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Sean Dobson

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117

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2024-03-07

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2024-03-07

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1. “We expect a deal before markets open money. These trillion dollar balance sheets are full of complex illiquid assets, and you have a weekend. So I think that's the thing. It's like it's probably never as obvious as it looks would be one advice and to understand the whole ecosystem, not just one asset's sort of risk profile.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

2. “It's super complicated. We were a little bit on the outside looking in on that deal. We did price Lehman, we priced Morgan Stanley for a lot of different investors. We priced Bear Stearns. The magnitude of the losses was hard to get your head around. But it felt like the capital markets had it about right. So when Bear Stearns was sold, their CDS was trading 35 points up front for the senior unsecured piece. So it's meant that the bond portion of their capital structure had about a $65 recovery. If you mark the market bear Stearns, that was about right. But the consequence of wiping out the equity would have had effects that we couldn't even, years later, I figured out what the effects were, but like it's kind of like the old Annie Hall. Like there's what they're saying and then there's what's in the subtitles. The macro of who owned the equity, who was going to get crammed down, who owned the fixed income, who was going to end up with control. Like there was a much bigger, that's what I'm trying to say about what to learn, is that the first instance.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

3. “But yeah, but it was worth less than nothing. And so zero was a good outcome for that thing. So at that point, we realized that the consequence of countrywide failing was so great that the system was going to find an alternate outcome. So we switched our thesis at that point to understand that the value of an asset might have more to do with the consequences of that asset failing than the asset's actual probability of failing. And that's something I wish I would have figured out before because it was like.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

4. “That's fascinating. The ecosystem of real estate has been hard for me to follow coming at it from the fixed income markets. So just understanding the various players, what they do and how they're motivated has been something I wish I would have just sat down and mapped out early on because understanding how people are sort of economically rewarded really helps you predict their behavior. And I was kind of confused by that for a long time, trying to pick the thing that was the right answer instead of the thing that would have benefited the most people. It's like in the financial crisis. We were short countrywide. In scale, hundreds of millions of dollars. And Bank of America bought them.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

5. “First turned into what are the big mispricings have been side. It's not a super complicated read, but I think it does a really good job of taking people from thinking about the world as trying to predict a thing instead of saying wait a minute. There's a range of things, can I be okay with a broad array of outcomes versus just betting on that one thing?”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Yeah, so whenever we have interns come in or we have young executives start, I buy them a couple things. So I buy them the Frank Fabosey handbook on mortgage-backed securities, the mortgage-backed Nerds Bible. And I buy them a book, Bernstein's book, called Against the Gods. And I really think that, and maybe it's just because I'm such a quant nerd, but I think that against the gods, it's a very small book, a very quick read, but it does a really good job of teaching people that you can apply quantitative analytics and probably a theory to almost anything and to everything, to your life decisions, to everything. And I think it provides a nice paradigm in a world where today it feels like because of the political environment, people are sort of it's black or it's white, it's zero or it's one, and it's never zero or one, right? There's always some difference in between. So that's a book that I think is sort of required reading at Amherst to really understand the history of risk management, the history of probability theory, how it...”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

7. “My daughter and Nihil is in the crime junkies on the entertainment side. I think it's one of the most popular, other than yours, of course, one of the most popular podcasts in the country. It's fascinating. It's a couple of young women that tell the story of some sort of unsolved mystery or solved mystery of real-time, what do they call it there? The real crime dramas, I think. It's pretty fascinating. And we have two kids. My wife and I have a freshman at Columbia and a sophomore at Stanford. So we're spending a lot of time learning about the college experience.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Mentioned I read A City Is Not a Tree, it's a little bit boring, but it's fascinating because I do think that there's an opportunity for us to rebuild microcities instead of going to the excerbs and trying to adjoin a city. I do think there's something that we're working on to just plop in the middle of nowhere and build a full stand-up city, which would be fascinating.”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Support around Wall Street because at the time there was a small club of firms that were helping solve this problem together. And so I had a guy named Frank Gordon who ran mortgage research at First Boston that was just a great support to kind of bring me up the learning curve”

