Nick Halaris on Navigating the New Realities of Real Estate Investment and the Rise of Property Tokenization

Get ready to unlock the secrets of real estate investment in a market that's been through a seismic shift since the financial crisis. Joining me, Michael Gayed, is the astute investor and content creator Nick Halaris, who left his mark in law and consulting to conquer the property investment world. Our conversation navigates through the treacherous waters of macroeconomic changes and the tidal wave of institutional investment that has rewritten the playbook for housing markets, both single-family and multifamily. With Nick's expertise, we untangle the complex interplay of market forces, political debate, and the looming shadow of legislative action, giving you a front-row seat to the changing face of property investment.

As the discussion deepens, we lift the veil on the interconnection between real estate and politics, including the regulatory landscape that continues to mold the future of property ownership and investment. The concept of tokenization emerges as a beacon of innovation—imagine transforming your bricks-and-mortar investments into tradable securities through the magic of blockchain technology. Nick and I explore the impact of these advancements on liquidity, valuation, and the broader investment community. Then, we pivot to the juxtaposition of real estate and the fast-paced tech industry, assessing the role of physical infrastructure amid the digital revolution and dispensing essential wisdom for the aspiring real estate investor navigating a post-pandemic world. Tune in for a masterclass in adapting to the ever-evolving game of property investment with agility and foresight.

Nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. 

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Transcript

Speaker 1: 0:08

My name is Michael Gaiott, publisher of the Lead Lagerport. Joining me for the hour again is Nick Hilaris. Nick, you're just up to the audience and, to be able to more formally, who are you with your background? What have you done throughout your career and what are you doing currently?

Speaker 2: 0:19

Michael, thank you so much for inviting me to come on to this, this space it is, and the podcast. I appreciate you reaching out and giving an opportunity to kind of share my message with some of the people who follow you. So thank you. Yeah, so my career.

Speaker 2: 0:32

I've spent most of my career, after sort of a brief dent, as a lawyer and a management consultant.

Speaker 2: 0:38

I got into real estate in the immediate aftermath of the great financial crisis and have been in real estate ever since. So I've basically run a small entrepreneurial investment and development firm for almost 20 years now, investing in primarily multi-family strategies, but occasionally single family, depending on what the opportunity looks like in the world. And I'm also the writer and publisher of a newsletter called Profit Plus and the host of my own podcast called the Nick Hilaris Show. And the thrust of Profit Plus and the Nick Hilaris Show is sort of a form of what I call content activism, where I'm attempting to convince people to reorient their lives a little bit and reorient their pursuit, not necessarily to change the things that they're doing, but to change the intentionality behind it and focus on things like meaning and impact and being a better citizen and being of service to the community and writing and covering and talking to a lot of different interesting people in that process. So great to be here. Thanks for having me.

Speaker 1: 1:42

So you mentioned surely after the 2008 crisis you started really kind of getting into real estate. Talk through a little bit of a lesson over the last decade plus of how real estate has changed since 2008,. What's been easier, what's been harder.

Speaker 2: 1:57

Yeah, I think there's a bunch of lessons in that time period. I think there's a few that fit with me today. Number one is when I first started in the business, I had been sort of interested in macro topic intellectually, like I was reading a lot of books about macro and publications and newsletters and whatnot. But it took me a long time to figure out how important the macro was to real estate, because real estate, when you get into it, it appears as a very sort of micro business meeting. Hey, just focus on understanding the fundamentals of the particular property. It's like location, Like real estate appears to be this incredibly micro focus industry, but it's very influenced by macro forces and so, for example I'll just give you one tangible example when I first started, I was buying for closed houses.

