YouSaid · the spoken record

Michael Simanovsky

lines on the record: 75
first: 2023-09-19
most recent: 2023-09-19
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

“Said to me something I'll never forget. He said when you walked in here, I thought you were going to tell me 70, 30 in favor of big balance sheet, great brand behind you. But I actually think it's the other way. 7030 in favor of your hustle. He's like, you know what to do. And that was the kindest thing anyone's done for me professionally.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Been so many kind acts that people have done for me, both personally and professionally. But the one that sticks out to me is when I was considering leaving my prior firm and stepping off the proverbial plank into this world of entrepreneurialism and building my own asset management firm and taking this approach to real estate, I was very fortunate that a mentor of mine, Sonny Kelsey, who runs a large real estate firm called Bentle Green Oaks, sat down with me. And what I thought was going to be a 30-minute conversation turned into a two or two hour plus conversation. And the worry for me when stepping off the proverbial plank was how much of what I had done in my career was because I had a very large balance sheet behind me and how much of it was because of the hustle and forward thinking or trying to find new ideas. And I went in to talk to Sonny and he said, come in and let's talk through everything you've worked on. And we spent two, two and a half hours together. And at the end of the two and a half hours, he said.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the best ones are you hear players talk about him and they're all excited to go play for John Wooden at UCLA winning his coach, et cetera. And they get to practice the first day and he teaches them how to put their socks on, teaches them how to tie their shoes. Because if they can't get the fundamentals right, how can they get anything else right?”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Life sciences, possibly even industrial, where there's been a lot of supply added in a pretty short period of time. The positive here is that there's no new development capital available today. So when you look into 26 and 27 and 28, the supply picture could get a lot better.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Structured corporate opportunity. So that'd be public or private companies that need liquidity. And I think what's interesting about that liquidity is it could be for defense or offense, defense meaning to shore up their capital structure or offense meaning to go acquire something, but they don't want to just take very punitive, pure equity costs of capital. They're willing to take something structured. I think third will be, and it's probably setting up to be an interesting time as we look out over the next year, not necessarily today, to look at discounted publicly traded companies, whether that's to own them passively or whether that's to evaluate them as take private candidates. And then lastly, given the uncertainty and challenges that I described earlier with the banks, there's going to be a lot of loan sales from banks and other lenders, and there's going to be some pressure to monetize those loans. And hopefully they might come at attractive valuations. And so I think a lot of these opportunities will present themselves in what were the favored sectors, the ones that have the short-term supply issues like multifamily.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“LA, men's basketball team, 10 national championships. And he has a line that I love Be quick, but don't hurry. And that line has always stuck with me about life. To me, it means it's important to be able to make quick and decisive decisions, but don't rush it. There's a time to be patient and a time to be impatient. And as I apply that to where we are in the cycle, I think the last few years have been a time to be patient. And I'm hopeful that we're on the cusp of a time to be impatient given the flight of liquidity and capital out of this space. And of course, I could be wrong about a lot of things. The economy could get worse or fundamentals could deteriorate. But us, a lack of liquidity today is driving a handful of opportunities. Number one would be rescue financing. So many companies or collections of assets won't be able to refinance their debt or will have issues with debt service coverage ratios like we talked about earlier. It will need capital on expedited basis. I think the second one would be.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“And extend our view is that this period will be characterized by pay down and extend. So banks need to recalibrate their credit risk to get capital ratios in line and borrowers need to recalibrate capital structures to get debt service ratios in line. But given that there aren't a lot of lenders in the space, you may be paying down your existing loan with some capital to get your existing lender to play ball and extend with you. And so this probably means fresh equity or structured financing needs to come in at the asset or company level. It may mean forster motivated selling of assets. It may mean pretty interesting and significant recapitalizations. That's why we call this period the re-equitization of real estate. It's going to be a period of meaningful asset and company specific deleveraging set another way a lot of liquidity is leaving the system. I think you and I are both big fans of basketball and I'm a huge, huge fan of John Wooden, former head coach of UCL.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“From its peak at the end of 2021. Obviously, there are some names in there that are more levered that are down quite a bit more. That's proxy one that's a good directional indicator for asset value. And then some of the core funds and other low returning buyers are having some well-documented redemption issues. And so you're seeing people pull back from the space. We also have general uncertainty in the economy and then elevated supply in the sectors that people were most attracted to, naturally, given the capital cycle dynamic. And so I'd say specifically multi-family life sciences, self-storage, industrial have probably have a period of digestion of that supply situation where transaction activity is down more than 50% year over year. Values are down quite a bit. Interest burden is up and loan to value thresholds are breached and debt service coverage ratios quite real. And so to compare it to another bottom of the capital cycle, if the GFC were characterized by, let's say, a mental.