00:00
yeah anton glad to be here yeah great to
00:02
have you on why don’t you give us a
00:04
brief background about yourself as well
00:06
as uh
00:08
the role you play uh with co-star i
00:10
think we know nobody needs introduction
00:13
to to co-star who is active in the
00:15
multi-family space but maybe you can
00:18
give us a little bit more background of
00:20
what you’re doing uh with them
00:22
sure so i’ll just mention that co-star
00:24
advisory services is a division within
00:26
co-star
00:27
that focuses on as the name implies
00:29
advisory services especially for
00:31
institutional clients
00:33
um so myself and my team
00:35
provide additional market information
00:38
and market intelligence
00:40
for
00:40
some of the larger clients that the
00:42
co-star serves and i myself as as you
00:45
mentioned do tend to focus on the
00:46
multi-family space
00:48
um i’ve been with costar for a little
00:50
over eight years now um most of that
00:52
with uh with advisory services and uh
00:55
our our team has um quite a wealth of
00:58
experience with
00:59
uh
01:00
the as i say the market intelligence
01:03
aspect of uh of costar’s uh offerings
01:06
yeah that’s uh that’s great uh we we
01:09
subscribe to uh do co-star and obviously
01:12
the information that
01:15
that co-star provides is just
01:17
absolutely massive right so there is
01:19
always some criticism that some of the
01:22
data is
01:23
is not completely accurate well that’s
01:26
that’s uh always a challenge with all
01:28
data that is being collected on an
01:30
ongoing basis right but uh
01:33
i would say for of all the services that
01:36
are out there the amount of information
01:38
that co-star provides us
01:40
is only second to none and i personally
01:44
also uh really
01:46
appreciate all the the market reports
01:49
and studies
01:50
of inside from individuals like you and
01:53
from teams like you because
01:55
it’s impossible for us to really monitor
01:58
every single market
02:00
and that’s where i think
02:02
that your value is is is extremely
02:07
extremely important right to
02:10
for for everyone who who is in that in
02:12
that space so really appreciate that
02:16
now
02:17
andrew everyone is
02:20
still has koei 19
02:22
on their mind in some markets like texas
02:25
where i am based
02:27
it’s it appears that
02:29
most people
02:30
have come back to to their own
02:34
life as as normal as possible while in
02:37
other parts of the country it still
02:39
feels more like a lockdown situation
02:43
uh so kobe 19 is certainly still
02:46
with us in
02:48
in one form or another
02:50
uh but i think we certainly have seen
02:52
some signs of recovery
02:54
uh so
02:56
it certainly would be helpful for our
02:58
listeners to hear what you have been
03:00
seeing depending on the market where
03:02
where you have seen recoveries where you
03:04
still see some some struggles in the
03:06
marketplace
03:08
so we’ve we’ve seen recoveries nearly
03:10
everywhere um the question is uh
03:13
the question is less is the market
03:15
recovering and more how much does it
03:17
have to recover so for instance in
03:19
dallas um i suspect that the
03:22
i knew it was closed recently but i
03:24
suspect that the um
03:26
the peak rent uh level has been re
03:29
has been reached again um in downtowns
03:31
whereas in san francisco um
03:34
downtown san francisco suffered
03:35
somewhere on the order of a 15 rent loss
03:38
um in multifamily so that is going to be
03:41
a challenge to recover from
03:43
um
03:44
and it is
03:45
you know there are vast geographical
03:47
differences uh so
03:49
as you mentioned those southeastern
03:51
states uh have tended to be less
03:53
restricted um and they so they they did
03:56
suffer less of losses um but those were
03:59
also growth markets to begin with so
04:02
outside of kovid i still would have been
04:05
recommending uh you know charlotte and
04:07
raleigh and ass and austin um and indeed
04:10
i was you know a a year and a half ago
04:13
because those those markets are such
04:15
strong growth markets that uh even in
04:17
the even in the face of economic
04:20
weakness you would expect them to
04:22
outperform
04:23
um
04:24
that that’s not to say that the north
04:26
that’s not to say that uh the northern
04:28
and midwestern markets are dead um as i
04:31
said they’re coming back um the uh we’ve
04:34
gotten enormous rent growth um really
04:37
across the board uh for uh for 2021 so
04:40
far
04:41
and in particular well
04:44
i guess i shouldn’t say in particular
04:45
because uh but
04:47
one of one of the stronger stories is
04:49
the comeback in downtowns uh because
04:51
downtowns were obviously hit extremely
04:53
hard
04:55
but they had the rent growth there right
04:57
now is enormous and the only thing
