YouSaid · the spoken record

Charles Clinton

lines on the record: 47
first: 2023-07-14
most recent: 2023-07-14
sittings or episodes: 1
sources: podcast

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“Yeah, yeah, absolutely. Well, first, thanks so much for having me on and for everyone who made it to the end of the podcast. Thanks for listening. And if you want to learn more about Equity Multiple, you know, simple thing is just go to equity multiple.com. And one thing I would encourage is we are an online platform, but very, very human-backed. We're not just a bunch of bots on a website. So if you have questions about signing up, about us, about investing in real estate, about any investment we have on our platform, you can chat with someone, you can call someone. We see investor education and direct communication as a big part of this because we know from any investors this is either something new for them or something that they're looking”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Investments outside of real estate. I think this point in the market cycle definitely breeds interesting opportunities. We're really reluctant to get over our skis. We're experts in real estate. So, you know, there's a lot to say, stick to your knitting. So we're being, I would say, really cautious in how we approach any expansion there, but I've definitely been digging in. And I think we'll get something out to market sometime in the next six to 12 months.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Near term, we're launching a debt fund. We've had a prior iteration of a debt fund that we launched a couple years ago. We're launching a new one that strategies tightly tied to where the market is today. And still investors will be able to invest in the individual loans that the fund's doing. But for folks who want to believe the thesis that bridge lending is going to be a great opportunity for the next 12 to 24 months, this is a way to kind of buy that basket. So very excited to launch that one that will probably be coming in the next few weeks. And I would say beyond that, we're looking at a similar equity fund timing kind of TBD, but as the market opportunity comes, you know, we want to offer something similar to investors on the equity side as on the debt side. And the last thing is we're been diving deep over the last six months at other potential alternatives.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Would say it's variable. Generally, we put leverage, we use leverage caps. So it varies also by point in the market. I would say right now across the board, just leverage is lower. Leverage is not as high in commercial real estate as it is in residential real estate. Generally, you're not taking out an 80% mortgage hardly ever. Usually the mortgage falls somewhere in the 60s, something like that between 60 and 70 percent. There are cases where you would opportunistically say All right, we'll use more leverage because we like the risk and it increases the risk, but it's also commensurately increasing the return. But I would say as a general rule, we're kind of looking at that 65% and less leverage.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“We generally operate in what we call the middle market. So deals between 10 million and about 50 million in total value. And that cap, we certainly have gone past that with we love the real estate operator we're working with. They're incredibly experienced. They're doing a larger transaction. But as a general matter, we just think that there's more value in that slice of the market than up in the larger deal sizes. Because I guess going back to our original portion of the conversation, there's just less institutional capital there. Most funds don't want to write checks below $20 million. So if you take $20 million of equity, $30 million of debt, you're at a $50 million transaction. So kind of below that, you're getting a lot less institutional capital competition. So there's a little bit more room in terms of margin.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Equity investments shorter term and longer term, really giving people options in terms of matching what their level of volatility might be.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's a great question. I mean, that, of course, is the nature of investing, right? Is that you can forecast all you want, but some investments are going to outperform and some are going to underperform. And you're hoping that you do well through good process over the average of all of them. You know, I'd say one very simple thing is we always, always, always preach diversification. I think that if an investor comes to us and says, I have $200,000, I want to invest. We don't say, all right, put it in the first deal you like. The recommendation is always built, if you want to select your own investments, that is great, but build a portfolio. That's how you should be thinking about this, you know, the same way that there's been such a move in public investing towards index funds for a non-professional investor, I think diversification is always a great rule. And, you know, kind of going back to that portfolio construction, having debt.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Data sources, you know, our own asset management team, the data they collect on our existing portfolio of properties, and really kind of hone in on this as that sweet spot, but also that sweet spot where we have built up expertise.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would say we have a heavy leaning towards it. It's not 100% of what we do. We'll do some properties that have less value add or the cash flow is kind of more where we think it will be in two to three years already. We do some ground up development, where obviously that's kind of more opportunistic and speculative. But for the most part, we think the sweet spot for risk and return lies in value add. And obviously over a large number of transactions, we've done about 185. you start to develop poor expertise that helps you with the evaluation. So that can be how much is it really going to cost to renovate a unit and put in a new kitchen and a washer dryer, a new floors, how long will that actually take? Are the market rents that people are saying they're going to hit after those renovations really achievable? And the more you do the same thing like that, the more data you can bring to bear third parties.