Jonathan Litt on Real Estate Investments (Podcast)

people are living, working, shopping, etcetera. By purchasing companies and reads in the public space. It's it's really kind of unique and interesting. We see a lot of private equity making investments into either individual houses or multi family or whatever. But to see a public company to specifically look to identify under priced reads because of their underlying assets being

undervalued kind of interesting, quite fascinating. If you are at all interested in real estate or reads or anything related to the topics, you're gonna find this to be a very interesting conversation. So, with no further ado, my conversation with John Litt. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this week is John Litt. He is the founder and chief investment officer of Land and Buildings. Institutional Investor ranked him as the

number one real estate analyst for eight years running. He comes to us with a background undergraduated at Columbia. He got his NBA from n y U. Stern John Litt. Welcome to Masters in Business. Thank you, Barry. So, like so many uh in Wall Street, you began your career as an analyst, but you started in Oman. What was that like? So? I always wanted to be in real estate, And first I thought I was going to be an architect, and along the way I realized I was probably better

on the investor side. If you remember, there was a minor stock market crash on a cable eighteen stat about and I always wanted to be in real estate. I got into it. I worked for a private buyer syndicator of real estate. And when I started my career, and we went right into the recession of the early nineteen nineties and the and what I learned very quickly was that as a private sponsor of real estate transactions, we always made money, whether our investors made money or not.

And we went from buying shopping centers to doing workouts and bankruptcies and round that time, in the early nineteen nineties, the legislation that governed the reeds was changed and it allowed reads to be internally managed and internally advised UM. And so there was a real alignment of interest in the public market where management's interests were alignment at a shareholders. And I looked at my position on the private side,

where there clearly was not on alignment. When I was a young analyst at time on the acquisitions team, and I looked at the reds UH in two and I said, that's a better mass trap. That's a better mass trap as an investor to make money in real estate. UH. And I switched and went to work for one of the leading buyers of reeds. At the time, the industry was all a fifteen billion and I went to work

for them. UH. And it ended up being that that changed in the legislation in the early nineteen nineties opened the doors to today with a one trillion dollar industry of public companies. And I got a great front row seat right UH in ninety two as the I P O machine started in earnest So how significant were the I don't know if you were. You can recall the era in the nineteen eighties when there were all these huge tax incentives to use real estate as a write off.

When did that change? And the move towards public reads was that related to taxes that everyone always had a headache with the K one filings? How has the legal structure made it easier to be a public investor in real estate? Right? So now I'm going to really date myself. So Ronald Reagan was president and he put through him a tax Reform Act eliminating many of the benefits of owning real estate in a private structure through the as

you mentioned, through the tax benefits. And so you went into a bit of a real estate depression because the valuations of real estate and the leverage on real estate no longer made sense. And in part the firm that I started my career at was impacted by that. They were still able to continue to raise money and invest, but that was a real sea change. And of course we then went into the recession in the early early nineties,

which was quite painful real estate. I would say we had the recession I recall calling the early nineties of depression uh for real estate, and it took a long time to recover, and frankly, many companies that went public really didn't have a choice. It was go broke or go public. And it coincided with the time when this legislation was changed, and that really opened up the doors to what I believe is a much better masstraft for investing in real estate by investing in the public reads.

I have a vivid recollection of graduating grad school and eight nine and all my colleagues who ran out and bought condos or co ops in New York City that year. It took them almost a decade to get back to break even. That real estate depression you you reference was very, very significant in the nineties and it was almost like the boom in the early two thousands was making up for lost time. How do you look at that era of the nineties to the two thousand's, How significant was

that prior lost decade? You know, it's interesting and you know, if you read the papers today about how long is it going to take us to recover from the Corona COVID nineteens, how long has he let to get the

jobs back, et cetera. You know, once you have the reset, which we've now had with the thirty million people unemployed or with the bottom in real estate, which was probably um you then had growth, uh, And you then looked at not when do we get back to peak, but what are gonna look like in the next twelve months, twenty four months, thirty six months. And that's really what we were focused on at the time. Supply got largely shut off, and you were able to see the economy

slowly coming out of the recession and demand building. And I remember the hotel business, which was fairly decimated during that period, was really the first to come back if people got back out on the road. Uh. And we started to see healthy increases and occupancies and and and rents a nightly rates. And then's gradually built over the balance of the decade, not without its bumps, but we

