Publicly-Traded REITs vs. Private Real Estate, With David Auerbach

A rising tide lifts all boats, and real estate asset managers performed well nearly across the board up in the years leading up 2022. The headwinds of the past 12 months however have created clear winners and losers, for investors and asset managers alike.

David Auerbach, managing director at Armada ETF Advisors, joins WealthChannel’s Andy Hagans to discuss the divergence in publicly-traded REITs vs. private real estate, and what factors value-oriented investors should be considering right now.

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Episode Highlights

  • An update on recent news from Armada ETF Advisors.
  • Details on how many family offices are holding significant amounts of cash in their portfolios in 2023.
  • Why many family offices prefer direct investments in real estate versus passive investment vehicles.
  • Background on publicly-traded REIT valuations, and how they compare to valuations for private REITs.
  • Why discounts to book value vary widely in the REIT universe (and which sectors currently have the steepest discounts).

Today’s Guest: David Auerbach, Armada ETF Advisors

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: Welcome to the show. I’m Andy Hagans. And today we’re talking about valuations in the publicly-traded REITs space versus private real estate, a very interesting topic, dare I say, explosive topic, David? Is that fair to say? Now, joining me is David Auerbach, who is… David, are you founder and…? No, managing director at Armada ETF Advisors. David, welcome back to the show.

David: Andy, thanks so much for having me. And I think a good one would be controversial. I think that’d be a good way to phrase it. But thank you for having me. It’s great to be here with you again today.

Andy: Yeah. And you’ve been on the show once. We talked about, you know, REIT ETFs in your first episode with us. It was a super interesting conversation. I’ll link to that in our show notes. But, since the time when you were on, you and Armada ETF Advisors have had some big news. So, could you share with us any updates with Armada since the last time you were on the show?

David: Sure. So, a lot of exciting things that are going on, some stuff we could talk about today, some stuff we’ll talk about in a few weeks, when I’m hopefully back on in the middle of May. But the big news we could share today is that we are in the process of merging with a data analytics machine learning AI platform that’s based out of Tel Aviv, but their focus is exclusively for the REIT industry.

So, what they’re trying to do is bring AI and machine learning to REIT asset management. And the goal is to basically run a portfolio through these models, to optimize the best output. What is the best REIT portfolio, based off of 25 different independent models? So, you know, Cohen & Steers could take one of their funds, put it through this model, and it would say, “No, you should move this stock down here, you should push this stock up here, and here’s the reason why.”

You know, we get thrown these headlines about machine learning and AI every single day. It’s the next frontier, it’s such a in vogue type of asset class that’s out there, but nobody brought it to the REIT industry. And we are actually bringing that now to REIT asset managers, as well as for ourselves. So, we see a lot of exciting things ahead, as the REIT industry grows up and goes into what we call, you know, the next generation Cohen & Steers type of asset management.

Andy: Totally. And you’re right. I mean, machine learning, it is kind of the… I don’t wanna say new kid on the block, but it’s definitely a hot thing right now. We had Michael Episcope of Origin Investments on the show previously, and Origin uses machine learning with Origin Multilytics. And that’s in the private real estate space, where they’re looking at a lot of different factors to, you know, analyze MSAs, you know, for their asset selection.

But I think what’s interesting about applying machine learning to the REIT space, and to publicly-traded REITs, is, you know, the beautiful thing with publicly-traded REITs is all of the data, right, they’re very, very transparent. So, there’s just more… I would say that, you know, there’s more input, I guess, to go into machine learning, the algorithm, with publicly-traded REITs, versus private real estate, some of that data can be pretty opaque, or hard to access. Is that right?

David: I just pulled up on my Bloomberg here, because we all remember Watson, IBM’s Watson, and I remember being involved in one of the first AI ETF launches, back in my previous job. And I was like, “What year was that?” So I pulled it up here. And they launched the first AI exchange-traded fund in October of 2017. So, it’s only taken the REIT industry about five and a half years to catch up, you know, and to embrace Watson and artificial intelligence.