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“In terms of the offerings, I think that our market has really been dominated by equity investments. And the reason for that is for the real estate companies, equity is the hardest thing to find. So they're trying to make fees from that side. So they want to bring investors into the equity and try to drive their bottom line that way. For us, we're thinking about it more in terms of that portfolio construction I mentioned, right? Which is equity is great for some investors debt's great for other investors, but a mix is great for most investors.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“I think it comes down to two things. So, one is a business model thing. So a lot of crowdfunding platforms are just that. They're platforms. They're marketplaces. It's kind of come on here and buyer beware. We really operate more as a private equity style model. So, you know, all of folks on the real estate team who are finding investments, vetting them, they all come from more institutional real estate backgrounds. doing site tours were doing due diligence we're looking at comparable property values we're talking to brokers in market really working to validate out that this is a business plan that can be successful which is why we accept very few investments you know compared to what we look at historically i think averaging around five percent of the investments we see actually make it onto our platform for investments the other big piece is the diversification”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“So individual property, you can come on our website, you can see here's a property in Charlotte. And this is a multifamily value add. These are the rents today. These are the rents at comparable properties. Here's how much people are going to spend to improve the units to where they think they can drive rents to. And we find a lot of investors like the transparency of knowing exactly the type of property they're investing in. But on the other hand, I think strategy investments make sense for a lot of people too. So we have portfolios where it might be five or six multifamily properties. So you're not picking yourself, but if you believe in housing, that could be a good entry point. Really, I would say the calling card here is just kind of information transparency, right? We're trying to expose all the work we're doing in the background in a way that's understandable, digestible to investors who might be new to commercial.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we divide our offerings into three buckets, which we call key burn grow. So we have a very diversified, very short-term note, three months, six months, nine months, backed by a pool of real estate that's really a kind of dip your toe cash management sort of investment. The earn bucket is income-oriented real estate. So kind of that middle bucket of risk and that could be preferred equity, it could be mortgage debt. In some cases, it might be an equity investment, but something in a stabilized property that has either contractual cash flow from a long-term tenant or really has been operating at a similar level for a long time. And then the grow bucket is more that upside kind of equity oriented investments. And within these, we generally have individual property investments and then funds.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Clubs and friend of a friend kind of connections, that's what dominated these kind of private market real estate investments. And I think that anytime a business has moved online, you've seen a lot more transparency, a lot more efficiency. And that really felt like the opportunity is, wow, now money can flow from this whole new group of investors who's really been kind of kept out by a combination of market practice and regulation.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“So I was working as a real estate lawyer, a firm called Simpson Thatcher for big private equity companies. So most of my work was with Blackstone and then KKR and Carlisle, you know, really was steeped in that kind of real estate private equity world. And a few things I think really made this look like a big opportunity. So the first was simple change in law. So in 2013 passed the Jobs Act, which really let you put investing online in a different way. And second is my own attempts to invest in commercial real estate privately, just not finding a lot of access. And theoretically, living in New York City, working on deals for Blackstone, I was about as well situated as anyone to put $30,000 into a real estate project. But I just didn't find it. And really, this is something that has been operated out of country.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“A premium on income just overall across the market. And the equity volatility is high. So that's naturally a kind of flight to safety and a flight to some safety with shorter duration. In terms of those yields, we're targeting in the 12% range, something like that. You know, it's pretty variable depending on the type of underlying real estate project, debt now is starts at a similar rate to your home mortgage, probably in the seven percent range. And then can go all the way up into the mid-teens if it's for construction. So we're following somewhere in that middle zone, you know, focusing on these kind of value add investments. They have income, but they have a business plan to improve value. And that's really what they want the money for. They're like, we think we can execute in 12 to 24 months. The value is going to improve this way, even if the market is doing things on the side. And, you know, then.