EP#100 James Ray | This Isn't 2008: Distress, NOI, & the Equity Swing

0:00And welcome, welcome. It's the rent roll your podcast on all things rental housing, apartment, sanitary rentals and build to rent. And it's a big day today here at the rent roll. We are on episode 100, the century mark. We made it. And before we get started today, I just want to have a big, big thank you real quick to everybody who's watched or listened or sponsored, mentored me over the past couple of years, as well as everyone who's just given me a kind word of encouragement to keep it going. You know, this podcast has been a lot more work than I thought it'd be, but also a lot more fun and rewarding. I love it. And so big thank you to all of you for making this possible and and add it and giving me the fuel to keep it going and big shout out to our producer, Tyra Lambers, who makes it possible to do this every week. All right, so for episode number 100, we're going to tackle some big questions. So one of which is, is the multi-family and SFR market? Are we headed to another 2008? And obviously, I hope not, but we're going to get some thoughts on that from a guy who remembers that period being in commercial real

1:02estate. Another big question, are we in a new reality where it's all about NOI? Not just appreciation and values. And if so, what does that mean for investors and operators? And also on a related note, are we going to see, are we about to see more institutional investors flipping back into equity strategies after being very focused heavily on debt and private credit over these past few years? And then another big one, is regulatory risk? Is that the biggest risk for rental housing investors going into this next cycle? And if so, how will that impact allocations and strategies for these next few years? So those are the big questions. I think that these are some of the things that will define what this next cycle looks like. And certainly, I don't claim enough all the answers. So I phoned in a friend. He's returning guest of the show. One of the most popular guests we've had on this show in the most watched and listened episodes in our 100 that we've done, he's Mr. James Ray. A managing director at MetLife,

2:04looking at our focused on rental housing. And he's also the co-founder of CR reanalyst, which is a must follow on LinkedIn. And also, CR reanalyst has a fabulous training program for young analysts in the commercial real estate space. So check them out at CR reanalysts. So anyway, James is somebody I deeply respect and admire. And I respect him so much. I'm going to put them in the hot seat today. And we're going to get his take on some of these big questions and what it means for this next cycle. All right, big thank you to our sponsors. First and foremost, to our headline sponsor, JPI, a leading harming developer, the state of purpose to transform building, enhance communities, and improve lives. Check them out at jpi.com. JPI is the cutting edge of some really exciting innovations in apartment development and construction. All right, as always, we're going to pick it off with a section we call here's a chart. And this segment is sponsored by Butterfly MX, installed in over 20,000 buildings with over 100,000 five star reviews. They help boost your

3:04revenue, reduce, reduce costs, and increase resident satisfaction by making property access simple. So see how at Butterfly MX.com. All right, so two charts today to set the stage for our conversation with James. And first, let's do some very basic real estate investing 101. All right, so there are two primary components of the investment return. How investors make money? And it doesn't matter if it's apartments, SFR, whatever it is, there's two primary ways you make money. You got the income return. This is NOI, net operating income. It's a revenue versus expenses. And on the revenue side, of course, the main components for in the rental housing space, you got rent and occupancy. And that's all part of the income return. And there's other things that factor into that, of course, but that's the basics. And then there's also the appreciation return or the capital return. This is the change in valuation. Like if you own a house and tracked, let's say you tracked the the zest amount on your house. And let's assume that was right. That's basically what the appreciation

4:10return is more or less oversimplifying. So we can track income return versus appreciation return via data from the NACREF index, the National Council of Real Estate Investment Fiduciaries. So what they call MPI. And NACREF is a consortium of institutional investors and private equity. And it's they create this investment benchmark through all the data, all the properties that are in the that are owned by their members. And here's what they show for the residential category, which is mostly apartments, but includes SFR and some other niche categories like student. So if you see this chart, the green line shows appreciation return. Blue is an income. Both are annualized here. And look at the peak of this last cycle in 21 and 22. Appreciation return went crazy way, way higher than income return, peak in at 20%. And that was the highest appreciation return since 1979. And it's it's hard to even compare to that because back then NACREF was just getting started. And it was really a very, very tiny data set they had of just a handful of apartment buildings. So

5:16so this is really I think a fairly unprecedented that we had the growth that we did in this period on appreciation. Now at the same time appreciation hit 20% in 2022, income return was much steadier. In fact, it was less than 4% back then. In part due to the time it takes for rent growth to translate to N.O.Y. And obviously, you know, you see asking rents online and you had a line of assume that's rent growth. Well, it takes time as Lisa's turn and then hit the rent role for that really to translate to N.O.Y. And then of course, I don't want to get too deep in the weeds here, but there's also a denominator effect because of the way NACREF calculates income return. It's kind of like a cap rate. But what's let's I won't get too deep into that. But anyway, here's here's where I really want to go that T.Up are conversation with James later on on where the market is headed. Here's the point of all this back then in this last boom period appreciation, the growth and values. That's what drove investment returns, not N.O.Y. And so we saw the big rent growth. Obviously that factors into appreciation, but it was it was the valuation of these properties

6:18that allowed in many cases with your stories about groups that, you know, they bought within eight year hold and sold it to because of they they got to their return target already in terms of valuation. All right, but now it's flipped from 2023 to today, it's income return driving the growth income growth, most recently at 4.2%. Appreciation return went negative in 23 and 24, meaning values went down and hence stabilized. Air F. So have have since stabilized over the past five or six quarters. So here's the question I'm going to ask James later, is this the new normal? Should investors focus strategies around, you know, your investment strategy should be based on finding properties where you can drive N.O.Y. income growth and not depend on appreciation, the growth and values. And it's really kind of a back to the basics strategy, the type of stuff that asset managers and property managers really like to focus on. It's your wheelhouse. You know,

7:19you can't control appreciation. I mean, you obviously have some levers in terms of N.O.Y. But you you can what you're really focused on is improving the N.O.Y. the property. If you do that, then you'll improve your valuation. You're not dependent, I should say, on market growth and valuations. And so again, this is the thing that asset management property managers like to focus on. It's the grind. And I will tell you this guys, if you're an asset manager or a third-party property manager, this is something I think that you should really be aware of and really emphasize to your investment managers, to your clients, to your potential clients, and managing up in this regard, because it's on their minds. And so speak their language in this regard. That, you know, this next cycle is probably going to be more N.O.Y. focused, or at least that's the, even if it's not to be, certainly you should go into it, thinking it will be more conservatively. And so that means it's about execution. And how can you help those investors, those clients? How can you help them better do that? I think that would be an important way to help grow your business and better

8:20serve those clients and investors. All right, one more chart. This one from James and Self, and it covers another topic that we're going to talk about today, equity versus debt. All right, so we've seen institutional investors shifted, obviously toward debt strategy in recent years, private credit, over LP equity investment. There was a shift, a migration capital from equity into debt. And so meaning a lot of investors say they'd rather give you a loan, then give you equity into your deal. And that's created an environment where debt is readily available, refinancing are happening in spades, but property sales are made pretty limited because equity is harder to find. And this chart shows returns for real estate debt funds versus closed-ended equity funds. And you can see that while debt funds have outperformed the past couple of years, the spreads are narrowing. Equity funds are positive again and debt yields are compressing. And so here's our topic for James, with new supply coming back down for apartments in BTR and now fundamentals are improving again. And then plus and top of that, obviously debt yields, I mean, debt's getting more crowded and yields are compressing. So are we about to see more group shifting back toward

9:24equity? And I think you can make a pretty good case for it, but when exactly, I think that's less clear, but we'll talk more about that with James. All right, so that just teeds up our conversation with James more to come on that. But next, it's time for rental housing trivia. All right, today's trivia is presented by Authentic. If your release up has stalled and you not sure where the leak is, Authentic runs monthly property audits that break down your marketing stack, leasing funnel and comms in three weeks. You get a prioritize action plan that your team can execute, head to AuthenticJ.com. So there's a new website, AuthenticJAY.com. You know, they want to make sure that, you know, we get some credit for that. So go ahead and check that out, AuthenticJAY.com and make sure they know you're listening or just Google Authentic multi-family audit. And you should get to the same thing. All right, so it's a straight question. Over the long term, income returns tend to outperform appreciation returns in NACREF's rental housing data.

