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

“Other portfolios. And so there's a massive disparate quality feature of the homes. And so we said to ourselves, this is a super interesting sector. There's not a lot of supply, at least in 2019. There's a great demand set up, which I can walk you through. The average age of a renter in the US is about 39 years old. You think about the single family cohort being 35 to 49 years old. That cohort is going to grow from here through the end of the 2030s at about 2x the population growth. So not quite as fast as senior living we talked about earlier, but faster than the population cohort. It's going to grow much faster than what we describe as the multifamily cohort, which would be 20 to 34 year old. And so we saw an opportunity, if you actually think about the complexion of that cohort aging out of multifamily, aging into single family, what did they have in multifamily and what could they achieve in single family? So a lot of folks had reasonably new.”
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
“There was going to be limited new lot development for some period of time, such that knowing the demographic trends that you get really excited about rental growth. So would you be really excited about buying an asset at such a discount that you'd be just fine with it, quote unquote being a trade? And I think the big question mark for a long period of time was is there a good operator or set of operators around the asset? I think in around 2015, 16, 17, 18, you saw a lot of consolidation American homes for rent acquired some other companies, invitation homes acquired some other companies. And the best operators took the largest swaths of assets. But you still have this dynamic where these homes were scattered all over the place. And imagine a city like Atlanta. You had a cohort of homes up north of town. You had a cohort of homes west of town, et cetera. And a lot of these homes were bought at the courthouse depths in 2012 and 13, or they were bought.”
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, I think that every incremental real estate asset class that institutionalizes comes out of some dislocation. So think about towers. They became an institutional asset class as the cable companies and fiber providers had to work through their debt issues in 2001, 2002. That's when the towers became a real asset class. You think about multifamily, became an asset class if you think about 92, 93 that was out of that crisis. That's when REITs really became what they are today or the early start of what they are today. And I think that 2010, 11 time period birth single family rental as an institutional asset class, it was a natural time to do it. There was a lot of distress. There was a lot of dislocation. I think having made investments in the space early in the 2010s and 11s and getting really close to investing in a platform in my prior firm, what we observed was could you price the asset at such a discount to replacement costs? Could you make a view, again, on the capital cycle cycle?”
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
“Pure play on what we were really, really excited about, which was the build to run concept. And so we were able to partner with a great management team, a few other founders, and incubate this business that we think is now one of the larger dedicated build-to-rent platforms in the country. And then conversely, we're happy to buy into a platform where there's dislocation or distress, like how we entered our senior living business almost 18 months ago.”
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
“Identifying a theme. We're finding a management team. And ultimately, that management team is exclusively working for us. And we're building a vertically integrated platform. But we're doing that when we otherwise can't get access to a business model. One of our largest investments is a company called Quinn Residences. It's a private platform. We started it right before COVID. It owns entire communities of single-family rentals all over the southeast. I've been studying the single family rental space for the better part of the 2010s. Super, super excited about the space. In 2019, started learning more about this dedicated rental community approach, what people call build to rent. And the thought was you can bring a brand new product, highly amenitized with an operational focus that looks and feels like multifamily, which is very different than scattered site single family rental. But when we looked at the available options to invest in the public side, there are three great public companies. There's American Homes for Rent, there's Invitation Homes, and there's Tricon.”
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
“Yeah, so I think when people think about real estate, they generally quantify them in core returns, core plus returns, value add returns, and opportunistic returns. And I think depending on the prevailing cost of capital, those numbers move around a little bit, but that core capital is sort of mid single digits return on equity. That core plus is high single digits, that value add is low teens, and that opportunistic is equity-like returns. Our view, given that we can constantly, and to use the word use earlier, be surgical about where we spend our time. We're happy to look through the cyclicality. We're constantly seeking opportunistic returns. That's something that we're looking for across private markets and public markets. And the way we think about private markets is twofold. We're always investing in platforms where we can either incubate them ourselves if it's the best way to take advantage of a particular opportunity, or we can buy into a platform if there's a capital need for whatever reason. So on the incubation side, we're building a platform.”
