Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - A Macro Take On Today's Real Estate Market

Tyler Stewart
December 14, 2022
Podcast - A Macro Take On Today's Real Estate Market


Apple Podcasts


Featured On This Episode

Paul Angelone

Senior Director

ULI’s Curtis Infrastructure Initiative

Paul Angelone is the Senior Director of the Curtis Infrastructure Initiative for the Urban Land Institute. This initiative identifies and promotes infrastructure solutions that make cities more resilient, sustainable, and equitable and enhances long-term real estate value. Hailing from the Midwest, Paul has a wide variety of policy, program management and coordination experience with an ability to bring people together and manage complex processes.


Cullum Clark

Director | Adjunct Professor of Economics

George W. Bush Institute | SMU

J.H. Cullum Clark is Director, Bush Institute-SMU Economic Growth Initiative and an Adjunct Professor of Economics at SMU.  Within the Economic Growth Initiative, he leads the Bush Institute’s work on domestic economic policy and economic growth.


Timothy Moore

Manager at Boston/New England


Manager at ULI Boston/New England and Founding Principal at Blue Haus Group located in Hartford Connecticut.
Accepted into the Urban Land Institutes Pathways to Inclusion Cohort in 2018 and recognized by the Connecticut Entrepreneurship Awards in 3 categories; receiving Economic Development Organization of the Year in 2020 and Honorable Mention in the Community Builder category.


Craig Leibowitz

Executive Director, Innovation & Insight

Avison Young

Leads the Innovation and Insight Advisory platform, which designs custom data analytics products that enable occupiers and investors to solve their complex real estate strategies and deliver real-time market perspectives to public and private audiences using digital-heavy formats.


Erik Foster

Principal, Head of Industrial Capital Markets

Avison Young

Erik is focused on executing real estate capital markets and asset advisory services across his firm’s global platform that translate to tangible results for clients in the industrial, healthcare and office property sectors.


Carl Quesinberry (ULI Kentucky)

Senior Director

Avison Young

Carl is an innovative, resilient corporate real estate professional with 30+ years of experience exclusively focused on occupier advisory services combining operational consulting, project management, supply chain/logistics, industrial development, location strategy, site selection, and economic incentives in his offerings. He collaborates with his clients to develop corporate real estate solutions that align their operations to achieve the lowest total cost of the real estate to best support the business.


Curtis Infrastructure Initiative

Cullum Clark's Articles

Vitality Index

Learn more about ULI

About ULI

Dedicated to advancing Urban Land Institute’s capacity to connect, inspire, and lead, the ULI Foundation leverages its charitable 501(c)3 organizational status to secure and manage philanthropic assets and partnerships. This extraordinary tradition of ULI member altruism and goodwill serves to benefit and grow the ULI mission, changing millions of lives and improving communities around the globe.


[00:00:00] Adam Hooper: Hello and welcome. I'm Real Crowd, c e o Adam Hooper, and this is The Real Estate Investing for Your Future Podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last all opinions expressed by Adam Tyler and podcast guests are solely their own opinions and do not reflect the opinion of real crowd.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors. Welcome to another episode of a special series we recorded with our friends from the Urban Land Institute.

This series is brought to you live from Eli's fall meeting in Dallas that featured over 45 sessions, 150 speakers, 240 events, and more than 5,500 members in attendance. In today's conversation, we're joined by a truly all-star cast with Paul Angello and Timothy Moore from Uli Co. Clarke from the George W.

Bush Institute, and finally Craig Liebowitz, Eric Foster, and Carl Quesenberry of Avis and Young. Our first interview is with Paul Angelo, senior director at U i's Curtis infrastructure initiative to discuss highlights from his panel at the fall meeting on how to prioritize effective infrastructure led development.

The Uli Curtis infrastructure initiative identifies and promotes forward-looking infrastructure investments that are equitable, resilient, and that enhanced long-term community value. To learn more about Paul the fall meeting and the Eli's Curtis infrastructure initiative, be sure to check the show notes.

With that, let's get to the conversation. Paul, thank you so much for taking some time here at the fall meeting to share with us. Uh, we just watched your panel. Um, why don't you tell us a little bit about what you do with ULI and, and what you just covered on your panel. 

[00:02:00] Paul Angelone: Well, thanks for having me. I'm really excited to be here, but, uh, I work for the Urban Land Institute as the Senior Director for Infrastructure.

And what I really focus on is the intersection between infrastructure, land use, and real estate. And at the Courtesy Infrastructure initiative, we're really, um, trying to create a more equitable, resilient, healthy cities that build both, uh, uh, community value as well as, uh, real estate value as part 

[00:02:26] Adam Hooper: of this process.

Mm-hmm. . And so your panel was about infrastructure led development. Um, high level, what is infrastructure. . 

[00:02:33] Paul Angelone: Well, it's a little complicated. Yeah. Uh, we, uh, when we started this initiative about, uh, two years ago, we asked the very same questions. So we, uh, sent a survey to about 400 eoli members. Mm-hmm. , which is a good representative, uh, representation of Eoli membership.

And it really, there wasn't a consensus around it. Mm-hmm. and so, but people thought of it really as, um, a foundation to society, uh, uh, opportunity. Um, really frames what development is. But we typically work in areas, anywhere from transportation about moving people on things, uh, to communications like broadband.

Mm-hmm. , uh, thinking about, uh, utilities such as energy or water. And finally really those places that, that build communities. So whether that's schools, mm-hmm. , um, parks, uh, and other open 

[00:03:21] Adam Hooper: spaces. And so how intertwined are. real estate and infrastructure and they're, they're one is the other. And the other is, I mean, they're, they're pretty well intertwined.


[00:03:33] Paul Angelone: Exactly. Um, one of the areas that really drive, um, real estate development is both the quality of the infrastructure. Mm-hmm. , and of course the regulatory policies that, around that. Mm-hmm. . So without really high quality, um, uh, infrastructure, um, as well as good policies around it. Uh, Uh, the, what happens as well as market demand Yeah.

Um, is uh, what really drives a lot of real estate investment. Um, and depending on the type of infrastructure, um, you will have different types of development, whether it's, uh, you know, sprawl, um, to, or more, uh, compact, uh, walkable 

[00:04:06] Adam Hooper: communities. Yeah, and I definitely want to, digging into that a little bit out of this, you know, kind of a post covid world, right?

What's maybe changed about the view towards infrastructure? Uh, before we get to that though, um, you mentioned the panel, there's a lot of new regulatory incentives and, and capital coming into infrastructure development. So for developers and real estate managers that are looking at new projects, how should they be thinking about this, this kind of renewed emphasis on infrastructure and how can they learn maybe how to participate in some of that incentive for, for infrastructure?

[00:04:38] Paul Angelone: Well, we are having the most amount of, uh, infrastructure investment since the creation of the highway in interstate system, the 19 fiftys. So there's a tremendous amount of dollars that are coming mm-hmm. , um, into, uh, the marketplace. And so capital is less of a challenge. Mm-hmm. now. Um, but it really is about how that money is being allocated.

A lot of the, from the federal government is going from, uh, directly to the states, uh, to regional, uh, uh, decision bodies. Mm-hmm. , uh, as well as local jurisdictions. And so there real estate developers should be a part of the conversations that's, that those communities are having mm-hmm. , um, to really help drive, uh, where that infrastructure development will happen because, um, with, you know, a lot of these things will take a long time.

I mean, these dollars will come over the next five years or so. Um, but, um, , what these decisions that are being made right now will really drive where real estate will be happening. Mm-hmm. , where real estate development will be happening for the next 10 to 15 

[00:05:38] Adam Hooper: years, and so is it. And I guess I'm thinking like, is it, is it chicken or the egg thing?

Right. Does does infrastructure drive what's built or does what wants to get built drive what infrastructure gets created? Right. How, how do those interact with one another and which, which drives which? 

[00:05:54] Paul Angelone: It's, it's a little bit, it definitely is a chicken of the egg about where, where things are having, but I think, um, public bodies have a real opportunity to actually frame where infrastructure happens.

Mm-hmm. . So whether it's, um, thinking about are you investing in, in transit, whether it, whether it's heavy rail or, uh, B R t, which is bus rapid transit mm-hmm. or other type of, uh, movable, um, um, or thinking about, uh, highway expansions in other, uh, areas. And so, um, that which allow you to go further, um, out with development mm-hmm.

so the types of, uh, infrastructure will determine where things go. Mm-hmm. . Um, and I think that also, uh, the covid really did drive a lot of. Um, accelerated a lot of trends mm-hmm. , uh, with what things are happening. And so, you know, but infrastructure is something that, you know, will happen over the next 10, uh, years or so.

Mm-hmm. as it's being invested in. Um, so, you know, we have a real opportunity to shape where that's going. Mm-hmm. , and so, you know, having real estate developers, uh, in the conversation who actually will be putting up some of the money to actually finance and fund this because mm-hmm. , there's tremendous amount of federal dollars that are coming.

But, uh, historically about 70% of that funding comes from, uh, the state, local jurisdictions, and then developers 

[00:07:07] Adam Hooper: themselves in the private sector. Yeah. So I guess the, the converse of that, when you're looking at maybe infrastructure that's degrading or getting a little bit more tired over the years mm-hmm.

um, Does that, does that precipitate decline in real estate value or does he decline in real estate value lead to infrastructure being neglected? Again, it's probably similar, similar to the, the growth of that, a bit of a chicken or the egg. And then how does that, how does that look going forward as communities try to maintain or improve that infrastructure?

How, how, how? All come together? 

[00:07:40] Paul Angelone: Well, I think one, a lot of this money that's coming out is really focused on the capital, um, capital, uh, expenses to be able to build that infrastructure itself. Mm-hmm. and doesn't really address a lot of the, um, maintenance that's required for this. Mm-hmm. . And so there were provisions that were part of this federal legislation that didn't get included, that were about, uh, trying to, uh, fix it first.

Mm-hmm. . Um, but, uh, so a lot of this money could go to new investment, uh, new, new roadways or new, uh, water systems or new, new places. And so, um, You know, the real estate development, uh, will pay the property taxes, um, or other, you know, revenue sources to actually fund that maintenance over the years. Mm-hmm.

And so the quality of development and the quality of real estate are really important. Mm-hmm. to make sure that you have, you know, dense enough tracks or spaces that actually can pay for the service that are required. Mm-hmm. . And so making sure that you have a mix of different type of uses, a mix of real estate, um, um, the types of things that ULI members are really advocating for and, and really doing, and the type of developments that they're doing are really, uh, you know, real opportunities to showcase, uh, uh, example, best case examples that will ultimately pay for, um, the infrastructure that's being built today, uh, over the next, uh, 10 to 15, uh, to 

[00:08:53] Adam Hooper: 50 years, to be honest.

Mm-hmm. . And then now getting to the, the changes in accelerants that we saw during Covid. I, I, I think we've explored that a lot on the podcast and conversations of. Some things were just fundamental changes to how we interact with Built environment and others were accelerants of trends that were already in place.

So we explore that a little bit. What have you seen that's been an accelerant of a change that was maybe already underway and this has just caused it to happen in two or three years, rather than eight to 10 years? Um, and then what are some of the more truly fundamental changes that you've seen coming out of the, the environment that we just went through?

[00:09:30] Paul Angelone: One of the biggest, I think, accelerations that, that I've seen has really been remote working. Mm-hmm. , um, and how that, uh, has impacted how people are commuting or moving around spaces. So there's a lot of people that still have to commute mm-hmm. , but typically those are, um, uh, uh, lower income, uh, or, or in jobs that require you to be there.

Like for instance, I'm in Washington, DC there's a lot of national security people. Mm-hmm. , uh, they have to be, um, in their office. Whereas, um, I'm lucky not to have to be in my office every day. Um, . And so, uh, where, you know, there's high quality broadband internet, um, uh, will really drive where some of that, um, where places where people could be remote mm-hmm.

or, or located. And so the, the quality that infrastructure will be really important. I think you're also seeing, um, you know, a lot more, uh, services that you typically would go to the doctor for, um, that you can do virtually mm-hmm. , um, or thinking about, um, how you, you access an Uber or Lyft or other type of, uh, ride share, um, mobility as a service mm-hmm.

um, you access that, that's, uh, having higher quality, uh, broadband or other type of internet connections will really kind of allow those types of things to happen. Mm-hmm. , uh, more often. Um, but I think, uh, those commuting patterns, I think really will be the, the big driver. And, and, and my hope is, is that we're able to, uh, uh, create more, um, you know, mixed income, uh, mixed, uh, Uh, uses of locations.

Mm-hmm. , um, which will have, you know, um, you know, to help, you know, bring in more residential into downtown areas. Um, you know, think about, uh, in suburban offices, uh, more residential in those areas too. Mm-hmm. that you can really create more opportunities. And those are the types of neighborhoods that actually seeing, you know, offices, uh, you know, still have, 

[00:11:18] Craig Leibowitz: uh, 

[00:11:19] Paul Angelone: uh, less vacancy.

