National Real Estate Forum

The real estate industry has benefited from relaxation of securities regulations more than any other industry in recent years. For the first time since the advent of the Internet, you can now raise money for your deals by advertising to investors online. For investors this has opened a door to investment opportunities previously the exclusive realm of only the richest of Americans. Listen as Dr. Adam Gower speaks to the leaders of the real estate syndication industry - colloquially known as 'crowdfunding.' Visit, listen to the podcasts, and access free educational materials you can use to raise money online - and to invest with greater confidence.
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Nov 6, 2018

Read the transcript and listen to the episode in the shownotes page here.

I've been in a crowdfunding space now for a little over 10 years. So, transitioning to Buy the Block was just a natural transition. I run a crowdfunding platform now for 10 years plus. It is BBnomics. It's available for the community, so they can raise funds for different projects, community causes, businesses, nonprofit, et cetera. So, upon being in the crowdfunding space, always knew that this was something that was going to be able to pass at some point and be available to the community, basically, crowd investing.

So, always, I paid attention to the laws, making sure that I understand what's going on. And when it passed, I wanted to make sure that that this opportunity was available to other communities as well, so they can be able to invest with each other, so they can support each other, so they can develop their community, and having a say. Having a say if they want to leave a neighborhood, or having a say if they don't want to leave it. So, being able to say that, "Okay, if this building is up for sale, we can actually pull our moneys together, and be able to purchase the property, and have it as part of the keepsake of the community." So, having that option is why Buy the Block exists. And this is how I got here.


Pre-JOBS Act, GoFundMe, Kickstarter, that's the pre-JOBS Act. The crowdfunding itself has been around longer than the Regulation CF. So, it basically piggybacked that idea. Back in 2009, that's when crowdfunding online got very popular. The Kickstarters, GoFundMe, Indiegogo of the world started these portals basically where you can raise money to do anything. Basically, you go to these sites, you set up a campaign, and you can allow the crowd to put money in it. So, that's what I've been in. That's the space that I've been in. And I've been in it for a while managing my own platform that allows people to actually raise money using crowdfunding.

The purpose of that, specifically, is to be able to allow people in the community to crowdfund and crowd invest the properties in their community. Gentrification has been a huge issue in predominantly black communities. So, I wanted to be able to provide an avenue for our community to be able to say, "We're either going to play a role in it, or we're actually going to be the ones that are actually building this community, as opposed to watching everyone come in, take the properties, sell them off, and redevelop it, and then relocate the people that live in the neighborhood."

So, the neighborhood that I grew up in has experienced a lot of gentrification. And neighborhoods that I've lived in, I mean, I've seen it, I've been a part of it. So, wanting to be able to provide a resource for our community to be able to have access or be able to actually obtain the money to get those buildings, be able to obtain those properties, and purchase those properties, and be able to keep those buildings in the community, and keep the ownership of those buildings in the community. That's how Buy the Block exists.

Being that I am a woman of color, and I have lived in these neighborhoods, I've seen it firsthand, and being able to actually witness what happens, seeing or being displaced, being moved, being not part of the development process, but just being on the outside looking in. So, this definitely put a sense of urgency for our community or to be able to have a solution for our community.

There's a lot of people that when these things happen, they may not be able to have the -- they don't have the capital. They don't necessarily have the -- They may have the skills, but they don't necessarily have the capital. They don't necessarily have the circle of people around them, or the group of financiers to make sure that their deal can close and be able to develop that specific building or that project.

So, this is what Buy the Block is about, being able to, one, provide access to capital for these developers that, a lot of times, the doors are closed on them. The banks don't really lend to them. VCs don't don't always extend a hand to them. So, we want to make sure that we are there. They have an alternative source to be able to purchase or acquire those buildings, get the funding, and then close on them. And then, of course, keep that in the neighborhood and keep that ownership in the neighborhood because, like I said, a lot of times, we're on the outside looking in, or we're on the inside, and we're getting shut out of these developments.

The reason for Reg CF is because we wanted to be able to open it up to everyone. And that's what Reg CF does for Buy the Block, allow anyone in the community to invest with as little as $100 to be able to actually be a part of a development. Accredited investors opening it up only to accredited investors was a very small pool in the black community. I'm not saying that they don't exist, but it's a very small pool. So, we wanted to make sure that we can open it up to a much larger audience, a much larger group of people.

We are open to everyone, but we do have a niche market. And that niche market is to serve our community. And our community can be of any color. I mean, we're open to anyone. Sponsors can come from any area, and they can also come from any -- They can be any color. We're not closing our doors to anyone. Absolutely not.

There's still a lot of education to go around. We definitely want to make sure that everyone know what they're participating, understand the rules, and the regulations, and so on. But so far so good. It's been very receptive. It's been very receptive. The community has been very receptive. Just as anything, because it's fairly new, it still requires a lot of education for the investors, for the sponsors to make sure that they know that they're following all the rules that are required to be able to do this one. But so far so good, yeah.

The biggest challenge, I think, is the confusion between crowd investing and crowdfunding. Everyone knows what crowdfunding is and how to do that. I mean, I think, right?  Crowdfunding is donation reward-based. So, for example, you put up a campaign, and I donate $100 to it. And for donating $100, I get a t-shirt, and a plaque, or something like that. But part of the proceeds, you still get towards your business, or being able to create a model or a prototype of something because a lot of crowdfunding is used for the prototype. So, I have this great idea for a watch, and here's how I can get it developed. People can pre-purchase it. It's an idea. It's a mock-up, but when it does produce, here are the people that actually get the the actual watch because they were the first people to buy into the concept.

Crowd investing is slightly different. Instead of getting the watch, or the T-shirt, or the plaque, you're actually owning shares in the actual project itself. So, at some point, once the project becomes fruitful, or, actually, it earns a profit, and it generates revenue, you can be an actual shareholder and earn dividends from it. So, that's the difference between crowdfunding and crowd investing. And I think that's where there's a little bit of confusion that people think crowdfunding is still, or you're crowdfunding basically. "I'm putting money, so that means I'm donating." But no, you're not. You're actually investing.

The deals are very community-oriented. So, for example, if it's something that actually solves the problem or, for example, grocery stores solving food desert issues, for example redeveloping land to provide affordable housing. So, these are the type of deals that come to Buy the Block, and these are the type of deals that we actually are supporting through the network.


The screening process is very, very long and tedious. We have to work through all the documents, make sure that it is a legitimate company. We do all the required checks and form that one FINRA requires and the SEC requires us to do. And then, we have an underwriting process where we actually go over every deal and make sure that it can be profitable for the investors as well. And then, from there, once it gets through the underwriting process, then we can determine if it will actually be a deal that we can host or not.

Our deal sizes range from under 100,000 to millions. I mean, it really depends on the project. Some require more capital than others. I mean, building a single-family development, it's in the millions as opposed to in the hundred thousands. So, the range is very, very wide. It really is, but we have some really great sponsors and developers out there that are definitely using this model to be able to acquire properties and be able to develop their communities. So, it's a wide range.

They're coming from all over. There's not a specific geographical location. They're coming from, oh god, I mean, Texas, to Florida, to Washington. I mean, they're coming from all over. So, I mean, I think that's a good thing. Our reach is very, very far and wide.

We've had sponsors that come to us that are not African-American, and they found us through whether they've found us on online, or they found out about us through other networks that either shared our story at some point. But we've managed to get quite a few very ranging, and the Hispanic community, African-American community, everyone. Everyone has been moved. We've been able to get people from all over, all over walks of life.

Marketing is really is up to the sponsor. Honestly, it takes a lot of work from the sponsor to be able to put themselves out there, and talk about what they're doing, and get people excited about what they're doing. So, that's what gets the most attention. So, we really stress to our sponsors to be out there. Get people knowing what you're doing, how you're doing it, and let them know that there is an opportunity available. Just get yourself out there, get what you're doing out there. That seems to work better than anything.

Nobody can explain what you're doing better than you. I mean, I could talk about it, and I can say, but the only person that can really explain what you're doing is the person that actually came up with the idea, the CEO, the president of the company. So, that's something that I really encourage the sponsors to do is get themselves out there and let the community fall in love with them.

They'll put up all whether it'd be -- They talk about it through an interview or any platform that it's open to. There were some sort of shared linked program. And then, they'll point to and they'll say, for more information, like you said, visit Buy the Block. And that's how they drive investors to it because once investors get there, they read the information, they download all the documents, then they get an idea, get a better sense of what's being offered to them.


The good sponsors are not afraid to put themselves out there. They're not afraid to talk about what they're doing. They're not afraid to get people to understand what they're doing. If they are building an office complex, they're not afraid to explain, "Okay. Well, this is the history I have. This is what I've been doing. This is the work that I've done before. And here's the next project I'm taking on." So, that's the difference between a sponsor that really gets the word out there and one that don't. The ones that don't do very well are the ones that don't talk about it at all. They don't really let the people in on what they're doing, or they're not comfortable putting themselves out there and talking openly about what they're doing.

Five years from now, I would hope we are spending millions of dollars worth of development, and being able to make sure that sponsors are holding their end of the bargain, and the investors are actually seeing the reward for taking risk, basically. So, yeah. I mean, that's pretty much what I would like to see five years from now. Just being able to make sure that everything that the sponsors say that they would do, they're holding up their end of the bargain, and investors are seeing the reward for taking the risk on the sponsors.

