional capital I mean honestly try not to get too much advice because I but I will give you the advice I give myself which is it's parallel um develop an edge and a skill set and double down on investing yourself and so my example is I try to be a really good capital partner so four sponsors so if you flip your quest around get to what makes a good sponsor what makes a good capital partner be a really good capital partner what does that mean it doesn't necessarily mean you have to give things away in fact it probably does it means you don't that it's more of a trusting relationship that you're you're building up over the long period of time but what it does mean and and I see this a way I try to differentiate myself and and what I do is is for example if a sponsor of mine crushes it they do something really good on a deal I'm not going to berate them for making money because they get a promote that's different than mine I'm actually going to celebrate it you know and I want them to get paid really fast for some reason I think some capital partners have a hard time with that I'm glad they have a hard time with it because I don't as long as I negotiated the structure and I feel good about it and it was market and it's a and everything was done above board I think it's good to celebrate that you know similarly if we're going through tough times sometimes you have to have hard conversations I think you can only do that around trust and and to do it not in a I'm bigger or more powerful way you know kind of berating folks shockingly you know tends to work a lot better you know we try to work together I do think that helps though you know I've got decades left in my career if it's the last deal that you're doing maybe people have have a different take but then you could flip that back to the sponsor then how do you differentiate a track capital even though I said earlier that I believe in our market being efficient generally but inefficient at times I think it's actually really really efficient when you come to this so meaning if you're really good at what you do and you create value people know you're not just going to find an amazing partner hiding under rock that no one knew about any more than you're going to find $100 million that's just looking to invest in your deal under a rock I think networking is so important our business but I do think it probably gets a little too much credit because in the sense of it's not networking in my experience that finds you that partner or finds you that money it's having an edge now it's not black or white you kind of have to have both you have to have exposure you can't deliberately hide under that rock that's my take is get really really good at something and it's a hard yeah I talked to so many early-ish career people who want to start their own things we're all autonomous all of us kind of want to do our love autonomy gosh there are a lot of sponsors out there yeah you know there are a lot you I mean I would point to this are a lot of podcasters out there this is a different podcast you do it differently which is why I think you've carved out a spot because you have a little edge you know and it's true and you can do the same thing as a sponsor you can do the same thing as a capital partner but just doesn't happen randomly so maybe that's a boring answer but that's what I would say you try to double down on it yeah find your identity yeah it's true for anything another question on markets is just as you're talking to think about institutions and the groups out there well what's the what's the view among institutional among institutions right now and the differences between or the appetite for apartments versus BTR versus scattered SFR right now yeah so fascinating how those markets have evolved because both have been born basically over the last 15 years from an institutional standpoint and they've had ups and downs already this is just more of an informal survey you know talking to peers and people that invest in it that the the common approach or common feedback that I get is that big investors want to be in all of it yeah they're not they they're in the space because it's a structural thing not because it was an overnight thing and sometimes economics would better in one than the other but you got to be careful playing that what they're really trying to do is is anchor into the demographic growth and the capital growth that follows it that's not so fickle that it has to be one or the other and in fact they really interact with each other yeah I'm talking about purpose built rentals versus scattered product they tend to interact quite a bit and increasingly investors are in all yeah and they're and increasingly they're just living sectors right yeah it's I'm everything for multifamily to to scattered and frankly I've found I I think where we might be headed as an industry is these mixed density communities right which aren't scattered in the sense that you have houses that are separated and you need the managers will always need those managers I think to manage scatter product but I think the 25 core funds that are probably going to buy more of this product going forward I think they're going to like these mixed density projects that has you know a town home an apartment and a more of a detached type product that was built for rents are all in one community that that a big manager can manage right they're they're they're going to like that when they see it especially when it gets in a good location and we seem to be heading in that direction I don't think it's either where there's only one sort of magic trick but that that's one that I could see coming about and it's a great example because it's it's all the above I agree I I think our industry were so focused on you know comps comparisons like this this for that you know for sale or for rent SFR or multifamily and the truth is like you know most of the time they're all dependent on the same totally broad tailwinds we're also super competitive right so yeah I want it to be my way you want to be your way we're in reality it's like so many of these are just custom tailored things I think it's just incredible to be