SPEAKER_00: Season two of The Next Unicorns is brought to you by LinkedIn Jobs. A business is only as strong as its people and every hire matters. Get $50 off your first job post at linkedin.com slash unicorn and Zendesk. Listen to Zendesk's new podcast, Sit Down, Start Up, to hear conversations with Zendesk's leaders and the founders, CEOs, and makers on how to start up, even when the world goes topsy-turvy. Download and subscribe on Spotify, Apple, or wherever you get your podcasts.

SPEAKER_02: Hey, everybody. Welcome back to This Week in Startups. It's your boy, Jake Howe, hosting you here during the summer of the pandemic in 2020. Hoping you and your family are okay and that you're figuring out if you've got kids, school for the new year, and I hope work is going well,

SPEAKER_03: and that we're going to get through this soon. I am an optimist. I think we will.

SPEAKER_04: And getting down to business, we had a wonderful series in the last year called The Next Unicorns, or as we call it internally, Sunicorns. What's a unicorn? Unicorns are companies that get valued

SPEAKER_06: at a billion dollars or more in Silicon Valley, the valuation of the company, not the revenue. But the valuation is usually based on some large amount of revenue and some sustainability.

SPEAKER_04: And it's arbitrary, sure, but it's important because it means a company is getting to scale and that they have a chance of maybe going public or changing the world in some deep and meaningful way. And it's kind of fun to see if we will be able to predict that these are, in fact,

SPEAKER_06: unicorns. We'll look at the first 10 we did and we'll see what percentage we hit. We'll look at this 10. We'll see what percentage we hit. That'll be really interesting. And we've asked a lot of you to tell us which companies you think are breaking out our investor friends out

SPEAKER_03: there or founders. And you can always do that by just emailing me or DMing me on the Twitter at Jason or Jason at Calacanis.com, my first name and my last name. And if you want to be part of

SPEAKER_06: our super secret Slack group where just thousands of people a week are talking shop, there's probably a couple hundred people who are really into it, talking about building their startups, you just go to thisweekinstartups.com slash slack and you fill out a form. You promise us you're not going to spam

SPEAKER_04: the Slack channel. And we will invite you to join us and talk shop, everything from fundraising to

SPEAKER_03: product development ideas. We have a book club in there. It's kind of fun. It's an interesting little experiment and we're happy to be on it on that little journey with all of you. So the first

SPEAKER_06: two companies we did were in healthcare and in housing. And it's no doubt that healthcare and housing are on the list of sunicorns because these are huge, huge issues in our life, right? Transportation, Uber, and then food, Postmates, Uber Eats. And then you look at health, tons of companies in health and you look at housing, tons of companies in housing, but they're very difficult. Building meaningful companies means you're taking on spaces that sometimes have incumbents that are

SPEAKER_11: sometimes resistant to change and that are sometimes just very complex. Housing is one of them. We've

SPEAKER_12: made a couple of investments there. You may have heard of Blockable, B-L-O-K-A-B-L-E.com. They're

SPEAKER_03: building modular housing in factories, kind of like the Tesla of housing. Well, today we're going to talk

SPEAKER_04: to Gary Beasley, who's from Roofstock, and he's got an interesting take on housing. And it's very interesting to have you here on the podcast, Gary, because we're taping this during a pandemic. And I was listening to a podcast you did on some niche real estate podcast. And you were talking in November of 2019 about, you know, there could be a downturn at some point. And, you know, if that happens, here's my views on the world. So welcome to the podcast. And my first question is, are we in an

SPEAKER_03: acute housing downturn right now? It's July, end of July, 2020, when we're taping this, this will

SPEAKER_15: come out in August, 2020. Not yet. I think what we're seeing is almost the opposite. It's defined gravity a little bit, Jason. It's a little bit like the stock market, which today seems a little bit disconnected to the real economy. What you're seeing in housing is, for the most part, especially if you get out of the urban areas and the high end, prices have really held up quite well. You're still seeing price increases, very low inventory. And so that shortage of supply and the low interest rates are really contributing to, I think, still more of a bull housing market, you know, more like three and a half, four months of supply, not six, which might be more of an equilibrium. So I would say we're going to have to wait and see how things transpire over the next six to 12 months, because I think there are some offsetting effects that that will be at play, and we'll see which dominate. So there are a number

SPEAKER_04: of factors. It's multi variable here. One is interest rates are historic lows. That is a massive

SPEAKER_06: contributor, correct? Absolutely. And it's, is that sustainable? These historic lows? Was it 3% was the

SPEAKER_23: average mortgage in the last month or two? Yeah, you're seeing some sub 3%. So really, pretty much

SPEAKER_15: historic lows. What's interesting is, I think it is sustainable, in particular, because that is something that's largely in the country, something, it's policy that's largely dictated by the Fed. If indeed, you see so much global weakness and uncertainty, I think we're in an era of cheap money for a while. And it's one of the things that I don't expect to go up meaningfully anytime soon.

SPEAKER_27: There are very few things that I feel that certain about. Yeah. If we're printing trillions of dollars

SPEAKER_04: and giving unemployment to the level, no judgments here, but we're giving unemployment to the level that some people are making 150 or 200% of their salary, the idea that people who want a mortgage can get a low rate is pretty easy table stakes. And then you also have this pent up demand because people weren't able to see houses for three or four months. So certainly that's contributing, right?

SPEAKER_15: Yeah, absolutely. And I think also, being trapped at home is making people over index almost on the importance of where they're. So in fact, we'll talk about our business a little bit, but we traffic in rental housing, right? And so we were at record occupancies, record leasing, people don't want to move. And I think it's the same thing, people moving out of cities, buying homes where there's more space, and people buying bigger houses, because now they're looking at perhaps a work from home environment for the medium term, maybe long term. And so people are trading up and buying more space.

SPEAKER_32: Got it. So to confirm, and we'll get to Roofstock in a moment, I just want to set the stage here.