Right now, the state of the real estate market is a little undetermined. It's hard to say where it's going. I have seen some updates about some slowing down in some areas. But, I think, for the most part, it's still pretty steady. It's hard to tell. It's really hard to determine which way it's going because there's a bit of --What's the word I'm looking for? There's still a lot of hope. There's still a lot of people that are in the market that are that are buying, and selling, and still able to generate revenue, and be able to do what they want to do in the real estate market. But it's hard to determine right now. I think we have to wait and see. I really do. I think we have to wait and see.

Mar 19, 2018

REITs in the Crowd Fund World

KBS was basically an analog company built on the broker dealer networks under the old non-traded REIT business model for capital raising, but that business just fell off completely because of regulatory changes. Robert Stanger came out with an article where it showed that they were raising $20 billion a year and now they're raising somewhere around $1 billion a year.  This is because rule 15.02 now requires more transparency in the way that non-traded REITS are booked and now must show value less any load, whereas before they didn't do that.  Additionally, changes to the fiduciary rules and the way that's changing the requirement of disclosing fees, or not even selling into retirement accounts by broker dealers, when they have high load products.

See this episode in shownotes here

This has fundamentally changed the way that capital is aggregated for investment by the major wire houses and that's now shifted from commissions salespeople to registered investment advisers who are people who work on a share of assets under management as opposed to a transaction fee. With all of that then came the JOBS Act in 2012 which opened up the doors to general solicitation and advertising in a way that go beyond just the accredited investor.  There has been a lot of success with the bigger institutions waiting for the smaller guys to figure this area out before they became adopters.

Now you're seeing Hines and KBS getting into the field, and guys like Ray Wirta who founded Rich Uncles and Fundrise and RealtyMogul who were the pioneers are out now able to raise at some greater scale. People are becoming more comfortable doing things online and mostly the drivers of this economy are the Millennials and Gen X’ers.  These folk don’t want to have to shake your hand if they want to do a transaction, they just want to trade it directly or buy it directly. It's just the way they are.

So now the trust factor is the big thing for the person who wants to invest online. Getting big institutions or people with big names is logical because it's typical network dynamics.  You’re taking an influencer or using that brand, or having other people who are influencers maybe at a smaller level, and going all the way down to the retail customer at the end of the day who's influenced by all of them. You can call it the Warren Buffett effect for business or you can call it for fashion the Kardashian effect.

These younger generations are people who are influenced by people they trust, as in the case of Kardashian, people who vouch for a product. Nike has been doing it for a long time with brand athletes and so has Adidas with Ronaldo. It's the same thing in any business you find. But it's not like you grab Ronaldo and he tells you to crowdfund. That's not going to work. But if you grab Ronaldo and he tells he's going to do a masterclass on soccer you're going to subscribe to that. So just like in real estate if you've got somebody who is a Sam Zell who goes direct to the public and says you can invest with me and you get my management, you get my ideas, you get my timing, you get my capital along with yours; you're going to invest in that because you know that Sam knows what he's doing.

Sam's not going to crowdfund for you know he doesn't want to deal with investors. He wants to do it himself, but an institution like KBS or Grubb & Ellis or whoever you know, like the old guard types like Ray Wirta, you’re looking at people who've dealt with a lot of capital in the past.   For example, you couldn't invest with KBS unless you were a government or a sovereign wealth fund or a pension fund.  Behind KBS there's a whole organization to serve that caliber of investor and they're highly monitored. They have an institutional understanding, they've done public offerings, they've done joint ventures. KBS is a very sophisticated shop. It's not like a typical Crowdfunder like somebody who's kickstarting a baseball cap with a fan in it.

The primary reason there are no widely known celebrities in real estate is that they couldn't advertise.  Even for a company like KBS which has done public offering, has launched seven REITS, they were not allowed to advertise; cannot make any forward statements. The regulations are very precise; you have to be very quiet. Historically it created a culture of everything done behind closed doors.  Now with sophisticated players like KBS, the key is being is being a gentle person, whether gentle man or gentle woman, but someone who is rational and reasonable and not out there like crazy Eddie trying to sell stereo equipment.

In the past though they couldn't say anything, whether it was cultural or advertising prohibitions, and now with the JOBS Act people can get to know who's behind the real estate. People can get to know who really is a star in the area.  Who is the Warren Buffett of real estate, or the Warren Buffetts of real estate because if someone can invest with a number of major people in the field, they are going to whether it's a Draper in tech or Buffett in stocks or somebody like a CIM  in real estate or Oaktree in debt.  Investors know those guys and know who the celebrities are and that they are not able to invest with them because they are getting money from other people with much greater scale.

Now, however, there is an addressable market that exists for people who can reach them and can communicate there for the first time.  They can learn who the superstars are and why they're so good. Hopefully that transparency and the ongoing relationship that can be developed through a community on the Internet will end up being a new capital aggregation model.

People like Sam Zell who recently wrote a book that was published; Sam is known as the grave dancer. He buys a lot of distress although Sam is so diversified that a much smaller percentage of his assets are in real estate. He was the largest owner of apartments in the United States and had Equity Office. Sam's a star. When he shows people know.  He's the best salesman there is. In industrials there’s somebody like Dick Ziman who people know from Arden. I'm the chairman of the Board of Trustees of the Ziman school at UCLA and Dick called the industrial surge a while ago and created Rexford. People know him when he shows up.

However, the idea of accomplished professionals stepping into a broader limelight is nothing but a notion other than trust and verification of whom investors should entrust their money to and on what basis.   To the extent that the investor is seeking something which is institutional one has to look at the sponsorship and that comes from someone who's a serial achiever.  Those serial achievers are the people that you want to be investing in, because it's about the real estate first.  In commercial real estate, it's about the people who are operating that real estate, collecting that money for you, dealing with the expenses, getting it back to you and knowing when to sell and knowing when to buy.  Real estate is pretty complicated and that's what you're paying for.


If you're paying for management that's one thing, but if you're paying just to get into that deal and get into access that's a problem.  Investors don’t want to pay points just to get into deals but they’ll put their money with somebody like Zell, or Ziman, and pay them to manage it without having to pay a bunch of intermediaries if they don't have to.

And that's really where we are today. We don't have to pay the intermediaries anymore but we do have to trust the people we're working with.  In real estate you're probably not going to end up with branded athletes, but is Warren Buffett a branded athlete? Perhaps he is in financial services. In Berkshire Hathaway people invest because Warren Buffett says it works and he's been right. Perhaps if someone were to invest with Chuck Schreiber and Peter Bren in KBS, you'd realize that they have been right for a long time. Peter really saw these opportunities and he's been around long time and he has a great mastermind of other people who can help him look at markets and figure out where those high job growth markets are when they go in and where they can add value.  

What the elimination of the advertising prohibition achieves is the opportunity through the Internet, through videos, through speaking engagements, through podcasts, for these superstars of real estate to become known. Online is where the true transaction and people connection can be made. Mike Milken talked about prosperity, economic and social prosperity, being a function of the application of technology to three things: real assets, social assets, and human assets. By taking real assets and combining with tech, giving data to the investor, giving data to the sponsor to know who the right investor is, having the ability to use that technology to better manage property, better communicate with investors the social aspects of it, it's going to just add to the prosperity. However, it all depends on the human capital applying it, and that's when we talk about how do we know, who we're investing with. It's that human capital and the technology.  The technology that can magnify who that human capital is because that's really important when it comes to commercial real estate.

Choosing the Crowd Fund Route over the Institutional

While KBS is building a fund based on a crowd fund platform, for the company the institutional funds don't stop. The way that money is raised and from whom it can be raised depends on the vehicle and also depends on the institutional appetite for being in a comingled fund with other investors. This direct investment vehicle is not a substitute for pensions, it's not a substitute for sovereign wealth.  It is an additional channel for aggregating capital for real estate projects.

So why do it? It's because it's available now where it wasn't before.  It's no different than what used to happen in the days of Fred French and the Manhattan syndicators, Leonard Wien, Harry Helmsley.  Those folks would get people in the Jacob Javits Center and syndicate for $90 million or whatever the Empire State Building cost, or they bought the Plaza Hotel or the Gray Bar or The Fiske or any of the things that were there and they did it with physical signatures and a serpentine distribution of signature pages throughout the Javits Center.  They’d have 3,000 investors who would all buy into that. So that was the 1950s and 1960s.

Since then you've just had changes and regulations and other things which have obfuscated that, that have just made it much more opaque with regulations and a bunch of other things. Not many of which are very helpful, though good accounting is helpful and proper disclosure is helpful. All the things that are necessary to ensure that the correct story is told and that nothing is missing, and everything's included good bad or ugly. At the end of the day, though, all those regulations add up to a lot of expense and then with enforcement actions and other things behind them, which are extremely necessary, it tends to make raising money just much more expensive than it was way back when things were, and it's hard to call Manhattan the Wild West, but when it was the Wild East.

