Mike DiRe:

We want to see where there's an alignment of interest between the strategy that they have, and what CalSTRS' goals are. And since, roughly 70% of our portfolio will always be to build a core portfolio of assets to produce cashflow for the organization, is that strategy they have also aligned with what CalSTRS' goals are? And that's where there's a really key difference between fund investing and either joint ventures or separate accounts. Because as we go into lab space, for instance, and if we're the sole partner with somebody, we want to control the buy/sell decision.

Nancy Lashine:

Hello, and thanks for tuning into 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. In this episode that we recorded in February 2021, my guest is Mike DiRe, director of real estate for the California State Teachers Retirement System or CalSTRS.

Mike is one of the most recognizable figures in the institutional real estate community. Over the past two decades at CalSTRS, he's overseen the meteoric rise of its real estate portfolio from 3.2 billion in 2000 to 52 billion today. My colleague, Amy Cummings, joined us on this podcast where we peppered Mike with lots of questions about CalSTRS' manager selection process, lessons learned, and the winding path that led him to a key leadership role at one of the largest US pension funds. Our discussion begins with Mike's start in the industry as an analyst for Deloitte, sitting in on a presentation to CalSTRS' board of directors. We have a special treat in store for this podcast today. One of my partners, Amy Cummings, will be joining us along with Mike DiRe of CalSTRS. Mike, you now have 35 years of industry experience, including 20 at CalSTRS, where you lead a team of 25 real estate professionals. So welcome to the show.

Mike DiRe:

Well, thank you. I appreciate being here. And 25 professionals and me, so it's a total staff of 26.

Nancy Lashine:

Thanks for the clarification. We appreciate that. So you had the experience of real estate consulting, and then also being at CalPERS before you joined CalSTRS. Did you ever have the experience of being a consultant and presenting to the board, as so many of us in the industry do?

Mike DiRe:

Yeah, just once I did at Deloitte & Touche, and I was really more the analyst in the background, but presenting to CalPERS, which was a client when I was at Deloitte & Touche. And then, of course, a number of times, as a staff member, both at CalPERS and at CalSTRS, but I do remember how intimidating it was. And so I did feel bad for people when they would go up there, and because the randomness of the questions that would come from the board members. And we would always try to prepare people when they would go in front of the board, because there's certain board members that had certain things that they wanted to talk about. Some might have, what are you doing with respect to landscaping? Because I remember at PERS, we had a board member that really wanted to talk about the landscaping on pretty much every project. And those were the days when every project went in front of the board. It was crazy.

I think that both the private market experience, I did work at Liquidity Fund, a small group that trade limited partnership interest, as my first job out of school. That experience and being with Deloitte & Touche, and doing all sorts of consulting jobs really, I think, prepared me well for seeing what opportunities and options were out there when I got to PERS and eventually over to STRS.

Nancy Lashine:

So you spent some time in the private sector, and then you went to CalPERS, and when did you end up at CalSTRS?

Mike DiRe:

I spent seven years at CalPERS, and then, in 2000, there was an opening at CalSTRS, and I applied for it. It was a strange situation where I had to interview in front of the board, because the CIO and the CEO had both just either retired or moved on to another position, and so they had no one to interview. So I went in front of the board and interviewed, and I remember the classic question of why should we hire you? And I remember saying, "I will make you nimble." And that was the problem with pension funds at that time. I said, "I really think that we can make you a nimble player in the marketplace." And really nothing's changed to this day. It's really such a challenge to make these large amounts of capital nimble, and it's really the challenge for my staff, on a regular basis, for the whole 20 years we've been there.

Nancy Lashine:

Wow. I will make you nimble. I think maybe that should be embroidered in a pillow on your couch in the office. That's an amazing concept. So tell us-

Mike DiRe:

I didn't tell them it would take 30 years. I said I would do it.

Nancy Lashine:

It was job security for you, right? Well let's just keep until makes us nimble. He said he would.