SPEAKER_04: In the housing market, you have people who are looking at interest rates that are an all time low, you have a little pent up demand, because people haven't been able to view homes for three or four

SPEAKER_06: months when they're shelter in place orders, and that's being lifted. And then you add to that, that people are anticipating some percentage of people that they're going to be staying at home

SPEAKER_04: and working from home on some permanent or semi permanent basis, which means a family that needed a three or four bedroom might need a four or five or six bedroom or an ADU or converting the garage into an office, whatever it takes. And then you add to this flight out of cities, because people believe that because of work from home, they can have a better lifestyle, they don't need to be at the office. That's one. And number two, maybe cities are a little bit dangerous, because pandemics will spread in them quicker. So you put all this together, it's creating movement. And in real

SPEAKER_38: estate, movement is good for business, correct?

SPEAKER_14: Yeah, it creates transactions. So absolutely. Yeah, I think all of those are important factors.

SPEAKER_15: And I don't see any of them changing dramatically in the in the near term.

SPEAKER_04: People are fleeing cities, maybe they're leaving because they're afraid of the pandemic, maybe they're leaving because their boss gave them the green light that they could work from home for some extended period of time. And there was a lot of supply outside of cities of homes, it seems. And inside of cities, we have this massive crunch, and a housing crisis. What happens now with this great flippening that's happened where people don't want to be in cities, and they don't need to be. Cities are expensive, and the country's cheap, and it's better. And you just the only reason you

SPEAKER_41: weren't there previously was because your boss didn't allow it. And now your boss is saying, go for it.

SPEAKER_23: Classic economics, right? Supply and demand. So you have less expensive, more plentiful housing outside of cities. Although the one thing I would slightly take issue with, in most areas, we didn't

SPEAKER_15: really have a large supply of existing inventory, it was still relatively light by historical standards, but it certainly wasn't as tight as in some of the urban areas. But I would say you are seeing more vacancies, and especially at the high end, in some of the cities where people are moving out, and have the ability to just walk away from places and get places in less expensive areas. You're seeing a resurgence in places outside of New York City. You know, people going back to Connecticut, or out to the Hamptons, and renting places for a year. Lots of that stuff happening. And so I do have some concerns about the people, the impact, not only on the housing market in places like New York, but all

SPEAKER_43: the small businesses supported by all the people living there.

SPEAKER_11: Right. That's going to certainly be acute. Yeah, I mean, you don't need as many restaurants, dry cleaners. Even schools and teachers, they might be downsizing as well, if people are going to go, you know, and flee to the suburbs. Absolutely. All right, when we get back from this quick break,

SPEAKER_06: I want to know how this is impacting your business, Roofstock, and what Roofstock is, because that's super important to understand as well, when we get back on this week, startups.

SPEAKER_47: All right, I want to give you $50 right now off from LinkedIn Jobs, which is the greatest place for you to find talent. I have found so many members of my team through LinkedIn Jobs. And I'm going to give you $50 with a special code at the end of this quick ad read. And I just want to tell you about a testimonial from one of you, one of my listeners. Aaron Mason emailed me and he said, Hey, J. Cal, I used your code. I got the $50 off. And he is the founder and CEO of Emma AI. That's a startup that uses AI to optimize travel time for people's work schedule. He recently hired a machine learning engineer who started this July in 2020. And this person has hit the ground running and has changed everything for the company. But here is the actual brass tacks. 110 relevant applications came in, in four days. And I just let's pause for a second. That's over 25 qualified applications a day from LinkedIn Jobs, because of the $50 I gave them from LinkedIn. Terms and conditions, of course, apply. But you are going to be able to hire great people because you all know LinkedIn has over 690 million members worldwide. And who knows, you might be working from home a lot, you might be open to everybody from around the world, you're gonna go on LinkedIn, and you're going to screen candidates who have the hard and soft skills that you need. So when your business is ready to make that next grade hire, when you want to get that machine learning engineer, or even an SDR, or maybe your director of growth, all of those people are sitting there waiting for you on LinkedIn. And if you go to linkedin.com slash unicorn, I will give you that 50, that $50 to get hundreds of qualified people, it's gonna be great, you're gonna fill that position, and you're gonna be back to work. Okay, let's get back to this amazing episode, linkedin.com slash unicorn. All right, welcome

SPEAKER_03: back to this week in startups. It's our special The Next Unicorns. You can see Daphne Kohler from Insitro and Nikki Peckett from Homebound on the first two episodes. And Gary Beasley is our guest today from Roofstock, S-T-O-C-K. So tell us, what is Roofstock? And how do you make money?

SPEAKER_23: We're a marketplace for residential housing that can be traded through our platform completely

SPEAKER_15: online. So think about us a bit like an Amazon for houses. We bring suppliers of homes together who want to sell them, and buyers of homes who want to buy them. And we do all the work through our platform. So we really sort of turn the transaction process upside down by breaking down the geographic barriers to real estate investing. So you could be sitting in Hillsboro, buying homes in Memphis, or anywhere in the US, with all the information that you need at your fingertips. So that's really the idea is to break down those geographic barriers and have completely sort of digital experience. And so we make money by charging buyers and sellers a fee, principally sellers, a fee as transactions happen through the site. And we also charge a small fee

SPEAKER_11: to the buy side. What is that? Oh, 50 basic points to the buy side. So if I buy a million dollar home, 1% of that would be 10, 50 basic points would be 5,000. So I pay you $5,000 for buying the million

SPEAKER_04: dollar home. What would I have done as a buyer of homes previously? Because you're still paying the

SPEAKER_57: real estate agent fees and that kind of stuff? No, no. That's your entire cost as a buyer. And

SPEAKER_15: what we do is that really kind of compensates us for the work that we do preparing homes for sale.