I think it’s gonna be really interesting to see how this plays out, especially from, really, the independent manager. You know, “Do I have the best REIT portfolio?” “Am I optimized correctly?” Because, again, no two REITs are alike, no two funds are alike. And I think if you even take some of these broad-based ETFs that are out there, like a VNQ or an IYR, you know, get some of these big index-based funds that are out there, I wouldn’t be shocked if the optimizer comes back and says, “No. This is not right. This is how it should actually be weighted.” So, I think it’ll be cool to watch to see how it plays out.

Andy: I mean, that same algorithm, I would think, would also look at the S&P, or all kinds of indexes, and say, “This is not the optimal weighting,” based on whatever predictive algorithm. Right? I mean, that’s the fundamental issue with indexing.

David: And, I mean, again, there still has to be, I think, some human approach. Because what happens if it… Again, you know, we all remember Enron, let’s say. What happens if the output comes out and says, “Dude, you should be buying Enron at this level. You know, it’s a perfect name.” No, it’s not. And so, you know, there may have to be some of that human interaction that comes in and says, “Wait a second. No, no, no, no, no, no. That’s not right.”

But, you know, we’re still in the early stages of this, and the thing is that it keeps learning. So, I mentioned, we’re talking 25 models. You were chatting with one of our colleagues, and he was like, “Yeah, we take this fund, we run it through the optimizer. But the optimizer may take up to two days to run because it’s running through all these different vehicles and methods, that it’s a pretty comprehensive process, it’s not just simply, you know, enter, go, boom, here’s your output. It’s actually really going through the steps.”

And so, it’s gonna be cool. It’s definitely different from where I sit, from a sales and training front. I’m not, you know, an academia type of person, where, you know, a coder. That is not my domain. But it’s gonna be cool to see. So, we’ve already had some inquiries, and, you know, some global asset managers have approached us, wanting to check it out. And, you know, we’re currently, you know, trying to close out this merger. It should be really exciting.

Andy: That’s awesome. Congratulations on that news.

David: Thank you.

Andy: Very exciting news. And on the topic of, you know, global players and asset managers, David, you sent me, or maybe I saw you post it on LinkedIn, but this article on, I’m gonna bring it up now. Just, there’s a couple tidbits in here that I wanna quote. But this is a super interesting article, very timely. It included, you know, quotes from another friend of the show, guest of the show, DJ Van Keuren. And the bottom line is, family offices and ultra-high-net-worth investors, they have dry powder right now. Right? But the bigger question is, where’s the opportunity?

So, how much dry powder do they have? And I quote from the article, “New research from the financial services firm Ocorian supports the view that family offices have dry powder that they are ready to deploy. In its global survey, 99% agreed that family offices have been overweight in cash for the past two years, and are now ready to invest again. In addition, 87% anticipate an increase in the risk appetite of their clients over the year ahead.”

So, to me, this speaks to the patience of family offices, that they can wait out, basically, a full two years, you know. Because to me, like, having cash, it’s so painful, right? It’s losing value at 7%, 8% a year. But the fact is that they have had plenty of dry powder, and now they’re getting ready to spend it. So, David, you know, what are you hearing, you know, with clients, with other asset managers? Do you think that’s gonna be a big theme in the next three quarters, is ultra-high-net-worth starting to deploy some of this cash?

David: I sure hope so. And if they want to, I’d be happy to give them my phone number to give me a call, because I can think of a couple of vehicles for them to put it into. You know, what’s interesting, I think about COVID. And when I think about the amount of opportunity that this market presented during COVID, where if you look at what happened to, like, New York hotels, as an example, New York office preferred stocks, and preferred stock, it’s got a par value of 25, meaning if it gets taken out or if something happens, it goes out at its par value.

And yet, because of market conditions and COVID and everything, you know, you see a New York lodging REIT preferred stock trading at $8 a share, $9 a share. And you’re like, “Wait a second. I can buy it for $9, it’s worth $25. I don’t think it’s going belly-up. Should I be buying this here?” And I had talked to a couple of folks where we were trying to, like, raise pools of capital, because we thought that this… You know, talk about generational wealth. If I can buy one of these preferred stocks at $8 a share, $9 a share, and ride it back up, collect this dividend in arrears, that’s been building up for the past year or so during COVID and all, so, I mean, you are gonna come out on, two, three years down the road, smelling like roses. And so, you talk about the dry powder with family offices, I think that was the last time that they truly saw the opportunity, when the COVID presented itself, some of these…

Andy: So, that was, like, April and May, right?

