Taylor Mammen:

I think it's vital for us to identify the trends that we have conviction about, that these trends will continue and draw the lines of logic to where those trends are likely to lead us and how that likely impacts real estate, whether they're demographic, economic, technological, it's a vital exercise. I think those that engage in it rigorously and put some conviction behind it are, again likely to do better, not on a quarter-by-quarter or a yearly basis, but over the long term.

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 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, and on this show we try to bring some of those insights and conversations directly to you. Our guest today is Taylor Mammen, CEO of RCLCO Fund Advisors, recently rebranded RFA. They are a leading real estate consulting and advisory firm to institutional investors.

Taylor joined RFA shortly after the global financial crisis, and today the firm has grown to become one of the most respected consultants in the institutional real estate community. This discussion with Taylor turned out to be more of a conversation than an interview, so as a listener, you'll get to be a fly on the wall. As Taylor and I share our perspectives on real estate investment strategies, sourcing new managers and building an institutional real estate business, we discuss themes like the importance of strong leadership, what investors look at when considering a new real estate manager, the current market environment, and where investors are focusing their intention today. Our conversation begins with Taylor sharing how RCLCO began and why they value leadership.

Delighted to talk with you today, Taylor. It's hard to believe it was probably, I don't know, maybe 10 years ago when we met in your office in LA. You've done an incredible job growing out, the RCLCO Fund, Advisory business. By the way, thank you for the acronym RFA. It's so much easier to roll off the tongue, so appreciate that.

Taylor Mammen:

You're welcome. Thank you.

Nancy Lashine:

I know RFA has a real focus on leadership. Why do you focus on leadership and what is it that you particularly try to achieve in focusing on that topic?

Taylor Mammen:

Yeah, sure. Well, I would say fundamentally, even though we spend a lot of time in real estate focused on Excel modeling, pro forma analysis, gathering reports to assist in underwriting, there's a lot of skills that are utilized and analyses that are done in real estate that help us hopefully make good investment decisions. In the end, really like everything else, it's a people business. It's all about the people. It's people that are going to execute all of these tasks, people that are going to develop strategy and execute those strategies. Having the right people in place is really critical, and that, from my perspective, is really the role of leadership. It's really all about attracting, retaining, growing, mentoring, future leaders of organizations and then eventually sailing off into the sunset. That's a perspective I should say that we at RFA have really inherited from our affiliate company, the company that we grew out of, which is RCLCO, which is one of the leading management consultancies, specifically focused on real estate.

That's really where I spent most of my time with RCLCO before we formed RCLCO fund advisors and had the opportunity to both recognize the importance of leadership in achieving success as an organization, but also had the opportunity to observe lots of different leaders of organizations in real estate, identify good qualities, qualities that could be improved upon, and how those related to company's abilities to actually execute the strategies that they set out for themselves. I also have to say I also observed that within RCLCO, as well. Certainly my greatest leadership mentor is Gadi Kaufmann, now our executive chairman who has been a pioneer in training leaders, I think, throughout his career in real estate. Many look to him as an example and an exemplar in leadership, and we continue to, on the RFA side, on the investment side, observe many ways in which leadership really matters in terms of generating long-term investment success.

Nancy Lashine:

Well, that makes a lot of sense. I would certainly agree leadership is key to culture, and culture is so important to firms. One of the things I've often thought is that good leadership is... Well, it's a function of organization size. When I think about a great leader for a large organization, someone like Jamie Dimon at JP Morgan comes to mind, but in the real estate private equity business, so often the early successes, the early firms really were born out of folks who were great real estate investors, but they really didn't have to build a business around them. It was hard to learn leadership and management skills, I think, if you were born and raised just in the real estate private equity business just in the last 20 years that some of the firms have had great leadership, have had meteoric growth, have obviously gone public are sustainable and long-term. But if you look at the firms that started in the eighties and the nineties, most of them either have merged into larger firms or they haven't survived in terms of a deep bench in the next generation.