Today what the Internet has done with the JOBS Act is it has brought us back to a place with good regulation in terms of disclosure, and greater transparency because everything is listed. It’s easier for the FCC to audit, easier for state and local governments to audit. Clearly requiring registration under Reg D or Reg A, to make sure that the government knows what's going on. There are things that are in place, but the big difference is that you have a computer screen just like your broker did - the guy who was selling a deal to you and charging you 12 or 15 percent at the end of the day to get access to a building. Now you don't have to pay that. Now you can get access to the building, directly, as an individual.

The second factor is that KBS wants to democratize the opportunity. It makes sense to set the minimum at anything you want $25,000, $50,000, $200,000, $1 million, but in KBS they want to get people familiar with them.  So they lowered it so that people can come in and they can make money and then they can add overtime.

At the same time, KBS will continue, as a must and as it desires, working with the sovereigns that they work with and working with the pensions that they work with that's not going to go away. The best capital aggregation model always wins. Institutional capital remains the cheapest and the most transparent one unless regulation comes in and there's fraud or something crashes.  Many people are concerned about that; that there is going to be a lot of internet fraud in real estate which if you have a funnel where you stay with the quality management and stay with quality product and read the documents, having confidence that the person who is the sponsor is giving you the full story, then you can invest and then you can make money and make money to have a stable source of income or appreciation or in the case of a growth and income product, both.

Crowd Funding

Initially, people were suspicious of crowdfunding. Certainly, the product crowd funders like Kickstarter and Indiegogo gave people the confidence to invest or buy a product, but a lot of people like banks and like brokers and certainly want advice as to how and where to put their money when it comes to investing.  The generations though that are comfortable with Indiegogo and Kickstarter as a way to raise capital, or Seed and Spark if you have a film, or Thumbtack if you want to get service providers, whatever it is, the use of disintermediation is a trend that will continue.


The use of data to provide greater information to those who are educated to be able to make informed decisions and not through gobbledygook but through true community will continue. There is demand for products where you don’ t have to deal with people in a world where we're barraged by so many pitches made by so many different people who are trying to get our attention. It requires the ability to filter things out to find out who you can trust and not to be the schmuck. It’s the Amazon effect of just being able to go in and save your time and find what you want and not have to go to Black Friday is exactly the same thing that exists in investment today. It's why in 1985 Accutrade turned into an online brokerage that is now E-Trade, and in the late 1980’s you saw the banks come online and the ability to save time, not get into a car if you don't have to, use your brain and use your data to distribute and to originate.

That's the future that's here today. It's happening.

That's the social and economic prosperity that results through the application of technology to human capital and distribution. Capital flows are and will continue to benefit from transparency. That's what killed the non-traded REIT world. Investors saw the transparency, they saw the fees, and all of a sudden it changed and the aggregation model is now from that to let's go direct, let's avoid broker dealers who charge these fees, let's do what's best for the investor and instead of being paid fees to manage let's go side by side with the investor which is what the KBS's, what the Fundrise’s and the RealtyMoguls and others do now.  KBS, when compared to the young wonderful incredibly bright and brave talented people like the Miller Brothers and the people who put together RealtyMogul, are very different animals but they're using the same technology.


The biggest challenges are more for real estate and not for the Internet.  The prospect of a downturn is real. This is real estate first, technology second. It's not the application of real estate to technology, it's the application of technology to real estate. So as real estate goes, there are a variety of sectors. There's industrial and today's industrial is hot because we're dealing with the Amazon effect.  The KBS effect is the idea of a direct origination, direct distribution model through the Internet.  Last Mile is a big area. Now, for same day delivery or even same half day delivery you see Amazon acquiring WholeFoods so they could have internally at the worst case they have some of the best distribution in urban environments in the country.

The hotel area's different. If you look at hotels they're very much dependent on the cost of energy and the amount of disposable income the consumer has.  When the economy is doing well, hotels do well, when the economy is doing poorly, hotels do poorly.  People can invest in that, but you go into residential, and you can go all the way through the different food types in real estate. It's real estate First. When we have a downturn in real estate we're going to have a downturn in real estate investment. We're also going to have direct investment vehicles that will allow people to buy into distressed funds that invest in the down cycle that are truly value add or Sam Zel graveyard type funds which in many ways built much of what you see today, like Blackstone and OakTree and a number of those who went out during distressed times and bought assets. Large homebuilders do it all the time.

There be funds that can scrape and invest in a bunch of different offerings and you can invest in those with kind of robo trades. There's a lot that can be done far in the future. Right now sponsors are increasingly going online to reach investors or to manage investors and many of them start that way where instead of sending out paper to everyone they have them log in and they have a box and that's the way Crowdstreet works.  They really started as a marketplace but they quickly shifted to investment management software for their sponsors and capital raising software and now they do both. RealCrowd does their marketplace. They don't really sell their software.  They’re a big media and marketing machine to get the word out so people can invest for their sponsors. Fundrise and RealtyMogul are REITs and what they do is they raise money in Regulation A from either accredited investors and from unaccredited investors and the people there can invest as little as $100 at a time and build exposure to commercial real estate that way.

People say, ‘well, just wait till there's a downturn.’ As underwriting is constrained and people aren't doing the crazy 110 percent loans and we have a governor on the amount of capital that can go into these deals and the amount of leverage that can go into various product we're fine.  That’s why a commercial REIT like KBS direct will never take on more than 50 percent debt. Ever.

REITs are going to be viewed on how much debt they have because people want security when it comes to their dividend that they're going to be receiving from that REIT. They also want to know in a downturn that their property is not threatened, so there's a certain amount of discipline.

Lew does not believe that CFRE is going to be the next mortgage meltdown. People will lose money along the way like they do in other investments and so that's why the trust factor is the most important thing.  Knowing who you're investing with as well as what you're investing in before you put your money in is paramount.

Heritage Capital

Lew was a lawyer for about thirty three years. He still is a lawyer and he still does a bit of practice.  Primarily, however, he puts money in companies that have what he views as having great ideas that solve important pain points and problems, and he believes that direct investing is a great idea.  He looks for problems to solve, and then looks for really talented people who have demonstrated ability to execute on the ideas and the execution.

It's in your control to select the people that you associate with. The First Amendment is great because it gives you a right to associate with anybody you want to.  You can even travel places, talk to people. Those things are important, but what you can't control is timing. You can get a sense of it. You can look at history. Mike Milken said the best investor is a social scientist. You can get a sense of that but you can't really control timing. Black Swans events happen. You do your best to see what the risks are, and that’s what Heritage looks at.  They invest in business models that look like they have some kind of a clear path to an exit or for scale. And they like to do inflection investing.


Find a company with a great idea, a proven concept and then take it and scale it and move it. The last factor is that the people Heritage invests in can see that they can benefit from Lew’s involvement and that his capital is strategic and is worth more.  As Sam Zell would say, his simple rule is to go where gus capital is worth more.  He won’t go to China because it's not transparent enough so his dollar over there isn't worth as much, but he can go to South America, to Brazil or to Manhattan where he sees there's an opportunity and his money is going to be worth more because he understands Manhattan. He understands Brazil.

Heritage employes Sam's rule.  They try to go where their money is worth more, where their money and that of their investors can benefit much greater. That usually means you’ve got to just roll up your sleeves and get your hands together and get to work and be active. Lew has come out of real estate and saw tech and the application that.  Folk like Nico mêlée who wrote The End of Big, and Malcolm Gladwell with David and Goliath and Mike Milken with his Milken Institute and Wharton.  All of those things have influenced Lew to see how tech can be applied to simplify the way that we live and we work and we engage. He invests in thematic investment either in something with data, something with social, something with distribution.

He tries to keep those themes in mind as he looks forward but disintermediation is a big theme that he likes, and knowing real estate he ended up just falling in love with the idea of direct investing and helping smart people get access to deals because we think about the capitalist system as being one where we're free to earn income, but the capitalist system is where you're free to get capital, and real estate capital and capital assets produce value.

The only way to create enduring wealth, people say, well the American dream is getting a house. That's how you get enduring wealth. It's true but that house goes up in value but you have to buy it first to make sure you're getting all the value. With commercial real estate you can invest in that same kind of asset and get income from the first day. A lot of books are written on that stuff. The Rich Dad Poor Dad whole kind of thing that came out of it. The Goofy Ranker infomercials of how to make money in real estate. All about cash flow, but to do it with institutions other than through broker dealers and having lots of points taken from you. That's all brand new and it's where everybody should be. They should be able to have capital access and access to being capitalists so they can get wealth today and maintain income. To me the travesty of what existed in the past is just how inefficient the information flow has been and how coagulated capital becomes in places like Wall Street. You go back to someone like Mike Milken and while he's not necessarily what everyone holds up as a great general standard bearer he's done a hell of a lot of good.  More importantly he in many respects was a disintermediator who was penalized by Wall Street. He took bonds off of Wall Street into Beverly Hills, looked at a company and figured out in 1982 that the company wasn't worth its price earnings ratio, it was worth the application of finance. You know what happens if you apply a different interest rate and loans to the cash flow that's coming from a business, that's the value that you can produce and if it's worth more than what the stockholders are valuing go buy it, take the difference.  That’s what he learned how to do. That's where the LBO came from and it's just a simple arbitrage not basing things on an old formula. That’s what got him in trouble because people on Wall Street didn't like the idea that it could be done anywhere and you could take  Main Street banks and acquire Wall Street companies. Or build Las Vegas without them etc.