Speaker 2: 2:52

This was the period right after the housing bubble collapsed and there was a period of time where you could buy these and fix them up and sell them and make a huge profit. But as the Fed sort of intervened in the market with QE and dropping raised to zero and all the implications of that and all the risk appetites came back into the game, the institutions were emboldened to jump into this space and started buying up single families en masse, and typically institutional investors had never even thought about single families. It was too disjointed and fragmented of a place to buy and play, at least in the investment standpoint, and within like six months of them deciding to get in, the entire opportunity set that I was playing in had gone to zero because they had just driven out the returns by this tsunami of liquidity that came into the industry. And so then I thought to myself okay, I need to get out in front of these type of things so that I don't kind of find myself in the same position again.

Speaker 1: 3:51

Has that institutional crowding out effect gotten as bad as the headlines and as bad as the rhetoric seems to make it out to be, or is it just sort of a dynamic that's in the background that just makes it more challenging but isn't sort of a game changer in terms of concentration?

Speaker 2: 4:07

Yeah, I think in a single family space the conversation has evolved considerably from back in those days, because that was back in 2012,. Let's say, now it's become a kind of a political topic because there's a housing, there's a method of housing affordability crisis in America and so people are looking at these large collections of institutionally owned single family properties and thinking like, hey, is that why I can't afford to buy my own house? And so there's legislation being proposed and in some cases passed or attempted to be passed, to prevent institution ownership, and it's become a political discussion now. I think it is a real like, if you zoomed out, like just putting the politics aside in single family. It is a real discussion worth having.

Speaker 2: 4:52

The numbers are not crazy. It's not like institutions. They're buying 50% of the market, but they are buying a decent chunk. I think the last time I saw it it was something like 10% or something of the new supply, and so that's taking marginal supply out of the system that otherwise perhaps would have gone to a homeowner. So it is still a function, and it's not just in single family. It's the same thing happened I saw in multifamily. So institutional capital the pre-COVID days flooded the multifamily sector. Everybody was making money off of one strategy which is doing value-ad investing and same phenomenon massive pools of capital started forming and drove up prices, drove up rents. It was very pro-inflationary and ultimately drove it to kind of absurd levels during the COVID era and now we're starting to see the sort of negatives after effects of that activity.

Speaker 1: 5:47

What about on the commercial real estate side, which most people obviously would attribute to institutional ownership? I mean, I've got to assume that those dynamics are in general also causing a reallocation of capital, as the commercial real estate you want to call it a crisis, whatever worsens, they've got to deploy that capital elsewhere, so they keep going into the single family and multifamily housing type of things.

Speaker 2: 6:08

I think so. If you looked at the demand structure for commercial real estate, it doesn't look all that rosy, for example, in what used to be considered the premier asset to own. And if you rewind the clock to the pre-COVID days and looked at the holdings of all the major pension funds and whatnot, their trophy assets were offices, and everybody knows that you have to be hiding under a rock not to know what's happening in office. But when you look at that space one of the largest sectors in the entire real estate space it's hard to get excited about a bullish thesis for office. Everybody seemed to have a massive oversupply and not just in the United States and it's having its own crisis. These assets are trading already. They're trading at significant discounts from the peak, in some cases trading at levels that we haven't seen in like 20 years. There were several transactions in Los Angeles and San Francisco that were lower than their early 2000s the last trade that they were involved in the early 2000s. So we're talking about a massive wipeout of equity and a natural place, like if you wanted to stay in real estate, if you were reallocating away from office. A natural place to look would be places where the demand curve looks a lot better like housing.

Speaker 2: 7:29

We have a housing shortage in America.

Speaker 2: 7:31

Maybe we built too many apartments or the process was building too many apartments, but there's still this underlying supply concern for housing, both for sale and rental, and so investors are thinking about reallocating or have already reallocated to that space.