David: Yeah, exactly.

Andy: I mean, I feel like it was, like, a flash crash of, like, 90 days. And then it was like, “Here we go. Boom.”

David: But what’s cool is there were guys that made their one, three, five-year track records in that 90 days, because they were able to snatch up stuff at such deep, deep, deep discounts. And I think, you know, again, what’s that expression? Fool me once, shame on you, fool me twice, shame on me, that I think that some of these investors have realized over the years, seeing some of these cycles. “You know, I don’t wanna jump in yet because what happens if the next shoe falls?”

And, you know, we are all dealing in a new environment here, where we have all seen, you know, what, 10 interest rate hikes since May of last year, I think is the number, 9 interest rate hikes. You know, how many investors can say that they’ve sat by and watched interest rates go from zero to just under 5% in a year? And the answer is “nobody.” You know what I mean? Like, we would talk about interest rates in the ’70s were more, you know, people were taking, you know, 18% mortgages on their houses and stuff like that. But for the modern-day investor, this generation, none of us had been sitting in a cycle of watching interest rates go the way that they have gone. And so it’s had this trickle-down effect on everything. Debt, equity, REITs in general, because REITs are an interest rate play, let’s say. Treasuries, they’re all tied hand-in-hand together. And until we see the Fed really, you know, take some dramatic steps to frankly cut the interest rates where they’re at, we could be in store for some more of this high-pain volatility trade for the, you know, rest of this year, possibly into next year.

And I think, again, from where we sit, and just like the family office guys, I think they’re focused on the fundamentals. Yeah, the business may be cheap, and that’s great. But are they doing what they’re supposed to be doing? Look, as I’ve said before, and I think I mentioned in our last, I can’t control my stock price. I can’t control where we’re trading, I can’t control where our constituents are trading. They have no control over it. But they can control the fundamentals. They can control how they’re running the business. Are they pushing the rent in the right places? Are they cutting the expenses in the right places? Are they growing the bottom line? More importantly, to the investors, are they growing their dividends? If they’re able to do all those things, they don’t care where the stock price is really trading. They just wanna keep their eye on the ball, doing what it is that they do best. Stock prices go up and down. Business has to continue day-to-day down the road.

Andy: Totally. I mean, I take your point that, from an investor standpoint, okay, I wanna see strong management. You know, if this year is a recessionary year, we have higher interest rates, maybe negative rent growth, you wanna see strong management, exactly like what you said. But if the stock price is discounted, and, you know, if Walmart puts my favorite brand of ice cream on sale at 25% off, I’m driving to Walmart, and I’m stocking up on my favorite brand ice cream. Right? So, I think that, to me… And, David, I know that I’ve…

David: I just did that. It’s funny that you said it. I just did that last week at Walmart. That’s great you mentioned that.

Andy: What flavor? David, what kind of…

David: It was the Magnum Chocolate Shell. They had the Magnum Chocolate Shell on sale, and so I had to get a few pints of that, because that stuff’s like crack. But that’s another conversation.

Andy: Oh, I think that’s probably a little better than my Halo Top. But, yeah.

David: That’s why you’re thin as a stick and I am not, so touché.

Andy: Well, but look…

David: Andy, I want to hear you answer this question. Every investor has a different risk profile. Every investor has a different risk tolerance. So, let me ask you a question. If I posed, you know, let’s use New York office as a good example right now. New York City office, would you say that the New York City office REITs are a buy at this…public or private or whatever, would you say New York City office is the place that you wanna be investing your dollar, say?

For every person that says no, there is a contra person that would say, “Absolutely, I wanna put my money into New York office right now.” Because we all know that that city is in for some pain, as far as the office trade, is to come down for the next, let’s say maybe a couple of years. But in the same breath, that same guy that’s willing to take that risk today could come out smelling like roses five years from today, when the New York office market has recovered.