   2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

10. “So having support at home and having a real partner in the business is super, super important. Our jobs, when you're the founder of a business, the hours are long and the mental exercise is significant. So having the right teammate at home is absolutely paramount. I had a high school economics teacher who later went to work for the federal home loan bank of Dallas named Sandy Hawkins, who was just fantastic for a high school economics teacher. She covered everything from Milton Friedman to free lunches in a way that made it fun for high school kids. And I absorbed every second of that I could. And then I had this really unusual situation because I was at this brokerage firm when I was very young and mortgages were just getting some science around them and I was always good at math and I had been writing codes since I was in the sixth grade. So I had real...”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Wow. Well, so I've got a big family. I'm one of five kids. My parents were serial entrepreneurs. I've got four big sisters, and so they're all successful in various ways. And so the family has always been the primary motivator and leaders. In our business, in finance, who you marry really matters. So I've been married for 28 years and my wife was in finance. She ran an investment management business, built it up, and sold it.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Wow. So I'm a very boring person. I spend a lot of my time buried in data and analytics. I think that I really love the whole Yellowstone series. I'm upset that Costner backed out because I thought the production quality was so good. So I've seen all of the pre, the prequels and so forth. So on the entertainment side, I think that streaming has set a whole new bar for quality of programming.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Because the third worked out so poorly, we shut out the two thirds. And that's kind of the frustration I had with Washington. It's like, guys, like I know there's the throw the baby out with the bath or whatever, but you're throwing out, you're throwing out an opportunity for people to own a piece of the country and act as owners in their community because you don't have a good way to manage the ones that don't work out. So we should be focused on what to do when they don't work out. We shouldn't prohibit the activity because some of it doesn't work out.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

14. “And the way I think about it, you'll get me out of a slipbox, but in the worst of the worst mortgage pools that we were short in the dirtiest of the pools where the everybody was lying, the bar where the banker, the securitizer, everybody was lying, the worst of the worst. About 35% of the loans defaulted, which means that two-thirds of even those dodgy things paid. So those were two-thirds of those families got to get on the economic ladder and own the peace of America.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Homes, all the idiosyncratic risk is pretty much gone. So we feel very proud of what we're doing, and I wish that the conversation about this crowd out would focus more on the specifics of who didn't get to buying, but who got to live there. And when people see that and they see that, oh, wait a minute, these are $300,000 homes. These are not homes that that resident would have a very difficult time getting into without us. And we were able to provide a really good service at a very effective price for that customer base.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

16. “But apartments are primarily one and two bedroom products. So we're a three bedroom product. So as you age out of an apartment or you need more space because you work from home or you have a family or whatever, and you age into the single family product, which is location driven, local amenities driven, blah, blah, blah. Traditionally, you would go and get a mortgage and buy. But that cross-section of the customer base that the mortgage market serves has shrunk so much that we set up this platform because we knew they were coming. We knew that they're going to want to live in that product and they're going to need to get there with a different financial solution than a mortgage. So we developed an institutional scale securitized financing vehicle for the pool of homes. We developed the services that wrap around the pool of home to lower its cost of capital. So the cost of capital for a single family rental today is in the five, five and a half percent range. Prior to us getting involved, the cost of capital for rental was probably $800 over and 900 over because it was provided by small investors taking very specific location risk. Now we can have a thousand.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

17. “And there's no progress. So the rental market has to grow. Institutional capital is going to play a part in every home transaction. Institutional capital has to be there to make the loan if they're not going to buy the home. Providing service to the third of American families who rent for various reasons. Now, about a third of our customers or 20% of our customers move out every year. So they were never like long-term committed to that location to begin with. The credit scores of our customers suggest and the financial condition of our customers suggest it would be very difficult, if not impossible, for them to get a mortgage on average. So this is the solution for people to move out of the other thing people think about is that it's okay to rent apartments. So that's socially acceptable to invest in departments and rent them.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

18. “At this point, really, the professional is the one you got to hold account of. This is when I think that we're hung up on who to blame, not you and me, but the market is hung up who to blame and the market isn't paying attention to who got harmed. Because in the first degree, the person that got harmed was the person who got foreclosed up on and got evicted from their home. That's a very clear harm to see. The harder harm to see is the maybe 8 million families that haven't been able to buy a home since this law went into that.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

19. “And that loom was approved. No, in the same file would be the application that got denied that said that they were a dental assistant and they made $50,000 a year. So they would give us the file that they would show.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

