YouSaid · the spoken record

Ian Formigle

lines on the record: 76
first: 2022-02-18
most recent: 2022-02-18
sittings or episodes: 1
sources: podcast

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“Probably something that looks like multi-tenant office. Those are three to five year terms. So you're going to have probably, what, 15, 20% of your building turning at any given time? It's not as, you know, resilient as something like multifamily or hospitality, but it's also not the end of the world. Industrial is going to be a little bit longer, right? We're going to see five to seven 10-year lease terms in industrial. So I'd say that in an inflationary environment, industrial is going to do fine. It's always doing fine. It's doing great right now, but you probably want to look at what's your weighted average lease term. So, you know, I think that's kind of a good way to look at it in terms of asset class by asset class. I think the final one is retail. Retail is going to also have a little bit longer terms, five to ten years. Sometimes those lease bumps in retail, they can go out four or five years before they bump up. So again, when we think about inflationary environments, we're probably going to look at a retail deal and dive into that rent roll and say, who's rolling? How does it look? When do the rent bumps occur? But overall, it's, you know,”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Of the spectrum? Well, the most, I'd say, inflation, non-resilient asset class, I would be something like a 30-year net triple net lease on a Starbucks or a Walgreens, right? That lease has been signed up years ago. The lease bumps are all baked in. If it was signed up a couple years ago, that lease term, well, it was assuming a low inflationary environment for like the next 30 years. So you'd probably want to avoid that type of asset. Now you've got everything in between. So what looks closer to hospitality? Well, multifamily apartments, right? Because we've got one-year lease terms. They're constantly coming up on renewals month by month throughout the year. So you can, again, you can mark to market, you know, to keep pace with inflation and grow rents. We saw that in 2021, right? Massive rent growth in multifamily up double digits nationwide while we saw some markets as high as 25 to 30 percent. From there, you're going to get into”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Even maybe some confidence that investing in commercial real estate is actually as good of a hedge as we oftentimes think it to be during periods of inflation. And so from there, I think it really is then worthwhile to kind of break that down when we think about asset class because not all commercial real estate is kind of equal when it comes to hedging against inflation. And so what I mean by that is that if we think about the most inflation resilient and dynamic asset class, Well, what you're doing is you're taking the analysis of the duration of the lease. The shorter the lease term, the more resilient, the longer the lease term, the less resilient. So what would be the number one most resilient asset class? Well, hotels. They get marked market daily. They can rapidly adjust in times of inflation and kind of garner what you can get at every period of month as inflation ensues. On the opposite side,”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Right was in the 1970s and 80s. And if we look at how commercial real estate performed during that period, and it's been tracked through, you can track it through private real estate, through the Nay Creef Index, and you can track it through public REITs, through the Nay REIT index. What you will see over that 1970s to 1980s period is that real estate beat the annualized S&P returns by 9% on average. And what that did is it translated into a 5% annualized real return on investments. So, and as a reminder, real return is what we get after we take taxes and inflation into perspective. So 5% during that high inflationary period was pretty solid. But on the other hand, the S&P, the long-term treasury is corporate bonds, right? Those returns were all net real, negative during that decade of inflation. So this historic performance of REITs and the Nay Creef index, I think it gives us some solace.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Trade's probably like the question of early 22, right? When we saw that 7% year over year spike in CPI come out, I think it took everybody back a little bit. I think we kind of knew what was coming, but it was still a little bit of a shock to see it. So this question has definitely been on the minds of a lot of our investors on the marketplace as we see these kind of unprecedented levels of inflation post-pandemic started to really pop up both our research and experience suggest that owning hard assets during inflationary periods is usually a good strategy. Commercial real estate's a good hedge. And commercial real estate is also the largest category of hard assets. So dive in, let's add a little bit of context to that. I think what's interesting to note is that last year we saw Green Street produce a report that sought to analyze this very same question. And what stood out to me was the data that it presented showed that if you looked at the period of the last real inflationary period for us,”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Because the way that demand is looking now and how it's fluid, and it's also, it wants lower duration in terms of commitment, you have to then start thinking about building out an office, like I said, more like a multifamily property. It's going to look like how it's going to look. We're going to repaint it. We're going to carpet it. We're going to make sure that the lobbies look great. But the space is kind of the space now for years. And it's kind of a take it or leave it. But again, kind of diving back into that thesis around co-working is that that kind of buildout is also works for co-working because it's going to take different types of spaces. It's going to create, you know, multi-use possibilities within one floor or two floors of a building. So I think it's just in the future, we're going to see more and more co-working start to show up in more buildings, while maybe some of the bigger, you know, traditional spaces are upstairs. The smaller tenants are grabbing, I think, more and more co-working. It's just kind of how we see it.