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bank, the lifeblood of commercial real estate, and a lot less affecting the real large nationwide banks. So what you're seeing is a significant amount of pressure to pull back on CRE lending. And as a result, debt capital has pulled back. If we think about the second point, which is the rapid increase in the cost of capital, base rates were effectively nil five or six quarters ago. And today they're about 500 bips. And because of the availability of credit that I just described has pulled back, spreads have probably widened 100 basis points or so. Obviously spreads will be fluid based on the availability of capital. But as of today, what used to be a three or three and a half percent loan is an 8.5%, 9% loan. So there's been a real meaningful jump in the cost of capital. And then lastly, I'd say on the equity retrenching, you can look at the public REIT index, which is a good proxy for the direction of real estate values at times, and it's down 27.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“To an abrupt increase in the cost of that debt capital. And then lastly, meaningfully reduced equity flows to the space. It probably does make sense to touch on those a little bit. So in terms of reduced availability of credit, I would say if you read the paper, it's pretty well documented that banks have pulled back quite a bit from U.S. real estate. But it's probably more important to zoom in on the regional banks. And the regional banks are the most important provider of development and regional capital for real estate. And what we're seeing from them is a pretty sharp pullback. So specifically, there's a data source called TREP that we use. And of the more than 4,700 banks, over 750 of them have CRE concentration issues well in excess of FDIC guidance. So when we think about that, that's 16% of all banks in the country in excess of the FDIC guidance. You have an issue that's really affecting the local and regional.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“We get into the specifics, our view of the current cycle is that we describe it as broadly the requitization of real estate. I'd frame the last couple of years with 2020 and 2021 as a period of low rates, a period of low risk premiums, probably a little bit or the FOMO, ease of raising capital, and all that led to elevated valuations, which I think people also got excited about the prospect of ever higher valuations given what was going on in the environment. And so that landed us at the peak of the market in 2021. So set another way, and circling back to the premise of this conversation, good returns attracted a lot of capital, and it attracted a lot of capital on both debt and equity. On the other hand, if you think about today, as we sit here in the middle of 2023, capital is now flowing away from real estate, we'd characterize the current market for real estate by three pretty abrupt changes. One, an abrupt change in the availability of credit.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Should be thinking about these different geographies. This is what we're seeing, and they're constantly giving us feedback. If done the right way with a really good business, a really good management team, we don't become a financial buyer, become a real vertically integrated strategic player. And that means we'll get looks at single family rental loan portfolios that commercial banks are selling off because they're overexposed. And we'll get them at conversant because we're the controlling shareholder of Quinn, which we probably wouldn't have gotten in the absence of that. What I would say in that class is I would focus in on how durable is the asset, what's the reinvestment runway, and what's the team and the characteristics of the team that you need to execute on your path?”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Premise of the platform approach is that you're identifying a sector or asset type and you're going after it, you're leaning in. But the only way to do it is with a really quality management team. And so the thing we haven't talked about is you find that great management team, you put your capital, your time, your resources behind them, and you put them behind that one team. It's not like we're focused on building this industrial company over here and building another industrial company on the other side of the country or some competitive way. And so the question becomes how do you assess the track record of a team or their ability to work for you? Because that team works for us, which allows us to create a vertically integrated platform. We want to let that management team go execute. We want them to replicate what our playbook is at the asset level. We complement those teams with significant strategic support, capital allocation, decision-making framework. Hey guys, we should be leaning in. This is what we're seeing.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“And the defining moment for me was going back and saying, look, all of these other distress funds we know are selling, but these bonds can be worth two or three times what they're trading at if we actually look at it over three or four years. And it's just got me really, really excited about the opportunity to invest in companies going through transformations and that can happen through distress. It can happen through the public markets. It can happen through all kinds of different situations. But I think that moment was a defining moment in my career. We made it a very large position and went from there.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“In 2016, so seven or eight years ago, we were at my prior firm invested in the various bonds of Caesar's, the largest gaming company. And at some point that year, the company came out with its plan to reorg, which finalized the equity splits in the new restructured company to the various different creditor groups. The day that came out, a lot of folks were simply doing analysis around, okay, what's the bond trading app versus what the recovery is? I think the defining moment for me, and this was again something my old boss and mentor Doug taught me, is when you're looking at a distress situation, you want to be excited about what can happen next. And I think what we saw was an opportunity.