04:59
that’s
05:00
really overshadowing that is the fact
05:02
that uh suburban areas are still
05:04
outperforming that so i i you know i
05:07
said that
05:08
downtowns are
05:09
doing quite well right now
05:11
amazingly suburban areas are still
05:13
outperforming that and i’m speaking
05:15
specifically to multi-family here yeah
05:17
so
05:18
the uh the suburban story has some legs
05:20
it looks like
05:22
that’d be good uh
05:25
obviously
05:26
it’s it’s always probably by property
05:28
but we we know of a situation in austin
05:31
since you mentioned that
05:33
where a tenant
05:36
tried to negotiate renewal uh just a
05:40
month ago
05:41
uh and in in a class a core urban
05:44
building
05:47
and
05:48
that rent or
05:50
last year was
05:52
was around 1700
05:54
and they they were pushing him well
05:57
above the 2000 mark right so
06:00
uh clearly what you’re stating here is
06:02
definitely happening
06:04
in in the markets that have been
06:06
reopening and particularly in markets
06:08
where
06:09
the urban core has always been
06:11
attractive pre-call it already like in a
06:14
place like rally and and
06:17
and austin and some other markets where
06:19
people are just happy to go back in
06:22
right yeah
06:23
yeah
06:24
so just uh a
06:27
couple of days ago or maybe a day ago
06:30
another federal judge
06:32
this time in the district of dc
06:35
ruled that the cdc doesn’t have legal
06:38
authority to ban evictions
06:40
uh how how do you see these these type
06:42
of rules that one and all the rulings
06:45
have an impact really at the national
06:48
level and how quickly that will
06:50
will hopefully positively impact
06:53
landlords
06:55
right so of course
06:57
i mean we know from
06:58
numerous stories that that landlord’s
07:00
hands have been tied by these uh by
07:02
these eviction um pauses uh and of
07:05
course
07:06
there is some you know there is a
07:07
balance out there when when um
07:10
when the government
07:11
uh basically mandates
07:14
not directly of course but indirectly
07:16
mandated massive job losses
07:19
um
07:20
they do have a responsibility to those
07:22
people who suffer those job losses but
07:24
what they didn’t where they didn’t pick
07:26
up the slack and this is of course the
07:28
complaint of landlords um which is i
07:30
believe is valid uh where they didn’t
07:32
pick up the slack is that uh that then
07:34
has a ripple effect on landlords and and
07:36
that of course was not addressed
07:39
um so from that perspective of course uh
07:42
you know these these event those
07:44
eviction um holds have taken a large
07:47
toll um
07:49
when we look at where rent growth has
07:51
been was historically versus where it is
07:54
now
07:55
uh what we refer to as one and two star
07:57
at costar but might be safely referred
08:00
to as class c
08:01
uh
08:02
that segment of the market always
08:04
outperformed on rent growth and it’s not
08:07
it’s not really because you know there
08:08
were stronger income gains or anything
08:10
in that segment it’s really about supply
08:12
there was virtually no supply coming
08:14
into class c whereas class a suffers you
08:16
know enormous supply growth um every
08:18
year so the rent the rent gains tend to
08:20
be worse there now
08:22
i bring this up because class c has been
08:24
underperforming uh for
08:27
oh six months now
08:29
something on that on that measure
08:31
and while stimulus payments certainly
08:33
helped there uh the fact that class c is
08:36
now underperforming especially classy is
08:37
underperforming by quite a lot uh
08:40
indicates to me that
08:42
some some of that some of that weakness
08:44
is probably due to these uh eviction
08:47
moratoria so as you see that lifted i
08:49
would expect
08:50
um i would expect class c to regain some
08:54
of its pricing pressure because one of
08:57
the key
08:58
aspects that we you know that we kind of
09:00
built our our story on for the last 10
09:02
years is that america is under housed
09:06
and varying people will come out with
09:08
varying figures uh freddie says about
09:11
3.8 at freddy max is about 3.8 million
09:13
um
09:14
my team says about 2.1 million it it
09:17
doesn’t you know the point is that
09:19
there’s there’s this uh under supply and
09:22
that under supply is especially
09:25
especially hard in the affordable
09:27
segment of the marketplace
09:29
so that does give that does tend to give
09:31
landlords in the affordable segment more
09:33
pricing power because it’s very
09:34
difficult to build into that that
09:37
segment we more so see
09:39
how uh see housing slide down into that
09:42
segment as new stuff hits the top
09:45
yeah very good point right and obviously
09:48
the
09:49
the lack of supply or the delay in
09:52
supply on the single family sites