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 as you've seen other asset classes appreciate and value and be able to drive higher rent, you've been able to see the ability to switch from a class CMO to something else. I think that is a good playbook to think through the office sector. And our view is that's going to take a few years to sort of materialize.”
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
“Hudson Yards, Manhattan West, all around the same time Class A plus office. And what's interesting to me is if you actually look at demand data for office and you look at a city like New York City, over 100% of the incremental absorption from the GFC through the COVID time period was related to tech or tech related users. That includes WeWork. We went from non-existent to several million square feet of space. And so our view is office, it just needs to go through its supply demand dynamic. I think it needs to go through the somewhat same scenario that Malls went through. The death of retail conversation started in 2015. I think malls have probably gotten to a point where they rationalize themselves as we sit here today in 2023. And I think what we've observed is that the Class A mall is probably more valuable than it ever has been because Class B and C malls have gotten a lot less interesting and worth.”
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
“This narrative around office that it's about work from home. And we think work from home simply expedited the fundamentals that were already prevailing. In some ways, it's funny because I laugh when I hear people say, well, COVID moved people into the suburbs. If you actually track the data, it started in 2017, which is when you would have expected it to start given the aging of the millennial cohort. The same dynamic in our opinion is occurring in office, but to the other way. We just have had too much supply and we've had too much supply in the CBDs, in central business districts of major cities. We've had too much suburban office supply, which doesn't get used the same way it used to. And our general view is that I think this work from home phenomenon has highlighted a couple things, has highlighted this narrative around office. You can look in New York City, which is near and dear to your heart and my heart being probably exactly in between us. And we delivered one Vanderbilt.”
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 that American that earns on average between $60,000 and $100,000 a year as a dearth of affordable and available housing, I'm sure you've seen the charts that are floating around, but there's lots of charts showing housing stock over $400,000 at prevailing rates, the most under affordable it's ever been. I think for a person making sub $100,000 given the availability of credit today, I think it's very challenging to be in reach of that housing. And then circling back to the capital cycle comment, I think given what happened in the GFC, no two crises in a row are ever the same. And I think what happened is you had a significant pullback in capital availability of housing, which is, I think, in some ways created the home price appreciation that we see. And so to me, if there was some way to provide the sort of median consumer in the US with an affordable housing objective, and you could inject it into the veins of the United States and do it everywhere, I think would be a tremendous.”
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
“You think about individuals and the billionaire comment you made, in my view, there's a ton of tax efficiency in owning real estate and owning it for long, long periods of time. I think as a result of that, there's a lot of people that bought assets in the 90s, 2000s, 2010s, whatever it may be. And the benefit of having the ability to withstand the volatility and duration has actually been a massive competitive advantage. So that's on the billionaire point. On the private equity point, I think the Spaces institutionalized so much over the last 15 or 20 years. I think some of the smartest investors I've ever met focus on real estate. Some think about it the way we do, something about it at a single asset level. I think there's a great opportunity to find great investors in the biggest private equity firms in the world, the biggest asset manager is real estate generally is a huge component of what they're doing.”
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 about prologist as the largest reit around has about 115 billion dollar market cap. It is an owner of warehouse and distribution facilities in the US. And they only control 5-ish percent of the stock of the U.S. And they've been building that company for 30 plus years. And so when you think about it through that lens, it's in a tremendously scalable sector. I think if you take it even farther, ProLogist and all the other industrial reeds combined on less than 10% of the industrial stock in the US. And so when you think about fragmentation, it's just an opportunity to really build businesses, which is one of the reasons we take a platform approach to real estate when we do it. It allows us to seamlessly navigate across public and private markets.”