20. “So, in these 80,000 loans, you kind of had sort of two big populations of predatory borrowers. One with a little mini, we call them the little mini Donald Trumps. They would have like 25 or 30 or 40 homes, no equity down. They're all rented, no management, kind of like YOLO of like if they go up, we're going to refinance them. If they don't, we're going to send the keys back in. And these were loans that were made with no equity from the borrower, 80% first, 20% second, investor loans. And then there were a group of people who really just wanted a house and they were willing to fib about their financial standards to get there. Right. And the banks and the mortgage originators in many cases, there's 80,000 files. You would open up the file and it would say the person was a dental hygienist and made $100,000 a year. No document.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

21. “The rating agency said culpability, and this is what I spend time watching trying to explain to people. But the consumers had culpability as well. Sure. So a lot of people with fraudulent loans, $678 loans. So we bought a bunch of these loans, something people don't know is that we audited 80,000 loan contracts that we bought. There's a return to sender clause in mortgage contracts that most people don't know about. And if the borrower defaulted and the contracts were a certain way, the person that sold you a loan has to buy it back.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

22. “There was enough bad acts to go around. The banks had culpability. The securitization industry had culpability. Well, there's a lot more. The serving industries had culpability.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

23. “And then you can't pay me back. You can sue me. And even in France, the guy would say, no, no, no. You mean the other way around. I lend you the money, you don't pay, I can sue you. And I'm like, no, no. So there's this concept that was part of the ether in the financial crisis that the banks were the proximate cause for the default. And so the bank should not be allowed to make these loans. There were some bad actors.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

24. “We used the rate used to be three points are or two points are. So Dodd-Frank basically carved out the maximum premium you can charge to anyone. And then they created recourse for the borrower. So I give this presentation in the UK. And I said, okay, the U.S. passed, they were like, why is the demand for rentals so high? And I said, Well, people can't get mortgages. They said, why? I said, well, Dodd-Frank created a precedent that said that if I lend you money to buy your home,”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

25. “The primary thing you have to do is you have to make risk based pricing legal in the U.S. mortgage system. Dodd-Frank made risk-based pricing illegal. So, if someone comes in with a lower credit score, a higher likelihood of default, and remember, the likelihood of default could mean that they go from being 5% likely to 10% likely, not 90% likely. But if someone comes in that has a likelihood of default above a certain level, the answer is you can't make them the mortgage.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

26. “Have a half decent credit ratio. Now you're baiting. We're going to need the two hours for the podcast. I got a whole list of things you need to do.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

27. “They're paying $2,000 a month in rent. Our average customer only pays 25% of their income in rent. For $2,000, they cover everything. They cover the chance that the AC breaks. They don't have to pay for that. Property taxes, insurance, the whole nine yards. So right now the cost to rent is probably 30% cheaper than the cost to own. But more importantly, if you're not given a chance to get a mortgage, it doesn't matter what the cost to own is. The cost for you is infinite because you're not allowed to get a mortgage. So when Dodd-Frank passed and the standards for mortgage credit became unfairly high, we said, okay, this is what the nation decided it wants to do. Now, against my advice, when I sat at the Federal Reserve, I said, this doesn't have to happen this way. We can sort out for you what the good subprime was from the bad subprime. People were like, we agree, you can, but that's not how policy works that mortgage market has been shut down and it's going to stay shut down.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

28. “When I buy it, look a lot more like the people the government should be trying to help. And that usually takes people and they step back and they go, wait a minute, what do you mean? I'm like, well, so Sean doesn't live in 50,000 homes. Someone's living in there. And the people that live in those homes, for the most part, are not candidates to get a mortgage in the 2024 mortgage standards.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Lot of families show up that want to live in that home. A group of those families show up and they can get a mortgage and they can buy the home. A group of those families show up and they can't get a mortgage. For that second group of families to get the limit of that home, an investor's got to buy the home. And that investor can be and historically has been very small investors, people that own one or two homes. Maybe they owned a home, lived there, moved away, kept it, rented it. And now, through technology and through significant investment platforms like ours, allow larger investors to go and invest in that home. So when I sit down with policymakers, and they're sort of of this mindset that I should have stayed away and let the family buy the home, what I like to do is say, look, can you guys just put together the pictures of these two families and who's going to get to live in that home if the only people who can get a mortgage can live there and who can live there if Sean buys the home? Because demographically, they look more like the people that get served by the home.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

30. “So having a student loan makes it way more difficult to get a mortgage. So, in this argument of are we buying a home that a family is not moving into, I put the paradigm in a slightly different way. When that home comes up for sale,”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