saw steady growth. And in fact, I when you look back at thirty years, there's been steady growth with a few major interruptions, but there's been pretty steady growth in demand for real estate. Quite fascinating. So, John, you had a really fascinating quote. I have to ask you about quote. There's a big pile of private capital that wants to own real estate, and a big pile of real estate trading at a discount. You said that to the Wall Street Journal in has real estate really been trading at

that much of a discount for that long pre pandemic lockdown? Oh, you know, it's an interesting question. What we specialize at landing buildings is buying heavily discanded real estate in the private market. Uh. And that exists almost all the time, not reads as a group, but there's always a stock or a sector where you could buy it at very

substantial discounts to private market values. What's always fascinated me is the private capital uh that is piling up on the sidelines, is putting the money out at the private pricing, which is often uh in the relatives the stocks are buying materially higher valuation than what we're buying it for

in the public markets. And I think some of that private capital in eighteen was looking at the valuations on some property types and saying, you know what, we can't put this money out right now because the returns are not attractive enough. And you know, our argument is, you know, you should be buying the public company is a big discount, rather than going out and buying it in the private market where you're paying essentially net asset value where the

assets will trade. So here we are where I don't know. This is daye of it feels like of lockdown. You have more than forty one million people who have applied for first time unemployment benefits. The GDP feels like it's been cut in half. What has this done to the price of both real estate in the private market as well as the public markets. So the COVID nineteen really turned real estate on its head in certain property types.

And we've been spending very intense period March and April trying to figure out what the landscape is gonna look like. The last time I remember this type of an intense impact on real estate was was after nine eleven. And of course, the predictions that occur in the days and weeks after a crisis like this, and some some are going to pan out and some aren't, And so it's important to use that period as a lesson for some

of the things that might occur in the future. I would say, we're not seeing a lot of price discovery in the private markets on real estate because it's too soon, uh, and it's hard to close real estate. You know, we're talking to the private equity guys and getting a deal closed if you need government approvals and notaries with the stay at home orders is quite difficult. But I suspect we're going to start getting price discovery in the next three to six months, where the private equity guys are

going to be buying real estate. You know, as John Gray said of Blackstone following March, you know, they could buy on the screen, but they couldn't buy in the private markets, And they bought eleven billion dollars worth of securities on the screen, so they clearly were opportunistic and buying at that time. The big changes that occurred were the work from home were competitive people thought, uh, and the bosses of the big companies saw that it worked

better than people thought. And many of them lived through nine eleven and it was very poor the work from home to the week or so. After this time, it's really working smoothly. And whether it's Gorman at Morgan Stanley or Think at black Rock. Uh. Commenting, particularly as it relates to New York, at how the productivity is quite high and the office used is likely to decline in the future, and so office was already soft in New York.

And I think this is going to really accelerate a downturn in office in New York, and it's gonna accelerated downturn in major urban office markets and major urban residential markets because I think as people discover that they can work from home and maybe go to the office one or two days a week, they're going to move to the burbs. UH. And as they moved to the burbs,

they're going to move further out UH. And so this dichotomy of urban cores being adversely impacted and suburban markets being positively impacted, I think it's with us for the next three to five years. Some of it was already in place because she had the millennials getting to the age where they were starting families and wanted to move to the burbs. And we already saw the population declined in the past three years in Manhattan UH, and this

is this is going to accelerate it. UM. I think single family, whether it's for rent or to buy UH, is going to be a strong place in the real estate market. I think New York City office is going to be very difficult over the next several years. So let me push back against that, because you're not the only person making that suggestion, and here's the counter argument. Cities and urban centers have been the dominant source of economic growth and cultural creativity and entertainment and and go

down the list for five years. Once we have some form of treatment and some form of vaccine for COVID nineteen, why wouldn't we just return to that five century long trends. I think the reason why New York works and New York will always be a major UH market is you have a brain trust people in Manhattan and the Tri state area. So if you want to be an employer, you can come here and you can access that brain trust.

I don't think that's going the way. And we're not saying New York is going to see a population to client. We've been seeing the populations fall about one percent of year for the past three years. We think that accelerates a couple of percent um naturally. Then if you just look at demographics and a lot of investing in real estate, he's just looking at demographics. Where is the pig and

the python gonna be um? And right now, the millennials are that prime age to start families, and they're moving out of urban corps and they're moving to the Burbs. And that's going to happen with or without COVID. It's

been accelerated because of COVID. I think New York like myself, I've been working in Connecticut for twelve years, UH, and you know, I make sure I'm in the city one or two days a week, and I set up external meetings, set up internal meetings UH with UH colleagues, and the excitement and the energy in New York will always be there. But I think what's going to happen, UH, there's gonna

be a hybrid model that's going to develop. And that is, if you had a thousand people that worked in an office every day, you'll probably go to seven and fifty people UH with that other peace being there in two days, somebody else's in two days UH. And that's not going to go to fifer zero in my mind. But you're

gonna have that UM hoteling of office space. You have your laptop, you come in, you grab a office, you grab a desk, whatever your pay grade is UH, and you set up your appointments and you have conference rooms and you have UH meetings, lunches and other colleagues come in on those days. I think that's likely how it's going to play out. And I think that's facilitated by technology.

