Ivy Zelman Discusses Real Estate

She is definitely a contrarian. She is somebody who is extremely astute as to the economic cycle and how it affects housing. If you are at all interested in real estate, credit homes, both single family and multi family, and all of the latest innovations in either technology or UH financial and sations and financing of of especially from the private equity side. We we just spend some time talking about I buying the instantaneous buyers that have appeared that facilitate

transactions of sellers. I think you're gonna find this conversation filled with wonky goodness. So, with no further delay, my conversation with real estate and equity analyst expert Ivy Selman. I'm Barry rit Halts. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Ivy Zellman. She is the CEO and founder of Zellman and Associates, a boutique research firm focusing exclusively on the housing industry.

She is an institutional investor, Hall of Fame Equity Analyst UH The All American Research Team Rankings placed Ivy and her team with eleven first place rankings between nineteen Then you know and and I V. S Ellman. Welcome to Bloomberg. Thank you for having me. Very so you cover one of my very favorite areas because it's so fascinating, especially in the United States, housing, the pursuit, construction, financing of it. Let's talk about the early days of your career and

how you became a housing analysts. You began on Wall Street that about rights right? What path led you there? Well, actually I didn't start out interested in housing admittedly. UM. I was UM really focused as an undergrad on accounting and I was working UM at Arthur Young now Ernst and Young, going to night school. So I went to undergrad for six years and during the time that I was studying at George Mason University and working in Ernst

and young as an accounty major. I was asking a lot of these accountants that I worked with, do you like what you do? And they hated it. They almost universally everyone I talked with said you don't want to be an accountant. So I was like, well, what should I do? And they basically all said, go get a job in Wall Street? And I'm like, what does that mean?

Because at George Mason, Wall Street firms didn't recruit students there, so I had to network and knock on doors, and eventually it led me to Wall Street, where I got a job at Solomon Brothers in investment banking and I was there for a two year stint as an investment banking analysts prior to be coming in going into equity research. And so well told you were there from nine about right, Yeah, kind of overlapping with the Michael Lewis Liars Poker era,

one of my favorite books. But so that that is a very much a male dominated period in Wall Street. Not that Wall Street has has really done enough to to even the gender levels, but back in the nineties that had to be kind of a wild place to work. It was a lot of fun, I think starting out out first being in a class because I was in a training program. I think I was one of three women of seventy kids, and we were all there for

two years. I was intimidated because most of them were from the Ivy League, and so I initially not even being just a woman, but just you know, having from a state university. UM. But you know, once you're once you're there, you know, you put your head down, you work hard, and it was really just about proving myself and as working hard as I can. So I think that today I look back on that time and I had a lot of fun, but it was about just you know, execution and working as hard as you can

to prove yourself. So how did you transition from investment banking analysts to housing analysts? After two years you're out of a job, which you know that's the case when you took the job. It's a it's a two year lifespan. It's a two year lifespan, and most of the seventy odd plus or minus will go on to get their m b A and then return, you know, back to Wall Street. And because I had student loans already through undergrad and unfortunately didn't want to take on the responsibility

or go back to school after six years. I just was looking for a job to pay my rent. And internally we had something called the you know, the Treasury scandal going on at that time, and unfortunately John good Friend and the firm was in turmoil. So a lot of people period with Warren Buffett came in and right

the ship pretty much. And prior to Warren Buffett writing the Ship, the view was there, you know, the lights were going to go out at Solomon and a lot of people were leaving, and there was an opportunity that opened up in in equity research, in the housing space and the actually in corporate finance. I worked in Transportation group, and gentleman by the name of Julius Maldudas, which is a famous airline analyst, he's like, you should go work in equity research, you know, and and go help them.

So I got a job with his recommendation as an associate in the UM. At that time, it was Bruce Harding who covered S n L's and Fanny Freddie, and he was picking up homebuilding and housing as a favor because Bob Bishop quit said I'm out of here, as many other people were quitting, so I came an associate, and I was just happy to have a job. People like you don't want to be an equity research analyst.

They're just like monkeys. They just companies talma to write and and I just wanted to get a job and stay at the firm, and and there there, there you have it. To be fair, some of them are not monkeys. Some of them are insightful researchers who put forth intelligent, um actionable wealth generating research. Absolutely agree with that, and I certainly don't agree with the monkey comment, but it was the beginning of now my nearly thirty year career as an equity analyst. So not not as a monkey,

but but actually generating research. So so you're you're kind of thrown into housing. How did you suddenly discover such a proficiency for it? What made you so astute as as someone without a background and housing going into that space? You know, I think what I really loved about it initially was the fact the challenge was to really find

ways to differentiate the work that I was doing. And when you have a fragmented industry and housing is something that you know, I could relate to lived in a home.

I like the housing market. It was really about finding companies that were privately held that are in the business of housing, whether they were a home builder or a realtor like your mom, or building product manufacturer, and talking to them about the business and learning from them, and then you using that analysis to then try to correlate

or predict what public companies would do. Were other people delving into private companies at that time as a way to give them a little more color into what the reality of the public situation was not that much, to be honest with you, In fact, um not to give too much credit to any one person, but it was

really I was assigned a buddy. Salomon Brothers decided that a salesperson and analysts would become buddies and they would work closely together for the younger Alice to learn from the senior salesperson, and the senior salesperson really said, you know, you need to go dig in the channel. You need to find private companies. And that was really the direction I went. Now, it just so happened I happened to

have married my buddy, but that's a longer story. But my husband, David, really was the one who directed me to go find private companies and that will really help to ferentiate you. Quite fascinating. So let's talk a little bit about Wall Street and housing. I think for the most part, Wall Street has not done a distinguished job covering housing in general, covering the retail and department store sector, um, certainly the credit companies that are associated with residential housing.