09:55
particularly in the affordable space
09:58
benefits the the workforce housing
10:00
including c-class base on the
10:02
multi-family side
10:04
uh because there is just not enough
10:06
supply whether it’s single family or
10:09
whether it’s multi-family
10:11
uh
10:12
my concern really is more for landlords
10:15
yes you can push rents yes you can fill
10:17
the property but do you
10:19
uh are your tenants still able to afford
10:22
uh the higher rents right and
10:25
uh i think we just haven’t seen wage
10:28
growth yet that that really
10:30
can support all the rent increases so
10:33
that from my perspective that will be
10:35
interesting to see how
10:37
how that will uh will turn out right
10:40
right
10:41
i think overall i think
10:44
we solely can all agree that there is a
10:47
massive housing shortage right
10:50
and the question is and that brings me
10:53
to another point when it comes to
10:55
construction with
10:56
labor shortage with a material shortage
11:01
what can be done to really
11:04
fix that affordable housing
11:08
situation right
11:10
the government has has all the various
11:12
programs like the the light tech
11:14
programs and all that but that’s really
11:17
a drop in the bucket
11:19
uh it’s a it’s a niche market for niche
11:22
players
11:23
what really should happen in ideal world
11:27
is that anyone can build market rate
11:30
properties
11:32
that really can provide affordable
11:34
housing but it seems that that is just
11:38
not doable at this moment so what this
11:41
what is your take on that
11:44
there’s a lot you know there’s kind of a
11:46
lot to unpack there right uh but
11:49
on the one hand um
11:52
so my perspective is that i i don’t
11:55
think that under the current uh
11:58
the current regime i guess you can’t
12:02
close that shortfall um without federal
12:05
dollars or or
12:07
governmental dollars i mean you know you
12:09
talked about lie tech and i i believe
12:11
that the um
12:13
the current administration is looking at
12:14
uh funding section eight a lot more um
12:18
those those dollars may or may not
12:20
appear right but uh either way
12:23
um as i say the cur the way that the
12:26
system’s kind of set up right now uh
12:28
it’s very tough to build
12:32
middle market
12:33
uh
12:34
middle market units that
12:37
will be profitable
12:38
um and so that’s that’s where that you
12:40
know that’s where those federal dollars
12:41
bridging the gap helps um
12:44
theoretically if there was a kind of
12:46
regime change at the local level or the
12:48
state level
12:50
theoretically you could see this open up
12:51
so i you know i’m
12:53
i’m up in boston um where we have
12:56
enormous you know very high
12:58
uh housing costs um and it’s it’s pretty
13:01
evident to me that the demand is there
13:04
to uh densify
13:06
some of the the areas surrounding boston
13:09
um but the uh the political will is not
13:12
um and what i mean by that of course is
13:14
that the the local um the local
13:17
constituencies are not interested in
13:18
seeing any new construction
13:20
um so i think that that’s uh i think
13:22
that’s a big
13:24
break
13:25
on um
13:27
on this new construction it’s part of as
13:29
i say it’s part of why
13:31
you have to have that subsidy to bridge
13:33
the gap because when the additional
13:36
costs to
13:37
building a new unit uh get inflated by
13:41
basically uh regulatory and and um
13:44
it’s not even it’s not even really
13:45
regulatory but basically zoning boards
13:47
um uh holding up the process
13:50
um
13:51
that’s you know that’s in my opinion
13:53
that’s a big part of the problem
13:55
because i do think that for instance
13:57
boston could house quite a lot more
14:00
people um if uh
14:02
if some of those
14:04
um holds were removed
14:06
yeah that’s a it’s an excellent point
14:08
right
14:10
i talked to a developer on the other
14:12
side of the the country in uh in the sa
14:15
in the bay area
14:17
and uh they’ve they are building
14:20
in the bay area as well as a
14:23
further out right obviously they’re
14:25
locking also sacramento now the the
14:27
central valley and all that and it’s
14:30
really a tale of two worlds there where
14:33
the construction cost
14:36
in terms of labor
14:38
in terms of material cost is so
14:40
outrageously high
14:43
in the bay area that it’s virtually
14:46
impossible for them to build anything i
14:48
mean they
14:49
they even have a
14:51
or challenge to build luxury buildings
14:54
at this point
14:55
uh never mind to even think about
14:58
building anything that is affordable
15:00
right and it’s
15:01
it’s what you brought up is really
15:03
important right it’s not just
15:05
federal money that i i agree that there
15:07
needs to be some form of of support
15:10