The technology didn't exist ten years ago uh where that was really feasible, But the technology exists today and people want to Yeah. In fact, the SEC after nine eleven mandated that every UH security firm and every st management firm not only had a backup plan, but had an ability to flick a switch and relocate if they were to have lost are headquarters. So the one of the end results of none eleven is that the work from home, the work remotely is much more easy to perform these

days than pre No eleven days. Not just go to the technology, but because people have thought this through in advance. Absolutely. I mean, we flicked our disaster recovery plan on immediately, and you know, because we were one required to by the SEC have a plan, but we were regularly testing it and you were up and running the next day. We didn't have to buy anything that really was wouldn't go. Quite fascinating. So, John, you picked quite the auspicious year

to launch a real estate investment company. You you launched the firm in two thousand and eight, Is that is that correct? Correct? So you start your career in eighty seven. You launch your business in oh eight, you have to let us know the next time you're gonna do something significant, so we could all hide our death. What was it like launching the firm right into the teeth of the crisis. So you know, it's it's it's funny. I guess when

you look at it in the hindsight. You know, at the time I got into the real estate business to buy real estate. UH. And I did it privately, and then I did it publicly, and then um, the Wall Street firms became I was very aggressive as a by side investor when these companies were going in public and reviewing the prospectuses UM, and challenging the c e O s on why they were structuring the deal is a

certain way. Uh. And the Wall Street firms that were taking the company's public said, hey, we'd rather have you in the tent pissing out than outside the tent pissing in. UH. And so I accidentally became an analyst and went to Solomon Brothers. UM. Although I'll just kind of digress for

a second. So Sam's l was taking his first republic and he came to the office, and you know, I was a young guy, and I had my legal yellow legal pad and I had like four pages worth of questions and I sat down with Sam and Sam comes in with his motorcycle. How many slaps it down on

the conference room table. Uh. And he introduces himself and I said, say, I, you know, look, I apologize in advance, but I've read this perspectives cover to cover and I have like four uh legal pages worth of questions and some of them are gonna be a little tough and a little probing. And he looks at me and he goes, John, I was shaking in my boots, fire away, very classic Sam. And he and I, you know, stayed in touch ever since, and he has been a great mentor to me throughout

my career. UM. But so I did that, and then I accidentally became a Southside analyst UH and I built a great franchise. We were the number one rank group for the majority of the time I was there, and we were very focused on making sure we were advocates for the investors and reads, not a shill for the investment bank. UH. And so we pursued our research quite aggressively, picking stocks and calling out miss so on the part

of management UM, and I loved that. I had a blast doing it, and I had a great group of folks that I worked with UH and a great team UH. And I ended up running not just the US but I was the global Property Strategy City Group and it was it was great fun. But around two thousand and five, I wanted to get back to the investing side. UH. But at that time we also send bubble gum machines out to our clients, suggesting there was a bubble forming

in commercial real estate. Prices were flying higher, interest rates were low. And I said, you know, this isn't the time for me to go out and start a firm because I think there's a bubble and it's going to break. UM. I'd rather wait for the bubble to break, UH, and then get out and start a businesses investing in these stocks. UM. And so UH we send the bubble gum machines out by June or two thousand and seven is actually this week.