What's your view is Wall Street? Am I overstanding this? Or does Wall Street not do a great job getting housing right? Well? You know, looking at really our our firm, which um, we think we do get it right. You know, what we've built has enabled us to really um differentiate our overall views because we're dependent not upon what economists are predicting or um other outside parties perspectives, meaning publicly

traded management teams telling them what they should do. We're really going outside through our own network, which again we channel check developed relationships. We have nearly a thousand companies that are throughout what I call the housing ecosystem. Whether they're a builder, they're a broker, there are a mortgage originator, there are a manufacturing company that makes building products, or they're in the single family rental business as as an

owner operator apartment. We're taking all of these silos, and we're aggregating data that is proprietary data within each silo, and we're then triangulating it amongst this ecosystem to have a firm view of what's going on in the market. And I don't think it's unique to Zelman. No one else has anything like what we do, and it's been built over the course of the decades that I've been in the business. So I can't say what other firms do,

but I think we get it right. Well, it sounds like Wall Street is generally a little too close with corporate management and they're looking for guidance and not doing a sort of deep outside the box research UM dive

into various aspects of housing or again, am I overstanding that? Well? Again, I can't speak on behalf of what other firms are doing, but I know what we don't do, and I can tell you that back in the I guess Go Go days of the housing market in you know, oh, three oh four, oh five, I wasn't a very popular analyst UM working at credit suites when I was negative and certainly the companies UM didn't see eye to eye with my views. And it's like being the sober person at

the party. Um so um, I was definitely a lone range are at times. So let's talk about that period of financial engineering was endemic. Securitization was a giant revenue source and we ended up seeing that eventually spiral out of control into the Great Financial Crisis. So what is it about that era that led so many people astray? Especially the supposed smart guys doing the quantitative um research. Well, I don't know that you could put pen it on

one thing. So then agreed um certainly the inability to really take sort of the entire mosaic and see the risk that was so in our opinion obvious. A lot of people started, I call it drinking their own kool aid and believing that there was a secular shift in home ownership rates and that the government was certainly supportive of continued you know, um enabling people to have the American dream. But there was a optimism that was not supported by the you know ingredients that go into you know,

creating that opportunity for people. So it it just was a again, is if people just were convinced that it was different this time and that housing housing was you know, gonna go up forever. So I want to point out this is not a case of hindsight bias, where, of course the risks where obvious, says everybody today. In real time, I recall reading some of your research oh four, oh five,

oh six, when did you leave? Oh seven, May of oh seven, So in real time, before the bust, you were effectively saying, there's a problem with credit, there's a problem with housing, this is unsustainable. What what was the research that you were putting out at that time saying how how blunt were you? Pretty blunt? Um? I remember report that we untitled Investors Gone Wild in July of two thousand five. I think we had like a thousand people in our conference call across all of it, beyond equities,

within you know, fixed income and rivers everywhere. Um, the securitization guys were there, but generally speaking, the amount of investors. When you go to let's say Las Vegas and you're driving from the airport and your taxi drivers telling you he's buying houses, and then you know, you go to the nail salon, the woman and the nail salon is during your nails is buying houses, and you realize we

have maybe we have a problem. I think that the investors and the magnitude that we're buying both new and existing homes with no money down and understanding the mortgage piece was probably one of the biggest um parts of our conviction on why we had a real problem here, and and mentioning again affordability was clearly way out of

reach from any historical perspective. Um. The other aspect of it, besides investors gotten wild, was the amount that the builders were willing to pay for land and having the ability to talk to private companies and who would be competing with the builder for that land, and the private builders would tell us, oh my god, you cannot believe what

these guys are paying for the land. That was another part of our analysis that really led us to understand the risks that these um companies were really willing to absorb at the expense of shareholders. You put your finger on a couple of things I want to bring up, one of which is historically, most builders are pretty cognizant of the real estate cycle and the business cycle, and they get aggressive when things are cheap, and when things

get expensive they pull back. But for some reason, it seemed that a lot of people sort of stopped doing that in oh five or six oh seven. What was it about that period that made them forget, Oh no, you don't want to pay up for lands. It'll come back down when the cycle turns well, you know, I think there was a view that the demographics had shifted and that um there was support for you know, a secular growth in housing that we hadn't hadn't seen in

prior cycles. That was the That was what the companies pitched to the investment community. They and they really believed in many of them. Um, they also had Wall Street pushing hard to drive top line. So what had been matching short term assets with short term debt or long term debt with long term assets. You know, what you started seeing is builders willingly taking on more leverage, buying larger parcels because it would feed the machine, enabling them

to continue show strong growth. And so the market was really demanding growth and they were willing to put the capital to work. You know, it's one of the only businesses that you know, once you build the factory and then sell it, you have to rebuild your factory. And unfortunately, this is one of a factory that you know, you have to best fifty cents to seventy cents to make a dollar revenue capital intense business, and you start buying land that won't be let's say, put into the manufacturing

capacity realization machine for a few years. You can really put some significant risk on the balance sheet. Quite quite interesting. So let's talk a little bit about the timing of the launch of Zelman and Associates. You do this? Was it later on? Oh seven? Is that right? We left Credit Suites in May and started Zelman October seven. Okay,

so October fifth, two thousand seven. The October October five, two thousand seven is when the equity markets peaked and would not see that level again until So your timing was kind of interesting and coincidential. You obviously saw some variation of what was coming. Why launch into that sort of Mayhew Or was the expectation, Hey, nobody's job is safe, we might as well do it ourselves, or what were

you thinking? Well, my team's at Credit Suites. Dennis McGill who was my UM partner associate and he's the co founder of his Element Associates, along with Alan Rattner, who was also working with us on the team of Credit SUITEZ we were working um as equity analysts, really focused on housing, but we were servicing the entire firm because we were such in the eye of the storm, and we had such a controversial call, and I had such

an unbelievable network that we created through these private industry contacts that we wanted. We weren't feeling that we were getting. First of all, we were unfortunately a lot of people internally within the salesforce and the traders and in the in this curization, the ABS guys, they didn't agree with our call. So we were a little bit um. Hey, somebody has to be on the wrong side of the trade, right. Well,

we were not very popular. And you know, I was even told by the head of product management from Credit Suez is um perspective that your job could be at risk if you don't make you know, you had your I think in two thousand six, this is what happened. Two thousand and six. The stocks were down about and there was slowing and we were right. And then Bob toll And told brothers say, hey, things are picking up.

