Mitch Roschelle is an accomplished thought leadership and marketing professional. With over three decades of consulting experience in real estate, corporate finance and capital markets, Mitch leads PwC's business development efforts across multiple sectors. He is a thought leader and frequent public speaker. As spokesperson on a wide array of topics, Mitch is a regular guest in the broadcast and print media. Additionally, he is the executive producer and co-host of PwC's weekly YouTube program known as 7DayYield.
Download PwC's Emerging Trends Report by clicking here.
Find Mitch on Twitter @Mitch_Roschelle
RealCrowd - 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 advisers.
Mitch Roschelle - When you have a community a city that is affordable to live and affordable to do business where the cost of doing business is low and taxes are part of both of those mind you then what you see is you tend to see that the population is growing as well.
Adam Hooper - Hey Tyler.
Tyler Stewart - Hey Adam, how are you today.
Adam Hooper - Tyler, it's another fantastic day in the studio.
Tyler Stewart - Absolutely, we had Mitch Roschelle, a long time friend of the podcast on.
Adam Hooper - Back on the show another jam-packed conversation about the current PwC ULI emerging trends report, this, the 41st report they've done.
Tyler Stewart - For this year's report, they interviewed 2200 respondents to get their data and their forecast for the upcoming years.
Adam Hooper - Yeah, really interesting report, they've been quite prescient in the past reports calling trends years ahead of time. We talked about the top six so we got a quick update on the overall economy from Mitch. Yeah, some interesting trends are out there some of the conversations you'll hear echoed in prior conversations we've had most recently from the Cree tech conference and some other guests on the show. So I like to think we're fairly in tune with what's going on in the future of real estate Tyler, don't you think?
Tyler Stewart - I think so. I think we like to stay current and it's great that we have these guests on who can help us stay hip. See what I did there?
Adam Hooper - A little foreshadowing, you'll have to listen to see what Tyler is talking about. We also talked about hugging it out. Sometimes it's, everybody just needs a hug.
Tyler Stewart - That's right.
Adam Hooper - Can solve a lot of problems. So, deep dive on the top six trends PwC is seeing this year and ULI. And then we did a quick drill down the top ten hot markets to watch in 2020.
Tyler Stewart - Yeah, I think the biggest trend you're going to see going forward is really landlords and property managers figuring out how to meet the needs of their tenants which Mitch talked a lot about on this episode.
Adam Hooper - Yep, he also gave us a little bit about what to look forward to in 2020. What to pay attention to, what maybe not to pay as much attention to and again just another fantastic episode, we kept him just a skosh over an hour. Mitch is pretty busy guy so we're fortunate enough to have him back on the show. Tyler, I think that's enough of us talking. What do you say, we get to it.
Tyler Stewart - Let's do it.
Adam Hooper - All right, well Mitch, thank you so much for joining us again on the show today, very busy schedule. We know you've got a speaking engagement here a little bit but we appreciate you coming on the show and spending some time with us today.
Mitch Roschelle - I'm happy to.
Adam Hooper - It was about a year ago, maybe a little over a year ago since we spoke last time. What shifts have you seen in the market and where is our asset class generally right now?
Mitch Roschelle - Well, thanks guys for having me. Let me start by saying this, one of the things we do every year on emerging trends for 41 years is, we ask the participants what are the prospects for profitability for the upcoming year. We don't define profitability, we don't define prospects. So it's sort of in the eye of the responder to tell them how they feel. If for lack of a better way to put it guys, it's sort of a sentiment index for the real estate industry. What's interesting about it is the responses came in that we did this survey which launched back a couple of months ago. We did the primary research in terms of 2,200 survey responses. We did that work in July, sort of mid-july through August and we sort of hold the survey responses open until September even though the the book is going to print if something changes dramatically in terms of the way people feel, we want to know it, right. If you can remember back that far, let's think about what the news cycle was like in July and August. Well, those were some bad months for the stock market in terms of volatility kicking up. We had a bad jobs report in there and the media started using the R word pretty liberally. I probably did three or four segments on Fox Business about whether or not we were headed for a recession. And that's exactly the time when our survey respondents weighed in saying that the prospects of profitability for the year. Sorry, should have said spoiler alert or as good today as they were last year and virtually the same as they've been for the last several years of this economic expansion.
Mitch Roschelle - It begs the question, why? And what's interesting and we can sort of unpack this throughout the show, but if you look at the underlying fundamentals for real estate, they're probably as strong today as they've ever been. And even though there's the threat of maybe turbulence in terms of the economic expansion and some data that's coming out, whether it being the manufacturing sector or slowing jobs growth, that could be interpreted as being a slowdown in our economy, the fact of the matter is, it's still pretty strong from a fundamentals perspective and that's what's driving the asset class forward. So again more to come on the topic throughout the show but that's one of the things that I find really fascinating about the the survey is, 'cause it is forward-looking and we did have the opportunity to take the pulse while things were a little dicey and people still feel strong. Again, we can talk about why...
Adam Hooper - Yeah I say that's what we were kind of talking about before we just started recording of the overall economy I think as you said, in a some would say precarious scenario right now with some uncertainty. Real estate though is still one of those areas that people are feeling comfortable feeling confident about as somewhere that is going to experience maybe less of that volatility going forward.
