Glenn Rufrano:

If something goes wrong, tell us right away. Get it out, let's fix it. Don't hide anything. Let's be transparent internally and therefore, let's be transparent externally with the market. And that transparency is what allows the buyer of bonds and the buyer of our equity to go ahead and make those decisions in a quick period of time and fund.

Nancy Lashine:

Hello and thanks for tuning in to Real Estate Capital. I'm your host, Nancy Lashine of Park Madison Partners.

Park Madison is a capital solutions and advisory firm serving the global institutional real estate business. We sit at the intersection of real estate managers, groups like operators, developers, private equity funds, REITs, and their capital partners. In bringing these two groups together, we speak to a broad range of thought leaders about recent trends in real estate investing, capital markets, operations, and technology.

On this show, we try to bring some of those insights and conversations directly to you.

Today's guest is Glenn Rufrano, current chairman of ICSC and former CEO of several real estate companies, most recently VEREIT, prior to its merger with Realty Income Trust.

I was lucky enough to meet Glenn early in our careers back in the 1980s at what was then called J.W. O'Connor and Co Incorporated. Fortunately, we renamed it The O'Connor Group. Much easier to say.

Glenn was a co-founder with Jerry O'Connor and spent 17 years at the firm. After that, he had a series of super interesting jobs in the real estate world, and he's known especially for his skills as a turnaround artist.

Prior to VEREIT, he was CEO of Cushman & Wakefield, Centro Properties Group, and New Plan Excel Realty Trust. Each of these companies had its own set of challenges when Glenn took over as CEO and each could be a full business school case study.

We get into some of the details throughout our conversation, but what I really think stands out about Glenn is strength of character. Former colleagues rave about Glenn's transparency, honesty, humility, and reputation as someone who leads by example.

During our conversation, we touch on all of these topics as well as his thoughts on real estate capital markets, the pros and cons of public versus private capital in a real estate business, a topic for which Glenn brings a unique perspective having led organizations on both sides.

We had a lot of fun together traveling back in time. I hope you enjoy the conversation.

Glenn, it's such a pleasure to have you on the podcast. Thank you so much for joining us today.

Glenn Rufrano:

Well, thank you for the invite.

Nancy Lashine:

So we've known each other a long time since I joined The O'Connor Group in 1985, and you were one of the founders in 1983, and that was really the beginning of what's known as the real estate private equity business.

We were one of the first firms at The O'Connor Group to create closed-end funds, and I think you can claim credit for one of the, or maybe the first UPREIT in the Retail Property Trust and Shopping Center Associates, which was one of the first vehicles that let public and corporate pension funds, endowments and foundations, foreign institutions to all invest in a single vehicle.

Can you share with us some of the lessons that you learned during those early years at The O'Connor Group?

Glenn Rufrano:

They were fun years for all of us, weren't they? We still have many friends from back then.

There were a number of lessons and starting a company and bringing you and others on all to work in different areas to grow was really interesting.

I'd say first in terms of the market not being private equity, we did what people did in 1983. We would go out and contract for a property and then we'd go find the money. So we'd buy the property, buy the money, and put them together.

We realized that other people were doing it differently. They were buying the money first, so they had the capital, so they did not have to put contingencies into contracts.

And that led us into what you most probably call the private equity business. How can we put capital together so that we're not at a disadvantage to others? So that's one big lesson that we learned and we put in place a number of forms of capital as you remember.

Another lesson that I thought was good, as we said to ourselves, "Well, the capital is looking for different forms of risk, so let's have a low risk entity," which Ben Gifford ran the separate account business where we bought core real estate without a lot of debt, office, retail, industrial, and it was a safe longer term asset.

And then we said maybe there's a mid risk concept we can bring to bear, which was the first, I'd say untraded public REIT, but instead of selling to mom and pops, we sold institutions and that was mid risk in that we had malls in there, but we were developers as well. Remember we developed White Plains, we developed Menlo Park. So we bought some risky assets and redeveloped or developed.

And then we had a high risk concept after the savings and loan issues where we put together an opportunistic fund with JPMorgan.

And so another lesson that we learned was that if you want to... And larger business have different products with different characteristics that attracted capital in a different ways.

Then the last thing I'd say, Nancy, this is something that you and I understood as we grew with more capital availability and the ability to move across markets, we were getting larger. And as you get larger, which is what Jerry and the team wanted, you had to do something which we didn't do very well, delegate.

And so the other lesson I learned is you can be smaller and you can have real control as a small management team, or you could be larger, but you better be able to bring really good people on and delegate or else that larger entity will contract, which it did as you and I know.

And so there were some really good lessons in terms of capital and management style that I certainly learned from working now for those 17 years.

Nancy Lashine:

I love listening to you, Glenn, because you've just described something that we still deal with today at Park Madison Partners because we work with a lot of emerging and aspiring operators who want to buy the money first and they're still going deal by deal. And so you're absolutely right.

I probably would say it was easier then just because the market was so much less mature, but it was really hard. As I look back, it was really hard to get it done.