Taylor Mammen:

Right. I would imagine that is one of the first things that you look into when evaluating potential companies to assist on the capital side. How do you do that or when in the process do you start looking at leadership when it comes to evaluating your priorities as a company?

Nancy Lashine:

Oh, from the first phone call or the first meeting, because as you said, it's really a people business. We look obviously to the track record of the firm and the strategy. Those are really important, but if there's not a deep bench and a team, then it's not viewed to be sustainable. If we're raising a fund, that's critical. If we're looking to just do a specified portfolio or recapitalization of a portfolio, or a joint venture, which might be just a single transaction, which is pretty rare for us, but sometimes, then maybe it's our third phone call. But one of the things I was thinking about when you raised the issue was whether there are really significant differences between female leadership and male, and that's probably a topic to explore in depth at a different time.

But for me, I grew up as a dancer and so I was thinking who were the natural leaders in my life and they were teachers, but when you have a teacher, they're not building a business, they're just teaching you individual skills. I think so many, many people have to pick and choose and learn about building teams in different ways. The traditional ideas about leadership and teamwork, I think, are very male driven. I'm seeing female run firms. Leadership is very different in female run firms is what I'm trying to say.

Taylor Mammen:

Yeah. Without a doubt, the real estate industry is coming to, let's just say focus on issues of organizational behavior and excellence, issues related to leadership, issues related to management fairly late, later than a lot of other industries.

Nancy Lashine:

Absolutely.

Taylor Mammen:

We're also coming to the recognition that diversity of perspective in all of these different areas is beneficial to us. I don't know that we're coming to that realization late. I think we're benefiting from the results of it fairly late given the homogeneity of our industry. I couldn't agree with you more, Nancy. I think that not just women, but a broader range of backgrounds, perspectives and leadership would be beneficial to the real estate industry. We'd have a lot more to learn from, and I hate to generalize, but we have to a degree, that women leaders of organizations are different from male leaders of organizations and that those differences are certainly productive.

My first two bosses in life, going back to when I was in high school and then through college and then my first job after college as well, were women, women leaders, entrepreneurs, owners of organizations. I feel like I benefit enormously from learning at their feet about leadership and for women, I should at least say for these women who I worked for, they were much more focused on consensus building and developing broad support for initiatives and then going after them fiercely than male leaders that I've worked for and observed from time to time, who are really much more about command and control. That's how we get some of the stereotypes about leadership that we have. That consensus building, that process of developing perspectives rigorously and then ensuring that there's sufficient support both internally as well as in support of the argument and so on, is incredibly beneficial, I'll say, to long-term investors like the pension funds, sovereign wealth funds and others that we work for. They want to be with organizations that are going to succeed and be around for the long-term rather than those that are just simply pursuing deals.

Nancy Lashine:

I agree. Great leaders really drive their business hard. They show up every day, they play to win, but they're also, as you say, they're really good at reading people and managing them regardless of their leadership style. But in the investment management business, they have to be comfortable building a bench and thinking about succession and without that it's really hard to invest in the platforms because as you say, your clients are all very long-term driven, probably longer-term driven than even the firms are, or historically have been. When you started in the investment management business or when you started building it for RCLCO, what was your thought process behind that? I think of RCLCO as really a preeminent firm in advising operators and developers in the public sector, but the institutional part of the business really started 10 or 12 years ago, and what was your thought process in building out that business?

Taylor Mammen:

Yeah, sure, and I'll try to be brief because it is a bit of a long story, but essentially in 2010, our firm was engaged in five-year strategy planning, which we continue to do every five years or so develop a business plan and forecast and strategy for the next five years. 2010, we were coming out of the great financial crisis and recognizing that our historical reliance as a company on operators had led to a tremendous amount of cyclicality along with the broader real estate market and development cycle and so on, and we wanted, or at least stated in that strategy that we wanted to be closer to the ultimate source of capital for real estate, recognizing that even though real estate is cyclical will continue to be cyclical, the needs of capital may not be as cyclical as the needs of developers, for example. We stated that and really had not much of an idea about how to approach that capital.