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Is embraced by these companies. Well, think of the benefits that they get because they no longer have to manage an office in the way they used to in the past. And managing an office today is challenging because you just don't know what to expect. You can get away with that completely by going to the co-working model. So ultimately what I believe the future office looks like is it looks more like a multi-family property than it does today. There's this thing sometimes I refer to it as what I call the tenant improvement industrial complex. And what that really means is you have these companies that would come in in the years past and they would want this customized office space and you have a landlord that would spend 70 to 100 plus dollars per foot building it out for them five years later you kind of tear it out and start all over again because the next company wants something different and the land and the way the market was working was it was conducive to catering to the needs of the new tenant and solving to their demands i think that's that has to go away in the future”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Type industries, professional service use industries that I think are going to have a higher rate of utilization. So that's something that we also bake into kind of our equation when we think about office in the future. And I think the final thing to think about when it comes to the future of office is blending co-working into it. The shifts the office market is experiencing right now, they are very well suited to co-working. When you go to a hybrid model, you are giving up on the idea of dedicated desks for employees and you're thinking about this percentage of your workforce that is going to filter in and out of the office on a weekly basis. And the days they're going to overlap some, there's going to be some unique workers on some days and other days, but you're now starting to run your office more and more like a hotel. And that, what that really means is that that type of demand, it's really well suited for co-working. And the beauty is, is that if the co-working model”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Relatively in the load amid forty percent range for utilization. And what I mean by utilization is what percentage of people are coming into an office today relative to who walked into that office in 2019. Now, if you back up a step and you say, what does it look like across the top 10 metros? That office utilization rate drops to 31%. And then from there, if you look at some of the coal stone markets, we've talked about New York and San Francisco in the past. Those are, I think, still kind of down in the 20s. So I think this discrepancy is a part of what makes me more bullish on the Sunbelt office locations as we hit the middle of this decade. Adding on top of this is that there's definitely companies that will revert to roughly five days per week in the office when things return to normal. For example, we look at law firms. Well, the average office utilization rate across the country, as I mentioned, those top 10 metros, about 31%. Well, when you look at law firms, now you're at 52%. So I think there are some of these type service.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“That will tend to reshape, I think, the industry over the coming years, but it's just a really fascinating time to see how that transition is taking place. I think an important thing also to point here, Tutre, is that as we know office utilization rates vary depending upon location. I think that is also an important part of the equation as to what office looks like in 24 to 25 as things start to stabilize. So to me, what that suggests is that certain markets, the more highly utilized ones, they're going to start to feel more similar to 2019 in the future. And while other markets continue to feel a little bit more like 2021. So there's a group called Castle Systems. They track a lot of data in terms of the office space. And what we're seeing is the three markets that are really standing out in terms of utilization. Those are Texas markets. Those are Austin, Dallas, and Houston. And they're months the top in the nation. And those look right now.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Ladders, and they're tracking that roughly 20% of high paying jobs are now remote. So I think the bottom line is, is if the jobs are now being advertised as remote, I think they're going to get staffed remotely. And I think we're going to have a lot more remote workers in the years ahead. So I think what that does is that increasingly makes us kind of bullish on infusing the hybrid office model into our office investment thesis. And it's important to note that a growing hybrid office model, it doesn't necessarily mean doom or gloom for the sector.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“A lot of time for people that are busy. So you got to ask yourself how many people are going to be willing to just give back six to nine weeks of this newfound time just because the pandemic is over. And I think the answer is nobody's really willing to give all of it back. I think a number of people are willing to give some of it back, but the willingness to give it back is going to be really, I think, contingent upon the experience of what they go into the office and what they see when they get there. And so, and when we look at the market today, I think the kicker here is in the jobs posting data. So according to a recent report published by Green Street, you can now see that roughly one out of six job postings on LinkedIn are remote. And that was compared to one out of 67 in March of 2020. So pretty big difference. And then furthermore, there's another website called”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Look like, and I think the update to that is that it's starting to look a little bit more like 37% empty desks, as we would say kind of the dust is starting to settle a little bit on the space. And so I think the thing that is really beginning to sink in for a lot of knowledge workers around the country is how much time they get back by working remotely. And this is probably one of the reasons why I think that hybrid work is definitely going to be a sustainable trend, at least for, call it this decade. And so just think about like just commuting time and what that does. So US census data we can look at currently estimates that the average commute time is just over 27 minutes. Then you factor in things like getting ready for work and transition back and forth to work and getting to your desk and actually being productive. Okay, so now we're up to one to two hours per day solidly. It's kind of like thrown out just getting back and forth. So over the course of the year, that's six to nine weeks, right?”