Speaker 2: 7:48

Other spaces that are in the commercial real estate world are doing actually relatively okay and those are retail and sort of industrial, and the industrial is part of the government stimulus related to the semiconductor incentives in the legislation passed in the Biden administration and also the AI boom, and so there's a bullish story in that sector and retail. Surprisingly, if you we were on the clock to the pre COVID days, retail was sort of where office was. It was like the most hated asset class amongst all commercial real estate investors. But now retail is having a little bit of a resurgence and I think it's a function of the changing demand that we saw as a result of COVID. The demand for physical experiences is higher and people are experimenting with different use cases for retail that seem to be working, and so retail is having a little, you know, bull market amidst a broader sort of bear market in real estate.

Speaker 1: 8:44

I wonder what changes that on the retail side? I mean, okay, so I get it right. Everyone was reminded about death with COVID, so you're still having the after effects of everybody wanting to. You know, party hard because you know how long you're gonna live, and that was, I think, part of the psyche shift that happened post 2020. And you know, at some point, I would think that all the narratives around consumer debt, credit cards, retail spending, all this ends up being a real headwind for the space. What are your thoughts on that?

Speaker 2: 9:52

Yeah, that's another that's worth considering Because obviously this whole system that we live in is propped up on consumer spending and so if there is a material degradation in the America you know the typical American consumer everything is in trouble and retail retail real estate would not be immune for sure, especially if the degradation of the American consumer is in a high interest rate environment. So, in my view, like the future forward look depends on interest rates and whether or not we actually get a recession. There's sort of that. There's a real like a worst case scenario out there that is almost so bad. Nobody wants to talk about it except like the real doom and gloom type folks.

Speaker 2: 10:37

But if you get low growth or negative GDP growth and persistent inflation, you know the economic consequences are going to be severe and there's going to be massive losses in real estate in particular. This real estate is based upon leverage. The valuation system, the values of all real estate in the world was predicated on 20 years of low interest rates. We're starting to see that reckoning already in places like office, where the demand has fallen apart. But if you get a broad-based declining demand, watch out. There's nowhere to hide in that scenario.

Speaker 1: 11:13

Yeah, I've argued that myself. You hear people talking about the stagflation repeat. But I don't think that you can even have that because your starting point of leverage to your point is so high. So how can the system even function if you have stagflation? It is a worst-case scenario.

Speaker 2: 11:30

Yeah, it's one of those things where it really is. The math is so bad, Like even if you just zoomed out and looked at the federal government, the math is so bad on the deficit if you have stagflation that it almost is an inconceivable outcome. And I don't know if that's a true statement, but it feels true that the most likely outcome is more like hey, the economy falls apart before you get inflation coming back and you get a normal recession, which is low inflation and job losses, maybe even outright deflation. That's probably the most likely outcome typically, because the system breaks. In the alternative, If you get the low growth, high inflation world, the system is breaking and nobody wants that.

Speaker 1: 12:17

Go back to the office side, because it sounds like you'd consider it on the distressed end of things. Some of the best returns come from buying distressed assets, but obviously you need to have the tailwind there. At what point is office sort of the contrarian buy?

Speaker 2: 12:33

Yeah, I'm glad you asked that Office, in my view, is the best trade on planet Earth right now. And I say that not because I think the return to office is happening imminently. It's more a function of the fact that offices in premier markets are trading at such incredible discounts to the replacement cost that I just have to believe that if you had the right time horizon and right capital structure like I wouldn't recommend a short-term view and loading it up with leverage. But if you were a pension fund or someone like that, a long-term investor, a sovereign wealth fund man, buying a San Francisco office at $200 a square foot, that's a good trade. And it's a good trade just from a historical standpoint, like, hey, every time people buy real estate below replacement costs it tends to do well.

Speaker 2: 13:22

But it's also good because of the political dynamics around development in America. It's nearly impossible to get entitlements to build another skyscraper, whether it's an office use or another use, and it's so expensive, so time consuming, that the odds that new one get built in the world that we're in now are so low that eventually that office building that you bought for $200 a foot is going to be a high demand again. It's hard to say when, but, man, we're talking about stuff that to replace today would be well over. It would be in the thousands of square foot to produce that same building, and so it's been an incredible opportunity, but you have to have the right capital structure on time. Verizon.