Mm-hmm. and other kind of the neighbors are more 

[00:11:23] Adam Hooper: dynamic. Yeah. And then when we think about what's next for infrastructure, looking forward, I mean, we've been talking about self-driving cars forever, right? Mm-hmm. , um, when we look at maybe where the US is a very car-centric, uh, culture, right? From infrastructure perspective, so maybe some with Uli being a global organization, um, other countries are maybe a little bit more advanced in terms of rapid transit, trains, high speed, stuff like that.

Where do you see maybe the next. 10, 15 years of infrastructure for us. And then where do you see us on the global spectrum of, of our, uh, I guess advanced placement or advanced thinking towards infrastructure? 

[00:12:03] Paul Angelone: The automobile was the last major disruptor. Mm-hmm. , um, of urban areas. And so those real estate areas that are most successful are those areas that have been able to, uh, reoriented towards people.

Mm-hmm. . Um, and because, uh, real estate fundamentally is about people, um, and then the experiences that are created within that mm-hmm. . And so cars are a part of that, but aren't the full, uh, side of it. So I think you are gonna see a lot more technology, um, as part of r uh, both roadway safety, um, and cars. I don't know if we're ever gonna get to, um, uh, fully autonomous cars mm-hmm.

but I do think that you're gonna see a lot more, um, you know, virtual track and other type of, uh, uh, uh, mobility opportunities, whether it, uh, on, on that. And then there's opportunities with that. , but I think that, um, really, you know, it's thinking about like how actually really do people walk around and actually move in that, that space that's designed and the experience is really where the real estate industry can help define that.

Mm-hmm. , because, um, instead of doing, you know, peak of the peak commute, you know, really thinking about, um, how people move around and transportation as a social mm-hmm. , um, opportunity. So it's, it's that conversation that I have with my daughter, uh, biking her to school every day. Mm-hmm. , it's not just getting point A to point B, it's really doing lots of different services all day.

So really having where it's not, shouldn't just be about commuting, it's really about creating access for all the different types of things because mm-hmm. , you know, uh, offices aren't the only thing that you go to. We also do a lot of 

[00:13:32] Adam Hooper: other activities. Yeah. And I guess there's, there's different senses of scale when you're talking about infrastructure, right?

There's what is that walk from your office to the coffee shop or something? Mm-hmm. or from your house to school. And then there is I intrastate transportation and, and again, just the different senses of scale and I guess, um, , you know, how should a real estate manager developer be thinking about that sense of scale?

Right? They might not be able to have an influence on whether or not a high speed rail comes to the west coast. Right? But they maybe have more control over a local development. So I guess maybe where, where can real estate operators, developers be thinking about those scales and, and how can they learn more maybe about, um, how to influence that infrastructure around their developments?

[00:14:15] Paul Angelone: I, yeah. Uh, development is, is very hyperlocal. Mm-hmm. , particularly when you're doing a lot of infill type of development. Um, um, uh, and it's really about how do you connect into those services. Mm-hmm. , um, uh, particularly as developers at a, the larger scale will build a lot of that infrastructure as part of that mm-hmm.

both onsite and offsite, cuz they can control, um, that development. But, um, you know, I, I think, you know, all infrastructure development of real estate development, others really making sure that it's a partnership between, uh, the public sector. Mm-hmm. , um, The private sector, uh, community members and others, and really having those conversations because, uh, that's really going to, uh, develop relationships and opportunities to start making changes and addressing some of those bigger concerns.

And, and, um, I started off that presentation talking about Jim Curtis. Mm-hmm. , uh, who, uh, funded, uh, my initiative at, at the initiative that I work at, at Urban Land Institute. And he really, uh, what he did was, you know, the, the District of Columbia was in federal receivership at the time. Mm-hmm. , um, really worked with private developers to come to, um, came to the district, came to the federal government, uh, the regional transit agency to actu to build an infill transit station that then has created, um, billions of dollars of real estate development.

Mm-hmm. around, uh, that opportunity. So even, uh, understanding that, um, e while you focus on the, the individual kind of parcel level, um, That parcel level really does influence the broader systems. And so this is mm-hmm. , you know, thinking about how do we interconnect all of these different systems and create, uh, more of a holistic, uh, people-centric mm-hmm.

[00:15:52] Adam Hooper: environment. So what, uh, what has you most excited about the future of infrastructure? 

[00:15:59] Paul Angelone: The thing I'm most excited about is really thinking about how do you start aligning up a lot of the capital investment mm-hmm. , uh, within, both from the private sector as well as the public sector along with real estate developers and making sure that all those different portfolios are working together.

Mm-hmm. . So making sure that, um, when one side of the house might be investing in something the other, it isn't, uh, adversely impacting the, uh, the other side of the house. Mm-hmm. . And so if, you know, even. Large institutional partners can work together to actually, uh, better fund and finance infrastructure, um, as well as also, uh, do better real estate development.

I think you're gonna start seeing better opportunities there and, uh, we're gonna create a lot of community value. We're also gonna create a lot of real estate value as 

[00:16:43] Adam Hooper: part of that process. And so how, how does that come about? Is that collaboration just at a, at a local level? Is that, does u l I take a position in, in kind of building some of that collaboration?

How, how do, how, how do listeners of this, this conversation, how can they start, excuse me. How can they start getting involved in, uh, working together to, to get some of those better outcomes? 

[00:17:05] Paul Angelone: We'd love to have you involved in our, uh, organization. Uh, I, I'm happy to, uh, uh, provide my, you know, my webs, uh, the website, uh,, SLAs infrastructure.

There's ways to contact me and talk about this, but I think broadly it's really about, um, Uh, organizations like Oli mm-hmm. that really break down a lot of these silos. Mm-hmm. , we've really siloed ourselves off in a lot of different areas and having these cross, uh, collaborative, uh, discussions really will start helping to break that down.

Mm-hmm. . Um, because we're not just engineers. We're not just developers. We're not just, uh, financeers. We're really everyone together. Yeah. And thinking, working together and having those conversations, we'll start getting those better outcomes. 

[00:17:46] Adam Hooper: Perfect. Well, Paul, I think that's a, a great spot to end that you gave a little preview there of how people can connect with you.

Let 'em let us know again how they can, uh, get in touch with you and learn more about what you're up to with Uli. Yep. Uh, 

[00:17:55] Paul Angelone: feel free to email me at pa uh, Paul Angelo, uh, at, or, um, contact me at uh, 

[00:18:07] Adam Hooper: Thank you again to Paul for taking the time to join us. Next up is Col. Clark CU is a director at the George W.

Bush Institute and an adjunct professor of economics at S M U. In this interview, Colum shares with us his thoughts on the building blocks that create thriving local economies, and he shares insights from his panel at the fall meeting called The Texas Miracle. How do we get here and what's next for Dallas Fort Worth?

We hope you enjoy the conversation with Col Clarke. All right, Colin, thank you so much for coming to spend a few minutes with us here. Uh, the fall meeting. Why don't you tell us a little bit about the work that you do, uh, with the George W. Bush Institute? Sure. Smu, it's 

[00:18:46] Cullum Clark: great to be with you. Thanks for having me.

So I'm an economist, uh, working at the George W. Bush Institute and smu, um, I lead the domestic economic policy work of the Bush Institute. Mm-hmm. and I, I focus. Really heavily on, uh, really the challenge of creating prosperous, inclusive, high opportunity places, region, cities, towns and neighborhoods. And I think that's very much, uh, kind of a top of mind.

Mm-hmm. at this ULI event. Absolutely. Uh, I also, uh, teach a, uh, class. I'm an adjunct professor at s smu. I teach undergraduate. Great. 

[00:19:18] Adam Hooper: And so are you looking at, it sounds like you're looking at, uh, scales down to local neighborhoods all the way up to municipalities, to cities. Is that very much and 

[00:19:26] Cullum Clark: metropolitan areas, metropolitan areas as well?

Uh, yes. Uh, I mean, I, I basically argue that the, the principles for building prosperous high opportunity places are, are kind of what we would call scale and variant. Uh, it's, they're, they're not so different at the level of a mm-hmm. , small part of a city as a great big metropolitan area like the Dallas Fort Worth area.

[00:19:45] Adam Hooper: Perfect. Well, that's a good segue into your panel today. Mm-hmm. , uh, titled The Texas Miracle. How do we Get Here and What's Next for dfw? So, tell us a little bit about the first, the panel, who was on it, some of the conversations you had there. 

[00:19:57] Cullum Clark: Sure. We had a really, a terrific conversation, excited about, uh, I was, uh, visiting with, uh, Ron Kirk, who was former mayor of Dallas.

Mm-hmm. , in fact, the first black mayor in our city's history. Uh, and a former, uh, US trade representative under President Obama. Mm-hmm. , uh, and we had Michael Levy, who was the CEO of Crow Holdings. Mm-hmm. , Dallas based company, one of the biggest real estate investment and development firms in the world. Uh, and, uh, uh, we were, uh, a little bit sad because we were also gonna be joined first We had in mind, uh, we, we, we had the current mayor of Fort Worth mm-hmm.

and she couldn't make it. Then we had the immediate past mayor of Fort Worth who got sick this morning. Oh, no. And so we kind of had to pivot, uh, and Fort Worth has a great story to tell. Yeah. So we tried to give a, do a little bit of justice to it all the same, but it was a great discussion. 

[00:20:43] Adam Hooper: Good. Well, so the point of the, the panel was how, basically, how did we get to where we are here in the, the Dallas metro area?

Yes. Um, tell us a little bit about the, the history of the area and, and what's led to this recent boom of growth. 

[00:20:57] Cullum Clark: Oh, wonderful. Well, it's really been quite a transformation. It's been amazing to, uh, to be a part of. I was born and raised here. Mm-hmm. , and, and sometimes the, the kind of, the story is personal.

Like I had grandparents and uncles and aunts and parents who've been in, involved in it. Um, you know, I guess I would, uh, let, let's start with what Ron Kirk said, cuz he's, let's. He was the mayor, let's you know, he's got a lot to say about it. Um, he, uh, pointed out that, you know, the city is, it's not by a natural port or a navigable river, uh, or any particularly significant, uh, natural features.

Mm-hmm. or, uh, you know, sources of natural resources or anything. Um, so it really, uh, came to exist or at least got, kind of got going because it was at the junction of two railroads mm-hmm. , and in fact, even the path of the north south, uh, railroad, uh, was, uh, actually originally, and he goes somewhere else and he, he basically told the story of how one particular politician from Dallas managed to redirect the mm-hmm.

the plan. So, uh, so Dallas really came into being, um, as a transportation hub. Okay. And then, uh, you fast. A hundred years roughly. And they, the, the essentially the city leaders of Dallas and Fort Worth, who didn't always have a great history of getting along. Mm-hmm. managed to come together and, uh, and, and create the Dallas Fort Worth airport, one of the biggest Okay.

Uh, busiest airports in the world. Uh, so essentially we doubled down on our role as a transportation hub and subsequently became the nation's leading inland port, uh, an alliance airport. We have the nation's leading, uh, pure cargo, uh, airport. Um, and along that way, finance and a lot of other things grew up.

So it's been kind of a, uh, uh, you know, very much a history. Excuse me. It's a, it's a, it's a metropolitan area built by commerce. Mm-hmm. built around trade and goods and services and so forth. Uh, and, uh, and it's been a great success story notwithstanding some challenges 

[00:22:46] Adam Hooper: and seems like there's been, again, a push, uh, in the more recent history.

Obviously that's going quite back to the, the founding of, you know, the early origins of the area. Um, what's led to this kind of current wave of, of growth that Dallas has seen? Yeah. Cuz there are plenty 

[00:22:59] Cullum Clark: of other places that are our transportation hubs obviously. So something's gone really, really right.

And that was really the, the kind of the heart of the discussion. Mm-hmm. , um, you know, I think that if you put it, put it together what everyone had to say, including my own work, uh, at the, at the Bush Institute. Um, I, I, I think what I would say is we, we don't have, it's not some one magic bullet mm-hmm.

there's not the single thing that made all the difference. Uh, there's a, a kind of portfolio of assets that when you add them up, have turned out to have a very powerful effect. Mm-hmm. , uh, one asset is being a place that has been particularly in the wider metropolitan area, an unusually friendly place to do business.

Mm-hmm. and to build new housing, which has kept a significant cost of the cost of doing business. Mm-hmm. advantage. And perhaps even more important, a cost of living advantage Right. Over a lot of rivals elsewhere in the United States so that this idea of delivering. Quality of life at an affordable price point.

Mm-hmm. , I think has been really, really important. Um, we, we've, we've generally operated a pretty business or commerce friendly, uh, policy framework. Mm-hmm. compared to a number of places, particularly places on the coast, uh, that have, uh, if anything, uh, been getting progressively more hostile to business.

Right. As Michael Levy said, and Michael, uh, really, uh, emphasized again and again, uh, capital is mobile. Businesses don't want to, uh, be where they're not treated well. Right. Capital goes where it can earn a, earn a return, and, uh, uh, this has been a great region for capital to, to earn a return. Mm-hmm. , so capital has flowed in as have, uh, as have 

[00:24:31] Adam Hooper: people.

