YouSaid · the spoken record

Bill Lenehan

lines on the record: 81
first: 2022-12-06
most recent: 2022-12-06
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Figure out the compression ratio, and I could tell you more about the risks of lava compression than anyone you've ever talked to. But I'll never use that again. So really interesting. I learned a lot, but now it's much more methodical and repeatable as a process. Perhaps less exciting in some ways, but there's some excitement in figuring out how to raise the capital, how do you think about that the right way, building a business, going from six people to 30, buying 500 buildings, and then the world throws things at you like COVID, which I'll tell you, running a restaurant rate in COVID, I'm really happy I went through the financial crisis because COVID would have been really stressful, but having gone through the financial crisis, COVID was not nearly as challenging as perhaps would have been.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of a Walmart and wait for the other person to say, But the rents are too high, Bill. Don't forget about the rents. We would say, this is a 71. It's a 71 because of brand, because of location, because of demographics, but it's not higher than that because of the amount of rent, the lease term, a provision in the lease that makes it lose score, etc. And we've scored 30,000 plus buildings using that scale. the 500 that we've bought, we now have better organized information. We have comparables. So if you wanted to know what the right rent is for KFC in Ohio within 15 minutes, I could give you a pretty good answer. So unlike Farallon, where you dove in and you figured out that the real risk to financing lava fields is that when you try to build something on lava, the lava compresses, so you need to”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Constantly in a dialogue with my investment team where they were advocating this is a chilies on the outparcel of a Walmart and it's a beautiful building and if we don't buy this building I don't know what I'm doing here. I'm going to leave. And then the next person is sitting there saying, yeah, but the rent on that chilies is really high and the lease term is short and the lease has this provision in it that is really unfavorable to the landlord. Does Bill really understand what the other acquisition person is telling him? I said, that's just going to be exhausting to do at scale. So what we did is we took a step back and we tried to decide all of the factors in buying a real estate building and have it all add up to 100, give different weightings to different things so that when we talk about buildings, we can talk about them in a consistent manner. So we don't say it's a chilies on the outparcelace.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Today is that Faroon was incredibly opportunistic and global. So I worked on developing an island of the Bahamas. I worked on financing a lava field in Hawaii. We bought companies that were under federal investigation. We bought empty buildings. We did all sorts of things. And it was really fascinating. But it wasn't replicable in the sense of I've developed a second island in the Bahamas. My knowledge that I gained from flying to the Bahamas almost on a monthly basis for a while, I haven't been able to reuse its specifics. Obviously, there's some general learnings. When we started four corners, I knew that we would be buying lots of small buildings that were relatively similar. We bought a building at Four Corners every 2.1 business days last year. So we bought 122 buildings in a year. Let that sink in. So in order to do that in a sensible way where I wasn't”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Rent, we would have collected from all of our at the time 900 ish buildings for 9.3 years. Wow. So if every tenant just sent their checks into a safety deposit box and we couldn't touch it, it would be nearly a decade. We were back to collecting 99.9% of our rent within a couple months. We really didn't have more than a penny or two of impact on our income statement. We ended the year up. At that time, had you developed a five-year 10-year financial model for my company, you could have made assumptions simply deleting three, four years of cash flow dividends from the existence. I mean, just really machete-like assumptions changes to a model. And you would have said at $12.50, it's obvious that you should buy it. Don't overthink Excel or analytical frameworks, but don't underthink it. The last point I'd make is maybe comparing what I learned to Farrell on to what I do today.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Have to be able to sit back and say, let's think dispassionately about this. There's never anything in the history of private equity. This is an astonishing fact that I can't verify, but I'm pretty sure it's true. There's never in the history of private equity ever been an investment that was modeled for lower than a 15% leverage return. Most investments have lower than that. So Excel is a very valuable tool to learn how to use in the beginning of your career. You should have an Excel model for everything you buy, but don't overemphasize it. Similarly, don't underinvest in your analytical framework and your Excel because what will happen when the financial crisis hits or COVID hits, it will be too late to build that analytical framework. What do I mean by that? So my stock at Four Corners went from $33 a share to $1,250 in one week during COVID. That is a market cap decline equivalent to all of the”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“You thought you could. You have to be able to say that is not Wall Street's role in me executing my professional business plan. And again, I think Faroe did a very good job on this. But what I saw during COVID more specifically than the financial crisis is Microsoft Excel is a really dangerous tool. There's a saying that computers can accelerate bad decisions faster than anything other than handguns and tequila. Microsoft Excel is a computer program. That's what it is. Now, a lot of people who finance myself included get really amped up that you go into investment banking, you learn how to build these financial models. You have a lot of confidence in your ability to forecast cash flows. It can make some really bad decisions happen because you have an analytical framework and that gives you a lot of confidence.