Mike DiRe:

Yeah, exactly, exactly.

Amy Cummings:

Give us a sense of how you have tried to position CalSTRS capital in the market. Maybe give us a little history lesson, too, of where you started, and how it's evolved.

Mike DiRe:

Sure. I think what everyone saw, if they were in the industry at that time, was how limited the opportunity set was. Whether I was over at PERS, which was, predominantly, just separate accounts and core real estate at the timeframe I was there. They also did some mortgage debt. And when I went to STRS, the fund was roughly a hundred billion dollars, and the real estate allocation was 4%. It was $4 billion. So simple math, at that time. And they wanted to do more, and they had some separate accounts, and some funds. And the basic structure, at that point in time, was any type of tactical investments we would do through opportunity funds, whatever funds were available in the marketplace.

And then, it would try to build some core real estate business, mainly, with advisors that were from the insurance side of the business. And so it was pretty much what was available at the time. And there was a good staff there, and at PERS, and it was just starting to get more people with private market experience. And we were fortunate at PERS, when I got there, there were three people that had, recently, and within the last two years, come over from the private side at [inaudible 00:06:29]. And I remember getting there and sitting down. There were four of us, and I'm doing air quotes of professionals, and how are we going to change the program and move the program? And so what we said is, "Okay, let's figure out the best way to do these investments."

And that's probably the biggest difference from CalSTRS versus the industry, at the time, is we focused by prospect, and just try to figure out what are the best relationships to build a good deal flow in these product types. So who are the best partners out there? Instead of just looking at these general accounts, how can we have more relationships specific to these specializations? And this kind of grew from there. And I tried to make sure that, let's not worry about structures, and not be limited by the structures that we invest in. And I would go out and do the legwork within the organization to make sure the structures were okay with the legal department, the accounts department, audit [inaudible 00:07:25]. That was the beginning of how we started to try to change the way we were looked at in the industry.

Nancy Lashine:

So, at the time, you had some separate accounts, and then you had some commingled funds. Did you give discretion in those early days on the separate account?

Mike DiRe:

That was one of the big changes that needed to happen to become nimble. And all deals would come in front the board. And I think about a year and a half into the job, I went to the board and just told them that we're not seeing the best opportunities out there, because you guys meet once every two months, and my staff has to tie up assets to wait for you to approve deals. And I showed them their track record that, I think there was 30 deals that come in front of the board, or transactions, and they approved all 30. And I said, "Look, you either have to start turning some down or just give us the discretion to do them, because we're taking a lot of time, and we're not seeing the best deals in the marketplace, so you have to give discretion to us, otherwise we're not going to see the same deal flow that other groups are seeing."

And that kind of pushing discretion down ... and that was happening in other parts of the organization, as well. Chris Ailman, who joined CalSTRS same year I did, about three months after me, he had the same thing. We have to have more discretion. So the discretion from the board to the CIO, to the CIO, to the directors of the various asset classes. Now, I would push down to portfolio manager, and then they would try to push it down as much as they could to [inaudible 00:08:52] venture partners, [inaudible 00:08:53] and account partners. But that took about three years to really get all that set up in play.

Nancy Lashine:

Did you have a lot of pushback from the board about that?

Mike DiRe:

No, we didn't. I mean there were a lot of questions when we first were instituting it, and then they just wanted to make sure it would make us more nimble in the marketplace, and so they were very helpful. They would have to sign off on all the structural changes, and the process changes we would have. And, of course, the legal department would, as well. We've had a lot of consistency at CalSTRS, which I think has helped us move forward. We have Cox Castle as our legal group, and we've actually had some the same ... Amy Wells has been with us that whole period of time, and John Kuhl, and so these folks ... this consistency has allowed us to make sure that we're also checking all the boxes which pension fund needs. You have to have multiple [inaudible 00:09:40], make sure you're doing things the right way. But everybody played a part in us just changing the structure of the program, and having a common sense investment process.