There are a lot of companies being pooh poohed in an area that's new when a paradigm shifts but there's no doubt that Las Vegas is real.  There's no doubt that all the people from Oaktree and CIM and Patrick Soon-Shiong in Los Angeles is incredible in the bio area, and others have benefited by viewing and created so much prosperity by viewing the paradigm differently.  Lew sees what he does as he tries to look at the paradigm a little bit differently and invest in these inflection companies. Fundrise, KBS, Patch of Land which is a fix and flip lender, Pay Forward which is a rebate company that uses instantaneous technology to send a dollar in a hundred different directions from new rebates that come from families but doing it instantaneously and it can go to pay mortgages or health care or whatever rebates that people don't even know they get. Things like Wiki Realty which fits in the qualitative space between a Trulia on the residential tech side giving access to homeowners to things like walk scores and school scores which is now merged with Zillow which is very much a broker, a property feature but nobody talks about the neighborhood.

Those are, whether it's home tech or construction tech or direct investment, those are the kinds of things that Lew thinks are continue to make sense; he tries to see trends and to be that social scientist so he can be a good investor.

Dec 3, 2017

Architect Developer

Jonathan Tate runs a small architectural practice in New Orleans, Louisiana that prides itself on its experimental approach and its contemporary aesthetic.  He has been practicing for 20 years now and has always been interested in housing and so that has been the undercurrent of his practice.  He focuses on residential projects across the spectrum whether it is private clients or for a single family house or a multi-family project for affordable housing, and integrates his designs while keep an eye on urban scale issues and urban environments. 

Listen to the episode and read the shownotes here

The last thing Jonathan ever imagined himself to be was as a developer.  He often saw friction between what development and architectural agendas. The first thing that gets compromised often in that process is the architectural agenda and he enjoys the challenge of trying to exercise an architectural agenda while also addressing the developer's imperatives.  This approach afforded him an appreciation from the consulting side of things of what the pressures were and what the general parameters are around development.

Two to three years before embarking on the first regulation crowd fund deal on the SmallChange website, Jonathan found himself increasingly aware of the conundrum of housing in New Orleans.  He saw an increase in housing prices and a sort of inversion that created the consequence where people were, and are continuing to get pushed out basically to the periphery as the cost of housing in the city and adjacent to downtown was getting exorbitantly expensive.  Historic parts of New Orleans are simply unattainable at any decent price point.  Jonathan saw that nobody was addressing this problem, certainly the cost aspect of housing, but also with by taking a closer look at the type of housing that was available. Mostly what he was seeing was renovations of existing housing stock or, if new, then simply a recreation of existing housing stock by manufacturing new homes to look old. Nobody was really offering sort of middle market custom design or contemporary design housing.

Jonathan saw a gap and that is where it started.  In fact, it was by paying attention to gaps in the landscape of New Orleans that the process of finding lots began in earnest. 


Developable lots were either priced way out of affordability range and drove the desire to provide housing to potential buyers that was affordable by design.  The search for workable lots became largely a land play but cheap land in areas of the city that were desirable were hard to find. What Jonathan noticed, however, was an abundance of parcels of land in the city that most people would not identify as being buildable. These nonconforming or small lots or odd lots were being overlooked because most of the folk that were developing housing in the single-family infill space were not interested in them at least initially because they have models for design and aesthetics that do not fit. Jonathan tasked his team with research to locate all this property in the city in areas of the city that they felt that they wanted to engage in.  And then they filtered this list to find the sites that they specifically thought would work for their purposes. 

Starter Home


Their target market for end user was housing catering to first time and last time homebuyers in the middle market price range. In other words, not deeply affordable but not high-end market housing that offered entry opportunities into historic neighborhoods.  These areas were otherwise quickly closing up due to the escalation of housing costs in that kind of inner city areas.  To put that into perspective, a standard housing lot in the neighborhoods that Jonathan was interested in could be $300,000.  The cost of the nonconforming lots, on the other hand, averaged between $30,000 and $50,000 a lot which, of course, has a significant impact on the cost of the finished home.

The approach was successful, and Jonathan now has either under development or in construction or constructed some 17 houses that are part of the starter home strategy.  The two houses that were crowdfunded are two that belong to this whole index of housing in the portfolio.


Tiny House


There has been one notable exception to the spec home formula that Jonathan’s firm generally engages in. They designed one home specifically for an individual.  It was a self-built home i.e. the client built the home himself. The home was designed for a small lot and was designed specifically so the client could understand how to build it on their own. The home stands out because it is the smallest permitted house in the city of New Orleans.  It is only around 192 square feet in size, and, although you could squeeze another square foot or two out of it, it is basically the smallest house that code will allow in the City of New Orleans – and at a cost of around $100 per foot probably the least expensive house in the city also.


Small Change

For the most part, the homes that Jonathan builds under the Starter Home banner are not designed for any one particular individual; they are truly spec housing and the process of developing this direction for the firm was just getting off the ground (or into the ground) at roughly the same time Eve had engaged them about to work with her and SmallChange.  At around that time, the city of New Orleans was auctioning off a number of their abandoned and vacant properties throughout the city, and in that mix, as it turned out, was a number of nonconforming lots.  NPR ran some coverage on Jonathan’s nonconforming lot Starter Home concept so while people were buying these odd shaped lots at auction, his firm was getting some press coverage. The phone started ringing from people who just bought these funny little lots and did not know what to do with them.


The SmallChange project is actually two parcels that are being developed into two individual houses right next to one another. The lots are about 1,200 to 1,300 square feet apiece so though not so small but they are not enormous either, and definitely not a standard lot. The homes that are being built on these lots are just a hair over fifteen hundred square feet each, two floors, with one parking space each.


Eve was aware of the work that Jonathan was doing and met with him during a visit to New Orleans for a conference. Jonathan became fascinated with the mechanism of financing his projects in this novel crowdfunding way because it embodied the spirit of investigating creative possibilities in everything he was doing through his work. It presented a fascinating possibility and they tracked the opening up of Regulation CF in May of 2016.

The Reg CF Process – Developer’s Perspective

The first thing that needs to be compiled is a package explaining the project that you can present to the world basically. In many respects it is no different than a package you might put together and walk to a bank and say, ‘here let me tell you about our project and why you should invest in it.’ The developer needs to be able to tell a story about your project, why it makes financial sense, and needs to be able to talk about him/herself and what their qualifications are for doing the deal.

The first person that needs to be sold on the project at the funding portal, because you want them interested in you, and, of course, as Jonathan used the SmallChange funding portal, that person was Eve Picker. Once that hurdle is cleared, there is a background check that covers regulatory requirements, but a lot of the vetting actually comes through conversations and mechanisms that the portal has in place that says OK I need to get to know these people and know something about them. Because the funding portal is so heavily regulated, there is an imperative to be able to trust the developer, know who it is, and understand exactly what they are trying to accomplish. 

It is the developer’s responsibility to pull the material together that explains the project in all aspects, and it needs to be distilled in some way so that people can understand it in plain English.  There are a series forms to fill out that are required by the Act and the developer generally needs guidance in completing, submitting and uploading these, including Form C, to the Securities and Exchange Commission, the SEC.  Together with SmallChange, Jonathan found himself completing the first Regulation CF offering completed on the platform, so they approached it as a process for which kinks would need to be ironed out. Naturally along the way they were feeling around in the dark in a few places but were able to get through and consequently, the next time around, no matter who that is, the process will be a lot easier.



Smallchange has a network of investors that they have developed over the last few years; people who have signed up to newsletters and who get announcements about new opportunities.  It is a pool of people that the portal can immediately send information for any of the offerings. For the most part, Jonathan relied upon SmallChange’s network but they did put a sign out on the site to let people know that there was an opportunity to engage in funding, and they conducted personal outreach and alerted people to the project and the process.


In total it was a three month raise. The first month when it came out, there was a lot of activity with potential investors immediately, and they had a good burst of folks that jumped on board right away.  The majority of these came from Eve's network.  In total it was a $95,000 raise, with a minimum of $40,000 which was hit really quickly, perhaps in that first month.  Then the next month was fairly quiet and dormant. Actually, during this middle period there was not a whole lot of activity and people were investing but it was not the kind of quick pop that the saw at the beginning. And then the third month was really active where they closed the gap on the funding and and made it all the way to the ultimate $95,000 goal.  This final push was largely thanks to an aggressive marketing campaign from SmallChange.


The Investors


Having a large social media following would likely have helped Jonathan with is raise.  If you already have an embedded audience associated with you that you can reach out to then that is probably the best platform you could have starting out with. For sure there are certainly people familiar with his work but it is not like he sends out e-mail blasts to thousands of people every month. If you do, this could be helpful in conducting a Regulation CF raise.


Jonathan has an investor that he works with all the time and with which he really enjoys working, but the opportunity to pursue the crowd funding option was one that allowed him to broaden what he was doing.  Furthermore, his own investor network is limited and frankly is not a big pool of investors or friends and family that are willing to give money to him and yet from the SmallChange raise he was able to find an additional 38 investors with whom he can now work.