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think you would probably focus the questioning around what are you doing at various points in the cycle? Because I think a lot of people are really good at just investing in real estate equity or one type of asset. I would just ask them what they're doing at various points in the cycle. And I'd repeatedly ask the same question and see how the business evolves over time, how the investment style evolves over time.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Know the specifics, my understanding is there was a relentless person in his neighborhood in LA who kept knocking on his door and saying, Hey, you got to look at this multifamily stuff. And this was 20, 30 years ago and started acquiring assets together and they built up a very large portfolio.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“A real estate value creation just to have a conversation about what it's like day to day running those assets and building a business.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think I would invite Sam Zell, unfortunately passed earlier this year, had an opportunity to meet him last year. He was the original thinker around real estate platforms from MyLens. And so he did it in a way where he, in essence, securitized real estate, so I want to spend a lot of time with him. I'd actually want to invite Charlie Munger because he has got a huge, huge multifamily portfolio. He's got this amazing lens of thinking about companies. I don't need to describe on this podcast, but he's got a huge multifamily portfolio and he's created a lot of incremental wealth for himself. I'd actually want to talk to him about comparing and contrasting what he sees in the equities market and what he sees in the real estate markets. And the third would probably be my friend Kevin Marquetti, who's the founder of Lineage Logistics, which is a cold storage company. I'd bring him because he actually founded and operated and ran from nothing to what's probably tens of billions of dollars.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“As fundamentals potentially start to turn back up, the best capital allocators and REITs are actually going to get premium valuations to let them go play offense and sort of allow a compounding effect of NAV growth on top of their normal course free cash flow per share growth over time.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“On the asset becomes very much a cost of capital opportunity or how can you drive rental growth through operating improvement. But what's interesting to me is the public reits on average have spent the better part of the last 12 or 13 years delevering. So most REITs have sub 40% loan to value based on the implied valuation in the public market. And I think that's a lesson that they learned and read investors learned through the GFC where you had these great assets and they had to be recapped at really distressed valuations causing lots of dilution in 2009, 10, 11, and you have the on average there's obviously exceptions to this, but you have the opposite dynamic today where the REITs are actually the best capitalized have access to the bond market, aren't reliant solely on agency financing or bank or insurance companies. And they have this dynamic where we think looking into 24 and 24.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think again if we're talking about the sector writ large, I think you have to look at it through the lens of cyclicality operating leverage and financial leverage. And so I think most real estate assets just by nature are being hard asset and capital consumptive have a lot of operating leverage. And we've talked earlier about at different points in the cycle, credit availability is really robust and today it's not as robust. But maybe you took capital and valuations are really high, put a lot of financial leverage on it to justify a return on equity or equity IRR that made sense for your cost of capital. And then unfortunately maybe cyclicality ensued. And so I think the biggest mistakes occur when people forget about the cyclicality. It sort of exacerbated rather by the financial leverage and operating leverage. What I think is super interesting is if you take a typical levered private equity buyer, they'll buy an asset. They'll put 65, 70, 80 percent loan to cost.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bought Switch, GIP, and KKR bought another one. There's not many public opportunities. And there's so much interest on the private side that it's hard to see how we can make it work with our costs of capital.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Be at least as big as the public cloud opportunity, if not larger. Some of the large infrastructure funds that we talk to have quoted numbers as high as 38 gigawatts. And there's a lot of industry studies that show demand data center needs will double between this year and 2030. And so it probably means we're in the massive innings of a growth cycle, but then the question becomes, in order to manifest that compute power, how are you going to service your energy needs? How much is that going to cost? What's the return on invested capital? And we think that ultimately there's a handful of facilities or there's more than a handful of facilities that are just functionally obsolete, whether due to their size, whether you do with the amount of energy they can hold. And so that's something that we've been working on real time trying to assess over the last little bit. I'd say unfortunately all the big private asset managers have taken most of the public opportunities away. So Blackstone bought QTS digital.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think from us, it's like where's the content creation? And I think what we find super interesting is that chat GPT adoption was the fastest adoption on record of any consumer technology. So the questions that we're asking ourselves is what are the commercial applications and what is the computing power required to assess those commercial applications? And our view is a lot of these compute heavy workloads are housed in data centers. And so what we're trying to do is size the opportunity of what AI means for data centers. And I think just to give you some context, the last big explosion of data center demand occurred around public cloud utilization, which itself drove 13 gigawatts globally of incremental demand for data centers, which was a real demand driver over the last several years. And so it's way too early to tell, but our view is we think the opportunity set.