Mitch Roschelle - Yeah and what's interesting is one of the things I've observed and I've said this many times as I go hit the road and speak publicly like I am today, if you look at sort of wealth accumulation not just real estate. But you look at wealth creation back through history, you realize that there's really two ways in which wealth has been accumulated on this planet. One way is precious metals and when people's first started accumulating wealth, the only currency that existed was precious metals and if you keep that is one of the two baskets of wealth, property is the other basket or real estate is the other basket of wealth. But if you stick with that precious metals basket, that basket to me today includes anything that's a trading asset. So currency, Bitcoin, you can throw it in there, stocks bonds, what-have-you commercial paper, certificates of deposit, you bet. All of that is in the precious metals basket of the trading asset basket. Well, two things happen in times of volatility within that trading asset basket, investors who are trying to protect their wealth go to the safer assets in that basket so they'll actually go from stocks to bonds towards gold, for example. They'll go from foreign currencies to the US dollar, they'll go from corporate bonds to Treasury securities. So there's a flight to quality within the basket. But the other thing that happens is, when people get nervous about the trading asset basket, they tend to rotate towards real estate. And that's what we're experiencing today.
Mitch Roschelle - So if you look at the investor side of the equation, investors feel is good about real estate today as they did a year ago if not better because of some of that volatility and some of those other asset classes.
Adam Hooper - I'm interested... So one of the things we found when in our surveys is what people say and what they do sometimes aren't necessarily in direct alignment. Have you seen the actual investment activity, have you seen this sentiment, this positive sentiment playing out in the current transaction activity or have you seen an increase or slowdown or where do you see transaction activity is it.
Mitch Roschelle - What's interesting about that is, and I get that question often in Q&A when I speak. What's interesting is, there's been a shift of who the buyers are a little bit. So, you may see a pickup in absolute terms in terms of transaction volume or dollar volume. But what's really more interesting is who's shifted. So, your Chinese investors, they're sort of out. South Korean investors are maybe not as interested. Japanese investors, very interested in terms of Asia, for example. Western European investors, British investors, the Brits are huge owners of U.S. real estate. They're backing away a little bit because the US dollar got really really expensive relative to the pound. But other parts of Western Europe that aren't as thrilled with their economy are looking at U.S. real estate very favorably. So, I think you got a look at where the shifts are taking place and then over time observe whether or not transactions volume has picked up but certainly interest levels picked up. And I talked to a ton of brokers and investment salespeople all the time and when I moderated panels, I asked those questions of people who are on the buy side and they definitely feel as though it still remains competitive when they're out looking for properties to buy. So, I think you'll see it over time as the dust settles a little bit.
Adam Hooper - We've seen similar in our space, retail investors are definitely still looking at real estate as a picking kind of a safe asset class. I've been doing some work in the wealth management and RAA space begins same sentiment, they understand that real estate is a longer-term asset. It can smooth some of that volatility, it can help people sleep at night and kind of remove some of those bumps that they might see in a typical equity portfolio. So I would agree with that sentiment that we're seeing on our side of the space to less institutional but more kind of retail investor wealth management space seems to be sharing a similar sentiment positive outlook for the asset class. So, let's let's switch now to the emerging trends report. PwC and ULI put the stress reporting you said 41 years now?
Mitch Roschelle - It's in its 41st year.
Adam Hooper - That's quite a ride
Mitch Roschelle - Incredible.
Adam Hooper - Yeah, that's pretty impressive.
Mitch Roschelle - I now think it says something about it that it's been around for 41 years. We partner you mentioned with the Urban Land Institute and for more than half of the 41 years, PwC have been partnering with ULI and the survey 2200 folks responded this year to either the online survey or subjected themselves to our brutal face-to-face interview, I said that tongue planted and cheek. But what's interesting is that number rises every year due to the popularity. At the ULI fall meeting, the crowd size just gets bigger and bigger for the launch. In fact I think we had close to 3000 people this year. So it's something we're obviously proud of but I think the fact that we don't hold back, we predict things that are going to happen in the future. It's not our prediction, it's the collective views of the 2200 people that respond. And we're not embarrassed of being provocative with some of those points of view, meaning they could be wrong, we don't care and we've been right probably more than we've been wrong. But that's one of the reasons why people keep coming back and you guys decide to have me on here after a year. So, we must be doing something right.
Adam Hooper - You're doing something right. So for listeners that maybe haven't heard the couple episodes before that we've done about the report maybe spend just 30 seconds on what the report actually is and then we can dig into six of the top trends if you want to go through today.
Mitch Roschelle - Yes, so we spent considerable amount of time before we even send out the survey every year trying to figure out where the market is. We design a series of questions, the audience of ULI's membership plus a rolodex, I'm old enough to use that term of loyalists to the survey get a copy of it. And we ask questions about each asset class, we ask questions about 80 different geographic markets, we rank geographic markets from an investment, home building and development point of view. Again, that's a bit of a popularity contest. I'm sure we'll get into that later. And there's what's amazing about it is how quickly the responses come back when they get the survey and how many people complete the entire survey. I know if you're like me, you get a survey in the mail and you start and you're like, okay this is interesting. Oh I've lost my interest already. The people are kind of dig into the bitter end and it's a barometer for how the market is doing, what the future looks like and then we tease out from that survey and interview process. Over 600 people get interviewed. What are the topics that are top of mind for the future. A couple of years ago, I was speaking in Tampa and somebody said to me when Bitcoin was in the news every day, crypto was in the news. They said, why aren't you talking about crypto? And I said because we talked about blockchain three years ago and we talked about crypto then so I don't want to talk about it now. Somebody said to me in San Antonio last year or when the construction labor shortage
Mitch Roschelle - was really at a point where as impossible to deal with. They said, why aren't strand construction labor shortage and I said were you paying attention two years ago when we talked about it? So, we try to be on the cutting edge of issues that we hear people whispering or about them we'll scream on their behalf.
