Businessweek Extra-Ari Rastegar

and so many more. For some thoughts on that, we caught up with Ari Rostagar, founder and CEO at Austin, Texas based Rustagar Property Company, who was as you might have guessed, in Austin and who talked about the texed US. Austin's booming, I mean Austin's booming and yeah, you would think that there was not a pandemic. I mean malls are packed and seriously, yeah, I mean it's I mean it's absolutely booming. I mean companies coming in like crazy.

As you know, Oracle announced our global headquarters shift here Elon Musk about two thousand acres next to fifty acres that we own. Um, you know near the airport where we're developing five thousand square feed of industrial to really support all the ancillary companies. They're really feed off of Oracle and Tesla and those groups. And you know, Carol, you and I have been talking about this for years, right, I mean, this is uh, this is not new for you and I even on the panel we were on

a few years ago. Um that I've been I've been preaching Austin for many, many years, and it seems like finally people are listening. Well, what is it specifically beyond the nice weather and uh that you guys don't have an income to state, income to tex which is kind of a big plus more than that, what is it so much more than that? It's so much more than that. I mean, look, Austin is not in Texas. Let's start

with that. You know, and and I say that jokingly that you know, we have a beautiful dialogue between both the left and the right to concern it is in the liberals. You know, we're very very very liberal urban core, very conservative kind of suburban suburban corridor, which just created a great dialogue, meaning that you know, we have beautiful trees, beautiful lakes. Most people don't know for a top ten city.

We actually became the tenth largest city of the United States last months, surpassing San Jose of all cities, being the hardest Silicon valley, which I think it's just kind of ironic, and we've been calling it the Texasus. You know that people are just coming over here, um in masses and you know, look, we have more parks than any other top ten city in the United States. The

whole city is built on lakes. There's hills, there's outdoor activities, some of the best eating in the United States, live music, great outdoor activities, and so much green space, trails, parks, um and all of those things together mixed with all the reasons why people want to be in Texas, as you mentioned in terms of um you know, in terms of no state income taxes. You know, if Texas was a country, you know, we'd be the tenth largest country in the world on a GDP basis. You know, we

operated a twelve billion dollar surplus. But the alert to Austin, you know, really started in two thousand thirteen when Google decided to use Austin as their beta case for Google Fiber. So they invested a billion dollars, remember, Yeah, and that was really the beginning of the beginning of this. Let's not forget to Apple is making a new one billion dollars, three million square foot campus in Austin. Is that correct? Yeah,

and it's it's not again. Here's the here's the beauty of Austin and that regard Google's But if Facebook just took another million square feet, which if this is already their second largest office in the world, Amazon's largest acquisition to date and hold Foods for thirteen point two billion, is founded and headquartered in Austin. Okay, they're our largest distribution hub in the southern United States. Is about fifteen miles south of Austin and San Marcus. Um. You know,

Google's second largest office in the world is here. A little company that you probably forgot about called Dell. It's headquarters here. Um. You know, so all these things, all of this groundwork was laid when Google put in that put in that Internet and put into Google Fiber. Um that allowed this to actually exist. But the reason people are picking Austin is because of the lakes and just

how beautiful the city really is. And you know, kind of that liberal conservative you know, it's kind of almost purple party, right, So a lot of the Californian exodus and a lot of the exodus from you know, from New York and some of those other, you know, more liberal states, they find a lot of comfort in Austin, you know, because it doesn't have that staunch conservative feel that Dallas or Houston or some of the other Texas

cities have. Do you anticipate, eat um, that this continues and what is this do ari to kind of real estate prices? Real estate prices are gonna absolutely absolutely surge, and and the reason why is we have really real geographic barriers in Austin. So if you go far west, you hit the hill country, you hit the lakes, you can't develop it. We have a huge housing shortage. So from a supplied to supply and demand standpoint, you know,

there's only so much land you could build here. And because you know, the city has done such a great job of protecting the trees and and having very very strict zoning restrictions, it's very very hard to build new

product here, you know. So for us, we've been buying older apartment complexes renovating them because it's very very hard to find, you know, great development sites because it's so difficult, which makes the city beautiful, which keeps the city beautiful, which I know very much agree with as as a native um. But you know what I thought was the second inning of Austin's growth. I realized when Oracle decided to move here, they haven't even saying in the national

anthem yet. What do you mean? What I mean by that is just party hasn't even started. You mentioned that you guys have been buying older apartment complexes, and it was interesting. We just did a story um for some of our viewers around the country that talked about how, uh, some folks are actually buying empty hotels, kind of old ones and you know, making them into tiny apartments. So tell me a little bit more about kind of where you guys maybe are investing at this point, what properties