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Worth as an empty building, maybe making a five year projection to fill it up, et cetera. Public company investor would say, well, that's not right. Because when I look at a software company, if half of its software contracts are really profitable and half of its software contracts don't make money, I put one multiple on the whole thing. It's obviously much more complicated than that in practice, but it was things like that of having to advocate for one to the other. I would say that we did, again, much better than our peers, but I think there was a tendency at some points in time to have Wall Street determine our balance sheet more than we should have. And I think that's a key lesson as a real estate investor. You must own your balance sheet. And that's true during the pre-financial crisis in residential housing. People were not controlling their balance sheet. They were hearing the siren songs of lenders say, come here, come here. I'll lend you more than you need, but that will allow you to buy a house that's nicer than you.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“A set of bosses that I reported to who were really terrific Warren Buffett style stock pickers. There's sort of an idea the best way to become really good at a language is to have to translate to be a translator. And so I had to sit there and explain to one set of bosses who were building buyers, metrics around stocks or how people assess stocks, what information was available from the company. But they knew a lot about the buildings. And I had to explain to a stock picker the real estate dynamics. And let me just highlight a really, really simple one. If you have a public company, let's say it owns two buildings and one building is completely full and one building's completely empty. As a private investor, you would say, I'm going to value the full building on a multiple basis, and I'm going to make some assessment of what the empty building is.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Was really wonderful. I made a lot of friends. I learned a lot. I was taught a lot. I was given a lot of responsibility at a young age. I think that Farole and as a firm did much, much better many, many things than its competitors. But clearly I started right after 9-11. I had been a lodging and gaming banker coincidentally. So we started all of a sudden a month into my tenure. I went there to buy buildings and make loans on buildings and all of a sudden something I knew a lot about how to financially model a lodging company was incredibly helpful in making public company investments. So I spent about half my time making public company investments. I think it was a really unique opportunity because I had one set of people I worked for who were traditional private equity real estate investors. They knew how to assess buying buildings. And then I had, on the other hand,”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bright people. They're very active in the market. They've invested in technology in a way that no real estate company globally has ever done. Being able to be counter-cyclical and willing to stop investing when times are frothy and then the willingness to run towards the burning building when everyone else is running away to be able to take calculated risk when everyone else is risk off. I was at a conference for the last couple days in San Francisco and San Francisco as a city is in a difficult place with crime and tech companies leaving valuations are difficult financing a building would be very difficult. But if you had a view that in 10 years that San Francisco would be viewed any way remotely how it was viewed a couple years ago, you could probably make very high rates of return buying great office buildings.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think I might be sarcastically quoting somebody that said the most important factor in determining investment success is aligning the date of your birth, your professional birth, with a period in which the Federal Reserve decides to lower interest rates. So that might be the sarcastic version. But I think it's very, very similar to all sorts of business professionals, those who think clearly for themselves, which there's so many things you could talk about right now that you could simply say this is an effect of many, many people not thinking for themselves about whether something is a rational business proposition. Sam Zell has a great saying that real estate investing is very simple. If you have the chance for a lot of upside with very little downside, you do it. And if you don't, you run away. It's being aligned with great organizations. And Blackstone is unquestionably a great organization. They have very”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“To the penny, and it is highly unlikely. It happens every once in a while that that Burger King all of a sudden happens to be a site that you can tear down the Burger King and put up a hotel rarely. So typically when you buy real estate physically it is what it is. And the chance that it becomes 10 times what it was is low. But similarly, Burger King could move out and I could probably if I didn't make some specific investment mistakes related to that specific investment I could probably find another tenant just like it would never be 10x what I wanted it to be on an unlevered basis. It's very unlikely to one day be one-tenth of what I thought it would be.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if I make widgets and I have a sleepy little business selling widgets and all of a sudden I pick up Walmart, the number of widgets I can sell can go up 5x. All of a sudden my widget catches on in China. I have a business that's worth 10 times as much. But if all of a sudden my widget is found to have some liability associated with a safety liability, all of a sudden my widget business goes to zero. Again, super high level. When I go and I buy a burger king in OCA, Florida with a 25-year lease, there's a pretty good chance that 20 years from now the May rent that's in the rent schedule will be that exact amount as lined up 20 years ago.