This is back in September six and they called it the Zelman bottom, and and that you need to get with it. And you need to be more bullish. You had your little good time. Now now you need to turn around and be bullish. And I remember publishing Dennis and I we had fun writing this report. UM in December of two thousand six. We wrote twelve reasons or the ten reasons to sell homebuilding stocks. Wait, let me, let's just make sure I understand the time in here.

So you're negative on on home builders and housing stocks. They fall over the next twenty four months? Is that fair? I think it was July aboh five was when they we started really seeing inventory starting to left twelve months, let's say twelve months. So this is a fierce bear market and it's only the beginning down. Um. And and somebody, not your direct boss, but somebody in the firm says, all right, you've had you a little fun, you've had

your little pullback. You better flip bullish and your contray responses bullish. Watch this. No hesitation, not wondering about, hey, these guys can get me fired. There was no thought about that, or was there. Um, Well, this this was a managing director running all of the morning call product manager. And I was pretty piste off. And actually, UM went to my director of research and complained and and actually the research director was very supportive of me, and so

with that it was they were great to me. But this particular person, unfortunately it was, was someone I was pretty upset with. But subsequent to that, sort of like the Zelman bottom, we published something in October o six called wonder Land, and Wonderland was basically saying that the home building industry is going to have to write off equity because they've overpaid for so much land. We actually

estimated about equity right off. How much was that in actual dollars and it actuality It turned out to be fifty six that they wrote off, So we were way off, but we were so contrariant at this time, so that was what else was off? No nor off, Yeah, no right offs or anything. So that was October six. That was another sort of flagship report. But in December the stocks kept going up, so they were rallying in our face. We're getting a lot of backlash. Salesforce was against us.

People internally were like, what's the story. And in December we came out with the ten reasons to sell homebuilding stocks and give us a few reasons out of the tent. The town was they were. You know, basically the mortgage market was not sustainable. The fueling of the growth was coming from you know, these ridiculous exotic mortgage products you had. Land prices were going to crash. We had consumers that

were not buying because the investors were buying. Um. I'd have to go back and look at all the specifics. But any any big clients say, I don't care about that. This is contrarian. I'm going to do this and put giant bets to work. Sure. Um. John Paulson was one of our clients that we talked to regularly. Steve Eisman was one of my buddies. I probably spoke with him daily, along with his team Danny Moses and Vinny Daniels. That those guys were every day we were on the phone

with them. There were some people that were really convinced, as we were, that this Barrish call at some point was going to work. So the Selma Gomez character and the Big Short that that was supposed to be you, is that right? I got one quote in there, but not that one you did. What was the quote in the Big Short? Oh? I don't remember what the quote, but Michael Lewis did stick me in there? You mentioned the you mentioned the cab driver in in Vegas on

the way back from the airport. My favorite scene with Steve Carrell is he's I don't remember it was a stripper, a waitress, but it was in a strip club and he's asking her. They're talking about real estate, and he's saying, how do you afford the mortgage on that house? And she goes, that house I own. I have four houses. And that's the moment where okay, I think I have to I don't remember what character he was who he was playing in real life. He was playing Steve. He

was Steve Eisman. Okay, so that character, that's the moment um. It's a little more dramatic in a strip club than speaking to a Wall Street analyst about oh you know I Actually my husband and I we owned um a home in Florida and we go out to the beach and it's in a community. And the guy that was putting the umbrellas in the San Chris, he told my

husband that he owned about ten fifteen lots. And I was like, this is probably two thousand four, two thousand five, and he was asking my husband, do you want to go look at some loss with me, because you can buy them with no money down. And I was like, I'm like, David, do you hear this? This is crazy? So you know everywhere you know. But but Steve was on it. He had the call, he really did. So

a friend of mine called called that era. Um, the so called home owners were really renters with an option to default, which which I thought was kind of amusing. Interesting. Let's talk a little bit about where we are in the housing market today. I've seen a couple of things that remind me a little bit of the early two thousands. Um. HDTV is going strong and Flip this house is back, and although these days it seems to be more about

renovating than it is about buying and selling them. Um. But the housing market seems to have mostly recovered in about half the country. I'm ballparking that. Where where do you see the housing market today? And does it remind you at all of the bad old days? I think the housing market right now is pretty healthy. Two eighteen was a tough year. The market decelerated pretty much most of the year, more month to month, worse than normal seasonality. But by the time we got to the end of

the year. It ended with a big thud, and a lot of people thought housing was gonna lead us into a recession again, mainly due to the stock market turmoil, getting the political turmoil global and certainties sort of perfect storm. So housing came to kind of a screeching halt. And yet the fundamentals actually were pretty favorable. We have strong job growth, consumer confidence is high, and incomes are accelerating.