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. I mean, that's exactly how we think about it, right? Is that we think you should think about real estate the same way you do your stock and bond portfolio, right? That it's a matter of allocation that's driven by your own risk preferences, your duration horizon, you know, obviously your focus on income versus appreciation could be a big factor. And build that portfolio that works for you. I do think, though, that unlike the horizon in the public market where many folks are kind of what's put my money in and I'm going to ride this pretty passively until my retirement, I think you can really find advantage by being a little bit more active in the private markets where the durations have start and end dates. So you're trying to match your investment to what's happening at that particular point in the market cycle a little bit more. As I said today, we see there's”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“In the lending side and about 50 in the equity side. And we really switch that mix based on where we are in the market cycle, you know, what's happening with interest rates. And right now, we want to do as much credit as possible because these are generally short-term opportunities if the value of a property falls by 10 or 20 percent. It doesn't impact you in the same way as an equity holder. And then you're recycling your money relatively quickly. So if you feel conviction, which we do that in 12 months or 24 months, there's going to be major buying opportunity on the equity side. It becomes this great place to make income as you watch the market unfold more.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Banking crisis a few months ago with a few of the larger mid-tier banks going bust. And that's had some downstream ripples on commercial real estate lending, in part because regional banks are maybe the most important player in commercial real estate lending. You know, the big banks certainly do it, but that's to a pretty limited slice of the market, really doing it to the largest deals and the largest markets. In most places, regional banks are kind of the default lender. And now they're scared, you know, they're working with regulators who are looking at their balance sheets more tightly than ever. You know, they made a bunch of investments at interest rates that don't make sense now, which is putting more pressure on their balance sheet. So they're just pulling back from lending. They're doing a lot less of it. And that opens up more opportunity for nonbank lenders. And for us, you know, we've historically done about 50%.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, absolutely. Private credit's obviously a big bucket, but it's lending instead of making investments in equity, simply put. And from a real estate perspective, there's definitely a lot of different flavors of it. We've mostly approached it through bridge lending. So, you know, essentially lending to someone who needs one, two, three, four years to execute a business plan and their plan is to then refinance with a new loan, pay you back, and continue to own the property. We think that the opportunity set in private credit is massive. You know, the best that it's been and at least a decade. And the factors are pretty simple, right? I mean, interest rates go up. So that, of course, just drives absolute returns up. And the other factors are a little bit more below the surface. So I'm sure, I'm guessing you guys have covered in a podcast at some point, you know, everything that happened with the”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“About to fall. So, you know, they slowed down. And, you know, as we've seen it today, housing prices aren't really falling. I mean, they're falling in some places, of course, but not at the level that I think people had forecasted six months ago, 12 months ago.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Home dealers. Yeah, so they are actually starting to get moving again, but for a while, you know, they're forecasting future market conditions, right? Because they takes them, you know, 12 to 18 months to deliver new homes longer than that if there's a, you know, planning and permitting cycle. So they're trying to say in 2020, they're looking ahead at 2022 and what demand is going to be there. So that's been one of the funky things over the last few years is the way things have played out versus the way people thought they would play out have been really different. So at the pandemic, home builders slowed down because they didn't see this big pop coming, which then creates this tail that happens years in the future. And I think the same is true over the course of the last year when interest rates go up. The home builders all say, oh, man, our profit margin is about to get squeezed. And it looks like the economy is headed for a recession. Housing prices are”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Going to have to break for that reason. And then once you get a little momentum in the market, right, more inventory is going to depress prices. Once people start to see that happening, they go, I don't want to be the last person to sell because then my price is going to be way down. But in terms of impacting the market overall, I just don't know if it's enough total units compared to the massive size of the housing market. And I think you also tend to see more of those short-term rental strategies outside of core urban areas, especially since a lot of cities have made it really difficult to use Airbnb. You know, they've really pushed against it. But no doubt that that group is feeling the pressure right now.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“There's a lot of pieces there. I guess starting with the kind of top level question first, you know, how this might play out, I think that even though there's not a mortgage gun to your head to sell your home, there still is this sort of rising pent-up demand to move that does happen, right? So people will hold out longer than they typically do right now because their cost to replace their house is just going to be higher because the debt's more expensive. But at the end of the day, life factors are life factors. And whether it's someone passing away, someone getting married, someone moving away from home, someone graduating in college, you know, whatever it is, people's circumstances change. And you can only resist your change in circumstances in terms of where you live for so long and so hard. So I do think that at some point it is.