SPEAKER_58: We do all the diligence and pay for that. And then the seller is putting this, the seller puts

SPEAKER_23: this stuff online, uh, with you and you act as the broker selling it. Correct. So think about it. If, if, um, if you have a home and we don't sell a lot of million dollar homes, our, our platform's really designed for a hundred to $300,000 homes, um, in, in lower cost markets around the U S but so take a, take a typical $150,000 home with a tenant in it. So you're buying a home that's already leased typically. That's our model. So we've got the home itself with an inspection. We've got local

SPEAKER_15: property managers and we've got the tenant and create a diligence room for you. So you can,

SPEAKER_23: you see all that information, uh, upfront and we charge sellers typically 3% to sell. And that's the entire cost to the seller and the seller doesn't have to vacate the home to sell it. So we then pay for the diligence. We bring buyers to the table and facilitate those transactions. And so um, I was just looking yesterday at the average home that sells through our platform goes under contract in less than 10 days. So that we have very good liquidity because we're bringing buyers

SPEAKER_15: from really all over the world to buying these homes that are packaged up nicely, uh, that could

SPEAKER_06: be purchased from anywhere. Uh, so if I was a real estate investor and I wanted to do this previously,

SPEAKER_04: I would have probably picked a house that's within whatever, you know, an hour's drive so I can manage it or I could deal with vendors there, which means I'm buying in the same. If I'm an investor, I'm buying in the same region, which means it's going to be super highly correlated. And I probably, if I could afford to buy one, I probably own an expensive house in that area. So it doesn't give me any diversification. And what are the chances that the place I've chosen to live as an affluent

SPEAKER_70: person say Los Angeles, New York, San Francisco, Chicago is the place that's going to appreciate

SPEAKER_71: most next. That's probably not correct. Is that right? We hit the nail on the head. So this,

SPEAKER_15: this allows you to diversify over 70% of homes of investment homes are owned within an hour drive of where the resident lives, the investor lives. So by breaking that mold, you could be buying in lower cost markets for the cost, the price of one home within an hour's drive of you, Jason, you could buy three, four, five homes in another part of the country that have better yield are uncorrelated, as you pointed out. Because if you do have a downturn in the Bay Area or in other places,

SPEAKER_72: it typically affects your job, your primary home equity and your secondary home equity if it's there.

SPEAKER_11: So you're just getting walloped by the same tidal wave if it does in fact come as opposed to being

SPEAKER_04: diversified, which is the whole point of this. Now, if I were to buy in a place, I don't know, I thought Arizona or Texas, Houston, you know, with the big boom areas, I'm not sure if that's still correct. And I wanted to buy in those suburbs. If I prior to using roof stock, I would

SPEAKER_23: have to get on a plane or hire a consultant to do that? Yeah, the old old way is you would

SPEAKER_15: probably look online and see a bunch of listings that might be for sale, you would line up a bunch tours in advance by talking to a bunch of listing agents, and then you would fly to Houston or fly to Atlanta, and you would go look at houses, you'd make a bunch of offers, and hopefully get something. And then once you get something, you would find a contractor, you'd find a property manager, and you'd try to coordinate all this remotely, which is quite difficult. So what we've done is essentially created the real estate investment cloud, if you will, you plug into our infrastructure, and you never have to leave your couch, you can do all the underwriting from there, you could find your, select your property manager from there, do all your research from there, all that's provided for you. And these homes are typically already occupied, so you don't have upfront renovations that are typical if you're buying a house that needs a lot of work. But even so, if it does need work, we have local contractor relationships, and we certify local property managers. So you could outsource the day-to-day management and view it much more like an investment as opposed to

SPEAKER_72: trying to do something the old school way of flying there and just trying to buy houses.

SPEAKER_06: So I buy a $150K house, you get three and a half percent of that or so. So that means you make your five, six K, which is fine. It sounds like you earn that, obviously, by vetting them and vetting the tenant. What does vetting the tenant in this case be? Because my understanding is when you're

SPEAKER_04: buying homes, they're worth more when there's not a tenant. But you're saying that you're diligencing the tenant. So does that mean it's worth more with a tenant that's been diligenced? How does that work?

SPEAKER_57: I would say what we try to do is take what historically has been a liability and turn it into an asset. So if you're an investor and you want a rental home, you could buy a vacant home and have an estimate of what the rent is and then put a tenant in there. Or you could buy a home that already has a tenant in it that's been inspected and where we've reviewed the tenant payment history

SPEAKER_15: and the criteria for getting the tenant approved in that home. And you're stepping into something that has arguably more certainty than by even buying a vacant home. The reason that buying a tenant

SPEAKER_23: occupied home in the past is viewed as a liability is oftentimes those were homes that might be

SPEAKER_15: have been foreclosed on, where the old borrower might be living in there rent-free and they won't leave, or you don't know anything about the tenant that's in there.

SPEAKER_53: So it's high risk. There could be some liability and you remove that.

SPEAKER_23: If you're buying something off the MLS that has a tenant in it, you're probably not going to have

SPEAKER_15: a lot of information on it. So when you buy something off roof stock, because we get access to all that information, we do the inspections, the tenant review, all that, we make it all available to you. So it actually de-risks it. And so in some ways, a lot of people who are buying the homes from us view having a tenant in place oftentimes with six or more months left on their lease as a real asset. And so in many cases, we're finding the tenanted assets are worth more because you don't

SPEAKER_40: have any vacancy.

SPEAKER_17: Yeah. Doesn't it also make the price of the home more accurate if you actually have the tenant in

SPEAKER_70: there? Because I can see a real estate broker saying, yeah, you'll get 7,000 for this house and that, you know, a year in rent or whatever, or 17,000 a year in rent for this house. But the reality is you're going to get 14 or whatever that is.

SPEAKER_22: Yeah. Yeah. So it's verified by the market, right? There's a tenant in there. You want to

SPEAKER_15: make sure that it wasn't a sweetheart deal and it wasn't the guy's brother-in-law or something like that. Or they got four months free and they're paying above market rent. And we help check that anyway. That's part of our diligence.

SPEAKER_09: So is that your business? Is just that making that $5,000 every time you sell a home? Or is there some bigger plan here?

SPEAKER_23: So that's part of our business. We have a pretty large institutional business as well.

SPEAKER_70: Ah. Because I was about to say, that first business sounds good, but not great. So tell me about this institutional business.

SPEAKER_23: There are a million single family rental home trades a year. Ah, okay.