In two thousand and seven, I was at a ReConference and we met with fifty c e O s UH and at the end of the conference, we were debriefing with my team and there was a common theme that we found from every company. UH. Demand was slow, supply was high, and financing was difficult. And I was of the opinion and our view was it was over, the bubble was breaking. UH and UM it was that was

our view on the real estate market. But it was also at at that time my view that, UM, there's gonna be an opportunity for me to start the investment firm that I wanted to start back in O five UH. And by the first quarter of oh eight, UM. You know, I spoke with the folks at City UH told them what I was looking to do. UH, and they were very supportive and they gave the she did our funds. They allowed some of my folks to join me, and

we launched the business of August of two thousand and eight. UM. Fortunately we were quite barished and we were able to make some money in two thousand and eight on on the market. But it was wild. I remember there was one day when our group of stocks reads traded a range uh in one day. It was just mind boggling. And the key was really to have a low nets

and UH and and tight risk controls UH. During that period. UH. I'll never forget that song, the R. E. M Song and to the end of the world as we know it kept flying around in email boxes. UM and of course we all got through it and real estates going on to be a great place to be. I remember that song and I remember Tom Petty's free falling also being heard in various UH trading rooms. So you have

a reputation as occasionally taking activist positions. How is this different with what we think of as tradition sational operating companies versus being an activist with reads. So we like buying cheap real estate in the public markets, and sometimes those stocks are dislocated because people don't like the fundamentals and they don't like management or something, but they're not

fundamentally broken companies. UM. And in those cases where there's something that's broken, that can be fixed and you can unlock the value and get back to net asset value UM, you can work with the boards, you can work with the management team, you can work with the other shareholders to unlock that value. We've been involved since in UH twenty nine activist campaigns UH, and we've seen companies sold, We've seen new management teams, new boards, assets spun out,

companies fixed UM and UH. It's been a terrific way to unlock value UM in UH in the public markets and realize that net asset value UM. I'll tell you just one story from last year, and I was thinking about it this morning because this there's a big ReConference going on today and tomorrow and UH, as it was in two thousand and seven, a seminal event UH for

me and my deal. We're real estate here. UH. There was a major announcement by Blackstone, and Blackstone was acquiring a warehouse portfolio for nearly twenty billion dollars at an all time high valuation. Now, we had an activist campaign going in a warehouse company, and warehouse is a hot property type, very strong demand. Rents are going up quickly, valuations are going up quickly, as we saw at that

Blackstone transaction. And we had started an activist campaign about nine months before this conference in June of h in Liberty Property Trust, which was a warehouse company, and it was trading at a substantial discount to the value of its real estate, whereas the other publicly traded warehouse companies were trading at premiums. And we thought the reason it was trading in a discount was because it had an office component, which people don't like office. Investors don't like office.

And because the company and the management team had made poor capital allocation decisions. So if people wanted the way warehouses, they buy one of the other companies, they wouldn't find Liberty. And we began a discussion with the board and the management team. UH, and we said, you know, if you just sold the rest of your office portfolio, we think you could close the gap to n A V. And we also think you should develop a succession plan and

refresh the board. And I got to say in our activists my career as an activist, UM, this board was very professional. Uh. And UH listened and responded. Uh. They announced six weeks later they were going to exit office, and the stock moved nicely. We got somebody on the board maybe six months after we started our campaign. UM. But then what happened at this conference a year ago was Blackstone did that transaction. And I ran into the CEO in the hallway, UH, and I said, Bill, would

you think of the Blackstone transaction? And he said, my portfolio is better than that portfolio. That portfolio is worth that valuation. My valuation is even better. And I said, well, give me a second, your stocks at fifty and I did the math in my head and I said, so, like sixty two bucks of shares what you're worth? He goes yeah, And I was like, okay, so how are you going to get to sixty two? Uh? And he

realized you probably shouldn't have said that to me. But we had a nice call with the board a few days later and said, look, Um, if you have a way to get to sixty two without selling the company, don't sell it. But these guys are paying big prices and they go a lot of money to put out. You should call Blackstone, you should call Prolodge, just call brook Field and see if they'll buy the company. And again, to their credit, UM, they a little reluctantly, but they

did engage with UM. The three big buyers and prologists ended up buying them for sixty one dollar to share. Evaluation that this management team was unlikely to ever get the stock to on their own UM. And so I think the activism is a great way to find these diamonds in the rough in the real estate market and work with the boards and management teams UH to unlock the value. And you know, we don't like to see companies going away in sales were much rather to see

companies fixed. Uh. In this case, it was likely the only way it was going to get there to that kind of valuation. So we think it's a it's a it's a great way to buy cheap real estate in the public markets. Uh. And when we see these pension funds buying in the private market of full value, uh, you know, we think, uh, you know, they should be doing it. In the reads, quite fascinating. Let's talk a little bit about a comment you had that I'm someone

intrigued about in your most recent white paper. COVID nineteen has supercharged the American dream of living in a single family home. Discuss so obviously the American dream we all know living a home. And with COVID nineteen, it accelerated the movement of the millennials out of apartments in the homes in our view. Uh. And you know, if you talk to folks that are living in apartments now, they are like cooped up and they're afraid to press the