in our space right now as these as these products are coming around and there's so much capital appetite I mean I think some really good things are going to happen over the next several decades really as this continues to blossom you know the all kinds of opportunities absolutely agree all right so James we alluded to this early when I come back to this and I think I think now that we're you know at the tail end of this podcast people have picked up in the fact you've got a lot of passion yeah for real estate for housing for data for training for teaching and for doing it a way that's that's not you know self-serving but in a way that's it's uplifting to others yeah thank you yeah what's the foundation but what what drives you what fuels that passion you have yeah appreciate you asking that um because I don't talk about that very openly but I do think it takes about like five minutes to just realize I do I have this like a different gear yeah yeah I just and I the older I get the more I realize that and I respect people who are are I want to say more measure but I guess it is more measured in some cases but as an investor I'm really measured as a as a researcher I'm very measured but there's something about just like energy and passion and I think if you really rip everything away it primarily comes from truly believing I'm extremely lucky so a lot of people say that I'm so blessed thing right but I get that but for me it means like the likelihood of me working in an industry where my peers are regularly making millions of dollars a year working with people that they generally like in communities that they enjoy and they feel connected to the likelihood of me being in even in that in that sort of stream was literally zero not like and that's not exaggeration it wasn't point zero zero zero obviously but it was around a to zero because I grew up in a really tough environment you know and I don't wear that as a badge of honor but it's true and I do think that is super motivating so to me that meant moving around a lot pre junior high probably went to 10 different schools in seven or eight years my mom was you know she struggled with drugs and alcohol unfortunately great mom the senses she loved me to death but you know struggled and still does unfortunately but that has a huge impact on the way you grow up and it's kind of nice to be in a suburban classroom with people that look like you and speak your language and similarly nice to be kind of the only white kid in the neighborhood that you don't act like you own the place because you don't you know and you get some bad breaks along the way or we did where you know you get your utilities cut off pretty frequently moving around living pretty tough environments and then was looking up to move to a little town in Southeast Texas where it felt like home people then there didn't really care about that so that was huge you have a lot of instability then to go to some stability but then I started looking around like I have an extra gear like I want to do something you know and it is so hard for people that have that gear to learn what's going on particularly in a in a community like ours which operates not in the dark like there are no lights but no one's advertising like here's what's going on in this conference room here's what we're talking about you kind of have to know that it's there and I think that really is a big part of why I care so much about spending my free time teaching you know when most people are sleeping I'm like I said searching through a bunch of undocumented so much of it is just that our industry is so unique and people don't talk about it a ton and we just I love the idea of of creating inroads into that you know I mean what I didn't mention this earlier but what actually triggered Richard and I to start theory analysis is probably the best example we had talked about it we knew there was a need but then we met these two guys Reggie and Derek and both of them were software salesman at the time real quick story but it's meaningful and and they that basically we Richard and I met them for breakfast and and they're like hey listen I'm an ex-apply I know that I want to get in a real estate but I don't know how I can't add skills and people say they like me and they think I could be good if I could just add some skills and but I don't know how to get them yeah I'm not going back to business school for whatever set of reasons and even if I did I'm not sure that would get me what I want and so um you know we heard that you guys are thinking about this what is that and uh we didn't to the stay I actually don't know how they found out that we were doing this but I had Richard and I were working on a little textbook about valuation which we think is the critical skill so I slid it across the table to Reggie and I said look if you guys are really serious why don't you just give this a look and let's meet for breakfast next weekend and you know I thought maybe they show up but you but highly unlikely that they actually really read this book on real estate valuation you know and he surprised me I mean we were there for three minutes the next weekend until Reggie pulls this book out of his his backpack and it's like beat the hell it's got lines and highlights all over it like you might have asked you a couple questions and Richard and I literally looked at each other like I guess we're teaching this class you know and so it really is what launched us and so we went both of those guys now asset manage uh big portfolios for for big institutional investment wow and they make multiples of what they're making back to and more importantly they're really happy it seems like they aren't really close to both of them it's a great success story yeah it's awesome I mean that makes you feel so connected to our industry and not I mean it's not frankly it's not even it's not even remotely altruism it's like kind of selfish because it's cool to be in the front row you know it's like buying court side seats to ask what to do yeah but anyway so that's why I think the long answer but I think the passion comes from a depth of that I'm like kind of getting unlucky in