10:26That's a statement on a question. Here's the question. Using long-term averages since 2000, the last 25 plus years, income has outperformed by what percent? Is it 25 percent better, 50 percent better, 75 percent better, or 100 percent better? So twice as much. How much has income return outperformed appreciation return in the NACREF data in since 2000? So give us some thought. We'll come back to that a bit. But next, it's time for the complaints department. All right. So we brought this back last week. It's a fun one. So we're going to do it again this week. Complaints department is when we read an actual complaint that we get and respond to them. The segment is sponsored by TeleCloud. If increasing NOIs, a priority, your Telecom contracts may be one of the easiest opportunities in your portfolio. TeleCloud helps multifamily asset managers can sell the internet, voice, and dial tone across properties. The average cost reduction is 40 percent. And it's often higher than that. To make it easy,

11:30they'll start with the free Telecom audit to show exactly where savings exist before you make a move. Learn more at TeleCloudMultiSight.com. All right. So for the complaints department this week, I want to share with you what might be the number one most common complaint I get on social media. And I don't think I've ever addressed it here, but I've been here in this complaint for years and years and years. And this being episode 100, I figured it was time to address it. All right. So here's the complaint. And it's a comment from LinkedIn from a post that wrote about rent concessions. And the comment says, it all depends on the local market. National averages are interesting, but irrelevant. A rent in Cincinnati has no interest in the apartment market in two sun. All right. So I get some version of this complaint every week, if not it, or maybe every month. I mean, I get it all the time. And for ever since I've been active on social media, I get people who write this. And I think a lot of researchers can relate to this. It's a very common gripe. And I want to say this, but I think the cynic in me says, like,

12:36why are you even taking the time to comment? If this is an interesting view, if just national or regional, then why are you reading it and engaging with it if it's not that important? Right. But then I think back and I could zoom out a little bit. And I think, you know, number one, you know, I should say number two here is I get it. You know, real estate is local, local, local, absolutely 100%. But that said, you can literally copy paste the same complaint on every article, every post, every commentary, anything about real estate, even in the same MSA, the same city. Because after all, they're renter of a class C building and an affordable part of town. They don't care about trends and expensive class A plus buildings, high rises in the downtown. Even in the same city, every asset is different. Every lease is different. And so you could just lean on that crutch. Well, it all depends on local market for every trend and every story. Sure, I get it. And you should be focused. You should be able to zoom into the

13:36micro. But at the same time, don't miss the bigger picture. There's value in seeing the forest through the trees. You know, obviously, you're not underwriting based on national data. But I think most local investors, even in individual market, they don't fully appreciate that they don't operate in a vacuum. And so it's important understand what's happening in the broader market. And then understand, am I meaningfully different or similar and why? So those things do matter. And I think everybody gets that. But I felt like it was about past time to address the where it depends complaint I get quite often. All right, next up, it's time for good question. All right, this is when we get to address. It's kind of the opposite of the complaints part. And this one we get address a good question posed our way in this segment sponsored by Norsefire. If you've developed anything, you know this one, the forecast and the budget lives in one spreadsheet,

14:38the draw package lives in another. And somebody in your team spends the last week of every month stitching together all that information into a report that's already stale by the time it goes out. Norsefire was built by a real estate developer to end that. One platform for budgets, forecasting, draws, scheduling, and vendors across every project you've got. Norsefire has facilitated more than five billion, five hundred billion dollars of projects. Check them out at Norsefire.com. All right, so today's good question comes via a question I got over LinkedIn about a topic we covered in last week's podcast, MythBusting Rent Affordability. And the context here is we're talking about how incomes are going faster than rents, allowing rent income ratios to improve. And Shane on LinkedIn he asked this question, he said, why wouldn't rents go up to absorb the earnings growth? That's what's happened in high income metros like San Francisco and New York City. And you know, it's a good question and I understand the sentiment of it, but a couple quick thoughts. Number one, affordability is not about the nominal rent level. It's about the rent to income level. What share of income is spent on rent? And this will surprise some folks, but rent income ratios at least in

15:41market rate apartments, look at the reads, look at real-page data, they're not that different in New York versus Houston, even though the rents are very different. The difference is that the rent, the incomes are also significantly higher in a New York versus Houston, but the rent income ratios are actually pretty similar. So here's what's really happening. Number one is the obvious one, supply and demand. That's what sets rents. In more supply constrained markets like New York and San Francisco, rents are higher, so it narrows the rent or pool to higher incomes, which is why supply is always the best remedy for affordability. Number two is just the mechanics of screening. Almost nobody, including mom and pops, is going to lease to renters who are going to spend half their income on rent. You want to ensure people can afford what they're leasing, in the same way that a bank would want to assure that an individual or a business can afford the loan that they're getting. And so basic screening is also going to put a natural constraint on rent income ratios. And so again, they operate in a fairly tight ban, but it's not that just, oh, income growth, therefore we can raise rents. It just comes back to supply and demand,

16:46and then of course the natural constraints of affordability as well through screening. Now, all right, next up, it's time for In The News. This segment is sponsored by the Curriculum Company, celebrating 20 years of helping investors source and sell multi-million assets tailored to their investment strategy. In this week's feature department listing is Fox Run and Doathe, Nalabama, 160 unit apartment community built in 1979, offering potential value add opportunity, current ownership as completed interior upgrades on 137 units is achieving 100 to 170 have dollars, rental premiums across one, two, and three bedroom floor plans, all roofs and windows been replaced of the last 10 years, along with significant exterior improvements. Doathe and serves as a regional employment, healthcare and retail hub for Southeast Alabama, and the market currently has no multi-family units under construction. That limited pipeline stands in contrast to other sub belt markets that are still working through elevated levels of new apartment supply. And of course all that data and

17:49information comes courtesy of the Curriculum Company. So to learn more about Fox Run and other investment opportunities, visit wesellapartments.com, the Curriculum Company, we sell apartments. All right, so two headlines for you this week will do this one pretty quickly. Number one, this one comes from the San Francisco Chronicle. It says with rents, surging, developers, race to build apartments again. And this is talking about the rent boom in San Francisco. And so, you know, I'll tell you again, it's all about supply and demand. When rents were fallen for four plus years through COVID, obviously not not a lot's getting penciled out to build there. Then of course you have the AI boom, you have the city improving its quality of life, and some other factors. And what do you know, demands back, rents go up, and there's very limited supply. Now we're building more again. But unfortunately supply always seems to, just by mechanics of this kind of lag the demand, but it does happen. So here's a market where we actually, I don't think we're going to see a there's a still so a lot of constraints on supply, but we could see more of a pickup here in a market that just didn't get some in the last cycle. All right, the next headline,

18:53this one is it's it's a it comes from the Institute for Fiscal Studies in the United Kingdom. It's an independent research group. And it is yet another study that concludes that guess what, breaking news, rent control still does not work. All right. So I just quickly want to cover this just because again, I think it's worth knowing that these things are out there and there's a lot of it. So this group, again, independent research group in the UK, they write that if the UK adopts more rent controls, then quote, tenants would likely be made worse off by these controls as more tenants start with the fine homes to meet their needs and the quality of rental homes declines. Lower income and lower wealth tenants with less scope to leave their privately rented sector. I'm sorry to leave the private rented sector are likely to be particularly affected. So again, it hurts lower income renters most. And I tell skeptics this all the time, just read the research. Trust the science. You know, right, I get it. Rent control may sound appealing on the surface,

19:54but in the long run, the data don't lie. It just backfires on the very people we're trying to protect lower and middle income renters. All right. Let's get back to today's trivia presented by authentic. The question was over the long term income returns tend to outperform appreciation returns in a creeps residential data using long term averages since 2000 income has outperformed by what percent? The answer is D 100 percent, meaning 2x double annualized income return has on average coming at 5.3 percent, according to the A creeps since 2000, while annualized appreciation return is average at 2.6 percent. So again, roughly double. And if you use media instead of averages, the spreads tighten a little bit, but not that much. Now, of course, the big thing is with appreciation, you can really outperform in the good times, but then the bad times are also pretty rough. A lot more volatility. And so it's about market timing more than anything else. Income is the more

20:55steady variable. All right. Now it's time for today's interview sponsored by Funnel, the CRM and agenteic AI platform trusted by four of the six major reeds whose AI recently beat three major competitors across six independent third party conducted blind studies nearly three and four renters preferred Funnels chat AI and two and three chose their voice AI visit funnelleasing.com to see an action and try it yourself. Okay. So as promised our guest today is a repeat guest. He's also one of the most thoughtful voices in all of commercial real estate. He's a must follow one linked in through the CRE analyst account he co-founded. He's also the managing director at MetLife focused on rental housing James Ray. So let's jump in.