And so how, how can other area, I mean, is there a template there that other municipalities can learn from? Implement on a timescale. That's, that's, uh, I mean it seems like that's a pretty large timescale to make some of those changes, right? If it's not foundationally set up in that fashion. Well, 

[00:24:48] Cullum Clark: you know, I mean, I think we have to define timescale.

It's not possible to transform the economy, at least for the better. You may be able to mess it up in a really short period of time. Sure. But you certainly can't, can't bring about a major turnaround and a, a big burst of prosperity in just a few months. Right. Or two or three years. Um, uh, it is inevitably gonna take somewhat longer, but I think there are, um, things that, um, that we've gotten right here in, in, in Texas mm-hmm.

that, uh, other places could imitate probably with some pretty powerful, powerful effects over like a 10 to 20 year timeframe. Mm-hmm. , which is really a timeframe over which city leaders should be planning. Right. You know, if they only think about the next few months, they're not gonna, they're gonna fall on their faces.

Um, so. So, yeah, I think that, uh, uh, cities have it in their power, for example, to, um, you know, reform zoning codes mm-hmm. and, uh, permitting process and all this kind of, sort of seemingly boring stuff that ultimately determines whether it is a good place to build new things, build new housing, build new other types of, uh, of real estate properties.

Um, and, uh, that's, that's reformable. Yeah. And the places that manage to get that reasonably right, uh, are typically they, they, they get big building booms, uh, and they, uh, uh, you know, assuming they have some other basic things going for them. Um, and uh, so that's, that's something that places can get right.

Uh, you know, I think that, um, uh, places are, are, they're all in a competition on quality of life grounds. Mm-hmm. . So, uh, another thing cities can do, Invest in quality of life amenities. Mm-hmm. , I think that's, it's, it's, there's no great rocket science here. You look around the country, you just, just watch where the people are.

Right. Where do they like to be? Yeah. Uh, you know, uh, some cities are more fortunate than, uh, Dallas and having, uh, sort of more, let's say lively riverfronts or Lakefronts mm-hmm. and where people like, you know, hanging out in parks by bodies of water. Right. Beaches or whatever. So if you do that pretty well, people like interesting walkable downtowns that feel like they have some sense of authenticity to them.

Mm-hmm. , uh, and, uh, whether it be traditional downtowns or let's say new alternative downtowns that maybe have been built. Very recently. So, uh, cities have it in their power to build things that people will like to, uh, to be a part of. Yeah. Uh, so that's, I think those were some formulas. 

[00:27:03] Adam Hooper: And so all of that probably equates to a, uh, we've been talking about resiliency more in the climate.

Disheartening Yes. Of, um, just the physical assets, economic resiliency. Right. We're, when all is good, all is great, right? Everything's going great. Um, heading into what seems to be a fairly uncertain economic time in front of us. Yep. How do all those different fabrics come together to create economic resiliency, to get through those more challenging times?

[00:27:27] Cullum Clark: Yeah. I think, uh, you, I think you ask it right in terms of economic resiliency. One thing that, uh, economists have. Is that, um, diversity is good. Mm-hmm. , diversity of industries, diversity of people, um, uh, diversity is good. Not just because of course diversity is a hedge against something going wrong in like one industry.

Mm-hmm. , it's bad to have nothing but the auto industry when the auto industry collapses. Yeah. Like the Detroit area or something. Right. Um, it's frankly not all that great to be, to have, uh, nothing but uh, uh, you know, high tech. Mm-hmm. . Cuz even though that creates great wealth, uh, it also, uh, there's a pretty vast parts of the vulner population that it really doesn't create opportunities for it, which is why so many, one reason why so many people are leaving, say the Bay, the Bay Area.

Mm-hmm. , um, uh, the Dallas Fort Worth area, like the other big metropolitan areas of Texas, uh, it's unusually diverse in its industrial makeup. Mm-hmm. . And that means that it has a hedge against things going wrong in any one sector. Mm-hmm. and more than that. What economists have also shown is that when you have a diversity of industries, the industry's, you know, disparate ideas bumping together and sort of reproducing, you know, procreating producing new ideas mm-hmm.

new industries. Uh, that is in a sense where innovation comes from. It's where productivity improvements come from. And so, uh, innovation makes places more productive and creative. Mm-hmm. and innovative. And we've had that going for us here. 

[00:28:53] Adam Hooper: Good. And now taking that sense of scale back down to maybe, uh, a property owner developer, right.

What are some of the, the learnings and I guess maybe a how can they, how can they learn about what's happened here and what's kind of created this and how can they have some agency or effect at their more local regional level when they're, you know, they're, they're a property developer in a local market.

[00:29:14] Cullum Clark: Well, we've, we have so many great developer success stories in the Dallas area. It's, it's, it's incredible. Um, so I'm certainly not an expert on how to develop any one type of property mm-hmm. , but when I look around, you can see what's succeeding. Mm-hmm. . So for example, one thing that's definitely succeeding is, um, what I previously called kind of alternative downtowns.

Mm-hmm. , so kind of walkable mixed use nodes, typically these days in suburban areas, but it doesn't have to be, it could be a redevelopment mm-hmm. within a core city. Um, uh, but places that, uh, kind of bring a lot of things together in relatively close proximity so that people can kind of live, work, play.

Mm-hmm. , not everybody wants to, you know? Mm-hmm. live within walking distance of, let's say a big job center, but a decent number of people do, and that makes the whole place more lively. So that's, that's something Developer can I, can I mention one other thing? Yeah, yeah. That's something for sure. We've done really well here.

So, for example, um, the, uh, along, uh, the, the, the. The toll road, the Dallas North Toll Road. Yep. Uh, in West Plano and Frisco has emerged essentially a new downtown. Right. That is bigger now in terms of office square footage and people coming to work each day than the Dallas Central Business District.

Interesting. And that's a creation of just the last 20 years, basically. It's an incredible success. So, um, and there's lots of smaller nodes out there. Michael Levy talked about, uh, just how important these different nodes mm-hmm. Are mm-hmm. , that that's kind of what the geography of the Dallas Fort Worth area looks like.

Great. Success story. Another is building these big suburban master planned communities. Mm-hmm. , um, uh, and that just, it's, it's like they're growing like hotcake cakes, you know, just like one after the other, spreading further and further outwards in all 

[00:30:50] Adam Hooper: directions where you provide all the amenities within that, within that community.

Yes. An amenitized 

[00:30:55] Cullum Clark: master plan community that is mostly. Uh, typically single family homes. Yeah. Uh, although sometimes there are town homes and other things. Yeah. Um, uh, but yes, with amenities within the, within the actual plan. 

[00:31:06] Adam Hooper: And so how, kind of going back to what you mentioned before, those alternative downtowns, how do you create authenticity in a new project?

That's, that's, 

[00:31:14] Cullum Clark: I think, a really interesting and perplexing question. Yeah. Uh, people like authenticity, there's no question. Um, you know, uh, in, uh, when traditional, uh, downtowns, uh, like buildings with maybe good bones as they say mm-hmm. , but actually, you know, where the, the original function for them has become obsolete.

Mm-hmm. , um, when they get adaptively reused, that those can be among the most popular kinds of real estate anywhere. Yeah. So when you start on a what was formally a hayfield, what, how do, how do you achieve that? Right. ? Um, you know, I think that creative developers and architects and so forth, when they're smart, uh, are trying to create something that while no one can claim, it actually is authentically from some earlier period that it nonetheless, Evokes has that same kinda sense, some kind of Yeah.

It creates some sense that it's actually, you know, it's really trying to be a place mm-hmm. like somewhere, uh, you know, not just anywhere. Yeah. And, um, uh, you know, and I think there are a lot of success stories. I mean, I think in the north Texas area, I think that in the places like, uh, Frisco and Allen and McKinney mm-hmm.

uh, you, you are in fact seeing, uh, while all of those, those kind of centers we're talking about are extremely new mm-hmm. nonetheless, um, you know, in some cases they're, they're, they, they do actually feel like a place, like a, an actual, you know, place in space, not just like endless 

[00:32:32] Adam Hooper: suburbia. Right. That's fascinating.

And I think that's, um, definitely something that at, at that scale you can replicate independent of, I mean, zoning aside. Right. I mean, there's probably some zoning issues around that that might have to be overcome. 

[00:32:44] Cullum Clark: Yeah. And in fact, it's, it's quite hard and Core City is to, to, to build on top of what is already there.

Right. Uh, because when you're talking about what's already there, you're talking about densifying something. That probably had pretty low density before. Mm-hmm. and, uh, the city of Dallas and other core cities around the United States have found that an extraordinarily hard thing to, to do. Yeah.

Politically, very difficult. 

[00:33:05] Adam Hooper: Okay. Well, uh, why don't you let, let the listeners know how, uh, they can learn more about what you're up to with the institute and s smu? 

[00:33:12] Cullum Clark: Well, sure. Uh, so I've had the opportunity to, to write quite a number of things, and I'm oftentimes out speaking as well. Uh, uh, but in terms of our written work, it's on the George w.

Institute website, uh, you can look up under Column Clark or you can look up under Blueprint for Economic Opportunity. And it's all there. 

[00:33:30] Adam Hooper: It's perfect. And we'll have links in the show notes for, uh, everybody that wants to go check that out. So, column, thank you so much for spending your time with us. So terrific to be 

[00:33:36] Cullum Clark: here.

Thank you very much for having me. 

[00:33:38] Adam Hooper: Thank you. Column. Now we're gonna hear from Tim Moore, manager at ULI for Boston and New England. In this interview, Tim dives into the risks and rewards of investing into opportunistic markets. And with that, here's Tim. Tim, thanks for, for joining us today. And tell us a little bit about the, the fall conference here, uh, for uli.

Why don't you tell us about the work that you do with uli, uh, and then we'll talk a little bit more in 

[00:34:02] Timothy Moore: depth. Awesome. Awesome. Well, great to be here. Thank you for having me. Um, my name's Tim Moore. I am manager ATI Boston. Um, there I oversee programs and. They're technical assistance panels, so our technical assistance panels, we go into communities and municipalities and help them solve complicated lane 

[00:34:19] Adam Hooper: use issues.

Okay. So you're not necessarily working with private companies or you're working with private companies and public entities, or typically 

[00:34:27] Timothy Moore: municipalities. Okay. Um, so we offer the service at a very discounted rate, and since our members also provide the service, we try not to compete with them. So municipalities strictly 

[00:34:37] Adam Hooper: most, most of the time.

Okay. And what are some of the challenges that you're helping solve? Oh man, 

[00:34:41] Timothy Moore: it's, uh, so we have a joke that nobody comes to us for, like easy things, . So we have, I'm working on a bus electrification station and a land swap between the state and the city. Okay. Now we have to solve and get stakeholders there, and there's a, um, a conservancy that wants to reclaim some of the land back.

So we get all these stakeholders at the table and figure out like what the best practice of this would be. Um, another one we articulated a land swap and a rezoning, so that, Was people giving up their parcels of land, essentially, so we could decontaminate it and make, bring it to its highest and best value.

Okay. So it could be repurposed. So a lot of stuff like that. 

[00:35:16] Adam Hooper: So no, no two days are gonna be alike for you. 


[00:35:20] Timothy Moore: not in terms of 

[00:35:21] Adam Hooper: tafts, no. . Um, and so again, I know a lot of your focus is on, I think, what you call opportunistic markets mm-hmm. , um, which are maybe more secondary tertiary markets. So tell us a little bit about how, how would you, first off, how would you define an opportunistic market?


[00:35:35] Timothy Moore: in layman's terms, opportunistic markets are risky. Um, I, I explain as a Blake canvas, I'm going to, to communities, sometimes neighborhoods and cities that have tons of potential. Mm-hmm. , but the average investor isn't. They're not trying to envision something. You want a core play, like most people, like core, um, you put your money there, it makes a little bit of money.

Some people like value add, where you're like, okay, I gotta go in and change, uh, wass and dryers and maybe like change a little bit. Yeah. I go in and I'm like, okay, what does this piece of land look like and what's the potential of it? And then I convince people to buy into that 

[00:36:10] Adam Hooper: vision. Okay. So it's, it's, I mean, are doing mostly ground up developments, is it Repositionings sounds like, I mean, if you're doing land swaps and electrification, I mean you're all the way down to 

[00:36:19] Timothy Moore: It's all of it.

Uh, the interesting thing is, so you, you have your, what exists in the neighborhood and you're like, okay, this is the tear down, or can we fix it? And then you have the blank canvas of the land that's like, okay, like what does this look like? And then if you add in other layers like we do in your life, you're like, well, how do we do it sustainably and how do we do it where we're not gentrifying people?

Like what is this long term strategy going to be? Yeah. 

[00:36:43] Adam Hooper: And so that, again, that involves many, many different counterparts. Mm-hmm. , um, What are some of the different challenges that you've had in working with them? And again, you've got, sounds like maybe some key competing interests there, right? Mm-hmm.

you've got the municipalities, you've got the private companies, you've got the residents. How do you balance all of those together to try to find an outcome? 

[00:37:02] Timothy Moore: So prior to land use, I studied economic development. And prior to economic development, I got into real estate through sales. Oh. So when I'm figuring out what this should look like, I'm trying to make it into an attractive package for everybody involved.