Glenn Rufrano:

Well, remember you were in the forefront of trying to raise that money so we can have it first with an entity they had not done it before. And investors, they loved speaking to us, but we had to go back and you know this better than I, two times, three times so that they would have confidence in us because it's not easy. And I perfectly understand. Why should someone give you their money unless they have the real good faith that you can be good masters of it?

Nancy Lashine:

Well, I guess the only good news is we had less competition then than people have today.

Glenn Rufrano:

That's right. That's a really good point. We had less competition. Yeah. Yeah.

Nancy Lashine:

Yeah. It was a little bit of the wild west in the frontier, but great training ground.

Glenn Rufrano:

Yeah.

Nancy Lashine:

So you left in 2000 when this opportunity arose to become CEO of New Plan. And since then, you've turned around four companies all in trouble with issues that came about before you arrived, and you've done all of them successfully and you've rightfully been labeled a turnaround specialist, even the industry's Mr. Fix it.

And so share with us a little bit how this became your thing. Did it fall in your lap or in the back of your mind were you an aspiring turnaround artist and looking for the right opportunities?

Glenn Rufrano:

It's almost like real estate people of certain my age most likely fell into it or they had a family member that started it. There was no education and proper method of getting into it.

And we'll call it the turnaround business. Similar. I fell into it with Jerry and O'Connor for the 17 years. As you remember, we sold the separate account business to JPMorgan. We sold the private REIT, the mall REIT to Simon Properties, which just left us with a smaller opportunity fund concept, which was fine.

But then I got a call from a headhunter, which is normally how this happens, and says, "There's this company that's looking for a public CEO." It's just 1999. "Would you have an interest?" And I said, "Well, why would I have an interest? I'm with the company for a long time."

And it was Bill Ferguson, who we all know who doesn't let things go right away. So he called again and then I said, "Well, maybe there's something here." And I went to Jerry and I said, "Jerry, look, I've never been in public. I've never been a public CEO. Maybe it's something I'd be interested." And to Jerry's benefit, he said, "Glenn, if that's something you want to try, go ahead. It doesn't work, just come back." That's a good partner. He was really good at that level, certainly.

And so I went there and as you remember, New Plan, it was called New Plan Excel Realty Trust. And Excel was a company. Had just merged with in 1998.

And it was one of those worst mergers in history of man. The teams didn't... They got together and New Plan was an older group. Excel was a younger group. The younger group thought they would take over the older group but after they merged it, "No, I don't think so." They fought, they all left. All the younger group from Excel left, which left New Plan with a bunch of properties they didn't know and understand. And so they needed a new CEO, and that's how that whole thing started.

So I came in March of 2020. The stock had gone from about 26 down to eleven and half dollars because they had guidance out there, they missed it, and the public market doesn't allow that. They're really bashed for that.

And so it had to be a turnaround because the stock was in the tank and they didn't have a business plan. We had 350 shopping centers, 10,500 apartments. We had land, we had office buildings, we had mezzanine loans, and there was no strategy at all.

In that situation, what I found was just understanding real estate is pretty important. And so you had to figure out what was the better real estate, what was not, what people were good, what people were never going to conform to a new strategy.

And you had to change the board, which is something that I have found when... The first important thing is you don't cause the problem when you're in a term because if you don't cause the problem, which sounds very simple, you now have the ability to change. And that is really important.

In every case that you've mentioned, the boards have changed, the management teams have changed, and the strategy had to be created. And you can only do that if you're new. If you're in there for a while, those legacy issues, they sit there around your neck like the biggest anchor you can have. So we made the changes necessary in strategy.

But 2005 to '07, the market was crazy. All of a sudden people started talking about FFO growth of 10% a year, and the only way you can get there was to develop and sell so that you were FFO included profits on sale, which made no sense. Leverage was going up.

And so we just decided that we were a simple shopping center company, we couldn't grow more than four or 5% a year, and we're competing with someone who says it's 10, and so we're underperforming. And when you underperform for some period of time, you have to change.

And so we decided that it was time to sell for those market regions. And then we closed in April of 2007 with Centro, which is a firm from Australia that was growing like weeds in the United States, if you remember back then.

Nancy Lashine:

And they did grow like weed. Out of control.

Glenn Rufrano:

They grew like a weed. They just bought... They had 22 million square feet of shopping centers in Australia and New Zealand and realized that the market was saturated. So they came to the United States and bought a number of companies, including ours. They bought us for about 6.2 billion.

And the problem with that, not only was the timing, but they did it with all debt. We had about 2.8 billion of debt. The rest of it was a loan from JPMorgan.

Nancy Lashine:

It's good to have friends.

Glenn Rufrano:

Good to have friends.

And so that's what caused the problem where New Plan was an issue relative to strategy, board, management that had pretty good finance. Centro was the opposite. Good real estate, good people, board needed to be changed a bit, but it was just overlevered.

Nancy Lashine:

Interesting. Potentially a forecast for what's to come, but we'll get to that later.

But before we go that, I'm just curious, this situation was so complicated. There were so many different pieces that you had to change the board and management and strategy and to some extent, capital structure and one thing impacts the next. How did you know what you were doing was going to work? How did you decide? Is there any secret sauce? And you've done it four times, it's not luck, that you walk down a path and you look at decision trees and say, "I think this is going to work?" Is it a little bit of a chess game or how do you think about it?