SPEAKER_15: And out of the 5 million homes that sell a year, a million of them are to investors. And so there's 3 trillion of single family rental homes. So it's a massive, you mentioned market

SPEAKER_23: size earlier. So residential housing is the largest asset class arguably in the world at 25 trillion dollars. The single family rental home with long-term leases in it is about

SPEAKER_15: 3 trillion. So that is a massive market. So the retail market, we think, has enormous potential to disrupt the way the traditional assets trade. On the institutional side, the majority of our

SPEAKER_23: business today is actually institutional, where we represent either large institutional owners

SPEAKER_15: who want to sell big portfolios or institutional capital wants to build their own portfolios and they can plug into our system and use it to either build their own or sell their portfolio very efficiently. Because we know who all the buyers and sellers are as a marketplace. So we could very efficiently help them make those trades. And so on the institutional side, we'll charge more like

SPEAKER_72: 1% on a $100 million transaction, where we'll charge, say, 3% on a $100,000 house. So that's

SPEAKER_32: the way it works. Got it. When we get back from this quick break, I want to understand that institutional side. And then is this like what I do with angel investing in syndicates, where people can buy into portfolios of homes as opposed to dealing with the arduous nature of managing just one or two or three

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SPEAKER_04: Every customer counts when you're a startup, especially now. So start building the best customer experiences with Zendesk. Now, welcome back. Gary Beasley is with us and his company's Roofstock. They've raised a bunch of money and they are helping people buy single family homes for rental with the renters in them, as we've heard already. But there's this other business,

SPEAKER_11: which is really interesting because even if you got a 10% of those million people buying homes,

SPEAKER_04: 100,000 of them, and you were charging them 5,000, it's a good business. But this business of being able to bundle homes and the management of them seems to be even better.

SPEAKER_06: But doesn't that business already exist and it's called a REIT?

SPEAKER_15: So the thing to think about with REITs, and I used to run a public REIT. They're good for many reasons. You get broad diversification, you have great liquidity, but you have to remember they are stocks, right? So they're much more correlated with the equity market. Nice thing about property itself is it's essentially uncorrelated to equities and it's less volatile. So if you want direct exposure to a housing market, you could either buy homes directly through our typical site or other means, or you could actually buy shares of homes through our product, which is called Roofstock One. And that is actually, we're currently sold out of shares. We're in the process of relaunching with more inventory, but we figured out how to package up a home and securitize it and sell off the equity in the form of shares. So you could buy 10th shares of homes that have already been purchased by us, renovated, leased out, insured, financed, and you can...

SPEAKER_111: So you'll manage all of that for the investors then?

SPEAKER_15: Yes, totally passive for the investors. So it's a way to get that exposure and you could sprinkle

SPEAKER_23: around $25,000, $50,000, $100,000 across and build your own portfolio. So what you don't get with

SPEAKER_15: the REIT is an ability to say, I want to buy homes in Austin, Charlotte, Denver, and Nashville, right? This way you could pick homes and pick markets and play those markets and outsource all

SPEAKER_70: of the work to us. Got it. And for you guys, that means you get paid a little extra because you're

SPEAKER_23: managing the home as well. Yeah. And we also make a little bit of spread on the buy and the sell because we... So you get carry. Yeah, we charge a fee up front to basically package it up and sell the equity. Got it. And then we get ongoing fees to manage it as well. Got it. Do you get like a 20% carry like I do on the investment? No, no, no. We don't have a carry structure. So what are the

SPEAKER_15: things we're trying to do? Oh, that's a bummer. You know, try to keep the fees quite low and make it very investor friendly so we could create great liquidity and attract a lot of capital. We'll make

SPEAKER_124: plenty of money on our upfront fees and our ongoing management fees. Yeah. I mean, getting the carry

SPEAKER_70: though would mean you were aligned with the investors to pick the best homes and, you know, bundle them together with the goal of eventually an exit. But is that what people are looking for? Are they looking for exits or are they looking for dividends? People are really looking for dividend

SPEAKER_15: and we've structured in our... In fact, in our new program to create more alignment, what we're doing is we're structuring our fees. So a portion of it is an incentive fee based on the yield that's generated based on the dividend. Got it. What we found is people don't want to trade these things very frequently, although they can sell the shares. What they really want to do is buy the shares, get the exposure. It's tax efficient. It's uncorrelated and then clip the coupons. Got it.

SPEAKER_32: And so if I had a million dollars in something like this, what would I expect in terms of return?

SPEAKER_15: What would the range be? So the range of single family rental home returns generally,

SPEAKER_23: whether it's in the form of the security or in our regular marketplaces, your current yield tends to

SPEAKER_15: be 5%, 6%, 7% kind of in that range, depending on if you're in a really nice neighborhood, which is a little bit lower yielding to maybe a lower priced home, which is a little more risk, a little more yield. Then you get, depending on how much leverage you put on it, if it's say 3% annual appreciation at the asset level and you lever it three to one, you could, you could, you know, target your double digit returns on your equity over time. I think a lot of people are targeting kind of 12 ish to 14%. Explain what that means to lever it up. What does that mean? You can, you can borrow against your, these single family rental homes, just like you can borrow against your primary residence. You could borrow typically up to 80% of the purchase price. So

SPEAKER_72: you can buy a hundred thousand dollar home for $20,000 down. You can borrow the rest through a

SPEAKER_70: Fannie or Freddie program. So then I'm paying 3% on that. And then the spread, if I'm making five or six or 7% a year is whatever the difference is. And then that allows me to buy the next home and

SPEAKER_23: the next home quicker, correct? Yeah. And the borrowing cost isn't quite as low as 3% because you, you pay about a hundred basis points more generally for an investor loan. So you're still

SPEAKER_15: in the, in the low fours today. Got it. Um, but it's accretive typically to the, to the unlevered yield. So you get some, some nice accretion there and then you get levered exposure to your home price appreciation. Um, so you're, as you know, your equity could go up many times faster, uh, when you're

SPEAKER_32: using that. And so this is what people have been doing here. And, uh, I've watched people in San Francisco doing this with commercial real estate. And so they got themselves in a little bit of a jam ski because they may have bought, you know, the fifth, sixth, seventh one, levered it up to

SPEAKER_06: make, to buy the eighth, ninth, and 10th. And then they lose their tenants and then they've got to pay the rent on those. So that is the danger of getting too levered, correct? Absolutely. The nice thing