Adam Hooper - Perfect, well let's get into these ends so first one, Millennials are finally moving to hipsturbia, again, you're one to not shy away from the provocative talking about Millennials making upwards hipsturbia what are we looking at here Mitch?
Mitch Roschelle - Full disclosure, we do focus groups with many of the district councils of ULI and the term hipsturbia came from a focus group we did in Atlanta and we don't attribute anything to anybody in the report because we get people to allow us to quote them without attribution which makes the report an interesting read. But somebody in Atlanta came up with that one. Really what's interesting is if you watch the aging millennial demographic and you realize that Millennials are starting families regardless of what the family looks like but many of them are starting families. We talked about urbanization many years ago but they're getting out of the urban environment largely because of they're looking for quality education for their children, maybe looking for a little bit more space than they can get in an urban core. They're moving to the suburbs, the problem is the suburbs that they want to move to, they don't want them to look like the suburbs they grew up in, if they grew up in the suburbs, or the suburbs that they stereotypically envision. They want a cooler suburb, something that's more hip. So, that's we came up with hipsturbia. So how do you measure that? More micro brew pubs, more vegan restaurants, more walkability, more arts, more culture, more old homes that need to get renovated. They're not looking for the McMansions in the suburbs that you may have thought that, or maybe home builders thought that they wanted. They don't mind buying a hundred-year-old home. That becomes a labor of love that they renovate over the course of their children's education
Mitch Roschelle - years in public schools. So that's what hipsturbia is.
Adam Hooper - And this is maybe viewing kind of outside of the lines of your report. I'm just curious to get your thought on that topic of even the kind of millennial movement from core to suburbia hipsturbia, is a very different desire for that housing stock. A lot of the housing stock in suburbia was built up when it was the McMansion, it was the real houses, it was kind of everything vanilla. How does that impact the current housing stock, it again, people talked about the McMansions are going to be these relics and they just all going to be torn down and rebuilt or what does that look like for the existing housing stock?
Mitch Roschelle - What's interesting is, if you look at housing in the abstract or at 10,000 feet, you realize the biggest challenge in the housing market is supply of housing product for sale. So, in some regards, guys it doesn't matter what it looks like because there's just not a lot out there. But what's interesting is, the the hipper suburbs tend to be the ones that have the older housing stock and not the new stuff. Having said that, I know from personal experience because I'm a baby boomer or I'm up selling my house anytime soon but many of my contemporaries that got an earlier start in life than I am that are already empty nesters, they're finding that their homes, which may be 20 years old, 30 years old, aren't modern enough for the Millennials that are looking to buy and they're passing on these homes that aren't that old as far as I'm concerned that because they're not all white and they don't have the right earth tones or whatever it is. So it's not necessarily the box, it could also be what's inside the box. I tend not to try to generalize about Millennials and pick on them less that my workers will decide they don't like me anymore, sorry. I need to pander. But the fact of the matter is, it's hard to generalize. But I think there's definitely a reckoning for, not the older housing stock but the tweener housing stock. So, not the brand-new stuff that's built to specs that are buyer friendly, and not the stuff that's 75 years old and has charm, it's the stuff in the middle. The problem is there just isn't enough out there for people to buy.
Mitch Roschelle - So, people are having to make do. The one thing that I found really ironic is, I'll talk to residential brokers and I'm speaking in an event today where the audience is all residential brokers. And they'll tell me that that Millennials want turnkey. They don't want to buy a house that needs work. And then I see people buying homes that need a ton of work and if you look at the demographics if who watches HGTV, you'll find it's largely millennial and they're watching shows that are all about fixing up homes. So I think it does danger in generalization, let me put it that way.
Adam Hooper - Okay, what you touched on there bleeds into the second trend, which is community, not just a sitcom of the community fabric in the more traditional sense, 40s, 50s. That kind of community planning. The way that that community was more social, more interactive in the environment is a very different experience and the communities in suburban areas that we saw in the 80's and 90's, right. So are you seeing the fabric of that community and planning, trying to fit some of those needs of this hipsturbia migration out of the cities.
Mitch Roschelle - One of our trends addresses community and I'll step back and put that into context for the audience. Community is not necessarily series of concentric circles around where you live. Community could also be the interconnection where you were. And perhaps this is a unintended or intended consequence of social media. And what's interesting, if you go back to the original origins of social media and look at Facebook MySpace and Friendster, but maybe Facebook in particular. Facebook was a meeting spot for people on college campuses. That was what it was created for and what is that, it was creating a digital community on a college campus, okay. In fact if you wanted a Facebook account in the early days, you needed a .edu email extension. Okay, you couldn't get one if you were .com. So, if you carry that forward to today, the social network layered on top of the traditional way in which we network, layered on top of the way we physically coexist in the workplace or in our home is what this community thing is and we're finding more and more people who choose where they want to work and choose where they want to live, want to feel as though they're part of something not just sort of taken up space. So the reason why we flagged it as a trend, it's something for landlords property managers in the light to think about. It manifests itself in terms of apartment buildings and we talked about amenities and emerging trends last year but apartment buildings that are built but really
Mitch Roschelle - really small kitchens because people don't use them but a monster gourmet kitchen that's in common space that people in the building used together. It's not like apartment 2a just decided to rent it out 'cause they're having friends over. But there's basically sort of community potluck eating multiple days a week in some apartment complexes and that's what community looks like. And then there's similar how many office buildings have you been to that intended space have a barista within the tenant space, not in the lobby, not in the food court but actually on floor 21? And that becomes the meeting space, the whole floor is built that is basically just get together space, because that's the way people collaborate these days. So rather than them going outside to the coffee space spot and collaborating, just do it in your tenant space. That's part of that community. And the way it gets manifests itself is also through social networking as well.