And if you look at the housing market from supply and demand, we actually have a pretty significant deficit of a lack of supply, which we estimate to be about So when you just look at what we need in order to provide shelter for the incremental households growing and those getting knocked down demolished, that that's a pretty strong positive part of the thesis. Now, you mentioned half the

market for the United States recovered. That's in terms of home prices, so about half the country is actually below its prior peak. Um. As you think about pricing, the pricing in the in the housing market is a little bit now um more challenging. So builders are in fact and brokers and real estate agents are seeing a momentum in spring um pick back up from the thud now was the stock market close to record highs again. The political turmoil has settled down, but spring selling season actually

is definitely pretty good now. The entry level is much stronger than the move up and luxury and depending on a market where job growth might be stronger versus another city where it's not as strong, so all real estate it doesn't necessarily move in tandem. But right now I'd say it's healthy and affordability is still reasonable. Bowl I don't see a lot of concerns at this point. Things that we're watching I'm happy to elaborate, but generally i'd

say we feel pretty good about the market today. So so, we have constrained supply, relatively low rates. Even after the past year of increases, rates are still historically Um what what is a mortgage today? Four for a quarter for a quarter? I mean that's pretty reasonable, isn't it. So, So given the limited supply and low rates, what does that mean for home prices over the next couple of years. Well,

home prices have been up. The first year they increase was two thousand twelve, and since two thousand twelve we've been running out about a five to six percent growth. Kager and what we're seeing right now is some moderation and home price appreciation. You know, the inventory is available for sale in the United States if you look at it over a long period of time, and we look at it inventory those homes listed for sale as a percent of households, which we think it provides a friend line.

Unlike most realtors and your mom probably talked about months supply, um, what we'd tell you is that inventories in the US are actually at nearly at thirty year lows, so inventories and nationally are very very low. And what that means is that that there's more demand and supply, so prices continue to increase. But we're starting to see some moderation and how much pricing power there really is, more of that being skewed to more challenging environment at the higher end.

Some cities, for example, in the luxury price point, are actually seeing pretty significant inflation, like New York City, Miami and others are just challenged and buyers or sorry, sellers need to capitulate, especially on older stock that's boxy or you know, dated that needs to be rehabbed and hasn't been. So there's sellers I need to be more. They need to be more realistic. What about the ultra high ends? Uh, my friends, we we both know. Jonathan Miller, he calls

that aspirational pricing. When people slap a forty or fifth you're a hundred million dollar priced egg on something that's really worth a fraction of it. Um. What's happening with the ultra high end uh end of the market? Is that finding a little reality or do we still see crazy prices? Um? I think the markets in general are

still seeing crazy prices. There has been some capitulation. Whereat sellers and Grenwage, for example, are starting to recognize it's been three years, the helm's not moving, let me lower the price of it. So we do see some you know, um capitulation, but not nearly as much as we need to. In fact, yesterday as with a client visiting in New York and when when a New York City prices gonna go down more? And I said, well, they've come They've come down quite a bit from their aspirational peak. Like

Jonathan likes to say it. From two thousand fourteen, he says, developers aren't willing to lower their prices or giving me ten years of no maintenance and no taxes. But they won't lower the price. I said, stay tuned, they will. You think that will eventually they'll be forced to. I think they have to otherwise there might be distressed for some of these developers. I mean, the sales for the luxury in New York City in the first quarter is

like non existent. Really, it's very, very weak. So so what about the fat part of the distribution of housing. The let's call at half a million to a million dollar homes more than stut and by the way, that's my New York bias price or San Francisco or Chicago is more reasonable. Um, lots of places in the rest of the country more reasonable, but more than a starter home, less than the really high end houses. How is that

area doing. It's really more market dependent, you know. I can tell you in Dallas, for example, over four hundred thousand to six hundred thousand, it's very competitive and you're probably seeing um a little pressure there builders being forced to use more concessions. Whereas if you go into let's say a market like um Phoenix, the four to six is very healthy and you might even see some pricing power. So generally that segment of the market has been more

um I think mature in terms of the cycle. And when you think back to two thousand, really two thousand level with the bottom, so as we saw growth, really the fat of the market really has had now seven eight years recovery, whereas the entry level, believe it or not, the builders did not want to build that true affordable product where we call it, you know, building out in the excerbs, the pioneers where you have to drive to qualify.

Part of which it was because the mentality was that consumers only want to walk to work and or you can't get a mortgage. Now, the mortgage market was so tight, builders were concerned about building affordable for lower credit quality. So really the entry level, true entry level price point didn't start getting constructed until really in earnest, until two thousand sixteen. In fact, we would argue to today the entry level portion of new home sales is still materially

below where what would be perceived normal. So it's a bit of a tale of two markets where you have one of one. Meat of the market still has some legs, but it's later stage and it's still reasonable healthy in terms of inventories. Still the six months that that's a balanced market. The move up is still below six months, but you are seeing the low end entry level where

there's real robust demand but just not enough product. Quite quite interesting what you mentioned how regional UM real estate is what areas stand out, either for good or bad reasons, as interesting or unusual around the country. UM. I was just in Nashville last week and I was just unbelievable booming market with you know, really a pro business stance that you know, companies continue to move there and the

migrations moving there. But just top of mind because having just been there, were we were there, I was speaking as a guest for a real estate conference, and I was sort of blown away by the growth. UM. What we're seeing a lot that we study the markets and we understand where migration patterns, importantly, which states are winning and which are losing. And Florida is just a winner, both with millennials and with the boomers. And you're seeing

a tremendous amount of migration into Florida. And despite Miami Beaches softness right now at the higher price point, I think Florida is going to continue to be a winner. UM. You continue to see winners out west and the Southwest, strength in Vegas, Arizona, and Colorado. California, on the other hand, is where we see some concern and we've lost foreign national buyers there, that for foreign national Chinese buyers pretty much all but gone. People that are there Chinese buyers

are buying, but that foreign nationals are gone. The Bay Area despite Silicon Valley and you know, the benefits there seems to be just not accelerating like the rest of California off of what was the weaker period of eighteen um. And some of that is it related to tax reform? Salt? Is it concerned just in terms of the continued pressure literally literally my next question. So, so we keep reading about the egress from New York to Florida and from California to Arizona. And I know some of that is