I’ve used this example multiple times. And, you know, I have to be careful with my audience. But if I told you on September 14th, 2001, that I had a lower Manhattan office building for sale, I would have never been able to sell that property or get any tenants to go rent the space there because of what had happened in the area, right? However, for those investors that were able to see through the other side, they realized, “This is a massive opportunity. I can buy American Airlines at $2 a share on the public market. I can buy a share of New York office stocks for 20 cents on the dollar. I’ll take the pain today, stomach the pain for the next couple of years as this turns around and gets rebuilt, and then five years from today, when American’s trading at $15, $20 a share, and these office stocks are trading at $50, $100 a share, well, boy, I’m sure glad I bought that at, you know, when everybody didn’t wanna be in that sector.” Right?

And I think we’re kind of seeing the same thing with New York office today. We keep hearing about these headlines about work from home, how COVID’s reshaped the work scene, New York office, Tuesday, Wednesday, Thursday. But at the end of the day, there’s only… And I’m not saying I’m bullish or bearish on New York City. I’m just using this as an example. There’s only one New York City. You can’t replicate New York. You can’t replicate Chicago. You can’t do San Francisco in any other city. There’s a reason why they are the way that they are. And so as a result, all of these cities kind of go like this over the course of time, that, you know, for those guys that are able to buy this on this dip because of what the sentiment that’s going on out there, man, on the other side of this, they’re gonna be the ones that are having the last laugh, I think.

Andy: No, no. David, totally. I mean, when there’s fear in a market, I think that is a better time, fundamentally, to be active than when everyone is celebrating how much money they just made in the past couple years. So, totally…

David: Everybody does well when things are going up. It’s when things are going down that you really see how good your team is, how good your management team is. How well do you handle adversity in times of market downturns? And, you know, that’s one of the cool things for us being involved in the publicly-traded REIT space, is that many of these management teams have been in place for so long that they’ve seen so many of these economic cycles, they know when to go on offense, they know when to go on defense, and it’s our job, just trying to put the best portfolio together, you know, capitalizing on the strength of these management teams.

Andy: Totally. Well, and on that note, so, I also think, for family offices, you know, for some of them, this might be kind of a make-or-break year, how they perform this year, you know, if you can kind of turn lemons into lemonade, to your point. And I wanna bring up a quote from DJ Van Keuren from the same article that was on So, according to his survey from the Family Office Real Estate Institute, 70% of family offices invest directly, you know, privately into real estate property. Family offices favor direct investment because you get control. In theory, you have more, you know, visibility. And in some cases, they’re wary of higher fee structures. This is according to DJ, although some private vehicles, obviously, have very high fee structures.

But, according to him, more challenging market conditions could shift some of that focus away from direct deals, and into other managed structures, where there’s demonstrated expertise, like, for instance, from the professional management teams that have been in place at some of these REITs, or in other private funds. And his quote here, is, you know, maybe families realize that they didn’t make the best decision in a direct purchase, or maybe their development partner didn’t have the experience needed to handle the downturn and, “Once things start going awry, I think families will go back into funds,” says DJ Van Keuren.

So, you know, do you think, David, that there could be a shift, not only from direct deals into funds, but even from private funds to publicly-traded REITs? You know, obviously BREIT has been in the news. Not great news for BREIT, or, you know, for maybe similar-type funds. And as an investor, you know, I do, I’m a little bit biased towards the private side of things. But I’m looking hard at publicly-traded REITs right now, right? So, I kind of wonder if that’s happening across the board, with family offices and with everyone.

David: Boy, you’ve posed quite a question there. There’s a lot to bite off there. I think you’re definitely on to something, that at the first sign of a downturn, and things start to go awry, that the investor is gonna go back to the public market. However, what happens if the investor can’t get their money out of the private vehicle? So, I think that’s a big problem. And we are currently seeing that, as we’ve been discussing, for quite some time.