Smallchange itself is essentially a host to an offering and that is it. When the offering is done they close up and then it is up to the developer to manage the rest of it.  The Starter Home investors come from all across the country, with concentrations on the coast and as far out as Australia. There are only three people from New Orleans that participated in the offer.



What Jonathan found most captivating about raising money through SmallChange and Regulation Crowd Funding was watching the process evolve and seeing how people found it and decided to participate. He actually had an investor that was ready and actually had been keen to invest the entire $95,000.  He was the person who helped with the first Starter Home project and was interested in anything else Jonathan was doing. He thought Jonathan was crazy to be raising only $95,000 through the crowd funding process rather than just taking a single check from him.


But for Jonathan, the process has not been burdensome at all, and in fact he says that it has been quite pleasurable and intriguing and worth a lot beyond just the capital raise because of some really incredible conversations that have resulted. He feels comfortable recommending Regulation Crowd Funding and SmallChange to people who might be interested in it.  What he particularly likes about it is that it raises awareness of his work in and around different scales of communities.  If you are doing socially minded or urbanistically minded projects, whatever you name, if there is an agenda around your work then crowd funding is a great platform for people to both to see your work and to be able to contribute and help support it.


Jul 17, 2017


Professor Siegmann's research examined the role of the real estate agent in the house prices transaction, and compared the for-sale-by-fee agent, the new generation of agent that has risen since the advent of the internet, with the performance of the traditional commissioned agent.  In the Netherlands, where the study was conducted, commission rates for an agent selling a home is between 1.5% to 2%.  This compares with an average of around 5.5% in the United States.

In fact, commission rates in the United States are among some of the highest in the world at an average of around 5.5%.  Unlike the United States, most countries have seen significant drops in real estate commissions in the last 15 years or so.  The lowest in the world are in Northern Europe at around 1.7%, and the highest is in Mexico at 7.5%.  For those countries that have seen drops in commission rates, the average decline has been 34%.  That there has been no significant change in the US gives pause for thought:  Why is there such pricing uniformity among ostensibly competing agents?

‘Before the internet everyone needed an agent to buy a house and an agent to sell the house’.  Agents maintained exclusive access to the multiple listing service and so were the gatekeepers for sellers to a market of buyers, and to buyers who wanted to see what was available to buy.

However, since the advent of the internet, buyers and sellers now have full access to detailed information about all the houses that are available on the market, and yet sellers are still paying, on average 5.5% to agents who are erstwhile intermediaries.  This begs the question that, if information is freely available to everyone, ‘what is the use of an agent?’   The former role of the agent was to match buyers and sellers by providing access to a proprietary data network to each side of the transaction, but now the network itself provides direct access for buyers with seller and vice versa.


The for-sale-by-fee agents in this study involved the Seller in showing their house rather than the agent on the principle that the owner is, presumably, the best person to show the house because they know the house better than anyone else.  This model of for-sale-by-fee agent emerged once the availability of information became more widespread on the internet.  The for-sale-by-fee agent can offer considerably lower fees than the commissioned agent because, by taking the showings from the agent services, a time consuming component of the agent task is eliminated.  In addition, relative to the homeowner, the agent is not as good at showing the home because, simply stated, they do not know as much as the agent. 


The researchers’ thesis was that the for sale by fee broker to underperform the high paid commission broker.  But what they discovered was that the for-sale-by-fee broker not only sold for a higher price but did it slightly quicker than the commissioned agent.

‘This is really remarkable because it means that they are cheaper and better’.  For-sale-by-fee agents do better than commissioned agents irrespective of whether it is a cheap house or an expensive house, it does not depend on whether a home is in a rural area or in the city, does not matter if it is for houses that typically take a long time to sell or a short time to sell.  Having a for-sale-by-fee agent, where you do the showings to buyers yourself, will give you a better result – you will sell for more, in less time, and it will cost you considerably less to do it.

Simple Conclusion:  For-sale-by-fee brokers, when you do the showings yourself, do better than traditional commissioned brokers.  Period.


There are two possible reasons.  One is that the homeowner knows much more about their house than an agent who may be juggling multiple homes at once.  The agent cannot know the details of a house as well as the seller does, and this kind of personal information about a home is of value to a buyer.  This information could include things like when it was renovated, which contractor did the job, how is the neighborhood and other similarly intimate insights into the home.

The other reason is that inherent in the commissioned agent’s fee structure is the disincentive to prolong a sale to squeeze out a higher price. If an offer comes in that is lower than asking price it is in the commissioned agent’s best interest to recommend the sale because the incremental commission earned from rejecting such an offer and seeking another, higher priced, buyer is not worth the effort.  This is a similar theme as we have seen evidenced in other research.  If the open houses and showings are managed by the agent but left to the seller to conduct, that additional layer of time consuming labor is removed enhancing the for-sale-by-fee agent’s willingness to prolong a sale in pursuit of a better result for the seller.


Siegmann and his co-authors pondered whether these results were measuring something that they could not see; something else other than the variables they were considering.  What they conclude is that there are ‘smart sellers of houses’ who are very comfortable with showing people around and making sure that their house gets sold.  It also shows that the added value of professional agent is not that high; there are enough people who can do it themselves.


There are many studies, some covered already in this podcast series, and some coming up, that find similar results here in the US.  The overall picture is a puzzle; why is it, other than by tacit collusion, that agents in the US all charge the same commissions and yet claim to compete.  This is especially true in the millennial internet age where it is very easy to put pictures up online to show your house and provide direct access to buyers who can search freely and without the need of an agent.  Perhaps it is because the agent realizes that as soon as they start competing on price, their business is over.

As a buyer ‘you do want to talk to the seller.  Why would you not want to talk to the seller?  This seems to be a story told by the agents who say “well, but that’s not good, we are professional sellers”…  If I sell something that is really valuable, I would like to tell the buyer what I know about it.’

What is being seen in the European market is that agents are beginning to offer more creative ways to advertise their services and to structure their fees. There are those who charge a flat fee, and who offer a modular service, like photography upgrades, or staging advice.  In other words, the market is evolving such that sellers are paying for the actual services they are getting and not just for someone to be in the middle.

It is only a matter of time before these models start to dominate the landscape here in the U.S.

Jul 3, 2017

What Value Does the Real Estate Agent Bring?

The question that Jonathan Meer and his co-author Douglas Bernheim set out to answer was, what value does the broker add to a residential real estate transaction?  One of the challenges in researching this is that the listing services that an agent provides are generally bundled so it is difficult to separate them out to be able to analyze them independently of each other.  These services include listing the property on the MLS, taking photographs, staging advice, listing prices, paperwork, showings, handling other brokers and such like.  It is a large bundle of services, but what is strange, when you think about it, is the percentage payment model for the services provided.  Why is the value of all these bundled services, that might only total a few hundred or at most a couple thousand dollars, result in a commission cost that could be ten times or more as much as the actual cost of the of the services themselves?  Not only is this somewhat strange from a financial perspective, but it sets up a classic case of what is known as the principal-agent problem.*

CLICK HERE to read the Shownotes.

*The principal agent problem occurs when one person, the principal, hires another, the agent, to act on their behalf in some manner, but where there is imperfect monitoring of the agent’s performance.  This creates a dilemma whereby the agents are motivated to act in their own best interests, which are contrary to those of their principals.

Real Estate Agency Unpacked

The classic example of this is the auto-mechanic who knows a lot more than you do, and where you have to trust them to do the work properly and advise you accordingly, but where the incentives for both agent and principal might not be aligned.

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The same applies to the real estate agent who does not capture a meaningfully significant extra amount of commission for significant amount of additional effort they must put in to extracting the best price for a client.  For example, working to get an additional $10,000 from a home sale, might be of significant value to the homeowner, but to the sales agent, the amount of additional commission is too small to warrant the extra effort it would require in getting it.  The incentives are not aligned between the principal, who would like the extra $10,000, and the agent, from whom getting the extra money for the principal, is not worth the extra effort it would take.

The objective of the study was to unpack the broker expertise services – showing the home, advising on pricing, negotiations – from the value of listing the home on the MLS, and the paperwork services which can be readily calibrated in terms of their actual costs.  The Stanford University faculty staff market provided a ‘usefully unusual’ market in which the unpacking of services could be studied, and served as the foundation upon which the analysis was conducted.  The university has an office called ‘The Faculty Staff Housing Office’ which acts as a multiple listing service (MLS) because the university retains ownership of the land and limits who is eligible to purchase homes.  So many of the real estate agent’s functions are subsumed by this office.  The office lists the homes for sale and provides all necessary paperwork to consummate a transaction in the 800 or so homes on the Stanford campus – the equivalent of about 40 blocks in a typical metropolitan area.

Using an Agent Reduced Sales Price by 6-7%

In the late 1990’s, and though not required, there was a sudden uptick in the number of home sellers in this neighborhood using a broker to sell their home, going from none in some years to up to 60% of sales by the mid-2000’s.  This came about because of some aggressive marketing on the part of local agents to use their services.

The study allowed for differences in house characteristics, size, number of bedrooms, features etc.  They were also able to identify those homes that were sold multiple times over the course of the 30 years of the study and to compare those that sold with an agent against those that sold without an agent.

Finding:  The same home sold with the aid of a real estate agent sold for 6% - 7% less than when sold without the aid of an agent.