Speaker 1: 14:03

How does population growth and immigration factor into longer-term views on different parts of the commercial real estate side of things? Right, I mean, I'm in New York and immigrant situation as far as putting them in hotels and things like that is really kind of throwing off a lot of the dams in the city, but and I don't know if those are one-offs or not but I wonder how those trends that they keep on continuing the way they're continuing, how that impacts different demand curves. Yes, Another.

Speaker 2: 14:30

That's another fascinating topic, like if you were to rewind the clock, let's say a year or six months even and you were to look in multifamily a space that I spent a lot of time looking at the demand supply situation looked kind of scary in the sense that we were in a period where, because of the sort of go boom days of the QE era and the COVID era, there was a lot of stuff in the pipeline, more so than I think 30, 40 years or something.

Speaker 2: 14:58

It's a huge supply coming from multifamily and it looked ugly, like it really did six months ago or a year ago. It looked really ugly Like man who's going to actually rent these apartments out. But if you start factoring in this unprecedented maybe not unprecedented, but this spike in immigration, I think if the last time I checked these numbers we're talking about millions of people Well, that's a lot of pressure that's going to help these multifamily developers Assuming that individuals who immigrated can afford some of these places. It's going to help solve the problem of, hey, we built too many apartments because they're going to need places to live there's only so many hotels and they're probably going to get vouchers from the government and it's going to fill up that oncoming supply and maybe prevent what could have been a real reckoning in multifamily. So it's hard to say exactly because it depends a little bit on the political will to support these individuals in many cases. But I have to believe they will do that and that would be good for multifamily.

Speaker 1: 16:01

I had changed any of this space a few times in the last few days before we started, but I'd use that word manipulated in the title. How do you deal with real estate? Or think about real estate and manipulated world? And since you mentioned political will manipulation and political will go hand in hand how do you get to be a real long-term real estate investor? I think you're making long-term decisions when the politics seemingly get more volatile, the sentiment gets more volatile, the changes become more dream over time. It's got to be very hard to really properly plan things. It is.

Speaker 2: 16:38

I don't know if it's becoming harder than other eras, just because I didn't live through those eras, but it certainly feels like, even for something like a multifamily, which is, in my view, a very conservative strategy. It's a garden variety kind of building. It requires a lot of skills and a lot of creativity, but ultimately, at the end of the day, we're talking about renting apartments to people, and you would think that you could look at a country like America and cities like ours and say, hey, buying an apartment in one of these cities or building an apartment in one of these cities and putting on a conservative capital structure that involved fixed rate debt is a great investment idea, just historically right. But there is this growing problem of politics and we're seeing it in more and more extreme forms. Take on the form of regulatory overreach. So New York City actually is a good example of this.

Speaker 2: 17:34

New York has got the most owner's rent control regime for apartments in the entire country.

Speaker 2: 17:39

They upped the ante in 2019 and implemented for some of their rent control units a policy called Vacancy Decontrol, and Vacancy Decontrol basically means like no matter what happens to that unit, whether the existing tenant who's getting rent control is there or not you basically can't really ever raise the rents up to market and this has huge consequences.

Speaker 2: 18:00

And now we're starting to see it like that's playing out in the banking crisis, because some of the lenders had huge exposure to rent control portfolios that before the day Vacancy Decontrol actually had a decent return profile, because when existing renters would move out, the rents would get reset closer to market and the investors in those properties could earn a reasonable rate of returns for their investments. And now that's been regulatory prohibited and this type of regulation is gaining popularity, at least conceptually. People are considering it here in California and other states on the West Coast and they've even attempted to pass it here in California in several cases but they've lost in the ballot initiatives because California, despite the headlines, it actually has a pretty solid pro-business conservative base across the state. They've been losing but they're going to keep trying. That has real consequences to the investments because we're talking about severe manipulation of the economics of that investment.