Nancy Lashine:

Wow, I remember those, Amy and John, from 30 years ago. They have been with you for a really long time. It's amazing. How did your relationship evolve with your managers as you were able to give them more discretion, or give the staff more discretion, in making decisions?

Mike DiRe:

Well, it would be case by case. We still have some of the same managers that were in place at that time. I think CB Richard Ellis was in place. Some of the people have changed, but the relationship is still there. Principal Investment Group is still there. And where that has changed is, as CalSTRS grew, and the portfolio got larger, we could ask for dedicated teams to work with us. So if we were giving a lot of capital, let's say, to CB Richard Ellis in the office space, industrial space, we would ask for a dedicated team that could assist us in building the portfolio. And then they would help us get more comfortable with taking more risks to get higher returns, whether we were going to be development or redevelopment strategy.

But keep in mind, back in 200, people just bought core real estate. It was not normal for a pension fund to buy a half-empty building, or to do a development. And so, having people on our staff that were more comfortable in that way, and then working with ... opening the door to our advisors, and our joint venture partners, and saying, "Hey, we would be willing to take this risk if you can protect us from what are the issues that might come up?" But it was a process, and just having people comfortable with it got us to move forward and take those additional risk-return opportunities.

Nancy Lashine:

As the portfolio has grown, obviously, you've had to figure out how to invest as a larger investor. By definition, that might preclude you from doing, say, smaller or mid-sized funds, or certain types of property. So how have you kept that balance? What do you think, as a real estate investor, it's important to think about so that you're really getting ... maximizing your ability to invest in the whole spectrum of real estate, but still, obviously, put the amount of capital to work that you need to?

Mike DiRe:

One of the themes that we have, and whenever we're talking to a potential investment partner, is really trying to keep it simple. And we have a theme, internally, of do what's right by the real estate. So if the real estate strategy is be very tactical, to move in and out of the product quickly, then a fund might be the best way to handle that. Distressed debt is a great example. The staff does not need to get involved, is not going to add a lot of value by getting involved in a distressed debt strategy. So strategies like that would be great to do through a fund investment. But strategies that where you're building a long-term core portfolio, then the staff should have more control over the wholesale analysis or the wholesale period, and also the leverage levels and things of that nature, and be able to turn on and off the spigots from various product types.

With respect to fund investments, we recognize that when a fund would come to CalSTRS, and would be of a size of, say, between a 100 and 500 million dollars, when we need to put out per relationship, although we've grown over time, we've always felt, hey, a relationship has to be 100 or 200 million. Now, we look at relationships, and say they should be 3 to 500 million dollars. Just keep in mind the portfolio is roughly 36 billion. So we don't want to go into a fund that is ... and dominate, nor does the fund manager want us to be dominant in the fund. So we have to limit the fund investing we do to, probably, what might be called moderately-sized funds now.

And then, talk to the partner and say, "Is there something that CalSTRS can do that has a better alignment of interest with what your goals are? Perhaps it might be we can provide co-investment, we can have a side account with you, or maybe we would invest in a different structure with your organization." Because we do want any relationship we have on an ongoing basis to make a meaningful impact to CalSTRS. And even though we have 25 staff members, that's still a limited amount of time we can spend with each partner. So fund investing is still important part of our program. I think it's about 25% of our holdings are through funds [inaudible 00:14:12].

Amy Cummings:

So one of the things that I wanted to talk to you about, Mike, is the culture that you've created at STRS. Because you talked about wanting to tell the board that you would be nimble, but one of the other things that you've talked to me about, over time, is to be accessible. And one of the questions I get from people who, be us laughing at conferences is, I can't get through to CalSTRS, and how do I get X, Y, Z to return my call? How do I access that? And when we talked about having you do this podcast, one of your goals was to just let people know the right process to reach out to CalSTRS. I will tell you all, by the way, it's not LinkedIn or Instagram or Facebook or anything else for Mike. He is not a social media guy. Don't be frustrated by that. But Mike, how is it [inaudible 00:15:01]-

Nancy Lashine:

But Mike, will you listen to the podcast?