SPEAKER_23: about this asset class, unlike commercial is a commercial is very lumpy. So if you have an office building, uh, that's five floors, you might have five tenants, or you might have one tenant in the whole building that, that company leaves, you're, you're really in trouble with these homes. There are so many substitutes for a tenant of a $1,500 or $2,000 rent that typically there's waiting lists. So the, the certainty of cashflow is higher. The liquidity of, of being able to sell a home,

SPEAKER_15: uh, if you, if for whatever reason you want to sell it to an owner occupant, if it's vacant, you just want to get out of it. There's a very liquid market for homes. Yeah. So that's the

SPEAKER_72: difference between that and the commercial piece. Yeah. Right now in San Francisco,

SPEAKER_03: the commercial piece is collapsing as everybody goes to work from home. What do you, I mean, I know you're not, you're not in the commercial space, right? At all. No, we're not. Um, I,

SPEAKER_23: I've got some experience in the commercial space from earlier in my career, but I've never seen anything like it. Um, I used to be in the hotel business. Uh, I ran

SPEAKER_33: Joie de Vivre hotels for a while. I was in. You went to Joie de Vivre? Oh, wow. You, you ran that?

SPEAKER_09: Uh, that's incredible. Did you guys own the Phoenix in San Francisco? Yeah. So Chip Conley, who was the founder. Yes. Who's at, went to Airbnb for a bit, right? Exactly. Yeah. Um, so Chip's awesome.

SPEAKER_15: So we, we invested in Chip's company when I was working in private equity and I took Chip's job as CEO

David Friedberg: and Chip became, and we worked together for a year. Um, hotel businesses, uh, tough, huh? Uh, it, it's tough in these times for sure. Right. Yeah. Well, before this though, it was tough,

SPEAKER_15: but fun. Tough, but fun. It's a very cyclical business. And, um, so it's a very, it's a challenging business today. Um, you, you mentioned office, very, very difficult to, to think about long-term exposure to office, um, retail when you, bricks and mortar retail is another challenging one.

SPEAKER_23: When you look at, you know, some of the new players there. So when you kind of look through

SPEAKER_155: all these others, I think you look to industrial is, or, or kind of warehouse space is being pretty secure in a growth area or distribution space. And you look at that because of, uh, all the

SPEAKER_23: Amazon warehousing. Absolutely. Yeah. It's all distribution. There's just a, that, and you're seeing a huge amount of, um, in certain parts of the country, a warehouse space being leased

SPEAKER_06: to grow cannabis. Ah, who knew? So, uh, I want to just stop for Joie de Vivre and just tell people about the Phoenix hotel here when I was broke and I would come to San Francisco was like $99 a night

SPEAKER_04: or $109 a night, but it was like a very cool rock and roll hotel where the pool, the bottom of the pool was painted by some famous artists. I can't remember who. Um, but it was like a bungalow set up just off the tenderloin or something around there. And, uh, it was a groovy place to go

SPEAKER_57: stay. It was like a rock and roll place. Yeah. Chip's a brilliant, uh, he's a very creative

SPEAKER_15: guy and he discovered, um, he, he was really in, in some regards, the father of the boutique

SPEAKER_23: hotel. Yes. Yeah. And when I, when we invested in this company and I took over to run it, I

SPEAKER_15: think we probably had 40 hotels. Um, it's now gone through a couple of, a couple of acquisitions and is, you know, now, um, no longer an independent chain, but, um, it is phenomenal. And each hotel had its own theme and, you know, Chip's, Chip's idea was, uh, to have two magazines that would, that you'd marry together. He, you'd have to have two magazines. If the car were two magazines, what car would it be? What two magazines would it be? What song or album or rock group or musical

SPEAKER_23: group would it be? And that's how he created these personas around. So it was, it was a great framework that I think he developed himself. And so when you'd go into these hotels, you'd see a

SPEAKER_15: couple of magazines and you wouldn't know the significance of it, but it was, these are the

SPEAKER_72: magazines that provided the inspiration for those particular hotels. So interesting. I was in the

SPEAKER_111: magazine business is like such a lost, uh, art form when you think about it. We used to have, uh, you

SPEAKER_04: said that the commercial space is like nothing you've ever seen. I'm sitting here in San Francisco. It's an absolute unmitigated disaster, tents all over the street, suffering like you've never seen

SPEAKER_06: and moving trucks, taking companies, desks, uh, laptops, monitors, and people, uh, to the suburbs,

SPEAKER_03: uh, and, uh, onto Austin and Miami and Nevada and other places. What do you think? And you and I are

SPEAKER_02: both here in the Bay area. What is going to happen to San Francisco when this tax basis drops from all the most affluent people who can move, move. And then after they built all these high rises that are more $1,500, $1,400 a square foot, and then all this office space is empty. What is

SPEAKER_57: going to happen? Well, I think you've just painted a picture of, of a dramatic potential reset in

SPEAKER_15: values. I, I think that that's quite likely. I think it's, it's hard to make a case that that's not going to happen. It's just a question to what degree, uh, in my view, we were on an unsustainable path in San Francisco proper in, in particular. Yeah. It was just getting so insanely expensive. Um, the homeless problem, you know, just really, really bad. Um, it just, it just was feeling like something needed to change. This is a catalyst for that change. It's an unfortunate catalyst, but it is going to change things. I think you'll see conversions of space. I think you'll probably see, um, more residential created out of office. If, if they could figure out how to do that in a practical way, I think you'll see a dramatic reset in some of the newer construction that was pretty expensive, but I, I think you'll have a lot less demand for that. I, I don't see any other explanation or

SPEAKER_175: predictions to, you know, what can transpire besides that. It's really interesting the way you say it,

SPEAKER_06: like this permanent reset, when a crisis happens, the consequence of a crisis, uh, cannot be underestimated because when, when this type of thing happens, you could have, as you're saying, it was becoming unsustainable. So if a pond and like a Darwin, uh, you know, if Darwin was looking at a pond and, you know, there were too many fish in the pond and not enough food. And then all of a sudden the food runs out one day, you know, what happens, like you get an ecological collapse and that's what we feel like we're on the precipice of. But when that happens, then there's all these

SPEAKER_04: spaces available and, you know, artists are like, I'll give you a thousand dollars for this place

SPEAKER_27: to start painting in here. So that that's, what's interesting, right? I, I long-term and bullish

SPEAKER_23: on it, but I think there'll be a lot because it is such a wonderful place in many respects. But I think to some degree, San Francisco was losing its soul. It was becoming those artists you speak of used to live in the mission. Yeah. Yeah. They used to live south of market. Then they moved to Oakland.