there but it’s also at uh at the state
15:13
and local level
15:15
where very often the the biggest impact
15:18
is when it comes to the overall
15:20
construction cost right and time right
15:23
yeah it’s especially time right and yeah
15:26
time is money but yeah yeah
15:28
yeah
15:29
so when we talk about the construction
15:32
right in gateway cities like a lot of
15:36
some of the east coast cities and west
15:38
coast cities and the major msas and and
15:42
the the suburban markets that have been
15:45
booming uh where do you very have you
15:48
seen how construction has been evolving
15:50
over the last year with kobe 19. so uh
15:54
if you look in at where we’re measuring
15:57
starts um one thing that’s of
16:00
one thing that’s of interest to me is
16:02
that uh the share of starts that have
16:05
been hitting downtowns has not really
16:07
moved downward so despite this
16:09
these huge losses and rents developers
16:12
are still willing to go into downtowns
16:14
but
16:15
i quote that number at a national level
16:17
so when you go in and you look at
16:19
where the
16:21
where the markets there that are driving
16:22
those continued starts in downtowns it’s
16:24
no longer san francisco and new york in
16:26
fact they had huge drop-offs in in their
16:29
uh number of starts
16:31
in downtowns especially um and it’s it
16:34
is shifting again towards the southern
16:36
and uh
16:37
let’s say mountain west markets i’m
16:39
trying to include phoenix and denver
16:40
there
16:41
um
16:43
so those uh
16:45
those do come to so i’m you know i
16:47
mentioned kind of the regulatory uh the
16:50
regulatory environment for building
16:53
um
16:54
especially in gateway markets and that’s
16:56
that’s obviously very tough but beyond
16:58
that you also have the regulatory
17:01
environment
17:02
and the cost environment
17:04
uh for businesses uh so
17:08
it’s
17:09
it
17:10
it’s tough of course to think of the
17:11
economy as a zero-sum game right it’s
17:13
always growing but so far as the states
17:15
go
17:16
um we do we do kind of have to think of
17:18
that as a zero-sum game because places
17:21
like texas and
17:22
atlanta although they are
17:24
growing of their own accord
17:27
they are also growing because they’re
17:29
able to offer a better business
17:31
environment
17:32
um for uh businesses that are currently
17:35
located in the northeast or the west
17:38
and we talk about the so-called texas um
17:42
from cal from california to texas
17:44
especially of tech firms and uh
17:46
there’s something to it it’s it’s
17:48
it didn’t
17:50
somebody didn’t just make that up
17:52
um
17:53
so you do have to think about uh those
17:55
regulatory regulatory environments not
17:57
just from a pure construction standpoint
18:00
but from a business standpoint and i
18:01
think that that helps drive a lot of the
18:03
growth
18:04
um in those in those metros and so even
18:06
you know theoretically even if
18:08
construction was as tough in texas as it
18:11
was in in san francisco which obviously
18:13
it’s not it’s not even close um you
18:15
would still see more construction in
18:17
texas just because uh
18:19
because of popular basically population
18:21
and economic growth
18:23
yes
18:24
it’s definitely the case right
18:27
i live north of of of dallas uh
18:30
uh maybe within 10 minutes of where we
18:33
live
18:33
uh toyota
18:35
brought the u.s headquarters here right
18:37
so
18:38
out of california or they had a
18:41
beautiful place in california right so
18:44
it they they only did did it
18:47
not just uh with an overnight decision
18:50
but they deluxed it in a in a very
18:52
detailed fashion apart from the location
18:55
central location the business
18:57
friendliness is definitely a key element
19:00
there and
19:01
if if it’s friendly for businesses then
19:03
it’s friendly for
19:05
uh for everyone else typically right and
19:08
that’s
19:09
that’s definitely what has been driving
19:10
it uh
19:12
so makes makes
19:14
absolutely sense
19:16
uh
19:16
and we we did a we did a short now you
19:18
know small analysis on this which just
19:20
looked at what are the tax costs of
19:22
national you know of every market versus
19:24
what is its growth and as you expect
19:26
there’s a there’s a linear trend um uh
19:29
the less
19:30
tax burden um the higher the the higher
19:32
the uh population and household growth
19:35
over the last 10 years so yes yeah and
19:38
what you have pointed out in
19:39
uh in the gateway cities right where
19:42
there is still some some stress there on
19:45
the construction side uh
19:47
uh we also see that on the financing
19:49
side right so some of the the deals that
19:53
are struggling where they where they had
19:55
to
19:56
to restructure the loans uh were mostly
19:59