Mike DiRe:

I have listened to your podcast. I will not listen to mine, I'll probably freak out. But I have listened to yours. So don't call me. That's a waste of time. Actually, it's really getting to know us. I do think that we're, generally, accessible. I don't like the idea of annually going out and saying, "Hey, these are the things we're going to invest in." And, "Hey, someone come all on these strategies and let's evaluate the strategy." It's just overwhelming. And I do encourage our staff to get out there into the marketplace. Whether it be to go to the conferences we all go to, but also go to the ULI. And if you're focused on certain product type, and there's ... if you're in the apartment business, then you got to go to where the apartment people go, and have those conversations.

And from the fun side, I think that our people are well-known in the industry, and calling them, and them just saying, "Hey, are these interesting to you?" And we do try to say, "Hey, a quick no is better than a long maybe." We do like to hear new ideas. I don't think that ... the real estate program has been the four major food groups. 95% of what we invested in the four major food groups for the first 15 years I was there. I would be willing to bet, three to five years from now, that number is down to 60 to 70%. So we do need some of the new ideas and new concepts. The pension industry is slow to follow what's happening in the REIT markets of where the capital is flowing. But we do need these new relationships, and we do like to have the conversations, and I challenge the team, that is growing, to bring something new to the table. And I would say get to know our team team.

It was fairly simple. If someone wanted to do ... when it was more simple from the standpoint of these are the four major food groups we invest in, they would go through those portfolio managers, and they would shape how they want their program to grow. But now that we're looking through a number of different things, we are going to try to be more accessible, and make sure that there's a clear path for people to know who they need to talk to at CalSTRS.

Amy Cummings:

And Mike, if someone wants to find out who's in charge of industrial or who's in charge of multifamily, is that on the website, or is there a way that they can find out who the contact person is if they have some amazing, creative, unique deal flow or access that they want to pitch?

Mike DiRe:

Wow, you want us to update our website? Wow,

Amy Cummings:

I don't need you to update your LinkedIn. I give up on you on that, but ...

Mike DiRe:

I do think that's something where we can improve, but I don't think that we have a great website that would direct people well. And I'll take that as a challenge, Amy. And, I guess, you're offering your help to make sure that I [inaudible 00:17:44].

Nancy Lashine:

Oh, of course. Can I make a suggestion? Find someone, maybe, just out of college.

Mike DiRe:

Yeah.

Nancy Lashine:

I'm trying to be nice, Amy.

Amy Cummings:

Thank you for that, Nancy. I appreciate that.

Mike DiRe:

So, I guess, we're still a little bit old school, and that sounds like a challenge that we can put something out there that's a little more directive, and we'll do that.

Amy Cummings:

But you do have programs in place, as well, though. You do have a program for emerging managers, and you have been willing to look at unique ideas over time. And so, while it's difficult to be hired as a new separate account manager for CalSTRS, because you have so many GPs that are doing a great job for you, if somebody has a unique deal or something really special, you have a GP in place that will review a unique deal, and you've made yourself, I think, quite accessible and friendly in the marketplace, which I think is just amazing.

Mike DiRe:

So we do use a group called Belay that has helped us for years to look at the emerging manager programs. And some very good ideas have bubbled up through that, and some relationships that are growing through that strategy. And we've increased the amount of capital that we've given to Belay. So the smaller managers, we do have a path to invest with smaller managers, through Belay, in an allocation we have with them on the emerging manager front. But I would say, if someone is specific to a strategy ... I jokingly say, "Don't call me," but you can reach out to me via email, and my name's out there and stuff.

I will try to tell them, "Hey, if we're not doing this ... " Like, for instance, we're not a big hotel investor. We think that's an operating business. So we don't plan doing a lot of hotels, and I will tell someone that, "Hey, that's not for us." But there are areas that we're spending more time, and looking into, and want to build relationships, and then we assign staff to look in the marketplace on that. So we do have paths for the places that we're interested in going, and reaching out, either through the portfolio managers or people they know, at CalSTRS, is a good way to do it. And if all else fails, send me an email.