It was a different side of the industry. It was a different school to swim in, I think especially in 2010, coming out of the great financial crisis. Then as oftentimes happens with great opportunities, there was a bit of good fortune involved here too, where in 2011 after having stated that we want to do this in 2010, in 2011, we got a couple of phone calls and both of the phone calls were from the heads of real estate of prominent state pension funds, and both of them happened to be former clients of RCLCO when they worked on the operator side of the business. Both of them were therefore able to waive all the minimum qualifications and other limitations that the institutional investment world creates to allow new entrants to participate in it, to a large degree. We started working assisting both of those new clients with developing investment strategies that looked different from those that they entered the great financial crisis with.

We were very fortunate that one of those clients, after we had developed a strategy on their behalf that they approved of it then asked us to help them implement that strategy by starting to identify managers, identify further ways in which they could build out their organization, and I like to say not knowing what we didn't know at the time, we said, "Yes, we'd love to help you with this," and then got a crash course in institutional investing, hired some people that were enormously helpful in terms of building out the business, understanding the institutional side of real estate and so on, and we're really often running from that point on, so we're very grateful for those initial clients that opened the door for us to a section of the real estate industry that can be hard to break into.

We feel like we benefited enormously and continue to do so by coming at it from a different perspective. I still feel like a newcomer to the space and I hope we always do, to a degree because that means that we have a learning mindset. But Nancy, I should turn that back to you, really quickly as well and recognize that you also took a risk by founding your own business and would love to understand the thought process there.

Nancy Lashine:

Well, it's not as strategic and grand as your thought process. It was really born out of necessity, but I'm sure many folks feel that way. I started out in the real estate finance business in the 1980s and we didn't have mobile phones, we didn't have email, and you had to be in the office all the time, and obviously I was also working for a startup, but by the time we got going, we had 80 clients, we were global. I was traveling all over the world, and meanwhile I had gotten married and had three young children. It just was a really tough lifestyle, and so I was trying to figure out a way to continue a career and also be present as a working mom, at least some of the time. That's how I started working for myself because it just allowed me to have more control over my time.

I think today, fortunately people have a lot more freedom and don't necessarily have to do that, but I always wanted to be a partner in a financial firm, so I spent a couple of years looking at some different models and talking to a lot of folks in partnership and then ultimately went into partnership in 2006 to start Park Madison Partners, which was named after my father's coffee shop, which was Park Madison Coffee Shop on 40th Street between Park and Madison, so it was a family business. The menu from 1972 still sits in our waiting area in the front of the office and you can see you could have bought Sanka for 40 cents.

Taylor Mammen:

Hopefully your visitors aren't too disappointed when they realize that they're not there to buy Sanka, but rather something else.

Nancy Lashine:

I think we have pretty darn good coffee and it's free, but that was really the genesis and it's been an incredible evolution. We're in PMP 3.0 right now, the third iteration in terms of ownership and leadership, but we are today a hundred percent owned by our partners of the firm. Over half of our staff are partners of the business and we hope that continues to grow, and we have grown our business from just being a closed end fund placement firm, which is where we started to raising obviously open end funds and then to doing recapitalizations, LP and GP led recaps. Then more recently we started in the joint venture business like the venture that we did with you and your client with AIMCO and the state of Alaska.

We've grown our lines of business and we really did that in response to as our capabilities grew and our team grew, we were just trying to find more outlets for a lot of the relationships that we had and more ways to serve our clients and the investor community. Closed-end funds were really pretty much the only way to go a couple of decades ago, but obviously the industry has evolved a lot in terms of product mix.