Speaker 1: 19:01

I know you've talked about in some other interviews how tokenization, as that gets more and more implemented, that can be a really big tailwind for real estate. What's that link for the audience? First of all, tokenization is and why? On the real estate side I guess it's been an interesting technological advancement.

Speaker 2: 19:18

It's been a while since I thought about tokenization, but I still actually think. Of all the hypothetical use cases for cryptocurrency or blockchain technology, tokenization is still the best one. Essentially, the idea behind tokenization is to take an ill-liquid what was normally an ill-liquid asset, like a limited partner investment in a real estate transaction, and try to make it liquid by creating a tradable token. The idea is to do that with a blockchain type technology. The way things work today. Let's say you're a high-net worth investor and you're interested in investing in real estate. Your options are to buy REIT on the open market, invest in funds that are controlled by mega companies like Blackstone, or invest in private syndications as a limited partner, or buy the real estate directly. In three out of those four cases, you have a liquidity problem. The REITs are liquid, but they don't present near as interesting of opportunity just because of the nature of those investments. The other three are completely illiquid. Even if you're a big pension fund. We saw this in 2022 and 2023, when Blackstone people like pension funds are trying to get out of Blackstone and other private real estate investments in his heart. You've got to put your redemption request in and hope that Blackstone has an opportunity to pay you back.

Speaker 2: 20:45

The idea of a run tokenization is maybe we could structure these deals a little bit differently. We could create interests that are tradable and we could set up an exchange and allow investors to either trade with each other or trade just in general with the open market. Let's say you put together a deal in one of those office towers, like I mentioned a little bit ago, that I think are such interesting opportunities. You can license that up into a million tokens and have an exchange where people could attempt to sell those. I feel like that would materially improve the real estate world, because now it's hard to access, it's hard to value.

Speaker 2: 21:22

This is why Trump is in big trouble, because it's actually hard to value these private investments because there's no trading. So not to get into all the politics behind it, but people are making up values all the time. Now there's degrees to which you could do that. The judge in that case is a jury. I forget how it was all structured. They thought that maybe it was an egregious overstatement of value, but it is true. That is how the world works. People are sort of guessing at values of illiquid assets. Tokenization would solve that or potentially, if there was enough liquidity.

Speaker 1: 21:56

Just to reset the remaining 20 minutes. Everybody, please be sure to follow Nick Klares here on X. If you want to come up and ask questions, click that bottom left micro request button and, as always, this will be a podcast under lead lag. Live on all of your favorite platforms Apple, youtube, spotify. I want to go back to what you started at the beginning with the study of content activism, reorienting your way of thinking about the world and intentionality with which you're pursuing different endeavors. I think most people have one intention, and one intention only, which is make more money. Roller tax rates are so high you can make more money, but you're going to give a lot of it also to Uncle Sam, and that has interesting effects, I think, on incentives in general. How does one reorient their mindset to not just think about money when it seems like we have to counter inflation, counter the government and then try to actually enjoy that money?

Speaker 2: 22:50

And I think reorienting this up is a subject that I've been basically obsessively thinking about for quite some time. I had been writing basically for myself for maybe 20 years. I have dozens of these journals. During the COVID era, I was sitting at home and I finally decided to just start publishing my thoughts out with a broader audience, and so I started this newsletter project, which is called Profit Plus, which anyone who's interested, you can actually sign up on my website for free, and I publish twice a month or twice a week, rather.