Nancy Lashine:

Wow. Okay. So Amy, I'm just going to say, this is, once again, proving what an amazing salesperson you are, because you, actually, got Mike to say, on a podcast, "It's okay to email me." I can't believe you got him to say that, but boom. So let's move on.

Amy Cummings:

Wow, even more. I was going to say, Nancy, now that we're a placement agent, it always makes me laugh that people call to ask me, because I groveled to Mike for a decade or more. Finally, got one piece of business that made sense to him, and lost my job right after that. So I have not had the best luck with CalSTRS, to be honest. But since we're a placement agent, we can't market to California funds. But for a small fee, I can you with Mike's email address. And for a very large fee, I can give you his home phone number. So you guys know where to find-

Nancy Lashine:

That's a joke guys. Let's just be really clear. This is a joke. I am the compliance officer. But Amy's really good at doing favors for people. Okay, Ames, are you done?

Amy Cummings:

Okay, I have one more thing. [inaudible 00:20:46]

Mike DiRe:

This will be my last ... wait a second, Amy. This will be my last podcast, ever. It's my first, and maybe my last.

Nancy Lashine:

Okay. So you've laid out the roadmap, Mike, and I think said at the beginning, first time's a charm, which was, "Don't call me." Everyone's got that. But now that we've kind of laid that out, maybe I'll just move on to ... you started out by saying you first landed this job by telling the board that you would make them nimble. And I have to say I haven't heard a real estate officer running a portfolio of your size before say out loud, that what's been defined as core, the four food groups, will only represent 60 or 70% of the portfolio in a few years, which makes a lot of sense to all of us, today, but it's a huge statement. So the risk of having anybody call you who might be in some other categories, can you share with us what's going fill in that other 30 or 40%? Where are you going to be putting these dollars to work when retail, and, maybe, office are less important in the portfolio?

Mike DiRe:

And keep in mind the definition is heart of this. So as the definition's changed in our marketplace, some of our offshoots, like for instance lab. A lot of people are talking about doing lab work. We have categorized that as office. We're going to separate that category out. We might separate out cold storage. We're not sure how much cold storage. So things like that that we think that has a specialized nature, we're kind of following our roots. We believe that these are so specialized, even though they're categorized as part of one of the major food groups, we think that if we're going to grow our business into these areas, we want specialists in those areas, not just someone who's doing it on the side. That's where we're going to grow those programs.

And so we're interested in senior housing, we're interested in lab, storage. We would also categorize ... the things that we're looking at right now is single family for rent. And we think that those are separate categories, if they grow large enough. And we wouldn't keep them as a subcategory. Also, like storage. We've had a tough time getting capital out into storage, and that would be a separate category, as well. So if we're going to make a play into these areas, and make a difference in the portfolio, the strategy has to grow to like a billion dollars for it to make a dent. If it grows to that size, then we think that that is, appropriately, a way for us to grow.

Nancy Lashine:

So people ask us, of course, as placement agents, all the time, what does it take to be successful, to manage capital for a client like CalSTRS? And we say that you need two things. You need to be a really good operator, and you need to be a fiduciary, and understand it's not your money, it's your client's money. So as you move into these specialty areas, which, obviously, you'll be talking more to operators who are specialists in those areas, how are you thinking about the fiduciary component? Does someone have to become an RIA to manage money for CalSTRS? Will you use a third party to oversee the relationship? How are you figuring that out?

Mike DiRe:

Wow, I'm going to go ahead and try to get in trouble now. I don't see the RIA as being that valuable, to be honest. And we had a number of partners that went down the path to get the RIA. And what they've gone through, it really seems like the RIA designation for real estate is trying to find its way. So it's not a requirement for us. And I don't think it should be a requirement in our industry. We, certainly, in our legal documents, we hold people to a fiduciary standard, and I believe it is more thorough than what the RIA is asking for. So we want them to be a fiduciary, and we hold them to a high standard.