21:56All right. Welcome to the interview portion at stays podcast and I am absolutely honored to welcome back one of our most popular guests of all time in our 100th episode now. So perfect fifth episode 100 Mr. James Ray from MetLife and CRE analyst. So first and foremost James thank you for coming back. I appreciate having you on. I mean thanks for the entry that's pretty flattering and congrats on a hundred episodes. I remember talking to you about when you were thinking about kicking this off and we were chatting about how much work goes into it and it's it's always my first go to every week that lesson too. So it's really it's probably to be able to rejoin. Well thank you James. I appreciate that and it's honor to have you. So for those of you missed that we had a great episode called Caprates or BS and other hot takes. I'm going to come back to some of the least couple of those points. I think are really relevant a year later. But I want to start with this James is something that you know you and I have talked about a lot offline. I'd love to get your thoughts here on the podcast is distress and I've been making the case that distress is real

22:56but it's not systemic. It's concentrated and allowed segment of the market that may look like it's larger than it is. But you know James am I wrong and how do you think about multifamily BTR SFR distress today versus past cycles? My short answer would be no you're not wrong. I mean I view it exactly the same way at least from a framework perspective and it might be worth just taking a real quick tangent or quick ish tangent to explain how I view distress and where that came from because if you rewind almost it's a pretty interesting story. If you rewind almost 20 years ago I get an email really kind of in the middle of the night on a Sunday night at it's like 10 30 11 PM that says be in the office tomorrow morning at 6 30 with a suit on which is not really common and I promise this is going to get to the answer quickly around 6 30 morning whereas suit that's crazy. Also you know I work with some some very serious people we take our jobs very care you know

23:58seriously and try to invest a lot in it and and making good decisions but it wasn't then and isn't certainly now a a suit and tie kind of a place and so that raised some hackles but I got there and basically it's a room full of probably the 10 most senior people in our investments group including our chief investment officer and one other junior guy in the office who was covering CNBS and me who is more from the real estate side and they say look we're we're going to go into the city and sit down with Lehman brothers and and what happened after is is all public because all this came out in the bankruptcy filing but it's relevant to this discussion around distress if you rewind I'm in my mid my mid 20s back then right and you know I guess I thought that I had an idea about what I was doing but I was pretty accurate I think in my my confidence which is what I was not confident in making huge investment decisions right and so I was learning every day I was

25:03learning and and it was obvious to me that there was something much bigger going on and as someone who's really curious you know it this was the ultimate rabbit hole to go down and all I remember from that experience really I mean I remember a lot but but the two most vivid memories that I have from that are as follows one we're going into the city and I'm flipping through the financials that Lehman had released I think a couple months prior and I'm basically just acting like I know what I'm doing we're going into Lehman brothers it's a big deal it's May 2008 and I'm supposed to be looking like I find something you know interesting or whatever in these financials and all I remembered be in a couple years out of an accounting class and business school was you know at least just measure their leverage and what I remember is that it was roughly 30 to one I haven't looked at those financials in 20 years but it's roughly 30 to one levered so from a real estate person's perspective that's a 97% LTV and it invests the bankings much different than than real estate but that's one

26:08so that's I remember that point the second thing I remember very vividly about that experience is is and this is super common so forget about my specific experience at Lehman if you just think about what what happened in those types of environments when an outsider's coming in looking to invest in in a trouble firm they're always going to do the same thing they get you in there they tell you all right folks here's what's happening here's generally the overview of what we do and let's get right to what matters and so let's start looking at our largest investments so we sit down we look at their largest 10 investments which you can see that now all those materials are released because they were talking all kinds of people about that and in my very junior simple mind it was very clear to me that we were looking at distress almost immediately and and the reason for that is we got to like number three or four on the list of their largest investments and they had already cooked through all of the equity of the entire company so was the problem at the sponsor level

27:12the equity investor level yes was the problem at the lender level which was where Lehman was yes or was the problem at the systemic level in the answer to that was yes right so I do think it's really important to just define what do we mean by distress because what I find is that a lot of times when you end up going in circles it's because one person is talking about systemic distress and the other is talking about sponsor level distress right now you have you certainly have sponsor distress there's chatter around lender problems I wouldn't call it distress but that you know over long periods of time you have defaults right sometimes you get surprises I think the issue that certainly creates more issues because lenders don't like losing money that's not what they sign up to do they're very risk averse but the real problems come when it's when it's seismic right earthquake like and it through that I just think that I mean at least for me personally that experience was so lasting right I mean we spent a couple months there and I think about it all the time and I've

28:16not had to go back and re-study that to for it to really anchor my thoughts on distress and so I don't know if that's helpful at all but that's the way I think about it and I think you're right that that we don't have the the systemic type distress I don't believe I don't see signs of that their firms are not you know taking those types of risks regularly because the real issue there wasn't just that Lehman was doing it was more the rule than the exception right there were lots of firms taking that kind of risk and we just don't see that there were a lot a lot of people that have been trying to prevent that for 20 years and so I don't you know I look I I came out of that humbled where I would never say never but I just don't see systemic type issues there I think the real you know the the sponsor side is the painful part right you know there are folks who took a lot of risk absolutely heading into this part of the cycle and you and I know them and and you know it's

29:18not like it's totally concentrated and they just one or two names but that's difficult and challenging for folks but you know when equity people lose money that's part of the system you know you're making a bet and all of us make bets it's it's when you go beyond that that things get really problematic and that's usually what I think of is distress yeah so just summarize then you don't see a systemic issue and I love every time about the great financial crisis 2008 because a lot of people just throw around these comparison points kind of you know Willie Nilly you have a good point like it's nothing like that if we're being honest for rare themselves but at the same time there are real pockets I'm hearing you say yeah definitely and look I would you know one of the pockets is you and I focus 100% of our energy and efforts and housing right I mean and so one of the benefits of housing is everybody needs a place to live as many people say the other side to that is our income yields have been relatively low and they got really really low and so we just

30:19haven't had as much margin as others to absorb those interest rate increases which I think shocked a lot of folks or at least some folks and you know people are adjusting to that yeah no as well said I think you're also good distinction on time sponsor distress versus like you know actual distress which typically just to associate more with lender distress so that least you talked about you kind of led me to this next question which is that fundamentals seem to be improving supplies coming down particularly in every start on rental housing apartments in particular but it's also through the BTR vacancies started to improve rents are not booming by any means but they're incrementally getting better but we're still seeing and hearing that equity capital seems to be on ice and I think one part of this story is it's so much this last cycle and pre-COVID was about appreciation versus NOI are we entering into a cycle where now NOI matters more than appreciation and if so how does that change how investors think about these sectors yeah that's a really good point and I think it kind