Taylor Mammen:

Well, that's very interesting and maybe a good place to pivot toward investment strategies in our conversation, as I would imagine, listeners may be interested in your perspective on how the industry may continue to evolve going forward based upon what you've seen over the past 10 years, maybe early hints of what you might be seeing emerge in the near term.

Nancy Lashine:

Yeah, well, sometimes I feel like I miss the days of just needing four closed end funds, one from each food group, office, retail, industrial, and multi. We are very far away from that today. The industry is much more mature and we were talking about this before, it's easier today to pick managers than strategies, and what we try to do as a business is we cover about 2000 institutional investors of all sizes and types, and we look at the types of investments that they might want. Then we have this ongoing pipeline of opportunities in the same way that you do, and we just funnel them into opportunities that we think may be interesting. We only take on maybe 10 mandates in any given year, so everything that we take on, we get done and we go very deep and we only take things on an exclusive basis.

That's worked well for us. In terms of strategies, we moved from the last three years where we did a ton of industrial for all the obvious reasons, we raised an open-end industrial fund. We did three different closed-end funds of different niche strategies, last mile, industrial outdoor storage most recently. We're RV storage now, and we have moved more and more to JVs and recaps for many of the opportunities that are coming our way because I think finding a niche for a new closed-end fund is just harder and harder. We can still do it three to five times a year, but it's very challenging because so many managers have such great performance that re-ups are the biggest competition.

I think that I wonder, and I'm curious what your view about this is. If you think about the GFC 2009, that many, many investors took their long roster of managers and said, "Okay, we want to weed it down now," and it was a great weeding time and the bottom quartile or third were often edited from their list. Do you think what we're going through right now, the recalibration in the markets and in pricing might also be another weeding time, if you will, for managers?

Taylor Mammen:

Certainly, and particularly for those investors that maybe haven't gotten around to it for a while, you certainly do see that during periods of the expansion of the market, an investor tends to accumulate strategies. Things are going pretty well, the go-forward returns of portfolios and assets and funds continue to look pretty good, but as Warren Buffett says, "When the tide goes out, you find out who isn't wearing any shorts." We're going to find that out if we're not already within certain portfolios. What valuations have potentially been propped up by unreasonable assumptions, what managers have been relying excessively on cap rate compression and not sufficiently on operations, and there will be a general weeding out of managers and strategies going forward. It's a necessary part, I think, of long-term portfolio management and going to be good over the long-term.

Nancy Lashine:

What do you think about the rise in rates and how it might impact some of the bigger niche strategies like SFR or build to rent and those spaces?

Taylor Mammen:

The rise in interest rates, in particular?

Nancy Lashine:

Yeah.

Taylor Mammen:

Yeah. I think that no asset class, and I'm speaking beyond real estate, is going to avoid the impact of higher cost of capital, and it is fairly clear that the Fed is using its limited and fairly blunt tools to control inflation by essentially bringing down the value of everything, to a large degree. Everybody in the world, well, maybe not everybody, but the vast majority of people and investors in the world are less wealthy today than they were six months ago. That's just simply what the Fed in concert with other central banks have done at this point in time and have stated that they'll continue to do so, which is why the markets are continuing to look for an appropriate valuation for that environment at this point in time. Private markets lag, so private real estate lags, and it's trying to find that now in its own space, but alongside the public markets as well.

What is going to allow real estate property types or geographies to outperform is demand that exceeds supply. It really comes back down to the basics at this point. We want to see property types that experience strong long-term demand and where there's some type of supply constraint that allows operators to generate rents. In concert with that, we want to see operators that clearly understand their businesses enough to be able to deliver to the market the products and services that the market will pay for, essentially. Going back to your original question, Nancy, that's why I think the niche property types could be quite interesting.