But Nancy, what I would say is we want to see where there's an alignment of interest between the strategy that they have and what CalSTRS' goals are. And since, roughly 70% of our portfolio will always be to build a core portfolio of assets to produce cashflow for the organization, is that strategy that they have also aligned with what CalSTRS' goals are? And that's where there's a really key difference between fund investing, and either joint ventures or separate accounts. Because as we go into lab space, for instance, and if we're the sole partner with somebody, we want to control the buy/sell decision. We want to control the major capital decision. Not that we're in there on every detail for it, but if we no longer want to be in the space, then we want to have the right to push for the sale of the asset.

And I think that that's where we've had very thoughtful investors come and talk with us that we both get something out it. Developer partners, for instance, that want to build some AUMs, so they have some other type of revenue. It's not just based on develop and sell, develop and sell. That's where we've had significant alignment of interest with development partners, because they want to build AUM, we want to build AUM. They certainly have to hire a number of different people in their shop, but we've grown relationships that way, and it works for both parties. They have to take the risk that, at some point, if we don't want to be in that asset class anymore or if the real estate allocation shrinks, which it never has, they have to take that risk.

And we, also, have to be open to them having other partners. I'll be honest, when we first started doing this program, we were so focused on getting deal flow, we would negotiate exclusivity. We want all your deal flow to come to us. And when we were growing rapidly, that made sense for us, and it made sense for our partners. But now it makes more sense for us to say, "Look, our growth is not going to be the rapid like it was before, and bring other partner relationships in here. Maybe we share assets with other partners going forward, maybe we have our portfolio, and we have deal flow rotation." But we're more open to other structures, and the way that we manage our relationships now than we were in the past.

Nancy Lashine:

Wow. Gosh, Mike, that makes so much sense. I have to ask you what's probably a hard question or maybe not, I don't know, but benchmarking. So you have this really thoughtful approach to building out your portfolio, and building relationships. How are you benchmarked within CalSTRS, and how are you thinking about benchmarking your partners?

Mike DiRe:

That is so tough, and I don't know that we have the right answer. We use Odyssey. So, by policy, 60 to 70% of our portfolio is core, and Odyssey is the closest we have. But by the way, 90% of our portfolio is US. Only 10% is outside the US. And we do plan on growing outside the US, but that's one of the problems. We don't have a good benchmark outside the US. We're working on that. But within the US, we use Odyssey, and then if we're taking risk, we just add a premium to Odyssey.

So for value add, I believe we add 50 to 100 basis points. And for opportunistic strategies, and we call that trying to get mid-teen returns, we add 300 basis points. And then it's a blended benchmark. So essentially, right now, we have to beat Odyssey by 70, and we have great partner relationships, the team's doing really well, and we're exceeding that pretty handily, right now. And so that's good. But is it the right benchmark? It works for us now. I don't think it's hard for us. We've been doing a lot of debt investments. That doesn't really fit well with that benchmark. We've been doing international investments. Clearly doesn't fit with the benchmark. So it's not perfect. It's what we use.

Nancy Lashine:

I'm going to ask you another hard question now. Are you concerned, in this COVID world, about appraisers not marking down the open-end funds quickly enough, especially office and retail?

Mike DiRe:

Yeah. And we have unique conversations with our partners regarding that. And for us, my memory of when COVID really hit was right around March 15th. I think I was getting ready to go to St. Patty's today party. No, that's a different story. And we called all our partners, and said, "Hit it. This thing is real and hit it. Don't drag it out over time." And we have all the assets appraised by a third party appraiser, that are in or within the joint venture or the separate account portfolios, annually, but in those other three quarters, if the [inaudible 00:28:38] control the value, and we told everybody to hit it. And it was mainly in retail, at that time, and apartments. And we hit it pretty hard. And we, eventually, caught back up. In fact, we hit it too hard. And so, versus Odyssey, we had our first loss versus Odyssey, in that March quarter, in five years.