Like what does this package look like? Once I can envision it and I have the architects do the renderings about what it can be, and it's not pie in the sky, it's definitely a heavy lift. You have to be on the ground doing the work. But once you can eliminate the questions for everybody, they're like, okay, this makes sense.

And then it comes down to a spreadsheet and it's like, well, is it worth my time to make X amount of money back? Some investors are down for it, some aren't. Um, , but that's, that's the name of the game. And it's exciting. Like when do you, when do you get a chance to like create skylines? Right. That's fun.

[00:37:47] Adam Hooper: Yeah. And now I guess where we're at anyway, again, your fall of 2022. Mm-hmm. heading into some, you most would agree and relatively uncertain economic times. Mm-hmm. , do you see, does that create more opportunity or does that create more risk for some of these, these bigger projects? Heavier your lift projects?

[00:38:04] Timothy Moore: So it depends. It depends on the, the investor's. Just long-term strategy. If you're playing with long money, we're talking 10, 20 years, you're gonna refinance. They're not really worried to have dry powder on the side. But if we're talking about switching from fix and flip people, or like quick value add that may be underfunded, then it's gonna be challenging for them.

They're gonna, they're gonna wait it out. They're gonna want to be a little more conservative in what they're doing. But in these long term, like recreating neighborhoods, the people that get involved with that are normally well financed and they're affected but not as, To the detriment that the lower level investors is.

[00:38:40] Adam Hooper: Right. And so looking at it on a long enough term horizon that the projects that you're undertaking are not, again, it's, it's not just a kinda light value add. These are a lot of heavy lift over a long period of time. And generally capital sources that will be along for that ride, regardless of the cycle.


[00:38:54] Timothy Moore: They're buy and hold strategies. Um, a lot of times you have multiple investors coming in, so we may have one investor that's gonna be one part of this larger project, and in a couple years as things settle down, another investor comes on and we can start to pull in people. We don't need a huge capital outlay in the beginning.

We just know it's gonna take a really long time to achieve the vision. Mm-hmm. . 

[00:39:14] Adam Hooper: And now we've seen, again, in, in our space, there was a lot of early talk about opportunity zones. Mm-hmm. , um, I don't know that we've seen them fully leveraged to the extent that we had all hoped mm-hmm. in the beginning. Mm-hmm.

just kinda curious, what have you seen ha ha has it had an impact or has it had the impact that you would've hoped that it had? 

[00:39:33] Timothy Moore: So, I know in my communities in New England. , not so much. Um, even myself, I decided to work with opportunity Zone funds because there's just levels of bureaucracy to it. And to really get the full benefit of Opportunity Zone, you have to play a long money game.

But these people might not be long money people, so it's a cool vehicle. Definitely not gonna solve any problems off the bat. But I know we have two tracks in, in Hartford. One is very interesting to me cause it's across the street from a, a soccer stadium. City owns a lot opportunity zone fund, like we can find people to invest in it, but there's no vision for it.

So I started to kick around like, what could this look like? Do we build talent houses here and retail on the bottom? Can we sell it? Can we help solve home ownership? Like what, what does this package look like again? How do we get people excited about this but also make sure it makes money for the investors?

So I've been toying around with that for probably for like three or four months now, and it's, uh, I think I'm getting to a point where I can shop it around and start to get some interest in it. But, 

[00:40:34] Adam Hooper: So when you're looking at a new project or a new area or a new market, what are some of the things that you're looking for that, that make it be a good candidate for putting the amount of effort in that you have to put in to, to make it, just to realize it.

[00:40:46] Timothy Moore: So I'm passionate, passionate about it all, all the time. Like this is, I dream this stuff. Um, and I'm big on the ground, so I enjoy walking it. So I can walk by something and be like, something's missing here. Like, what's missing? And then you start to look at like, this is what's missing. And you dig into the numbers.

Um, so I don't think there's necessarily a formula for what I'm looking at or how I pick out an area. It's just you feel like something should be there and then you start digging the numbers and figure out is it feasible? You're like, okay, like there's the potential to put something here and this is what it needs to be, and how do we start to work towards that?

Yeah. And 

[00:41:24] Adam Hooper: then, um, Is it, are you initiating these conversations? Are you generally in, is a, is a municipality coming to you? Like, how, how do you, how does that engagement begin 

[00:41:34] Timothy Moore: usually? So it's a little bit of both. A lot of times it's me, I'll be in a town and I'll be like, wow, what a great town. It has so much potential.

Mm-hmm. And when I start saying that, I'm like, okay, like, where is this potential? And I start to peek down alleys and look in corners and look at the architecture of things and figure out, okay, like, well, if we can put three stories on top of that, we're gonna have good human scale and that's gonna cost X amount of money.

But that then makes it more approachable for investors to build on this lot over here. And then it all kind of falls together. 

[00:42:01] Adam Hooper: So bunch of different puzzle pieces into, uh, hopefully a cohesive picture. Yep. Yeah. And then how has that changed? Obviously, you know, coming out of the pandemic, um, redevelopment and, and kind of urbanization again.

Mm-hmm. , um, where are you seeing interest in terms of more urban core opportunities? I mean, Are there opportunistic, and I'm, I'm, it's hard to see in a podcast, I'm air quoting. Mm-hmm. , are there opportunistic opportunities in primary markets or, or are you looking more at the kind of outlying secondary, tertiary markets for these opportunities?


[00:42:36] Timothy Moore: in downtowns, typically there's a lot of opportunity, whether it's city or secondary, tertiary, there's a lot of infill development that can be had because we had, um, just like the old school revitalization where they're like, oh, tear down the building and do urban revitalization. And now you have all these parking lots and like, okay, so you can start from there and go ground up.

Sometimes there are buildings that just kind of fell apart and then we call it like, uh, like the missing tooth on, on Main Street. Be like, oh, it'd be like brick building, vacant lot, brick building. Like how do we make that a cohesive main street? What building goes in there? And then it's what, what numbers make that building work?

So how many units do I need to get here and will zoning allow me to do that? And there's actually a great app that's out, um, program called Deep Blocks. And Olivia, um, is from Miami and it just helps put together these, um, parcels. Like you can make assemblages and it can tell you what you can build there and, uh, what you can create.

We've worked together, I dunno, probably like the last couple months as she's been building zap, but it makes it really easy to do that type of work and I was like, I will sign up for that immediately because it gives you all the information, the demographic information, how high you can build the zoning info, and you're like, this is amazing.

Um, so we talk often and I think that's gonna help reshape these opportunities coming outta the pandemic. Good. Well, 

[00:43:55] Adam Hooper: we'll, uh, we'll put links in the show notes for that for sure. Yeah, she's awesome. Um, and then as we think about the risks of those projects and there's, there's added layers of risks when you're talking about zoning, when you're talking about, you know, if you have to do any kind of rezoning or, or different changes of land use.

Um, how do you think about the risks when you're taking on those kinds of projects versus like your typical value add or, or maybe what are some of the more, um, , uh, lesser known risks when you're embarking on a project of that, that scale, that lift. So 

[00:44:25] Timothy Moore: most risk in real estate, I circle back to, to people placed in politics always the same , that's, it's always gonna be one of those regardless of where you are, what the opportunity is.

Um, and the biggest thing I think for a developers is the politics is are they ready? Are they ready to do what's necessary to let this project happen? And if you come up against them and the politics and people aren't ready to do it, you're just throwing your money away. I'm not to happen. Yeah. I, I can paint a beautiful picture, but if they're not down, hang on, their wall just sits in a closet.

Yeah. That's, that's what that is. And that's unfortunate. Cause there's a lot of communities that just aren't ready. They act like they're ready. They think they're ready. But then when it comes to putting pen to paper and the capital's there, they're balking. And, and that's unfortu. . 

[00:45:11] Adam Hooper: And how do you get a read on that?

I mean, is that just, that's just, you get a feel for it. I mean, there, there's probably not a very easy way to quantify that. , you start 

[00:45:19] Timothy Moore: conversations really, really early. Yeah. Um, like as I'm envisioning something, I'm having conversations with people and just like poking around. You're like, oh, like, well, if this was possible, like what would you think of this?

Or like, just dropping heads, what do you, right. Just like little bread crumbs along the way, like leading them there. I wanna lead you to this conclusion that something should go there. I'm like, that's a great idea. Like they think, they thought of it, they're like, you know what we should do over by that soccer stadium.

We should put in some retail in some apartments. I'm like, yes. That's a great idea. Yeah, that's a great idea. Glad you thought, wow, I'm so happy you thought about it. Meanwhile, it's been three years of leading them to this conclusion. Yeah. Um, and even when you do that, it's still not guaranteed it's gonna go through.

Yeah. But your capital outlay is still minimal. 

[00:46:00] Adam Hooper: Right. And so now you've mentioned that project next to soccer stadium mm-hmm. that you think there should be something going on there. Um, what are maybe some of the projects that are, that you've recently worked on that are interesting or exciting and, and maybe what, what are you looking at that's, uh, that you see maybe as the next step in, in development of your approach to these?

What are you looking at these changes? Anything new, uh, that you're thinking about? So 

[00:46:20] Timothy Moore: I play mostly in New England. I live in Connecticut, so I've been very bullish on Bridgeport for 10 years. Um, just by proximity to the city. Fairfield County is very, if you go by the people that live there, it's not very wealthy, but the people that do live there, like stats versus what's going on Fairfield in that area, they can't expand towards the city.

Mm-hmm. , they have to push out. That means they're gonna push into Bridgeport proper. The downtown city prices come up there, you start to make that attractive. Then it hops over the river, goes to Milford, all these other towns. Mm-hmm. , everything rises with that. Um, so I'm really interested in Bridgeport, um, despite what the numbers say.

There's a big vision to be had there. Um, Hartford, I live in Hartford. Hit or miss. There's opportunity there. I would go with that. Springfield, Massachusetts. Um, I think it's cool and I think for people that wanna be ahead of kind of what I'm working on, I look towards climate migration. Mm-hmm. , like where are those cities?

Like, where are people gonna go to as climate changes and is that gonna push you more towards upstate New York? Like the Catskills? Mm-hmm. where it's temperate, not too cold. You still have all four seasons, but you don't have to worry about ocean level rise and droughts, forest fires, stuff like that. What does that look like?

Um, in, in the future? Because right now a lot of like institutional money is going to kind of the southern mile. Mm-hmm. because they're like, oh, rents can grow. But I'm like, you're dealing with these, um, crazy temperatures. Mm-hmm. and climate change and just storms. And I'm like, what's the risk in that? Um, So I'm observing kind of all those trends at the, 

[00:47:58] Adam Hooper: at the moment.

Yeah. And now if you're a, a real estate owner, developer manager, and maybe you're getting a little bit, uh, a little bit bored of the easy value add stuff and you want to start dabbling in some of these bigger term projects, what is the, like what's the scale or what are some of the steps that people can take if they're trying to expand their business into some of these more longer term little riskier, more developmentally intensive process project?

[00:48:23] Timothy Moore: Yeah, I mean, I guess the challenge is breaking it away from what you know. So the average real estate investor that's been in the game for a while wants to have like a hundred units, something they can manage onsite property management, roll through there and it's gonna be there. But to really play in secondary markets, in opportunistic environments, you have to be hands on.

You, you really like, it's a labor of love. You want be there, break out out a template, right? Right. Yeah. You gotta go down there. You're gonna talk to community people. You're gonna be not just an investor, you're almost an activist investor, like you're that involved in the project. Um, and I think. For a certain tier of investor that likes to be in projects like that, they're gonna have tons of opportunity.

But if they wanna be hands off investors, it's really difficult to play in opportunistic markets unless you have 

[00:49:03] Adam Hooper: a great team. Yeah, perfect. I think, yeah, awesome point there on the team. That all comes down to the team, right? I mean, there's a lot of execution that comes into, uh, into these projects. So I think that's a, that's a good point.

Get the team together and, and get everybody buy into that vision, right? Because it sounds like these aren't, uh, these aren't the easiest projects to envision maybe day one. Right? 

[00:49:20] Timothy Moore: Definitely, 

[00:49:20] Adam Hooper: definitely not. Perfect. Well, Tim, I think that's a great, uh, great spot to wrap it up. Thank you for, uh, for coming on today.

Why don't you tell listeners a little bit more how they can learn about what, 

[00:49:29] Timothy Moore: uh, what you're up to? Yeah, so the easiest way to follow what I'm up to is to check out my LinkedIn page. It's uh, LinkedIn. dot com slash the Tim Moore. We'll have links in the show notes for that. Yeah, like pretty easy. I like locked down that name.

A couple years ago I was like the Tim Moore. I was like, who are you? Well, that's that vision. I'm planning the long-term vision. I love it. Um, but yeah, that's the best way to keep in contact with me or at my, um, email. Shoot me an 

[00:49:56] Adam Hooper: Thank you, Tim. Next up we've got Craig Liebowitz, executive Director of Innovation and Insight at Avis and Young.

Craig joined us to discuss highlights from his presentation at the fall meeting called The Vitality Index, taking the pulse of the return to the City Center. The Vitality Index is a real-time window into the movement of people in major North American cities, and Craig shares with us how investors can use this data to inform their decisions.