A lot of them are fairly recognized as heavily operational businesses with some good operators, there should be opportunities in spaces like SFR. BTR, which is build to rent, single family, even senior housing and so on to benefit from a supply demand imbalance and some operational expertise in order to continue to drive income returns even if we don't have tailwinds of cap rate compression behind us over the next few years, and I don't really think we will at this point in time. It really all focuses on the operations.

Nancy Lashine:

Yeah, we agree with you completely in terms of the niche property types. One of the things that we wrestle with is as we started out talking about this is such a business of people and because the industry is more mature to some extent, investors are forcing their portfolio into a collection of managers who just do one thing because there's a view that if you just do one thing, you'll do it better than someone who does lots of stuff, except maybe the very large mega funds. I don't think that's always true. We sometimes see what we would call a middle market player who can focus, oftentimes they may be geographically focused, but they have the ability to do multifamily, and industrial, and other sectors that maybe they have operating arrangements with affordable housing, for example, or RV storage or whatever it might be. But they can do multiple things well, and part of their strength is their ability to pivot from one thing to another.

We've seen that that middle market has really struggled as this industry has matured and the big mega funds take over the whole diversified bucket and then more sophisticated investors fill in around with smaller niche managers. That's the playbook for many consultants and many investors today, and I think you may miss some gems in there. I don't know if you have a thought about that.

Taylor Mammen:

Yeah, and I worry about that a bit, because you're absolutely right that the middle market allocator or those groups that invest across strategies have definitely been under emphasized in our work over the past several years. Part of that is because many of those groups are investing primarily through funds and our investors, which tend to be much larger institutional investors, are ask skewing funds at this point as overly costly, don't have sufficient control and so on. Though we have invested through some groups that are multi-property type specialists, but have a particular point of view and expertise in investing that has enabled them to be fairly effective, and I think very importantly they've been able to articulate what that point of view perspective and strategy is. We certainly have moved beyond the time when you could describe real estate as an inefficient asset class. It is less efficient than public markets, of course, but information is much more available today than it was 10 years ago, let alone 20 years ago.

There is far more capital than there was historically. I like to say at this point cash is no longer king, pipeline is king for investors. There's plenty of capital, maybe not right this moment on September 27th, 2022, but it will be again. A group that hasn't been able to articulate its particular strategy, capabilities, even special sauce and how that relates to their ability to generate value, I think is going to struggle to raise capital, period, end of story. They can't just say, "We've been smart in the past. We'll be smart in the future." Nobody's necessarily going to believe that. They have to have a clear thesis and strategy that's going to convince an investor that they're likely to outperform, and that takes some work to put into place.

Nancy Lashine:

Yeah, it's interesting when you think about outperformance, it's a little bit hard to measure outperformance in the separate account space because who had the investment decision process? You certainly can measure it in the fund space.

Taylor Mammen:

Well, I think it's tricky to measure performance in real estate period because there's never good enough data to really find a true apples to apples comparison or an index that really makes sense and so on and so forth. We always find ourselves triangulating using different data points to suggest outperformance, and oftentimes really just relying upon an absolute benchmark, this is what they said they would necessarily earn for the strategy and this is what they did, is that better or worse? It's definitely more of an art than a science to measure outperformance.

Nancy Lashine:

As we get more sophisticated in the world in terms of technology, we've spent a lot of time thinking about this over quite a while. It's crazy that you can't have more transparency in performance. Look at what happened to the stock market, Essentially active management, I won't say it's dead, but it's much, much less of a factor in investment portfolios today than it was even 20 years ago. A lot of that is viewed to be because of the transparency of data and the ability to do high speed trading and all, and the fact that that really has not yet translated in any meaningful way to the real estate business is pretty interesting and is head scratching. I heard a very interesting presentation the other day at a real estate technology conference from a company that's the market leader in ESG, in the measurement of building emissions and building systems, and they've just found ways to track it and the data's the data. We really don't have that yet in terms of real estate or any alternative private performance data that is broadly accepted.