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Then look to sell because you've already created the value and now you're just waiting for the market. So everyone in commercial real estate has investors. And whether that's a fund that their time horizon is five years, seven years, ten years, or in the private markets, that tends to be even shorter. It's really about what your patience is. You do, of course, have these family offices and, you know, folks who are approaching real estate in this intergenerational way that they want to be forever holders. And, you know, they're tending to look at debt markets as in a much more long-term way than I think the majority of the players are.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“I think that it goes back to a ownership horizon versus an investment horizon. So, of course, people move now, I think, more than they ever did in the past. But when the 30-year commercial mortgage was created, it was really on the premise of you buy your house and you live there. And then eventually you own it and it's an asset for your family and it can get passed on. And you're really trying to build that intergenerational wealth. When people are approaching commercial real estate as a business, you know, it's really to make money in a defined period of time. And particularly common strategy you see is a value add business plan. So by a 20-year-old building that hasn't been well maintained where rents are $1,000 cheaper than they are across the street and then go in, fix it up, bring it up to standard raise rents.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Right, interest rate hikes are temporary if they can't get a loan to replace a loan at a price that makes sense at an interest rate that makes sense, that's when they're really forced sellers. And I think the low inventory that you're hinting at issue in the housing market is just driven by the fact that no one is selling if they have a mortgage at 3% unless they absolutely have to. And life happens, right? People need to move. They have a job. They need to move for family reasons, whatever. But at the end of the day, you really almost look at that 3% mortgage as an asset right now, which is creating a lot of reluctance.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's a great question. And, you know, I would say just if you tell people at a cocktail party that you work in real estate, you know, the first thing they ask you about is homes, right? And what's happening in that market? The big difference that you see in commercial real estate that I think drives more transaction momentum is the duration of the debt. So a typical mortgage in commercial real estate is not 30 years. Really the longest you ever see is 10 years. And that's a pretty small slice of the market, relatively speaking. You have a ton of mortgage debt that is two years, five years. And also more, I think, floating rate debt than fixed, you know, fixed really has come to dominate the single family home market, residential lending. So those really become, the debt becomes the catalyst for needing to sell. And, you know, I think that even for owners who believe in the long-term future,”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“And, you know, right now, employment is at an all time low or close to an all time low. So that's not getting tested. But from my perspective, I don't know how it's going to play out candidly. And, you know, until we have conviction about what the trend is actually going to be over the next few years, we're approaching it incredibly cautiously.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“That there will always be a point at which asset prices will make sense for the opportunity. We just don't have conviction that that point is here yet or a lot of visibility into when it'll arrive, right? And you can tell yourself a lot of stories right now about what the future of Office usage and remote work looks like. You know, I think there is certainly a gang that says the traditional office is basically over. This is going to be the longest going out of business sale possible. What was it? Kmart that, you know, basically went out of business over the course of 15 years. I think there's definitely the strong advocates that feel like we don't need office. It's over. On the other hand, I think you have people saying, well, let's see what a recession does if that puts butts back in seats because there's a perception true or not that, you know, it's a lot easier for an employee who doesn't know their boss to get caught than an employee who does see their boss.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I may have expressed this wrong when we were talking. Prices are definitely coming down in office. You know, I would say it's more the famous expression, you don't want to try to catch a falling knife as much as they have dropped for things that have actually sold. I don't think we've seen the bottom yet. And I think that's the general feeling within the industry. You know, if you look at it, you have foreclosures or defaults in major office buildings, major cities with the biggest landlords in the world. And when you start to see that at the top of the market, you know, you can only imagine what's happening in the bottom of the market, you know, and those three units kind of office buildings that were built in 1970 because those always feel the pinch more than the kind of big New York City glass tower does. So, you know, from our perspective, I think.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“For sure. The other thing, though, is there's also the forecasting into the future, right? So with a real estate investment, for most of them, you're making some of your return through cash flow, which is definitely more hit now, but you're also making a big chunk for most deals in your kind of back end appreciation. And where the forecast happens there is what are cap rates and interest rates going to be in three years or in five years when I go to sell this? you know, some of the thing that some of the things that make cap rates stickier are, you know, exactly that, right? Oh, well, interest rates are high now, but the Fed is indicating that interest rates might be 2% lower in three years. So, you know, we think there's a little light at the end of the tunnel.