in in gateway cities like new york you
20:02
mentioned new york right so
20:04
i mean there were a lot of construction
20:06
projects that were just came to to a
20:09
screeching halt
20:11
and they
20:12
a lot of the developers had to be bailed
20:15
out in one form or another right and i
20:18
think long term it’s it’s i’m
20:21
pretty sure it’s going to work out it’s
20:23
still such a
20:24
dense market where housing is still
20:26
required and people
20:28
uh in a few years will have forgotten
20:31
about all what kobe 19 was about right
20:34
so
20:35
i think i personally still feel it’s
20:37
temporary
20:38
we have had that situation before when
20:41
everyone said it’s the death of the big
20:43
cities and then they all came back right
20:46
yeah
20:47
uh so but who knows right uh so from uh
20:51
what do you see on the institutional
20:53
side when it comes to their decision
20:55
where the bill multifamily obviously the
20:57
supply also on the
20:59
and demand on the single family side has
21:02
a has a big impact on on on the
21:05
overall housing demand so where do you
21:08
see the trend is going where how the
21:10
institutions make decisions in what
21:13
direction to go and what are the markets
21:15
that you’re really focusing on i think
21:18
we all know but
21:19
right
21:21
so you know i i spoke a lot about the
21:23
southern and eastern uh metros but um
21:27
you know you talked about
21:28
new york will be fine and i do think
21:30
that that’s probably the case so i i
21:32
talked about i’m i’m thinking of this
21:33
from a growth perspective right like
21:35
we’re always we’re gonna expect
21:37
charlotte to grow faster than new york
21:38
but
21:40
new york’s you know as i as i kind of uh
21:42
talked about earlier new york’s um
21:46
slow growth is kind of self-imposed um
21:50
there’s still a ton of demand to live in
21:52
new york and of course that’s why rents
21:54
are rents and pricing are so high
21:56
um
21:57
so those yeah uh in general those
22:00
markets will still be you know in in
22:03
decent shape um and we do see uh we do
22:06
still see institutional capital very
22:08
interested in core markets i mean
22:10
now that said
22:12
um
22:13
there’s definitely uh there’s definitely
22:16
some something of a you know there’s
22:18
been a shift going on for for 10 years
22:20
right
22:20
but there’s there’s more interest uh now
22:24
than there had been previously uh in in
22:26
the texas markets in the the florida
22:28
markets um and one thing in particular
22:30
that i we’ve definitely seen is um well
22:34
actually i’ll mention two things i mean
22:36
they’re pretty interrelated first i’ve
22:38
got more questions about single family
22:39
rentals um over the past year than i
22:41
have
22:42
in my entire previous career
22:44
um and second uh we’ve definitely seen
22:47
some more interest in suburban um
22:49
suburban multifamily
22:51
so
22:54
i do think that they’re you know as much
22:56
as as much as we we’ve talked about um
22:58
you know people will forget covet things
23:00
will things will move uh back towards
23:02
normal i do think that there’s some
23:04
marginal
23:05
um marginal changes that are are going
23:07
to be pretty permanent one of them is
23:09
probably work from home um
23:11
now we are in no way i would say uh
23:14
calling for like the death of office the
23:16
death of downtowns
23:18
um the death of office space we’re
23:20
we’re very much uh you know we very much
23:22
think that those things are going to
23:23
come back but we do think that they’ll
23:26
probably come back a little bit less
23:28
than they had than they uh than they
23:30
were previous um so in a let’s say a
23:32
theoretical situation um maybe half of
23:35
the workforce
23:36
like has no work from home right
23:38
but the other half could be working from
23:40
home two or three days a week
23:43
in that scenario what we would expect is
23:46
basically renters not all renters but
23:49
some renters in that scenario
23:51
would be willing to trade a longer
23:53
commute for
23:54
less rent and more space
23:57
so we’ve definitely seen a preference
23:58
for
23:59
two bedrooms over one bedroom
24:01
studios have gone out of style so to
24:04
speak
24:06
and the suburbs of course
24:08
have benefited enormously over the last
24:10
year and actually do continue to benefit
24:12
even though we’ve seen downtown starting
24:14
to come back
24:16
so
24:17
as you if if you expect work from home
24:20
to
24:20
play any meaningful role in the future
24:23
um you would you would probably expect
24:26
the suburbs to uh
24:28
to benefit from that and that’s that’s
24:29
definitely why we’ve seen increased
24:31
interest in those areas
24:33
what about
24:35
secondary and tertiary markets obviously
24:38
it’s always a question of how you define