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Occur, who's going to win, who's going to lose, because I don't think it's going to be as simple as everybody wins. And I said earlier in the conversation, but we would love to figure out a way, and we spend a lot of time thinking about it, to make investments in affordable housing ecosystem that also meet our return expectations, because those tend to be lower returns than what we've seen. And we've spent some time with some really interesting folks that have some really interesting ideas, and we just haven't found a way to make it work just yet.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“The ones I spend a lot of time thinking about today and maybe obsessing over would be senior living. That's one that we've talked about here today. We think the billboard space is a super interesting space. Everyone thinks about it as a poll on the side of the highway, but a little bit less than a third of the space has been converted to digital. There's an opportunity to continue converting to digital. There's an opportunity to converge the way you track advertising consumption with geospatial technology and so forth. And that's a business that we find really, really exciting because the quality of the assets is really, really good. But then there's public market companies that have some unique issue that makes them potentially very attractive to invest in at the moment. From a curiosity perspective, we spend a lot of time thinking about data centers because it's something that everyone else is focused on and thinking about in our view is we're very, very focused on how the expansion”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Types of cold storage. There's cold storage that sits next to the farm. There's cold storage that houses your poultry. And then there's last mile delivery. So it's a business that we find really exciting. And just due to its resiliency and the way that the two biggest players have been able to scale it.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“So cold storage of refrigerated warehousing. We have an investment in a private company here in my prior firm. We actually had a large investment in a cold storage operator finds itself in the public markets. There's been a lot of consolidation in the space with the top two players in the US own, I forgot the exact number of a 50 or 60 percent of the market share. And then I think quite similarly to some of the other things that we have, there's lots of productivity enhancements in the new facilities with robotics, et cetera. But it's an industry that has pretty resilient demand dynamics. Cold storage doesn't care if you eat out or eat at home. They just care that you eat. And so if you look through the GFC, there was a very, very low drawdown in revenue through cold storage. And I think because of consolidation, there's been interesting changes into the contract structure, which has made the asset base more resilient. It is a far smaller business than ambient industrial, like we talked about with ProLodges earlier, but it's a business that we need. And there's different.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Had rising consumption. It got very exciting, I think, from a consumption perspective during COVID, but it's had rising consumption. And if you have a boat, you need to store it somewhere and you need to put it in the lake. And so it looks and feels like a storage business combined with a hospitality business.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't have a marina investment. There's one public company that has a component of its business that invests in marinas. But there are some asset classes that are regulatorily supply constrained. The example I would give you actually stepping back is if you go to Los Angeles, it's really hard to build a new house in Beverly Hills, but you can go into the valley where there's a lot of land and there's no supply constraints. And so the question is, where's the Beverly Hills of some real estate subsector? And there are pockets of marinas that fall into regulatorily supply constrained because folks don't want more marinas on handful lakes or on ocean waters. And so there's this interesting dynamic. I think you can say parts of the economy around cold storage, billboards, probably most specifically cell towers. There's just lots of regulatory supply constraints that exist around that. When we think about marinas, we think about a business that has more supply constraints than the average real estate business.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Mean for data center who wins, who loses, what are the biggest population courts, and how do we think about investing in that asset class? What are the trends in e-commerce? What does that mean for retail? What's been going on in retail over the last 10 years? And so to me, outside looking in, the nomenclature of real estate just means something that's a hard asset to me, but there's so much subtext and context below it.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“People on the outside think real estate is one big thing, but it's actually not. It's quite the opposite. In fact, if you have a curious mind and you have the ability to have a flexible mandate, it's probably the most unbelievably curious endeavor you can have because we've had a conversation today about senior living, just talked about data centers. We've talked about malls and offices. We could talk about cold storage and ground leases and we could talk about so many different things. We could talk about marinas. And so from my perspective is the basic premise that there's something called real estate isn't actually the case. There's so many different sub-ecosystems that are proliferating at the same time that you have to dig in and find where the great opportunities are. Where is that really good business that owns a lot of hard assets, that has the ability to reinvest over a long period of time? And so we're constantly thinking about, so what is AI?”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't think so because you look at maintenance capex for industrial or self storage is very, very low. So the way we think about it is let's just look at true free cash flow.