just normal retirements. Hey, at a certain age. Um, if you live in in Westchester, Long Island, you may not want to go to Florida, but it's the law you have to move down there. Um. But you know the David Tepper story leaving New Jersey because it saved him a bajillion dollars in taxes. How significant are those most recent tax changes and the loss of the state and

local tax deduction to the real estate market. Well, first you have to look at it in totality and appreciate that about eighty four percent of tax filers actually had a reduction in the taxes that they pay, right, So really, but that's on a gross number, is it Is it a big deduction? Is it a little deduction? You mean, after if you took everything into consideration, the benefit is actually the majority actually had a benefit. Now, where the negative impact is at the higher price or the higher

income brackets. So where the risk would be is for that eighty to eighty five percentile incomes percentile. So we're if you're in the highest income bracket. But really the question will be if you assumingly are in let's say Rye, New York or Scarsdale, or you're living out in Long Island and your kids are in high school or your kids are in elementary school, are you really picking up

where you work and leaving the state because the taxes? No, you know, could you start to see some pricing pressure because maybe my buddy and his wife that are empty nesters and they can you know, everybody's mobile today. With today's technolo ology, you can work for from their home. They're gonna pick up and leave, So you're gonna see more inventory start to build for that marginal person that can leave. That will put some more pressure on prices. So I think the lever is price and I don't

think that it will create a collapse. But I think the coastal sort of tri state area California markets are going to see some more incremental inventory lead to moderation and pricing. Quite quite interesting. Can you stick around a bit? I have a ton of more questions for We have been speaking with I V. Selman, CEO and co founder

of Zelman Associates. If you enjoy this conversation, be sure and come back for the podcast extras, where we keep the tape running and continue discussing all things real estate. You can find that wherever Finder podcasts are sold, Apple, uh, Stitcher, Overcast, Bloomberg dot com. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You could check out my daily column on Bloomberg dot com slash Opinion. Follow me on Twitter at Rid Halts.

I'm Barry Ridhults. You're listening to Masters in Business. I'm Bloomberg Radio Welcome to the podcast. Ivy. Thank you so much for doing this. I've been looking forward to this for a long time. UM, I am a real estate junkie, not only because it was dinner table conversation every night back in the days when mortgage race were um, but

it's just fascinating. Everybody has to live somewhere. Why not live someplace fun, interesting, neat in the house that is um sort of representative of your style and tastes and values and interests. And it's really, uh, it's really a fascinating space. You have to be thrilled that you found your way into real estate, even though that was never your intention when you began. I am I'm thrilled. I

love it so um. So let's let's go through a few of the questions we missed during the broadcast section before we get to our favorite questions in a few minutes. UM, I have to ask about the launch of Zelmann Associate. So October seven, we were talking about the date you said you launched October three. I believe October five was the old time high back then, at least for the dow. What was it like launching right into the teeth of

the rollover and slide down for the next eighteen months. Well, my partner and I Dennis mcguel, Um, we recruited our partners in crime. It's Credit Sweet, Alan Ratner and Melinda Greantedge, who was my secretary at the time, kind of pulled her over from Credit Sweet, and my husband was also in the beginning, so it was really the five of us and um it was seven. We were working our butts off in order to be prepared for our big

date that we set. But I think it was so much fun as well, because we at this point it already had taste of victory where we knew that what we had predicted was actually not only coming to fruition, but way worse than we had ever considered or or predicted. And so while we were in the teeth of the storm with not you know, clear certainty which direction and how much more severe the storm could be, we had um just a fantastic times circling investors and interest. We

were we were in the sweet spot. So it was so much fun. I mean, we had um crazy days and nights and it was all consuming. I I can tell you that it was difficult with three little babies running around, but it was like where you'd wake up at four in the morning and you just couldn't wait to get in front of your computer. So it was just thrilling, really thrilling. So I remember, I'm trying, I'm want to do the get the years right. I could

be doing the My memory could be faulty. In in I think it was OH five the home builders rolled over, and I don't remember that was that year, but it was clear they were undistressed while the rest of the market was going higher. And then the next year, um, the banks and brokers OH six started to come under pressure, and again the market kept going up, and then OH seven, I don't remember what segment rolled over. It was New Century,

is that what it was? March of seven mortgage, So that so is the mortgage and the writers in OH seven, and the market kept going up. So when you're launching the firm, these are three calls that you had previously talked about as a contrarian, as an outlier, who turned out to be correct. When you launched the firm, I have to assume a lot of clients came along with you. Fortunately they did, so it was a very strong launch.

And um, you know we have had the ability to continue to recruit new clients and really provide what we think is unique proprietary research that no one else UM and on no one else on Wall Street does anything like we do. So we really provide a significant advantages to our institutional investors and private equity firms that use Selman. So private equity are are also clients. Yeah, mostly it's hedge funds and mutual funds, but we also have some private equity clients as well. So so let's talk a

little bit about that network. How do you go about because the only thing I can even remotely compare it to In the early days, Ed Hyman started a UM on an economic side, building out a network of private companies that would report their data to him. And basically part of the reason he was so successful in the economic space as a non economist is his data was better than what BLS was generating. Right, sounds like you you created something similar within the real estate space, builders, brokers,

real estate UM developers. Who who else was in that network? And how do you go about reaching out to these folks? So we we do follow Ed's model in going after sort of understanding what is happening in various UM silos within the economy. But ours is dedicated just to housing and housing related But so we've got UM survey of private homebuilders, a survey of land developers, UM, a quarterly survey UM for banks to discuss their lending to acquisition

and development financing for builders. UM. We have a apartment survey, a building product manufacturing distribution survey. We just published that today, Single family rental and home center survey. We just publish published that one as well today, Chairman, to forget one UM the broker survey, which we survey about ten percent of existing homes. Else So if you look at each silo, the home building survey is the most mature and UM