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“We're waiting for, right? You know, it's when is the point to start pouncing? When do we feel like valuations are at their end point, at their bottom? When is that buying opportunity really going to be there? So right now it's happening on a one-off basis. You know, everything's a little bit more idiosyncratic, but that will start to hit the market more broadly over the next year. And I think then you'll start to see that pace of transaction volume really, really start to pick up.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“You know, it's honestly much easier to show you in an Excel spreadsheet, but the gap in interest rates is kind of magnified by leverage effectively, right? Or your gap in purchase price and cap rates is magnified by leverage. So your cap rate can go up 10 or 15 percent and you're not seeing that same translation down below to the cash yields. The other fact is, you know, cap rates and interest rates are related, but it's not a perfect relationship, right? It's not like the cap rate is always 2% above the interest rate. It will, you know, get closer. It'll get wider depending on other factors in the market. So right now, I would say it's trending, they're trending closer together. And then if that expands more over time, then you'll start to see more dip in valuation. So I think, you know, for many of us, that's the moment.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Versus a public market, of course, is that pricing is just much more opaque and much less instantaneous. So it's hard to say exactly how much valuations have moved, in part because there's just a lot less market activity today than there was a year ago. There's kind of a classic bid ask spread, right? I mean, a seller thinks that their property is worth more than a buyer thinks it's worth today. And as a result, sellers don't want to sell and buyers don't want to buy. So, you know, that will start to crack. You know, it kind of always does, but there's definitely a delay between interest rates going up, putting that pressure on prices. And when that actually starts to play out in the market, at least in a big way. But, you know, from an estimated perspective, kind of a more theoretical perspective.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“I guess to give a very, very mini primer on how commercial real estate is valued, commercial real estate bought and sold on the basis of what's called a cap rate, which is essentially an inverse of a multiple on net income. So as interest rates go up, this puts pressure on cap rates to go up too and multiples to go down. You know, ultimately you think about it as your unlevered yield on whatever you pay for it has to be higher than your cost of putting leverage on it. You don't want to buy something at a 7% cap rate and take out 9% debt because then you're taking any kind of return out of your equity and paying it to your mortgage lender. So basically right now all valuations are getting crunched in commercial real estate. The big difference with private market like commercial real estate.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“You know, and your first point on self storage, I think, is generally a good point on just the argument for investing in these larger commercial real estate deals, right? It's the economies of scale that you start to realize and you just have more diversified risk, right? I mean, there's a huge difference in losing a tenant in a two unit building, which you own personally versus, you know, losing a tenant in a hundred unit building that you own a small part of.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“The last three years. So, you know, I think the window is now because once you have the opportunity to buy now from a mom and pop, but maybe sell later to a institution that's willing to pay more of a premium for something that's already been brought up to standard, that's a really nice point in the market cycle to participate.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Going to move out because people don't want to move, and they can also manage expenses better and have bigger portfolios, which gives you some economies of scale. On car washes, the subscription revenue is just a new way of thinking about it. You know, everyone obviously is used to shelling out their 10, 20 bucks or whatever when they go to the car wash, but increasingly, especially in kind of high traffic areas, in states where people like to get their car washed the most, car washes are increasingly offering monthly memberships, converting some of that one-time revenue into subscription and getting higher multiples when they sell as a result. So I would say with both, they're kind of midway through the institutional capital attraction process, self-storage is probably further along than car washes are. But, you know, for both, you know, you've seen car washes get sold in big portfolios to, you know, multi-billion dollar private equity companies.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Were historically cash based businesses also, particularly on the car wash side. So I think there was a little bit of sketchiness on how much income these things were actually producing. And then, you know, I think as private equity style investors have come into both, they really look at these as subscription revenue opportunities. So self-storage, you know, it's still rental-based. You know, it's not really a new opportunity to turn it into a subscription. But I think the commonality is that the customers, once they're in, are incredibly sticky, right? And we all have software subscriptions that we don't realize we have for six months until we see them on a credit card bill. And I think for many people, self-storage is like that. Once it goes in, you kind of don't think about it anymore. So as a result, you know, a lot of professional owners realize that they can kind of keep slowly escalating rents. And that basically people”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Big picture investing is a constant search for relative value. And it's a bit of a game of whack-mole. So something is interesting and has value, money goes into it, valuations drive up, and then the value proposition goes down, right? So it leads to this constant search for new opportunities. You know, I think multifamily versus as attractive as it is. A lot of people know it's attractive. you know, evaluations have really soared. You know, that leads us and a lot other players in commercial real estate to look for things that haven't seen as much institutional investment over time. Self-storage and car wash are two that we've identified and made investments in over the last five years. And you're right. The common characteristic here is that they've basically been mom and pop. They're really fragmented, you know, owned by nonprofessional owners who aren't as good at driving rents or managing bottom line.