elevator button. They don't want to be on the high floor. All the cultural benefits of being in an apartment in an urban setting had participated during COVID nineteen and they were thinking of moving anyway, they were at that age. UH. And so what we've seen is that the public companies that own homes and rent them out and the companies that build homes saw, much to our surprise, a real pickup in demand the second half of a roll and

throughout May. UH And UH. You know, one of the things we love and I always tell my investment team, we have to know our company's cold. We don't know when we're gonna get the opportunity to buy them because they're cheap enough. But when that happens, the market goes against the down or it goes against the company. We

want to be ready to move. Uh. And in the midst of the crisis, UH, in March, we saw the home builders in the single family for rent guys get really cheap, and we started buying them, and we were calling every day anybody we could call, UH to find out what was going on with new home sales, what was going on with the ability of the tenants and the homes to pay rent. And we got comfortable that

it was not going to be a total disaster. But then there was a real surprise that happened in mid April where we started hearing that the rental guys were able to push rents and occupancy UH and the home sales started picking up. And that's only been accelerating. So this trend out of the city's which has been going

on pre COVID, has accelerated. And an interesting fact, you know, one of the things we didn't talk about we talked about New York is um the inability to duct the state and local taxes is a bad outcome for places

like New York. And one of the home builders said they've seen the most the greatest increase in demand in Texas and Florida to states with no state tax and so I think we're going to continue to see both financial incentive to move out of certain states with high taxes to states with lower no taxes, and this move into homes. And I don't think that's going away. I think that's again demographic, it's generational. UM. You know, it'll

ebb and flow. But I think the next two to five years you're going to continue to see that movement to single family homes, wanting to be in a good school district, having a backyard for your family, typically have two wage earners, versus one wage earner and an apartment um So I think those trends are set in most s and are likely to continue. I think the spike we're seeing right now will abate and become a more normal,

steady growth. But what we're seeing out of the apartment owners in the urban markets is a real challenge on occupancy and rent. Again, we're at this Navy conference today and tomorrow, and so all the companies are giving us updates. In the apartment occupanties are down two basis points and rent are it down anywhere from four to seven in the apartment And so there's a real movement out of apartments and into single family homes, whether you're renting it

or your owning. So we've been hearing that housing demands is outstripping supply, especially for single family homes in the suburbs. But we've been hearing that for a long time. When does this reach the point where it really becomes problematic and we begin to see a significant increase in real estate prices. So the single family home prices bottom that I'm going to say the end of eighteen uh and have been accelerating and they're now going up about four

percent a year. UM. I don't think that's terribly concerning, because it's not like we saw in the housing bubble where they were going up much much more dramatically. The other advantage that we have in the single family market post COVID is thirty year mortgage rate is probably going to decline, and it's down base points now, but we're probably going to see that it's gonna be down over UM.

And so the individual or the couple that was living in an apartment or uh somewhere else UM now has the ability to buy a home because it's more affordable because the interest rates are so low UM and so UM. I think that the demand will continue. Uh. The prices probably won't get out of hand because the builders will build new homes and sellers will put their homes back on the market, uh, and the inventory will clear UH, and I think it will be much more rational. But

you know, time will tell. The key thing about being an investor in public real estate is you can't just have a thesis, put it in the bank and forget about it. You have to be in the market every day, UH, talking to as many folks as you can to see if those trends that are underpinning your investment thesis are changing. Uh, and when they change, you've got to reevaluate. UH. You know, I talk a lot with my team about the off ramp.

You know, it's easy for them to come with their investment thesis and their presentation about why we should buy a stock, but UM, it's much harder to say when should we get out. And so when we go into a name, we have clear off ramps. If this doesn't play out the way we expected, whether it's in the first six months or in the third, fourth, or fifth year,

we're constantly monitoring the off france for not working. So I think the key as we're looking at the housing space and as you suggested, you know, we may have an under supply and prices going up too quickly. We just got to keep our finger on the pulse of it, uh and make sure we're aware of what's going on,

and then reassess our investment RATIONALE. Let's stay with that question of supply because I'm I'm intrigued by the concept that nimby ism the not in my backyard regulations that not only are in cities like New York and San Francisco, but all the surrounding suburbs have really kept density low and have kept lower income housing out. Are we going to see any change in nimby laws and how might

that affect housing supply and prices? So most new construction of single family homes is on the outskirts of town. That's maybe an overstatement because it sounds too remote. But inside the let's say highway circle, the first circle, it's pretty well developed. So there's not gonna be a lot of room for a national homebuilder to come in and buy a hundred acres and and and build the homes, So they're gonna have to go a little further out. Now.