most significant, probably in sample size. UM. Oh, I forgot the mortgage Originator survey UM, which is also very significant in size. But all of them we have not not to discount what ed's survey does. But ED has a very few questions. Most of the surveys we have will be anywhere from twenty to thirty questions. So how do you reach out to somebody and say, hey, listen, I want you to participate in a quarterly thing. Don't worry, it's only eight pages of questions. They'll take your less

than a week to fill it out. How do you make that pitch? Well, first you go back years and you have um A survey that's done over the phone, and you build and cement relationships, and over time, with technology, you create a platform where they can do it online. Is all automated. But the exchange with the c suite executives that taliated nearly a thousand throughout the ecosystem is we will give you the research for free, for free if you fill out the survey. And everybody who participates

wants to know what's happening in the ad Jason silos. Well, they want to know what's going on within their peers, within their own silo, but they want someone that can

triangulate all of it. And in fact, our institutional investors are so data driven that sometimes the c suite executives are information is almost too much for them, which is one of the reasons we developed a newsletter called the Z Report, which is a much higher level um BI monthly report that just gives you really that foot perspective, seven to eight articles on all the pieces of the mosaic, because some of them were like IVY, it's just too much,

so they prefer that. So when you say bi monthly, it's every other month, not I'm saying bi weekly, bi weekly. Sorry, so twice a month off actively, Um, I never know which is which. That's no, I said bi monthly, but it's twice twice a month. So and that how how big of a document is that? Is that something quickly?

Or I'd say you can read it an intent fifteen minutes and it has some charts, but you know whether the articles are on you know, rising healthcare costs as an impedimental homeownership or affordability, you know, heat reaching a new high or or low, whatever the topic, um might be,

the demographics millennials, you know, accelerate um family formation. We take each of the pieces of our puzzle and we take articles that we think are timely and it allows people again to walk away from a ten to fifteen minute read with hopefully a nice hot cuts heat or coffee with wow, I really get what's going on now in the housing market overall. That's very very interesting. So if you want to express an idea in a trade, how do you go about doing it? Is it long

or short? The home builders the credit side, how does do some of these hedge funds. We know what happened to know you know nine, But how to hedge funds today? Take your research and apply it to capital well, because we are an equity research firm, So our recommendations are to buy, hold, or sell equities. Whether they're going to do something that's outside of the equities, we don't recommend. So are we're strictly going to recommend whether they short

or go long stocks? So that's all really the firm. So what what sort of stocks do you cover? Obviously the home builders are going to be one group, um the mortgage originators or another. Do you go further afield to reats or anything like that. So we have home builders, building product manufacturers and distributors. We have real estate brokers. We follow redfin, Zello, Relogy, Remax, We follow mortgage insurers, mortgage title companies, and mortgage tech. We follow the home centers.

We follow single family rental rates and apartment reats. And I think, do you do office space or storage or or retail. No, we only do residential. So that's one of the you know, I guess the way we think of our niche that it has to be within residential. So so let me take you a little off of

that niche a bit. There's a giant article, uh in the Wall Street Journal about the big malls how they continue to have some of their anchor stores going away, and then once that goes away, everybody else starts to fade and it becomes problematic. And there was some place some going to get this wrong. I don't remember if it was Minneapolis or somewhere where the mall essentially gets sold to a developer who raises it and now is putting in apartments, homes. It's it's a whole multi use.

So so is there something worth tracking on the retail apocalypse side relative to housing or is that just so distant and so far removed it's not worth paying close

attention to. Well, I think it makes sense to assume it's getting repurposed, and as we think about shelter or really you have to think about it with with the complete eyes, with the complete view of rental as well as for sale, and so it gets repurposed for for sale or for rent in single family where we have a deficit, then we'll be able to track that through the land development survey that we're doing, and tracking that will enable us to see where the growth is going

to be and whether or not the growth is justified. But today, if you look at shelter, we believe the multifamily market is actually above normal and there's plenty of

supply of that. It's above where it should be. In fact, there's um if you look at multi family five plus units, so multifamily high rise or generally where the problem is is predominantly urban core multifamily is at multi decade highs with what with the amount of inventory in backlog where a suburban is not as let's say, problematic, but there's a real core urban is where the inventories for we

believe multi family market is actually significant above normal. So if we had a guess coming out of the crisis, people were either reluctant to buy or unable to qualify for a mortgage, so there was a ton of renters and it seemed the builders went a little hog wild over there. Is it safe to assume that the pendulum is going to start swinging in the other direction or do does this really have to do they really have to run out the rope and and see some problems

before they adjust what they're building. So if I understand your question correctly. You're you're asking, will the builders start to build affordable product again? Um, when will they shift from multi family to single family? If there's a a

plethora of multi family and a dearth of single family. Well, they're completely different operators, um, different developers, different um operators from the perspective that there within their silos, the multi family operators would never just go do single fam very unusual. You'll some times have like Lenar Corporation is a publicly traded company and they're saying they're known for their single family building, but they also have a multi family business.

But very few organizations companies have in the multi family space do single family as well. So when when you really what I'm wrestling with is if there's way too much multi family multi family builders, they're not going to say, hey, there's too much supply, let's take a year off. Do they just keep building? Do they move towards luxury? What?

What do they do in the face of excess supply? Well, right now, what you'll start to see is that they have pressure on rents and they're underwriting requirements that are what the way they underwrote the land, they won't be hitting their hurdle rates at some point if this supply that we believe is still in backlog actually gets delivered

and pressures their returns. So right now, there's a lot of capital chasing this asset class because when you compare it to malls or other reeds, it's actually a tall midget in many respects, even though right even though it's expensive, it's actually one of those very consistent businesses. Doesn't have the kind of cylicality that the single family for sale market.