Adam Hooper - And that was one of the things that we spent some time talking about at the CRE Tech conference just recently as a lot of the new technology platforms are trying to tease out that community amongst office buildings or within an apartment complex. How do you create those connections within, again a more immediate space with those networks beyond just what you would get from a traditional living space.
Mitch Roschelle - What's interesting is the way people meet and the way they collaborate has changed and I made this observation a couple years ago, my twins are sophomores in college. But I made this observation when I was touring colleges with them when they were still in high school, that I remember going into the library, forget about in this late 70s and early 80s when I went to college but I remember going to the library on college campuses when I was doing something on a college campus recruiting or something like that. And I saw a period of time where they couldn't get enough conference rooms for for group projects 'cause every professor, regardless of what you're studying required students to do group projects and they just didn't have enough conference rooms. Now if you go to the conference room floors, you find two people sitting in there if not just one person sitting in there because they're doing the group project. But they don't need to be together anymore. I think the biggest disrupter to collaboration, physical collaboration was the Google Doc, where two people can be typing in the doc at the same time. So that connective tissue that creates a community is digital these days. But if you don't have the physical that aligns with the digital, it doesn't work right. So you need the five coffee shops because when people connect via social media and say where are we getting together, you need a place for them to get together right. And the other way that community applies, so I live in Westchester County in New York.
Mitch Roschelle - I know that's the opposite end of the country from you guys but in my community and the adjacent communities by town, there were these Facebook pages that were film the town name, moms. And that's where you'd buy and sell stuff, your kids grew out of a bike and you needed a new one, you'd go on. Then they changed it because the moms wasn't politically correct enough, so it became parents. But that's a perfect example of where the physical space, the physical community is linked up with a digital platform where parents can just share physical things with one another, that's what community looks like. In the view of the folks responding to our report.
Adam Hooper - Yep and I think that that makes sense and we saw and that was what drove so much of the growth of we work, right. It was just a complete rethinking of how to use that space, how to create that kind of communal connection within that space obviously. Although some of it... Different turn out there.
Mitch Roschelle - Yeah, but some of it has to be organic and you have to watch the communities develop and then sort of follow them and build the space around them. It can't be entirely Field of Dreams. If we build it, they'll show up. You can build the greatest floor and an office building for everybody to get together, but if the community decides it's not cool, they're not going to use it.
Adam Hooper - Agreed. All right, so moving on, sustainability not an exception but an expectation, another again hot topic at the conference or that we cover in the podcast, energy efficiency being able to leverage new technologies to just operationally become more efficient. What do you guys see on the sustainability side?
Mitch Roschelle - Well, what's interesting is, and I was vocal about LEED certification and sustainability a couple many years ago when it first sort of showed up on the scene. And I said, let's not get ahead of our skis with these trends, people are talking about them but they may not happen for a while. Well so let's talk about why... We know why these things are important, okay that's table stakes, let's assume that we all agree that in caring for our environment and being more sustainable with natural resources is important. Let's just assume that that's the case okay. I'm trying to stay out of the politics of it for a second and just make that assumption. Well, when we first started seeing LEED certification of buildings and people were asking whether or not this is going to be a requirement, it became important because tenants demanded it and tenants said, my workers won't work for us unless we're in a building that's sustainable. So we have to sign a lease in a building that's LEED certified because we need to build or demonstrate to our workers that we care about the environment, okay. I oversimplified that but you get the point. What's really fascinating what we're trying to touch on now is how the newest constituent group or stakeholder that's weighing in on the topic are investors. And the ESG standards matter. So what's happening is now capital is speaking. So at first it was sort of environmentalist do-gooder, tree-hugger types. I know you're out in Portland so I'm probably annoying part of your audience but like that's where it started
Mitch Roschelle - then all of a sudden companies weighed in and their corporate social responsibility teams said this is important to us and they made sure that the procurement folks would only look at tenant space to lease if it was LEED certified. Now capital's weighing in and saying, if you don't have this governance structure, if you don't have this environmental plan, if you don't have a plan for sustainability, we're not investing in it. So, that's going to drive the most change because capital obviously there's all the leverage associated with capital.
Adam Hooper - I just saw last last week, I think it was Bill Gates and their gates notes put out an article he said I think it was 2 trillion square feet of new buildings by 2060, which is the equivalent of another New York City every month for the next 40 years. So there's a lot of space that's going to be coming down the line that you can have a pretty significant impact both through construction methods through the raw materials cost to that sustainability. So, I think it's interesting seeing a definite shift that we've been hearing with investors too. Brendan Wallace said that 5th wall was on the podcast again and they're taking on a new ESG initiative. So it's definitely like you said, the investors are aware and are definitely pushing that shift towards a more sustainable way to look at our space 'cause again a lot more of that coming online down the road.
Mitch Roschelle - Well what's interesting is the soundbite, who's going to pay for it, quote who's going to pay for it end quote. You're going to hear more and more of in the next 364 days. And that's going to come up in a lot of the campaigning that's going to go on when you see a lot of plans coming from candidates about health care or other change that they're looking for in society. What's interesting to me about the sustainability movement within the real estate spec sector or the properties sector was the early cries when people were saying, hey we want this, who's going to pay for it? Well now what's interesting is the Capitol weighing in, saying this is important, obviously they're willing to pay for it. Okay, so I think it's probably going to be the biggest driver of change as it relates to sustainability, which means those who aren't on the bandwagon are going to get on it 'cause they may not be able to get a loan and they won't be able to raise equity and it's going to get paid for one way or another.