Taylor Mammen:

No, certainly not. It's an area that both we at RFA and within our sister firm RCLCO have spent a lot of time looking at and evaluating, and I think that it's going to be elusive, that level of data that allows us to do really robust analysis and even the playing field between all of the participants is going to be elusive for a long time, not just because people don't want to share it within real estate, which I think will be a factor for a while, but also because every building is fundamentally unique. Even if you're looking at office buildings that all have pretty similar space inside of the buildings, they're all in a fundamentally different place on the earth and they have different shapes and sizes, and those differences oftentimes are pretty meaningful and hard to necessarily quantify in a database that allows you to really measure differences in causality, essentially, because this building is located here, it's able to generate higher rents and that's something we should be able to track and manage.

I think data's going to be really tough, but I do see that the most strategic investors, operators, managers in real estate are spending a lot of time thinking about data and how they can leverage it and how that can give them an advantage. I don't know that anybody really knows exactly what the results will be. I'm wondering what you are seeing Nancy, and you're certainly, I'm sure looking at this when evaluating potential clients for yourselves as well.

Nancy Lashine:

Yeah, we spend a lot of time on this space as well. I would say broadly behind closed doors if people are really going to be honest with you and each other, for the most part, they haven't figured out how to use data to truly and reliably make the investment process better. Obviously, it's easy to use it to make the reporting process better, and we're seeing that, everybody's gone that direction. In theory, you have fewer mistakes. You're not putting things onto Excel spreadsheets, you're getting the data out faster, the reporting data, but we've seen data-driven hedge funds trying to build real estate strategies using their special proprietary data.

We've seen all of the biggest firms who have the largest portfolios do all kinds of AI gymnastics with their portfolio, literally down to the point of say, looking at investment memos, looking at words to see if there was any correlation between what was in those investment memos and the ultimate performance of deals. People are trying to figure it out, and right now it's not zero, but it's not that meaningful. I'd say that in the spaces where you've got lots of assets that are relatively small and especially in a single-family rental. Yeah, that's a perfect example because there's so much data around it. There, you can certainly aggregate data to figure out markets, locations, rents, and it may be helpful for somebody trying to build a strategy, but it's not the end-all and be-all.

Taylor Mammen:

Yeah, absolutely. One thing I wanted to make sure we talked about, you said when we were talking last week, and I loved it, "It's easier to pick managers than strategies." Maybe we can veer that way in talking about strategies.

Nancy Lashine:

Well, yeah. We so often meet management teams who we think are fantastic. We really like the team. We think they built a good bench. We think they're just good at what they do, but when we look at the institutional investor landscape, it's pretty mature and we don't necessarily see that the market's going to see it the way we see it. We have two jobs ultimately when we pick managers. We're investing our time, sometimes our dollars as well, but for us it's obviously it's an investment decision, which is one of the super fun things about our job, but we also have to be able to sell it, and it's very hard today with where the market is and what investor portfolios look like to figure out what is truly going to resonate and where there's sufficient capital in the market to buy something. There's a lot of good managers who have good retail strategies, that's hard to sell.

There are some really good hotel managers out there, also hard to sell, which is one of the reasons why sometimes if we really like a manager, we try to see if they have an existing portfolio that's specified that we can create and underwrite so that at least institutional investors who want specified portfolios can start to build a relationship with them and then we're confident that that will grow into some additional capital.

Taylor Mammen:

Right. That is really one of the fundamental challenges I would say in institutional real estate for managers and those that advise managers is knowing how to balance pursuing what investors want versus pursuing what investors should want, which are not always the same thing, necessarily. Can you identify any of those right now, Nancy, that come to mind? Things that probably are the strategies or property types that are going to outperform yet you get crickets when you bring it up to a potential investor.

Nancy Lashine:

Well, I don't know, Taylor, maybe you're smarter. I'm sure you're smarter than I am, but I've been investing for probably four decades and sometimes I'm right and sometimes I'm wrong. Even when I think I know what someone should want, I always have a little level of humility in there.