seem appealing, and kind of what's happening there. Yeah, that's that's I've been seeing a lot of that too. And you know the thing about pandemics and recessions, and whenever you go through these hardships, you know you you have innovation, right, That's that's the silver lining, right. And so when the big box retailers started to go bankrupt, you know, and you saw like Sears as an example, go dark. People

were converting that into self storage. So there's something great about how innovation is actually happening and you know we'll receive the deepest value and the safest kind of risk adjusted returns. Are these older apartment complexes that are similar to that Motel six kind of design, you know, two story walk ups, and what's brilliant about it is they have inherent social distancing. So this concept we call vintage multi family because outside the urban core, people feel very safe.

They can walk up one flight of stairs, go in their apartment, come out. They don't have to worry about a gym or a pool or you know a lot of these instances, but they're extremely well located. That's the key. So a lot of these older complexes, whether it's the Motel sixes they're converting or older multi family products. But when you gut renovate them or take them down to the studs as they stay in the industry, you can offer a class a finish out for a fraction of

the price of new development. Might call it the five the five dollar uber ride. So if you can get to you know, kind of all the fun stuff, the bars, the restaurants within a five dollar uber ride, you you know, that kind of fits the criteria a little bit. So that's where we see the deepest value. During COVID, we bought five properties like that when the rest of the world was completely you know, out of standstill. We actually

bought nine properties in total. UM. A few were part of a land assemblages for some new development that we're doing, but five of them were actual apartment complex is very similar to what you were um explaining, and they offer a deeper value to consumers because now obviously people are being more thrifty, more frugal, as they should be, UM, but at the same time you can offer a fantastic

value to the end consumer. I gotta ask you, though, are you concerned that Austin becomes another silicon valley, especially if you can continue to see so many big technic companies, you know, setting up shop there, and then once again we see that pattern where it becomes real estate becomes so expensive that you know, people who work at those companies can't afford to live in the city where they work. Well,

it's gonna happen. Austin is the new Silicon Valley period, you know, and if you look at the math, you know, Austin is what San Francisco was thirty years ago. You know, as you know, I'm a data freak. You know, we very much see ourselves as data and as a data analytics company that happens to do real estate. And if you look at the trends, you know, Austin is by is definitely the new Silicon Valley oracle with the lynchpin

to really solidify that in a very very meaningful way. Um, and it's only going to continue, but it's gonna take time, I mean. And but the good part about about Austin's location is you can go south into areas like Kyle, Texas, where we own you know, three dy Acres were building hundred homes, nine multi multi units. So Texas is much more expensive. Of so there's more room for workforce housing to be built. If you go further east and go further south, if you go about sixty miles south of Austin,

you hit San Antonio, which is another top city. Okay, so so so this is much more sustainable. And since we do have a housing crunch, yes, prices are going to go up and it's going to be tough for kind of um, you know, ordinary Austinites. As you know, I'm born native Austinite, and you know, I'm very, very sensitive to this gentrification and I kind of hate that word, you know, in a lot of ways because I believe in more community enhancement and adding deeper value. But there's

no question prices are gonna surge exponentially. And this is only the beginning, and there is no question in the next thirty years we're gonna look back and the prices at San Francisco and New York City hit ut no doubt it's going to hit those numbers and surpass them, alright. And you're talking your book a little bit, but that's fair because you're seeing it firsthand. But let me just ask you. You and I've talked about this before, and we've just got about a minute minute twenty left here.

You know this urban exodus. Do you believe that San Francisco's at risk or it just gets a little bit lighter in terms of people moving out? What about New York? What massive risk you do? What about New York City? What about New York City? And how do you justify what are you seeing new York City the same thing, because the companies are all leaving, all the employers are leaving, and if the employers leave, then the employees have to leave.

And and de Blasio is an example, he's not really helping the program by making SOHO the affordable Housing Homeless Epicenter of Manhattan to incentivize the high net worth employers that own these companies to be there. And San Francisco recently passed another wealth tax, you know, on high paid CEOs to where these states, I don't think they could try harder to disincentivize business owners to be there. That was Arie Rastagar, found and CEO at Austin, Texas based

Rostagar Property Company with us from Austin. You've been listening to Bloomberg business Week Extra, be sure to listen to Bloomberg Business Week Radio, airing live Monday through Friday at two pm Wall Street Time, HM Bloomberg Radio. I'm Carol Massif this is Bloomberg