Adam Hooper - Perfect. Halfway through, three more to go, amenities from the cool to the practical, so what did you mean by cool amenities to practical amenities?
Mitch Roschelle - Yeah, listen, I think it's just when I talk about amenities, it's interesting it's what amenities are important really varies by what constituent group you're talking about. It used to be a rusty basketball hoop in the parking lot and then a... I don't have a picture to share with you but like a barbecue grill that looks like an e coli trap that was like the amenity in the office park or in the apartment building and then you found that there was this wave of, you had to have super duper everything in terms of amenities because when people were coming on a tour, you want them to blow them away that you had the latest thing that nobody else had. And then it's gotten to the point where what's really practical for the price point. And so we've gone through this wave of amenities being really important and maybe even getting out of control and trying to balance that with sort of back to the point I made in the previous trend, which is making sure that the economics work and you're really meeting the needs of whoever the customer is. So it's striking the right balance between amenities for the sake of amenities and practicality for all parties.
Adam Hooper - So not necessarily a list of, these are the practical amenities but more so making sure that the amenity package and experience that you deliver within that product fits the needs of the demographic that you're trying to attract for that product.
Mitch Roschelle - And also fits the economics because a landlord's is not going to eat the cost of building something and that they can't pass on to the tenants.
Adam Hooper - Right.
Mitch Roschelle - It's really trying to get that balance right but that trend that in our report this year is a continuation of the trend last year that was called amenities gone wild.
Adam Hooper - I remember that one and are you seeing this across asset classes, multi-family office, I would say multifamily office being the big
Mitch Roschelle - Yeah. wanted to retail, let me hit on that, which is, if you look at the enclosed mall and we could debate, you can do an entire show on the enclosed mall whether it's dead or alive and if you want to book me as a segment guests, feel free 'cause I've got a lot of opinions. But if you look at the enclosed mall, the way in which the enclosed mall was amenitized in the past isn't practical today right. There were entertainment features in an enclosed mall like a place where kids could play like swings or whatever. It's not practical today because no parent wants to let their kid in there, there's not enough Purell on the planet right to let your kid in there. But the kid probably has something to entertain in or her in their stroller right. It's strapped to the stroller and it's electronic. So it's really trying to figure out practically speaking what fits the needs today from a technological perspective. But you asked about property types, so clearly it applies to multi, clearly it applies to office, it applies to retail to a lesser degree. It probably doesn't apply to industrial because that's just work, that's just a place of like high production work no matter what it is, whether it means you're building something or you're just moving boxes around, that's work. And the last piece is hotel, clearly we're reamanetizing the limited stay or tell, maybe there's a story, I don't even know where I read it in the last 24 hours about hotel chains that actually bring the exercise equipment to your room because business travelers are just too...
Mitch Roschelle - It's kind of crazy, you're too lazy when you're about to work out. Is that lazy that you don't want to go to the gym but you'll do it if they bring it to you. There's hotels that put peloton's in hotel rooms for you. So i think it's really a matter of what it is is going to differ from sub asset class to sub asset class but it's change and those who get on the program about change won't get run over. Those who don't become irrelevant very quickly.
Adam Hooper - Okay, so this next one's going to need some explanation, they go together like peanut butter and jelly. What are we talking about?
Mitch Roschelle - You know every year when I do emerging trends, there's always a trend that we have in here and I say to myself, I really wish we didn't write it that way or I'm not thrilled with that one. So, what I would say is ask me about the siren call of Tina, don't ask me about they go together like peanut butter and jelly to be honest with you. I'm not a fan of that one, let's put it that way.
Adam Hooper - Okay, so what would you rename it?
Mitch Roschelle - I think it's really a matter of the the linkages that exist in our real estate ecosystem and trying to get all of the different pieces of the puzzle, the the landlord, the tenant, the capital, the investor. Get everybody to sort of get out of what they get from their real estate experience, what they want. So, that's my view on where we were headed when we were sitting in a conference room and a whiteboard. 'Cause we were hearing that we're late in the cycle and things are getting frothy and you start having those kinds of conversations and we started digging into it and we felt as though that the success of the asset class, the ability to deal with disruption, the ability to deal with shifts and ways in which businesses are doing business really requires more of a collaboration between the different parties as opposed to sitting across the conference room and fighting over price.
Adam Hooper - I think that goes back to the community concept, right, just generally without a throughout our industry, I think we're, seeing a shift towards a more collaborative nature, the ability to share information, the ability to access data to be more collaborative for the betterment of all participants is very different than how real estate is always operated right, what I know is what I know and that's my advantage and I'm going to do everything I can to keep that to myself so that you don't have that information so I can make more money.
Mitch Roschelle - I think that's changing towards a much more collaborative nature across the industry, that's mean you guys are getting to. The community is amongst all of the workers or all the residents. The collaboration, the peanut butter and jelly is really recognizing that there's an inherent partnership between the retail landlord and the retailer. Right and there isn't in my view and then again I'm a seller retailer so I have sort of genetic bias, okay, but there's nothing more frustrating to a retail tenant than paying a percentage of their sales in extra rent to a landlord when it's so hard to be a retail tenant today, right. So just think about those traditional models that exist that we've lived with forever that aren't necessarily collaborative, they're more sort of I'm right you're wrong
Adam Hooper - More adversarial, right it's yes.