Don't forget to check the show notes for the link to the Vitality Index so that you can follow along with the conversation. Here's Craig. Well, Craig, thank you so much for taking some time to join us here at the fall meeting. Just got to watch your panel. Fascinating stuff. Things that we've been talking about for years, you guys are putting some data to, so thanks for taking some time.

And why don't you tell us about what you do with a and Young and your Vitality Index? Sure. Thanks for 

[00:50:44] Craig Leibowitz: having me. So, uh, I am the executive director of our Innovation and Insight advisory team in the United States. And really my directive is to design and deliver custom data analytics solutions so our clients can navigate the next normal, so to speak.

Mm-hmm. , uh, occupiers, investors, developers, and public entities. 

[00:51:06] Adam Hooper: So the next normal we've talked about the new normal, I don't know if we're there yet mm-hmm. , but what's, what's the next normal? Next 

[00:51:12] Craig Leibowitz: normal evolves by the day. And uh, the good news is we have the data to substantiate, like what's evolving Yeah.

As it evolves. And an environment that has really no precedent. Yeah. And that's actually why we created the Vitality Index, which is published on the abson website. Mm-hmm. . It's the second thing you'll see and it measures using mobility data. what's happening across unique areas of interest, not just offices.

Mm-hmm. , but what's happening in terms of, you know, hospitality, recreation and tourism destinations, schools, retailers, and so 

[00:51:50] Adam Hooper: forth. Yeah. And so we'll have links in the show notes to that, uh, link. And you were showing in a demo on your panel, um, tons of data that you can pour through and, and look at different categories.

So one of the things you talked about was a trend that we've all been talking about is a suburbanization and then return to core mm-hmm. . Um, what is some of the data that you guys have uncovered with those two trends? 

[00:52:10] Craig Leibowitz: So suburbanization unequivocally occurred mm-hmm. and, um, speaking from experience living in New York City, Throughout the lockdown period, cities were simply not a pleasant place to be.

Right. Under some circumstances. And what people did is they migrated out of cities to be with family or just to be a Montauk or whatever it was. Um, because it was a health and safety concern from a virus perspective, higher perceived quality of life outside of cities. Mm-hmm. and uh, and obviously like that, that occurred and the data substantiates it in a really meaningful way.

But as virus related concerns started to subside, we started to see people return to cities in more meaningful way. Mm-hmm. , which meant that they've become more vibrant. Are they as vibrant as they was? Data says not exactly. Yeah. But we're definitely getting closer to that next normal whatever that next 


[00:53:05] Adam Hooper: whatever the next external is.

Um, and one of the stats you showed was that there's a, a, a return for most, well, not most, but some of the categories. Right. I think you, you called out, uh, education and hospitality. Have almost returned back to where they were pre covid. So the, the people are back, I think you said the people are back, but they just still don't wanna go to the office.

So office, office occupancy is still substantially down. Mm-hmm. just as a, as a whole, right? Mm-hmm. . And then you also pulled back, uh, the more temporary, I think you'll third party office providers, I forget how you classified them, but mm-hmm. , those have almost returned back to normal, right? Yep. So you, you see even uh, within an asset class as broad as office, you have to get more, more, more micro to determine where those trends are actually going.

[00:53:50] Craig Leibowitz: That's exactly right. And the further we could parse and nice isolate the data, macro, micro mm-hmm. , the more so we could and really use it to substantiate and inform decisions. Mm-hmm. . And what's really fascinating is like when we looked at the office data in particular, while we're not close to where we stood pre Covid in any respect mm-hmm.

most, if not. Really all, nearly all employers are really leveraging a hybrid work strategy. In some respects. We're noticing that when, when we look at flexible office providers, so those are, um, like third party operators where you could have touchdown space for a shortened period of time. Mm-hmm. , um, they'll sign license agreements for one or two years in some circumstances and maybe a little bit longer, but it further substantiates from an occupier's perspective, the lack of certainty they have.

Mm-hmm. as it relates to navigating their return to office efforts. Yeah. And it's so critically important because in a demand-driven environment, the first order of operations is returned to the office and then they could effectuate their long-term space decisions. Yeah. Once they have an understanding of how much space they need.

Um, and those flexible office providers serve as an outlet. Right. That gives 'em, buys 'em a little bit more time. Yeah, 

[00:55:06] Adam Hooper: exactly. And so when you, when you think about. One of the things we've, we've continually explored since the beginning of the pandemic is where are, what are the trends that were already underway and the, the pandemic accelerated those versus some fundamental changes to how they structurally work.

Um, seeing your data on return to office currently. Mm-hmm. , do you think that's a, just a fundamental shift in how we think about office space? What, how we use office space, what that means? Or is that, is that, is it going to come back? I'm just curious if there's anything in the data that, that shows any predictive trends there.

It's a really interesting point. We're having crystal ball here. We don't, . Yeah. . 

[00:55:46] Craig Leibowitz: Um, it's a really interesting point because while most people will point to what happened post covid, the office evolution was occurring pre covid as well. Yeah. More people were working remotely more frequently. Mm-hmm. in 20 17, 20 18.

2019. Um, because technology, nibbles. Or workforce to do exactly that. Right. And to your point, COVID served as an accelerator of that trend. Yeah. So, uh, working in commercial real estate, if you're in the office on Fridays, you're probably looking around by yourself. Right. Under most circumstances. And this was, this was pre covid?

Yeah. Especially during the summer. And, uh, now what we're finding is that if people, based on the function of how they work, um, and how, what makes them productive mm-hmm. , so if you're an independent contractor or software developer, you could probably work anywhere. Mm-hmm. don't necessarily need to be within an office, but if you're meeting with clients every day, there's an expectation that you're gonna have to be in the office.

Mm-hmm. , or if you need to access technology or collaborate with work fellow workers, then there's this expectation you have to return to the office. Right. What's happening in terms of the economic backdrop, of course, is that there's a greater expectation of people returning to the office given that nudge from.

Um, what's becoming more economic turmoil. Mm-hmm. is providing incentive for them to do so. But the point I made a few moments ago is, listen, we're gonna get to some seed of, uh, equilibrium, so to speak, whether it's 30% below or 40% below pre covid levels totally remains to be seen. Mm-hmm. , but we'll get there at some point.

Um, absent some unforeseen black swan events Yeah. That could transform that. And once we reach that point, it's gonna serve as a really strong proxy for how much space office most OC office occupiers are gonna need. Yeah. 

[00:57:39] Adam Hooper: In the future state. And so that will then be the, the new normal. Right. How do we know when we're there?

Yeah. Yeah. Um, 

[00:57:45] Craig Leibowitz: the data will help to substantiate it. Yeah. Ultimately, and, 

[00:57:47] Adam Hooper: and so you're looking at just a consistency over a period of time. Yep. Is that a year, two years? What, what kind of timeframe? I mean, everything, everything has moved so quickly. Yeah. This last couple of years. I'm just curious, what is your sense of timeline to see when we've, we've.

Gotten to a point of stabilization, some of these different factors. My 

[00:58:05] Craig Leibowitz: guess a bit is four to six months. Okay. Uh, really after the holiday season. Yeah. I would say there's, that's the next, next, next, next milestone. Yeah. After probably five of these milestones. Labor Day serving is the most recent one.

Yeah. Um, whereby we're gonna have a really strong understanding of, or a stronger understanding of where office occupiers Yeah. Um, how often the returning to offices and what it ultimately means, not just for, you know, office landlords or office markets, but for economies. Yeah. More broadly. 

[00:58:33] Adam Hooper: I think that is something that's interesting.

When we got into the Covid environment, it seemed like the data was shifting so quickly and from an asset class that's always thought in terms of quarters, if not years. Mm-hmm. , um, that was a big shift I think for a lot of people that were trying to. To leverage this new data that was coming in so frequently from the fire hose to make these decisions.

Mm-hmm. . So how has, how has that changed what you're doing with this Vitality index? I mean, you're getting almost realtime data from, and maybe tell us a little bit about how you're collecting that data, but I'm just curious, with the accessibility to this realtime data, how does that change the decision making process from investors and, and users of these spaces today?

[00:59:17] Craig Leibowitz: Modern occupiers, investors, developers need to reference data when they're substantiating a decision, whether it's buy, hold, sell, lease, sublease, et cetera. Mm-hmm. , and we are endeavoring to be the source of truth there. Yeah. And from that perspective, we we're just using one select data point in terms of mobility data to reinforce how, uh, we're establishing our, establishing ourselves as that source of truth.

Mm-hmm. . And what we did was we said, you know, early on, actually last year, we released an office vitality index. Mm-hmm. . And we were like kinda scratching our heads like, you know what, this isn't really capturing the essence of what we want to capture because it's not, it's real time, but it may not be as predictive as we would like.

Mm-hmm. . And when we listened to what office CEOs say in their memos to employer employees, uh, mandating returns to the office, they'll point to education, like students return to class and they'll point to. Wow. People were turning everywhere else. Yeah. And that's exactly why we, the essence of what we wanted to capture Wherewhere else, , uh, the everywhere else being like museum stadiums.

Like, okay, you were at Yankee Stadium on Friday afternoon, like you should be back in the office. Right, right. Um, and that's exactly what the point too, and that's what we wanted to capture. Yeah. And it's not just for office personas, but it's also for all personas. Yeah. For the reference. And we isolated or geofenced unique areas of interest throughout 52 cities mm-hmm.

across North America from which we could really inform those decisions Yeah. In a 

[01:00:54] Adam Hooper: more progressive way. And so what, what were you seeing in some of those other asset classes in retail or, I mean, multifamily obviously we know that held up very well, but I'm curious, what did you see in retail? 

[01:01:03] Craig Leibowitz: Retail? Um, we're getting to some someon normalcy.

Um, we actually , we reference online retail, which has actually last mile distribution centers. Mm-hmm. and the mobility data has actually been pretty low. Interestingly, um, as it relates to that asset class in particular, I think that really speaks to supply chain issues. Mm-hmm. , um, not just like the materials themselves, but also workforce.

Yeah. Um, so that's an industry that's faced some acute challenges. Yeah. Especially in recent months. Um, but as really in in-person retail experiences, they've returned to some semblance in normalcy. Yeah. Um, with the top L ls being retail corridors because tourists have returned, residents are back in cities and office workers are kind of back.

Yeah. So they're not necessarily back to normal, but they're. Reasonably back to normal minus the office workers, um, on a day-to-day basis. And the data substantiates that. Um, inter we also have a local area of interest for retailers. Those are grocery stores. Okay. And we're not seeing the same level of visitor volumes you saw pre covid, but it's back to some semis in normalcy and had been, been back to normal for quite a long period of time, which substantiated the people were actually back.

Yeah. In locations, cities, suburbs, et cetera. Um, and that multi-family mental data substantiates 

[01:02:21] Adam Hooper: that good. So what's, uh, what's next for you guys with data? How you analyze this and, and how can the listeners, um, leverage that to the most in their businesses? 

[01:02:31] Craig Leibowitz: So I would say is that, um, again, we're kind of endeavoring to be the source of truth there from a data perspective.

Data, data analytics, data science, data visualization, and the vitality index is just one. Minute component of, or basically the tip of the iceberg, what our capabilities are. Yeah. So we'd, uh, we'd encourage your listeners just to reach out, have a dialogue with us, if there's an opportunity for us to use our platform called Avant to help to inform those decisions.

We're happy to be a partner for them. 

[01:03:03] Adam Hooper: Perfect. Well, uh, let us know where we can, uh, where we can find all the data. 

[01:03:06] Craig Leibowitz: Sure. So, uh, aveson Um, if you go on the website, it'll be one of the first things you see. It's called The Vitality Index. And on that you'll have my contact information as well and ways to subscribe.

[01:03:19] Adam Hooper: Thanks, Craig. That was great. Now we're gonna hear more insights from the team at AVAs and Young, as Eric Foster, principal and head of the Industrial Capital Markets shares insights from the panel he moderated at the fall meeting. There's a traffic jam in the shipping lane, supply chain and logistics issues, and the path forward.

In this conversation, Eric breaks down how the supply chain issues have been impacting the US real estate market and what to look for next. Well, Eric, thanks so much for taking a few minutes of your day to, to share what's going on at the fall meeting here in Dallas. Thanks, Adam. Happy to be here. Um, so tell us about yourself and, and the work that you're doing with AB and Young.

[01:03:55] Erik Foster: So I run our industrial capital markets platform. Mm-hmm. . Uh, we are a global services company, the largest privately held global services company, uh, in the world. And the industrial space has obviously been very, very active. Mm-hmm. and from an investment standpoint, uh, we're doing work all across the globe, mainly here in the United States.

And as far as, you know, in 2022, it started off quite robust, and obviously there have been some changes in the marketplace. Mm-hmm. slowed things down a little bit, but still it's, it's the asset class to be in, I believe. 

[01:04:25] Adam Hooper: Yeah. And so now the panel that you're moderating mm-hmm. , uh, was yesterday. And tell us about that panel.