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“This may seem like a really silly point, but it stems from a Sam Zell article that he wrote many years ago that I think has a lot of wisdom in it. And Sam has an enormous amount of real estate experience running one of the largest office companies, one of the largest manufacturer housing companies, one of the largest department companies making opportunistic investments, all sorts of things. He has an awful lot of business experience, absent real estate. And one of the comments that he makes about real estate is that when people say location, location, location, the buzzword of what you should be thinking about in real estate, and they're talking about, oh, this isn't a hotel and it's in Santa Barbara and that's a lovely place to go and the climate's wonderful and look at the ocean. He said, that's right, I guess. But what's also important about location, location, locations, when you buy a building, it is almost in every case going to be that building or some very close facsimile of thereof in 20 years that has positive and negative connotation.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“So unlever, I would say it's intended to be a stable, slightly lower rate of return. It is a business that has the capability of being financed very creatively and often at high levels. You could have a REIT like ours that uses the predominantly equity capital and just a little bit of very conservative debt called 70% equity, 30% debt, or even more equity than that to private equity, which I worked at a hedge fund called Farrell and Capital for 10 years. Wonderful experience learned an enormous amount. We used less debt than most private equity, but a lot of private equity is the answer to how much debt should we use is, well, how much can we get? You may get to a place where a lower ROA investment proposition can turn into a relatively high ROE proposition using financial leverage.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Which owns Olive Garden, Longhorn Steakhouse Capital Grill, Bahama Breeze, Chatterers, Yard House, etc., an activist investor said, look, your balance sheet could be optimized by getting the real estate off the balance sheet. The activist fund was named Starboard Capital. They replaced the entire board of this Fortune 500 company with a new slate. I was sort of the real estate person involved. And so the willingness for investors to become very engaged to mandate this change is substantial. The stock of Darden went from, this was seven, eight years ago, $35 to $140. And you get four corners along the way for free.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Benefit for a Tesla showroom in a mall to be across from the Apple store in the mall, across from the Lululemon store in the mall. It's just much more convenient for the consumer. Apartments, manufactured housing, you could make the argument that being able to pun intended pool amenities, gather together a gym, gather together HVAC and other services make apartment living where the whole is better than the sum of the individual apartments. So I think it depends on what kind of real estate you're talking about. But what's really happened is equity investors, private and public have pushed for this substantially in the last 20 or 30 years. I'm not saying that's full cycle or that we're done with it, but it's far different in the past.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Would say sort of math that I think is mostly true but doesn't have to be true is that the return on invested capital of the operations is higher than the rate of return of the rent collecting entity. We offer a more predictable stream of cash flows. So during COVID, we collected 99.8% of our rent almost immediately, whereas all the operations of the buildings were closed. So we're more consistent and we have a lower return expectation. The operating company, whether it's a restaurant or a collision center or a hospital or car dealership, can have more of the higher ROIC business if it can free up the capital from our business. So that would be one in what we do. And then in other use cases,”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“State kinds of companies and now very, very diffuse in the different types of companies. And what's happened is specialization and focus has become what investors reward. So many years ago there might be a reit that's specific to Southern California, but it might own a mall or two, a hotel or two, some apartment buildings, some industrial buildings. That's not common at all anymore. It's much, much more likely to say this is a company that owns Manhattan CBD Class A office buildings. This is a company that owns cannabis distribution facilities or growth facilities. This is a reit that owns senior living facilities excluding memory care with medium acuity. That level of specificity.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Apartment retail, stuff like that, industrially, very typical, well trodden lodging was close to that. It's been driven by publicly traded real estate companies like mine, Triple Net, gaming rates. So when you go to Las Vegas and you go to Caesar's palace, it's not owned by Caesars. It's owned by AREP that was spun out of Caesar's. If you go into Bellagio, it's owned by a private equity firm and it's operated by the brand. It's timber reits. It's healthcare reeds, the hospital you go into. It's probably not owned by St. Mary's. It's probably owned by a publicly traded company that collects rents from the operations. So what's happened in our industry is what's gone from a very normal way, handful of”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“The mall building that you're walking through clearly foot locker does not own that part of the mall. Apple does not own that part of the mall. In fact, I'm on the board of Macy's. Macy's may own the Macy's box, or it may not. What's happened since I graduated from college in 1999 is there has gone from 172 publicly traded real estate companies to 151 today in or so years. The value, the equity market cap of that industry has gone up 10.7 times. Basically the same slightly less companies. That's very common. There's less public companies because the burden of being public is higher and the availability of private capital is far greater than it was before. But a massive increase in the size. And that increases not been driven by what was historically referred to as the four food groups, office.