This provides ‘evidence of very, very strong agency costs, that is the real estate agents’ incentives are aligned differently.  They would like to sell the home relatively quickly and if they sell the home two weeks earlier for ten thousand dollars less that means that they are essentially giving up $200 in order to put in maybe 10-20 fewer hours of work into the sale of the house which when you work out the hourly rate of that is not a crazy decision to be making.’

Listed at Lower Prices, Homes Sold Faster

The researchers also discovered that homes listed by agents were much more likely to sell significantly quicker when listed by an agent, which reinforced the idea that agents were motivated to sell for a lower price in a shorter time.  These findings were very similar to another famous study by Chad Syverson and Steve Levitt (of Freakanomics fame), where they looked at the Chicago market and compared sales by an agent of client homes, and compared them to sales by that same agent selling his or her own home.  They found that when selling their own home, agents take longer to sell, and sell for more.  [AG: I will be covering this study in a future episode].  Syverson and Levitt took this to be evidence of the agent-principal problem and it supports the findings of the Stanford study. 

The Stanford study also noticed that homes listed with an agent typically listed at a lower initial asking price than those homes listed without, further pointing to the agent-principal conflict where the agent just wants to sell the home for a good price quickly, but not necessarily for the maximum price and to take the time doing so.


While this study is restricted to a unique real estate market, it is nevertheless of a decent size, being a reasonable equivalent in scale to a city neighborhood, and has been replicated in some regards to far larger, more generic real estate markets by other studies – such as the Syverson and Levitt study in Chicago. 

Certainly, the internet has begun to make some of the listing services increasingly obsolete.  It is important that the individual decides independently whether the services of an agent are in their best financial interests, and it is important that in making this decision that the homeowner is aware of the principal-agent conflict and that the agent is likely operating from a different set of incentives. 

The pressure to unbundle services is likely to become more prevalent:  buying an MLS listing, or photography for a home as separate and distinct services versus paying 5-6% of the sales price of a home for those same services for example.

The market forces that are driving this unbundling of services could drive the real estate agent to obsolescence the same way as it did, most notably, with the travel agent. 

As the generation that is becoming more comfortable with using technology to do  pretty much everything in their lives comes on stream to start buying and selling homes, they are also likely to be increasingly uncomfortable with the current bundled services model that comes with a high commission base pricing structure.

Jun 12, 2017


OFFICE:  Demand for office is increasing.  The recession is over and all the uses that demand office space are growing.  However, technology is changing the way we consume office space. People work from home or use shared office space, and consequently the amount of space required for a new hire has decreased from around 200 square feet, to 120 square feet.  Consequently more demand is required to fill space, but with the economy expanding that space is being filled.  That said, the office market is highly location dependent because different cities have different industry base profiles that drive the local economies and that is what, in large part, drives office demand.

Click here for chart laden shownotes!

INDUSTRIAL: Industrial is in big demand nationwide driven largely by internet sales and the migration from retail to warehouse distribution centers – even though internet sales are just 9% of all retail sales indicating considerable room yet for growth.  Occupancy is not at its peak yet but is expected to reach that level by the end of the year this year.  Amazon was the biggest consumer of warehouse space last year taking up fully 25% of the entire warehouse supply nationwide.  And Amazon are moving from a few huge locations to a more localized format to enable same day delivery schedules, and are being chased by Walmart who are also beginning to expand into a delivery model and consequently beginning to demand warehouse space nationwide.  Industrial is ‘hands down the best property type going’.  Glenn predicts that: ‘peak occupancy will continue in industrial until 2019’.

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APARTMENTS: Apartments present a ‘good demand story’ with millennials coming on stream not buying as young as prior generations and so fueling demand for apartments.  That said, apartments are also among the easiest to finance and so consequently the pipeline of new product is easy to fill and is being overfilled currently leading to hypersupply.  And the hypersupply is primarily at the high end of the cost/rent spectrum, the ‘A’ class developments, so it is that end of the market that is going to see reductions in rent levels first but that will cascade down to B and then to C also as renters trade up to higher quality units as rents reduce overall.  There is nothing anywhere nationwide – in the cities studied – that indicates occupancies will be rising; every single market is either at peak, or already oversupplied meaning reducing occupancies and rents.  In fact, new supply is 10-20% greater than demand can keep up.

RETAIL: ‘Retail is dying on the vine’.  Good quality retail and shopping centers are doing well, but not much else, and even that is evolving more to being destination entertainment centers.  Grocery anchored centers are still a necessity so will continue to do well.  Overall though, retail is extremely slow on the recovery, around half that of any other property type, but the good news is that as supply is very low because it is difficult to finance so there are some bright spots on the map for retail as demand has picked up but supply has remained more stable.

HOTEL: The hotel sector is uniquely the most volatile property type because people rent by the day and so when the economy is doing well people consume hotel rooms but when it is not, they simply stop.  But the hotel industry is enjoying some generational changes in demographics where millennials are traveling more than their predecessors and as a consequence are unbelievably profitable right now with an ‘all time best ever peak occupancy of 72.5%’ So with this peak occupancy we are seeing additional supply coming on line with more hotel rooms being built.

May 21, 2017

The amount of information you can get scanning the internet for a new home is incredible and is rapidly eroding what was once the exclusive domain of the real estate agent.  So, what are the skills that the agent needs to focus on to remain relevant?

Today is the second in a series of conversations that I am having to drill down on the dramatically changing landscape for the residential real estate industry, particularly as it pertains to the agent function.  My guest today, Paul Anglin, is professor in the college of business and economics at the University of Guelph in Canada whose research into the relationship between listing price and time on market first drew my attention.  There are some key findings that he discusses that are consistent with other findings I have discussed in prior podcasts at – such as the percentage difference between target selling price and list price.  But as my conversation with Professor Anglin progressed we migrated towards the question of agent contribution to the sales process. 

Incidentally, in future episodes I speak to several other experts who have conducted similar research, each challenging the idea that the status quo can be maintained – in fact challenging the idea that the real estate sales agent role is relevant in its current form.  Just think, if you will, of what happened to the travel agency industry.  Subscribe to the series at the national real estate forum dot org website, or , to be sure you do not miss any of the provocative conversations coming up.

We tend to think of the relationship between time on market and price primarily in the context of setting the asking price – if we set it too high, it’s going to take longer to sell, or maybe not sell at all, OR if we set that price too low and a buyer pops up immediately maybe we set the price too low.  In fact it never fails to astonish me that brokers brag about having sold within a week… doesn’t that just mean they underpriced the house?  I don’t get it.  There’s this built in conflict, that I discuss in future episodes, that while it may be in the Seller’s best interest to wait longer for a higher price, broker’s prefer to sell quickly because the increase in commission that they get just isn’t worth the wait…

But the question of when to say Yes to an offer – is now too soon, or should I wait longer - is not unique, of course, to real estate transactions.  The background to this quandary from an analytical perspective helps to set the foundation upon which we can better understand the problem…

So let’s review… we hear that the optimal list price is between 3-4% above market and this is consistent with other studies, most notably that conducted by Darren Hayunga, my guest last week.  Tying into this is the apparently intuitive finding that the higher the list price, within limits, the longer it takes to sell - less intuitive, and certainly more pertinent for agents, is that the higher the list price, the higher the sale price is also likely to be – even if it takes longer to sell.  So, while Professor Anglin and I did not discuss this, the question of incremental income for the agent in squeezing out the last dollar for the client – isn’t that a fiduciary responsibility? – comes into focus.  Are agent and client interests aligned if the extra effort to maximize sales price results in a really small commission increase for the agent?   

In an upcoming episode I discuss a study that examines this idea directly and that reinforces the idea that agents are motivated to sell quickly and for less than they would otherwise yield for their clients, if only they were to persevere and market the property longer.  What do you think about this?  I would love to hear your thoughts so please leave a comment on linkedin book, or contact me directly at

My takeaway from Paul Anglin’s research is that it sheds light on the idea that the agent skillset has changed in the sense that they must now be more media and internet savvy.  They have to understand how to stand out online, rather than being just the gatekeeper of information about a property as they used to be.  Nowadays online accessibility to information is plentiful and almost provides a full enough understanding of a property for a buyer without actually having to visit the property itself.   Not only that but the key components of what go to making up the agent role – provision of photographs, legal paperwork, market information, staging, appointment setting, even pricing and negotiation – each of these are being offered independently of the agent.  And as each component of the agent function becomes more easily accessible to the home seller or buyer, the pricing for those functions goes down. 

The challenge to the agent system as it currently exists is that the sum of the costs of buying each component of the sales process is very significantly less than the commission the agent charges and so it becomes inevitable to start to ask:  how relevant is the agent role – especially at 5 or 6% of the total sale cost – in an age of technology and increasing access to information?  Isn’t it just as easy to do it yourself now, for less money and, as the research seems to be suggesting, with a better financial result. 

As the millennial generation comes of age and starts to demand housing in greater numbers, they are going to start buying and selling real estate without agents if agents cannot redefine themselves to accommodate the tsunami of changes that are sweeping over every other industry. 

Food for thought, and fodder for future episodes at the ,  Listen in, subscribe, and let me know what you think by using the contact form at the website.