Speaker 2: 23:24

But what I was thinking about at the time was we live in this world where, in this culture, where we're basically adept with the selfish pursuit of individual achievement. If you do a casual scroll of Twitter or podcasts or pick your platform, that is what you see. You're being fed a constant stream of messaging around. Hey, you should do what it takes to earn as much money as possible or as much support, honor, pick your poison. Whatever you're into the messages, get as much of it for yourself as you can, and there's a certain extent to which you have to do that. Like you mentioned, we live in a very competitive world. We have demands, we're being asked and challenged by our time to engage in economic life and be successful, and it's a matter of survival. You have to. Basically, you can't ignore economic life unless you really want to move out and live in nature, which some people haven't made that choice, but for the rest of us who are here, we have to focus on that. So it's not something we can ignore. But at the same time, you don't have to pursue it the way you're being sort of pushed to pursue it. You don't have to become the narcissist person who just tries to earn income.

Speaker 2: 24:43

In fact, my hypothesis, what the reason I started writing and publishing, is that I believe if you pursue these things with a different intent, like the intent to be of service to your community, for example, let's say, for your case, michael, you're putting content together, you're helping people make better investment decisions. What matters for you is the intent, and the money will follow. This is when I started. All this was that If you can reorient yourself like that and wake up every day and say you know what? How am I going to add value today? Who am I going to help? How can I serve my community? What kind of contribution can I make Then? All these things that you were chasing before just to achieve your goals. You're going to get them anyways, and you're going to get them actually in a better form.

Speaker 2: 25:29

And so I started writing these essays and I write about all kinds of different things. I write about personal development, I write about investing and business, and I even dabble in the big policy and political stuff. But the through line is, hey, how do we pursue impact and meeting rather than just success? And what I found is that if you do this, if you can orient yourself this way, you can have a better understanding of the world, make better decisions and start prioritizing things that matter, like your relationships, your responsibility to your community, your responsibility as a citizen. You know, if you're here in America, that's super important in a time like this and then see what happens and I've talked to you on the podcast.

Speaker 2: 26:12

I've talked to so many people now I'm almost at 50 episodes and I found this hypothesis to be true that people who orient themselves in this way are happier and more successful. And so it's been fun and I'm going to keep doing it. I got an incredible lineup of guests coming who are pursuing impact in all sorts of different ways, everything from socially conscious business leaders and investors, to futuristic minded technologists who are trying to solve the problems of poverty and addiction using the principles of business, to nonprofit leaders and authors and even some elected officials you know, I'm not, I'm trying to stay away from a lot of elected officials, but there are some who are mission driven. That I think fit into my category and it's exciting. I'm excited to get it out into the world and see what people think about it, and that makes me think about Maslow's hierarchy of need.

Speaker 1: 27:33

right at the top is self actualization, which I think is where you end up seeing the philanthropic type of dynamics that you come across with these very wealthy people. But it sounds like you're trying to flip that a little bit, that pyramid, by having that be more of a pillar at the bottom. That requires a certain kind of mentality and fortitude, I would think, because it's very easy to get duck back into the mindset of make more money because you see some influence or Instagram traveling the world and you want that life Totally.

Speaker 2: 28:05

Yeah, it requires a pretty big shift. It's fatally because people have been culturally conditioned. I mean, this is a feature of our society and so to break away from it takes quite a bit of intentionality. But it can be done and a lot of people are doing it and it's interesting.

Speaker 2: 28:23

There are some people like what got me thinking about this really was in the COVID era.

Speaker 2: 28:30

I saw a bunch of people who were in various efforts and community things that I'm involved in who really got insular during that time period, and the selfishness of our era really shined through for a brief period of time in COVID in an ugly way in my opinion, and I was like man. That's the consequence of this conditioning and there has to be a way to counteract that. And it's not like all these gurus, the Tony Robbins of the world or the Tim Ferriss, it's not like what they're telling people to do is the wrong stuff. It's actually all the same stuff. There's really no change in a lot of that. You want to meditate, you want to set intentions. It's similar principles, but if you can make that mindset change and have the fortitude, as you say, it can open up a whole new level of experience for you New business opportunities, new opportunities to be creative and to share, to teach, to lead, and all result in a much more fulfilling life for people On that community point.