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
“Yeah, so I think from an asset class perspective, I grew up, I was on the sell side for a couple years before the financial crisis. I had the opportunity to go to a firm that had a major distressed bias in 2008. I joined the month before Lehman failed. It was an unbelievable apprenticeship on understanding how to think through the downside of things, but it was also an unbelievable opportunity to see how big the real estate market is and how scalable it is. And you have the opportunity to evaluate bonds of a distressed small company or buy residential mortgage-backed securities. You just have a great opportunity to understand that there's literally always something to do in real estate. And so that's the motto around which Conversant was built. It was built around there's always something to do. And the next step on that is that we're the most flexible possible capital provider. So we don't think about equities or credit or public or private. We do all of them, but it's a hypercyclical sector. It's one that has really long reinvestment runways. It's highly scalable. The example I always...”
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 easier thing to get your head around and get excited about is supply. We feel comfortable that supply is coming down and we'll take this amount of time to rationalize. You tend to see people exiting the space at times like this. And we recapped a senior living portfolio 18 months ago. We've been working to grow it. It feels a little lonely out there buying assets. And hopefully that turns out to be okay. But I think to get really, really excited about the opportunity, you have to believe that you've been an attractive enough return in a benign demand environment. You can make a terrifically exciting return in a growing demand environment. So that's the lens. I think with supply is step one, demand is step two. What's the best way to participate in the capital structure? That's step three. That's our lens.”
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
“Sellers, there's a long runway of growth. One of my mentors, my old boss, Doug Silverman, taught me, don't do distress for the sake of it, do it because you're excited about the opportunity to own the asset for a long period of time. And I think that applies in this case. And then lastly, we ask ourselves, where can we play in the capital structure? And right now we're seeing a lot of defaulted loans on developments that were started in 2017 that just haven't gotten the occupancy that the bank and the operator thought they would. We're seeing a lot of private equity firms that are just fatigued. They got in in 2016 and it hasn't gone the way they wanted and they're just ready to move on because everything else has gone really well. So that's probably the end-to-end two cycle example I give you.”
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
“Today is about 83 years old. All of that supply that was built on the back of the outperformance in the post-GFC period, I think, presumed a 75 plus age cohort. What I think the reality is you got to evaluate the 80 and 85 plus cohorts. I always make two jokes when I talk about demographics. One is I follow my sister-in-law around. She was born in 1990. That is the peak millennial. Whatever she's up to I want to do. And the second thing is I always follow my parents around. They were born in 1947. That's Peak Boomer. There's a large trend behind them. They will turn 83 in 2031 on our math the growth rates accelerate from earlier this year through 2031 as that 80 plus cohort gets bigger and bigger and bigger. And so what we see is a dynamic where feels like bottom of the capital cycle. There are banks that are getting tired and selling nonperforming loans. There are fatigue.”
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
“Because labor is the largest component of the cost structure of senior living. Remember earlier I mentioned it's an operating business in addition to a real estate business. It had pretty significant sort of negative operational performance for a period of time. What we see today is an opportunity where occupancy has started to mean revert to its prior COVID highs. However, supply is now 80% from its highs earlier in the 2010s. Yet you have an environment where if you think about it through three lenses, one is what's the capital cycle? We think we're at a troughing supply. I would argue that the bottom decile of assets are going to be converted into some other asset, drug and alcohol recovery, whatever it may be. You may, not necessarily, but you may have a situation where supply growth actually goes negative or flat lines for a period of time. It's a pretty good setup when you think about the capital cycle. Then the next thing we ask is, okay, capital cycles then cohorts. What's the demographic picture? If you have an asset base that's roughly half independent living and half assisted living, the average age of entry.”
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 about growth in the senior living space you try to acquire a customer, you get a lead, that lead becomes a tour, that tour becomes a move-in, and then net of your move-outs, you try to grow occupancy over time. And so what we saw was no tours allowed during the COVID period. And you saw industry occupancy fall a thousand basis points.”