SPEAKER_15: Now they can't afford to live in Oakland. So they've, they've moved out to the far,

SPEAKER_23: far East Bay or south. It just being squeezed out. And so it just, you know, so a lot of the

SPEAKER_15: things that made San Francisco awesome left. And, and, and so I think what you will see is kind of a, my, my sense is if there is a significant downturn there, you're right. Um, people, you know, um, people will move back when they can afford to, and, and it will be reborn in some way we can't necessarily, uh, describe yet. It'll be different than it was. Yeah. But my sense is the place will ultimately find its own vibrancy again, but it will probably be less corporate and, and perhaps, uh, a little bit more, um, interesting. Yeah. I mean, I watched it happen in New York when I went to

SPEAKER_58: school in the late eighties in Manhattan, watching what happened to the East village and the West

SPEAKER_02: side highway and that area. I mean, these areas were empty and I paid, you know, 1600 bucks a month for my loft to live illegally in a commercial space. And then you just paid the guy cash in an envelope and you were good. And like lease, whatever lease, like, you know, sign some lease or whatever, but literally the electricity came from the, uh, hallway lights. They would just run an

SPEAKER_04: illegal electrical from the hallway light into your apartment. I'm sorry, your photo studio. And you could, you just didn't pay you. I said to the guy, I said, you know, uh, how do I get con ed? And he goes, well, you can pay con ed or you can pay my ed. And I said, what's your ed? So that's, I pay for my kid's school. And he said, yeah, I said, how does it work? He goes, well, you just pay me like once a year, 500 bucks and, uh, well, you can get your own. And I was like, okay, got it. It was like a very interesting approach, but that's an entrepreneur. And that's an entrepreneur, but I do think that's what's going to happen. I think the other thing you're saying is the rezoning of stuff is going to be critical because everybody was making commercial space thinking, well, Twitter needs space. They need employees. Uber needs space. They have employees. Airbnb needs space. They have so many employees. And now they're like work from home. We're going to save that money. We'll have like a little clubhouse here. That's how one founder described it to me. Like our, you know,

SPEAKER_11: 20,000 square feet is now a clubhouse and we'll, maybe we'll rent 10,000 of the other 10,000 will just be a clubhouse for employees to come in if they want. Our office in Oakland,

SPEAKER_15: we've got about 12,000 square feet. We were negotiating to take the floor below us and double our footprint and right before this, but now we're, we're going to survive in our current space indefinitely. Um, and then 80% of our people or more would like to work from home

SPEAKER_06: permanently. All right, Gary, let's make some money here. You and I, two smart guys, right? We've been at this for a little while. We've got some chip stacks. What do we do here? San Francisco is bottoming out. What's the investment opportunity? If we do believe that spaces are going to convert,

SPEAKER_02: uh, and we do believe that there's going to be a reset. How do we, how do we play this? What do we buy? I think it's early. How do we, it's too early. It takes two years. I don't think prices have

SPEAKER_15: reset. They haven't reset yet. Um, uh, so I think you, you wait a little bit and, um, I think you'll see some distress in some distressed sellers in office, in hotels, um, uh, restaurants. I think it's such a great food town, but very, very difficult to operate today. So my sense is, um, there's going to be some amazing opportunities to, to buy restaurant spaces that eventually will

SPEAKER_201: come back and be very vibrant. Um, but it's too, again, it's too early. What does the bottom take

SPEAKER_06: typically? What did it take in 2008 to, for like these things to bottom out? Cause,

SPEAKER_23: and why does it take a while to bottom out? The, well, 2000, uh, 2000 sort of seven to 2011 was historic in its own way. It took five, it was five years of price declines in housing.

SPEAKER_15: Now the stock market obviously bounced back sooner and commercial actually came back sooner, but housing declined for five years in a row. That had never happened there. There had never been a national decline in prices, home prices in recorded history before that year before it started in, in around 2007. Um, but that was a credit bubble. And then you had this massive supply

SPEAKER_23: of homes that had been gone through foreclosure and no demand. And so you had to eat through all that inventory. So I, I, I don't see that happening today in housing because there is, it's, it's not a credit

SPEAKER_15: bubble. It's very different. Um, and people are valuing their housing so dearly now. And there's professional institutional money that's standing by to buy homes. If they drop much in price, because they could rent them out and make a yield and there's no yield anywhere in the world. So if you could generate, you know, four or five, 6% return on levered on buying houses, um, and have some protection, um, I think that will form a bottom in many segments of the housing market that didn't exist, but before during the last downturn, there was no institutional bid.

SPEAKER_06: That's interesting. So because there's no yield in other places, and there's one of the reasons people are going to the stock market, right? Like they're, and it might be overpriced is because people don't want to hold cash while we're printing it like, you know, insanely, uh, at a staggering rate. But if you, if you have this institutional money on the sidelines who can buy and then rent the homes, yeah, they, they're going to get, they might beat other, uh, places where

SPEAKER_23: they can keep their cash. That's right. Do you, do you want to buy fixed income? Um, that's your

SPEAKER_01: treasuries. Yeah. No, treasuries. Bonds. Yeah. Yeah. Uh, scary. Yeah. Exactly. It's interesting. Um, what, what do you think, uh, happens in terms of young people who could never afford to buy homes,

SPEAKER_06: uh, or maybe weren't as interested in them, this millennial generation. Um, at this point in time, you have these millennials who maybe weren't interested in owning homes, but then maybe we're starting to think about, you know, they're starting to trade on Robin hood, maybe growing up a little bit, and then they get hit with a sick pandemic that kind of after, you know, maybe not even having the ability to participate in home ownership because their parents, uh, you know, did

SPEAKER_02: all, you know, bought up all the inventory. So what happens to this next generation? Do you think,