31. “But that number has been a six handle for the last 50 years, right? So 60 something percent of people own their homes. The inverse of that number is the people that don't own their homes. So that number has been between 30 and call it 30 and 25% for a very long time. So that third of families in the US that rent their home rent for a myriad of reasons. One of the reasons that they rent is because they can't get a mortgage. And part of our bet in 2009 was that the group of people who were going to be locked out of the mortgage market is going to grow substantially, partially because the standards became higher and partially because student loans became kind of a predatory financial product.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Sure, sure. So, first of all, I love 60 minutes. I don't know if it's just because I'm finally old enough to age into their demographic, but I think it's one of the best news shows on television. Because in that 12 or 15 minute segment, they really can simplify a topic and make it understandable to everyone. The topic of where do we fit in the ecosystem of the single family housing market is what we're doing a good thing or a bad thing. Obviously, I've got a couple thousand people that wake up every day and go to work. They don't think they're doing a bad thing. So I can tell you our perspective of it. I can kind of give you both sides of the argument and people can decide for themselves. I mean, part of the argument is that if Sean buys the home or if Amoris buys the home, some family couldn't buy the home. And it's true that if we buy the home, no one else could buy the home. I'll give you that part. Now, in the US, we track the home ownership rate over time. The home ownership rate's grown to sort of mid 60s and bobbled around. It got really, really high when we were giving away more mortgages in 2007. And then it came back.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

33. “So that's the operating platform for the single fundamental business. That's our construction management, our real estate brokerage platform, our leasing platform, the customer service platform. So that's the brand name that the consumers see, that our operating partners see for the whole vertically integrated single family rental strategy. That's basically analogous to the entire ecosystem of the mortgage market wrapped up under one corporate label.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

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    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

35. “Of course, as happened in the United States, where people left the small town to go to the big city. COVID may have reversed one of the largest global trends in investing in the last hundred years. It may have turned us from urbanization to de-urbanization. And the impact of that. Now, we're not calling that just yet, but it's probably one of the most important things that people can focus on. Are we going to shrink the size of these megacities that all benefited from urbanization for the last sort of 50 years in the U.S., maybe the last 15 years in Southeast Asia? So it's an interesting time where the, I wish I could say I was going to turn out, but there is the ball is bouncing around and we need to understand which way it's going to land. You've heard the chaos. Now you can see it”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

36. “A full time basis. There was a paper written about five years ago, I think it was put out by the research team credential, and it was all about urbanization. And all of the investment themes across our investor base, the biggest investor in the world, were very focused on urban.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

37. “Yeah, I think it's something we're spending time on because with our vertical integration of manufacturing homes, building homes, real estate development, the ability to monetize a home either as a sell to a consumer or a rent and to an investor, it gives us the ability to think big about development. And I haven't seen anyone pull off yet. So the master plan community in the United States, other than maybe the woodlands in Houston, very few of them are actually master plan for multiple product types where you have office, medical, civil, residential, entertainment all kind of thought about together the way you would the way European cities were developed. But remember Europe, like you said, you said a very key thing, European cities were developed before the cars became a thousand years. A lot of our cities stopped growing as core cities and started growing as these suburban driven cities because of the car. And so this will be simple. This will be interesting to think if will you reverse? And this is something that global real estate investors are thinking about.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

38. “To keep your customers happy. And we see some cities doing that and some cities not doing that. So you have to modify. You can't just completely tear down and change.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

39. “So, I'm spending a fair amount of time on just that. Can you respond to this? Should you respond to it? Because as you said, maybe this is a flash in the pan. If all the companies decide that employees have to come to work every day, then these trends in occupancy will change and quantum demand will change. But I recently was given a book and I read it. It's a companion of essays called A City Is Not a Tree. It was written in 1965 and it was about this. It was about how a city should work to optimize the experience for its residents and think of a city as a product. And so we give the speech to mayors when we're asked about sort of how we think about their city from a migration investment perspective. And we try to tell people that a city is a product. So New York City is a product. And the customers can choose a different product. And it's a great product. It's one of the greatest products in the world. But like all customers, like all businesses and all product delivery systems, you have to freshen your product.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

40. “They have to adopt the same technology and do pickup and deliver. So e commerce is changing the footprint for a business. It's addressable market. And so I don't think this is over. I think that the pricing of it, kind of like we talked about the loan defaults and then two years later someone takes a loss. Today CPI prints higher than people expected because owner equivalent rents is higher. That OER number was calculable four months ago. So the market isn't doing a good job of forecasting what it already, pricing in what it already knows in many cases. And I think that we're still in the repricing phase of real estate for a new. Of demand”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