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
“Or office or industrial, it actually didn't have a drawdown in its operating performance and skated through unscathed. So naturally thinking about the capital cycle framework, what happened? Capital saw that it performed better than multifamily, et cetera. And capital came back to the space very significantly, coming out of 2011. There was a very large supply cycle that started in 2013. On average, let's say it takes about 24 to 30 months to deliver a property. You started to see the impact of that supply in 2015, which was probably the peak of the prior cycle. And it extended all the way until Q4 of 2019. If you actually look at nationwide data absorption, which would be demand minus supply turned positive for the first quarter in about four and a half or five years in Q4 of 2019, take it a step further. Unfortunately, COVID happened and senior living was at the epicenter of 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
“I think the example I would use would be senior living. So I'll give you 20, 25 years of history at a very, very high level. And senior living is a more operationally intensive business than most other real estate asset classes. So I guess with that caveat, there is a big supply surge in the late 1990s. And ultimately, at the turn of the century, the capital cycle caught up to a senior living, such that a number of distressed funds came into this space and took over the existing asset bases. So kind of that bottom of the capital cycle dynamic. A lot of distress funds naturally aren't thinking quite a bit about development. They're thinking, let's rationalize what we have. Let's consolidate the industry. Let's create large platforms. While there was some development, there was modest development between 2001 and 2008, like the GFC relative to what happened in the late 1990s. As a result of that, the senior living space went through the GFC, and unlike 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
“On top of it, just sort of to the side and relate it, there's a ton of operating leverage if you own a fixed cost asset. And so you have this dynamic where you can have cyclicality overlapping with operating leverage, overlapping with financial leverage. And that is an amazing lens, in my opinion, to use the capital cycle.”
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
“Generally, about real estate, I'd say number one, it is a highly cyclical asset class, but often with very long supply cycles and very long demand cycles, depending on the asset, it could take a year or three or four years to build an asset before you actually see that deterioration in fundamentals. On the demand side, you could be looking at millennials aging into housing and you have a 10 or 15 year cohort to think about it. I think a lot of people up until maybe last year forgot about real estate cyclicality. On top of its cyclicality, it is highly capital intensive. The land is an asset that, in theory, appreciates in value, but the building on top of the land constantly needs capital to stay refreshed. And it's often financed through debt capital to facilitate those capital needs to make sure you can meet your equity return objectives. And because of that reliance on debt, it's naturally more sensitive to the prevailing cost 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
“Cost of capital. I think what's so interesting to me is that the peak of the capital cycle, investors tend to be the most optimistic and they extend their duration. So they look really far out to get the required return. There's a lot of imagination required in that. And I'd say as fundamentals are deteriorating, naturally you're seeing asset values change. You're seeing multiples or cap rates in the case of real estate change. And you're seeing meaningful asset value or share price underperformance. And then ultimately you get to the bottom of the capital cycle where investors are max pessimistic with the shortest possible duration possible. And to us, that's a really, really interesting lens to think about real estate. There are assets in real estate and there are several subsectors of real estate to which the capital cycle probably doesn't imply. They're irreplaceable or they're super regulatorily supply constrained. But overall, on average, I think real estate is a commodity style sector and it benefits greatly to look at it through the capital cycle lens. And if you actually think about some high-level principles,”
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
“Actually, I haven't read that one since it's next on the list, but it's a book I keep in my office and it really influenced me. And I think the basic premise of it is that high valuation of businesses or assets encourage a supply side response as new entrants to the space become excited about the prospect of high returns. Ultimately, what I find so interesting is that rising competition for some period of time won't really deter returns, but eventually rising competition causes returns to fall well below their cost of capital or through the cycle cost of capital. And then investment declines as people are like, wait, I thought I was getting a really high return, but now I'm getting a lower return. Then a lot of consolidation will exist and that consolidation could be bankruptcy. It could be selling a company. It could just be capital fleeting a space. And ultimately, that to me is the best time to think about entering a space, which is an improving supply side picture causes returns to return to a point in excess of the request.”
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
“Yeah, sure. So I think at the highest level, early in my career, I learned about the capital cycle through this book Capital Returns by Edward Chancellor, which I happen to be holding in my hand and I keep in my office.”
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