You know, there are some really good private vehicle platforms that are out there that have built great portfolios. You know, some of the highest-quality real estate that’s in the country. There’s no question about it. But at the end of the day, if you’ve gotta get your money out because something is happening, you gotta get your money out. And if there’s…

Andy: Or, David, if I may, and I’ll get off my soapbox, but as I’ve said on the show many times, you can’t be half-pregnant. Right? So, like, I’m an LP in an Opportunity Zone Fund, it has a 10-year hold. It’s illiquid, it has a 10-year hold, period, the end, goodbye, it’s a 10-year hold. Or if I own REITs, or REIT ETFs, I can liquidate them at any time. So…

David: Where have I heard you say that before, Andy? That sounds familiar, actually. No, but you’re right. I mean, that’s the cool thing about the public traded market. You know, you don’t like what the company is doing, you can take $10 million out, like that. And depending on what it is, how liquid it is, you don’t have to move the market. If that fund vehicle only fulfilled 15% of the amount of requests that got, you know, redeemed, and they’re kicking the can further and further down the road, what happens…

You know, I’ll give you another example. I was chatting with somebody last week, and they told me that they had a client that was involved in a private fund, that it’s… you know, I hate to say, it’s a little old lady that’s trying to get out of this fund. And she’s been trying for five years to liquidate her position, and she can’t get out of the position. Five years. And I’m sitting here thinking, “Holy cow. God forbid something happens to my spouse, and I have to pay for a funeral, and yet my proceeds are tied up in one of these vehicles and I can’t get out. What happens to my spouse?” Like, it’s a horrible thing to pose, but it’s a serious issue.

You know, if you’re ultra, ultra, ultra-high-net-worth, you’ve got $10 billion in the bank, and you’ve got, you know, $500 million tied up in one of these vehicles, you’re not losing sleep at night. It’s no big deal. But if you’ve got $2 million in the bank, and you’ve got $250,000 to $500,000 locked up in one of these vehicles for 10 years, as you said, you’re sweating bullets right now.

Here’s the other problem. The public versus private debate is ongoing. As I mentioned, it’s controversial. We know there’s no hiding it, we know that the publicly-traded REITs are trading at a massive discount to net asset value right now, anywhere, for some of these guys, anywhere from call it, let’s say 15% to 25% to 30%, depending on the sector and the stock. But yet some of these private vehicles are saying, “We’re trading at premiums to NAV.”

Andy: Okay, David, I gotta pause you there, actually. I wanna hear the rest, but I wanna talk about just that. Because, okay, your other point, about illiquidity versus liquidity, we can save this for another… This would actually be another cool episode.

David: That sounds great.

Andy: But I kind of view illiquidity, it depends on the situation. It’s all contextual. In many situations, illiquidity can be a feature, not a bug, protecting investors from behavioral traps and so…

David: Great point. Absolutely.

Andy: But let’s put that aside. Let’s just assume that we are all family offices here, with $500 million portfolios, and a fifth of it is in dry powder. You have $100 million basically in cash or cash-like instruments. My point is…

David: My number is… Go ahead.

Andy: Well, my point is, even, let’s just say you don’t care about liquidity versus illiquidity. Let’s even put that aside. If you’re telling me that there’s a 25% spread in valuation, if it’s like it doesn’t even matter how much I have a preference for private, at that point, I have to look at publicly-traded REITs. And that’s what I’m wondering, if what, is it going on right now, or it should be going on right now, that every family office that’s looking at private deals, they should also be looking at publicly-traded REITs? Looking at those numbers side-by-side, and saying, does it even make sense to do private deals right now, when, even though we might not normally like publicly-traded REITs, if it’s on sale 20%, 25%, that should override almost everything, in my opinion.

David: Not that I’m a wizard or anything, but my gut tells me that the answer to your question is both. They are looking at it, and they should be if they are not already looking at it, because this… I mention that term “generational wealth,” okay? To be able to buy some of these stocks trading at such deep discounts of where they’re trading at right now, where the sum of the parts is greater than the whole type of situation, I mean, where you can own literally some of the best, highest-quality properties in this country… I’m biased. I’m focused on residential with our existing fund. I can go down that road any day. But if you could own some of the best shopping centers, hotel properties, office buildings, healthcare facilities, literally some of the best facilities in the country, at 65, 70, 75 cents on the dollar, based on where the public market is saying it’s worth right now, I mean, I am not 86, 87, and I could say a company is a buy, sell, or a hold. But based off of what you just said, isn’t that a buying opportunity?