Glenn Rufrano:

Well, I think the first thing you have to do because... You're right. If you listen to everything you just said, it sounds like there's a lot that has to be done. So how do you do it?

Well, the first thing you have to do is say, "I can't think about a lot. I have to think about what's most important, what are the priorities." So making sure the board and the management team are the right board and management team so that jointly you can come up with a strategy is really important. So that's where you have to start.

You have to start right away because if you think you have a strategy and your board has legacy issues and they don't want to do it, doesn't matter what you think.

Nancy Lashine:

What do you think are the characteristics of good board members?

Glenn Rufrano:

Well, in my examples, first, they probably could not have been involved or should not have been involved with some of the legacy decisions because even if they're good people and they have good core competencies, it's very hard to say, "I'm wrong."

Nancy Lashine:

Yeah, yeah.

Glenn Rufrano:

You need a generally good clean slate. Not everybody in all situations.

Next then, there is core competencies that I think are important. What do you bring to the decision making on the board? Is it finance? Is it real estate? Is it an understanding of your tenant base and the business that they're in? So those core competencies can really help a CEO.

CEO, I've always felt, needs to be able to lean on the board a lot, not a little. And you need to carry your board along with where you think you want to go, and they've got to agree. And if they don't agree, you have to figure out why.

The last thing I'd say in each case, but each one of these boards, I actually have to write a paper where I would write to the board and I'd say, "Here's what I think we do together and here's what I think management does."

Nancy Lashine:

Delineation of roles. Yep.

Glenn Rufrano:

Absolutely.

And then the last piece of that paper is delegated authority. Very specific delegated authority. The board has to approve these decisions. Management can approve these decisions. And that understanding is really important because if it's fuzzy, you find yourself in situations where all of a sudden the board member of three says, "I didn't think we were doing that," and you say, "Wait a minute, you've already agreed to it." That's the only way you could bring them in.

Nancy Lashine:

Do you think there's a role for a board at a private organization in the same... And would it have a different value set or how would you think about that?

Glenn Rufrano:

I think there is a role, but it very much is decided based upon the private organization and who the patriarch is in my view. For instance, Cushman & Wakefield.

Cushman & Wakefield was a private company owned by a public company traded in Europe called Exor. Exor was run by the Agnelli family and had been for a very long period of time. But the Agnelli Nelly family had a patriarch who was very strong in Exor.

So the reality is Cushman could have a private board as it did, and it was important, but it's the patriarch of the private company that makes the decisions. So it's only a question of whether or not that board is listened to.

And I find in public it's more often listened to than if there's a strong patriarch in a private company or matriarch.

Nancy Lashine:

Right. Well, I guess it gets back to capital ownership if in the public the board represents the shareholders who are the owners of ultimately at a private company. It's advisory to the owners.

Glenn Rufrano:

That's right. That is the point.

And the owner may or may not accept what the board thinks, and that's their prerogative.

Nancy Lashine:

Right.

I do see a lot more private companies having boards today. We call them advisory boards as opposed to true governance boards. But maybe lessons learned from some of the things that we lived through in the past is they just look at lack of succession planning and the ability to broaden a business and grow a business and delegate authority. All the things that you mentioned at the beginning. I see private companies now setting up boards to help their leaders think through those issues and be reminded of best practices.

Glenn Rufrano:

I think that's very smart and appropriate. And I don't know why a private leader shouldn't listen as well.

Nancy Lashine:

Because they don't have to?

Glenn Rufrano:

That's probably the reason.

Nancy Lashine:

Right.

Glenn Rufrano:

But I think a recommendation to do that is important because no one knows everything. And many of the things you just mentioned, growth, succession planning are all pretty important to have a successful company.

Nancy Lashine:

Right. So you've worked with public and private companies, you've worked with all different kinds of lenders. Do you have an overarching philosophy about capital structure and balance sheets?

Glenn Rufrano:

I do. They certainly could be different public and private, but my sense is being public, there are pluses and minuses to both, which affect how the balance sheet left and right side work.

The advantage of public is access to capital. It is just extraordinary.

This country is so overwhelming to me in its ability to generate capital and allocate it quickly. It is amazing, and the public market is clearly and most efficient.

But what comes along with it is regulation and also the necessity to be with your shareholders all the time. If they're going to allocate capital, they got to know where you are at any given time, and it's the transparency of the public market that allows them to do that.

As an example. We went through some really hard times as a company in ARCP, then change to breed, as you mentioned. We had an accounting, it could have been called an accounting irregularity or accounting fraud, depending upon which side you wanted to be on. But we were being sued by the DOJ, the SEC. We had 14 opt-out suits, and we had a class action suit.

Nancy Lashine:

You say that like just nothing.

Glenn Rufrano:

Right.

Nancy Lashine:

That's pretty overwhelming, Glenn.

Glenn Rufrano:

It was a lot. But at the same time, we had to change the portfolio. We put into a 100% brand new board and new management, and we were overlevered. We were with [inaudible 00:18:34], 8.5 times net debt to EBITDA when the market was closer to four and a half to five.