So it's still a very good business. But what may happen from the supply being um in our opinion, at excess levels, is that they won't get the returns that they underwrote if rents start to come under pressure. We do think they get least up. But the question is will that spicket of growth start slow as those lease rates come under pressure, That in itself will start to

slow the growth. And before I get to my favorite questions, any other things standing out within the residential real estate market that's unusual or interesting, be regional or what what are you kind of going, huh, that's that's surprising. Well, there's a few things UM I can talk about. The eye buyer market being I Buyer. Today, we have companies that are offering consumers to buy their homes for cash

within a few days. So Instant Buyer and UM open Door, which is a private company, is the leader in this business where at a discount to we have an algorithm that basically will determine the price that they're willing to pay for home, allowing that person to be able to

move to a move up home. And actually Lenar was an investor in open Door, and the reason they invested in open doors concept and these guys are a Silicon Valley Eric Wu as a CEO, is because they found that a lot of our buyers can't sell their homes to move in our home. So that was conceptually why they did it. So what happened Someone comes along and says, we'll pay you cash theoretically at a discount, say let's five seven discount to what is retail, and then they'll

turn around and sell it. They'll put with that money, they'll fix it up and then they'll sell it. Now Zillos in the business now Zilo offer Redfinn, now Um offer pad Knocked. It's it's really growing to be a very big business. In fact, Zillo, who we have a cell rating on is actually changing their entire business model to go after this I buyer market. So that's a big interesting thing going on in generally speaking professional flippers, yes,

professional flippers. Another interesting thing that's going on is the built to rent market. So I mentioned that we have a deficit of housing, but not everyone can afford to buy a home. So what consumers want today though, is they want the American dream, they want the backyard, they want their own home, but in many cases they can't for whatever reason, either get a proof for a mortgage, or they don't want to be committed and they don't

want to they want to have flexibility. So the built to rent market is actually accelerating to help close the gap. And if you look at the build for rent market, it could be builders that are willing to sell the last few units in a phase to a build or a single family rental operator, or they in factor keeping the asset themselves on the balance sheet and renting them

out to generate cash flow. But I believe that the build for rent market will accelerate to become a bigger portion of today's household So roughly twelve percent of the households in this country live in a single family rental home, rental home, not in a multi family no singal family rental. And one of the misnomers in the marketplace is that you either live in an apartment or you live in

a single family home. And and what people don't appreciate is that if you just look at like living alone, do you have any idea how many people that live alone live in a single family home forgetting if they rent it or own it? Just a guess what Really that's a giant n well, I guess if you start thinking about the older demographic, the second person, the survivor once one of the husband wife passes away, that's got to be a pretty hefty number. And then divorces, and

then people who just want to own a house. But I would never have guessed. We'll keep in mind this is we're not distinguishing between owning versus renting, So just thirty percent. So then when you think about lifestyle, if you go, okay, then roommates, then I get married, then I have children by the time our data shows by the time you're married with two children live in a single family home. And that in fact is again not disinguishing.

Writing versus owning. But when you think about millennials, millennials today call them seventy million. I've got two millennials or young fourteen sixteen high Zoe and Zach. I got Zia two. She's all youngest, but she's not a millennial. Um when you start to see these millennials actually get married or cohabitate and have families, this they're at the early they're in their early thirties right now, there's seventy five million

of them. We're just at the beginning of this wave of what will be an unbelievable tailwind too for the demographics for the need for single family shelter, assuming you believe that people will continue to get married to have children, and we have some fun ways to analyze this. So

we do some obviously studying birthrates. A lot of people see the national birth rate for the country is going down, but when you look at the twenty five plus year old, that birthrate has been growing at a very fast rate. We called the good birth rate because nationally birthrates are going down, because teenage birth rates are down over since so seven, which is which is a good thing, right. So what we really look at and I think it just to reiterate, it's about lifestyle. Lifestyle drives a need

for shelter or changes in the type of shelter. So when we look at build for rent and we see that phenomena is a growing trend, I think that you'll hear more about it, and there's more Wall Street money contemplating it and builders that are selling to the single family reads and doing it themselves, the I buyer market, and then just technology. Um, you know, the real estate industry is one that is is being disrupted. If you think about you know, your mother is a real estate broker,

it's a very very tough time. They're being attacked from all from all angles. I mean she's retired, but the days of six percent commissions, that's pretty much gone, right. I think that certainly has yet to be eliminated. But there's a lot going on that can continue to pressure margin, pressure splits. The market is being disrupted from a lot of different angles. Huh. Quite fascinating. So the firm is called Zelman and Associates. Is this really the I vs.

Elman show or is it something else? Actually, thank you for asking, No, this is not just the I vs. Aleman show. In fact, I've got probably close to thirty employees. We have about a dozen analysts. Each analyst is responsible for their silo and are very successful in aggregating data

and analyzing the industry that they're responsible for. So it's it's really I'm a small piece of what really Zelman Associates is, And there's a lot more of a strength behind the person you see sitting here and whether it's Alan Rattner, our senior homebuilding analysts justin Spear, these people work their tails off and UH really appreciate all the work and I get a lot of credit, but they're

the they're the power behind the firm. So before I let you go, I have to get to my favorite ten questions we ask all our guests sort of a speed round. Are you ready for this? Ready? Tell us the first car you ever owned? Your making model Toyota Corolla. Nine. What's the most important thing we don't know about you? That I live in Cleveland and I have three beautiful children and they are my life. So you went over Cleveland pretty quickly. How do you like? How do you

like living in Cleveland? Um? Well, I admittedly went kicking and screaming married Cleveland boy who I met at Solomon Brothers, David, But it's a wonderful place to raise a family, and I get to be with my husband's family all the time, and it's great for the kids. And if we could just get the sun to come out. The weather is not great in Cleveland, but the browns are supposed to be good this year. So yes, they are supposed to.