SPEAKER_23: do you think about that ever? We all the time, uh, we have a lot of millennial clients. Um, so I, I

SPEAKER_15: think, um, over half of our clients are between sort of 25 and 35. Really? Yeah. Um, and when you think about our registered users and then another big chunk is 35 to 45. So it tends to skew younger and 93% of our homes are sold to people who are buying out of state and about, uh, you know, 75% are first time real estate investors. So it's, it's with what we're seeing is a lot of millennials getting on the property ownership bandwagon where they don't live. And it's been a phenomenon of renting in an expensive city and buying these less expensive homes all over the country to start to build a portfolio, build some passive income and some exposure. What I'm seeing now is, um,

SPEAKER_23: a lot of those people thinking about moving to places, they might've bought a rental home and say, Oh my God, you know, I bought this rental home in Pittsburgh and it's, it's, you know, it's dope. Yeah. And I could go buy a home for $200,000. That is really nice. And I could work out of there. I think a lot of people are going back to be near family or near places that they might be familiar

SPEAKER_15: with. And they're discovering that they can have an amazing life just because the financial burden is so much less and they get more space. And so it's, it's a whole different pace. So I think you're going to continue to see a migration of younger people going to these secondary cities like the Pittsburgh's or the Nashville's or the Cincinnati's of the world, Kansas city, St. Louis,

SPEAKER_23: where you can go and have a great life and do your job. And so, um, but I do think that millennials like real estate and based on our research, they trust a real estate investment a lot more than

SPEAKER_15: they trust the stock market. The trust in the stock market is generally inversely proportional to your

SPEAKER_57: age. So, um, it's, it's fascinating. Um, that makes sense to me because if you look at the stock

SPEAKER_04: market over multiple decades, you feel very comfortable with it. But if you're only been an adult for half a decade or one decade, it's kind of hard to understand. I know I didn't get a full appreciation appreciation for it until after the dotcom bust. And when I had my second decade as an adult, when I was in my thirties or forties, I was like, Oh, stocks go up, but they also go down,

SPEAKER_21: but they overall go up and they go up faster than other things. So you really want to have a blended

SPEAKER_57: portfolio. I hate to stereotype, but, but, um, uh, uh, you know, as a generation, one might say

SPEAKER_23: that they have a little ADD, right. Having, uh, wanting this immediate, uh, result, um, just

SPEAKER_15: everyone's used to having stuff on demand. So the idea that, yeah, over the next 20 or 30 years, you can count with, you know, pretty great degree of certainty, the stock market's going to be significantly higher, but it may be really volatile and may go down 20%. Um, that, I mean, that, that's,

SPEAKER_57: that's not something that's sort of horizon, I think is hard for a lot of people don't realize

SPEAKER_06: about that ADD thing. My friend, Doug Rushkoff, the media theorist, um, he thought ADHD was something our generation, Gen X had as a defense mechanism or adaptation to MTV and video games and screens just moving faster and faster. Right. So we kind of got trained to think on our feet, move, move around a little bit more. And that's obviously continued with the smartphone generation.

SPEAKER_04: So therefore that adaptation allows you to be less tied to one thing and you get more exposure to many things and you get more reps. So we thought staying in a job, I don't know, you're,

SPEAKER_32: you're Gen X like me, I think we thought you had to stay in a job, a minimum of four years. If it was less than four years, it was like a blemish on your resume. And now you see, you know, this generation is like, yeah, I stayed there four months because it wasn't right for me. Uh, I wasn't going to suffer for another three and a half years. Fuck that. Like I'm out. Uh, and so that actually

SPEAKER_06: gives them, if, if they're screwing around with sports betting and then doing Robin hood or betting on crypto or betting on housing, they're going to get so many reps that they're

SPEAKER_04: going to become good at it quicker because most old people are just like, I don't know anything

SPEAKER_227: about housing. I don't know anything about crypto. I don't know about stock market. I only

SPEAKER_15: know this. Yeah. It's an interesting insight and perspective, more reps. Um, I think that's right. I think a lot of times people are looking at a portfolio career today, not a job. People are doing lots of side hustles and, uh, investing in different things, um, trying different things and, and moving around to a lot of jobs. I think you're right. Um, but I do think it's not always constructive when it comes to the career side, because I think sometimes the first six months to 12 months in a job, um, it really, you're just learning and you're not generally all that effective. And, and then that next kind of two, three years, you could really crush it. And I think a lot of times people will give up too quickly and move for a title or move to another hot company and they think they're progressing and they may be progressing in title, but maybe not in skills and actual, uh, kind of a portfolio of work. And I think at some point that catches up with a lot of people and they find themselves at a level where they're not actually not as competent as they would have been had they stayed because it takes you time to build relationships and trust, learn the business. So that's one bit of counsel I always have for younger people I, I talk to is think about the, the negative of the, of that hopping around is you've got this kind of built in equity and the, I'm not talking about the financial equity you're building, but the social equity that you're building in your organization. And then you

SPEAKER_67: start to increasingly become more valuable and learn and learn after that kind of first year.

SPEAKER_11: I always tell people when they're coming to work for me, I expect four years and do, are you prepared to do that? And here's the value of that is you're going to get unbelievable

SPEAKER_06: opportunities and exposure. So we'll just keep pushing stuff on your plate. And for me, it's, it's sort of like what you're saying. I think when your boss and the management

SPEAKER_04: trust you, you've now achieved like the really important thing, which is the next time something important comes along and they go, who did the last two important things and how did that

SPEAKER_173: turn out? Oh yeah. That kid who's been with this 18 months, let's give them this really big, important thing that could be career changing for him.