31:24of gets back to I think about this question all the time and and you know everyone knows the quintessential acquisitions person who just says you make all your money on the buy and then compare that to the quintessential asset manager he says no you make all your money on the improvement of NOI right I suppose that neither of them is is totally right or wrong but I would bet if you could put a fly in the wall of every investment committee in the country that you adhere more asset management like talk than making your money on the buy right look the purchase price still matters but there even though transaction activities have rebounded a bit it you know we're not back to where we were right so most of the things I think that that most investors are working with is how do we drive value through NOI and even when we care so much about purchase prices and what we you know buy an asset for invest in an asset at and what development basis or what have you it really is is there's a lot of conversation to focus on NOI creation and part

32:30of that just because I mean I think that this is I've seen other people talk about this and write about it there's just a massive dispersion around who's getting that growth and who isn't you know and where there is sort of fat to chip away at and where there isn't look from my perspective um it that's is sort of the fun part of our business right um I I I enjoy that part a lot and just I'm talking personally um it's it's uh for someone who likes our business and like showing up and doing that that kind of stuff I think that's that's the name of the game and and I think that's what people um you know if I were going to invest in someone and I'm not selling anything um but if I were going to invest in someone I really want to hear that you have some sort of operational thesis and an ability to execute and I think it's a race to figure out who has the the strongest muscles to be able to do that yeah so well said I think particularly around this next cycle is more operational than just the you know fix it flip it uh kind of strategy where you're going to have

33:32to find other things to do to move the needle on NOI growth um and that it always me obviously saw a lot in the sunbelt so I want to get you know I want to come back more to the um equity took topic in a moment but I'm talking about the sunbelt for a moment obviously been beat up by supply uh both for apartments in BTR plus you have shadow supply from on pop sing-a-flang rentals uh but now we're seeing green shoots still aways every time I say there's recovery in the sunbell people get some people get really upset at me it's like no it's still weak and I get it it's still weak but it's it's showing some improvement so with that incremental improvement we're seeing uh what are you hearing from institutional cat or how do you think institutional capital is seeing the sunbelt right now and and it's specifically how are they thinking about when is it time to come back in yeah okay so I I wouldn't pretend to speak for all institutional investors or even my own firm right because I think if you asked ten different people in the institutional investment space you're probably going to get four or five different answers at least yeah um but one thing that's probably worth saying is I don't generally think that they make allocations to certain regions

34:40it's more tactical responses you know allocations are generally made with them buckets like multifamily you all have this percentage of the portfolio uh and we we try to target x y and z and within those targets people are are trying to deploy capital in certain markets therefore it becomes more uh uh a daily weekly monthly reaction right where do people see um green shoots as you say emerging um the second thing I would say is just from my perspective I tend it's not it's not it's not the case that I don't track or believe in mature level regional level national level kpi's I do I mean you you talk as much as anyone about those and I read every post you make you know and really dive into it um but I typically don't or frankly I never make an investment based on that right when I make an investment and I think this is true for most folks um it's it's all about bottom up right and and I promise I think this is answering your question um is

35:44is the sunbelt recovering um from a regional perspective or super regional perspective I guess if you're looking at the smile states I don't know but what I could tell you from what I see from others even if you just separate what I see personally um the folks who focus on individual assets and their piercets are seeing some progress and it was anecdotal at first like maybe one or two here of a friend and phoenix who found a property that's doing a little better um and now it's it's much more than one or two you will see if that's a theme but then you look at the broader stats and you see the same thing right you see that absorption is actually flipping um I the thing that scares me a little bit is I I deliberately don't ever want to be kpi driven because by definition you're following and uh even though our markets inefficient man there's a lot of information flowing around people talk you know and and those inefficiencies get get bid down really really quickly um and so it's not to

36:48say that I want to to pioneer you know I feel like I generally that's not the Zarm I marching orders is to pioneer anything or be the tip of the spear but I do think you got to be paying attention and and um I would rather feed into those kpi's then then you know use those to make go no go decisions um but my bet would be just anecdotally my bet would be that a year from now um you know and you're hundred and fifty at the episode or something that you look back and you say wow the sunbells do them pretty well you know um it's amazing how much things can change in a year like can you imagine a year ago honest question can you imagine a year ago thinking that Oakland San Francisco is the best multi-family market in the country like what I mean what would you have said the probability of that is you know a year ago well a year ago I would have said that but to bid your point though like 18 months ago maybe 24 then definitely would not have I would have thought that were pretty low but yeah with something terms I tell you the same thing awesome by the way like yeah turns on and

37:48like it turns you know it's uh it's it's it's it's those kind of markets they don't they don't tend to just plow around the national averages for a long period of time yeah if you think about our research friends right who who you're really closely with I know that that you can put that background into a certain extent I do as well that was really one of my first jobs in the industry as a as a researcher we didn't produce or I have never seen a researcher produce a line that predicts 10% rent growth a year in anything a sub market a pure set uh I'm certainly not a market but how many times have we actually seen that you actually see it almost in every upturn in those pocket in the good pockets of the of the sunbelt right um I haven't gone back and measured that across a market but I'm certain that that that folks have seen it right the double digit rent increases on more than a couple of occasions you just can't project that right and so that's kind of a good example of that I just serious what would have been it what would have been is it is the reason you uh on San Francisco was it because a year ago we kind of knew that

38:50AI was picking up and then 18 months ago we didn't no I was gonna say I think that San Francisco when you look back on it it turned in the late 24 and then I remember going to we had you a lie there and it was very clear the energy has come back we saw the yeah the numbers there's no supply that I didn't think it'd be 14% or whatever is now but it just it seemed like there was a maybe at the time whether it was a dead cat bounce or just a resurgence something was happening and clearly it was more of a resurgence than a dead cat bounce but it it had been beat up for so long that you know it could only go wonder I only go up at a certain point of time right but would you bet would you bet this is totally off-script but would you bet DC or sunbelt in a year a year from now and you're 150 at that episode will you do you think that the surprise will be the sunbelt or markets like DC I think it'll be certain sunbelt markets I don't think it'll be across the board but I like I say I think Austin will be similar to San Francisco where everyone sort of gives up on it and then they sort of forget that Austin is gonna is volatile it's gonna be negative six or plus six for the given right and so I think I think it'll be markets like that and I think

39:55a DC it's more just getting its groove back of being a steady Eddie market myself yeah I think look this is is one of the least popular points I think about housing investing is that household formations drive so much of it and you know they're not totally unpredictable but they're not totally tied to population growth and they can it can be very fickle and sometimes driven by immigration a lot of times driven by immigration right and so um those markets that tend to get a lot more household formations for whatever set of reasons tend to be more resilient right even though they can get hit hard um you know they do I think you're right you look back historically and man they can absorb a lot you know I'm not saying that it always has to be that way but it might be hard to just roll up and leave these markets that have that growth and that's kind of my point there I think if you look historically at low supplied environments when there's not a recession you know the sunbelt tends to be the top the leaderboard or on the leaderboard in in terms of you know uh uh rent growth type metrics and so I think we'll uh I would unless there's any kind of pull

41:01back a major pullback in the economy I I think we'll be back to which is which and the the way that we see that is household formations right so when there's a giant pullback and you have a recession I mean that's what we have not had in the long time where you really get that shift that that could be you know obviously something to watch um and you don't want to be exposed yeah yeah and and I've helped you all the time I think the the demand absorption numbers have been remarkably resilient considering some of these headwinds and so I don't think you need crazy absorption but you do need to have you know some continued solid absorption to can to to persist in order to get uh some some some good rent growth next year yeah for what it's worth I kind of do a back the AI is actually helped with this a lot but I kind of do just a back of the envelope my own yes there are forecasts but no encounter on it I don't count on it it's really just I just have to I talk all the time about frameworks and how I try to be framework oriented and and I've put together a couple things that