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, our view on data centers is it finds itself in a really good moment right now. The data centers that are adaptable for artificial intelligence, I think creating a very, very tight market. I think there is a high degree of obsolescence risk in really, really old assets. And I would worry about the capital needs in those assets. I'd be really concerned about that.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Data centers to me, they're huge assets, they're highly capital intensive, they actually have more obsolescence risk than probably any other real estate asset class, at least on a shorter time horizon. But they benefit from the digitization of the world, right? We started the iPhone in 07, and now every day you can't look at Twitter or pick up a newspaper without hearing about AI or NVIDIA or whatever it may be. And so our view is they from a analog perspective look and feel the most like office and malls, meaning they're big chunky assets. There's a period of time where they had an amazing tailwind. Think about malls from the 1980s to the early 2010s. I mean, they just grew all the time. Yes, they have a lot of capital, but because of the institutionalized nature of the asset class, they're constantly receiving that capital. Offices are a similar dynamic. A lot of attention from sovereign wealth funds and”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think this is probably the same for all business model transformations. You get paid when complexity becomes simplicity, when it's very easy to see through the numbers of something that's really complex or hairy with a big balance sheet over levered, really bad ROICs because of where they found themselves in the capital cycle or investment cycle. And when you spent time with the management team, if you understood the balance sheet, you could really clearly hear them say this business is going to look totally different. And it's actually going to be very, very simple. They did the heavy lifting in 2020 and 21, and they're doing the last of the cleanup now. And we think when we look into 2024, it'll be a pure play asset light, asset manager with an incredibly high ROIC that's growing with tailwinds from digital infrastructure with a particular focus on data centers, cell towers, fiber billboards, et cetera. So I think it's that complexity to simplicity, which is the key thing, because otherwise if it's complex.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, over the course of 2020, after dealing with our one loan corporate maturity, Mark Yanzi, Jackie Wu, the whole team over there, they pivoted that business aggressively. And today, they're largely a digital infrastructure asset manager. They have a few assets they own on their balance sheet, but they're continuing to pivot away into a completely asset-like balance sheet with a fairly low leverage profile. And it's something that we've been involved in since 2020 and continue to own to this day.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Was an investment we made in July of 2020 to acquire a large stake of a company then called Colony Capital, now called Digital Bridge, and it actually had three transformations going on at one time. It had many businesses. One was a healthcare real estate business. Two was a hospitality business. Three was a mortgage rate. And four was they just acquired a company called Digital Bridge, which I knew pretty well. Those businesses accept Digital Bridge were all particularly impacted by COVID. As part of the acquisition of Digital Bridge, they named Mark Ganzy the new CEO. So he had a management team transition. He had a business model pivot. His plan was to exit healthcare, hospitality, and the mortgage business and all the private equity assets. And you had an interesting balance sheet pivot. Every single one of those verticals had its own non-recourse balance sheet, meaning if you actually studied the balance sheet, you could have bankrupted the hotel business and it would have impacted the balance sheet of digital bridge.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Big believer that in the public markets the direction of return on invested capital is far more important than the static level of ROIC said another way I would be really excited about finding something that has a zero or two percent ROIC that could become a six or eight rather than buying a 14 that just stays a 14 because the 14 that stays a 14 everybody knows it in theory it's priced into the multiple and so One of the key attributes of the way that I think about public market investing is not just a capital cycle framework, but it's also where is a company specific transformation occurring and that company specific transformation could be the result of jettisoning a bad business. It could be a new management team. It could be acquiring an asset that's misunderstood for whatever reason. There's probably some special situation component to it. And so one of the best investments I think you and I have talked about in the past”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“So the company, there was a cohort of investors who had the same thesis. There was an activist who became involved in the company. Nonetheless, the activist wasn't able to get the management team or the board to get excited about separating the real estate. This activist had had quite a bit of success in a similar company in the restaurant space. And so they weren't able to get the board to sort of focus on the real estate effort. And over the course of two or three quarters, we saw numbers deteriorate and deteriorate. When I say numbers, I don't mean price action. I mean actually direction of revenue, direction of earnings was deteriorating to the point where it didn't matter if they owned on the real estate. They weren't going to do anything with it. And so again, to simplify the lesson, it's the direction of numbers is far more important than the special situation.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“The worst investment mistake I've ever made on the public side was actually in 2015 at my prior firm. It was an investment into Macy's on a real estate thesis in the public markets. And the reality was there was a lot of real estate value there. But unless you had a way to assert control over that, the direction of fundamentals is far more important than the quote unquote special situation, which would be extracting value. And so that's led me to largely avoid situations like that going forward.