May 1, 2017

How do we set listing price when we sell our homes and what value do agents bring to the process?

Today’s discussion covers familiar ground for most of us because it relates to those times when we are selling our home and how we come to that most important of decisions:  the list price.  My guest is Darren Hayunga who is professor of real estate at the University of Georgia.  In his first paper on the subject, professor Hayunga begins to look at the relationship between list price, how it is set, and how that relates to the amount of time a home remains on the market before selling.  Sellers typically try to set asking price around 3-4% above market price in order to allow for some flexibility during negotiations. 


Discussing ‘urgency’ as the idea that a seller wants to sell quickly, professor Hayunga discovers that if you are in a hurry and set sale price lower than you otherwise might do in an attempt to sell quickly, it will take you just as long to sell and you could end up selling for less. 

As our conversation unfolded, professor Hayunga started discussing some results he and other researchers are finding that have very serious implications for the real estate brokerage industry – is the real estate agent becoming obsolete; are we seeing a decline in agent effectiveness as their relevance diminishes?  Stay tuned for the latter part of my conversation today to hear more on these topics.  And be sure not to miss future episodes as I delve into this important vein of research by going to the website, and subscribing through any of the links I have provided there.


The takeaways today are that, top line, most people set their asking price 3-4% above market to allow for some negotiation flexibility.  If you are not in a hurry to sell your house, set the price higher than this and wait for the right buyer to come to the market.  However, if you set the price too high, you may have to reduce the asking price and provided you don’t do this more than once, you should still be able to gain a decent price for your home.  On the flip side, if you do want to sell quickly, and you don’t set enough extra price in to allow for some negotiation, not only might it take you just as long to sell anyway, but you may end up selling for less than you need to.


My conversation with Professor Hayunga continued, however, when I asked him to clarify a point regarding agent input in setting sales price and it was there that we started to address the question of agent effectiveness.

We have data showing that agents do not contribute meaningfully to the list price decision when comparing homeowners who use agents against those who do not; we hear that agents sell their own homes for more, and buy for less than when they represent clients; and we also learn of studies that show that using an agent can actually result in a lower sales price – by 6-7% less?? 

What is going on here?  In discussing this particular study – which, incidentally, I am working on including in a future podcast – the conclusion is that the only advantage that an agent has is access to proprietary data through the MLS.

These are serious findings.  What happens when the advantage of having access to proprietary data becomes eroded by increasingly free and open access to the same data on sites such as Trulia or Zillow?  Are agents really doing everything they can to squeeze out the best sales price for their clients by working harder and waiting longer for the right buyer, or are they giving up quicker, not caring for the incremental commission, but preferring instead to avoid having to conduct m ore open houses and marketing?   And why is it that when agents buy for themselves, they buy for less than they do when representing clients, and why do they sell for more when selling their own homes?  Do they not have a fiduciary responsibility to put their clients first?


The big question is: is the agent function becoming obsolete?  do these data indicate an industry that is facing the disruptive influences of technology.  Why shouldn’t we sell our homes online without an agent?  What value do agents bring and is that value enough to compensate for lower prices and steep commissions?  Did you know that in London, agents typically charge 1% of sales price to sell your home, not 5 or 6% as is the norm here? 

If you have any thoughts on this subject, please twit about it, or chime in on linkedinbook or facechat where I will be posting articles and links to this podcast.  And don’t forget to subscribe to the podcast series by going to the national real estate forum dot org website, nreforum dot org, where you can also email me directly any thoughts you may have.  I will be investigating the subject of agent effectiveness in future episodes and would value your input and thoughts.

For now, thank you for tuning in and thank you Professor Darren Hayunga for providing some stimulating and interesting insights into how we set list price when we sell our homes.

Apr 10, 2017

One of the driving goals of this podcast series is to give you high quality meaningful information and insights about the real estate industry that is based on carefully conducted research from which you can come to your own conclusions, and make well informed decisions.  My guest today is Jordan Levine who is the senior economist at the California Association of Realtors – and organization with over 180,000 members – and you just can’t do better than Jordan for high density, clear insights based on the consolidation information from a vast array of public and proprietary sources of information.  In today’s podcast, Jordan talks about both the headwinds and the tailwinds for the housing market nationwide, with a focus California, and explains that right now is one of the hardest times in history to predict where the industry might be headed.  I would welcome any thoughts you might have about what he has to say and where you think the market is heading.  Let me know by sharing your insights alongside the article I will attempt to post on my linkedinbook account, if I can ever figure out exactly how to do that, or if you are a twitterer please twit me, or, if you prefer, facechat me with your thoughts.  

I am very grateful to Jordan for spending the time with me today to share the results of his research with you.  My conversation with him is split into two episodes so be sure to subscribe to the National Real Estate Forum podcast by going to NREForum dot org and clicking on any of the subscription links you will find there.  You can also hear more from Jordan by listening to his own podcast series through CAR that is called Housing Matters that can be found on iTunes.

Mar 13, 2017

Health Care with Professor Christopher Palmer (Ph.D MIT) UC Berkeley


Thank you for joining me again…  It has not been entirely consistent yet, but my goal is to syndicate one podcast each week on a Tuesday morning.  This week though, in response to listener requests, I am splitting part of the conversation I had with my guest Professor Christopher Palmer at UC Berkeley, into two, slightly shorter, podcasts.  In the first, we discuss the effect of changes in healthcare policy on the real estate industry.  The second looks at how the Trump doctrine of America First might also impact our industry.  Both are available at .

One of the policy issues that dominate Washington’s agenda is healthcare.   It is an issue that has been a high priority for prior administrations, and continues to remain a high priority for the current administration.  But the pendulum like swings in policy from the pre-Obama era, through the Affordable Care Act, to the Trump administration’s ‘repeal and replace’ discourse, causes considerable uncertainty not just now, but as real estate investors attempt to predict the future. 

So it is my great pleasure to welcome back Professor Palmer.  I am very grateful to him for agreeing to be my guest again.  In today’s conversation, he and I talked about why a possible reining in of real estate investment in the healthcare industry might result from uncertainty as the Affordable Care Act is restructured.  Professor Palmer also shared his thoughts on why Senior housing which, on its face should be more immune to short term policy fluctuations, may also not be quite as invulnerable as some might like to think. 

It seems intuitive to me that with as pro-business a government as we have now, there could only be optimism for the real estate industry.  So I asked Professor Palmer a question… The Trump administration has a three prong stimulus plan - reduce taxes, spend heavily on infrastructure, and relax regulations – won’t this be a great boost to the real estate economy? 


Uncertainty in healthcare policy and the direction it is headed is not good for planning developments, like hospitals, for example, because not knowing how patients are going to be reimbursed for their medical expenses creates doubts as to how development investments will be returned.  The healthcare industry does have some immunity to shifting policy changes because it takes a long term perspective, and because demographic trends that point to a large aging baby-boom population will have some flattening effect on the impact of policy changes. 

As the population ages we are going to see greater spending in healthcare related real estate.  However, demographics are not a panacea for overriding unpredictability in healthcare.  Insurance is how most people plan to pay for their healthcare, so with the ACA we had this roadmap laid out that defined how people were going to be able to finance their healthcare expenditures, but with that being rolled back, once again there is considerable uncertainty across the industry.  Which is the anomaly: the Affordable Care Act, or what is the current plan being debated in Washington the anomaly? 

Opportunities may arise from identifying those properties that are now seemingly distressed healthcare assets, and acquiring them with the view that in five years time, something that looks more like the ACA will again be the government’s mandate.


Senior housing has been, and continues to be a very successful space in the real estate industry.  The aging of the baby boomer generation reaching retirement age and increasingly likely to need senior housing facilities seems, on its face, to be a positive tailwind.  However, one thing to watch for is the impact the retirement savings crisis in the United States, and of underfunded pension obligations on long term viability of the senior housing market.  Institutions and municipalities have underfunded pension plans that are a looming problem, and combined with an atrociously low savings rate in the United States, the prognosis for how this cohort of aging people is going to retire is not good, let alone how they are going to afford medical expenses, and the costly option of entering senior housing facilities to live out their days.  This certainly mitigates the likelihood that senior housing is going to be a sure thing as far as providing certainty on the investment horizon.


There are two takeaways from today’s discussion with Professor Palmer.  The first is that the current uncertainty about the healthcare industry creates difficulties in making medium and long term predictions upon which to base underwriting assumptions.  However, if you have a firm opinion about whether the Affordable Care Act was a healthcare industry anomaly, or that the Trump administration’s repeal and replace policy is the anomaly, you may be able to find opportunities trading with those on the other side of that debate.   The second pertains to the senior housing sector which, though enjoying some tailwinds due to aging population demographics, may yet experience turbulence as its target market finds it increasingly difficult to pay for the services on offer.

If you have enjoyed listening to the podcast, please tell your friends and colleagues about the Forum, and visit us at where you can hear earlier episodes and subscribe to the series on iTunes, Android, and other syndication platforms.

Thank you again for joining me in part one of this two part episode.  Please join me again for part two, when I discuss with Professor Palmer the impacts of the America First doctrine on the real estate industry. 