42:01and and really they're not even meant to be super statistical they are but it's it's I'll make adjustments just to make adjustments right and what I basically try to do is make those household formation calls like where do I think there'll be more or less and I've started doing that even beyond household formations and do an office and some other sectors just trying to predict rent growth and seeing what you it's just kind of a fun thing for me to do well man and man where I have missed is is household formations leading to absorption I have meaningfully underestimated how fast absorption has come back yeah and some of the early stats that are coming back you know which I know the you were you were much more accurate uh in that way you were calling that in some key markets I think um and I will say even I under I was bullish yes but I would I underestimated I would not have said the first half of this year we'll see almost no job growth and still see the you know third or fourth best year for an absorption for the first half of the year like that I didn't see that coming yeah that's wild I mean it because all my things are driven by job growth right and on job growth and house formation and uh yeah in a one percent job growth kind of thing

43:07or lower even yeah I just the likelihood of that happening is is low you know which I think just speaks the differences between markets yeah and by the way for those less than that's even with the lack of moveouts home purchase because that's not driving a household formation a lack of a home purchase does not drive more people to form a household and rent it to just keep people renting longer right all right so James I want to get back to the capital type we you mentioned this briefly earlier I want to come back I'm sorry equity capital uh because I think this is another big one in fact this is one of the you you our first conversation somebody great nuggets from this but one of things that stuck with me is this beautiful analogy made about a sailboat and we're talking about at that time there's a shift in capital a shift from capital I've institutional capital going from equity to debt um and you muse the sailboat analogy to make the point it all out of capital would eventually swing back and balance out the boat and so today we're in environment obviously your growth is pretty much clear but certainly now we could definitely say like debt is widely available I mean everyone will say I could get alone equity is much harder to find so now we're seeing that's

44:10that's played out and you've called this debt yields are compressing fundamentals are improving and so the big question sure everybody listening wants to know is are we about to see a migration back into LP equity well the hard thing is I don't know what about means right so I think that the the analogy that tortured a little bit but I think it does hold at least in my own mind right so it's a rewind a sailboat you know you get a big gust of wind if you if you've never been sailing you get a sailboat the first time the wind hits you think you're gonna tip over um most likely you're not right the boat is literally designed to not tip over and so much so that once you start going really fast it will it will balance itself out right and and it'll slow itself down and in part by coming off the wind right and so um I think the point there holds I just think it's boring right so are we about to is equity about to come back in that part I don't know but it's just a boring I think two things are going on there number one it's just boring when things change

45:13quarter over quarter as opposed to week over week right and two no matter how fast they change or what what that nominal changes it feels crappy when when your basis was at a three and a half right so it almost and I think those two things are are happening at once first of all it's just yes we're certainly I mean you just see it as clear as day right like and to your point exactly um a lot of people step up and they say why would I invest in equity when I can get equity like returns in the debt space well that's a pretty complicated proposal but set it aside but sure you can get a headline number you know whatever it is you think you can leopard up and get a nine or ten why invest in equity at six when I can go invest in debt at a nine or ten I'm making those numbers up so a lot of capital has stepped into the debt space but there are a lot of things that we weren't talking about a year or two ago uh with their

46:14expected debt right um special servicing rates being really high um private credit and also if you just think about that just spreads being lower right spread so compressed now it's being complicated because the base rates have come up quite a bit in the last couple of months but if you if you just benchmarked it to 90 days ago um you know you saw a really meaningful move in that market so the the returns that debt investors were getting were coming down and there are a couple other things that sort of chip away at them over time and then on the equity side I think things are firming the the best things that are firming your number one the prices have come down whether you like it or not and then the other opportunity as you go right back to NOI growth I think folks I'm not you know sharing any inside information here I think folks are more bullish on the fundamentals yeah and how do I know that because transaction activity has rebounded right so we're not back to where we were I don't man I think it's going to be many many years before we get back to that I mean it wouldn't surprise me if we haven't gotten there in 10 years but um but

47:18truly but that would be an interesting bet for us to make but um but the transaction activity is sort of rebounded to pre-COVID levels which just tells me that equity is is at least selectively it's it's back you know and there's a lot going on it's just not there's not some great headline there when you say oh congratulations we've gotten back to 2019 transaction levels and you still there's stuff with this property that you're trying to work through you know that doesn't feel as good yeah and I think there's some new one there too which is that so much this 21.22 peak in volumes was driven by capital that's going to be sidelined for a long time sub institutional syndicator capital uh you know the value add uh type stuff 70s 80s vintage deals like and so I'm more curious about if we strip that stuff out because some of that you know they can't really reinvest until they recycle out of those deals and there's still some stuff to work through obviously you know does do are we getting closer to maybe a you know institutional private equity sort of return to normal at some point I mean I think you are

48:20seeing that you know I I try to stay away from talking about specific names but they're it's not just one group that has like think about it from the peak so whatever you want to call the peak like this call it like July 1 2022 right we're kind of in a new the beginning of a new cycle you've seen several large institutional deals um from opportunistic value add to capital to core plus type stuff and even some core I mean I would call the the big reat merger that you've covered really well you know as core as it gets in some ways yeah um you've seen some really big moves but again it's just you know it doesn't feel it's just not on fire it's not it's not such a trend I just think we're gonna have to get used to that I think we're gonna have on one hand some interesting constructive things happening and on the other hand a fire you know and and the job is trying to avoid the fire and and participate on the other side but uh it's just it's certainly not that fun to talk about absolutely all right let's pivot to singlethine rebellingels and you alluded

49:25to this earlier but uh as you know uh we had uh predium co-presidents even sure on the podcast recently and he made a comment that because of the road to housing act and uh someone in the new restrictions on larger investors we could see more consolidation across the industry and so I guess first and foremost you agree but secondarily uh just I guess more broadly I should say is how do you think allocations toward SFR will be impacted for a typical institution and meaning could we see more capital swing to build to rent multi-family manufactured housing yeah so uh I have a lot of respect for Steven don't know him super well um but uh respect time in their organization I mean but just kind of stepping back and talking about him more globally I think uh there are a couple different angles to that so it's tackling fast I mean number one I just I mean what is consolidation so if if small groups get out of the business or big groups get out of the business is that consolidation I mean I think by definition it is

50:29because those assets had to go somewhere if that counts as consolidation then then certainly you'll see you know we're seeing consolidation I should say right I can't really I don't know what's gonna happen but we're already seeing that I don't think that has as much to do at least from just where I look at it I don't know that to date that has had as much to do with regulation I think it has more to do with returns you know you had if you think about a pretty good business model was just yeah you know I mean I know a few people that rolled out of college and just started buying houses and renting them and they were getting like 25% returns you know um and now the the the the follow-up kids that those kids here graduating doing that are not doing that right why is that they do their pro forma and they get like an 8 to 10% return and I'm just talking about you know anecdotally a couple people who've done that that's a big difference right so I feel like from a return standpoint is probably just not gonna attract the same sort of mass of entrance I do think it's valid though anytime of spaces is quote alternative or emerging or whatever

51:34and then it becomes sort of mainstream there weren't many people focused on this full time 10 years ago much less 20 years ago right and so I think as those people just get more and more focused it gets more nuanced and more regulations and more hurdles to jump over it just becomes harder right it's just it's it's just harder to jump in and kind of figure it out on the fly so in general I think both of those things are probably true yeah I think you'll see some consolidation or based on what we're seeing right now and then and then yes I think you know it's it's harder to break into in some reasons for or in some ways for a number of different reasons yeah at least that's the way I look at just the number of players and then you have to about all the locations yeah all the kitchen is such an interesting topic and it's one that probably doesn't get enough attention in the mainstream and and I think I mentioned I started in research I mean that was a big part of what we were doing right most of the way that you're thinking about

52:36putting out capitol and I'm just talking very broadly um I think the most important thing is that um it's it's a total perspective shift right in the in the day-to-day world that you and I sort of participate in with sponsors and and the players that are making bets every day you know what are they focused on how co- how can I generate a return um well I think when you look at it from an allocation standpoint you're actually kind of thinking about it the opposite direction which is um I can't really generate a return is is sort of what modern portfolio theory type stuff would tell you right it's like I can pick the risk that I want and for that level of risk then I can get the the level of return right I'm not trying to be overly simple but that is the way that you think about it from an allocation standpoint then it's all about defining your risks like what are the risks and then how much do I want to take balancing off risk return and correlations between assets right so that's that's the allocation game and so I think you have a