And so we needed capital to allow ourselves to get out of this mess. And once we gained some credibility, we were able to go to the bond market and go to the equity market and provide the capital necessary for us to rearrange our balance sheet.

For instance, in the timing, in the quickness, we did a bond issue in the fourth quarter of 2019, 1.3 billion, 10 years 2.8%, and it took one day of conversations with bond holders, and we were funded in five days.

Nancy Lashine:

Wow.

Glenn Rufrano:

When we settled our lawsuit late 2019, we issued $900 million of equity. We did a bought deal with three banks and we were funded in five days.

Now, if you had to raise 880 million of equity for one of your investors, it would take six months depending on who it was. It would take a while.

And so the ability to raise capital in the public market is extraordinary. You need to be transparent, you need to run a good company, investors have to like you, but if you have all that, the abilities there and the cost of bureaucracy and time with the shareholders is well worth it.

And you're in the private market, you understand the flip side of that, how if you needed to arrange all that capital how long it would take, and it would take a lot longer than the time I just explained.

Nancy Lashine:

For sure. That's interesting.

Why don't we talk about leadership, which you've certainly evidenced in your history?

I know in Jim Collins' books, he talks about good to great. He talks a lot about getting the right people on the bus, and this seems to be a common theme for you throughout your career.

For instance, you brought in Mike Bartolotta as CFO, and he also filled a similar role during your time at Cushman & Wakefield.

Tell us more about your leadership philosophy and approach. What do you think makes a good leader? Is it different in a real estate company versus other businesses, or are there common characteristics that transcend companies and industries for you?

Glenn Rufrano:

I think there's a lot of common issues, whether it's real estate or not, and in part, it is bringing in people to work with you that you believe can understand the philosophy necessary to have a successful company. Successful company is simply a company that is providing good returns for its shareholders. But I want to go into that a little more.

You mentioned Mike Bartolotta.

When I was with Cushman & Wakefield, Mike was at Exor, the owner, and we needed a CFO, and I asked Mike to come in to Cushman & Wakefield. And coming into a portfolio company was attractive to him. So we worked together. Worked pretty well.

And then when I went over to ARCP, Cushman was being bought by DTZ and they were bought and now called Cushman. It's now public. And Mike became available. So I said, "Come on over." And so brought him over.

And that was important to have continuity of thought process.

I'd say that putting together the board, as I mentioned, then need to have the board understand what's going on with the paper so they could make sure they understand it.

But then with the team and the entire team, there needs to be understanding of what's the approach to the business that we care about, what are the most important.

And there are a few that I think are important, and the first one is culture. And so we would define culture, whether it was Cushman & Wakefield or ARCP or Centro, we would define culture.

And we define culture in a very simple way. You should behave towards others the way you expect them to behave towards you. And if you don't behave in a way that it's an expectation of you and/or the company, you're gone. That's unacceptable. And culture has to be married with a couple others.

Well, the next one I would call a business approach. What's the business approach that we have? And we have to be consistent in the way we run the business.

And one part about being public, each quarter you have a test. You have to do a Q or a K, you have to do a supplemental. We had an investor presentation, we had a press release in the morning, and then we had a conference call and all of that work, it's a lot of work, has to be done each quarter.

And each quarter when someone, for instance, they'd say, "Here's an accounting issue, but we're not quite sure. There were a few ways to do it. What do you think about this way?" And I'd say, "Well, what did we do last time? What is it that we did? Let's be consistent. And if we're going to break the consistency, you better have a pretty good reason for that." So consistency is pretty important.

Transparency really important from business approach. If something goes wrong, tell us right away. Get it out. Let's fix it. Don't hide anything. Let's be transparent internally and therefore, let's be transparent externally with the market.

And that transparency is what allows the buyer of bonds and the buyer of our equity to go ahead and make those decisions in a quick period of time and fund, because they know what they need to know almost all the time so we can do it.

And you have to be disciplined. That's the third point. "Here's the discipline. Every quarter, these five pieces of documents have to be done. We'd have a script. This is the day for this one, this is the day for this one. Every quarter, you have to have it at a certain day."

So being disciplined, consistent, and transparent are really important.

Then the last important part was our corporate commitment. And the corporate commitment for REIT was that we need to serve our constituency to the best of our ability.

And then we have to define constituency who are... And the SEC says, "Our constituency are our shareholders." And so our general counsel would say, "That's your constituency." I say, "No, that's not right," because we better make sure that we serve not only the shareholders, but our tenants have to be really well taken care of, and our associates, employees have to be really taken care of because if any of those three are unhappy, we got a problem. So those were the constituencies that we felt very strongly about which actually very easily leads to ESG.

$but those are the ways to get everybody rowing in the right direction. If everybody understands culture of the business approach and corporate commitment, we're rowing in the right direction.

And it's different for companies. Someplace like Cushman where we had 13,000 people all over the world and very frankly, 6500 brokers who sometimes didn't care, you're just trying to row close to the same direction. Close. Keep it close.

Nancy Lashine:

Keep it from capsizing, right?

Glenn Rufrano:

Yeah. You just don't want to capsize.

Nancy Lashine:

Yeah, yeah, yeah.