Mar 12, 2017



Welcome to the second of two episodes with Professor Christopher Palmer of UC Berkeley.  In the last episode we discussed the impact on real estate of the changes in healthcare policy between the last administration and this one.  Today, our conversation focuses on immigration policy as a part of the Trump America First doctrine as it pertains to real estate. 

The America first doctrine has, by definition at its core, our relations in the international community.  The key policy issues that drive this doctrine include immigration, foreign policy, and international trade, and there are five key areas where their impact may be felt in real estate.  One, new development projects, two, the office sector, three, multi-family, four, retail, and five, manufacturing.  In my continuing conversation with Professor Palmer, we were discussing the administration’s current focus on immigration restrictions.   On its face, it might seem somewhat removed but, actually, how could putting America First affect real estate? 

  1. New development projects, and where such an important line item in costs is the cost of labor, plus where we already have such a shortage of labor, to restrict immigration could have serious deleterious effect on the construction industry – either by driving up costs, delaying construction timelines, or even postponing construction altogether.
  2. The office sector, where you see a declination in the employment on H-1 visas of highly skilled workers from overseas. Maybe you see a shift to more immigration friendly countries for development of hi-tech industry at the expense of local markets here in the United States, and a consequent reduction in demand for office space in those areas where highly skilled immigrants might otherwise have been employed.
  3. Multi-family. Find those areas with high density immigrant tenancy, and you might find areas where demand for multi-family housing may decline.
  4. ­As free-trade agreements become more restrictive or are abandoned completely, retailers are concerned that demand volumes may slip as imported products, a mainstay of retailing, become more expensive or harder to come by.
  5. With a strengthening dollar, the ability of our own domestic manufacturing sector to compete effectively overseas may be restricted, and manufacturing and consequent demand for industrial space may decline.

Maybe some of these sectors present investment opportunities as putting America First policies are implemented and, as their impact starts being felt here at home, some real estate comes under distress.

I hope you found this podcast, and the healthcare podcast of interest.  Thanks so much for listening.  If you like the podcast series, please consider subscribing on iTunes or Android or any of the other syndication platforms so that you don’t miss the next episode as it comes out.  Go to and there are subscription links on most pages.  Thanks once again to Professor Palmer for sharing his thoughts on these important real estate issues, and thank you too for joining me again today.

Feb 28, 2017

Past performance is not a guarantee of future results.  This boilerplate disclaimer is standard wording for just about any financial investment we might make, but when it comes to buying a home, as sensible as this pithy phrase may be, it is often disregarded.  Home buyers tend to be driven by the idea that because prices went up last year, they must go up next year.  Their belief in future price rises is often driven by watching past performance of the market, and buying is motivated by a belief in anticipated future price appreciation.  Same goes for speculators who, seeing a steady upward trajectory in house prices, assume that this is also a guarantee of future increases in value.

To be sure, there are some fundamental factors that drive price increases, but without being specific about what caused last year’s price rises, how can the buyer be so sure that that prices will go up next year also?  Or the year after, or the year after that?  or, indeed, that prices won’t go down?

My guest today is professor Charles Nathanson who received his Ph.D. in economics from Harvard and who is currently assistant professor of finance at the Kellogg school of management at Northwestern University.  A link to his full bio is at and the papers we discussed today are An Extrapolative Model of House Price Dynamics and Speculative Dynamics of Prices and Volume.  Professor Nathanson’s research in these studies provides some fascinating – and actionable – insights into what to look for to better assess if there is still upward momentum in pricing or if you are buying at the top of a bubble.   

Here are my takeaways from Professor Nathanson’s research.   In order to understand what is going on with recent house price increases, we need to know what prior buyers believed when they bought their houses.  If they bought under the assumption that prices were going to rise, then their decision may have been irrational and so, possibly, pushed up prices disproportionately to market fundamentals.  One way to measure this is to assess what proportion of those increases were driven by house flippers.  Brokers should be able to give a sense of this in their own geographical areas.  If they are reporting a preponderance of such activity, this might be indicative of being in the later stages in the cycle. 

 Also compelling is the idea that transactional volume alone is a precursor to where pricing is likely to go.   Finding data for transactional volume should not be too difficult, and if one sees a tailing off of volume, it may be the first sign that pricing is also about to stop rising and may be on the way down.  Professor Nathanson was reluctant to come to this conclusion without further research, but, again, as a metric to watch for it seems to me that it has some utility.

If you have enjoyed this podcast please tell your friends and colleagues and point them to our podcast page where they can find the links to subscribe.  Again, thank you for listening today. 

Feb 16, 2017

My guest today is Professor Glenn Mueller. With 35 years of real estate industry experience, including 26 years of research, Glenn Mueller is a professor for the Burns School of Real Estate and Construction Management at Denver University, one of the oldest and largest programs in the country. Mueller’s research experience includes real estate market-cycle analysis, real estate securities analysis, real estate capital markets, portfolio and diversification analysis, seniors housing analysis and both public and private market-investment strategies. He is also the real estate investment strategist at Dividend Capital Group,, where he provides real estate market-cycle research and investment strategy for Dividend Capital’s Real Estate Securities, Private Real Estate Investment, Private REIT and Real Estate Debt groups. He is also the co-editor of the Journal of Real Estate Portfolio Management.

At the Dividend Capital Group, professor Mueller, produces a 54 city report examining the cyclical performance of the five major real estate food groups; office, retail, industrial, residential, and hospitality.  In my conversation with Professor Mueller he discusses why he is bullish about real estate industry growth in the US over the next few years and why his experience analyzing industry cycles over the last nearly 30 years, leads him to believe that the industry will enjoy considerable stimulus with the incoming administration that could lead to an extension of the current cycle.  In fact, he talks about predictions for the next recession being pushed out from 2019/2020, to 2021/2022. 

In 1990’s when at Prudential as a research analyst, at a time when the markets were headed down during the savings and loan crisis, they wanted Mueller to monitor what was going on and predict where the market might be going in the future.   In this work, he uncovered two types of cycles.  One is the local demand-and-supply cycle.  This led him to cover 54 different MSAs concurrently, together with their localized industries, so for Detroit the automotive industry, and for New York the financial industry for example.  Employment drives the need for space, and as supply varies, where as developing new office buildings is going to be different from city to city, so it is the interaction between these two things drives occupancy levels and rents.  The Cycle Report that Prof. Mueller started in 1992 deals with this phenomena.  The second cycle is the capital cycle flowing to real estate which used to be national in nature but is now global – and this is what drives prices.  The two should work together but do not always.

The way in which government can impact the real estate cycle is by influencing economic growth through stimulus actions, whether that be through lowering taxes, creating new jobs, making life easier for businesses to conduct business etc.  Professor Mueller notes that, “this is the first time in a very, very long time, and only the fifth time in history, that we have had a completely coordinated business friendly government where all three branches of our government are interested and focused on the same thing which is business growth”.  Consequently, the potential for economic stimulus is high.  Exactly this may take place is difficult to predict yet, though infrastructure projects are likely to move forward, reduction in regulations, and making our tax system more competitive with those of overseas will all contribute to boosting the real estate industry.  A lot of economists expected a recession in 2019, 2020, but now projections are pushing that out to 2021, 2022.  Indeed, US economic cycles typically never last longer than 10 years but we could be in one that is going to last as long as 14 or 15 years.

The impact on individual cities may be influenced depending on which industries are strengthened within those cities.  Manufacturing, for example, if it can be repatriated to the US, could have a big impact on those cities with a strong manufacturing base – though this would be a very long term change, and we cannot expect to see much in the short term.

Professor Mueller’s MSA study utilizes data primarily from Costar where they look at new demand that has been created in the marketplace on a quarterly basis.   They look at how much new office, retail, industrial, residential, and hospitality space has been rented, as well as at new supply in the prior quarter.  From this they are able to determine occupancy rates in each city, and compare that to prior quarters.  This leads, in turn, to rent growth analytics determining whether or not rents have risen or fallen in the quarter. 

Using this data, Prof. Mueller determines long term averages and then uses that to generate predictive analyses of where the individual city and industry is in its natural growth cycle, and where it is headed.  Is the individual city’s market in recovery, expansion, hyper-supply, or recession, on an asset class basis – office, retail, industrial, residential, hospitality.  Download the Q4 2016 Cycle Monitor Report here. Prof. Mueller also does a predictive report on a subscription basis that looks out one year.  Please email us at if you would like to know more about these predictive models. That said, one can reasonably assume that as the general US economy moves forward, so will the real estate markets in the individual MSAs.

As far as the current cycle, we saw the bottom of the market in 2009, recovered all lost jobs by the first quarter 2014, and since then to now we have been in the growth phase.   We continue to grow and add new jobs so we continue to be in the expansion phase of the cycle.  Even if the growth rate slows down – not go negative, but decelerate – we could still be looking at expansion.  We have seen slower economic recovery and growth in this cycle than we have in previous cycles, and consequently we are seeing a longer cycle than previous ones.  Layer on to this the additional stimuli that this government is going to bring, then what normally would be a 10 year cycle, could end up being, as noted, a 14 or 15 year cycle this time around.  This would keep the real estate cycle going in the same direction, unless we start to overbuild – which we have, in a minor way, been doing for apartment buildings.

If you have liked this episode of the National Real Estate Forum podcasts, please leave us a review on iTunes or whatever syndication network you heard it on.