53:38couple as a back you know with that is a backstop to answer your question I think you have a couple different things going on there and the most important thing is how much risk do people want to take and did they know these risks existed uh in the beginning um speaking for myself I have always been I won't say paranoid but I would say focused on regulation I mean you know this uh others in our industry know this I've been talking with them about it for a very long time it's just almost like this feeling that a piano might fall on your head right and some of that isn't fear most of it's not fear-base it's just that from a real and don't even talk about housing from a real estate standpoint what we're investing in affects people's communities right they're going to care about it um as they should as we should I don't think it it's helpful to just ignore that or act like we operate in a vacuum and so um in in general I try to avoid scenarios where one party wins and the other party loses right and and I think when people feel like they at the same time we can't operate with you know unanimous consent all the time you know you don't go do a pull

54:39on you know what does everybody want to build at this site and and you have to get a hundred percent approval you'd literally never build anything you know and so um but I think that there's a balance there that you have to strike at least that's the way that I try to attack our business um and just because that there's such sensitivity there I've always been concerned around regulation because if you catch something at the wrong time you really could up in um certain segments of the industry and I mean the real estate industry not just housing right and so I've always been so paranoid about it so it's hard for me to um or mindful of it I should say not paranoid but it's hard for me to to be surprised to the downside because I've always thought it was a risk I would tell you openly and honestly I think I'm more conservative there than most of my peers right and so so they have a more maybe balance take on that and then I think there are people that are further along than them that didn't perceive regulation as a risk so with respect to allocation I think it's going to have a lot to do with are the returns that you get for taking this kind of risk and housing

55:45in general to those justify the risk and for the folks who had no attribution of risk around regulation you know that's hard there it's a new risk to them so I think that's going to be difficult um because they're trying to get really get their arms around it and look we know that there was a lot of capital that came into the scattered as a far space um and it's a relatively short period of time so I can't speak to where that if that capital goes away because it's such a big competitive space right and there are other sectors you know that that come into play um which look you mesh all that together and I'm not sure there's a really clear answer there because I truly don't know where allocations are going but what I would watch is specific investors or segments of investors perception of risk and I think that's kind of the driver and you know look a lot of that is still being defined some of it is still being defined uh which I think is very relevant yeah I just I tend to think there's some groups that is maybe underestimate the risks and never forget just not just road but local state as well and yeah and now it's like they just don't have an appetite to deal

56:50on the records you know I mean the big institutional firms there's there's there's risk departments there's risk management you have you know people in DC who understand these topics really well it's harder for groups that don't have I think those resources are also the frankly I think just the appetite to be able to say you know what like you know this is a risk we can manage it um and so I guess I guess more broadly then if I could ask you this question James like I you made a good point I think you've always been mindful of risk but do you think that is it fair to say now I'll just tell you like my I think that regulatory risk for all rental housing is probably the biggest structural risk that you have to not that it should be scaring people away from the space but it's the biggest risk to be to consider when deciding what and where to invest is that fair but I mean it's so interesting I would say yes but I've always thought that yeah I mean I've always thought that so actually now if we get into you know the housing legislation if you want to go there

57:52um and I want to be careful about that because I don't know you know I mean I'm close to it but I'm not an expert on it and don't pretend to be and I'm certainly not trying to tell anybody how to think about it but but I actually have maybe an unconventional view on that I kind of look at it glass half full because if you thought that there was a chance there was a whatever what percent chance like if you if you think that regulation is is the most important component or one of the most important components of housing investment you know what percent chance is at that a piano falls on your head 10 percent 20 percent whatever whatever your percentage is but I think it's it looks like it's lower now that the biggest regulator in the land came up with a new bucket of legislation that will be clear presumably in the relatively near term that that that those those rules of the road were not defined as well recently right so in a strange way I actually feel kind of bullish about that right and so at least at a national level right that there's this

58:55giant thing that could happen um and uh you know I think it's generally helpful to just define the rules of the road um but the short answer is yeah I think regulation is important I don't think it stops a housing you know look at our friends in the data center space right I mean this could change quickly you know um I think as a as a quick anecdote though um at the risk of of running too long so I'll keep it quick but but I was talking to one of your peers a big researcher in the industry in my respect a lot um two years ago and I said man I really I really think you got to spend more time on the regular's horizontal side of our business and the response was and it wasn't just this person right like this was the the generic response from most researchers is we just let everybody do what that that's not what we do or more like rinse and occupancy and I was like I hear you but I consume your research quickly on that side I spend I don't know five hours six

59:56hours for every one hour that I spend looking at rinse and occupancies you know on trying to understand all the different regulatory risks and it's not even trying to find the gotchas just trying to understand you know what the sensitivities and what that balance is that balance that I was talking about varies from neighborhood to neighborhood right the balance between call it capital and developers and neighborhoods and communities sometimes they're on they're on the exact same page sometimes they're miles apart you know you really have to have I think a nuanced view at least I try to have a nuanced view of of different neighborhoods and and now that that same researcher is is very focused on regulation as is everybody else but I think that you know that group is just following what their constituents wanted right which is just tell me more about rinse and occupancy and less about regulation I suspect you're going to see more about that going forward yeah I mean I think that's just what researchers should be is more more thoughtful than just which you pull up on a dashboard and it's not convincedy stuff but that's an aside but yeah just real quick before we move on to the next topic I just want to quickly ask you we talked about allocations one

1:00:57thing we did I did you didn't mention was manufactured housing and I would think with road to housing and I won't get too much the details of this but because obviously you know them well but just folks listening there is some stuff in that legislation that's very pro manufactured housing that really streamline that space and I think anecdotally I'm hearing a lot more institutional interest in that market as well and and so I guess my question to you is that you know it's been out there the allocation topic aside in terms of who wins what like are we going to see more capital coming into manufactured housing yeah I mean I think you already are right you've seen that for a while I do think it's interesting that you've seen some adjustment on the reat side for an pricing standpoint it's not like that just closed overnight and if you talk to the reat researchers I mean I've talked a few of them and they feel pretty bullish on income growth right so that's it actually ties back to one of your very first questions like is it about the price or is it a bright about you know I growth and cash flow growth and the folks that I know investing

1:01:59heavily in that space that aren't just tinkering they all feel very bullish on on that but and so usually that's a precursor to more capital the the catch to that might be or the other side to that which you have to balance is I do think there is a good level of restraint that comes in the institutional space that you probably don't see in some of the other spaces which is like hey you know by definition manufactured housing generally is the most affordable home right I don't know what it costs to build a manufactured home although I tell you me a little close to home for me because I did I grew up in some some manufactured homes but you know I bet those things I bet you could get one for a hundred thousand dollars right I'm trying to think about what you could set it up for whereas what's the cheapest you could build a home for like that's not a manufactured home what's the cheapest you could build an apartment for you know I don't know but

1:03:04I bet it's twice that you know it depends on depends on where you're building and what's going in there the other thing is that I bet the cost of a manufactured home is actually less than a hundred thousand in some cases and so you think about what that means from a rent or monthly cost standpoint one of the things that that literally keeps me up at night is just that we have such a one of the most fundamental problems we have in that that that affects all of us is is unaffordable right and so manufactured housing could be a solution to that but I suspect that you're going to see institutions that are that want to be careful about that as well around making sure that you have some protections in place so that you're reasonable right and and and not just the only KPI is did you grow rent and N.O.I. and I know you know talking to my friends in the institutional space lots of people care about that and I which I think is a good thing you know and in some cases I think they learn the lessons elsewhere right and they got burned because you want to maintain that balance