Glenn Rufrano:

Whereas if you got 400 people or 500 people, you can actually get people rowing in the right direction.

So those were all really important elements of taking a company that is by definition in disarray, and then trying to at least create some approach to the business that everybody could understand. And then if they don't like something, they could talk about it, tell you about it, but you needed to have some way of providing direction so that you can bring yourself out of the disarray you just were in.

Nancy Lashine:

I love your description of running a public company and having a test every quarter and all the things that you have to do to prepare for that. Many of the private companies that we work with would so benefit from thinking that way because it's very disciplined.

Glenn Rufrano:

It's very disciplined. And that's the cost of raising capital.

Capital is dear. There's always a cost. It's only a question of what it is. And if you are disciplined on how you do, it happens.

Nancy Lashine:

You mentioned ESG. We've both been in the business, well, 30 plus years. How have you seen diversity of your workforce impact decision making and just the culture of the organizations you've worked with? Is it important? And if so, why and how?

Glenn Rufrano:

It is important, and it's become more important today just because it's been noticed more, very frankly.

And when I think of ESG, I think about... I've talked to some people who say, "Well, I'm not sure what ESG is, but I don't like it." And that's-

Nancy Lashine:

They often get canceled though.

Glenn Rufrano:

Yeah, that's right.

But environmental and social and corporate governance... And environmental is just very important.

I think it's just practical. We're not going to buy a property or analyze it properly unless you understand the environmental issues that surround it. And so that's part of life.

As the social part of it is your people. Making sure that everybody enjoys working there and understands what it means to work there and what you do for the company and how you contribute to the community. That's always been around.

And corporate governance that should always been around between the board and the management team and the shareholders.

Now getting to your question, which is diversity. We would once a year have a study done. The comp committee oversees it for gender pay so that we would make sure there's a fairness of pay according to the gender. And there's a firm you bring in and they do a complete study.

And we also internally did a diversity study because you compare it to NAREIT, it was another index that we would compare our population diversity to other indices.

And our board had to see that each year to understand where we were, what we're doing, make sure there was fairness. And we thought it was important to have I think diversification just because we should have different views in terms of what our tenants and what our customers think about.

And so we had that each year. And the comp committee would review it and then bring it to the full board at any point in time that we gave them the analysis.

So I think that's all simple and natural.

And then our board itself, we had four women, five men, and then myself, and we had some ethnic diversification within that group as well. So I think we're doing a reasonable job.

I also think that there are some extremes that I would object to and I have objected to.

For instance, we would go to meetings with someone like Fidelity or Vanguard or really owning our shares in [inaudible 00:28:41], but they would have teams that would come in on ESG and say, "Well, we want in your goals and objectives for each individual person for bonuses to have diversity requirements within their groups. And we want to see that. We want to see how that works, how they get paid, what are those requirements, and we'd like to see them in your proxy, by the way." And I'd say, "Absolutely not."

And not that we... Actually, we do and did have goals and objectives that were diversely related, but they were broad. They weren't specific.

And I would say to Fidelity, "If you're looking for us to say we want X percent of this diverse group in our acquisition team and we want it within three months or six months, no, that we're not going to do that because that creates a situation which will cause more harm and destruction to the company." Could it be broad so that over time we want to see some changes? Sure. But I do think there's been extremes in ESG, which are valid complaints.

Nancy Lashine:

I hear you.

When you worked for Centro and you moved to Australia, to Melbourne, I believe, did the HR piece of your business feel very different just working in a different culture in a foreign country?

Glenn Rufrano:

Well, first of all, Australia was wonderful. Mary and I moved there in 2008 and came back in 2010. So we were there almost three years, and it was a terrific experience.

The Australians, one of the reasons... They love Americans, but they also love the fact that they're 10,000 miles away and we can't get there that often.

The HR was different, but in a couple of different ways. One, first there, as you remember back, not default, we're in breach of 8 billion of debt. We never did get a default notice. We had 23 lenders.

And the papers in Australia are much more oriented towards real estate than here. It takes something big to get into the journal here. In Australia, real estate is such an important part of the market. All real estate deals are in there.

So when I got there, I would say out of a seven-day news cycle, Centro was in the paper five days of the seven, and it was all negative. There were articles such as, "The people who work at Centro are dead men walking because they're all going to lose their jobs and they can't get a mortgage," and things like that.

And so HR was really hard. It was how do you keep people in the tank while we're trying to figure ourselves out. And each week I would get a report from HR in terms of how many people quit.

So the first thing we had to do is plug the dam so that people would stop. And we did that by coming up... We were working with these lenders on standby provisions every three months, six months. We had three months or six months to do something and hold them off from giving us a default notice. But we finally came to an agreement for a long-term standby agreement, and that helped plug the dam.

In terms of the general culture, there was an HR difference. For instance, I never forget the first winter I was there, which is summer. So Christmas is hot, remember it's the reverse.

Nancy Lashine:

You're down under.

Glenn Rufrano:

And Australians tend to take their vacations then. But when an Australian takes a vacation, they don't take a two day or three day or a week, they take three weeks because they go somewhere and everything else is so far.