24:40
exactly secondary and tertiary tertiary
24:42
is probably easier right
24:45
but where do you see how far down that
24:48
ladder or institutionals willing to go
24:51
well how far are they willing to go um
24:54
that’s uh that’s definitely opening up
24:56
as well um
24:57
uh
24:58
it kind of depends so
25:00
when i think of tertiary markets um i
25:02
might i might say something as much as
25:05
like stamford or inland empire um which
25:08
are really pretty big markets
25:11
but we’ve actually we’ve actually seen
25:13
some interest in markets that are even
25:15
smaller than that and you know boise is
25:17
a classic example right boise has been
25:20
very become a very crowded space
25:22
over the last couple of years
25:24
um
25:25
but
25:26
even beyond that um there there are some
25:28
other markets um
25:30
surrounding like let’s say surrounding
25:32
denver or um
25:33
surrounding some of the texas markets
25:35
that uh have drawn some interest
25:37
but for the sake of argument let’s i’ll
25:40
use tertiary in my kind of traditional
25:42
sense which is more like stanford
25:44
um those markets uh those markets have
25:46
done pretty well and we we would kind of
25:48
expect that to continue
25:50
and it’s really based on again that same
25:52
work from home thing that i talked about
25:54
earlier uh so
25:56
stanford of course we do consider and i
25:59
keep going back to it because it is such
26:00
a good example but we do consider its
26:02
own market uh
26:04
but it’s it’s kind of just a suburb of
26:07
new york um
26:08
and that’s that’s what we’ve seen in
26:10
inland empire and you mentioned
26:12
sacramento earlier um that’s that’s
26:14
another one that’s
26:15
kind of gained from the from what we
26:17
might call a super commuter trend even
26:19
if they’re not super commuting yet
26:21
um
26:23
and those are those are markets that we
26:24
do expect to do pretty well in the in
26:26
the future inland empire is a particular
26:28
outlier i mean the the rent growth there
26:30
was
26:31
uh astronomical over the past year uh
26:34
and we are forecasting a pretty good
26:37
you know five years for it
26:39
not least because supply
26:43
there’s virtually no supply there and
26:45
we’ve definitely heard rumblings of
26:46
things getting out of the ground
26:48
or you know people looking to get things
26:50
out of the ground but uh at this time
26:52
there’s virtually no supply uh being
26:54
started so
26:55
that’s that’s a market that we think
26:56
benefits from this yeah i mean it’s one
26:59
of the the few of
27:01
affordable places to live near la right
27:04
so
27:06
there is just no other way there
27:08
but
27:09
also uh i do know what you think about
27:12
tampa right but we have seen a lot of
27:14
institutional players really going very
27:18
aggressive into into that market
27:21
so
27:22
what do you think about when we talk
27:24
about south also florida obviously you
27:26
mentioned atlanta dallas it’s obvious
27:29
phoenix i think is obvious austin
27:32
what about the flor north and florida i
27:35
think miami is it’s its own little world
27:38
uh yeah my miami’s
27:41
miami’s not quite big enough to be what
27:44
we would call a tier one or
27:46
you know primary market but it’s uh
27:49
yeah it it obviously it all has always
27:51
attracted a lot of institutional capital
27:53
right um but yeah i mean florida in and
27:55
of itself is still that enormous growth
27:58
story
27:59
so
28:00
orlando is a market that i might
28:01
highlight here because um
28:05
you know legend hospitality got hit very
28:07
very hard over the last year and what i
28:09
was looking for was
28:11
las vegas and orlando to uh uh to really
28:14
take a nosedive i kind of didn’t
28:17
um
28:18
so the uh
28:20
we’ve always known orlando was a pretty
28:22
good back office market uh as well so
28:25
you know call centers and that sort of
28:26
thing
28:27
have been moved to orlando
28:29
and evidently that was enough to uh that
28:31
was enough to buoy it
28:34
so it uh it continued to experience
28:36
pretty good growth
28:37
um
28:38
you know again it some of it comes down
28:40
to that regulatory environment um and uh
28:43
florida’s obviously been very
28:46
um
28:48
cooperative i guess uh with um
28:52
with business interests um so it does it
28:54
does help drive that growth and
28:57
i guess
28:58
you know just just to mention
29:00
there are sometimes downsides to that um
29:02
it’s it’s not a per you know it’s not a
29:04
perfect environment um we did see of
29:07
course those those big rolling blackouts
29:09
in texas um in january right um that
29:13
that could have been that probably could
29:14
have been avoided with a with a
29:16
different regulatory environment and it
29:17