Mitch Roschelle - That was the word I was looking for, you thank you. And I think that the, who pays for it, the, how do we do this together, your success is my success is a better way of building the mousetrap for the future when you have something like a disruptor that disrupts all of us, right. So the enemy to the retail sub sector wasn't the landlord if you're the tenant and the tenant if you the landlord. It was e-commerce, like where I used to tell the story about Blockbuster Video and I can pick on them 'cause they don't exist anymore but the biggest issue that Blockbuster Video faced 20 years ago was that people weren't rewinding their VHS tapes. To them that was their biggest issue.
Adam Hooper - Be kind and rewind.
Mitch Roschelle - Right so they spent a lot of money on the consultants who said be kind rewind, put the sticker on the on the VHS tape, they thought they solved the problem. Well that didn't work so what do they do, they charged you if you didn't return the thing rewound. Well people just said, well screw it for a dollar more I'll just pay a dollar more, what do I care and I'm all can be lazy. If they put a price on laziness, okay. Well, the fact that matter is, while they were trying to figure that out they ignored the fact and they knew that DVDs were coming but they just figured they'd just come rent the DVDs from us and that'll solve our rewinding problem. They didn't realize that somebody was going to send DVDs to you in the mail. Okay and it wasn't just Netflix, it was the boxes in shopping center, part the kiosks, it was a whole bunch of things that completely disrupted the video rental business. Because they weren't focused on... they were focused on this adversarial relationship that bad were their customers over the rewinding of tapes not the fact that somebody was going to put them out of business in five years or 10 years. So I think that to me the big
Adam Hooper - And that leads us to your next and final point, experiential and entertainment.
Mitch Roschelle - Yeah we talked we talked about the mall a little bit but let me just take that to the next level and talk about what the experience is, right. So, people go to the mall because it's a destination and they may not be necessarily shopping but they may be spending. So they go to the mall to eat, they go to the mall to see a movie. They may or may not walk out with a shopping bag but that you're going to generate revenue for some use in that mall. We're seeing the mall become more and more of a dining establishment taking the traditional food court and turning places that had steam tables with some food that was cooked some point that month and turn it into more of an upscale urban food court dining experience at a much higher price point. And that becomes the Saturday night out location.
Adam Hooper - I will give a shout out to Sbarro though. No one's going to take the Sbarro.
Mitch Roschelle - Yeah but what did Dave Portnoy gave them like a three something for their pizza so if you're if you're a bar stool one bite follower loyalist like I am. So but I think it's going to vary from site to site but to me and it's a question didn't ask but I'll answer it anyway, the thing that's most fascinating about the experience in retail is the retailification of health care and boy that's a trend from next year, trust me you're going to hear that word retailificcation. By taking the healthcare industry and turning it into a retail experience, okay. You probably have urgent cares out by you guys in random strip centers but the mall itself, a perfect adaptive reuse for many malls and vacant space in malls is to bring retail health care to the mall and that takes the experience to a whole nother level because you're now catering to a demographic that may not necessarily be going to the mall at all.
Adam Hooper - And the mall phenomenon and you've mentioned this in a few different points throughout this latest report it's been talked about for a long time as you what's going to happen to these new class B, C malls that are just not performing as they once were. Class A stuff, high end luxury retail seems to be doing all right, Class B C definitely not so much. So, are you guys addressing or do you anticipate addressing any big in this retailification of healthcare is good, the office space conversions into some of these malls as office space we've talked about last mile, industrial which malls are not necessarily suited for that from a structural component. What is the future of the enclosed mall?
Mitch Roschelle - I'm going to to say yes to what you just said because it's all of the above. And the problem is heretofore the retail landlord wasn't willing to go down that route because it wasn't what the original plan was. But then again we're four anchor tenants, if not five anchor tenants or not 10 anchor tenants worth of bankruptcies that should tell you that the model of having
Adam Hooper - Something broken.
Mitch Roschelle - Two anchors an in-line space just doesn't work anymore
Adam Hooper - Yeah and when is that going to happen, is it is that still a future trend, are you seeing it now?
Mitch Roschelle - It's happening before our eyes but it's tied to the community and it's tied to the path of growth, it's tied to whether or not that suburb is hip or not. But if you have a community with an aging population, one of the ways that you can keep that aging population in that community is if they have the healthcare amenities that they need. Suburban office is really inefficient for medical if it's not a suburban office that 100% controlled by the Medical Group right. So if the Medical Group has the whole building and you can go to the doctor and then they say you need blood work and you can go down the hall to the hematologists or if they say you need a cat scan, you can go down the hall, like if it's all there almost like a like an ambulatory hospital that you don't have to wait forever and you don't need a wristband for, like that works. But when I think about my almost 93 year old father and the hodgepodge of doctors that he has and how much transferring from one place to the next place for this doctor and that doctor, it's just wildly inefficient and you keep those aging folks in your community when you create an amenity like a portion of the mall that has it all there or a retail complex that they can get something to eat in between the doctor's appointments. So I think that the amenities that we require in office or retail needs to think about the mother or father with a newborn that's going to their third pediatrician appointment and may have a followup with a specialist. Heaven forbid it's something bad but let's assume for purpose of this call
Mitch Roschelle - that it's only good to the older end of the spectrum in the 90s and 100s and what they need. And that's what's really important and prior to that I think landlords had their heads in the sand and they were focused on office, how to be office and retail how to be retail. And you said in a question to me, yeah it could be both.