So here we are, we're struggling, and I get this vacation report and I've got five or six of our major players going on three-week vacation, and we're trying to figure out how to stay alive.

So we had to change some of the culture in terms of their normal vacation schedules, timing for taking off. And that was in part because of the problems we were having.

The other issues there is that they don't take out their insurance. They don't have private insurance. It's a socialistic forum of everybody has insurance and 1% of your pay just gets taken out and you have basic insurance. So you don't have insurance policies, you don't pay insurance. The company doesn't pay insurance. No one in Australia does that because the government provides it. And so there are differences in the form of government.

You needed someone who understood Australian HR to your point in order to figure out how to keep the associates and employees feeling relatively good.

Nancy Lashine:

Yeah, yeah. Wow.

When you think about leadership, are there mentors that you have followed or how did you build your leadership skills over time other than just trial and error?

Glenn Rufrano:

There were some. Yeah.

And what I have found from mentors is you learn as much not to do as what to do. And it's both. And they're both constructive.

For instance, I was with a firm by the name of Landauer Associates, if you may remember them. People who are-

Nancy Lashine:

Sure. The appraisal firm.

Glenn Rufrano:

... younger wouldn't remember. And there was a fellow named John White was the CEO at the time, and I was a young pup.

But John was succession planning. And John really loved what he did, and he was good at it, but he didn't let people get too close to him in succession planning.

And he had three different departments. And what he did was he came out one day, said, "Well, one of the three could be my successor. Now, I'm going to watch. You do the best job possible." Boy, that was a bad idea because all three, for the next year or so, all they did was try to impress John White and didn't run their departments as well as they should. And so that was the lesson I have never forgotten.

And then with Jerry O'Connor, who was really a great mentor to me and a really good partner, and Jerry had many positive qualities, but he had some negative, just as I am. [inaudible 00:34:12].

And so I learned some things not to do watching Jerry and I learned a lot what to do from Jerry.

And the last person I'd mentioned who I think has just been terrific is Milton Cooper.

Nancy Lashine:

Yeah.

Glenn Rufrano:

And Milton has over the years... We've been in mostly companies that compete with each other. But Milton would always be open and tell me anything I needed and never... You could have a conversation with Milton and it was never about Kimco and New Plan, for instance. It was always personal and what can I do to help you and how can we work with each other. And Milton, I've learned humility is really important. He's unbelievable in that.

So those have been three people who have influenced some of what I do.

Nancy Lashine:

Yeah, yeah.

I can't help but remark when you mentioned Landauer, I think that's how I first knew who you were.

I was a young associate at an investment bank in my twenties, and the front page of the New York Times was a story about how General Motors had sold their building, and it was a joint venture between Landauer and this company, CPI. And I was like, "Wow, that was such a clever structure. I guess they were trying to book earnings and their earnings issue, they needed to provide seller financing, and so how could they figure it out so that they could book as much as possible and get the highest price by providing seller financing." And it was the front page of the New York Times.

So that was my first introduction to Glenn Rufrano.

Glenn Rufrano:

No, no. That was a really great deal. And just think about it.

There's a building, General Motors building, we sold it but, and I'll [inaudible 00:35:48] in a minute, it's $500 million. By the way, the latest appraisal-

Nancy Lashine:

Wait, the fact that you remember that is insane but... Okay.

Glenn Rufrano:

No. I'm bad at names, but I always remember numbers.

But just think, $500 million, the latest appraisal that I understand Boston Properties has was 2.5 billion. Isn't that incredible?

Nancy Lashine:

Well, is the moral of the story, you should never sell anything?

Glenn Rufrano:

Don't overleverage it. Don't lose it and keep it. Yeah. Yeah. Keep it. Just keep it.

Nancy Lashine:

That may not be true of every asset that we can collectively think about, especially some of the regional malls.

Glenn Rufrano:

Yeah, yeah. No, that-

Nancy Lashine:

If you can keep it leased up, you should hold onto it.

Glenn Rufrano:

No, no. I agree with that. I agree with that.

Nancy Lashine:

So switching gears, I was thinking anybody who's been married for 50 years can claim success. You and Mary have been married for as long as I've known you with two wonderful kids and four beautiful grandkids. And I know you love spending time with them, but I've also seen you quoted as saying you plan to work until you die. So now that you've exited from VEREIT, can you give us a clue about what you're thinking about, what might be next?

Glenn Rufrano:

Well, that quote... Just by the way [inaudible 00:36:53].

Nancy Lashine:

Sorry, I couldn't resist.

Glenn Rufrano:

No, no, no.

It's a silly quote because it was a silly question.

I was on a conference call, and so I'm on a conference call, and when we give a conference call on earnings, there's probably 150 people, 200 people on the call, and then it stays on our website. So thousands of people will eventually either read the transcript or listen to it.

And so there's an analyst who [inaudible 00:37:15] name says, "Well, Glenn, it seems like you're turning VEREIT around a bit. What's your plan? Are you going to continue with VEREIT?" Well, that's a silly question because what am I going to say, "No?" What do I say?

So I gave him a silly answer, and the silly answer I said was, "Look, I'm going to work until I die. It's only a question of whether I die here," but in jest. But it's only part in jest.