Who was on it? What were some of the, the key 

[01:04:32] Erik Foster: points? Yeah, so I got, I got Gray Blon who runs Neve's, uh, industrial platform as well as, uh, Trey, uh, Adams, who, uh, runs real estate for nfi, which is a, a logistics, uh, and trucking company. And, uh, Carl Quesenberry, who's with our consulting group. So, I, I, I devised the panel so that we had an, an owner's perspective, a user's perspective, and then also sort of a third party consultant perspective.

Mm-hmm. . And from that we were able to really dissect the market, talk about some of the hot button issues, where's the market heading, what's the investment look like, investment market look like? What does tenant demand look like? And what are some of the things in 23 that we need to be aware of? 

[01:05:13] Adam Hooper: Mm-hmm.

And so share a little bit of that with us. What does, uh, tenant demand look like? How's it doing from an investment asset class? And, and then a little bit more deep, we'll, we'll talk into some of the logistics issues that we're, we're seeing right now. 

[01:05:25] Erik Foster: So the investment market, I, I think was the first question you asked.

Um, it's been on pause for the past couple months, given the interest rate environment. Mm-hmm. , uh, that's probably going to continue for a little bit. And then it will, uh, hopefully start to manifest itself into more liquidity through the debt markets as 23, uh, comes alive. Uh, and, but, uh, fingers crossed on that the, uh, the logistics market is, um, is changing, uh, the, uh, the shipping concerns that we had during the pandemic and maybe a year or so ago with some of the poor congestion and things like that have mm-hmm.

have seemed to ease a bit, but there's still challenges. 

[01:06:02] Adam Hooper: Yeah. And so when we see, I mean, again, we hear news about supply chain issues all the time. Mm-hmm. , right? Mm-hmm. . Mm-hmm. . Um, maybe we'll see it in the, in the supermarket where shells still seem like they're not quite at full stockage levels. Yeah, for sure.

Um, is that just a reverberation from such a, such a hit during the pandemic time, or is there something else going on that's, that's causing some of the supply chain 

[01:06:24] Erik Foster: issues these days? Yeah, I, I, I think what you're seeing is, I think you're seeing users recalculate and reformulate how they are looking at their supply chains.

Mm-hmm. , uh, I think that was a shock and I think it was a bit of a, um, and we're, we're recovering from that. But when you, you know, you think about industrial. As an asset class, you know, traditionally before the pandemic made it keenly aware of, of e-commerce, you know, it supplied retail, it supplied consumers.

There was also a manufacturing element. Mm-hmm. , well, all those things remain. Uh, but now the e-commerce element is much, is a much bigger part of the supply chain. And as our economy and population grows, we still are a consumer based economy, still need those logistics and supply chains to run efficiently.

Mm-hmm. , uh, what we're seeing is we're, we're seeing some folks begin to look at, um, sort of. , what happens if we have another disruption in the west coast Ports. What do my east coast mm-hmm. ports look like. If there's a disruption in the east, what does it look like in the west? How do we get goods from China?

What about the central us? Is there enough rail to supply or intermodal facilities? Mm-hmm. , are they able to supply my goods and service my goods rather to the places that they need to go to? Um, a a lot of logistics is, Consumer based. Mm-hmm. . And we're looking at population growth. And you, you know, we talk about in the institutional real estate, uh, investment side of things, we talk about the smile regions and the growth regions of the country.

Um, but, you know, I live in Chicago, it's still about 10 million people. We still eat and we still drink and we still go to sports games and, you know, there's, so, there's a base of, of that economy that still needs to be served. Mm-hmm. . Uh, but how, how people will adjust, uh, and are adjusting in the coming days, I think has yet to be seen.

But there are lessons that are learned through the pandemic that are, that are certainly causing people to make different decisions about locations and, uh, and how they use 

[01:08:23] Adam Hooper: their logistics. Mm-hmm. . And so how, how are you seeing, again, you mentioned kind of east coast ports, west coast ports, disruptions on one will affect the others.

Mm-hmm. , um, for listeners of this, whether they're developers, owners, occupiers, or these buildings, How are things looking differently on the coastal markets versus maybe on some of the inland, more intermodal markets? Are they seeing similar demand levels? Is there different effects on the intermodal when you get to a port?

Like how does that all, well, I mean, 

[01:08:50] Erik Foster: connect, you know, two things. That's a pretty bad pun. Yeah, no, I mean, no, I, I think I get your question. So the, you know, LA is the, obviously one of the biggest and most viable ports in the states and, and still continues to be, but you're seeing markets, um, like Charleston and also Savannah.

Mm-hmm. really grow to provide an East coast. Um, Access entry point for goods coming through, um, coming through the west instead of going to LA hopping on a rail and then going all the way east. Um, a lot of folks are, you know, choosing to go through the Panama Canal and come up, uh, because they come up through Savannah and Charleston or New Jersey, and, uh, because the ports have been widened and, and deepened, they can handle more, uh, they can handle more velocity.

Mm-hmm. and more users and, you know, SAV. As a, as a real estate, uh, as a real estate center has so much development potentially planned, uh, they could potentially develop. I don't, I don't think it'll all come to fruition. They could potentially develop, uh, do double the square footage that is currently there mm-hmm.

at the Port of Savannah. So it, it, there's a lot of, a lot of 

[01:10:00] Adam Hooper: opportunity. And do you see, when you look across maybe the product spectrum with an industrial, if you're looking more, bigger box, you know, half a million, million square foot kind of distribution centers, um, are you seeing much of a difference in demand between size of the facilities or, or whether it's more of a kinda local, regional flex space?

Are you seeing just increased demand across all industrial uses right now? . 

[01:10:23] Erik Foster: Yeah. I think the, the easy answer is yes, we're seeing more demand across all uses. Um, the, you know, the big box, um, will continue to be, uh, in demand. You have, you know, very strong public companies that need that big demand, big box, uh, space.

But you're also seeing, you know, onshoring is real. We actually wrote about this in our sight lines report, um, a couple of weeks ago about the, on the insurgents of Onshoring and how, uh, people are trying to get away from Southeast Asia as the manufacturing mm-hmm. , uh, center, but maybe move that to Mexico or, or closer.

So some of the smaller facilities, maybe more flex in nature. Mm-hmm. or, um, regional manufacturing facilities are putting demands on, uh, on some of the smaller uses as well. You know, at, at the end of the day. The, whether the debt markets have, you know, had a big impact on, uh, the near term or not. You know, industrial is going to continue for the foreseeable future to be, you know, the bellweather, uh, asset class among the four.

Mm-hmm. multi-family probably will be, you know, a very close second. And then, you know, you've, you've got healthcare and uh, those kinds of things. Uh, but it's really gonna be in demand, be from a use base basis and, and from a tenant basis, which gonna, is gonna continue to drive that investor 

[01:11:43] Adam Hooper: demand. Yeah.

And that's certainly what we've seen in the investment world, right. Is just industrial is as hot as it can be. And, and again, like we see really signs of that changing in time soon. So, um, for listeners of this, are there any new trends you guys are paying attention to? Any new data points mm-hmm. that investors can be seeing or, or maybe get some new insights as to whether we're getting to a new next stage or new or normal.

[01:12:06] Erik Foster: Yeah, I think there's a couple of things on the horizon within the industrial space, and I, you know, the military guys will call it strategy creep. And, and I, and what I, what you look at, and if you look out at the, uh, industrial landscape, you know, there's people that wanna be in. You know, by the big box industrial building in LA or Dallas or Chicago or New Jersey.

That's, that's obviously a core strategy. Then there's, you know, smaller box and flex and infill. But we're also seeing, we're also seeing this, uh, covered land play, the, uh, transload, mm-hmm. , um, uh, sort of truck terminal, uh, platforms that are really, really becoming viable. Uh, we sold, uh, a 53 asset portfolio, uh, two years ago in 17 different states, and it was bought by a major institution and they wanted to add that to their portfolio because of the viability.

These assets, and a lot of these assets are smaller in use. The credit quality is not necessarily that great. It can be. Um, and there are tougher buildings. They get a lot of use. They're also small buildings on very large land sites, so it's not a typical industrial profile. Uh, but that is going to continue.

The other thing that we're seeing is, this, uh, what folks are calling the iOS, the Industrial Outdoor Storage. Mm-hmm. , uh, where, you know, you're, you're your dean, you're buying lots for, uh, trailer storage and, you know, which is basically an industrial building in the back of, of a, uh, of truck trailer. Mm-hmm.

And so there's a lot of institutional money chasing that, uh, that those platforms and those businesses, they are. , they're tough to find. Mm-hmm. , uh, a lot of the, those two sorts of the truck lots and the, and the transload facilities. There's a bit of nimbyism, uh, you know, not in my backyard. Mm-hmm. , because the heavy use and the truck traffic and things like that.

So those assets are, are a little bit tougher to unearth, uh, for the aggregators. But I, I think you're gonna continue to see those two strategies really, really push forward here in the coming years. 

[01:14:06] Adam Hooper: Thanks, Craig. Last up and rounding out our guests from the team at Avis and Young is Carl Quesenberry, senior director.

Carl was on the same panel that Eric moderated and shares insights into today's most pressing supply chain and logistics issues. Here's Carl. Well, Carl, thank you so much for spending some time with us here at the fall meeting. We'd love to. Have you tell us a little bit about the work you do with a and Young?

[01:14:31] Carl Quesinberry: Well, my name's Carl Quesenberry and I'm senior director of the Avis and Young Consulting Group. I focus on supply chain matters, uh, location strategy, labor analytics, uh, and economic incentives to induce organizations to make investment in particular geographies. I've been doing this for 35 

[01:14:48] Adam Hooper: years, so, you know, you know what's going on

I'd like to hope so. Um, so tell us about the panel that you were on, um, and, and some of the, the topics that you guys covered there. 

[01:14:57] Carl Quesinberry: Sure. So the, uh, conference yesterday, the session was on, in essence supply chain disruption. Mm-hmm. , where, what happened, the why mm-hmm. and what it 

[01:15:09] Adam Hooper: looks like in the future.

Mm-hmm. . And so we were talking, uh, earlier with, with Eric. Um, you know, we, I think we still see the effects of that today. Grocery stores, you know, supermarket shelves aren't necessarily stocked. Is that a, is that related? Is that still part of this disruption that we felt when Covid hit. Was that already happening prior to Covid and that was just exacerbated through that.

Okay. Tell us, take us through the history of what, what kind of has gotten us to where we're feeling that impact today? 

[01:15:36] Carl Quesinberry: Great question. I think it's a convergent of a convergence of many factors. Mm-hmm. , um, labor being one of 'em, the production of goods, um, although that appears to be somewhat cor corrected mm-hmm.

Um, but there's unprecedented backlogs of equipment, uh, ranging from H V A C H V A C systems, um, other large white goods. Mm-hmm. , uh, transformers, electrical switch gears that have extensive long lead times on 'em right now that are, uh, impeding the progress of development for the industrial 

[01:16:11] Adam Hooper: sector. Okay.

And so were there, were there trends that were already kind of underway that were, were just exacerbated by the shock? Or is this a new development? 

[01:16:25] Carl Quesinberry: again, A convergent. Yeah. A convergence of issues. I think that, uh, most consumers are experiencing the impact of price increases as a result of a domino effect.

You've got, uh, the, the event of covid, the supply chain disruption that, that occurred from that. Mm-hmm. , you have rising interest rates, you have labor shortages. Mm-hmm. , uh, geopolitical. Tensions issues. Mm-hmm. tariffs, uh, and public policy, major public policy initiatives here in the United States. The domestic policies, it's all convergence of these elements that are driving costs up faster than wage growth.

Mm-hmm. , uh, and this most negatively impacts the middle and lower income 

[01:17:04] Adam Hooper: earners. Yeah. And so now let's maybe talk about the. Logistics side of it, you know, you mentioned the manufacturing is, is backed up and that's kind of impeding some of the progress. Um, and then there's a labor shortage component of that.

Right. How, how do you maybe look at those again, is that all, it's all intertwined of course, right? But maybe you can split out a little bit of some of the labor issues with more of the, you know, facilities or, or hard, hard goods side of it. 

[01:17:30] Carl Quesinberry: Well, I think from the labor side, because of the, uh, public policy initiatives that were implemented, it really wasn't incentivizing going to work.

And culture is one of the most difficult things to change. Mm-hmm. and there has been a cultural shift on how work is viewed. Mm-hmm. , um, labor seems to currently have an upper hand over the institution relative to the tastes and preferences and desires of the, of the workforce. on how they interact with physical space.

Mm-hmm. . So coming back to work, what that looks like in the industrial and manufacturing sector, you have to be at work. Mm-hmm. , you don't have the luxury of being remote. Right. It's not a remote thing. Correct. So in that regard, the only, um, the only, uh, appealing strategy from a, uh, organization is to increase pay.

Mm-hmm. to bring them back into the workforce. And I think that the strongest indicator, uh, of organizations that are being successful with this approach is not just the, uh, increase labor wage that they're providing mm-hmm. , but creating a culture of engagement to where, uh, everybody feels relevant.