Speaker 1: 29:32

I think it's interesting to see how these megatrends kind of factoring our ability to even socialize this at each other, let alone directly with our neighbors. Right, the, whether it's the, the metaverse, ai living in a virtual world. I agree with you, right, it's far better to be focused on your local town than kind of the more naturalistic side of the news and interacting with each other and all that. But damn, that's going to be difficult as you get more and more of this kind of virtual world playing out with these tech companies.

Speaker 2: 30:06

Yeah, I couldn't agree more. I feel like part of my motivation to start putting this out there is I feel like it's near a crisis point already. We haven't really even seen the beginning of virtual technologies that people actually like to use, like maybe this Apple product is the first one, but it's problematic for Western democracies in particular. I'm not convinced you can function in a democracy, have a functioning democracy and have everyone basically working from home in a virtual setting. We're just going to have a crazy society where there'll be a bunch of a ton of poor people and some people at the top who live in like fortresses, technologically enabled fortresses.

Speaker 2: 30:55

That's the logical conclusion in my view, and so I really believe like the most important thing on planet Earth right now is to be a citizen, and that can mean different things. It doesn't mean just both and the obviously political things, but it means to take an actual interest in your community whether you have kids and it's the kids school or there's an issue that you care about and intermingle with people in the real world and try to solve real world problems. There's a whole bunch of them, right? We've got this migration crisis impacting our country. There's homelessness. We have 90,000 people a year dying from overdose. There's no shortage of these issues that you could like throw yourself into and try to make a difference, and I feel like if we just get enough people to do that, we could provide an antidote against this self-oriented, techno-enabled society that we're building.

Speaker 1: 31:49

Think about that sort of everyone poor and then some people at the very top. You know, widening wealth gap. It used to be the way that you really generated significant wealthies through real estate. Going back to the main topic, and a lot of things have gotten, have gone away in terms of tax breaks and things like that, obviously, over the years. Is real estate still as much of a wealth enhancing asset class as it used to be? Or maybe are we at a point where the new real estate is? You know, tech is algo, is AI and everyone has to focus on that. You know the physical world.

Speaker 2: 32:22

Great question, michael. I feel like real estate look right now, at this moment, like it's a dead asset class. It looks like that but it's not. I think it's the most. It may not the most, because I think this tech stuff has much more scalable properties. But here's the thing you need physical space to build semiconductors, to house servers, all this stuff that is essential to the techno revolution that we're seeing play out before our eyes.

Speaker 2: 32:55

There's a reason, like I haven't seen the actual like pitch deck for Altman, like 7 trillion valuation AI company, but I've got to believe that there's a ton of real estate in there you have.

Speaker 2: 33:05

Basically, you can't have an AI empire without a bunch of real estate and that might actually be a use case for significant amount of the underutilized industrial and office real estate in America would be to convert those two facilities that can either house, you know, service like server farm type things or, you know, in the case of, like the manufacturing plants in the Midwest that had been shuttered for years, like maybe they can be repurposed to be a part of the AI semiconductor supply chain. So I think there are tremendous opportunities. And then, even in the boring stuff like housing America is under-supplied housing by a massive number, by something like 6 million, and if we're adding millions of immigrants, that under-supply is going to get worse and worse, and so I do believe there's tremendous opportunities to be an entrepreneur or an investor focused on providing housing. Now it's difficult because of what some of the stuff we talked about earlier, like the political problems and issues related to over-regulation, but people are going to figure that out and there's going to be a ton of wells created in real estate once again.

Speaker 1: 34:17

Yeah, I guess there's going to be a fungstown of can you. It's not an end location. It's probably, you know, locations that nobody would ever want to touch because there's no life around those locations. But that's where the data locations are going to be centered.

Speaker 2: 34:30

Yeah, I think so. And then people this tech revolution is already kind of reorienting where people want to live. So there'll be opportunities for smart investors to get out in front of those trends and say, oh okay, well, people really like this. You know half-urban, half-suburban lifestyle, let's build some properties in those type locations. You know there'll be opportunities like that as people shuffle around in the face of all this technological change.