I like what I do. You like what you do. It's been lucky to fall into real estate. I feel very fortunate and have enjoyed the business forever.

And so I have no plans of not working, it's just a question of what you do and how much time you spend, and where do you spend it.

And VEREIT, I think we made the right decision. We did turn it around. We got rid of all of those lawsuits and realty income came along and paid us a 20% premium. And if that didn't happen, I'd be working at VEREIT today.

What I have been doing it kind of fortunate, I've been a member, and you remember way back with O'Connor, the ICSC, Jerry was the chairman of the ICSC one of the years I was there. And you may have been there that year.

And so two years ago, they asked if I would be the chairman this year because this is succession planning and at the time, I thought I'd be working. So it turns out I wasn't.

So I'm chairman of ICSC this year, and you can spend this little amount of time or a lot of time, and I'm spending more time. And it's a turnaround.

ICSC has been around for two years. It's a membership organization that runs on events. We haven't had event in two years. The first event we had in two years was in March of this year. And so the company went from 150 people down to 60 and consolidated. And so it turns out to be a good year to come in and we're actually making some good momentum. And so I've spent a bunch more time there.

And I'm going to be a lead director of a company to be announced soon that will I think be like a director job. And I'm working with another company that's just starting out. It's called Faropoint, F-A-R-O-P-O-I-N-T, who is raising some money in the U.S.

And so I've got stuff I'm doing. My time is pretty well used this year. Next year, ICSC will be over because it's a one-year stint. And if I could find something else to do, I would be happy to do it. And so I continue to look around.

Nancy Lashine:

That's great.

One of the things that I'd love to hear your thoughts about is for most of your career and my career, we've had a long-term bull market at our back. We've lived through a time of declining interest rates. It's been a fantastic time to be investing in real estate. Obviously, there were crises in between and the RTC crisis, the GFC, the tech wreck in the 2000s. But if you were able, as you said, to not have too much debt and just hold on, it's been a great time to hold on to real assets. Do you see that continuing in the near term as you look at the horizon? Or do you see anything fundamentally shifting?

Glenn Rufrano:

Well, you're right. The time we've spent...

Now, the only thing I say is that I go back further than you. So I was around in '72 and watched what happened in 1973 with the oil crisis and all the problems at the end of that year.

And I'll never forget, in 1983, actually, I looked up these numbers recently for a certain reason. Inflation was 6%, GDP was negative two, unemployment was 10%, and the 10-year treasury was 14. Those four metrics, that's a pretty bad market. We got through all that and we got to the eighties and a problem at the end. We got to the nineties and some problems in 2000.

But you're right, for a lot of the time we've been in here... For instance, when I left O'Connor and went to New Plan in 2000, you could have just taken a dart and thrown it into a board and hit any REIT. And for the next five years, you did find it.

We've been living in a pretty good period with some bumps. And I do think that real estate is still a good long-term asset for where we're going.

And the question is where we're going. And even though it's pretty rocky right now...

I would say in 2023, the only question that I have is not whether we're going to a recession. People say, "We're going to a recession." Well, that doesn't mean anything. Is it a deep recession? Is it a bad recession? Is it [inaudible 00:41:33]? Is it a long time? Is it a short time? The definition of recession is where I go to.

And I know as I speak to people, they tell me I'm absolutely wrong. I think it's shallower than people think. And if that's right, if you're not overlevered, certain real estates always have functional obsolescence, economical [inaudible 00:41:51]. So they're going to lose value.

And so whatever I say, there's certain real estate... And this has always been the case. If real estate has gone up X percent, some is low and some is high, so you want the high stuff. And so it's the generality, but I still think it's a good place to invest a portion of your capital. Well capitalized. I think we'll get through the next two years and sound real estate will be fine.

I know each sector has its own functional problems, office who's coming back. In New York, I talked to some of the folks, and if it's a new building, you could lease it at a reasonable rent. If it's a 1980s or below and you haven't fixed it up, you can't. But those buildings will be changed maybe.

So it'll be different by property type, but my sense is it's still a good place to invest some of your money.

Nancy Lashine:

And in your view, what's the safest place in real estate to put your money today?

Glenn Rufrano:

That's a hard one because of the generalization of the question. People will say I'm biased but I've been hanging out with retailers a lot lately as ICSC.

And I was two weeks ago at a session called the Open Air Conference, OAC in Salt Lake City for a week.

And that's all open air centers. Grocery anchored, non-grocery anchored, anything that's not a mall, very frankly. And there is a real open to buy and lease from retailers in this country still.

They had a very good year in '21. They didn't do anything from 2017 through '21 to any great extent.

They found out through the pandemic, in my view, that omnichannel is really important. They cannot have a successful business without bricks and mortar accompanied by an ecommerce service solution.

And for instance, I was with Kohl's a couple of weeks ago, and Kohl's would say, "I closed some stores during the pandemic and my ecommerce sales around those stores went down. I need stores. They do two things for me. They provide advertising. People ride by the Kohl's and say, 'Hey, there's the Kohls.' And second, it's very much a part of pickup and delivery." So there's been more of a recognition since the pandemic that retailers need bricks and mortar.