It's interesting, it's with the work from home. The individuals are willing to go a little further out as well because they don't have to commute every day. Um, So we've got a monitor that supply and make sure it doesn't get over supplied, which you know right now. We've been underbuilding the single family market for since the financial crisis, So I don't see that as an immediate challenge clearly. You know, when I got in this business thirty years ago.

The beautiful thing about New York is high barriers to entry. You can't build no news supply, and we have all this demand. What's fascinating about New York is we're overbuilding the office market, We've over built the hotel market, and we've also seen overbuilding in the for rent and for sale apartment market in New York. And this is in

a market which is supposed to have high barriers to entry. So, UM, what happened in apartments, particular in New York is there were tax benefits that were granted to build an apartment building. Those tax bandonfits were expiring, and so a lot of developers rushed to get as many deals approved as they could. UH, and that resulted in oversupply. And than that, I think what's really to your point. We talked about this a bit earlier about the cultural and economic and excitement that

goes in New York City. Um, one of the challenges to that for many people is the cost of living in New York City. I think the cost of living in New York City is going to be lower in the next several years. I think it's look cheaper to have an office space, it would be cheaper to have a store. That's can be cheaper to rent an apartment, to buy an apartment and some of that will keep

some of those millennials in the city. But it doesn't take a big change, right, It doesn't take the people moving out of the city to cause a ripple in the market. If we see a one percent declientate population each year for the next three or four years, that's going to be a challenge, and that will make it more affordable for folction. I want to stick with the idea of the edge of town or the suburbs. Just yesterday,

my wife and I founded ourselves. We we live about forty minutes outside of the city, and you go twenty or so minutes east and suddenly it's what you used to think of as not a commutable distance to the city. But as you suggested, if you're only going in two or three days a week, well suddenly there are big areas. And I have to assume this is true for Philadelphia

and Boston, in Seattle and wherever you look. But I have to assume there are large areas that are now potential bedroom committity communities, for job centers and urban location like that that weren't thought of that way three months ago. Oh, I think it's going to open it up and I think it was already opening up with the ride hailing services like Uber, and you know, like you you go

in your car. I do a lot of eeling here in Connecticut with a group of guys, and you know, we'll go thirty or forty miles out from where we live in Connecticut. And we've been commenting the past three or four weeks how there's all these cars with New York license plates driving around in these communities, clearly you know,

looking to escape either renting homes, are looking to buy homes. Uh. And you know, we've been riding here for twenty years and it was a real noticeable uptick to see all these all these New York plates hanging out in Connecticut. So and I think, you know, the work from home.

You don't need to be five minutes from the train station if you're gonna take the train in, and you know, you don't mind a little longer commune if you're not going in is Austen And one of the arguments, uh, that I've heard, And we'll see if it will play out.

But as we get to autonomous cars um or right hailing, you know, the Ubers of the world becoming more upiquitous well, the community is troubling for folks because right now, if you live in the burbs, you go to the city and use mass transit, you gotta take your car to the train, you gotta get on the train platform, you gotta train in, then you gotta get on the subway,

and then you have to walk to your office. Um, if you start eliminating some of those steps or making the whole process easier with autonomous cars, the view is that that's going to change where people live. And now with work from home, you know that's gonna clearly accelerate it.

An interesting point on this, which which you didn't bring up, but I think is related, is you know, some of the home builders are thinking about what happens when we don't need two car garages because people don't have the second car because they're using autonomous or right hailing services. So how do you redesign the home? What about Amazon deliveries and other deliveries are becoming a bigger part of

what happens at the house. Do you need a vestibule built into the home so that the delivery guys can put the things inside but not be able to get into your home. And now with work from home and pandemics. You know, we have four kids, the six of us living in this house. Uh maybe uh, you know, are thought to down size an empty nest with supremature, and maybe you'll see less downsize and you'll see less of the sort of end of life of the homes and

the downsizing being postponed or not done at all. So it's gonna be really interesting to see how how this evolves. But I do think it was ushered in by technology and the productivity that employers like myself are enjoying as people are working from home. One last thing I didn't ask you about that I want to get to and I know you don't have a crystal ball, but you have to look at the suburban malls and other retail