Adam Hooper - Is this trend going to be driven by the current stable of landlords or does there need to be a change of ownership, a change of strategy or are you seeing existing owners of the space start to come around to this new strategy to maximize that value?
Mitch Roschelle - I think existing owners are grown up and coming around to it. I moderated a panel at a local ULI event last Friday and heaven knows the the two, one was a landlord building new stuff and the other one was an institutional investor and they both realize, both were on the same page that we have to think different about retail, we have a think different about suburban office, we have to think different about CBD office, we have to think differently about last mile, all of the above.
Adam Hooper - All right well so can get you out of here on time, we're going to switch up a little bit here. We've got the top 10 hot markets to watch in 2020. We'll do a little bit of a speed round here, I want to hear what's good about that market and maybe with a potential challenges about that market. So we're going to put you on the spot, sound good?
Mitch Roschelle - So let me go from the bottom to the top and I can kind of do them in chunks. Number 10 is Seattle. I was there speaking about a month ago. Seattle is still strong in terms of being a hub your neighbors in the Pacific Northwest, however it's fallen in the rankings, it was one maybe three or four years ago. It's fallen in rankings because it's just viewed as being very very expensive for to live and the cost of doing business has risen. Some of the taxes that have been thrown around there don't help in terms of the cost of doing business. Los Angeles is interesting because it is a gateway city, it's one of two cities in the top 10 list that are sort of historical top ten kind of cities. Boston being the other one, the big coastal cities in the 24 hour cities. But Los Angeles has content and as we look at the technology industry, the entertainment industry, the TMT space in general, content is going to drive it and that is the home base for content. So, real estate folks realize that that's a growing industry you here between Netflix, Apple, Amazon Prime, the regular networks, the Disney's streaming thing,
Mitch Roschelle - I could go on and on and name them all, okay. There's a 20 billion dollar budget for spend for new content. Well, a lot of that's going to be run out of the Los Angeles market or at least a lot of the IP will be run through there. So that's the story. Atlanta is all about affordability. Atlanta was higher up in the rankings a couple of years ago. Last year fell out of the top 10, now it's back. Very very affordable and it's got a growing startup culture and incubation of small businesses. Orlando, which is number seven, it's part of the Florida story, so as I get from seven and higher with the exception of one city, we're talking about low tax or no tax environments. Orlando's in the no tax environment. Everybody thinks of theme parks when they think about Orlando, but what I think about is a population that's growing two times faster than the U.S. population and it's getting younger every year because more and more people are going there to starting a family, there's a lot of business there. Full disclosure, I may be I'm sitting on your air, one of my picks for HQ2 was Orlando, I was wrong but it's got a growing population and it's got a young population and it's got workers that have the skills that the marketplace needs. So it's a great story. Dallas, Dallas has been number one and it kind of flip-flops with Austin in the past. Dallas got an incredibly diverse workforce, very affordable. Fort Worth is even more affordable than Dallas and here we've lumped them together. It's really a great story of economic expansion of prosperity.
Mitch Roschelle - The GMT, the gross metropolitan product, which is the local version of GDP in Dallas is amongst one of the hires in the country especially on a per capita basis. Boston is really about tech, you have all those schools that are up there and it's the highest concentration of STEM skilled workers and they stay and it's really a great story if you know Boston of the how a good infrastructure project, let's ignore the cost for a second but a good infrastructure project really created a new part of the city. There was a elevated highway, the central artery that cut through Boston, it's now underground, it was a project that the famously referred to as the Big Dig and now it's taken the downtown, the financial center and linked it with the south side of Boston, which is where a lot of the tech jobs are. That's where our offices are, it's really, really a live-work-play kind of environment not too far from the famous Southie that you've seen in a lot of movies like The Departed. But it's really a great story. Charlotte, what a tremendous diverse workforce you have there, you've got financial services, you've got tech, you have innovation. Also a low tax environment, also close to where there's a lot of schools. I'm going to jump to Raleigh-durham, which is number two and I'll come back to Nashville. Raleigh-durham, you have Duke, you have North Carolina, I'm not a Duke guy, I'm more of a North Carolina guy. You've got Wake Forest, you've got High Point, you've got UNC Greensboro's not far, you've got a lot of schools there
Mitch Roschelle - and they're all delivering to that marketplace, kids with the right skills that find it very affordable to live, think their employment growth there is like two and a half times the national average. I jumped over Nashville because I'm a lot Nashville and Austin together. Austin is number one, their population is growing three and a half times the national average population growth in the United States. It is experiencing some growing pains from an affordability perspective, but boys feel the dreams there, they've built it and people keep coming and coming and coming, it's unbelievable. It's it's a great market, but they have infrastructure issues because the traffic has gotten really really hellacious there as it has in Nashville. I referred to Nashville as sort of baby Austin and Nashville is as, you can pick your barbecue is different and I think you got as many stores that sell Western gear on whether it be on Broadway in Nashville or South Congress in Austin and there's way more bachelorette parties in Nashville than there are in Austin. But those are the places where kids just want to live, they want to play, they want to work and they're there but I lumped them together because I've been to both this year. I'm going to Nashville in December for a speaking engagement. It'll be my third time in 12 months. The traffic is getting worse and worse and worse.
Adam Hooper - Okay that was a good run down, so I think the common theme that we saw through there is affordability like you said low or no tax environment and education and jobs. That seems those are kind of main drivers of what you guys are seeing and consistent throughout markets.
Mitch Roschelle - Yes.
Adam Hooper - And so any metrics that listeners can be paying attention to as top line for those markets as we go forward and they see deals across you know all these different cities, is any one of those metrics more important than you or than the other for you or what are the top two, three metrics that investors are listening this show can look at when they view opportunities in these markets?