But what are the things that we love today, diversified middle market managers who can pivot. Personally, I think that's a great space to be in. As we talked about already super hard to sell. We've been very focused on say industrial outdoor storage and actually investors do like that space, but there are some retail strategies I really like and it's just really hard to get anyone to even answer the phone on that. They just don't want to bring it to their investment committee, and I appreciate that. There's a question of political capital versus outperformance and how much outperformance do you need to spend that political capital and even given the diversification in the portfolio, even if you do have a crazy great outperformance, how much is that going to move the needle in your portfolio? We understand the challenge from an institutional investor's perspective of finding a balanced portfolio. They want to find the great managers, but they also just need to get on with their job and everybody is understaffed and overworked.

Taylor Mammen:

Yeah, that is how crises are born over the long term, though, is based on everybody putting their heads down and not necessarily looking at the horizon. Somebody should do that academic study at some point, Nancy, how many dollars have been lost over the years because somebody didn't want to bring it to their IC for political or preference reasons or whatever. I think we're constantly trying to identify exactly those strategies. Not that we necessarily want to be contrarian. I don't think we would call ourselves contrarian investors, but we recognize that strategies that demonstrate solid future market fundamentals that are potentially underappreciated by investors are those that are most likely to perform well probably outperform everything else over the near term.

I'd say when we first started looking at the investment landscape this way, 10 plus years ago, 12 years ago, and we actually have a chart that charts those things out, which we update at least on an annual basis. On one axis, we show projected market fundamentals and on the other axis we show investor interest, essentially. We see far more, let's just call it rationality in terms of how investors look at these things at this point than we did in the past. Those segments that demonstrate strong market fundamentals are more of interest to investors at this point in time.

Nancy Lashine:

Do you want to name any particular strategies for us?

Taylor Mammen:

It's becoming increasingly difficult to identify where there are true mismatches, but I think one of the more interesting is new office. People know generally, so it's not a secret that newer higher quality office today is meaningfully outperforming older office, and that is priced into a certain degree into the newer office, but not to the same degree in which future performance is priced into industrial say, or multi-family, even today. We actually believe there's going to be a meaningful or continue to be a meaningful flight to quality for office users with the vast majority of office space in the United States being functionally obsolete.

I don't think that's overstating it. Within the NPI, 60% of market value is in buildings that were built more than 30 years ago. How many products do you still use that were built 30 years ago at this point in time and haven't been upgraded in a meaningful way? I think that creates potentially tremendous opportunities both for the office space that's standing and in good position to attract lots of tenancy as well as to convert a lot of that office space to other things. That's going to be a slow-moving strategy, though.

Nancy Lashine:

Yeah, because office is such a big sector of the market, it may be the most important factor in determining looking at manager selection going forward. Those who get office have the best chance of outperforming.

Taylor Mammen:

Yeah, without a doubt, just due to its relative size to everything else. We can spend a lot of time on a number of these niche sectors, but like you said, they don't necessarily move the needle. I would say that the part of my job that I enjoy the most is thinking through these long-term investment strategies on behalf of our clients. For our clients, a single deal, even a single JV or SMA isn't necessarily going to move the needle further overall performance, it might during a quarter or a year, but these investors are investing for the long term, have to maintain consistent returns over decades.

That exercise, to really think through how they're going to do that, modify it based upon new information that you receive, how the economy's changing and so on, is super interesting. I would agree with you 100% doing that is a lot harder than finding a manager that can ultimately execute a particular strategy, even as hard as finding the right manager is, right?

Nancy Lashine:

Right, right. No, it's true. You never know until you've been with them for a while.

Taylor Mammen:

Yeah, exactly.