[01:18:47] Adam Hooper: Mm-hmm. and where, where are we at in that transition? Do is that something are. Starting to see some normalization. Is there, are we early stages of getting back to that engagement and, and getting the back to work? Like, where do you see that we're at in that, that shift or that cycle do you think? 

[01:19:04] Carl Quesinberry: I think we're at the infancy of what a new normalization will look like.

Yeah. Um, I don't think that we, um, are at the halfway mark of what that ultimately ends up being. Yeah. And that organizations are in a very agile mindset right now. It has to be. Right. You have to be sure. Yeah, sure. So the flexibility associated with the model that will be successful in the future has yet to be determined.

Yeah. But the winners, the organizations that come out of. Stage they're gonna be the real winners because they'll, in essence, be first to market with an organizational, cultural dynamic mm-hmm. that they have mastered and become employers of choice. 

[01:19:48] Adam Hooper: A And so what are, what are some of the tactical things around that?

What, what does that actually look like in practice? 

[01:19:55] Carl Quesinberry: Well, a, again, I think it is about, uh, engagement of the work of the workers. Mm-hmm. , uh, with senior leadership. Um, they have to, strong leadership really isn't given the, the credit it's due, but a good, strong leader that can effectively communicate the vision mm-hmm.

and be authentic, establishes buy-in. Mm-hmm. . And that's what we're saying, that the Roers really. to have mm-hmm. and feel again that they're relevant to the organization. It's not so much about workplace strategy and ping pong tables and, and massage tables or any of that. It's really on how they engage with the organization.

Mm-hmm. being fluid within an office environment or even in a remote environment. 

[01:20:40] Adam Hooper: Yeah. And you know, we've talked a lot about the office environment and just the, the nature of, of how we use the space is changing. Right. And I think there's definitely some fundamental shifts of that. Um, how do you see this new culture of, of work and engagement reflecting in the actual built space?

Is that, is that changing the nature of the real estate, the physical real estate itself? Or is that mostly, um, more people internally of, of how those facilities are already constructed? 

[01:21:05] Carl Quesinberry: Well, I think from a workflow standpoint, it dramatically shifts the model from traditional understanding of real estate.

Mm-hmm. , where I'm gonna plot it out and you get a, a six by six or a 10 by 10 cubicle. Mm-hmm. . It's moving towards, um, an advancement of, uh, open bullpen dynamics. Mm-hmm. , where there's, uh, shifting and common, uh, interaction amongst people in small little group team environments throughout the space. However, from a demand standpoint, I think that current inventory levels for office space for the people that need to be at work mm-hmm.

and for, for those office functions is forever shifted. Mm-hmm. . And what I mean by that is I think that the demand for office space, they're gonna be doing more with less. Mm-hmm. . So the existing inventory to fill back up, I think is gonna take an extended period of time, uh, when balanced against historical trends of what, uh, uh, development and absorption has been.


[01:22:07] Adam Hooper: And so then getting back to some of these supply chain disruptions, um, , are we, are we in a temporary state? Is it, it seems like we're getting some improvements as, as things start to get to again, kind of that new normalization. Um, it's been a rough couple of years. Where do you see the next couple of years?

Are we gonna get to more of a normal flow of goods or is this a, is this a, are there fundamental shifts of how the supply chain functions as a result of what we've been through the last couple years? 

[01:22:35] Carl Quesinberry: That's a great question. And a again, uh, multifaceted drivers. Mm-hmm. , uh, to formulate an answer. I think it's forever shifted.

Yeah. I think the geopolitical theater is the, the, the greatest, um, inducer potential for risk for disruption. Mm-hmm. , uh, that's really driving nearshoring and onshoring. Mm-hmm. friendly, friendly foes, so to speak. Um, I think. , the investment that's being driven by, um, the federal government on critical industries.

Mm-hmm. , uh, lithium battery sector, semiconductor sector, and all of the supply suppliers of those individual, uh, ecosystems. Mm-hmm. , all onshoring is gonna be the most significant driver of industrial real estate in, in, in association with e-commerce for the United States for a five to 10 year horizon.

Mm-hmm. , 

[01:23:33] Adam Hooper: and then maybe taking a look at those different categories, right. We talk about more of the logistics on the coastal markets, port cities and whatnot. Um, and then you look all the way down the chain to e-commerce and that last mile delivery, those products have to touch a number of different kinds of facilities, right.

All kind of within the industrial logistics space. So maybe, how are you seeing some of the. as you look at that, the flow of goods from a port city down to a last mile distribution center in middle 

[01:24:00] Carl Quesinberry: America. Well, you know, what is a port city? I think that may shift by general definition. Mm-hmm. , uh, if onshoring and reshoring is to occur in an optimized model, I really see a renaissance.

In, in Mexico. Mm-hmm. , um, which, uh, rail will be the, the distribution mode into the United States, not the coastal port cities. Right. That, that, uh, have, have been the drivers of the past in association with that. You s you're, you're having an, uh, a shift in, uh, community buy-in. Nimby. Mm-hmm. not in my backyard.

So these large facilities that are encroaching on urban areas, there's get becoming pushback. Mm-hmm. . So I see the model kind of shifting where these large, really large DC centers, you're gonna start having, uh, segmented facilities into the urban core for the last mile distribution. Mm-hmm. , whether they be the smaller cost, crosstalk transfer stations into, um, adaptive reuse centers that are actually in the urban core to, to facilitate that last mile 

[01:25:05] Adam Hooper: delivery.

Mm-hmm. and yeah. We, you know, we've talked a, a fair bit about the kind of repurposing, repurposing of some of the, um, you know, the malls, right? Is there a play to get some of those malls or the existing infrastructure, it's maybe a different use to solve some of that last mile space. Have you seen much of that?

Does this, is this a catalyst for more of that kind of development redevelopment to happen? . 

[01:25:25] Carl Quesinberry: Well, I think given the, the, the fundamental shift in the retail sector mm-hmm. , um, a, it's, it's very expensive. To do it under traditional, uh, thresholds. I see retail space developing into really smaller footprints.

Mm-hmm. with that last mile, lower cost real estate to facilitate them getting the product. Consumers, I think the ultimate model is nobody leaves the store with anything. Mm-hmm. , they just see what they want and by the time they get 

[01:25:52] Adam Hooper: home, it'll bes my doorstep. It'll be at their doorstep. I'm a big fan of that model, by the way.

I get you. 

[01:25:57] Carl Quesinberry: Well, most, I think, I think, um, you know, the Amazon effect has many different, uh, uh, attributes associated with it, and that's, that's one of 'em. Yeah. But, uh, for adaptive reuse, and you brought up a great point. I mean, there was, uh, probably two years ago Amazon was putting in a play for JC Penney's, uh mm-hmm.

and, and, and their strategy was specifically why you referenced it the way that you did. They were already centrally located mm-hmm. for optimizing last mile distribution. And I think it's a great public policy. , uh, conversation to have mm-hmm. to get communities engaged on this adaptive reuse as opposed to, um, areas becoming blighted because of the retail nature of consumer purchasing behavior.

Mm-hmm. has shifted. Mm-hmm. . Yeah. 

[01:26:43] Adam Hooper: And so I guess, uh, maybe a little bit of a crystal ball here, but where, where, where do you see the next phase? Or what is that, that new normalized state for, I guess industrial in general? I mean, it's, look, it's been one of the more attractive asset classes for years, right?

There's, there's just a ton of capital chasing industrial. Um, I don't think we're gonna become less dependent, certainly on those last mile facilities and all the infrastructure to get the products there. So is that continuing? Do you see any, any indications or any data that you're, you're tracking that would indicate a divergence from that?

[01:27:16] Carl Quesinberry: No, I don't. Yeah. I think that continues to be the, the, the trend. Mm-hmm. , um, and direction. I think that, uh, industrial in general because of it can, it can serve so many different aspects of industry other than just distribution as an asset class. Mm-hmm. , you know, another 25 year run. Mm-hmm. perhaps as it relates in comparison to the other asset classes within, uh, commercial real estate.

Yeah. But the, um, but the onshoring and reshoring, how that pans out mm-hmm. over the next five to 10 years is really going to be the driver. on the position I just took. Yeah. So if that comes in, it can only enhance that product category right? By those industries coming in, both with brand new jobs and brand new facilities and the, and, and the industry to support those facilities.


[01:28:10] Adam Hooper: And are there, um, this is, we kind of close out here. Are there any data sources or data points that, that you watch that listeners can maybe pay attention to you that are maybe a little bit under the radar, or, or what are the, what are the maybe the key factors that people should be paying attention to, uh, to see where these trends continue?


[01:28:26] Carl Quesinberry: um, I'm a clause of academic . I, uh, I follow many different, uh, uh, academic publications. Mm-hmm. , uh, workings Institute is a good one. Um, but we, we, we pay a lot of attention to thought leadership within our organization at Aon Young, and we publish it. So within. , our organization at, uh, avis and

Mm-hmm. . You can go there and, and read, uh, current information on trends and, uh, our understanding of market dynamics and where we believe things are gonna go, so organizations can make the most informed decisions. 

[01:29:05] Adam Hooper: Thank you, Carl. What a great episode. You can learn more about u Eli's initiatives and all of today's guests in the show notes.

Thank you again to the Urban Land Institute for helping us to share highlights from the fall meeting with all of you. To learn more about the Urban Land Institute, head to Stay tuned for the next episode, the series, and with that, we'll catch you on the next one.

Final - Waterfall Structures and Pro Formas Explained

[00:00:00] Adam Hooper: Hello and welcome. I'm Real Crowd CEO Adam Hooper, and this is The Real Estate Investing for Your Future Podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last 

[00:00:20] RealCrowd: all opinions expressed by Adam Tyler and podcast guests are solely their own opinion.

And do not reflect the opinion of real crowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors. 

[00:00:41] Adam Hooper: Welcome to a special bonus episode of this series we recorded with our friends from the Urban Land Institute at the fall meeting in Dallas.

In today's conversation, we're joined by Charles two, the Daniel Millville endowed Chair of the Real Estate Department at the University of San Diego's Canal School of Business. Charles joined us to help break down real estate waterfalls, proformas, and the common mistakes that investors make when reviewing them to learn more about Charles and the University of San Diego's Canal School of Business.

Be sure to check those show notes. With that, let's get to the conversation. Well, Charles, thank you so much. Taking some time here at the fall meeting. Um, tell us about the work that you do at the University of San Diego and some of the classes that you teach. 

[00:01:26] Charles Tu: I'm a professor and also the chair of the real estate department in the school of Business.

Uh, I teach primarily finance related classes. I'm also the director of our MS in real estate program. Mm-hmm. . 

[00:01:39] Adam Hooper: And how have you seen, I'm just curious from the educators perspective, where we've gone through some pretty crazy times mm-hmm. last couple years and, and heading into some uncertain times. , how has that changed any of your approach towards how you teach at the, at the university or, or what, what changes has that caused in the program or has it?

[00:01:57] Charles Tu: I think, um, higher education, one thing we try to focus on, Particularly at the undergraduate level is to help students build a foundation, a really solid foundation. So hopefully with the knowledge and skills they can apply in all kinds of different market conditions. Mm-hmm. . So the approach, or I, our focus is not to show them how to chase deals.

Right. But hopefully help them understand why the market is doing poorly or why people are making a lot of money. Mm-hmm. in the real estate market. At the graduate level, we try to combine more practical aspects. Mm-hmm. , uh, about half of our classes are taught by adjuncts who are. Who are very experienced from the business professionals.

Yeah. Um, many of them own their own real estate businesses. Mm-hmm. , and they come to share their knowledge and experience with students and we want students to see how. How, what they, uh, we want students to see what they learn in the classroom can quickly, easily be applied. Mm-hmm. , but they need to understand how to do it.

Is we, we can tell, teach them, uh, every single scenario in the market. Mm-hmm. in 2009, I teach financing investment. And capital markets now 2022. I still teach those two classes, , but I think how students utilize the, the information in their business, uh, when they pursue their career. Yeah, that's very different under the market conditions.

[00:03:37] Adam Hooper: Yeah, so the fundamentals. Uh, the approach and the fundamentals haven't really changed. It's, it's how building those foundations allow you to apply it to whatever the market conditions 


[00:03:46] Charles Tu: Yeah. Yeah. And also I think a key is to connect students with the real world. Mm-hmm. , because the classroom hours is limited mm-hmm.

but outside the classroom, the networking, additional learning, that's almost unlimited. Mm-hmm. . Taking students to an event like Urban Lending Institute. This forum meeting is one example. Students, uh, Students, they came to the conference and attend different sessions. Mm-hmm. talked to professionals and that is a great way to learn.

Yeah. And then, uh, that's part of the value of education. 

[00:04:25] Adam Hooper: Yeah, totally agree. And so you've been busy here. Uh, I think you did a full day session yesterday. You've done two more sessions. Uh, the one you were just at was talking about the, the basics of, uh, of the proforma or the waterfall structure. That was packed.

Right? There was, there was a lot of people listening about the waterfall structure and as we were talking on the way over, you look at a hundred different deals, you're gonna see a hundred different waterfalls. Right? Yeah. So tell us a little bit, maybe high level, when you're looking at a waterfall structure, what are some of the key things that you're, you're analyzing, um, and what are the, those foundations and fundamentals of a waterfall structure?