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, that's a great question. I think it's a pretty common misconception when you hear commercial, you think it's office, but it really encompasses all real estate that's owned and rented for business purposes. So even when you're thinking about residential, anything that's multifamily apartments that are for rent, that's really in the commercial real estate bucket. You know, I think they're traditionally there's six categories, multifamily industrial office retail, hospitality, which is mostly hotels, but also things like casinos, resorts, that sort of thing.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, look, I would say we've been riding housing. You know, that's been over 50% of all the investments we've done since 2015 has been housing, kind of thinking about that long-term trend. And honestly, the same thing industrial. I think we were a little later to that. We came more into focus in probably 2018 or 2019 for us. You know, the most surprising one, which I'm sure we can spend some time on at some point today, is office. I think that the idea of remote work certainly existed before the pandemic. You know, smart people may have been saying that there's some long-term pressure there, but office in many ways was the most institutional part of the commercial real estate market, you know, really dominated by big private funds. And now the future's incredibly uncertain. And I think that caught the whole industry by surprise, the way that this moment in time really accelerated.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“You know, everything getting offshore. But that trend has really reversed in the last 10 years and really last five years even more, first, I think, driven by e-commerce, the uses of industrial are changing. It's less about on-site manufacturing and more about logistics, but it's really become one of the darlings of commercial real estate investing as a result. And I think there's some interesting kind of tailwinds behind that too over the next five or ten years, whether they end up coming true or not. I think that there's a lot of momentum right now behind onshoring, you know, given the way that supply chains broke down during the pandemic, given how reliant we realized we are on China in particular, I think there is both political and also at the groundroots kind of move towards onshoring that could be a major tailwind over the next decade. So, you know, I know that's a little bit all over the place, but”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“The pandemic, but that's a trend we've seen over the course of a decade. And the reason for that is really construction can't keep up with need. And every time you have moments of market volatility, whether that's the pandemic, whether that's right now with interest rates rising, that causes this slowdown of construction and then two, three, four years down the road. There aren't as many new units coming into supply as we might have planned. So there just isn't really a catch-up path. So, you know, I think in thinking about investing in the future, we continue to look at housing, we continue to believe in housing for that reason. Another big one is industrial. So, you know, looking back, it's kind of hard to imagine now, but looking back, you know, industrial real estate was a disfavored property type, you know, really tied to the slow demise of industry in America.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“That number is close to a trillion dollars. I think they're on pace to break a trillion dollars, maybe even this quarter. And that is almost entirely real estate. So that's had a huge impact on valuations, just with that amount of institutional capital moving into the market. I think that's really pushed things forward from a value perspective. I mean, there's lots of reasons why valuations have really risen dramatically over the last 10 years. One of them, of course, is just this really prolonged period of low interest rates that we've seen that's reversed heavily over the last year or so. In terms of other kind of really macro trends, I think that the affordability crisis in housing is something that really colors the real estate market, both looking backwards and looking forwards. No secret to probably anyone listening to this podcast, whether you own your home or rent. Rental rates have moved up, home prices have moved up. Obviously, that was accelerated.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT
“I think one of the most interesting things that's changed over the last decade plus is just the position of real estate and kind of the broader investing market. It's really moved from being a alternative asset into one of the primary asset categories alongside stocks, bonds, and cash. And I think about that really as the way that institutions have adopted it. So, you know, real estate's long been a part of institutional portfolios, but there's really been a secular trend over the last decade. Private equity in particular has really come to be dominated by real estate in particular. I think Blackstone is kind of the bellwether of this. So 2010 Blackstone had around $100 billion of assets. And obviously a very large number, but that was also split, not just in real estate, but in more traditional private equity.”
2023-07-14 · We Study Billionaires · TIP564: Capitalizing on Commercial Real Estate Trends w/ Charles Clinton · IDENTIFIED FROM THE TRANSCRIPT