the beginning but but but sought but super super lucky you know and then finding this industry I think is amazing that people don't talk about enough or much less provide some inroads for uh and then the success stories that keep you going you know and you get really close with this so that's powerful so let me ask you a other quick before you even figure out real estate like was there a moment in your life changing schools on this time I think you know what like I'm gonna be different I'm gonna I'm gonna yeah get out that's a great I mean that's a great question and I struggle with it a bunch because I think some kids do have that I mean now that I have kids it's like it's the craziest thing about I'm one of the craziest things about having kids is how different they are and how little girl I have over them you know but their personalities are seem so ingrained from when they get here you know and I definitely think I had a little bit of that that was it wasn't different good or bad was certainly different you know as a and part of this is maybe TMI but my mom I said she meant she struggled with substance abuse stuff so I sent spent a ridiculous amount of time super unhealthy for a kid to spend this much time in these environments but in in-a meetings and a meetings I don't know how many five year olds are sitting there chatting up and adding to you know but it turns out that that's actually a pretty good training ground for some things it may require you know a 401k worth of therapy to overcome later but uh it was it was a really that is a real situation where I would talk to people and I was very you know curious all the time and I don't think everybody has a curiosity but that curiosity was rewarded a lot too you know because people would take note and talk with you which was nice so um I don't I don't I mean I definitely saw that really early on but there was a wide range of possible outcomes you know and I think this is true I see this all the time particularly when I used to teach undergrad you'll see some kids come out shot out of a cannon you know and then and then you also see kids that aren't and one thing that's troubling is I definitely think more the kids that are shot out of the can can in these days happen to be females and and more the ones that don't happen to be males I don't exactly know what's going on there but it's enough to know that it's a solid trend what's interesting is a lot of those guys bounce back a couple years after they'll either get laid off they're not making enough money that they want to make their parents are given a crap where they got broken up with like true stories and yeah I believe it yeah and then they call me and they're like hey I wasn't really paying attention to your class but can you talk you know and I know with those texts or emails are going to be about and it's in to almost that always that so I don't think there's like some magic thing that you know but for me I definitely think I uh I definitely didn't want that lot so I was probably hyper motivated um but frankly just absolutely and almost blindly looked at it looked out and having so many people help you know but I get to a quick random stat here is that in some I've heard from some class they apartment developers that in some of their properties 60% of their resident bases female really oh that's interesting and their higher income younger adults and there's you know I think are flexible you just touched on so here's I mean this is a whole podcast series in and of itself um but but my wife and I keep a list of of folks because when you know great people you try to connect on that list has probably 15 or 20 amazing females on it and two or three single amazing guys yeah and and and so if you want to be on the list let me know but um but it's just your music and your balance that you know and and I don't exactly know what's going on um but we see it I see it in all the classes that I participate in and I think a part of it is is solved by just actually paying attention you know and and not just rewarding the people who are at the front of the the I think it's hard to stereotype but a lot of times what I've seen is is female students tend to be a lot more organized and front of the class types and I know for me it's kind of a meathead I was a really good student but I was like definitely a back row person not a front row person you know and I think leaning into that not being insulted by that and just asking someone hey what do you what do you have to what do you want to do and those little things can really light people up yeah so hey one more question I ask you um what's it was talking about Sierra analyst to close us out what's the profile of a typical good candidate for the program is a good question and tells you to use this earlier but how is it different from a traditional academic program yeah I I'll start with the second question like how's it different because I think it's really important so I still teach in an MBA program master's program and guess speak in in some undergrads I love those I'm really proud of SMU I held out at Texas Tech and TCU on occasion because they're all local ish I think those are all important funnels um but they are very different right so I would say that then what we work on the the Sierra analyst side and I would say that they're different in two big ways kind of two big buckets the first is just our approach is different like we don't care about certifications we don't care about any of that literally all the care about our skills yeah we have a list of skills we're trying to get to so skills are on one side information is on the other in my mind information is something you can write down on an index card and memorize um skills or something that you actually have to practice doing writing horse swimming shooting a basketball hitting a baseball those are skills I don't care how much you read Ted Williams like science of hitting you're not gonna be a good hitter you gotta actually go and spend like dozens of hours in a cage a day almost you know you're gonna be a good hitter these days so um we're trying to get people closer to whatever hitting is like in