UM reads as being somewhat problematic. What is going to happen with that space retail renaissance in the future or is that waiting to be converted to high density housing at some point in the future. The there were two thousand regional malls in the U ten years ago. Um, there's gonna be a fraction of that in the future. Uh. And how you repurpose those malls that are no longer viable. Uh is gonna be a real challenge. And I think, uh it's a challenge for the towns where they're in

because they were big taxpayers. UM. And you know, tearing down the mall is not in an expensive proposition. UH. And if it's population has moved away from that location. UM, you know, it's a challenge as to what you could put there. I don't know that there's a clear a clear answer. Uh. These things might just sit empty. If you remember, Bloomberg's took over the old Alexander's department store

building UM in its current location. That's that empty for ten years before Tornado built what it is today, the Bloomberg building. And I think it's going to take a long time. But I do think that that fraction of the malls that remain open are gonna be very successful. Uh. We're gonna have a much smaller footprint for many of the retailers. Uh. Those malls are going to see high traffic. People still want to go. You know, I was on

the board of Tavern Centers. Uh. And when you go to some of their assets, um, and they have the best mall portfolio in the US. UH. You go to some of their assets Um. You know, I remember one down in Florida Dolphin Mall. Uh, there was somebody following me around and I'm like, what was this woman following me? And she was following me to get my parking spot and then she called her husband, so he drove over and she just asked me to wait because there was

no parking spots available in a lot. Um and um, not that exact scenario isn't true if many of them malls, but it is true right where they are full and people want to go out. So I don't think they're all going away, but a lot of them are gonna be really challenged. You know. You would asked me a question earlier about valuations and how real estate will be

valued in the future, and I don't think I answered it. Um. I think one of the fascinating things that's going to come out of COVID is the FED dropped rates from call it two to a half percent, or FED in the tenure Treasury yield went from almost two percent to a half percent. UM. Interest rates going down UM means that financing costs are going down. That means that the valuation of real estate is likely going up, but not

all real estates created equal. I think warehouses, data centers, cell towers, single family for rent are going to see valuations of their real estate go up materially over the next several years, whereas the valuation of the malls, the shopping centers, the hotels, the casinos, the office buildings are going to be more challenged because the secular headwinds that

are impacting those sectors. So they may see valuations hold, they may see them decline, but I don't think they're going to go up as much as they could otherwise given the given the interestry decline, And if I look at my career, the one big surprise that I wish I knew before was that the tenure was going to be a one direction trained down because if you knew that, you would have just loaded up in real estate thirty

years ago. Uh and and rode the train as as interest rate fell and the evaluations real estate increased thirty years I'm gonna tell you it's forty years back when Paul Vulgar broke the back of inflation. Quite fascinating stuff. I know I only have you for a limited amount of time, So let me get to my favorite speed round questions and talk to you about our five favorite questions we ask all of our guests, starting with what are you streaming these days? Tell us your favorite Netflix

show or a podcast or or whatever. So I don't listen to a lot of podcasts. Is gonna listen to some of years? Now? I see you some great speakers. But what we're in the car and we have the kids. We we listened to How I Built It, and we listened to some great episodes on Spanks and Kate's Cookies and how those businesses we're creating. We love those. Um, what are your favorite Netflix shows? Do you give us a couple if you like? So, you know, we don't

watch a ton of TV. But there's this new Apple TV. I think it's called Defending Jacob uh Uh. That is it's fascinating and we wait for each new episode to come out and we watch it, and so that's been a lot of fun to watch. Um, but we're not watching a ton of TV, oddly enough, tell us about you mentioned Sam's l earlier. Who are some of your mentors who helped shape your career over the years. Sure, so Sam's IL was a big influence probably for me

and many others. Uh and He's always been incredibly gracious with his time that will spend uh, you know, talking with me uh and uh and and speaking at conferences and and I've done a lot of fireside chats together. But uh and I was just talking to him last week. Uh And he's just got his finger on the pulse. He's very quick. Uh he gets it. Uh And and he's really been a fantastic mentor to me. The other one who is a gentleman name is Steve Roth who

runs Tornado And I mentioned him briefly briefly before. Uh and he's the one that really um focused me on buying cheap real estate in the public markets and the big when I met him. The big thing he had done recently was by the Alexander's department store chain. Uh. And he didn't buy it because he wanted to be in the department store business. He bought it because he wanted the real estate. So he shut the department store down and then redeveloped all of the real estate that

they owned. Obviously, the killer location was the full City block which is now the Bloomberg Building. Um And it took him ten years, but uh he was able to uh put in great retail uses on the ground floor. Uh. And then Bloomberg's office space in the middle of some condos on the top of that building. Uh. And um, you know, took something that was undervalued in the public markets and created billions and billions of dollars of net worth and um. Throughout his career and my career alongside him.