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, Trey Office has been a fascinating market. And it's to me, it is probably the most interesting market right now because it is in a major state of transition. So there's a lot to unpack here. So I'll jump into a few of it and try to be as brief as possible. So for starters, early 22, there is definitely more clarity today, I think, relative to a year ago in sense of what the future of office is going to look like, it's coming and it's starting to look more and more like a hybrid model. It's gaining traction and we're starting to see it discussed more and more. And I would say that within the overall sphere of office, you probably do have to carve out some of the other types of work that really do need a physical setting such as life sciences companies. But one thing I think, for example, Treys, last time we talked, we discussed Gallup data that had forecasted that what the breakout of the in-office, hybrid office, and fully remote workers was going to”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“So, again, this is an indirect risk, but it's a very real one for the retail industry. And that means that you have to understand the viability of your tenants in a retail shopping center and their ability to staff when evaluating one of these types of deals. So with that downside, kind of risk mitigation said, it's also important to note that supply constraints, you know, supply chain constraints, I should say, does and is creating a new opportunity that is cropping up around the country that's designed to specifically address those constraints, and that is what we call industrial service facilities. I'm a big fan of this strategy, so I do want to talk about this in our conversation, but there's going to be a point in time where I think it's going to be a better point for us to do it. So I'll pause there while we move on to the next question.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“A property when you're dealing with like a day to day type of occupancy. And finally, I would say that in the industry, there is an indirect risk in retail shopping centers associated with labor shortages. And so in this scenario, while your tenants are the retailers, they're paying you fixed rent on long-term leases, many of your tenants in a shopping center, particularly, I'd say, restaurants, well, they rely on lower wage workers to conduct their business. And as we've all read about in places like the Wall Street Journal and so forth, we've heard about these stories where staffing, these types of positions has been really challenging since the beginning of the pandemic. So if you're shopping center has a number of restaurants in it, and some of those restaurants are now closed for part of the week because they're short staffed, well, as a landlord, you have to wonder if those tenants are either going to fail, they're going to either not renew their leases, or they're going to come back to you and ask for rent abatements.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“And say, and work with those general contractors that are going to command the respect of the subs. And by doing so, you're going to have greater confidence in their ability to deliver projects on time. So I'd say next, aside from construction issues, another risk mitigation concern that stands out to us is in the hospitality industry. We've seen enough BLS data to know that the hospitality industry is bouncing back and they are rehiring. But a lot of that workforce that they lost during the pandemic, some of it is lower wage and they're struggling to bring some of that back. So when we consider risk when a value in a hotel deal, we are then going to delve into the question of who is the hotel operator and what is their staffing plan. We need to understand if they have adequate staff in place to execute the business plan because to kind of break down, if you can't rent a room if you don't have adequate staff to clean it, right? So these are these are things that really do affect.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Such as how many projects has this team delivered together? How many of those have been in this location? What's this track record in general of the general contractor for delivering on time? And where does the contractor rank within the construction industry? And how often has it lost its subs to other projects? And that's really the part of about the labor shortages, right? Because one thing that you learn by participating in a number of development deals is that subcontractors are you kind of would say they're like hired guns, right? They come in, they're there to conduct a piece of a project, get it done. And sometimes those subcontractors are willing to bail on one project for a higher paying project down the street. But what's really important to note is they're only willing to do that to the lower tier contractors because they also don't want to burn bridges, right? They have to go on and get their next job. So when labor is tight, as it is right now, you really want to focus in on that labor side of the equation.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“I think from a real estate investing perspective, there's a few things that we've been watching as it pertains to labor shortages and supply chain constraints. A few things come to mind, I think, on the risk management side, as well as one other thing that comes to mind in terms of new investment opportunity. So I'll explain what I mean on both fronts. From a risk mitigation standpoint, I think the first thing that stands out to me when reviewing deal flow is understanding how labor shortages may affect project timelines on new development. For any new development deal that we look at, we have to consider that delays in timing, they're costly. So one item that we tend to hone down on when reviewing a ground up deal is assessing the probability that the developer can deliver the project on time. And one key ingredient for doing so is having confidence in the general contractor. So that means that we have to evaluate things such as the 10 year of that relationship between the developer and the contractor. We have to ask questions.