1:04:07but yeah I think short answer I would be surprised if if there's some big change that that suggests you won't you get capital just all of a sudden runs out of that space given the N.O.I. said I've given that it's relatively you know favorably considered in the in the recently passed legislation and that it's an outlet for capital that that might be looking for somewhere to go in the housing space but the other catch there is that it's a fairly small space you know there's no and it's and it's going to be by definition sort of outskirts which a lot of people don't want to deal with so Devils and Details but yeah that's that last part is very true there's only so much from it out there I'll miss a couple more quick questions about you know your other part of your life is C.R.E. analyst and you've got a lot of exposure just this next generation as well as the next generational topics and so first of all let me ask you about some of the students you work with you're obviously teaching a lot of young people when this is C.R.E. analyst also at SMU so for those you know those of us who are now you know 40 plus and all the touch this next

1:05:08generation of analysts coming up what do you see it from this next generation man I appreciate that question I mean look I spent a lot of my free time teaching I teach at C.R.E. analyst I also teach at SMU I've taught at SMU for quite a while I'm really proud of what SMU is doing I love the team there I've also gotten really close or reasonably close with people all over the country that do you know look I have but for a couple real estate professors my life would look very very different right truly and so I kind of try to just pull back the curtain on the frameworks that have helped me and all different ways and and one of the ways that that gets really cool or has got really cool is and rewarding is meeting a much students the other one is meeting those those the new generation real estate professors you know like I just spent a lot of time in in DC and New York over the summer and I met with a couple dozen people on kind of a day or two where a couple days right where I spent time working and honestly I think that maybe the best meeting I had or one of the best meetings

1:06:10I had was with the guy who runs Georgetown's real estate department you know and and having discussions with people who are really on the front line is very interesting to me they do it because they love it and they're trying to make that impact and so you know that is very moving and motivating to me and it's super rewarding to meet the students and to meet the people who are the kind of the funnel you know and they're at programs all over the country and they're doing good stuff which which just gets me fired up and and so I don't know I think there's so many takeaways man and order of magnitude I've had four or five thousand students come through my classes starting in NYU SMU and serial analyst and probably kind of split two thousand and two thousand between SMU undergrads and grads and and it's serial analyst and I think the biggest thing I see is an obsession with modeling and not enough obsession around thinking right so we talk about

1:07:10Richard Burdeni who who you know are the ones that that drive the serial analyst classes we talk until we're blue in a face about thinking versus processing right and we're trying to we're trying to become better thinkers and we want everybody else to become better thinkers with us and I think that message has landed but there's still a lot of people that care much more about that the exit cap rate is just a number that's in cell x79 or whatever you know and us we're like man that's not I don't care what cell that's in I don't care your ability to do that or automate that number what I care about is why'd you come up with that number and so yeah I think AI is really throwing some fuel on the fire here in good and bad ways because the biggest risk right now is not that the the folks that we see coming through our programs are not going to have jobs is just that they are sort of being motivated to know the answer before they understand the answer and AI is just kind of speeding up that process and I'm seeing an enormous difference between the winners and the losers like the folks who get it and you really want to be thinkers you can't keep success from finding them

1:08:15and then and it also doesn't matter where they come from for the most part which I think is fascinating I mean our industry I believe is really good in that way like you can you got to live in the right place I will say that like if you don't live in and and one of the big real estate markets I definitely think it's harder but if you live in one of the top five or six real estate markets and you're trying to become a thinker and you invest in yourself it generally works like the list of people that have done that and it's not working for them is literally zero and my right the list of people who we're going to the motions and just want to be the best modeler but can't first whatever set of reasons that they can't figure out they can't get the job they want I mean there's a longer list of people that struggle with that right so and I think AI is made that worse but man I'm very very enamored and impressed and motivated by the folks who are driving and get it early I mean they're really really impressive and it's a lot of them it's not just two people right you know and it's just motivating man it's awesome to see that it gets you fired up makes me feel a lot more connected to our industry it also makes a real estate world really small yeah I mean

1:09:17especially when most of them live in five or six markets you know so you talk about San Francisco and what a great I mean I totally agree we didn't comment on that but I totally agree with you at ULI when we went there whenever that was two year and a half ago I guess almost two years ago now and it was obvious that San Francisco wasn't as bad as as we thought it was you know and and thankfully they had it there so we could see that but also I run into a bunch of people I know from teaching there and it's a great city and the same happens it'll happen that you know this top I wouldn't say Miami's a top three four five city necessarily but it's a big city as well with a lot of real estate folks a lot of cool stuff going on down there yeah and we'll see a lot of people we know down there as well and it's just cool to see how small that makes the world and when they lean into the thinking part of our business it just works you know and I'm really excited to see them thrive which I've been around long enough now I'm seeing that which is really rewarding yeah one last question for James as you mentioned AI obviously big topic but you in particular you've got a unique perspective of this not only as a teacher but also Siri analysts did some extensive surveys across the industry on the utilization of AI across commercial real estate so

1:10:20just a high level tell us what you're actually seeing yeah I mean I appreciate you asking about that it's either kind of some perks to the Siri analyst gig especially and it's and one of them is the biggest one is that I mentioned that it made the the world a lot smaller yeah and so you know so many people talking about AI for a while first quarter second quarter this year we rolled out this study and literally just emailed everybody in our ecosystem and said hey what do you think and then we spent a lot of time making sure that we got it to be more representative of the segments that we wanted so as a giant pain to actually go through and and break up the industry to see you know the different levels and make sure that we're getting responses from folks that they're actionable and usable and that they actually just told us what was going on and we're literally doing it because we want to help you know we want to share it openly and so that people can make better decisions right especially students and just fascinating stuff in that survey so I think we ended up reaching like 700 or so folks and the best part in my mind was that we got many of

1:11:22them to sit in it so we got 600 in some odd use cases and we're able to go through them and score the use cases like hey how awesome is this so we categorize these different levels I think we came up with four different levels and categorize them and because you know we're scared like we're using AI everyday I use AI everyday almost all day but as you and I talk about it I don't you know I haven't used it as a substitute and don't plan to but it it has been fuel in the fire I think and helps me get some stuff done a lot faster than than I used to be able to get things done but I'm still like am I missing something is there something great that's going on out there that other people are doing and that was sort of part of the the the motivation behind the survey and we got these 600 and some odd use cases back we score them all and you know we found that three quarters of the industry is basically tinkering it's kind of glorified now this is pre-coork I think pre-coorks ability to really ramp up so you think about what's changed from now now versus then it's been massive right

1:12:22if you judge if you judge it by data center demand and so I'm really intrigued to see what the next survey will probably update that in in the first quarter but the the original take was just there are really no old pros at it and people are figuring it out and and you know that has a lot of implications with respect to talent the other thing I would say is if you compare a lot of the doom talk around everybody's losing their jobs we didn't really see that in real estate that it's going to be easy to displace a lot of folks you know in commercial real estate there are certainly levels right and we focused on the white collar portions of commercial real estate but when we actually broke down tasks in ways that others haven't like what is the we know these analysts and associate and VP level roles really really well when you break down the tasks of that which we did gosh I mean a lot of them just aren't super suitable for for AI in the way that say coding is you know and

1:13:30I don't know where that's going to land I have no idea but all I can do is map tasks and if you map tasks and coding and then you map you know a similar family of tasks within real estate they're very very different and I think that has some implications and we saw that in the study as well so is a pretty cool exercise man I really we spent a lot more time on it than we thought we were going to because as we started getting feedback back it was you know really interesting and then some other folks latched into it it was cool because it got me into some rooms I think I've otherwise wouldn't have been into because I went to Nashville and presented with some folks at ULI on it and I was just good you know without trying to pretend to be some sort of expert we're not trying to be AI or tech bros here we're just saying hey yours you know we cast a net and got some feedback and and hope it's helpful happy to share that with anybody as well we just want people to you know if we can help make better decisions ourselves and others as well you know it's kind of the goal yeah I think I find that at searyanalyst.com yeah happy to share that we need to but yes it's it's it's all left there we try to share everything great I will put a chart in the screen here too