You know, watching him do that over and over again has been enormously valuable. Uh. And it's, frankly, you know, something which we practice in in particular in the activist work that we do, But we try to find these undervalued real estate and the public markets and and go about unlocking that value. Quite fascinating. Um. If you're not watching TV, tell us about some of your favorite books.

What are you reading these days and what books do you like to recommend to people who might be interested in real estate. So one of my favorite books I've read in the past few years is Malcolm Gladwell Outliers. It's the whole book. I reread it, um, and I made all my kids read it. I made doctor with about it. And uh, you know, in that book, he has this concept of ten thousand hours. You know, if you spend ten thousand hours doing something, Um, you're gonna

get good at it. Uh. And um, you know the people who really put in, whether it's the time in the pool, at the time at work, er uh, practicing an instrument um and they you put that kind of time and energy into something, you're gonna you're gonna master it. Uh. And he hasn't got a great um. Uh. The people that he talks about in their cookie tasters. And I didn't know this about cookies, but the or food tasters.

But when they make an Oreo cookie, um, the cookie uh, the excess dough I guess they used to make the next cookie. And these two women who were food tasters could tell when they ate an Oreo cookie if it was the original or it was the excess um and the remake cookie. And you know, I think about that in my career, and I've been doing real estate a long time, and I think about the example I talked about earlier with Liberty, where I didn't have the numbers

of my fingertips. Uh, but I was able when I ran into that CEO in the hallway, but I was able to sort of do the math at the rough math in my head and come up with sixty two dollars share and value and that's just something. And then the company got sold at ste That's just something that comes with putting the hours in. And I think that's such a valuable lesson. And you know, that's why I had my kids read it and that they're going through school and I keep reminding him about it. The other

book would be Safing, which is history humanity. Uh and uh, you know I read that book actually twice. Uh and um, you know, you you lose track as we've been here for like a nanosecond in the scheme of human beings being on the Earth and the development and uh, I think it's, you know, a wonderful book that puts our live into perspective, our lives into perspectives. Uh and really some of the damage that human beings have done to this planet, um, and hopefully being able to get get

ourselves out of it. So I thoroughly enjoyed that book. Great suggestions both. Since you mentioned kids, what sort of advice might you give to a recent college graduate who

was interested in a career in real estate investing. It's funny, you know, we just rewatched The Graduate from nineteen sixty seven with Dustin Hoffman and so you would say plastics that your suggests and uh so I always say to my kids, they said they listened to me or people that work for me, it's it's content because technological technological

advancement have eliminated a lot of jobs. And I just look at my career, you know, the trading floors, emptying out, the sales forces, emptying out the people that you know, did all the stuff to get our research reports ready to go out of those jobs are gone. But you know, I'm a content guy. And if I look around that the people who have long careers. Uh, if your content you're like your content guy Barrier, Right, We've got content

right here, your content guy, you can have a long career. Uh. And so figure out how to create and developed content, whether it's you know, picking stocks, or writing research or creating new technologies. I think that's the that's the answer to the future. Quite quite fascinating. And our final question, what do you know about the world of real estate investing today that you wish you knew thirty plus years

ago when you were first getting started. I wish I knew the tenure was going to be a sixty basis point um that would have made investing a lot easier. Um, all the wall of worry while rates have been coming down, um about rates going back up. You could have just dismissed and bought and finance short and held on for the ride. Quite quite fascinating. Thank you John for being so generous with your time. That was John Litt, Founder

and Chief Investment Officer of Land and Buildings. If you enjoy this conversation, well, you can check out any of the other three hundred such discussions we've had over the past nearly six years. You can find that at all of your favorite podcast locations iTunes, Spotify, Google, Overcast, Stitcher, wherever final podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Hey, check out my weekly column at

Bloomberg dot com slash Opinion. You could follow me on Twitter at rit Halts, and if you would like to see my daily reads, you can find them at Rid Halts dot com. Sign up for that email. Also, I would be remiss if I did not thank the Crack staff that helps put these conversations together each week. Tim Harrow is my audio engineer. Michael Boyle is my producer Mike Batnick is my director of research. A Tick of

V Album is our project manager. I'm Barry Ridholts. You've been listening to Masters in Business on Bloomberg Radio.