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“And in times of inflation, you want to hold hard assets. So I think this was just kind of like what you would say is more fuel on the fire. And I think the final thing was, you know, we were experiencing rapid GDP growth in 2021, right? We saw that end the year at about 5.6%. I think that's according to a lot of banks, including Goldman Sachs. So I think Trey, in essence, you rolled all up. We had a bunch of macroeconomic factors. We had market-driven capital force factors at play. And those were all combining to drive demand for commercial real estate. So just, you know, just a lot of demand there.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“And those were preventing some new stock from being delivered to submarkets quickly enough, while at the same time driving its own cost of creating that stock higher. For those of us in the industry, we know that the buyers of existing real estate, they factor replacement costs into their analysis when bidding, in essence, when you buy a property, you want to buy it at what you think is a discount to what it costs to build it today. So, but when you're in an environment where replacement costs jump 12% or more in a year, well, that creates more room to increase your bid because you know that your discount to replacement cost is also increasing at the same time. So I think the third thing that we saw was that market participants were beginning to realize in 2021 that we were beginning to enter an inflationary environment, which we are now talking about in 2022.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, interesting. I think at a high level, you probably sum it up as saying just pent up demand from both buyers and tenants on the transaction side. I think there was this bit of a perfect storm coming into 2021 that translated into these rocketing pricing that we saw. We begin with think about all the macro drivers that were in play last year. You know, first, we saw this tremendous surge of investment activity across all forms of capital, particularly institutional sources of capital. that were back in the markets and they were fully engaged. You know, it felt a bit at times last year as if the institutional capital side of the equation was attempting to kind of make up for lost time in 2020 when they were more on the sidelines and not as active. And so what we saw was capital flows absolutely driving pricing and rocketing prices upwards in 2021. The next thing that you saw was we had supply chain issues that we know about.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Number one industrial market in 2022, which I think we'll talk about a little bit further in the show. So Trey, just an overall, a phenomenal year for the commercial real estate market, especially for those multifamily and industrial asset classes.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Commercial property price index, for example, that's the CPPI. And prices increased 24% in 2021 with significant price appreciation basically spread across most real estate asset classes. The highest appreciation that we saw last year was in self-storage at 66% and followed by industrial at 41%. So just from a pricing perspective, just huge momentum in the market last year. And then in terms of locations, Dallas Fort Worth Metro was the number one market for transaction activity. It was followed by Atlanta and then Los Angeles, Phoenix, and Houston to round out the top five. Most of the top five markets were anchored in apartment sales except Los Angeles, which was interesting, where we saw industrial sales actually beat apartment sales. And not too surprising, the LA market is a tremendous industrial market. It's actually our”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“That was accounting for about 42% of all deal activity, which translates to about $335 billion. That was also a record. So from there, the other asset class that we've all been speaking about, and it was no surprise, was industrial. That had the next most transaction volume. That showed up about 21% of total deal volume, about 166 billion. Also a record. So just a huge year for those two asset classes. All the other sectors pretty much then chopped up the remaining $308 billion of total deal volume. And it was interesting to see hotels bounce back. They had $44 billion of total transaction volume. So not huge, but coming off of 2020 where they essentially did nothing. It was tremendous to see that asset class start to partake again. And then Office even actually bounced back, had $139 billion of total transaction volume there as well. And from a returns perspective, 2021 was just equally astounding. We track Green Street.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so in the second half of that year, it was just tremendous growth and resurgence in the market. I mean, when we were speaking, we were seeing, when we spoke last time, you know, in 2021, we were starting to see some movement and it was improvement in the market. It just hadn't really started to accelerate as much as we had previously maybe thought, but it more than made it up for it in the second half of the year. And so when we ended 2021, it was just a historic year for the market across multiple measures. you know, from starters on a volume side. We ended the year with $809 billion roughly of total transaction volume, and that's according to real capital analytics, the group that I had mentioned during our last conversation. That was an 88% increase year over year from 2020 volume. So just a huge comeback year for the commercial real estate industry. So when we break out that volume and look into it, you would see that multifamily as we probably all get was the dominant sector.”
2022-02-18 · We Study Billionaires · TIP423: Real Estate Update w/ Ian Formigle · IDENTIFIED FROM THE TRANSCRIPT