And so, in hindsight, we hit it too hard. But I think it was the right thing to do, because I think we had a realistic view of what the portfolio was worth. And I think we're in the same position now. But I do understand the struggle. What is an office building worth if you don't see any transactions? We don't know until you put it on the market. And so, I see them struggling with it, and we don't pay the appraiser so much for them to ... we beat them down on a price per appraisal, then say, "Hey, we want you to be really thoughtful about this," and they don't have the data. So I think it's a real challenge. I do think there's a reality check that our advisors have the ability to know if values have declined, and I believe they should hit it, and be honest with the investors.

Amy Cummings:

Yeah. I'm realizing that we're coming on to an hour. What have we not talked about? We talked a little bit your team, kudos for putting together a great one, getting people like Mitch and Julie to come back. You all seem to have fun with each other, and enjoy what you do. What have we not talked about that would be helpful for people to know about STRS?

Mike DiRe:

Well, I do think we're expanding. I do appreciate that ... some of the things you're hearing in the industry now about CalSTRS is this discussion about the collaborative model, which we're a little bit of the example of, internally, to CalSTRS, because we've tried these new and innovative structures and strategies, but they're essentially common sense structures and strategies. It's just, if you have a lot of capital, you have more opportunities of ways to invest. And the board has reacted to that by allowing us to add more team members. You mentioned Julie Donogan and Mitch Pleis have joined the team, and we've given them specific assignments that will help us do more. And Mitch has been really focused on debt investments, and also looking at how we manage our own internal debt.

We are unique, and we have a line of credit for CalSTRS. I think some of the Canadian pension funds do. And we've had line of credit for about 10 years, now, with different banks. And that helps us be more flexible in the marketplace, that we loan that capital out to our development partners, so they don't have to spend a lot of time going out and getting development loans. So we, constantly, are striving to just ... what is the private market doing, and what CalSTRS do to be competitive with the private market with our capital. And as the market's moving faster and changing faster, we're trying to change with it. And so, we enjoy the conversation. We don't take ourselves that seriously. I think one common thread amongst all the staff at CalSTRS, I think, we all have spouses that put us in our place when we get home. And so I think that that's a nice [inaudible 00:31:27]. We take our job seriously, but try not to take ourselves too seriously, because these chairs can be both intimidating and difficult, sometimes, to manage from.

Nancy Lashine:

Gosh, if the last year has taught us anything, it's about not taking any of ourselves too seriously or anything for granted. I know you work crazy long hours. In fact, you've been gracious enough to do this, with us, over a weekend. So tell us, Mike, what do you do for fun?

Mike DiRe:

Recently, I had a fun COVID experience in that we had a lot of unfortunate work on our house. We had a sewer pipe break and stuff, which started a rat infestation. And my son and I have been catching rats in our garage. And then, we play ... I have a Ms Pac-Man game at home. I love Ms Pac-Man. And so, we play Ms Pac-Man for who has to take the dead rat out of the trap. So that's been fun. We're done catching rats. I think we caught all seven of them. We're done with that. But otherwise, I'm very fortunate.

We have a couple little places we can go to, some family cabins to get away, and spend some time doing that. I'm really old school. I love to play little board games. I'm super competitive. There's not a game of chance that I won't want to play. Very immature. Some kid is playing Monopoly, I tried to get my way into that game. I should be good at Monopoly. You think would be good. I live a pretty simple life, and I'm blessed, actually. I try to keep things uncomplicated, and just have fun. Try to relax-

Nancy Lashine:

It's a good thing. Well, I'm glad, Amy, you haven't jumped in. Did you know that Amy has pet rats, but we will, maybe, move on from there? So, at least, there's some place [inaudible 00:33:04] you can deposit them if you caught them alive. So Mike, what have you learned from your parents or maybe your spouse, who I've heard is the [inaudible 00:33:13], or your kids, that just help you on a day-to-day basis with this massive job that you do?

