JackChat January, 2018

January, 2018

For many years, while a member of the Cohen Financial team, I authored “Financing Notes”. The final issue of Financing Notes was issued 2Q2015. Nearly thirty months later, I introduce to you the first issue of JackChat.

This past week 1801 registrants joined colleagues of mine at the CREFC Conference in South Beach. The talking points for the conference exuded extreme optimism. It was exciting to see the industry awash again in liquidity, yet not pushing LTVs or fundamental underwriting concepts. The industry seems to have reacted to Dodd-Frank as if it was “Y2K” – much ado about nothing. And, the rise of the Alternative Lender (its not a bank, its not a conduit, its not a life company or a pension fund…) surely will yet again change the landscape of lending competition amongst not only these lenders but also the regulated banks and life companies as well.  Clearly this will benefit the current state for the user of capital.

I am excited about 2018; I am excited about the uncertainty ahead. I truly believe that the industry is approaching an inflection point. Good? Bad? Unknown; however, what is known is we have an unprecedented opportunity to benefit from changes in revenue models of businesses operating across and adjacent to the real estate industry.

Not only have unprecedented monies been raised for debt funds; but, unprecedented monies have been raised for technology, FinTech, PropTech, businesses as well. New, innovative, ideas are not only being heard, they are being tested, funded, brought to market, and introduced to existing and new participants in the industry. This in my view can only cause the speed of change to increase. Are you ready?

Competitors have run businesses because they could; what if innovative ideas and new funding could free businesses to do what they should? Avoiding behavioral biases like Confirmation Bias and Endowment Effect could (to coin the phrase from an old but classic commercial from Hewlett Packard) cause more and more folks to ask, “What IF….?”

I can’t say I know exactly what Cryptocurrencies are, how they work, and where they can be applied to our industry; however, I do know funding is strong for Crypto-affiliated stocks. That and the use of technology creating applications that can accelerate the speed of business execution has me very excited. Think about the opportunities to review, replace, enhance, and create products and processes to help us run our businesses, to do our jobs, and identify, assess, mitigate, and price risk taking.

Things I am seeing:

• More equity going into deals
• Assets values are up 40% over 2007 peak values across the top 6 markets; up 11% on the next 44! This tells me that this is the unintended consequences of all the Foreign Capital that has been flooding the domestic marketplace. I ask What are the implications for the later part of the cycle?
• Borrowers choosing not to over lever their properties
• Investors committing to the business positioning that their objective is to provide for investors the delivery of consistent returns.
• Professionals are seeking out ways to use Big Data and Deep Data instead of merely relying upon their gut.
• Business leaders focused on building a culture led by great teams.
• Business leaders strategically looking around the corner and challenging their teams to ask if their business is broken or merely outdated?
• Collaboration; partnerships. It’s a connected economy; lets network people, products, organizations.
• Capital Markets as a financing tool rather than an industry.
• Technology being used as a tool to enhance rather than replace and disrupt.
• The growing integration of Digital with Physical aspects of a business (or product delivery through new channels of distribution.)
• The focus on experiences and values rather than the transaction.
• What Whole Foods CEO, Walter Robb, called Conscious Capitalism – purpose, stakeholder integration, culture, speed of leadership with deep roots – isn’t just words; it’s how he led the growth at Whole Foods!

Seth Matheson tells us that the best of the best have their feet in two worlds – they execute today and reinvest themselves by executing on small experiments for 2020. Be courageous, challenge your constituency to build a great business rather than seeing the CRE business you are in as a random collection of transactions being served up to admitted deal junkies!

In the Goldman Sachs 2010 Outlook report, “Taking Stock of America”, Nobel Laureate in Economics Daniel Kahneman and the late Amos Tversky coined the term “Availability Cascade” for the way “a proposition can become irresistible simply by the media repeating it.” Some very famous world leaders across history have tried to prove “a lie told often enough becomes the truth!” Let’s end “Group Think”, challenge all our assumptions, and think outside the box.

What if this is the single greatest opportunity for change the CRE industry has ever seen? How will you optimize your journey?

The best ideas belong to others; steal freely!