Nancy Lashine:

One of the games I play myself to amuse myself as I walk around New York City where I live, because I've lived here all my life I was born in Manhattan, is just looking at the streetscape and just looking at how it's changed and trying to remember back when and what I thought about then and how it is now, and could I have anticipated that it would look like this. We know today walking up in Manhattan, say Third Avenue or Sixth Avenue, where you just have these big cavernous out-of-date buildings. We were playing this game the other day, what is New York City Midtown going to look like in 30 years?

Taylor Mammen:

Right. Well, I love that exercise as well. Super interesting. We're going to be wrong, no matter what. No matter how smarter we are, how much data we have, the world is way too complex to be able to allow us to predict how a streetscape is going to change over 30 years. But I think it's vital for us to identify the trends that we have conviction about, that these trends will continue and draw the lines of logic to where those trends are likely to lead us and how that likely impacts real estate, whether they're demographic, economic, technological, it's a vital exercise. I think those that engage in it rigorously and put some conviction behind it are again, likely to do better, not on a quarter by quarter or a yearly basis, but over the long term.

Nancy Lashine:

One thing we know for sure is that the world is short of housing, or certainly the US is short of housing. How we solve for that will be very interesting. We also know that we've just had this interesting infrastructure bill that will sprinkle money all over the place and how will that change the landscape? I know people are starting to really dig in and think about that and look for investment opportunities around that.

Taylor Mammen:

Yeah, great examples of trends, events you can look at and say, "That's going to have an impact somehow." I don't know exactly how, but I'd like to be in front of it.

Nancy Lashine:

Taylor, just to conclude, if I could ask you if you knew then what you know now, how would you have operated your business differently when you got started?

Taylor Mammen:

Yeah, sure. If you don't mind, Nancy, I'll answer if you answer this answer as well. I think that's only fair. Well, it's something that I've already mentioned. I think if I knew then what I know today about how important people are to the execution of a business, I think I would've spent many more years as a student, as a young professional, developing my management skills, specifically. Really exercising them like you exercise anything else, identifying mentors. I did some of this, certainly, but it wasn't enough and it could have been a lot more alongside all of the effort that I put into learning how to financially model, learning about real estate, underwriting, market analysis, all of the nuts and bolts that go into our jobs.

The reality is that in the person's career, you maybe spend five to 10 years doing all of that stuff and then you spend the rest of your career dealing with people, whether they're people you manage or people you develop business from, or people that you work for on the client side. I don't think you can really put enough effort into becoming a great leader and manager and getting the feedback that you need as you practice that. What do you say, Nancy?

Nancy Lashine:

Well, you stole my thunder in that respect because I would say that the number one thing that I have learned and I would've loved to have been better at is how to hire people, manage people, and select partners.

Taylor Mammen:

Yeah.

Nancy Lashine:

I've long thought that my mother taught me this, that half of success is just showing up. With all the many mistakes I've made, I've just kept putting one foot in front of the other. But I guess the other thing I could add to something different is opportunity cost is real, and the older you get, the less time you see in front of you, the more time behind you. I would just say, I would advise people to just be highly selective about where and how you spend your time, because at the end of the day, that's all we've got.

Taylor Mammen:

That's great advice. It's possible, and I say this upon reflecting on my previous answer, that there is no way to learn these things except by going through it over a long period of time, that some things you just certainly can't have a shortcut for.

Nancy Lashine:

Well, I'm so glad that we've had the opportunity to connect then and now, and I look forward to more conversations going forward. Wish you lots and lots of success and luck with RFA.

Taylor Mammen:

Absolutely, Nancy. It's always a pleasure to work with you and your colleagues at Park Madison. Looking forward to doing so for many years.

Nancy Lashine:

Thanks.

Taylor Mammen:

Thank you.

Nancy Lashine:

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media. If you're enjoying the show, please remember to follow it on your favorite podcasting app so you never miss an episode. We'd also love for you to share it with others or give us a review on Apple Podcasts so others can find us. Thanks again for tuning in. For more information about our firm, please visit our website at parkmadisonpartners.com.