Mike DiRe:

Well, my interest in real estate really came from my dad who was a local investor, and that's all I really wanted to do. When I went to Sac State, and got a degree in finance and real estate, I just wanted to be a local investor. And what I found from the investments he made versus the investment CalSTRS make is they're not any different. It's really simple. It goes back to what I said earlier, that do what's right by the real estate. If you don't make it too complicated, you get through it. And I learned just treat people well, try to communicate well, and really try to balance your strengths off each other.

My parents had a couple of small businesses when I grew up. My mom had a balloon delivery business, and we did that for a while. And it's just communication, treat your clients well, treat your customers well, and just try to have fun. And those are the relationships that work best for CalSTRS is that ... is these honest dialogues. And we have partners that tell us how screwed up we are, all the time. And it's helpful. They do it in a nice way, but if you're open to those type of criticisms, you can improve. We're still getting there. I'm going to make CalSTRS nimble, in another five years.

Nancy Lashine:

You know, Mike, I think you've been there, and you're doing that. I can see it. Mike, how is ESG impacting you, and your portfolio? Specifically, is diversity impacting your manager choices, or is climate change impacting investment strategy?

Mike DiRe:

It has for a while, and it's even more so, lately. And I appreciate you bringing that up, because that is one of the challenges, I think, we all have in our industry is how we're going to attack this. So we, actually, have a group in CalSTRS, that was the corporate governance group, but it's now called the Sustainable Investment and Stewardship Strategies. That's a mouthful. We just call it SISS. And they used to invest only in corporate governance strategies to the public market. And they are reaching out to invest with the private markets now. And the first strategies we're doing with them, from a sustainability standpoint, is affordable housing. And it's really a nice [inaudible 00:35:22].

It's something that we like, that we believe in, it's good strong cashflow for the system, and it also allows us to build and maintain good affordable housing in the marketplace, which is a need across the country. We're not limiting it just to California, we're doing it across the country. So that's something we're doing on the investment side. We always challenge our partners to tell us what they can do for greening of the buildings, if you will. And, actually, Nancy, you had someone on one of your podcasts, it was in New York, I'm sorry, I don't remember the gentleman's name, that talked about lead, and what they're doing in New York. And I like that because-

Nancy Lashine:

Malkin, from Empire Realty Trust. [inaudible 00:36:03]

Mike DiRe:

Yes, from Empire Realty Trust. And I like that, because what he did is, essentially, say, "Forget what people are saying they need to do, think about what is the most important thing." And it spoke to me, because it was really these common sense approaches of what really makes a difference. And so, that's what we do with our partners, as well. We challenge them to what can you do that really makes a difference in managing the building. We do a lot of construction, so the development of the buildings, and making sure the buildings are sustainable, as well. So we're doing a lot in that front.

On a diversity standpoint, same thing. We just challenge our partners. We don't have any rules, you have to have this or that, but we challenge our partners, and just ask them, "What are you doing on the diversity front?" And all are striving, in some way. And if they have a good idea of what they might do in their local community to help out, of how they've built diversity on their team, then we ask them if they can share it with our other partners. So I don't think there's a standard plan to fix any of this stuff, but challenging the folks that work with us, and asking what they do well, and having them put their best foot forward, has worked for us, so far.

Nancy Lashine:

Well, Mike, you've done such a great job in helping a very large plan figure out how to let the real estate speak for itself, perform well above average, and just create a wonderful culture, and good partners. I'm just thrilled that you've been willing to share your thoughts with our audience today. I know people will benefit from it. And thank you very, very much for your generosity of spirit, generosity of time, and for hanging out with us on this Sunday morning.

Mike DiRe:

Well, I always enjoy talking to you both, and I hope we'll all be able to see each other soon.

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. So 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.