Speaker 1: 34:58

So those things that are made kind of earlier in their real estate investing side of things, if it is somewhat of a dead-asset class, but there's nuances to that to your point. What advice would you give? I mean, you got in, you know, when you can argue there was a clear bottoming right post-o8. But yeah, this is kind of weird because things are not sort of all co-moving. In the same way there's other after effects that are still playing out post-COVID and these are long processes. What kind of advice do you give people that are trying to get into the space now?

Speaker 2: 35:29

Yeah, it is a tough. That is a tough question to answer, as you sort of hinted in the question, because this is a real funky market, you know, I think you could make the case that office is bottoming maybe not bottoms, but it's far closer to the bottom than it is to the top right. But these other sectors have had almost no damage to them, even in the face of really bad macro, like interest rates going crazy up, whatever 525 basis points, whatever they were, from the low that was devastating to the asset class. And yet, outside of office, in a few special situations in multifamily, like the rent control buildings in New York and overlevered investors over-aggressive investors you haven't seen that much damage. And at the same time there's this huge tsunami of money on the sidelines and so it doesn't feel like 2008.

Speaker 2: 36:31

2008, it was like you can't talk about real estate with anybody. Their eyes would glaze over, everyone thought it was dead, there's no opportunity. Now the most common conversation I have with people is like oh yeah, I can't wait for these opportunities to come. We're about to see a bunch of distress. Well, that's not usually like in this financial history, that's usually not how. It's just stress manifest when everyone is blinded by optimism, and then the rug is pulled out and then they're in a depression. Right now, we're in this really weird state where you got a bunch of smart, savvy investors in some cases very well-capitalized investors who are sitting on the sideline waiting for these supposed distressed opportunities, and that tells me that they probably won't feel like oh wait, it's going to be different.

Speaker 2: 37:19

But for a young person who's trying to get into it, I think the key attribute that you want to focus on is being creative. You can't just assume that what was working from 2008 until 2022 is going to work again. Things have really changed. Covid changed things, and this technology that we just spent some time talking about is in the process of changing things even more. So you got to be creative and you've got to get yourself in a position where you have access to capital. Real estate is about requires enormous amounts of capital, more so than even these tech startups. You can raise $10 million for a tech startup easier than you could raise $10 million to buy an apartment building in LA, and so if you want to be an entrepreneur, you got to get serious about your situation, your network and your strategy, and that takes creativity and some grit and a willingness to put yourself out there and take risks and not be afraid to hear no, then you're probably going to hear it a lot.

Speaker 1: 38:19

Nick, for those who want to track where your thoughts, where you work. You mentioned the podcast before, but point to all the different places people can find.

Speaker 2: 38:26

Yeah, absolutely. The best place to find me is my website, which is just nickhalariscom, and you can sign up for my newsletter for free there and there's information about the podcast. But I'm also I'm getting more active on social. I haven't been great about it, but I've made a commitment this year I'm going to be more active and I've been doing it. So I'm on Twitter, mostly at NickHalaris, but also on the other platforms as well, like LinkedIn and Instagram. It's always just at NickHalaris, and I would be honored to have you all as readers of my newsletter. I think there's a lot of crossover, actually, with the things that Michael writes about, in the sense that I am offering ideas on the economy, investing and how to make better decisions, and so I think it might be interesting to you all, and I'd be honored to have you listen to the podcast and hear what you can learn from courageous people who are trying to make the world a better place. Michael, thank you for having me, man. I really enjoyed this conversation.

Speaker 1: 39:21

Everybody. Please give Nick a follow, check his workout and hopefully I'll see you all later in this week on a couple more spaces scheduled. Thank you, nick, appreciate it. Thanks, michael, appreciate that, guys.