So tell us. Tell us about your early mentors who affected the way you you did UH analytics and thought about housing well already Credit David, my my my buddy at Solomon. Um, but I have to say when you yeah, this husband was later, but um, when you think about your life in the a list of people I had the pleasure of working with, whether we're talking about people on the South side of Credit, Swist and Sally, as

well as all the clients that I've interacted with. You know, I can give you ten people that come to my top of my head. But one that really stands out is Melinda Greenwich, who was really my mentor early on in my career, my secretary, but she had been at Drexel and she was with me for over twenty years and is a friend business, family life every day, and she no longer works with me. Now, Kim Gray's my mentor.

And people think about mentor where you call someone up and you know you have a challenge, you want to talk something through. You know, these women are are there for me through thick and thin, you know, call in the middle of the night. Those are the people that I want to highlight, the people that that mean everything to me. Quite quite interesting, it um, what fill in the blank investors, analysts, UM managers helped shape your thinking

about the housing market? Give me your list again. Investors could be anybody, investors, strategist, analysts, economists. Who who has influenced the way you approach the real estate market? Well, it's so many. I think that builders themselves, a lot of the private builders in the market that really helped me to understand the business and give me from an unbiased perspective. And there you know, the quality of information and and and and being able to absorb from the

perspective of an open sort of white board. The builders, the private builders. Bert's Silva, who's a good friend, and and the CEO in the in the home building industry, I just learned a tremendous amount from him. Um in the investment world, you know, I think about today some of my top clients, UM, certainly Richard Chiltern and Chiltern advisor 's learning about to go after the best in

class managements and understand, you know, just a long term investing. Um, there's an art to it and it doesn't necessarily mean you day trade, and that there's ways to differentiate. UM. Bob Bishop at Impala, who was originally Solemn Brothers Housing Alice, who's now a client. Um, he taught me a lot about the business. UM. Ricky Sandler at Eminence Capital, who's UM someone I grew up with, but he was ahead of the curve from that versus where I was. Taught

me a lot about the business. So I can keep going. But that's a that's a healthy list. So let me shift gears on you. What do you do for fun? What do you do when you're out of the office. Well, I love to walk my beautiful Australian shepherd, go for long walks, UM hike. I do a lot of puzzles, jigsaw puzzles like the new Wood puzzles. That's been my new thing. And UM, I've been also doing brain games, which has been fun. And hang watch my kids and

watch the kids play sports. My daughter is a great soccer player, and she runs track and she keeps us every weekend very busy. Oh and my oldest is off to University of Miami, so hopefully I'll be there and seeing the sun more. Yeah, in the in the winter. UM, tell us about a time you failed and what you

learned from the experience. Well, I would say that I was convinced I was gonna be an investment banker, and I was going Well Street to be an investment banker, and I found that it wasn't the right fit for me, and I was pretty devastated. And what I learned from that experience was that your first job won't necessarily be your last, and that even though you're convinced you think you know what you are going to do with the rest of your life, you actually can evolve into something

else and be successful. So for me, that's really the path that led me to where I am today. So what has you most excited about what's going on in the real estate industry these days? Um? The uncertainty of what's next, from technology, from disruption, from sustainability. You know, it always is changing every day. What's you know? Unfortunately,

a lot of it's dependent upon the economic backdrop. But there's a lot of interesting new things that are going on in our sectors, so we have to stay on top of them and obviously continue to guide our clients down the right path for where to steer their investments, and and sizing and and getting out before the market turns is going to be the next goal. So everybody's favorite question, tell us some of your favorite books, be

the fiction, nonfiction, real estate related, or whatever. I've got a colectic a number, but I enjoyed and it was life changing. A book called Thrive by Arianna Huffington's Okay, remember one and um that was really impactful, life changing, life changing from a person who worked seven and learned a little more balanced from things to Ariana. I read uh and loved an Acquendolen's Plenty of Cake Plant Candles, which really gave me a renewed optimism on aging. Much

better than the alternative, much better than the alternative. I can't help but mentioned Liars Poker and The Big Short my one of my friends and favorite authors, Michael Lewis um All the Light You Cannot See by Anthony Dough, which is um World War two fiction, but an incredible read if you like that period. UM. And then just lastly, I've read a lot of a mother of teenage children and UM Leonard Sachs Um the books that he's written for parents. Girls on the Edge is a must read.

And I'm a little bit anti social media parents for our children, and so I would recommend that highly for her parents. What sort of advice would you give to a millennial or someone interested in uh financial real estate who is just beginning their career. I think that everyone should find a mentor everyone should appreciate your first job isn't your last, and read a lot I think UM. For me, it was networking as well. Never stopped networking.

I remember folding towels in a gym at six am to pay for school, and I would talk to every gym member and ask them if they knew anybody. So network network Network. Our final question, what do you know about the world of real estate related investing today that you wish you knew twenty five or so years ago when you were first starting out? Well, I wish I understood.

I wish I had the benefit of hindsight and appreciating cycles and being UM willing to tolerate more risk that there's opportunities and when there is disruption in the market to take advantage of it. I think I'm way too conservative and I was way too risk averse makes perfect sense. We have been speaking with Ivy Zellman of Zelman and Associates.

If you enjoy this conversation, well look up an intro down an Inch on Apple iTunes and you can see any of the other two d and fifty or so such conversations we've had over the previous h five or so years. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Be sure and give us a review on Apple iTunes. We we love your feedback, comments and suggestions right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank the crack

staff that helps put together these conversations each week. Medina Parwana is my producer slash audio engineer. Michael Boyle is our booker, UH Michael Batnick is our head of research. Atica Valbron is our project manager. I'm Barry Hults. You've been listening to Masters in Business on Bloomberg Radio.