definitely had an impact on business um
29:19
you know it’s it’s
29:21
this is not without cause you know there
29:23
is something of a trade-off but uh
29:26
overall it does seem to be a net
29:27
positive given
29:29
how people are voting with their feet
29:31
yes uh definitely yeah we we all were
29:34
suffering from that blackout and that
29:36
was definitely not
29:38
pleasant kind of unexpected i i never
29:41
really looked into
29:43
how how that power distribution is
29:45
really
29:47
managed and the individuals that are
29:49
running it i think
29:51
strangely enough a lot of these
29:53
individuals that were on these sports
29:56
had very little background in in power
30:00
uh production
30:01
so i think it was kind of a political
30:04
animal that was just not no one really
30:06
looked at right so it’s interesting that
30:09
in in a in a place like texas that
30:12
actually was possible right so
30:15
uh hopefully it was a wake up call for
30:18
for texas to look at the infrastructure
30:20
right because obviously the
30:22
infrastructure is key to to continuously
30:25
attract businesses yes business
30:28
friendliness is important but the
30:29
infrastructure needs needs to be
30:32
supporting this right
30:35
uh one one other thing uh i think uh
30:39
uh if you can touch on that uh
30:42
and that’s one of the reasons i think by
30:44
a lot of institutions and uh also the
30:47
the middle market investors
30:50
syndicators and so on and private
30:52
individuals have moved
30:54
into secondary and even tertiary markets
30:57
is obviously for the to chase that yield
31:00
that is higher there
31:02
but at the same time you also have seen
31:04
that massive compression not just of cap
31:07
rates overall
31:09
but also
31:10
uh between a b and c class right so we
31:14
have seen
31:15
in some instances where b-class
31:18
properties now
31:20
virtually trade at a-class
31:23
cap rates so what’s your take on that
31:27
yeah and we’ve seen uh we’ve seen
31:28
value-add pricing uh you know compressed
31:30
compared to uh compared to your standard
31:33
core um as well
31:35
uh and our our take is uh
31:39
basically you know one there’s a lot of
31:42
hunger for yield um that’s that’s not
31:45
just reflected in how
31:47
cap rates and pricing are playing out in
31:48
in real estate but it’s also reflected
31:51
in
31:51
the flow of capital into real estate
31:54
right because real estate is
31:55
traditionally an alternative asset um
31:58
and uh it traditionally gets higher
32:00
yields uh
32:02
so
32:03
when yes so i’m just going to bring up
32:05
the pension funds because it’s probably
32:07
it’s probably top of mind anyway um but
32:10
you know the pension funds uh
32:13
in some cases have some gaps to close um
32:16
and some expectations on yield that
32:20
are are tough to hit
32:21
um and so real estate helps them get
32:24
there uh so that
32:26
that helps explain why there’s this this
32:28
shift kind of downward um
32:31
towards the higher yield product
32:33
uh because
32:35
of course those as i say those yields
32:36
are necessary now
32:39
the other thing at play i mentioned that
32:41
that housing you know what we what we
32:43
perceive as a housing shortage um we
32:45
think that’s also having an effect uh
32:47
because
32:48
if you have class b product that um is
32:51
in a cloud you know borderline class a
32:54
location
32:57
there’s there’s still a spread like
32:58
there’s obviously it’s it’s kind of
32:59
closed actually in recent years but
33:01
there’s still a huge spread
33:03
um in rent levels so if you’re able to
33:06
capture even like 10 or 20 percent of
33:08
that by pumping some capital uh you know
33:12
capital value into the um product and
33:15
you’re able to capture some of that
33:16
spread then uh you know you’ve made up a
33:19
lot of ground and
33:20
so that’s why despite the fact that
33:23
pricing is tough in value-add
33:26
there’s definitely still people going
33:27
into it and you know definitely still a
33:29
lot of appetite for it
33:31
because it has that potential
33:33
yeah that’s a very good point right
33:35
obviously
33:36
that’s particularly the case in uh in
33:39
denser areas where you where it’s
33:41
spilled out and
33:44
we talked about new york city and boston
33:46
too right so
33:48
there you you can take a c-class
33:50
building if it’s in the right location
33:52
and make bring it very close to an
33:54
a-class for a city location right so
33:58
i think
33:59
we obviously don’t know how that’s going
34:00
to play out but with the high
34:02
construction cost it wouldn’t surprise
34:04
me
34:05
that some
34:06
some be class properties are being
34:09
brought up to a to a class level in some
34:12
outside of these these gateway cities
34:15
and core cities
34:18
yeah i mean there’s usually some