Mitch Roschelle - I would look at population growth. I would look at affordability from a housing perspective and affordability for cost of doing business perspective. And I think when you have a community, a city, whatever that is affordable to live and affordable to do business where the cost of doing business is low and taxes are part of both of those mind you, then what you see is, you tend to see that the population is growing as well.
Adam Hooper - Perfect.
Mitch Roschelle - So if I were to look for cities that aren't on the list, I'd look at Minneapolis and Pittsburgh and Columbus Ohio. The problem is, they're cold and you don't see a lot of cold temperature-wise on that list that we just ran through with the exception of perhaps Boston. So apparently people want to move where it's warm and there are low taxes. But if you want data, economic and demographic data to support that, look for affordability and population growth. In any sense that you have in terms of how much room those markets have to grow, are they just getting started or they kind of reaching No, because it's a great question. What's happening is when suburbs are being created in those communities or those cities where perhaps they didn't exist in the past, they're creating new ones or they're reclaiming areas and making them into a suburb. But by golly you know what they are, they're hip.
Adam Hooper - There we go.
Mitch Roschelle - By the way I did that on purpose for you. I said by golly and hip in the same sentence. I did that on purpose.
Adam Hooper - Well that's a pretty little bow for us. All right Mitch, what should we be looking for heading into 2020, I know we touched on a handful of important topics today, you guys have consistently been two to three years out with your prognostication but what is as you turn the corner to 2020, what are the few things that are on top of mind for you?
Mitch Roschelle - I would ignore U.S. politics. I would pay a little bit more attention to geopolitics than U.S. politics. The geopolitical environment, the behavior of China, the oil-rich nation, some of that stuff. The way things there shake out could have an impact on capital flows into real estate. So I'd keep closer eye on that. I would not assume that the interest rate environment will be low forever, although 75 basis points or 3/4 of a point of accommodation from the Fed is interesting, but I'm less interested in that element of monetary policy. I'd pay more attention to whether or not QE comes back quantitative easing, excuse me, which is the program where the Fed bought U.S. Treasuries and other securities to create liquidity in the money supply. So I would keep an eye on that because that could be a factor that impacts the way financing becomes available or stays available for real estate. And the other thing I just keep an eye on is, I can't tell you how many times people thought cap rates were too low or whatever. One thing I wanted to touch on is, there is 17 trillion dollars worth of sovereign debt around the planet that has a zero or below zero yield. So, so many people have asked me about what happens when interest rates go up, what does that mean the cap rates? Well, that's kind of a dumb question now because interest rates aren't going up anytime soon. And boy, cap rates look really really compelling when you compare them to the yield on foreign debt. And even though the U.S. dollar has gotten very pricey
Mitch Roschelle - because of all of the folks coming in and buying U.S. Treasuries, because U.S. Treasuries have a yield and other foreign Treasuries don't and that's reversed a little bit as the bidding wars for U.S. Treasuries have died down. But it's something to just sort of keep an eye on there, which is, real estate has the potential to get even frothy err as the chase for yield finds the real estate asset class. And you don't need to look past the performance of REITs, the reach sector right now is on fire and that's a yield chase. By the way the chase for yield was a topic of emerging trends about six years ago and I think we're we're back there again.
Adam Hooper - All right so...
Mitch Roschelle - So I would just keep an eye on the chase for yield and trend number two in our report, the siren call of Tina, there is no alternative. I just get nervous when we're the only game in town from an investor perspective, that's when I get really nervous about pricing.
Adam Hooper - Okay, well we're going to check back on the six we talked about today. We'll see how far out you were calling those in advance but again Mitch, really really appreciate you coming on the show. When you let listeners know where they can find you and you're very active in the Twitter sphere.
Mitch Roschelle - Yes.
Adam Hooper - Where can I find you?
Mitch Roschelle - Well, a couple things, you can find the report at pwc.com/us/etre.
Adam Hooper - And we'll have...
Mitch Roschelle - To emerging trends in real estate, you have a link.
Adam Hooper - We have a link in the show notes, yep.
Mitch Roschelle - Yep you have a link. You can find me on Twitter @Mitch_Roschelle and you guys I think have been nice enough in the past to put a link to my Twitter.
Adam Hooper - Of course.
Mitch Roschelle - The reason why I mentioned Twitter is, I do tend to tweet graphs often and when I speak publicly, I very rarely share my slides but I'm pretty generous with putting the graphs from my slides that I know people like to take pictures of. I'm pretty good about putting those in my Twitter feed. So if you follow me on Twitter @Mitch_Roschelle, you will find many of the graphs that I even made reference to today.
Adam Hooper - Perfect.
Mitch Roschelle - And in the last, I don't know six hours the President United States even saw fit to retweet me. So my Twitter's blowing up so for some reason I don't acknowledge your tweet or you're following me, forgive me because my phone is literally it blown up. I broke the internet.
Adam Hooper - You broke the internet Mitch, it's your time. All right Mitch, it's a pleasure as always. Thank again for sharing the knowledge with us.
Mitch Roschelle - You guys, I'm sorry I missed you guys when you were in New York, but if I make it to Portland, I'll definitely take you out for us, you guys can eat some vegan food and I'll bring the meat.
Adam Hooper - We'll get some kombucha and we'll hug it out.
Mitch Roschelle - Yeah, all right.
Adam Hooper - All right. Thanks Mitch, have a good day.
Mitch Roschelle - Thanks guys.