[00:04:58] Charles Tu: One thing interesting for me is to see, uh, I don't do any deals as an academic. Mm-hmm. , I have access to a lot of different, uh, deal structures. Mm-hmm. and our board members sometimes shares, uh, with share information about, uh, their deals. Mm-hmm. , so I look at them and then for me it's always try to, uh, take formation from each deal to see how I can incorporate that into my teaching.

Mm-hmm. and also try to understand the rationale. Each deal structure, right? Because you have maybe majority of the deals, 85% of the deal structure is almost identical. Mm-hmm. . But why would this. Company set up this particular, uh, provision or that company have this particular requirement. That is the interesting part.

Yeah. And understanding the rationale behind that, and also understanding the purpose of setting up waterfall structure, because I always bring my students waterfall structure. Does not generate any cash flows, it's just to split the cash flow among partners. Right. Right. And why would you structure this way to increase, why would company a focus on this aspect and company A, uh, company B, try to focus on something different?

Mm-hmm. , that is the fascinating part. Yeah. I don't have an answer because sometimes, uh, even. The information provided by companies, they don't necessarily share their trade secrets Yeah. With me. But just by looking at the numbers, that's uh, that's always 

[00:06:41] Adam Hooper: fun for me. Yeah. It's like most things in real estate, it depends.

Right? , it depends. Exactly. So do you see, in terms of what drives those factors and what those variables are, is that more opportunity and project driven, or is it more capital requirement driven? Or, or which, which I guess which would. I mean, obviously it goes both ways, right? Yeah. But which would you, which do you think is more of a fundamental approach?

Is it structuring, structuring the capital for the deal in the most appropriate fashion and then finding the capital that agrees with that? Or is it structuring a deal for a specific capital partner and then pushing that into a, a deal? Which, which, which drives those decisions, I guess. . 

[00:07:22] Charles Tu: Even this question, it seems that it depends.

Depends maybe the right answer. Because waterfall structure can be applied in many types of deals, right? Yeah. Real estate indication may use waterfall. Mm-hmm. and you see joint ventures, one operator and a, an institution investor and may create a waterfall structure and real estate funds. Mm-hmm. , they utilize waterfall structure and I think.

type of platform may have a different priority. Mm-hmm. and I, I've seen syndicators because they have found a deal now they need the capital quickly. Mm-hmm. , otherwise they might lose the deal. Right. So, um, it's more. The ability to raise capital, that's critical. Mm-hmm. . But then raising a fund that is a little bit different, a lot of time they, this is a long process, a 12, 18 month process so that, uh, getting all the money right away.

Not necessarily the priority. Right. So it seems that there are a lot of different factors that mm-hmm. in the waterfall structure people will consider. And then 

[00:08:30] Adam Hooper: even within a fund, your early investors might have a side letter, so they're gonna get a little different preferential terms in some of your later investors.

So yeah, it's, it can be very complex and very complicated. Yeah. And I think all that comes down to, again, your second panel, which is around building a proforma and building a model. Um, they can be as complex as the day is long. Right? Yeah. So I guess when you're, when you're. Going about building a new model or when you're reviewing a model, what are some of the steps or some of the key areas that people should be looking for when they're reviewing or building a model?

I know that's a bit, that's everything. I think 

[00:09:05] Charles Tu: thing, just look at everything. The first thing is to make sure there's no errors. And I think, um, the panel, I talk about common mistakes students made, right? Um, , a lot of time those mistakes don't change the result. Mm-hmm. don't change the financial outcome of your perform.

Mm-hmm. , just the model is not as flexible. It's not as user friendly. Mm-hmm. , that's what I usually talk about in that short session, talking about mistakes students make. Mm-hmm. , but. . It's also possible I have seen models that just have major errors. Mm-hmm. , that's, that's the first thing you, you have to avoid that.

That's a pretty 

[00:09:48] Adam Hooper: low bar , but it happens, right? Yeah. I mean, it 

[00:09:51] Charles Tu: definitely happens. And then the next thing, um, assuming all the numbers are right mm-hmm. . And I always remind my students just, uh, two things. One, whether the numbers make sense. Mm-hmm. , um, unfortunately young professionals or students just started learning real estate don't necessarily have the ability to tell whether or not they don't have the context necessarily.

Yeah. But after a while, if you see going in Capra, that's 20% or, um, a deal that has the multiple that is extremely high. Mm-hmm. something either that's too good. Really, really a good, uh, a deal that um, once in a lifetime mm-hmm. opportunity. Or maybe there's some error, or maybe the assumption may be a typo.

So, Make sure the numbers make sense. And then when you think about some of the deal structures modeling, um, it is really key to make sure your financial model is consistent with, uh, the read, uh, the written legal documents. Mm-hmm. . And that is, uh, always a potential issue. Yeah. And we have seen a. Deals, uh, at least for example, for Waterfall structured, um, the partnership agreement, uh, drafted by attorneys, but then you have the financial models put together by, and they don't talk to each other.

It seems that they don't understand each other's. Uh uh, um, Terminology or the concepts may be inconsistent. Yeah. And you put together a document promoting a deal, showing the financial results turn out to be inconsistent with your, uh, legal document. Mm-hmm. . And that becomes a major issue. And that is something I always re try to remind my students.

When you start your own business, you make sure. Get the right help mm-hmm. , and then work with them to make sure everyone understands their responsibilities and everything is 

[00:12:01] Adam Hooper: consistent. Yeah. The consistency amongst the documents is definitely something that, that we've certainly seen and, and as you said, different parties, maybe they're.

The speaking diff, you know, different terms, or they think the same terms mean a different thing, right? So making sure that that all ties out between operating agreement, ppm, initial marketing materials, and as you mentioned on your panel when everything's going great and everyone's making gobs and gobs of money.

Usually those things work out okay. But it's, when we get into those markets where it becomes a little bit more challenging is when those, those very specifics mm-hmm. , those are important and those matter. Right. Yeah. So maybe, um, when you're looking at those common errors or mistakes that you might find in the models or in the the structures, um, what are some of those common errors that are maybe less impactful and what are some of the bigger ones to look out for that maybe do have a bigger impact on the, on the performance?

[00:12:48] Charles Tu: I think simple things like, um, when I talk to. other people Actually, uh, one example was a few years ago, one of the students learned, um, waterfall in my class. Mm-hmm. . And then when he talked to his supervisor at his internship, um, and explained, oh yeah, professor two, describe the waterfall. We have this case study this way because the structure was different from the.

Usually structure their deals. Mm-hmm. and then he supervises it. Oh, that is too theoretical. Um, it's just because that company doesn't. Structure deal specific that way, that doesn't mean it's not common. Mm-hmm. in business. Mm-hmm. . So I'd look at that and feel that, yeah. A lot of times, small things, whether a preferred return on pay, preferred return will be compounded.

Yeah. Or any preferred. The unpaid for return will be carried forward, or if you have surplus, would that be used to immediately return? Right. Cash open 

[00:13:55] Adam Hooper: operations versus capital events? 

[00:13:57] Charles Tu: Yeah. Yeah. And when you have a capital event, um, how that will be the, the cash will help. Would that be distributed?

Mm-hmm. , those are the things that, uh, can easily be identified in the legal document. But if it's not structured correctly, could have a major implication. Uh, especially I think capital event that is something. Mm-hmm. , uh, definitely important when you look at a lot of the deal structures that either the refinancing or recapitalization and the implications need to be considered.

Mm-hmm. and 

[00:14:30] Adam Hooper: then given. Access and position to be able to see so many different models and different structures. Um, again, kind of, it gets back to, it depends, right? But are there generally some. parameters that you see are, are more standard than others. I mean, I think again, on our marketplace, we've seen a little bit of everything, right?

Mm-hmm. , yeah. Generally simpler the better in most investors' eyes. Mm-hmm. , right? A simple, a simple promote over a preferred return is kind of like, that's the easiest it's gonna get if, you know, once you're past the, the perue level, and then we've seen waterfalls that are 3, 4, 5 tiers deep, right? Yeah. So, I guess in your, in your exposure and practice, Do you see common parameters?

Do you see kind of standard structures coming through there? Or like what do you tell your students when they're thinking about how do I, how do I come up with a structure out of the air? Yeah. What's your guidance 

[00:15:19] Charles Tu: there? I, I definitely agree with you because when. when you deal with unsophisticated investors mm-hmm.

who are relatively new to real estate, you want to keep the structure simple. Mm-hmm. , because otherwise they, they may be wondering, are you trying to hide something mm-hmm. . Right? You're trying to take advantage of them. So making a simple and, uh, easy to explain. Mm-hmm. , because I think investors, they would love to underst.

The waterfall model. Mm-hmm. , even though it's not easy, but with a simple model without too many different tiers of irr look back. Mm-hmm. , that will make it easier. And I think that is usually my recommendation to students. Hey, think about a simple structure that give yourself a reasonable compensation.

Mm-hmm. , give yourself reasonable incentive. To put together a good deal. Mm-hmm. , but also allows you to attract capital and people are happy. And then initially your contribution may need to be higher than 10, 15% because when you don't have. Track record. Uh, your investors want to see you have some ski in the game, right?

Yeah. But once you are, you build your portfolio, you have a track record, you have your customer base, then you can change your per parameters. Don't try to make too fancy outta the gate, right? Yeah. Yeah. Because this is a, it's a marathon, right? Mm-hmm. building your career and starting from a. Single deal syndicator and hopefully graduate to a fund manager.

Mm-hmm. . Those are the, the type of things you have to think the long run. And that's usually my recommendation to students. 

[00:17:00] Adam Hooper: Yeah. And what are some of the factors that might cause someone to create a more complex 

[00:17:04] Charles Tu: structure? I'm thinking maybe if you have that, just thinking sometimes. If the outcome is so uncertain mm-hmm.

right? Um, just breaking that 8% preferred return barrier. Um, but would that be if the, the 8% will be the minimum, but you have that possibility to get to 25, 30%, but. Right after 8% preferred return, you give yourself a huge promote. Mm-hmm. that may look that great from the investors. Mm-hmm. your partner's perspective, but you also want to set up this compensation structure in a way that if you do, if your project does perform extremely well, you give yourself the reasonable compensation.

So maybe that, that multiple tiers make sense because. When you go from eight to 12 to 15 to 18 to 25 , that give you a good reason to convince, to try to outperform and yeah. Your partners that you deserve that mm-hmm. additional promote. And it seems that potentially could also show that you have that, um, confidence mm-hmm.

in your deal that they see, oh yeah. You actually set up, uh, a hurdle that's 25%. That seems, that seems to be. The great potential, and I think sometimes it's just psychological. Mm-hmm. . 

[00:18:44] Adam Hooper: And now maybe wrap this up with this of, we're, we're recording here in fall of 2022. Yeah. You just mentioned out uncertain outcomes.

I think we're heading into maybe some uncertain times. Um, do you, do you have any. We can crystal ball a little bit here, but, um, any indications or, or kind of guesses as to where structures may change given that we're heading into some, some uncertain times? 

[00:19:05] Charles Tu: Um, that is something I will leave to experts like you, Evan , because I think you, you do ask the questions 

[00:19:13] Adam Hooper: here.

I ask the questions. , , 

[00:19:15] Charles Tu: I, um, Okay. Actually this is something, uh, I've been talking to some of my, uh, associates, um, when, when I talk to professionals, um, Because I'm in real estate education. Mm-hmm. , I always look at this, uh, doesn't matter what the market conditions are. Yeah. There's always the opportunity to learn and then try to improve.

So I don't have an answer to that question directly, but I'm looking at this, uh, the market is that, um, definitely the interesting thing I feel is that Waterfall s. That is the right way to provide the incentive and compensation to real estate professionals, developers, and operators, because you don. Get a flat fee or flat compensation, your compensation depends on the performance.

Mm-hmm. . So now in this market, I think it becomes even more important to show your potential partners that you are willing to take chances. Mm-hmm. . On yourself, you're betting on yourself instead of asking them to pay you a very high fee. Right? Because when the market goes down, you want to show that you are willing to share the risk with them.

Mm-hmm. or even more. That is a way to encourage and, um, I think convince your po potential investors to join your deal. I think the waterfall structure allows that alignment, right. Of. Pretty 

[00:20:52] Adam Hooper: well. Perfect. Well, Charles, that's a great place to end it. Appreciate you, uh, spending your time here at the fall meeting with us.

So why don't you let the listeners know how they can learn more about what you're up to, uh, with the University of San 

[00:21:01] Charles Tu: Diego? Great. So at University of San Diego in our Canal School of Business, our real estate program, uh, you can find our information at s d Real Estate dot. Perfect. So it's one word, usd real, and information about our academic programs, our center, our event.

Our services to students can all be found on their website. 

[00:21:26] Adam Hooper: Thank you, Charles. Remember, you can learn more about Charles and the University of San Diego's Canal School of Business by checking in the show notes. Thank you again to Urban Land Institute for helping us share highlights from the fall meeting with all of our listeners.

To learn more about the Urban Land Institute, head to With that, we'll catch you on the next one.

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