And so I do think a well located grocery anchored, especially center with 150 to 250,000 square feet, and that'd be a big one at 250, is a pretty good place right now, especially since multifamily and industrial went down to three and a half percent cap rates and retail never did get anywhere close to that. So the pricing risk relative to well located retail I think is in pretty good shape over the next couple of years.

Nancy Lashine:

There's certainly less capital chasing it. So-

Glenn Rufrano:

That's right.

Nancy Lashine:

... you have that as an advantage.

Glenn Rufrano:

You're going to see some more.

I do think the fundamentals are pretty reasonable. And the fundamentals of multifamily where everybody thought it was 5% a year increase in rents I think could change.

And industrial, it's just too easy to build. You just could slap those walls up and there you go.

And one thing about us, we build the bejesus out of everything all the time.

Nancy Lashine:

Everything we possibly can as long as we have capital.

Glenn Rufrano:

Everything we can.

And in retail, it has not happened as much because it's got a little expensive and tenants won't pay for that expensive stuff.

Nancy Lashine:

Right. And it's hard to build a shed for retail.

Glenn Rufrano:

Yeah. Yeah, yeah.

Nancy Lashine:

No, that's great.

Wow. Well, so much wisdom, Glenn, and so many lessons for all of us through the generations. Is there anything else you want to add or anything you want to ask me as we conclude here?

Glenn Rufrano:

Well, how's your money raising? Are investors, your investors still keen on investing real estate?

Nancy Lashine:

Oh, sure. Yeah.

Look, the good thing is that the public markets might be more efficient and faster, but the private markets have never been broader and deeper.

So the institutional capital we used to think about back in the eighties and nineties, institutional capital, it was 80% coming from the public pension funds and defined benefit plans. Today, they're certainly still quite active, but the incremental sources of capital from high net worth, family office, registered investment advisors looking for alternatives now alternatives are oftentimes in these portfolios, 50% of the portfolio between real estate, private equity, and venture. So there's so many.

And then of course, sovereigns and foreign capital. And the U.S. is still, for most institutional investors, the most attractive market on the planet, and the dollar is very strong.

So there's maybe too much capital, if anything, in terms of finding pricing equilibrium. We still feel to be very much awash in capital.

Obviously, having said that, the last three weeks with rates going up and other 75 BPS and the Fed forecasting that they're far from done is giving the transaction market a serious pause. But that's temporary.

And I do hear investors gearing themselves up for second and third quarter.

Right now, people are just looking at their portfolio, understanding the denominator effect to the extent that they may have one. Obviously, real estate and the other privates haven't written themselves down sufficiently yet to reflect the current values and higher rates.

So when all of that happens, I think we'll be in a position where things will start up pretty normally again sometime next year.

And I think from a transaction standpoint, the managers are... We still have 400 billion of dry powder in the market that's been already raised and collected. So those numbers are staggering by any measure.

So I think real estate as a private investment across, we cover probably 2000 investors of all these different types, is here to stay and they'll continue to be capital. I think...

Look, the biggest issue is that it's harder and harder for a new manager to break in because the top 10 always owned 50% of the market share, but the top 10 now are just so much more powerful.

But that does give opportunity for the inefficiencies in the market because the larger players absolutely can't play in the middle market, and they certainly can't play in the smaller niche market. So things like self storage or manufactured housing or any kind of niche play, medical office buildings, those things, people can still aggregate smaller deals, write smaller checks, and find interesting inefficient yields and do quite well even in a market like this.

Glenn Rufrano:

One of the things that you and I bring is that we've been around long enough so that we know that the kinks in the market today will get worked out. It's not forever.

You get the young people. [inaudible 00:48:24], "I can't." But you got to think beyond it. It'll happen.

And the last thing I would mention is in the public side, when NAV stay low relative to where they'd like them to be, it will always migrate to the private side.

For instance, we had a JV at three with KIS, which was the Korean Securities Fund, and with a company called Gatehouse, which is a Middle Eastern fund, where we couldn't get cost of capital in the public market that worked.

So I think this public and private... And then there's a marriage that sometimes works.

Nancy Lashine:

Yeah, absolutely. And that's become more a part of our Park Madison's core business as well, where we've been working with publicly traded companies to help them find private capital. Yeah, that's been attractive.

Glenn Rufrano:

Yeah. That's when the public guys say to the public market, "You don't want to buy it. That's fine. We'll get another source." And that gets the public guys, then they come back. So it's great to have alternative sources of capital, which I think you and I will always agree on.

Nancy Lashine:

Right. It all looks easy though, Glenn, in retrospect. At the time, everything, these are all challenges.

Glenn Rufrano:

Absolutely. Absolutely.

Nancy Lashine:

Thank you so much for doing this. It's so great to see you. Best to your family and good luck with the ICSC, and we look forward to seeing what you do next. I'm sure it'll be something we'll all want to learn about and follow.

Glenn Rufrano:

Good. Well, thank you very much for having me. I've enjoyed it, and good to see you again.

Nancy Lashine:

Great. Take care.

Glenn Rufrano:

Bye now.

Nancy Lashine:

I hope you enjoyed this episode of Real Estate Capital.

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