real estate which is negotiating contracts reviewing at least valuing a property negotiating alone picking alone those are more like shooting a basketball and less like memorizing what does it caprate right and so um every single thing that we built this class or series of classes around is around building those skills and we don't even really call ourselves teachers because we're not we create these environments with a teaching team of like 25 people um where people can get those skills so we break the classes in a fast track as an example generally in the third the first third is super intense lecture second third is a guest speaker that makes it real last third of of each a of each class over the eight weeks is um hands-on practice so in one of the real situation you gotta work through in small groups under the direction of of team leaders that have been through a program and do this in their day jobs so our approach is the first big thing it's just radically different all of the results kind of come from that because uh we're just so laser focus on that right and then but then probably the more important thing is like the the magnet that that the types of folks at that attracts are radically different right um and especially on the margin so say differently who you let in is a lot different so who you let into an academic environment is usually dictated by what was your GPA what was your standardized test score how much can you pay who your parents who your letters recommendation coming from i don't care about any of that stuff you don't need a super high GPA you can't be an idiot but if you work hard you can actually overcome some of that you know and what we care about is if you're gonna be engaged so uh and do you really know what you're getting into yeah so so someone on our team has an info session almost every Friday morning and on that info session we say here are the stats here's stuff and here's what we cover don't take any of our classes because someone else got something good out of it out of it and by the way all 20 or so of us that pitch end to teach in this class we're all working in our industry most of us have families this is all of our free time if you're getting our free time or we're investing our free time we expect you to do the same and if you don't want to that's totally fine no it's it's it's all good we still want to be friends you come to have new hours all this stuff but you're not taking the class and then if they say we have a pledge that everybody has a sign at the beginning and and if they say they're willing to do that and they didn't uh we just don't amount you know and that is those can lead to some tough conversations but man I have been so blown away by just making sure you started the beginning in the right place and just make sure everybody's rowing in the same direction the same pace it just changes the game so radically and you just can't do that in a higher ed setting then imagine if a professor said they're five of you that are really badass and i want to throw everybody out of the class like that be horrible it's not what they're there for either right now they're to to really cast a broader net and i i could argue that some schools aren't doing that which also makes me proud of what what schools like s_m_ you're doing but with this is just totally different you know so the there are four or five different kinds of people that i think it found some value in what we're doing uh i think we'll be able to expand that because i always have focused on higher quality and lower cost you know and now it's so easy now because you kind of show up and teach so you're able to generate some more content for a while nights and weekends and that's pretty awesome you know and and so just super focused on lowering the cost and increasing the the the quality um but of those five different kinds of people that take the class and you know we'll have a college senior in a 70-year-old you know we've had right now we have the head of research at one of the largest uh investment banks on Wall Street that covers CBS like in in our class and we've got a college junior you know and they're both they could be in the same group because they both know you got to run hard you know and and everybody in between and so we've had tenant reps that when Randy and Craig and those guys at stream left uh kushman and mood over to stream i think Randy said something like i didn't know how to value a building you know so they took the class and and we just get all all over the map and we're so proud of some of the folks that have come through there and it's cool to see them but um they're all over the map it's just a fun magnet to be a part of yeah well that's awesome well James thanks so much for making time for this yeah really really enjoyed it yeah i had to say one thing for you close out too just that i've said this to you privately but i really mean it publicly it was just like what you're doing is so valuable and i don't it's hard because i i knew you before i knew you because i followed all your stuff and then we got to know each other and i legitimately think you're the nicest person in our industry and truly seeking the answers and not just like what your your book is people say you're always pitching your book i our industry is awesome but it would be even better if there were more people like you out there so i appreciate i really meant what i said earlier i don't know how you do it by yourself like doing so much that put out content but i literally check every post i literally read every post and i'm not the only one so thanks for doing that i've listened to this podcast every time and i really appreciate you inviting me it's awesome well thank you James you're very kind of say that and i certainly think the world of you so i'm grateful for your time appreciate that and that's a wrap episode number 38 of the rent roll big thanks to James for visiting with us in studio and for his candor and his story and his passion and thank you to jp i to waymaker to foxon and the guarantors for sponsoring this episode and thank you all of you for spending part of your day with us see you next week