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe residential versus commercial might be one place to start. I'll focus on commercial. I think people probably have a relatively good sense of how housing works. So we own a thousand buildings that are least predominantly to users like restaurants or auto service or medical retail. We own $300 olive garden buildings as an example. The olive garden building that literally 17% of the United States has been in an olive garden in the last several months. It's a ubiquitous part of America. What we do, in essence, is free up capital for restaurant companies and others so it doesn't have to be sitting there stuck in real estate. So that's one use. And you will find that to be very, very common, although maybe not obvious. The Hilton Hotel that you stay at is probably not owned by Hilton Corporation.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Talking about real estate at a high level is like if someone said I'm a doctor, say, okay, well, are you a battlefield military surgeon or are you a PhD in linguistics? At a liberal arts college, because they're both doctors. So let me try to at least frame up different categories. And obviously real estate is truly global, definitionally.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“House in Montana where that mark has similarly boomed post COVID is that it is unquestionable that these property values are not sustainable. And as someone who's trying to build a business, which includes recruiting people, training them, compensating them, et cetera, doing that in this housing market is substantially more challenging. While I guess it feels good that the house is worth more than you paid for it, net, net, I would welcome a decline in housing to a more normalized level.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“99.9% occupied because for them to leave and find another building, the construction costs in other buildings are up very substantially. So they have to pay much higher rents to incent a developer. That developer has less access to capital, wants to make a higher rate of return because of inflation and interest rates. So we have had better retention, which then means we don't have to hire as many people to release the buildings. There's a little bit more to it than simply inflation bad. interest rates bad but i would still argue and i've argued consistently even during periods of very low inflation that certainly in the short to medium term the first order effects net to a negative and then i guess my last comment and i'm not an expert on single family housing other than having a house here in marin county where values have gone up substantially and having a small”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Source the superintendent yourself. Maybe the repairs and maintenance which you had budgeted at 2% more than last year are now 15% more than last year, if in fact you can even find the things. A company like mine. Own about a thousand buildings, but the leases are what's called triple nets. So the tenant is responsible for all the expenses. What we found is we're retaining tenants at a much, much higher rate.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Apartment buildings had a more difficult year than people expected, which is counterintuitive because people would have thought, okay, apartment occupancy is going to be high because people aren't moving out to move into homes. Apartment rents can be reset in most markets relatively easily to meet demand. So you can raise rents. And keep up with inflation. People are making more. As long as you didn't have a mortgage that's coming due in the near term. Frank Many of your costs were fixed was the perception, and your rents are going to go up. What we found is that the cost of running an apartment has gone up because the cost of personnel has gone up substantially. And availability of labor has gone up substantially, so perhaps instead of having a superintendent that is on your payroll now, it's just Service because you can't”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“A more measured way, or in San Francisco, near where I am right now, there are significant layoffs. People's capital spending typically has been become more conservative. Earnings expectations are down substantially. Equity performance has been weak. That means executive compensations likely to be hurt. So interest rates are very important. There's a wonderful article that Warren Buffett wrote about the early 80s period of inflation. Called How Inflation Swindles the Equity Investor. That's a really great read. It's timeless. But it's A little bit more nuanced than that. Interest rates being higher inflation is still a net negative for the real estate space. But let me maybe take one more peel at the onion Which is apartment stocks.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“Make the same rate of return, the expectation of returns over a risk free rate have gone up substantially. What I would say is if you use the mental model of the Federal Reserve sitting on my Zoom calls, would they be happy? Would they be high-fiving each other? Or would they be saying, these guys still don't get it, we need to raise rates more. I would say that the Federal Reserve would be high fiving each other. They'd be saying companies are”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source
“You for having me. I'm excited to do this. So, rates have increased substantially, cost of debt has increased substantially. You mentioned mortgages, but for example, the company I run, which is a mid-investment grade company, we borrowed money last December at 3%. Today it would be just shy of 7%. And the availability of that capital is much reduced to begin with. Rates have gone up. I think inflation has gone up and the Fed's actions to try to combat inflation are beginning to be effective. What do I mean by that? Well, there's the mathematical part of with higher base rates borrowing costs are higher. Ability to pay for an asset is hindered.”
2022-12-06 · Invest Like the Best · Bill Lenehan: Investing in Commercial Real Estate - [Invest Like the Best, EP.306] · IDENTIFIED FROM THE TRANSCRIPT · source