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Down the road, and we're a handful of years early. It could be that nursing staff continues to be harder and harder to make sure that the residents have a great experience. It could be that we buy into the sector and we hold too long and the capital cycle does its thing again. And in 2026, there's a lot more supply coming back online than we think. I think those are the ways that we generally would get it wrong. There's obviously a cost of capital dynamic occurring today that's been occurring for the better part of 18 months. And I think we're very fortunate to only have a handful of platforms that we got involved in in 2020. And so we're looking to play offense into this environment.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Get the capital cycle wrong, we get the supply dynamic generally correct, but the demand, we're just wrong, there's obsolescence in the asset class, for example. So to the extent we're wrong in senior living, it could be around that independent living is going to merge with a new form of asset, which is age-restricted apartment housing”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Indifferent to investing in the public markets or private markets, we're simply seeking the best return opportunity that we can. And so I think that was the key decision-making framework for me at the beginning.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Decision that we've made at this firm is simply about being flexible and making sure that we can maximize the return opportunity, not necessarily maximize the size of the firm. That's why we have a hybrid fund. That's why we offer a lot of co-investments to our investors. That's why as we think about the natural progression of our business, we think about giving us more private capacity because the private markets are much, much bigger in real estate than the public markets are. We actually think nine times the size. And so every decision that we've made here is about ensuring that. So then you go down one layer further. Well, a lot of great real estate managers only do privates or a lot of great real estate managers only do publics. And I think our view is we had a blank sheet of paper at the beginning to educate folks on the way that we invest and to build a team around that with a flexible skill set and ensure an incentive structure in place to where everyone is.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“I've mentioned a couple times, and I'm probably mentioning it a couple times more, but the thing that I'll say every day in our office is there's always something to do. So we need to figure out what it is, and then we need to go attack it. We need to study it, and we need to find a way to take advantage of it or deploy capital into it. And in order to do that, we have to be a totally flexible capital provider. We need to have the ability to invest passively in public equities. We need to have the ability to take a control-minded approach in the private real estate markets, again, with a platform approach. And then we need to do the things in the middle and the things in the middle tend to be credit-oriented, which would be providing capital up in the capital structure pretty relevant today given what's going on in the market or the distressed opportunity set when it presents itself. So every decision that we've made surrounds that. I think another thing that we say around here is we're not for everyone. And that's absolutely okay. So we're very hard to put into a box.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Likely a growing addressable market. And then the question is optionality. Can we use our platform to keep growing over time, to get better return on invested capital? And then ultimately, can the space institutionalize in a way where valuation parameters look and feel very different than what we started? Maybe there's a bunch of mom and pops at the beginning and there's a bunch of institutions at the end. And the optionality is maybe we'll get a platform premium. But at the end of the day, we're still doing the asset level work that every single asset owner is going to do. But that's how we think about building these businesses. They're real estate businesses with a platform approach.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Say at the highest level, we have to start with the sort of thematic thinking if we're going to try to take advantage of a sector. And then the question is, what are the asset level returns? How do we think about the short, medium, and long duration opportunity set? So the Holy Grail for us is to build a platform or buy into a platform that has what we call resilience. It has scalability and it has optionality. And what I mean by resilience is a high quality, reasonably predictable rental growth stream and sort of earnings stream. The perfect ones are defensive or counter-cyclical, like single family rental, but senior living has proven to be a little bit more cyclical. And there's a favorable long-term supply demand dynamic, especially when we start to get involved. So that's how we think about resilience of the asset. And then we say to my example earlier about the industrial market, how large is the market? What's the length of the reinvestment runway? Are we able to acquire assets at an attractive return in what is likely?”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source
“Apartments, they had unamenetized experience. They had a doorman or something like that. And so that didn't exist in single family rental. On top of it, according to data that we track from John Burns, which is a great consultant around the space, 88% of all multifamily is studios, ones or two bedrooms. So as you age into family formation, there wasn't a renter option that gave you that new large enough amenitized experience. And we started to hear about Bill's rent in 2018 and 2019 and just met every operator we could and turned over every rock. And ultimately that landed on meeting the team behind Quinn and putting in place, in our opinion, a best-in-class management team to grow it. And so now we have a portfolio with 39 communities and over 5,000 homes all over the southeast.”
2023-09-19 · Invest Like the Best · Michael Simanovsky - A Platform Approach to Real Estate - [Invest Like the Best, EP.344] · IDENTIFIED FROM THE TRANSCRIPT · source