1:14:30for those watching the YouTube version of the video and I mostly like to listen but if you want to check that out that chart that that slide that James mentions on the screen well James it's been fun yeah man I appreciate it and if you don't line can I ask you a couple questions because I know it's your hundredth okay so it's your hundredth episode totally unrehearsed I'm prepared here but I am interested I mean one use I think we talked about this last time where I said I am surprised you're able to do all this on your own I mean I mentioned that you know when we had gone back and talked about this when you're thinking about launching the podcast whenever that was you know a couple years ago yeah and I said man that sounds like a lot you know like every week having to crank something out and if you do it I'm going to listen to it every week but it sounds like a lot of work and it has been I know it's been a lot of work has it gotten easier is one question man that's a great question it's not gotten easier but it's actually hard it's a much hard and I knew it would be hard work it's actually much harder I thought it'd be but it's also a lot more fun than I thought it would be so I wouldn't and now I'm hooked I can't go to it yeah and so what

1:15:32what is one what's something that that has come out you know over the hundred episodes or 99 episodes what's something that come out that has come out that's truly changed your your viewpoint on stuff oh man that's a good question I'm sure there's a lot of examples of this you know I mean I just most recently I recently asked about you know Stephen Sherr is it just this was probably some recency bias on my part but it it changed my thinking a little bit because I was initially thinking of this as as my question view which is this shift allocation to other sectors and he really opened my mind to like oh wait a minute like this could actually do the opposite for certain groups that have strong conviction that this is it that knew that not just rode but this wave to regulations got to build a moat around the SFR space and for you know larger groups that have a lot of operational advantage over smaller groups and the ability to to manage that risk that that was

1:16:33that was really eye opening to me and so that was something that really changed my perspective yeah no that's interesting I really enjoyed that that episode and by the way I have recently in the last like two months maybe become more of a YouTube watcher than a listener because of the charts and I just I like it I'll put it on on TV and watch them but I love that you do this so two more quick questions and I appreciate you appeasing me on this in an unearned way but but one of them is just like look and there's a there's a junk statistician here you and I are similar in the sense that like when we go and we catch up usually we're talking about myth busting stuff right it's like hey what is does everybody have wrong what am I missing and I think it comes from a curiosity standpoint not but gotchas just like I'm trying to figure something out right so you and I are always bantering about that kind of thing and I think that's one of the things that binds us which is pretty awesome but can lead you to throw out some you know heavy stuff you know you might come come up with a heavy like you were wanted I think that you have been and I don't say this

1:17:36to blow smoke but I really mean it you have been probably the best voice on what I would say accurately summarizing and translating research on rent regulations to practice right and that it's pretty unequivocal but there hasn't been anyone at least to my knowledge that has really been a myth buster in that space like hey I know that this is formal research and stuff but it kind of doesn't work you know and here's why and I'm not a big owner housing or trying to get you to invest on my next deal necessarily but here's what's up and so that can be sort of accusatory to some right so how do you well set that aside the other side to it is every single person I talk to when when your name comes after like oh man I love Jay he's such a nice guy he's like I love his approach on us so I'm curious about I think the question of my mind is how much does it even enter your mind to make those two things reconcile and how do you reconcile them do you ever like think twice about asking someone a question because you're worried about like when your curiosity

1:18:37sort of kind of crashes into your nice posture like how do you navigate that because you put yourself out there where you're constantly asking questions you're constantly putting interesting things that I read all the time out there a lot of times it comes from the curiosity angle but how do you navigate that when it might tick someone off man that's a great question James I appreciate your kind words there I have never been asked that before but I think part of it is when you approach things from just out of curiosity like you said and not from a like I want to prove somebody wrong then I think people have minded that's like it's I mean I'll give you another example way I'm really talking about it's like one of the things that you know I feel passionately about is a relationship between home buying and renting in terms of demand and prices and there's a lot of just misunderstanding and when I could tell people hey look historically this is what it is and people really appreciate that most of the time now I will tell you also though I run into situations I've learned over the years I think one of the reasons our industries is particularly SFR BTR but also apartments my recently has been that we've had reputationless

1:19:38users that sometimes we're not willing to push back against what I call the crazies the conspiracy theorists and so one of the things I've learned over the years especially on social media is that I'm not going to convince every conspiracy theorist right but there are a lot of normal people who are open-minded to facts who would look at those engage that those debates and those engagements and they're making they're being informed by that and so I think it's really important to be able to engage people who even do who disagree with us and the thoughtful ones will have a thoughtful conversation they may not always agree which have a thoughtful conversation everybody learns and I get sharper from that and then you have the crazies who just refuse to bend but you know my philosophy is I'm going to match the tone of the person I'm talking to right if someone's just you know being a jerk I'm not going to be a jerk back but I'm going to you know be a little snappier right if there be a thoughtful I'll be thoughtful back yeah that's interesting well it's a hard thing to navigate and I suspect could I mean look it may get harder right as the world gets smaller but I mean I have to tell you man I'm so glad that you've done this I mean a hundred episodes

1:20:40you know I know a lot of people have been doing this for a long time but that's a lot man I mean especially when you don't have some giant team and for wonky housing people I think we all love us I'm really glad that you do this and look I mean also I think it'd be fun to have someone just interview you because I think this is the kind of stuff that I find really interesting but so last question is who's your dream guest like who would you really you know if you're not laying up like who would you actually throw out there like I would love to really engage with this person and get him on well on your last point which for real quickly am I doing I'm a big team but I want to give a shout out to our producer Tyler Lambers and he's great he's awesome but my dream guest and thank you to him but my dream guest would be you know I would love to get there's couple people I would like to get I'd love to get John Gray in the podcast one day I'm sure that he's got a thought he's you know he's got he's probably never heard of the podcast but I know so his team less than if if they ever got him to do that that would be absolutely amazing and and the other one who I've tried multiple times to get on and but he's been a little busy as a

1:21:44Ben Shaw who's a Avalan Bay and now of course you know the new the new combined group yes yeah man that'd be awesome well I would I would listen to I would listen either those but I also have to say and this is we see this with guest speaking as well with teaching you know sometimes you'll get like a big name like first of all either the names that you just mentioned would be incredible but I do love how you mix it up right and so because when you mix it up you get this view that's totally different and new and I have found my engagement actually is is been really high you know on these folks that I never would have heard from anywhere so I'm glad that that you know you've got kind of the forum that can bring on someone like one of those two guys who I mean that would be incredibly interesting I just let think it would be fascinating to get to get John Gray on if you could because it's focused on housing right which they have such an interesting viewpoint on and he's just been you know through a lot and seen a lot and is an interesting person but yeah

1:22:45I appreciate the way all that everything that goes into the curation so on behalf of everybody that listens thank you and man keep it keep it coming I you know the last thing I would say is an addition I just appreciate you again having me on is you know I don't exactly know how old you are but in your 40s you've been in the industry for 20 some odd years you got a long way to go and so if you start thinking about that to me that gets really intriguing because you are making the world smaller and more thoughtful and I love how much it's clear to me and I'm sure other people listen to you how much goes into this and I told you this before we join that I don't think I actually get nervous usually but I do get nervous when I talk to you on air and I think it's because I think about it so highly so I appreciate you again make it space for me and talk about the stuff I really care about. Well James you're very kind and I'm very grateful to have you on the podcast and you've been in your friendship over the years and encourage me to make some big decisions that I did along the way so thank you for all that you've done for me and for the industry as well and for the 1% of you listening who don't know CRE analyst check them out because they're my

1:23:49favorite account on LinkedIn why biggest complaint LinkedIn algorithm sometimes is it doesn't feed me your content every single day I have to go hunt it down because I think you're for a profit business selling something but you're not so check them out at CRE analyst but James thank you again this is so much fun and and appreciate all you do yeah thank you so much man really appreciate it talk to you later. Thank you again the James we are on our guest today thank you to JPI funnel Norsefire authentic the Kirkland company telecloud butterfly mx big shout out to my friends at apartment life and thank you all of you for making this podcast possible we'll see you next time