If I can buy a stock… if you love a stock at $100, but I can buy it now at $60, or less, hold it for three, four years, pass it off to my kids, my grandkids, whatever, and the next thing you know, that $50 stock is trading at $300 five years from today, that’s a good trade. Not everything works out that way, but you’re gonna be happy that you had that prudence to buy it at $50, $60 a share, and ride it out, obviously.

And I think that’s what you’re seeing with some of these… So, now, in the same breath, there are some REIT sectors that are frankly over-valued at this point, that are too expensive. You know, we know what those sectors are. You and I are utilizing a couple of them right now, tower REITs, the data centers, the industrial REITs, that kind of, that triangle that goes…and we talked about the triangle before. You know what the triangle is? It’s a great story. Think about how…

Andy: Okay. Tell us about the triangle.

David: Think about how towers, data centers, and industrials all interact with each other on a day-to-day basis. I use my cell phone to place an order on Amazon, that’s processed through a data center facility. Amazon industrial facility delivers me my product to my doorstep, and they let me know about that communication through my cell phone. So, everything happens through those three points, that that’s why those three sectors kind of go hand-in-hand with being pricey right now. We all use Amazon. We all use curbside delivery.

Andy: So, David, and I know we’re actually gonna make this into a two-part episode. So, in our next episode, we’re gonna go through sector-by-sector, and talk about…

David: And I apologize for jumping the gun there.

Andy: No, no, no, no. I like it. I like it. But, so, this is really curious to me, though. I wanna actually go back to kind of this big picture. You kind of made the point that with REITs in general, like, thinking of, like, a VNQ or some sort of index. Do you have that number, or even a range? Like, what are REITs generally trading at as a whole, relative to their book value, or relative to…

David: We’re at about a 25% discount right now.

Andy: So, that…okay. That, I kind of pulled that out of my you-know-what.

David: No, you were pretty good. Now, here’s the problem. Offices are obviously trading at a much deeper discount than 25%, let’s say, while, again, the industrials, towers, and stuff we were talking about earlier…

Andy: And office is skewing that quite a bit, right? Like, I wonder what that…

David: Yeah, yeah. But wait a second. We’re talking about, there’s a big difference in office. I mean, again, we can really get in the weeds here, and we will next hour. But think about it. There’s a difference between owning New York City office than owning suburban office in Dallas, Texas. Do you catch my drift? That suburban office play is actually more attractive than owning New York City office right now. Does that make that suburban office more expensive? Not necessarily. But it’s more attractive to own that suburban office asset than it would be necessarily to own that industrial REIT that has Amazon as a big tenant.

So, I think it’s important to know what’s under the hood, that shell of that investment that you’re getting into. But as a whole, one of the cool things about the REITs in general, public, private, whatever you wanna call it, the income stream that’s earned by these properties goes into investors’ pockets in the form of dividends. So, for us, since we’re focused on publicly-traded residential REITs, the apartment rent that gets paid by that renter every single month to the landlord, the landlord turns around and pays it to you, the investor, as a dividend, monthly, quarterly, however the company operates.

But that’s what we’re focused on, that that REIT income stream gets paid out as dividends. Same thing for a private guy, the family office guy. The family office guy focuses on, you know, I heard that term more and more in the past month, I feel like, than I’ve heard it in my previous 25 years. But family office, “wealth preservation.” I’ve heard those two words kicked around more in the past month than I’ve heard literally in 25 years.

Andy: Oh, no, no. Totally. I agree totally with you. That is a focus. And, David, so, we’re almost gonna take a pause here and switch to our next topic. But my last question for you, relative to this publicly-traded REITs versus private real estate, so, I literally talked with a family office yesterday, and I asked them about this. I asked them about this, because they told me…

David: Did you give them my number by any chance?