SPEAKER_23: So I have a personal story. So, um, first time I applied to business school, I just applied to Stanford, did not get in. I had two years of work experience. My boss said at the time,

SPEAKER_15: he goes, listen, you work for me for another year. I'll give you two projects to run. You've proven yourself and reapply based on that additional experience. I got so much more experience in that third year than I did in the first two. I actually got to lead a couple projects and I got in. So I ended up going to Stanford and had I, had I, you know, I could have gone to another school with two years of work experience if I was in a hurry to just go to a business school. But that, but that is kind of my point. I, I learned so much more in that third year because I actually reasonably competent and it built enough, up enough, uh, internal trust to

SPEAKER_11: do that. All right. Listen, continue to success. Oh, the one thing I was going to say is what's

SPEAKER_04: the minimum investment because that, you know, we at the syndicate.com, which is only for accredited investors at this time, the accreditation laws might change as you probably are well aware. Um,

SPEAKER_11: we make the minimum 2k per deal, or we try to, depending on the deal size we're doing for angel investing, which is super high risky. It's the opposite of what you're doing. Um, but, uh,

SPEAKER_06: we, that's cause we want people to be able to learn by making the smallest investment possible and get reps in, as I was talking about, uh, before making big bets, what's the minimum people

SPEAKER_11: were able to put into that last thing? I forgot what you're called.

SPEAKER_23: Yeah. Roofstock one. Roofstock one. Yeah. Yeah. So in the first iteration of the program, it was about $5,000 because we sold, um, 10th shares of homes that were 50 to 60% leverage.

SPEAKER_244: So yeah, it was about $5,000. That's great. But it was only accredited investors. Yeah.

SPEAKER_15: That's only accredited. But as, as you've mentioned, we're looking at ways to, to open it up over time to everyone. Um, but, but for now we're focusing as you are on the accredited piece. Now you don't have to be accredited by houses and we do have people who are forming little syndicates, almost like an angel list group, LLC and buying homes. So yeah, you can buy, you can, with leverage, you can buy a home. And so that's the way that non-accredited people can start to dip their toe in the water. It's really interesting. You, I had the founder

SPEAKER_06: of masterworks on, which is doing what we're both doing, but in art art. We had the founder of rally road on who's doing it for collectibles, cars, et cetera. You're doing it for homes and I'm doing it for startups. And I'm trying to think if I left anybody out of this party, who's also doing it. There's, I saw one that's doing it for like comic books or something or baseball cards, but I think rally road is going to be in that. So the four of us are each doing this, but in a different vertical, the four of us should form like a little, uh, um, what do they call, what do they call it? Like YPO or like a mastermind group where we just

SPEAKER_23: trade notes on what we're doing. No, it's a great, really interesting. Yeah. We've compared notes

SPEAKER_15: with the guys at rally road about their structure. And yeah, I listened to your, your podcast, um, and learn a little bit about the art market. That was really cool too, but yeah, I'd love to do that. I would love their notes. There are definitely some commonalities. Well, the one I find that's

SPEAKER_04: the most interesting is educating the participants in the syndicate. Um, do you provide education for

SPEAKER_57: people when they, when they, yeah, in what form? Academy, um, you can go to, and we've got a lot of

SPEAKER_15: stuff on our site for free. And then we have sort of a, uh, uh, you could actually sign up for the academy and get a lot of proprietary content and personalized coaching and stuff as well. So I would encourage people to go if they're interested in learning more, um, and our site's free to use. Um, so a lot of people just get on and there's a lot of information on there if you

SPEAKER_11: want to learn about real estate investing. See, I think that that's the big win because the more

SPEAKER_06: you educate people and the better decisions they make, the better they're going to, the better the community will be. And then that becomes this crazy advantage. For example, if you help educate

SPEAKER_04: people and then somebody says, you know what, I, I live in Arizona and I see that this neighborhood's

SPEAKER_21: doing really good. And this coffee shop I heard from a friend is opening up over here and that's the hipter coffee shop. And the donut shop is also moving over there. Then they could signal you that, Hey, there's an opportunity there. And then you've got a real flywheel going, right?

SPEAKER_04: A hundred percent. Yeah. That's what happened for me. And we have people send us deals now at the syndicate and they say, Hey, you know, I have a really great deal. Uh, we saved just slice and it's sort of, uh, the flywheel gets going where the community is, is bringing us

SPEAKER_162: deals now. And then we're re syndicating them out to the community.

SPEAKER_23: Now that we're, we're now seeing the same thing happening. People bringing us houses, even real estate agents bringing us houses before, um, they didn't, they didn't know about us and they didn't know how to sell leased homes. So, or people bringing us their own home and say, Hey, can you wrap this in the rooftop one structure and fractionalize it and let me keep some of it and sell off some of it. So all this stuff starts happening. Once you, as you say,

SPEAKER_15: start to build that community and people come up with all sorts of interesting alternative use cases for it, which is, which is pretty cool. If one of you, I'll end on this. If one of your

SPEAKER_06: best friends, your best friend, not even one of them, your absolute best friend came to and said, Hey, I got money. Uh, I want to invest in, you know, uh, a property. What are the top three cities I should look at in terms of appreciation? I'm looking for like a 10, 20 year appreciation window I'm 40 and I want to get this money out when I'm 60 and my kids go to school. What three cities would you tell them might have, might have the chances of the most appreciation? Yeah, that's a,

SPEAKER_23: that's a tricky one. Um, you know, I, I personally am very bullish on Austin for lots of reasons. Um,

SPEAKER_15: I think you could continue to see a lot of in migration there. And, and, um, I think there's a lot to like about Phoenix as well, uh, over, over the longterm, even though there is an awful lot of land there. That's the one thing I do worry about a little bit with Phoenix, but, um, there's, uh, you know, pretty diversified job base there as well. Um, and then, um, you know, I think you think about, I also personally am bullish on Atlanta long-term because I think it's when you look at the Southeast and a major kind of employment hub that has high quality life, great airlift of still very low cost. Um, I think those are all interesting cities and those are all pretty popular today with investors, I think for, for good reason. Um, but I think all good, good long-term plays.

SPEAKER_11: Awesome. Yeah. Austin would have been on my list for sure, but not Atlanta. I wasn't aware of that. I know people say Nashville and Florida, uh, Nevada. Nashville's great too. Um, I, I, I love Nashville.

SPEAKER_23: Um, it's run up quite a bit. So the, the yields are definitely lower than you'd see in an Atlanta,

SPEAKER_15: but, but I am bullish on Nashville as well. That would be in my top probably five.

SPEAKER_11: Awesome. All right. Listen, continued success. Everybody go check out roostock.com. All right. We'll see you all next time on this week. Bye-bye.