34:19
structural stuff with with bees that uh
34:21
doesn’t it means that they can’t
34:22
necessarily make it all the way to a so
34:24
they’ll say if you’re able to capture
34:26
some of that spread then just some is
34:28
already makes sense yeah
34:30
very good uh really appreciate uh
34:34
you coming on andrew uh
34:37
i also want to give you a shout out
34:38
before you give our listeners your
34:40
contact details for anyone who wants to
34:42
reach out
34:44
uh you you’ve
34:45
did an article i think it was 2017 a few
34:50
years back yeah gaming shelter right
34:55
we talked specifically about
34:58
market rate affordable housing right so
35:01
that was already several years ago and i
35:04
think that that topic is now
35:07
it was a problem back then now it’s it’s
35:10
almost like a
35:13
topic on fire in comparison to back then
35:15
so it’s only hasn’t been resolved
35:18
uh so you already had that insight back
35:21
then and now we are right in the in the
35:25
middle of that affordability crisis when
35:28
it comes to that
35:30
so
35:31
certainly appreciate that you already
35:33
brought that up the question is what
35:36
what solutions can there be right to
35:39
dissolve it and you already touched on
35:41
it that there is only
35:43
it requires cooperation from uh
35:46
from a federal level but also at
35:49
particularly at local levels to to get
35:51
these
35:52
uh to get affordable housing into place
35:55
right
35:55
yeah
35:56
yeah ultimately um
35:59
and maybe i’m you know maybe i’m taking
36:01
too capitalistic of us of a stance here
36:03
but ultimately i
36:05
would be happy with
36:07
any increase in supply like any amount
36:09
of any amount of supply is is something
36:12
that i think would would help and there
36:14
is a lot of you know
36:16
we’ve obviously seen kind of the
36:19
even you know arguably some of the
36:20
negative effects of gentrification and
36:23
um certainly arguments against that but
36:25
um i think from a pure
36:28
economic perspective
36:30
um any supply anywhere
36:33
is helpful um to affordability and um
36:37
i i
36:38
i i’m i’m happy like i’m i’m i
36:43
as an economist i would be happy to see
36:44
any supply even if it is all luxury
36:47
because as i said that does push things
36:49
kind of down the scale
36:50
um everything’s relative so whatever the
36:53
new stuff is that comes out and whatever
36:55
amenities that has
36:57
um that means that older product uh kind
36:59
of slides down the scale and becomes b
37:02
um and that’s not
37:04
necessarily a great thing for landlords
37:08
but
37:09
sometimes it is um but either way i i
37:13
i do think that that’s um probably the
37:15
biggest piece of the affordability
37:17
puzzle
37:18
yeah that’s a very good point why just
37:20
come up with more supply period
37:23
it’s uh
37:25
um so far you know it’s tough as i said
37:28
it’s very tough to build into
37:30
uh the middle of the market
37:32
and especially right now
37:34
like you could you could talk about i
37:37
mean
37:38
we’ve obviously seen softwood lumber
37:40
prices um get jacked up
37:42
but
37:43
our calculations suggest that
37:45
construction is probably still
37:47
profitable um even if it’s even if it’s
37:49
less so like we wouldn’t expect this to
37:52
uh necessarily slow down uh construction
37:55
uh enormously not and again comes back
37:58
to what is rent growth doing and what is
38:00
pricing doing and i guess i should
38:01
mention that multifamily
38:03
in comparison to some of the other
38:04
product types has done very well um in
38:07
pricing and cap rates
38:08
um so you know
38:11
even though those those even though you
38:13
have those enormous construction cost
38:14
jumps
38:15
um
38:16
there’s definitely still uh a spread
38:19
um between what new product is worth
38:21
basically we believe that construction
38:23
costs are still below
38:24
um replacement cost yeah um
38:27
so
38:28
you know there’s there’s we think that
38:30
there’s still uh room for for more
38:32
supply and uh again a lot of what’s
38:34
constraining it could be um
38:36
it could be more regulatory yeah
38:39
very good uh appreciate all your insight
38:42
andrew it was really a pleasure to have
38:44
you on uh how can our listeners
38:48
reach you
38:49
uh so co-star advisory services does
38:52
have its own uh does have its own
38:54
website and of course i’m on uh linkedin
38:56
um if uh if if you do have some
38:59
follow-up questions um feel free to
39:00
reach out to me there um or again you
39:03
know the co-star advisory uh coaster
39:05
advisory services uh website
39:07
but thanks a lot for having me anthony
39:08
yeah you know great uh again thanks uh
39:11
for being on with us today andrew and
39:13
for all your insight
39:15
no problem bye