Andy: No. I’ll follow up right after we’re done recording. I’ll make sure, I’ll text them. But basically, this family office told me, they’re beginning to look at deals again, where, literally, in 2021 and 2022, or early 2022, they weren’t even looking at deals. They’re just like, “Everything’s overpriced. We’re not even gonna look.” Like, maybe they were looking. But now they’re saying, “We’re beginning to see deals come back into a range where we’re like, okay, this is starting to be attractive.” But I asked them, I said, “Are you looking at publicly-traded REITs?” And it was like I grew a second head or something. They were like, “Yeah, I guess we get it that REITs are real estate, but it didn’t even really occur to us that…”

David: You know, what’s interesting for some of those guys, because I’ve talked to a couple of them just recently, and I was at an event, and the guy said the same thing here not too long ago, that, you know, We’re penciling this deal on, like, say, a five cap rate. We’re gonna go and bid on a five cap.” But they’re going in and showing a five and a half cap, or a six cap bid for the property, because they realize that they, the family office, the investors, who has, again, the dry powder, the power at the table, that, “Yeah, we’re willing to do it at five, and they know we’ll do it at five. But I’d rather try to do it a five and a half or six and get my number, so that when things really do improve, guess what? We’ve got that extra 100 basis points in our pocket.”

And so, I think what you’re really happening is seeing is that these analysts are really sharpening their pencils, and, you know, really putting a tightrope around it of not paying up. “If you really wanna work with me on this, you’re gonna give me an extra 25 basis points, 50 basis points. If I’m the one that’s in demand here, you’re gonna come to me.” And until we see enough of these guys clamoring in for that deal, you know, 10 family offices trying to get in that deal, and okay, who’s gonna give us the most at the highest cap rate number, I think at that point, then, right now, until we see that, the ball is in the court of the family offices that have our power.

Andy: Totally. But do you think that, is there a struggle to get them to look at REITs? Like, my point is that they’re almost looking at them like apples and oranges. And I’m trying to say, like, “Hey, guys, it is in terms of control.” But sometimes we’re talking about the same assets, you know, just owned through a different vehicle. But they…

David: I think so. I mean, you definitely raise a good point. I think that’s where education comes into play, highlighting that no two apartment properties are alike. No two apartment REITs are alike, as an example. You may be seeing case-by-case deals. But when can you buy a company that has exposure to hundreds of thousands of units across the country, that’s already up and running for 25-plus years, let’s say? Or 50 years?

You know, when you buy one of these public companies, you’re buying a well-oiled machine. Again, management teams that have been through cycles, challenges, know when to go on offense or go on defense. Now, what’s happening right now, it’s a twofold. How do we maximize our revenues by pushing rents and offering concessions, and putting in features that customers are willing to pay for, while cutting expenses, streamlining operations, putting in smart fixtures, whatever it is, so that we’re able to grow the top line, we’re able to minimize the expense line of it, and at the end of the day, that hopefully leads to a higher net income. And I think that’s one of the things that you’re seeing, especially in times of volatility, is how well these guys are able to manage their expense control.

Andy: As a shareholder of REITs, I love it. I mean, it’s like, as a football fan, I can’t get enough blocking and tackling, right? So, you know, I love, you know, professional management, keeping their eyes on the ball.

David: That’s exactly what it is, blocking and tackling by the management teams. You nailed it. That’s exactly what they’re doing on a day-to-day basis.

Andy: So, David, I’m gonna put a pin in it here. So, for our viewers and listeners, you’re gonna want to watch out for our next episode, where we have David back on. We’re gonna discuss the CRE landscape as we begin Q2 of 2023, and discuss different sector performances and the opportunities right now. So, be on the lookout for that. And David, thanks again for joining me today.

David: Andy, this was fun. Thank you so much.

Andy Hagans
Andy Hagans

Andy is a co-founder of WealthChannel, which provides education to help investors achieve financial independence and a worry-free retirement.

He also hosts "WealthChannel With Andy Hagans," a podcast featuring deep dive interviews with the world’s top investing experts, reaching thousands of monthly listeners.

Andy graduated from the University of Notre Dame, and resides in Michigan with his wife and five children.