41. “There's no people. So, what happens to the dry cleaner? What happens to the ice cream shop? What happens to the t shirt shop? What happens to the travel agent?”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

42. “So, think about what that means. So, that grocery store, that grocery store anchored retail, ordinarily the grocery store space was underwritten at a loss by the real estate developers. Right. Because that was your magnet.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Lamp and this miniature, and I guess the photo. There's just no tape mail tape measure next to it. But let me ask you about this because pre-COVID, you couldn't have convinced me I could buy groceries on an app.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

44. “Usage. All of that demand is showing up in the home. It's showing up in that 1,800 square foot three-bedroom home, and everyone's use case and demand for real estate's changing because they're spending so much more time there.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

45. “Lost 15 years. I know. I think about the people that created Skype. They must be sort of jumping off a bridge somewhere because you couldn't give away Skype pre-COVID. And now I don't even have calls on my phone, my office phone ever anymore. Everything happens over Teams or over Zoom. So the behavior has changed so quickly. But I think that the CEO from Cisco made a good point that the home has become the enterprise. And what it was saying is that Cisco is seeing people buying really sophisticated communications equipment for their homes because now they're pushing their use case high. So for us, it's also kind of fascinating. And this is a little bit about how the single family rental trade has become so interesting is as people stop going out to the mall and they shop at home as high speed communications allows them to stream at home as delivery allows them to eat at home. These real estate sectors are all seeing their demand dry up.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

46. “But we think that people have to adjust to a new normal of demand, like demand function for commercial real estate has come down. Now, this is, by the way, just another domino in a long series of what the Andrees Norwitz guys call software eating the world. This is technology eating real estate. And so if you look at this over a longer period of time, the way we think about it is that technology ate retail, and we all kind of saw it, right? It was Amazon killed the shopping mall. Airbnb has eaten up a lot of hotel demand, so technology matching a home to a rent or a leaser has eaten up a bunch of the hotel demand. Now work from home is eating office. So we kind of have a playbook for how this goes, and it's not great.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

47. “That you can't get enough of it, but a block away, some traditional commodity office space that's a little drafty, whatever. People just don't want it at any price. So now that super A space is a very, very small fraction of the market. So it's not what happens there probably isn't going to be sort of impactful.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

48. “We do feel like it's like bottom fishing time. We're taking back real estate now. That is $50, $60 a square foot space for big, beautiful buildings that need to be repopulated. But the way we think about it is this, is that occupancy is probably going to drop by a third, but it won't be a third for everyone. In some places, it's going to go to zero, and some guys, they won't feel it. So asset selection becomes incredibly important.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Where everyone likes to come to work on Wednesdays, so you still need the space, but the quantum of space that people need has been reduced dramatically. And we're seeing it in that castle data. So it's a scary thing to do. But if you forecast that the lease payments track the physical usage, meaning that what you're seeing today, it's 15% vacancy because some leases expired and didn't get renewed. Well, all of those leases that are being underutilized by half, if those don't renew or they renew at much smaller spaces, you could create 30, 40 percent physical or actually financial vacancy in the commercial space. Now, it's dangerous to forecast that far in the future because behavior can change. How much space do people need? What do they do out the fact they want their whole team to get together three days a week? So do they just eat the space on the Mondays and Fridays? Some companies are never coming back. Some jobs are never coming back. So the way we look at it, we have some loans in the office.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source

50. “Remember, I said before that in the mortgage market, in the residential mortgage market, a borrower can stop making payments and it might be two years before the investor actually takes a loss, sometimes five years. Well, I think that same thing's been happening in commercial now for the last since 2021 is that physical occupancy is the leading indicator to economic occupancy. Economic occupancy is who's paying the rent. And corporate leases are of incredibly high credit quality. Incredible. Very few leases ever default. Those leases, however, are going to come due and the renewal rates are tragically, tragically low. So if you model out what's going to happen to the commercial space from an economic perspective, you don't have to be a wizard to figure out that monetary or physical fiscal or financial occupancy is going to track physical accuracy. Companies aren't going to be able to give back one for one as much space as they're not using because they've got this peak and load problem.”

    2024-03-07 · Masters in Business · Sean Dobson on the US Real Estate Industry · IDENTIFIED FROM THE TRANSCRIPT · source